Capital flow, the minutia of macroeconomics that gives the science its appeal, is the key to economic growth. Communities compete with incentives including reduced taxes and discounted land with high capacity infrastructure to attract new capital flow for job creation. The trade off is that the tax base generated by the new industry will offset the initial cost of infrastructure and reduced tax revenues. This mode of operation extends to the state level as well, albeit on a larger scale.

However, state governments often appear bi-polar, with an Economic Development Division promoting the state as an excellent environment for investment while the Department of Revenue—at the behest of the state legislature—seeks to maximize the revenue from businesses. Michigan is a perfect case study, with its “Michigan Golf” radio promotions touting the state as a vacation destination while the business media reports on its one-state recession and the economic mismanagement of Democrat Gov. Jennifer Granholm. The taxation and regulation regimen proposed by Granholm and codified by the Michigan Legislature has spurred the flow of economic and intellectual capital away from Michigan over the last eight years, yielding increased unemployment, increased demand for public assistance and increased budget deficits.

For the better part of two decades business schools have drilled students in the portability of capital in information-driven economies. There are only two impediments to capital flow: lack of natural resources and the possibility of asset confiscation by local authorities. By their rhetoric, we know that Granholm of Michigan and Gov. David Paterson of New York have no qualms about wealth redistribution, but they don’t have the tools (or the guts) necessary to take it to the extreme of, say, Hugo Chavez in Venezuela. Instead, they will beseech Congress to increase its benevolence upon their respective states by increasing taxes on the whole of the country. Their political calculus is simple: Increase the regulatory and tax burden across the entire country, and then their respective states won’t look so bad.