Does no one smell a rat here?”
That’s what Andrew Wilson, a resident fellow and senior writer at the Show-Me Institute in St. Louis, asks about Amazon’s bid to shake loose up to $1 billion in public “incentives” to build a second headquarters outside of Seattle.
The Internet retailing giant says “HQ2,” as it is being called, would mean a $5 billion investment in the “winning” locale and upwards of 50,000 high-paying jobs. States, regions and cities all over the country, including Greater Pittsburgh, have been falling all over themselves to craft bids (due Oct. 19) to win this “prize.”
As Wilson reminds:
“In any auction, the winning bidder may pay more for something than it is worth. That is especially the case in this kind of auction – in which government entities compete with one another in offering tax breaks to a rent-seeking corporation (i.e., one looking for public assistance for private gain) that is trying to get as much as it possibly can from government.”
Furthermore, Wilson says:
“The fatal flaw here is the deeply ingrained habit of regional economic development agencies and other government entities of assuming (falsely) that a public investment of X dollars will yield about 2X in indirect benefits – in addition to the job creation and economic growth that come from the investment made by the rent-seeking company.”
Sounds eerily familiar, does it not? City, county and state officials in Pennsylvania are predicting nothing short of economic nirvana, thanks to Amazon. We saw the same claims from those pushing for new sports stadiums two decades ago.
But citing Joseph Haslag, the Show-Me Institute’s chief economist, Wilson reminds that such “multiplier effects,” as they are known, are wildly overblown.
“There is no economic evidence to support a multiplier of more that 1.0 ($1 of benefit for one dollar spent).
“In fact, there is considerable evidence that government investments earn well-below average returns,” Wilson says. “Rather than add to economic growth, government investment all too often subtracts from it – in directing scarce resources to sub-optimal uses.”
And that’s no “investment” at all. It is, however, corporate wealthfare.
As the St. Louis think tank notes – and as the Allegheny Institute for Public Policy also has been stressing for the past two decades – the far better (if not best) bet is to stop raiding taxpayers’ pockets and allow the marketplace to determine what should be produced and whom should produce it.
Wryly notes Wilson: “Somehow Amazon stopped short of asking cities and states to pick up a quarter of the annual payroll at its second headquarters.”
Pennsylvania, Allegheny County and City of Pittsburgh taxpayers should take heed. When officials claim landing Amazon’s second headquarters is a be-all and end-all, that’s typically a good sign that it will be nothing more than the proverbial pig in a poke.
Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).
