Thursday, July 27, 2017

Any way the wind blows doesn't really matter to me, to me

Last week, I submitted an essay to a journal, in which I wrote: "Even the president of the United States cannot rewrite the logic of economic geography."  The logic can be redone, yes--but, only if enormous taxpayer subsidies are involved!

The president's boast about Foxconn investing in Wisconsin is precisely along those lines.

The logic of economic geography says that Foxconn's manufacturing costs will be lower in locations like China and India than in the US.  Therefore, if Foxconn locates a factory in Wisconsin, it has to work against the flow.  It has to make water flow uphill.  For which somebody has got to pay.

Which is exactly how it is being worked out.

Luring Foxconn to Wisconsin will "cost $1 billion to $3 billion in local, state and federal incentives over coming years."  Suck on that, taxpayers!  "If the deal cost $1 billion and the company created 10,000 jobs, the government would spend $100,000 per job."

Did you hear the president talk about this high a cost of job creation?  If this is worth it, then why not extend the same deal to every major employer?  What is good for the goose is certainly good for the gander, right?

Recall that big moment when the president rewrote the logic of economic geography?  You know, when as president-elect he intervened in the Carrier plant brouhaha?  He "saved" American jobs?  The short attention span that the public has means that he can say whatever and do whatever and then move on.  Nothing really maters to him, but matters a lot to us regular people.  The latest news about the Carrier plant?  Have you forgotten that already? :(

I expect Bernie Sanders to maintain silence on the Carrier plant issue as well as on the Wisconsin story.  After all, Sanders was the political left version of trump's "Made in America" bullshit salesmanship. I even expect the entire Democratic Party to stay away from this issue because, well, we know what happened to Hillary Clinton when she spoke the truth--like when she said about coal miners:
Those people labored in those mines for generations, losing their health, often losing their lives to turn on our lights and power our factories. Now we've got to move away from coal and all the other fossil fuels, but I don't want to move away from the people who did the best they could to produce the energy that we relied on.
In a trump America of alternative facts, it is more important than ever for politicians to never even accidentally speak the truth!

Is this the real life?
Is this just fantasy?
Caught in a landslide,
No escape from reality

I later read this in a Bloomberg report:
Wisconsin is paying as much as $1 million per job ... Wisconsin shows that Foxconn isn't building the American Dream -- America is building the Foxconn machine.


Ramesh said...

The issue is more nuanced.

What Wisconsin is doing is give income tax credits - one for employment generation and the other for capital investment. Its not giving any direct handouts, like for example free land or something like that.

So if Foxconn does not come at all to Wisconsin, which is the base case scenario to compare, then it would not have got any income tax at all.

By now giving these incentives, Wisconsin is not "losing" anything. It is only an opportunity loss. But that's a circular argument as if Foxconn didn't come, it wouldn't gain anything either.

Having said this, I must hasten to add that this is very poor policy It does not create long term benefits. As soon as the benefit period expires, companies will simply shut shop and move on. What governments really ought to do is to create competitive advantage in their cities or states or countries - large pool of trained manpower, a work ethic that's better than elsewhere, a supply chain ecosystem that others can't match (China's great advantage today despite their labour costs being very high now), ease of doing business, corruption free environment, proximity to markets, etc etc - all the boring economic fundamentals. That's when long term jobs will come and stay. But of course, that doesn't win you headlines.

Incidentally, I know something of Terry Gou. He is a completely mercenary businessman with zero interest in anything other than personal profits. He has played all the wily politicians in China like a puppeteer. Trump is easy meat for him - look at all the flattery and ass kissing he is doing. He is not going to invest $10 bn in Wisconsin; that's for sure.

Sriram Khé said...

Your comments about Terry Gou are consistent with everything that I have read. It is amazing to me that when this is such common knowledge about a shady mercenary character, this president would tightly embrace him and tout his accomplishment in bringing manufacturing jobs! But then to associate himself with sleazy characters is very trumpian anyway!

Other commentaries note that even if Foxconn comes, it will employ way more robots and way less labor, which does not surprise me one bit.

Yes, the long game does not win headlines or elections :(