Where do you want to fly?
When Bryce Harper and Manny Machado sauntered into baseball’s free agent market, they assumed some owner would throw insane amounts of cash their way, because up until this year some owner always had.
Three hundred million dollars over 10 years — the sum Machado signed for in San Diego last week — is still an insane amount of cash. But it wasn’t the ceiling-exploding excess that had become an annual occurrence as teams tried to buy their way to a pennant.
When looking to site a new facility that would hire tens of thousands of people, the online retailer Amazon assumed that some locale would throw an insane amount of cash its way, because some locale always had. And sure enough, the company was all set to settle in the Queens borough of New York City, thanks to an astonishing $3 billion worth of incentives. Until the community began to question the deal, and, rather than negotiate, Amazon withdrew.
In baseball, through a series of occult statistics, front offices are now able to calculate a player’s value in terms of wins and losses, and the clear conclusion is that megacontracts for megastars are rarely worth the money. And governments might want to conduct similar analyses.
New York’s hard look into the mouth of a gift horse is being widely panned — and leading the criticism is the city’s own mayor and the state’s own governor. Mayor Bill de Blasio more or less said it’s one thing to be progressive, but it’s another thing to be stupid.
They were talking about 25,000 jobs, after all, and what politician does not have “Jobs!” at the top of the campaign flier? This figure is approaching the size of the entire city of Hagerstown. How in the world do you turn that down? Actually, the boost in the workforce would be bigger than Hagerstown, since new jobs have a multiplier effect, creating work for people who offer goods and services to the added 25,000. The true number of jobs spun off from the Amazon project could be more like 50,000 to 75,000.
But a few lone economists are starting to delve into their own brand of analytics, and the deal isn’t as rosy as it appears on the surface. New York City’s unemployment has been hovering around 4 percent, which, accounting for the regular churn of people leaving one job and looking for another, is statistically considered to be full employment.
So these thousands of new positions, as much as 85 percent, would be filled by people migrating into the city from other locales. So by offering such staggering incentives, the city is losing rightful revenue from the corporation, even as it gains income and sales taxes from the new workers. That may be a wash for the city’s budget, but at the same time it has thousands more people it needs to serve in terms of schools, transit and such.
And what if, in another 20 years, Amazon decides it wants to go somewhere else? Certainly that seems to be the norm. Corporations know how to play the game, particularly if the work requires no particular skill. They get their 10 years worth of tax exemptions, their free land and any other goodies the community passes their way, then when the tax breaks run out, they move somewhere else.
Work by Timothy J. Bartik, an economist at the W.E. Upjohn Institute, suggests that, indeed, good things do happen for a community that essentially uses taxpayer money to “buy” jobs through corporate incentives. But that economic sugar rush only lasts for two or three years, at which point the benefits begin to drop precipitously.
Overall, benefits to local incomes are less than a quarter the costs of the incentives, while services, most notably, education, tend to suffer. At some point, you wonder if — instead of lavishing millions and billions on corporations to bring jobs to a community — it wouldn’t be less of a burden on the taxpayer just to pay people to stay home.
Economic incentives are now where baseball free agency was: In an escalating competition among communities to throw ever-more money at players. The solution for both seems to be the same: Forget the high-priced, glamourous targets, and spread around small incentives to attract higher-margin production. In other words, business incentives only make sense for high-quality, high-paying jobs.
Estimates vary radically, but the U.S. spends somewhere between $45 billion and $80 billion just to tug jobs from one community to another. Maybe that’s not a lot, considering that Amazon owner Jeff Bezos will likely lose that much in his divorce. But it begs the question why we need to offer welfare for the wealthy in the first place.
Tim Rowland is a Herald-Mail columnist.