Missing the points on Amazon

Missing the points on Amazon

A rather lengthy Seattle Times article on how Pittsburgh is dealing with the Amazon headquarters sweepstakes – “Amid bidding war for Amazon HQ2, Pittsburgh debates trade-offs,” goes the headline – comes up woefully short on what should be the central part of this debate.

That would be the prudence of giving massive public subsidies to a massively profitable, giant corporation.

The story goes on, ad nauseam, about how locating the Internet retailing giant’s second headquarters in Pittsburgh might affect the overall fabric of the community — including fears that lower-income families might be priced out of their communities and that such high-tech jobs would pass by the less-educated.

And while those indeed are important matters, the story gives a single sentence to what should be the baseline of this debate:

“Economists and urban planners, meanwhile, have urged cities to forgo a bidding war to secure Amazon’s HQ2, arguing that money spent on tax breaks and other incentives makes for bad public policy.”

That’s it? Good grief.

Not only are public subsidies for moneyed corporate titans a bad idea, The Wall Street Journal cautions they could have a ripple effect:

“Already, some companies with a presence in the finalist cities are calling for similar tax breaks from elected officials,” The Journal reports. “It is a pitfall that often accompanies large tax incentive packages used to lure employers to a state.”

The better idea, of course, is to have taxes as low as possible and the least onerous regulations possible to begin with – for all.

That said, there are a few other tarnished golden nuggets in The Seattle Times story worth noting.

In reporting that Pittsburgh and Allegheny County have not released details of the region’s bid, and how they are fighting an Office of Open Records order to do so, it quotes county Chief Executive Rich Fitzgerald (from a GeekWire story):

“You can’t have 1.3 million people negotiating a deal,” he said.

But nobody’s demanding such a thing. The public, however, has every right to know what’s clearly public information. Those 1.3 million people should not expect to be kept in the dark when those leaders are pledging their tax dollars in what very well could be the largest corporate wealthfare giveaway in Pittsburgh history.

Public officials keep insisting that taxpayers will see the offer, eventually. After they’ve cut the deal, that is. Talk about unbridled government-knows-best arrogance.

Another part of The Seattle Times story shows just how unschooled public officials are in even elementary economics.

Pittsburgh City Councilman Cory O’Connor laments that he, too, has not been privy to the region’s Amazon bid.

“How do you help constituents prepare for the company’s potential arrival if you don’t know what the city is offering?” is how the Times paraphrases him.

But O’Connor also touts his efforts to, as the newspaper reports it, “combat displacement of low-income residents from the city.”

That would be the O’Connor-led legislation creating a $10 million annual “affordable-housing fund” that jacks up the realty transfer tax, thus making housing less affordable for other homeowners and inflating the cost of commercial real estate transactions for businesses.

But that’s just the beginning for this councilor’s foray into attempted command economics. Again, from The Times story:

“(O’Connor’s) hoping to build on that with a bill that would give the city the power to add deed restrictions to the thousands of homes and parcels bought up by the city and its redevelopment authority, primarily during the bust years.

“That could allow the authorities to set caps on rent increases or sale prices among future private owners of the property, an effort to keep the city accessible to low-income residents.”

For which there is absolutely no basis in sound economics or sound public policy.

Quoting O’Connor, directly:

“’If it happens tomorrow, we have to be ready,’ he said of Amazon’s HQ2 decision. ‘You don’t want wealth to come in and push everybody else out.’”

Oh, where to begin? How about with a brief tutorial on the manifest failure that is “rent control,” from Jeffrey Dorfman, a University of Georgia economics professor, writing at Forbes.com:

“(C)apping rents and rent increases exacerbates the problem in the long run even as it offers a temporary salve in the short term.

“While stopping the rent increases may feel good to renters at the moment, it lowers the incentive for builders to construct more rental housing, which is the only long-run solution when a location is in high demand.

“It also makes current landlords less interested in maintaining and renovating existing buildings, meaning that the quality of housing declines under rent control.

“A similar set of unintended consequences occurs when local governments require some share of new housing units to be ‘affordable.’

“Obviously, legislating that some percent of new units be priced affordably increases the percent of new units that meet the specified criteria for affordable housing. However, it also lowers the profits from constructing new apartments which will lead to some developments never getting built.

“Thus, while a larger share of new units will be affordable, a smaller total number of units will be built.”

Dorfman’s bottom line:

“The laws of economics are simple. One of the simplest is that when demand increases faster than supply, prices rise. This is the true cause of high and rising rents, not greedy landlords but too little building.

“And the lack of building is mostly due to local governments and their residents blocking new construction so that supply cannot keep up with demand to live in places with either the amenities or the jobs that people want.”

Councilman O’Connor should know better. That he doesn’t means that he’s not part of any solution but merely perpetuating the problem.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).