Five economic development takeaways from the Amazon HQ2 bids

Amazon’s decision to cancel its New York headquarters investment has led to intense debate among academics, politicians, and civil society. The split culminated Amazon’s very public search process in which 238 U.S. cities submitted detailed bids to the company to host its “second headquarters,” or HQ2. Many of these bids remain secret, shielded from public records laws due to exceptions to public disclosure of economic development projects, or the use of non-public entities, such as Chambers of Commerce, to submit the bid. But for 26 publicly-released bids, we have a rare opportunity to peek under the hood of U.S. regional economic development. Here are five main takeaways from a review of these bids.

1. WE KNOW MORE ABOUT HQ2 THAN MOST ECONOMIC DEVELOPMENT DEALS.

Many journalists and civic leaders expressed frustration over the lack of transparency in the HQ2 process. Few cities provided the full details of their offers during the process, and cities such as Austin, Denver, Indianapolis, Houston, Los Angeles, and Miami have still not made their proposals public.

Yet the reality is that most corporate site selection processes remain outside the public eye. The fact that Amazon made this a public competition led to additional scrutiny of the site selection process. Numerous local journalists, such as those in the Dallas and Denver areas, were able to explore local proposals and reveal more about this process than most other economic development deals. …

Read the rest at Brookings.edu

Podcast: Why Governments Give Away Economic Incentives That Increase Inequality

Amazon’s headquarters decisions are drawing attention to economic development incentive programs designed to bring businesses and jobs to states and localities, while local opposition in New York drew attention to their role in inequality. Why do states and localities continue to offer them, despite academic research showing they are ineffective? Nathan Jensen finds that voters reward politicians who offer (even unnecessary) incentives, meaning they keep on offering bigger checks. Cynthia Rogers finds that state incentives increase the gaps between the rich and the poor, but they remain an ever-popular tool.

Interviews: Nathan Jensen, University of Texas and Niskanen Center; Cynthia Rogers, University of Oklahoma

Marco Rubio Wants a National Innovation Strategy

new report on China from the Senate Small Business Committee, now chaired by Senator Marco Rubio, is turning heads in the conservative policy world. The report details the “Made in China 2025” initiative, China’s national plan for technological and economic supremacy in a number of emerging industries. But what makes the report interesting, particularly from a Republican-chaired committee, is its suggestion that America shouldn’t merely punish China for unfair trade practices, but also should pursue a national innovation strategy of similar ambition.

“This report’s central conclusion is that the U.S. cannot escape or avoid decisions about industrial policy,” its authors write, after opening with an extended quotation from Alexander Hamilton’s “Report on Manufactures.” Then it explicitly rebukes the orthodox libertarian view that markets are “neutral” when government simply gets of the way:

States place great value on capturing high-productivity, high-labor content industries, or developing new ones. This is no new insight, for constraining the excessive possibilities of this behavior is arguably the orienting view of the World Trade Organization (WTO). States can attempt to redirect this fundamental interest by agreeing to “not select” industries, or at least not do so outside the bounds of reasonable policy difference. But even here, distinctions between competing decisions of economic value must be made.

Markets are always and everywhere structured by rules and institutions, the parameters of which shape final outcomes for society at large. That these rules should align with national priorities like strong families and decent wages for average people might seem obvious, but alas, too often it’s not…

Read the rest at NationalReview.com

The Cost of Trade With China

The economist Dani Rodrik likes to tell the story of the time he sent a draft of his 1997 book, Has Globalization Gone Too Far?, to a “well known and outspoken economist” for review:

He told me he had no quarrel with my economics, but that I should not be “providing ammunition to the barbarians”—that is, I should not give comfort to all those protectionists who stand ready to hijack any argument that seems to provide intellectual respectability to their positions.`

The economist in question was Paul Krugman, as Rodrik quietly revealed in the footnotes of a later book. The irony, of course, is that Krugman went on to coin the sarcastic epithet “Very Serious People” to describe precisely this tendency of elites to argue in bad faith. Deficits and inflation aren’t always bad, for example, but Very Serious People resist deviating from hawkish views lest spendthrift politicians run free. The late-1990s Krugman was evidently himself a Very Serious Person who understood economic globalization to be, while not costless, far too important to risk confusing the public with subtlety.

Maybe Krugman had a point. Rodrik’s book was published only a few years after the deadly, NAFTA-inspired peasant rebellion in south west Mexico, and a few years before the hysterical WTO protests in Seattle. And today, animus against globalization and free trade has found its way into the Oval Office, where at various points NAFTA and the World Trade Organization have come close to being smashed in much the same way Seattle black bloc rioters smashed Starbucks windows in 1999…

Read the rest at TheBulwark.com

The ELEVATE Act Explained

In simple economic models, workers disrupted by trade or automation are instantly reallocated from declining industries to ones on the rise. Yet that is rarely if ever the case in the real world. Labor markets are highly complex institutions, riddled with frictions created by geography, social networks, discrimination, and regulations that vary from place to place.

In a world where nothing ever changes, this wouldn’t be a big problem. Yet in a dynamic, growing economy, change is the rule, particularly with increased foreign trade and major breakthroughs in AI and robotics on the horizon. This demands that the United States finally get around to constructing a truly national labor market — one with robust employment, training, and relocation supports that follow workers wherever they go.

The “Economic Ladders to End Volatility and Advance Training and Employment” or ELEVATE Act is a big first step in that direction. It provisions include:

  • A new title to the Social Security Act for states to fund and implement subsidized employment programs;

  • Guardrails that ensure states pursue re-employment and retraining programs with a strong evidence base and low overhead;

  • Funding conditioned on states’ quarterly unemployment rates to create aggressive and fast-acting “automatic stabilizers”;

  • A demonstration project to identify “pro-worker employers” to ensure subsidized job placements don’t erode job quality;

  • A national self-employment benefit for recently unemployed workers to pursue entrepreneurship;

  • And a national relocation assistance program to reimburse eligible individuals for the expenses associated with “moving to opportunity.” …

Read the rest at NiskaneCenter.org

OSRSamuel Hammondlabor
What Tucker Carlson Gets Right

The Fox News host Tucker Carlson delivered a monologue on the market and the family last week. It quickly found a large audience, becoming a viral sensation online. It also attracted a host of critics from across the political spectrum. Some of the fiercest criticism came from conservatives, including writers such as Ben Shapiro and David French, who attacked the very argument that we believe Carlson largely got right: Contemporary capitalism, small government conservatism, and elite negligence have all played a role in the fall of the working-class family.

Let’s review the three key points Carlson made regarding the erosion of marriage and family life in America. First, he argued that “increasingly, marriage is a luxury only the affluent in America can afford.” French, a senior writer for National Review, objected to the idea that only the rich can marry, arguing that “affluence is not a prerequisite for marriage.”

But Carlson is onto something. A half century ago, there were not big differences in marriage and family life by class; the vast majority of Americans got and stayed married. Starting in the late ’60s, however, marriage eroded among the poor, and since the ’80s, it has lost considerable ground among the working class. Today, only minorities of poor adults (26 percent) and working-class adults (39 percent) ages 18 to 55 are married; by contrast, a majority (56 percent) of middle- and upper-class Americans age 18 to 55 are married. …

Read the rest at TheAtlantic.com

Top 10 reform options from the CBO

The independent Congressional Budget Office recently released a report offering 121 options for reducing spending or increasing revenues. It’s a cornucopia of fiscal responsibility. Whether your goal is reducing unsustainable deficits, strengthening existing social programs, or saving the planet, there’s something for everyone. Here’s my top 10 list (in no particular order):

1). ELIMINATE ITEMIZED DEDUCTIONS

Estimated revenue change: $1.312 trillion over 10 years

Itemized deductions are one of the main reasons the federal tax code looks like Swiss cheese. Eliminating deductions such the state and local tax deduction and mortgage interest deduction, which are regressive and distortionary, would be the more efficient way to reduce the deficit without raising marginal tax rates.

2). INCREASE INDIVIDUAL TAX RATES ACROSS THE BOARD

Estimated revenue change: $905.4 billion over 10 years

Nobody likes to see their taxes go up but a broad-based increase of 1 percentage point across the board would be one of the more sustainable deficit reduction strategies. It would have minimal impact on most taxpayers and leave the overall tax-burden distribution unchanged. …

Read the rest at NiskanenCenter.org

The Amazon HQ2 Fiasco Was No Outlier

In September 2017 Amazon issued an open invitation for North American cities to put in bids for hosting the company’s $5-billion “HQ2” (that is, second headquarters) and the 50,000 jobs it’s expected to bring. Well over 200 locations applied. Their submissions included a range of gimmicks, from an offer to create a separate city called Amazon to free sandwiches for company employees—but also, crucially, billions of dollars in economic development incentives.

When Amazon announced last month that it would split HQ2 between New York City and Arlington, Va., losing applicants cried foul: They accused Amazon of an extraordinary bait-and-switch, enticing dozens of bidders to increase the competition and the incentive offers, only to end up with two of the most obvious candidates all along.

The reality is that this sort of competition for big projects, while unusually large in the Amazon case, is the rule not the exception in economic development and has been for a long time. It has been happening in the U.S. since Alexander Hamilton received local tax exemptions in 1791 to build up the city of Paterson, N.J. as an industrial center. What’s different in our own era is that most companies aren’t actually changing their decisions based on incentives but are pocketing substantial benefits anyway.

Studies show that the cost and frequency of incentive packages—which cities and states typically offer companies to either relocate or stay put—have been rising. Secrecy surrounding many of the deals makes a full accounting difficult, but a new database assembled last year by the Upjohn Institute for Employment Research covers programs for 47 cities in 33 states. It found that the cost of such incentives more than tripled from 1990 to 2015, to $45 billion. …

Read the rest at the Wall Street Journal.

Oren Cass's Labor Theory of Value

At the center of Marx’s critique of capitalism is a labor theory of value. Namely, the notion that treating labor as a commodity to buy and sell alienates workers from the act of production, causing feelings of powerlessness, isolation, and self-estrangement — feelings that ultimately lead to revolution. 

It’s through this lens that I read The Once and Future Worker, the first book from policy thinker Oren Cass. At first blush, the book is a forceful reassertion of classic conservative tropes: that work has intrinsic value; that earned success and self-sufficiency form a foundation for strong communities; and that the devaluing of work and family in favor of hedonistic, protean consumerism has undermined our moral fabric.

But beneath the surface is something much more novel, particularly coming from Mitt Romney’s 2012 domestic policy director. Indeed, far from the usual conservative manifesto, The Once and Future Worker is a scathing critique of globalization, open immigration, and the commoditization of labor — forces which Cass believes have ransacked working class fortunes across three decades of neoliberal hegemony, despite the ideological half-measures offered by bourgeois elites designed to merely absolve them of complicity…

Read the rest at Salon.com

Samuel Hammond
The Policymaker's Guide to Emerging Technology

Part I outlines the foundational tenets of “soft law” and its impact on the governance of emerging technologies. This section frames the underlying rationale for many of the recommendations offered in the remainder of the Policymaker’s Guide. Marc Andreessen once wrote that software was eating the world; now, soft law is eating the world of technological governance. On net, we argue that’s probably a good thing.

In Part II, the discussion concentrates on issues that have their roots in the pre-digital era, but which purportedly present new challenges in the wake of an increasingly interconnected world. In particular, this section looks at the role that antitrust, privacy, and copyright play in current debates surrounding the digital economy.

Part III then narrows the focus further by diving deeper on the issues associated with seven new emerging technologies: genetic modification, the Internet of Things, autonomous vehicles, commercial drones, supersonic flight, commercial space, and climate engineering. It then offers specific recommendations to address some of the common concerns associated with their development and adoption.

Finally, Part IV examines the unique characteristics of an emerging technology that has wide-ranging implications for numerous industries, both within and beyond the technology sector: artificial intelligence (AI). As a “nexus technology” — one whose development and improvement will have an outsize impact on the development of other related technologies — AI deserves expanded consideration, with a specific focus on those areas most likely to have near-term, high-impact effects. To that end, we focus on recommendations for the use and application of AI in the areas of online digital advertising and medical device technologies, as well as a concluding section that offers a specific governance framework — “algorithmic accountability” — that can help address observable harms resulting from a misapplication or misuse of AI….

Read the rest at NiskanenCenter.org.

How the Medicaid Expansion fuels the politics of austerity

The Government Accountability Office recently released a report looking at Medicaid’s effects on access to medical care in expansion and non-expansion states. They found that low-income adults in expansion states were less likely to report having unmet medical needs than those in non-expansion states. Like the Oregon experiment study finding Medicaid expansion reduced financial strain on beneficiaries, expansion advocates interpreted this study as clear evidence of the benefits of expanding Medicaid as widely as possible. Because of this, these same advocates are often at a loss to explain why 17 states have chosen not expand to Medicaid or why 21 states have applied for section 1115 Medicaid waivers to enact work requirements, eligibility restrictions, or benefit restrictions.

One common explanation is what could be called the “mean Republican” theory of Medicaid. The only conceivable reason why states might not expand Medicaid or might restrict access in light of its obvious benefits is because callous Republican policymakers in these states hate Obama, poor people, or both. Does this theory fit the evidence? After all, many of the most restrictive states are deep red southern states with histories of limiting social programs for the poor.

Yet looking non-expansion states through the lens of partisan control misses a crucial confounding factor: Non-expansion states are also deeply poor. Mississippi’s per capita GDP, for example, is less than half that of Massachusetts, while its poverty rate is double. …

Read the rest at NiskanenCenter.org

Supersonic: From White Paper to White House

As followers of the Niskanen Center know, over the past two years we have been tireless advocates for reforms to enable the return of civil supersonic aviation. We’ve made our case through a major white paperop-edsmore op-edsblog postsan educational websiteHill briefingspodcastsletters of support, and direct engagement with policy leaders in Congress and the FAA. Affordable supersonic transport, we have consistently argued, will help to connect the world through speed, and break us out of the deeper technological stagnation in aviation and atoms that have been with us for decades.

Now, with the FAA Reauthorization Act of 2018 (.pdf) passed and signed into law, our vision of a supersonic future is becoming a reality. Indeed, from white paper to White House, the supersonic provisions contained in this FAA Reauthorization represent the first legislation on civil supersonic aviation in nearly 60 years. Among other things, the law:

  • directs the FAA to exercise leadership on civil supersonic aviation, with an eye towards fostering the conditions for its return. This will prove particularly valuable on the international stage, where the United States, through the International Civil Aviation Organization, plays an influential role in shaping global aviation standards.

  • gives the FAA two years to issue a Notice of Proposed Rule Making to establish a new type-certification for civil supersonic aircraft. Careful analysis of the existing statute revealed existing type and airworthiness certifications only applied to subsonic aircraft, contrary to the FAA’s past interpretation. The creation of a new category for certifying civil supersonic aircraft will thus fill a major gap in existing regulation, and allow certification requirements to be crafted around the unique needs of supersonic aircraft. …

Read the rest at NiskanenCenter.org.

The Free-market Welfare State

Today I’m proud to release my latest paper for the Niskanen Center, “The Free-Market Welfare State: Preserving dynamism in a volatile world.” You can find it here.

The paper proposes a set of principles for a “free-market welfare state” research and reform agenda, based around a simple but provocative thesis: America’s historical combination of free-markets and limited income security is fundamentally unstable. Either we get better at complementing markets with comprehensive income and re-employment supports, or the forces of creative destruction will generate anti-market backlashes with lasting political consequences:

The fallout from China’s entry to the World Trade Organization (WTO) in 2001 is a clear case in point. Cheaper imports benefited millions of Americans through lower consumer prices. At the same time, Chinese import competition destroyed nearly two million jobs in manufacturing and associated services—a classic case of creative destruction. Yet rather than help those workers adjust, our social insurance system left them to languish. In the regions of the United States most exposed to import competition, Social Security Disability Insurance (SSDI) was more than twice as responsive to the economic shock as unemployment insurance and Trade Adjustment Assistance (TAA) combined, even though it is one of the most restrictive disability programs in the developed world. Indeed, while critics of the welfare state often argue the United States spends a trillion dollars a year on social programs, only about a quarter of this comes close to anything resembling cash or quasi-cash income support—about the same annual amount spent subsidizing employer-based health insurance.

Read the rest at NiskanenCenter.org

The Real Source of Teachers’ Struggles

Striking teachers in West Virginia recently made headlines in their efforts to increase their pay and benefits, which are among the lowest in the country. Teachers in Oklahoma, Arizona, and Kentucky have followed suit with similar protests. The dominant narrative, pushed by Democrats and their allies in the labor movement, presents these protests as part of a larger struggle between underpaid educators and miserly state Republicans more concerned with cutting taxes than with investing in children. While politically convenient, this story is largely a red herring distracting us from the real reason teachers in West Virginia and elsewhere are currently underpaid and unlikely to see substantial pay increases any time soon.

The problem is fiscal capacity. This is the ability of governments to raise enough revenues for the provision of basic public goods. Some states have greater total taxable resources (income, wealth, natural resources, etc.) than others. Typically, social scientists discuss fiscal capacity in regard to the inequality that results from the ability of rich suburbs to spend more on education than poor urban areas. While reformers have made great strides in reducing the disparities between urban and suburban school spending, they have paid almost no attention to disparities among states. It is impossible to address the teachers’ grievances without addressing limited fiscal capacity among poor states.

Comparing West Virginia and New Jersey helps us understand the underlying problem. Each state dedicates the same proportion of its resources to spending on education salaries and benefits — about 3.5 percent of its GDP. In other words, they are putting in the same effort. …

Read the rest at NationalReview.com