BOHANON & CUROTT: Indy is better off for losing the Amazon sweepstakes

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Economic Analysis by Cecil Bohanon & Nick CurottAs we count our blessings this Thanksgiving, one thing we are thankful for is that Indianapolis didn’t land Amazon’s new corporate headquarters. We’re relieved that thousands of transplanted workers are not going to overcrowd central Indiana and drive up the cost of living. Losing the Amazon sweepstakes is a blessing.

Amazon is splitting its new headquarters between New York City and Arlington, Virginia, but only after the cities agreed to shell out at least $2 billion in subsidies. Dividing this by the projected 50,000 Amazon jobs means they’re paying $40,000 per job. Moreover, Amazon will create few jobs for the chronically unemployed in New York or Arlington. It will mainly bring in its own folks or poach employees from other local firms. This will benefit some workers with higher wages.

But now consider the costs. First, granting Amazon subsidies will crowd out other public expenditures. New York City’s and Arlington’s governments will have to reduce spending on productive public goods, including education, health and utilities, to pay for the goodies for Amazon.

Second, Amazon will bring workers from other states, requiring an increase in state and local public spending. The burden of increased government spending will fall on existing businesses or residents. This shifting tax burden might destroy as many jobs as Amazon creates. Politicians are obsessed with landing the large business. But it’s not helpful when it comes at the expense of smaller businesses, which are the primary source of sustainable job creation.

Third, the corporate welfare offered to Amazon opens the door for more subsidy seekers. Allowing government to give out discretionary subsidies to business gives all businesses in the region an incentive to milk the subsidy system rather than serve their customers.

It is not a proper function of government to decide which businesses should receive favors. Public officials lack the ability to identify which businesses will succeed. As Adam Smith said back in 1776: “The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”

The Indianapolis powers-that-be apparently heeded Adam Smith’s advice. Let’s all be thankful.•

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Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.

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