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New York Should Be Happy Amazon Has Changed Its Mind

It’s official. After first saying yes to an offer that most people thought they couldn’t refuse, Amazon has changed its mind and will not be building a new headquarter in New York City.




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New York officials offered Amazon an incentive package worth up to $3 billion in combined state and local tax breaks in response to a promise the company will “create” 25,000 jobs by investing $2.5 billion in a headquarters located in Queens. Do the math. The tax breaks would more than cover the entire cost of Amazon’s investment.

Cities in my home state of North Carolina wanted badly to land Amazon’s second headquarters and, like New York and many other states, were willing to throw hundreds of millions at the most valuable public entity in the world. That’s why when Amazon passed on North Carolina, I was happy.

New York Rep. Alexandria Ocasio-Cortez and other left-wing activists have been protesting the deal. They, rightly, identify it as a giant wealth transfer from city and state taxpayers to one of the wealthiest corporations in the world.

The controversy in New York has, apparently, gotten hotter than Amazon is willing to endure. Media speculation over the past week that Amazon would be changing its mind has become a reality. New York Gov. Andrew Cuomo, who completely supported the deal, was concerned this would happen. Last week, the Wall Street Journal reported that Cuomo was warning “that local opponents could derail the project.”

A $3 Billion Giveaway

Let’s be clear about the economics. The $3 billion giveaway was bad economic policy in the first place. Gov. Cuomo and the people of New York City should be relieved Amazon has decided to pick up its marbles to go play with someone else’s tax dollars. What the state and city governments were actually doing is subsidizing Amazon to bid valuable land, labor, and capital resources away from existing businesses who are paying taxes and risking their own investment dollars.

Amazon would have needed 25,000 new workers and the capital resources necessary to build a new $2.5 billion campus. If these decisions were being based on an unsubsidized decision-making process, it certainly would be something for New Yorkers to cheer. An unsubsidized deal would telegraph that New York is a truly profitable place to locate, as dictated by actual market conditions. The rearrangement of resources that would result would indeed contribute to efficient economic growth.

But because the company’s decision would have been the result of a subsidized transfer of wealth, it would have generated a misallocation of resources and harmed overall economic growth. The reason is simple. The resources that Amazon would have been using, particularly labor, but also capital, are not laying idle. They are scarce and valuable to other potential investors and existing businesses in both New York City and throughout the state.

The Subsidy Game

As of December 2018, the unemployment rate in New York City was 4%. For New York State as a whole it was 3.9%. By any economic standard, this is full employment. The supply necessary to fill the demand for 25,000 additional employees would have to come from somewhere. If Gov. Cuomo and others expected these positions would be filled by New Yorkers, and the decision to transfer $3 billion from state taxpayers to Amazon was not meant to provide jobs for out-of-staters, Amazon would have been bidding workers away from existing businesses.

This would drive up labor costs and make it more difficult for those businesses to operate profitably or expand, or for other unsubsidized businesses to make new investments. This also applies to the cost of other local resources such as capital and land that Amazon will be competing for in the marketplace.

Economics tell the tale. Any state that plays the taxpayer subsidy game with Amazon will be driving up the cost of doing business in the area and will destroy more jobs than it creates. The result will be less economic growth, not more.

Cordato, Ph.D., is senior economist and resident scholar at the John Locke Foundation, and editor of “Political Economy in the Carolinas.” These comments are the opinion of the author, and do not necessarily express the position of the John Locke Foundation.


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The post New York Should Be Happy Amazon Has Changed Its Mind appeared first on Investor’s Business Daily.


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Author: TERRY JONES