Category Archives: Economy

Who’s afraid of sunlight? Explaining opposition to transparency in economic development

Source: Nathan M. Jensen, Calvin Thrall, Washington Center for Equitable Growth, February 2019

From the abstract:
Why do some firms oppose transparency of government programs? In this paper we explore legal challenges to public records requests for deal-specific, company-specific participation in a state economic development incentive program. By examining applications for participation in a major state economic program, the Texas Enterprise Fund, we find that a company is more likely to challenge a formal public records request if it has renegotiated the terms of the award to reduce its job-creation obligations. We interpret this as companies challenging transparency when they have avoided being penalized for non-compliance by engaging in non-public renegotiations. These results provide evidence regarding those conditions that prompt firms to challenge transparency and illustrate some of the limitations of safeguards such as clawbacks (or incentive-recapture provisions) when such reforms aren’t coupled with robust transparency mechanisms.

Related:
Amazon HQ2: Texas experience shows why New Yorkers were right to be skeptical
Source: Nathan M. Jensen, Calvin Thrall, The Conversation, February 14, 2019

New York offered Amazon close to US$3 billion to build a “second” headquarters in Long Island City on the promise of 25,000 jobs.

Since the deal was joyfully announced in November, however, many local residents and some politicians in the area have been questioning whether it’s worth it, both in terms of the price tag and the impact on housing and traffic congestion. And on Feb. 14, Amazon backed out of the deal, citing political opposition to its plans.

The research supports those who question the wisdom of cities and states incentivizing economic development. Studies suggest the jobs and economic gains are usually not worth the tax breaks since the majority of companies would have come even without incentives.

And that’s when the companies try to live up to the promises they made. They don’t always do so, with the latest example being Foxconn’s announcement that it is reconsidering plans to build a factory in Wisconsin – less than a year after agreeing to create up to 13,000 high-tech jobs in exchange for more than $4.5 billion in incentives.

But how often do companies that agree to build factories and create jobs in exchange for economic incentives back away from their promises? And when they do, do taxpayers ever learn about it?

To shine light on these questions, we conducted a study of a Texas economic development program. Taxpayers in any American city considering luring a company with cash should take heed…..
Opinion: Amazon, New York and the End of Corporate Welfare
Source: Mene Ukueberuwa, Wall Street Journal, February 18, 2019
(subscription required)

Special tax breaks do little to spur the economy. Now they’re becoming politically unpopular too

Are New Yorkers better off after Amazon’s decision Thursday to cancel its planned headquarters in the Queens neighborhood of Long Island City? It’s a complicated question, weighing the benefits of new high-earning residents against the added strain on local services. Yet the pullout could lead to a decisive triumph for taxpayers across the nation, as city and state officials start to reckon with the popular backlash against corporate tax incentives…..

Opinion: New York Did Us All a Favor by Standing Up to Amazon
Source: David Leonhardt, New York Times, February 17, 2019

Yes, Amazon’s departure will modestly hurt the city’s economy. But it’s also a victory against bad economic policy.

New York Labor Didn’t Shrink from Confronting Amazon
Source: Steven Greenhouse, American Prospect, February 18, 2019

But unions were sharply divided about how to deal with the tech giant.

Local Governments and Economic Freedom: A Test of the Leviathan Hypothesis

Source: Adam A. Millsap, Bradley K. Hobbs, Dean Stansel, OnlineFirst, February 6, 2019
(subscription required)

From the abstract:
Brennan and Buchanan’s Leviathan hypothesis states that “potential for fiscal exploitation varies inversely with the number of competing governmental units” (p. 211) and that “total government intrusion into the economy should be smaller, ceteris paribus, the greater the extent to which taxes and expenditures are decentralized [and]…the smaller the jurisdictions” (p. 185). Using data for US metropolitan statistical areas, we provide the first local-level test of that hypothesis (that we are aware of) that uses “economic freedom” as the dependent variable, which provides a better measure of “total government intrusion into the economy” than the less comprehensive measures (taxes or spending) used in the previous literature. We find mixed support for the Leviathan hypothesis. The number of competing jurisdictions is positively associated with economic freedom, driven largely by the labor market freedom component as opposed to the government spending and tax components (the very measures used in the previous literature).

African-Americans’ economic setbacks from the Great Recession are ongoing – and could be repeated

Source: Vincent Adejumo, The Conversation, February 5, 2019

The financial crisis of 2009, the worst since the Great Depression, was hard on all Americans. But arguably no group felt its sting more than African-Americans, who were already the most economically and financially vulnerable segment of the population going into it.

Even today, a decade since the Great Recession hit, blacks still haven’t fully recovered and remain in a precarious financial condition. What’s worse, Wall Street and policymakers are beginning to worry another downturn may be on the horizon. ….

FAQ: The impact of the government shutdown and of another potential impasse

Source: Rebecca Karnovitz, Atsi Sheth, Madhavi Bokil, William Foster, Nicholas Samuels, Bruce Herskovics, Anne Van Praagh, Moody’s, Sector In-Depth, January 28, 2019
(subscription required)

On January 25, US President Donald Trump signed a short-term spending bill to reopen the federal government of the United States (Aaa stable) until Feb. 15 while negotiations continue on his proposal to build a wall along the country’s southern border. If the impasse is not resolved in the next three weeks, the president said the government will either shut down again or he will use emergency powers under the US Constitution to move forward with his border security proposal. In this report, we answer some of the key questions about the credit effects of the 35-day partial government shutdown – the longest such closure in US history – and the potential ramifications of another shutdown…..

The Budget and Economic Outlook: 2019 to 2029

Source: Congressional Budget Office, pub. no. 54918, January 2019

From the summary:
In CBO’s projections, the federal budget deficit is about $900 billion in 2019 and exceeds $1 trillion each year beginning in 2022. Because of persistently large deficits, federal debt held by the public is projected to grow steadily, reaching 93 percent of GDP in 2029.

Real GDP is projected to grow by 2.3 percent in 2019—down from 3.1 percent in 2018—as the effects of the 2017 tax act on the growth of business investment wane and federal purchases decline sharply in the fourth quarter of 2019. Economic growth is projected to slow to an average of 1.7 percent through 2023 and to average 1.8 percent from 2024 to 2029.

Related:
Visual summary
Director’s statement

DC region, usually buttressed by federal presence, bears brunt of shutdown

Source: Nicholas Samuels,Timothy Blake, Matthew Butler, Pisei Chea, Marcia Van Wagner, Maria Matesanz, Moody’s, Sector Comment, January 24, 2019
(subscription required)

The federal government usually benefits the national capital region’s economy, driving high education and wealth levels, knowledge-based employment and providing a buffer during an economic downturn. But the partial federal shutdown, already the longest ever at five weeks, illustrates the drawbacks of the concentrated federal presence in the District of Columbia (DC) metro area, a significant contributor to the larger US economy. The DC area is absorbing the worst of the federal shutdown with missed pay for employees and private sector contractors reducing personal spending and tempering tax revenue for area governments. Federal workers will miss another payday January 25. In addition, public transit ridership has slowed, and operations at other government enterprises are experiencing disruption

Automation and Artificial Intelligence: How machines are affecting people and places

Source: Mark Muro, Robert Maxim, and Jacob Whiton, Brookings Institution, January 2019

From the summary:
At first, technologists issued dystopian alarms about the power of automation and artificial intelligence (AI) to destroy jobs. Then came a correction, with a wave of reassurances. Now, the discourse appears to be arriving at a more complicated understanding, suggesting that automation will bring neither apocalypse nor utopia, but instead both benefits and stress alike. Such is the ambiguous and sometimes disembodied nature of the “future of work” discussion.

Hence the analysis presented here. Intended to bring often-inscrutable trends down to earth, the following report develops both backward and forward-looking analyses of the impacts of automation over the years 1980 to 2016 and 2016 to 2030 to assess past and upcoming trends as they affect both people and communities in the United States.

The report focuses on areas of potential occupational change rather than net employment losses or gains. Special attention is applied to digging beneath national top-line statistics to explore industry, geographical, and demographic variations. Finally, the report concludes by suggesting a comprehensive response framework for national and state-local policymakers.

Related:
Executive summary
Data appendices
Press release
Infographic

Rural people with disabilities are still struggling to recover from the recession

Source: Lillie Greiman, Andrew Myers, Bryce Ward, Catherine Ipsen, The Conversation, January 28, 2019

After the devastating losses of the Great Recession, the U.S. has enjoyed one of the longest expansions in its recorded history. For nearly 100 straight months, the U.S. economy has added jobs.

But not all groups have shared equally in the recovery. African-Americans and people in rural communities have been particularly slow to recover, compared to their white and urban peers.

Our team at the University of Montana’s Research and Training Center on Disability in Rural Communities published a new analysis on Jan. 10. Our research shows that people with disabilities, particularly those in rural areas, have also experienced a longer, deeper recession and a much slower recovery. ….

Here’s How U.S. Businesses Actually Used Their Tax Cuts

Source: Laura Davison, Bloomberg Businessweek, January 16, 2019

Republicans predicted a growth explosion while Democrats warned of fat-cat investors. Both sides were wrong.

On Jan. 1, 2018, the biggest, most sweeping U.S. corporate tax cut ever enacted went into effect. A year later, we’re able to see how businesses used all that extra cash.

The short answer: to buy back shares. The long answer is slightly more nuanced, but not by much.