In the field of the economics of development, one of the most fundamental questions is about the so-called resource curse . Basically, the idea is that countries with high endowments of natural resources tend to have worse governance and lower rates of economic growth (this thesis is not uncontroversial empirically, I should point out). The list of reasons why this might be true is long, but one of the primary problems with natural resources is countries endowed with them are spared the hard work of developing a prosperous market economy and can simply fund their activities with the sale of oil or diamonds.

We tend to think of this as a phenomenon that afflicts developing countries, but there's no reason that it couldn't apply to the United States just as well. To wit, Massachusetts lawmakers are now proposing a tax on college endowments:

Massachusetts lawmakers desperate for additional revenue are eyeing the endowments of deep-pocketed private colleges to bolster the state's coffers by more than $1 billion a year, asserting that the schools' rising fortunes undercut their nonprofit status.
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Legislators have asked state finance officials to study a plan that would impose a 2.5 percent annual assessment on colleges with endowments over $1 billion, an amount now exceeded by nine Massachusetts institutions.

Now, I should start by pointing out that Massachusetts is one of the richest states in the United States, a fact much beloved of left-leaning economics commentators trumpeting the superiority of their system. The fact that they are in this kind of fiscal crisis is a disgrace.

But if you're a Massachusetts lawmaker, this is perfect. Universities have huge fixed and relatively unmovable assets (buildings, stadia, etc.). Greg Mankiw (jokingly?) suggests that Harvard move to sunnier fiscal climes:

1. Instead of expanding the university into Alston, Harvard could create a second campus in another state. Call it Harvard South. (Put it in a better climate than Boston, and I would be one of the first faculty to volunteer for the move.)

2. Transfer much of the endowment to Harvard South. Support Harvard North by slowly selling off land in Massachusetts.

3. Eventually, make Harvard South the main campus, and Harvard North the satellite. If Massachusetts state lawmakers remain hostile, close Harvard North down entirely.

Now, this isn't terribly likely to happen, though frankly I'd love to see it. When resources are fixed geographically, it's very difficult for governments to commit not to plunder. (Maybe Patri should try to get Harvard to move to a seastead.)

You see this elsewhere in America. New York can get away with crummy government service for decades because the financial industry is stuck there (one of the dark sides of economies of aggregation). I had high hopes a few years ago that the internet would help to break this trend, but I turned out to be mostly wrong, at least so far.

But nevertheless, even with fixed endowments, there's only so far the government can go. Felix Salmon claims that "Right-wingers always say that if you tax people or institutions with money they won't pay more tax, they'll just move; they're rarely proved right."

Well, maybe. I haven't seen any academic economic work on internal migration in the United States, but something sure as hell is driving people away from high tax states. Housing is probably the major driving force, but at least anecdotally, taxes are a contributing factor :

The San Francisco Business Times noted recently that Bay Area millionaires are starting to take their gold out of the Golden State. The paper writes: "The Bay Area's wealth boom is producing an explosion of millionaires--in Nevada, Wyoming and perhaps Canada. Advisers to the well-heeled say 'wealth migration'--taking the money and running--is behind a surprising drop in the number of Bay Area millionaires."

The annual loss of millionaires from the Bay Area--home to Silicon Valley--knocks this extremely rich and fertile place down near the bottom of the new millionaire list, putting it in the company of Detroit, Pittsburgh and Cleveland. Of course, the middle class has been fleeing California for years. High house prices have been the main culprit. Long commutes and deteriorating public services play a part. But the flight of millionaires is very 21st century. The cause? You guessed it. Taxes.

Continues the San Francisco Business Times: "'I'm hearing from more California baby boomers, I need to get out,' said Diane Kennedy, a Phoenix accountant and financial adviser to the wealthy. 'You can still make a lot of money in California. The problem is, then you have to pay taxes on that money,' said Kennedy, who recently helped a California client with annual income of about $1 million save $96,000 annually by making his home in Jackson Hole, Wyo. his primary residence.

Felix Salmon may think "people respond to incentives" is a right wing concept, but I don't. And even Harvard may find that when pushed far enough, it might have to go slumming down in Charlotte or Houston, like the rest of America has been doing at a high rate for years now.