Map of life expectancy at birth from Global Education Project.

Friday, February 08, 2019

Free market ideology

Remember the FoxConn plant in Wisconsin, where the Taiwanese company was going to hire a bunch of blue collar Trump voters to build flat-screen TVs? This was supposedly going to happen because Gov. Scott Walker cut a deal with the company to give them $3 billion in tax an other incentives. Barry Ritholz discussed the original deal here. You may have noticed that when Democrats propose incentives for stuff like solar and wind power, Republicans scream and yell that government shouldn't "pick winners and losers" and interfere in the sacred Free Market™. But they are falling over each other to give tax breaks and direct incentives (such as road construction) for billionaire football team owners, and highly profitable corporations. As Ritholz says:

[I]f you were a company looking to build a plant somewhere you’d be a fool not to play governors, mayors and other local elected officials against one another: All you have to do is promise to build a new (fill in the blank) that will generate thousands of jobs. You will be showered with incentives ranging from low-cost loans to tax abatements to regulatory waivers.
It is an unfair fight pitting naive local politicians facing re-election versus the experience of corporate executives, and their teams of lawyers, analysts and accountants. They dangle the very persuasive carrot of new economic development. It is the classic agency problem writ large. Taxpayers never stand a chance.

Well now Ritholz refers us to Business Week  (not exactly the Worker's Daily):

Interviews with 49 people familiar with Foxconn’s Wisconsin project, including more than a dozen current and former employees close to its efforts there, show how hollow the boosters’ assurances have been all along. While Foxconn for months declined requests to interview executives, insiders describe a chaotic environment with ever-changing goals far different from what Trump and others promised. Walker and the White House declined to comment for this story, although a Trump administration official says the White House would be “disappointed” by any reduced investment. The only consistency, many of these people say, lay in how obvious it was that Wisconsin struck a weak deal. Under the terms Walker negotiated, each job at the Mount Pleasant factory is projected to cost the state at least $219,000 in tax breaks and other incentives. The good or extra-bad news, depending on your perspective, is that there probably won’t be 13,000 of them.
Hey, I have an idea! Wisconsin can spend  $3 billion to hire some teachers, social workers, public health workers, road pavers, solar power installers, nurses, librarians . . . . But that would smack of creeping socialism.


Don Quixote said...

It was not always the case that Republican lawmakers were such shits as people. I think this all started in the 80s and 90s with the porcine, malevolent Gingrich. It must go farther back than that.

Anonymous said...

I'm iwth ya'.

Municipalities and states fall all over themselves giving away the farm trying to get companies, sports teams and others to locate in their district.

While your interest is in the lack of tax collected, these governments will argue that it's an investment and that they will make money...and in many cases they are right.

I still don't like it. Tax incentives skew capitalism and make it less efficient in allocating resources. Then there's the issue of fairness in that the existing businesses or those not favored by government don't get the same deal.

Cervantes said...

Well, as Ritholz demonstrates, they usually don't pay off as investments. And they just create a race to the bottom. The capitalists would build their factories somewhere, or, if football is truly profitable, their stadiums. The tax breaks don't actually encourage or create profitable economic activity that wouldn't happen anyway. And finally, if the governments would invest the money directly, in public goods with known long-term payoff, society would be better off.

Anonymous said...

Related to this conversation is the issue of tax incentives in general such as income tax credits to hire certain favored racial groups, locate your business in designated "economic empowerment zones" or credits for producing or purchasing certain approved energy devices.

None of this is new is my point. Instead of having the goal to maximize revenue, government has always used tax systems of all kinds to manipulate and skew the economic decision-making process of industry and with the public in general.

The tax code is full of gifts that favor some groups over others as government picks winners and losers.

I'm not sure how someone can be appalled at a municipality for utilizing property tax to influence industry and still approve of how the federal government uses income tax to do the same thing.

Cervantes said...

Here's what they should teach in Economics 101 but they don't. Economic transactions have what they call "externalities," which are effects -- good or bad but usually bad - that aren't captured in the transaction itself. For example, burning fossil fuel pollutes the atmosphere. Applying taxes to capture the full social cost of a transaction, while discouraging harmful actions, does indeed affect the economy, which is the whole idea, we're trying to improve the general welfare.

Tax policy is often a good way of achieving worthy social goals. But it can also be misused, the benefit powerful special interests or it may backfire in unintended ways. Making sweeping generalizations to the effect that using taxation affect economic decision making is always good or always bad is just dumb. All public policy affects behavior, the question is whether it's for the better or not and that can only be answered on a case by case basis.

Anonymous said...

Tax policy is never a good way to achieve worthy social goals because good people can't agree on what's worthy and what's not and it's way too easy for bad people to misuse as Mr. Ritholtz is desperately trying to tell you.

Cervantes said...

Good people aren't supposed to always agree on what's worthy and what's not. That's why we have political debates, campaigns and elections, followed by legislative debates and votes. Yes, that sometimes gets bad results but that doesn't mean we should not have a government or make public policy at all. It means we should try to do it right. That's what I'm about. Ritholz doesn't think that there should never be any tax incentives or penalties, he just doesn't like these particular ones.

Don Quixote said...

I think most people in socialistic/capitalistic countries would vehemently disagree that "Tax policy is never a good way to achieve worthy social goals." Having worked in two of these countries myself, life was really, really good in so many ways. I earned much better salaries than in the U.S., even after considerable taxes were taken out. Health care and social security were free and effective, and easily and mandatorily obtained. There weren't homeless people all over the place. The environmental policies were more effective than they are in the U.S. The proof is in the pudding. I've lived and worked in Canada, for example, and so have friends; so I don't have to believe the Faux Propaganda network-type bullshit about the long lines for medical care. Those sporadic, mythical "long lines" are in the U.S. as often as anywhere else.

The fact is, most people in socialistic-oriented counties are the beneficiaries of tax policies that don't--unlike in the U.S.--unilaterally and exclusively favor the extremely wealthy and extremely poor, leaving most people in the economic middle struggling.

It's one thing to believe in this or that ... and another to have experienced it. I'll take the empirical view every time over glibly spewed bullshit.