New York loses Amazon, but good governance wins

Long Island City, a riverfront neighborhood in the Queens borough of New York, was the proposed site for a new Amazon headquarters. (AP Photo/Bebeto Matthews, FIle)Long Island City, a riverfront neighborhood in the Queens borough of New York, was the proposed site for a new Amazon headquarters, but the promised 25,000 jobs have flown elsewhere. (AP Photo/Bebeto Matthews, FIle)

The withdrawal of Amazon from its proposed headquarters in the New York neighborhood of Long Island City—after the protests by City Council members and other local political leaders, including U.S. Rep. Alexandria Ocasio-Cortez, over tax breaks and credits promised to the company—shows how public policy economics plays out in the real world.

I am inclined to agree with the officials, whom I call the Good Gangs of New York, who opposed Amazon despite the company’s pledge to bring more than 25,000 jobs to the area. We need more gangs like this one in municipal governments. State and local governments hardly hand out tax breaks to small and medium enterprises. Why should they give them to near-monopolies like Amazon?

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On the other hand, we live in a world where we often have to accept the second-best possible outcome. There are a lot of distortions in the real world. For example, state and local governments routinely give tax breaks and subsidies to professional sports teams; no governor or mayor wants to let a major team leave the state or city during their watch. Sports teams bring in tourists for big events, but they do not generate many high-paying jobs, and not all taxpayers are sports fans. So if this game of tax “arbitrage” is being played across the country, why not play the game with Amazon and at least get high-skilled jobs, as Governor Cuomo was willing to do?

State and local governments routinely give tax breaks to professional sports teams. Why not play the game with Amazon and at least get high-skilled jobs?

The actions of our New York gang could be compared to the academic economists in the United Kingdom who supported Brexit. Their issue was simple: Why should U.K. taxpayers support a bloated European Parliament—with two locations, one in Brussels and another one in Strasbourg, as well as a General Secretariat in Luxembourg—and a European Commission that is forever passing needless laws such as specifying what ingredients constitute a Greek salad? Better for Britain to just have low tariffs and reap the benefits of free trade on its own, without working with a cumbersome, highly paid European bureaucracy.

But the New York experience is different in one important respect from Brexit. We live in a world of frictions, and the long-run benefits of extricating the United Kingdom from the bloated European Union bureaucracy will come at a very high cost of job losses in the short and medium run. Meanwhile, New York is surely losing employment opportunities in the short run, but the gang who stopped Amazon are not creating massive dislocations in commerce and finance. Brexit may be a good example of a popular uprising against a bloated bureaucracy, but it certainly does not stand out as an example of prudence in collective social choice.

New York is losing employment opportunities, but the gang who stopped Amazon are not like Brexit proponents, who created massive dislocations in commerce and finance.

What is the lesson for public policy economics? The first-best cooperative outcome would be for all state and local governments across the country to refrain from tax breaks and subsidies for corporations and sports teams and just compete for jobs on the basis of comparative market advantages and geographic considerations. But this is unlikely to happen. We are in the world of Nash outcomes (named for the mathematician John Nash and featured in the book A Beautiful Mind, by Sylvia Nasar, and its film adaptation). In a game governed by the Nash equilibrium, strategies and decisions have to be made on the assumption that other players are operating out of less-than-perfect and less-than-altruistic objectives.

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A good example of a Nash outcome would be going to dinner at a restaurant with a good number of folks, most of whom one does not routinely see, and ordering the most expensive items on the menu because you know that the bill is going to be evenly divided. Why not? Why should anyone be frugal, to keep costs down for all, if there are no assurances that the others are behaving the same way? Nash outcomes highlight the coordination problem in all interactions among decision makers.

Following the restaurant analogy, New York leaders could have gotten an expensive “plate” for Long Island City—with most of the bill picked up by statewide taxpayers, who, far from New York City, would not share in the local benefits. Instead, our New York Gangs took on Amazon and thus opted out of the Nash game.

This action, as J.F.K. might say, is a profile in courage. It also sends a message from New York to the rest of the country that some public officials are no longer willing to play the “tax arbitrage” game, even with giants like Amazon. Three cheers for our New York officials who bucked their governor in a welcome show of good governance. Following the shared restaurant bill analogy, there are times when it is refreshing to see someone who does not try to play the Nash game by ordering the most expensive items on the menu.

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J Cosgrove
5 months 1 week ago

The author makes a false analogy. The restaurant game does not apply. Amazon was not getting a bribe to come to New York to be paid for by the rest of the state. It was getting a reduction in its overall tax bill. It would still generate massive tax income for New York state and city. Other parts of the state would not be footing the bill. It was a stupid decision though I can understand the resentment.

Dionys Murphy
5 months 1 week ago

"Amazon was not getting a bribe" - True. It was being offered kickbacks. Which is essentially a bribe. And the tax break for Amazon (which would not pay a living wage and cost the city more in societal support systems) would be shouldered by the entire state. Other parts of the state would absolutely be footing the bill for lost taxes and the burden of a company not willing to pay it's fair share or living wages.

J Cosgrove
5 months 1 week ago

Are you trying to be 100% wrong? The jobs were high paying (average $150,000 - living wage even in New York City.) Most of the incentives were tax breaks. The rest of the state would not be footing the bill. However, the NYC area would be getting most of the benefit (there would be some indirect benefits upstate.) Amazon would still be paying a lot of taxes, just not as much without the deal. Their employees would be paying a lot of taxes. Original estimate was that 27 billion dollars would be generated by the deal.

Christopher Lochner
5 months 1 week ago

And as for those people who are in need of gainful employment I'm certain the good Father would state, "Let them eat cake." What an arrogant disconnect and prime example of intellectual dishonesty.

Earl Westerlund
5 months 1 week ago

"Following the restaurant analogy, New York leaders could have gotten an expensive “plate” for Long Island City—with most of the bill picked up by statewide taxpayers, who, far from New York City, would not share in the local benefits."

As a resident of upstate New York (Binghamton), I was appalled that my tax money was going to go to an obscenely wealthy company, to supposedly benefit a part of the state that was doing well on its own, while my community and others in my area are still suffering from the loss of major industries that happened decades ago. Perhaps now we can use those "tax breaks" to improve infrastructure and provide retraining where they are needed.

Thank you for noticing that the State of New York is more than the southeastern corner that everyone pays attention to.

Mark M
5 months 1 week ago

Earl, you and upstate NY are screwed, permanently. No business wants to build or expand in the anti-business climate that is NY.
NYC sucks the life out of upstate with its endless social services and plush government retirements.
Remington just said ‘adios’ to the Empire State. Cuomo could care less about those workers. Enjoy.

Mark M
5 months 1 week ago

Earl, you and upstate NY are screwed, permanently. No business wants to build or expand in the anti-business climate that is NY.
NYC sucks the life out of upstate with its endless social services and plush government retirements.
Remington just said ‘adios’ to the Empire State. Cuomo could care less about those workers. Enjoy.

Jeffrey More
5 months 1 week ago

With all due respect, your tax money wasn’t going anywhere. Amazon and its tens of thousands of jobs would have generated a tremendous amount of tax revenue for the entire state. Moreover, you can’t “use those ‘tax breaks’ to improve infrastructure” or for anything else. There is no pot of money that was going to be handed over to Amazon; they were merely going to get a slight break on the taxes they were going to pay.

Phillip Stone
5 months 1 week ago

May I inform the Jesuits that invoking the opinion of Alexandria Ocasio-Cortez will come back to bite them in the future.

This woman is a puppet. She was cast for the role to act the part.
She was schooled in how to behave and it was intended that there is not a single word which comes out of her mouth which is not tightly scripted and on message.
Alas for her puppet masters, when she goes off-script she babbles incoherently.

So a Jesuit political hero claiming Jewish ancestry, identifying as Catholic and co-habiting with her boyfriend - what a wonderful role model for Catholic Americans.

Watch - https://youtu.be/1h5iv6sECGU

Judith Jordan
5 months 1 week ago

Phillip Stone---
The film you reference does not gives its source. What group produced this? What issues do they promote? How can we judge something without even knowing its source? These are some of the many fair reasons we demand that the accused is able to confront the accuser.

The speaker in the film, who also remains unidentified, talks in very conspiratorial tones telling us about “plots.” Alexandria Ocasio-Cortez (AOC) is a puppet who has a group behind her? Most politicians have groups behind them. The film tries to make it appear as some kind of nefarious scheme that AOC ran for office and not her chief of staff, Saikat Chakrabarti. So what? People often go to someone else and encourage that person to run. Most of this is political common knowledge.

Ironically, the “mysterious” speaker calls himself Mr. Reagan and has a Reagan cup on his desk People used to say many of the same things about Reagan as this film says about AOC.

"Reagan was financed and supported by special interests groups etc. He was a puppet who could not speak unless it was scripted for him."
Reagan famously introduced the nation to the teleprompter, a device that creates the illusion that the speaker is speaking spontaneously, when the speaker is actually reading from a script.

Actually, you could take this film, change the names to Reagan and his supporters and come up with the same narrative, only it would be coming from the left and not the right.

The speaker showed a page highlighting some sentences. Again, he did not give the source of the document, but we could see from a heading that it is from “The New Yorker.” I subscribe to that magazine and I looked up the article, which I sourced below. If you read the whole article you will find it an intriguing piece about the rise of a progressive group, who wants to win elections, and who wants to implement progressive policies one of which is the fight against climate change. Obviously, there are many, many important issues to be worked out with these groups, just like the major changes in the 1930s had to be.

Combating climate change is of vital importance. What should frighten and disturb us more than AOE is that Trump continually demonstrates that he does not know the difference between the climate and the weather. He dismisses climate change as “a Chinese hoax.”

“How Alexandria Ocasio-Cortez’s Allies Supplanted the Obama Generation” by Benjamin Wallace-Wells, The New Yorker, January 17, 2019
https://www.newyorker.com/news/the-political-scene/how-alexandria-ocasio-cortezs-allies-supplanted-the-obama-generation

J Cosgrove
5 months 1 week ago

You just validated Dr. Stone’s assessment and the video he linked to. Thank you.

John Walton
5 months 1 week ago

NY and NJ likely to each lose a congressional seat via the next census owing to their hostile business environments.

The upper counties of PA on the Marcellus shale gain jobs and population, their cousins south of US Rte 17 in NY are losing population at an alarming rate.

Andrea Campana
5 months 1 week ago

Not sure how true this is, but the gossip circulating says Amazon refused to "pay off" the local politicians in New York.

Chuck Kotlarz
5 months 1 week ago

Amending the constitutional minimum age for president to thirty merits consideration. A list of the nation’s five youngest presidents includes Kennedy, Clinton and Obama.

Consider the incumbent, now forty-three years older than Alexandria Ocasio-Cortez. Then consider AOC and ask, “Why not?” AOC turns thirty this year.

J Cosgrove
5 months 1 week ago

She's has no relevant experience and as the video mentioned above, a puppet. Seems perfect for a Democrat.

Chuck Kotlarz
5 months 1 week ago

Mr. Cosgrove, it’s not like AOC would be asked to save mankind, although, come to think of it, the person who did got his start at age thirty.

Stanley Kopacz
5 months 1 week ago

The state and the city were giving advantages to a business over competitors, some of which are probably already established in NYC. This violates the supposed level playing field of capitalism, of which many of the great know-it-all commenters here claim to be devotees. If you're going to promote capitalism as the great demigod of prosperity, you should at least adhere to it's supposed principles of fairness.

J Cosgrove
5 months 1 week ago

Four things, First, it was a quantity discount. Pure capitalism. Second, about 100 areas bid on it. Third, Did anyone say anything that violated their support of free market capitalism. I was reacting to the bogus argument by the author. Fourth, I am someone who wouldn't mind Amazon being broken up. I live in the NYC area and may have benefited by the move but could care less that they are not coming. I am leaving.

Vince Killoran
5 months 1 week ago

A compelling article. This reminds me of the "social compact" that Baltimore's BUILD fought for in the 1990s, i.e., subsidies must be tied to living wages, community and school investments, affordable housing, and a closely monitored right of workers to organize unions in their workplaces. Baltimore never got its social compact and the effects are clear to those who venture outside of the Inner Harbor neighborhoods. The subsidies continue and the ranks of the working poor continue to grow.

Stanley Kopacz
5 months 1 week ago

The big fear of AOC is that she'll throw a spotlight on that big circle jerk called the congressional-lobbyist complex. The Get AOC Movement is in full steam for that reason. If you want to find a real politicical puppet, find out how much money he or she gets from the moneyed interests. Congress is one big marionette show. Meanwhile, it's fun to watch how little AOC drives the old farts into apoplexy.

J Cosgrove
5 months 1 week ago

I believe we have an Ocasio fan. It's always revealing to see what one supports. I have a question, will the Green New Deal, if enacted, be free of corporate cronyism? Its likely corruption is one of the many great reasons not to have anything to do with it.

Stanley Kopacz
5 months 1 week ago

As in defense, companies (except for Halliburton), will bid on contracts and compete for R&D money. Not local government's bidding to give
preferential treatment to a private company. Will there be corruption? Do people get colds? Do engines have friction? You always demand absolute perfection from that which you disagree with, but are full of sympathetic realism for the things you agree with. Double standard. The Green New Deal, in the unlikely event this country supports it's good sense, will require oversight like any other government program. Hopefully, the collection of corrupt money puppets we now have in Congress will be flushed out by that time.

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