Regular readers of this blog may remember our post of more than two years ago, Who put the “con” in WisCONsin? Foxconn, that’s who Friday, Sep 15, 2017.
It was followed many months later by our post, How Trump got outfoxed and conned by Foxconn, Thursday, Jan 31, 2019.
And it was followed by our post, Oh, Wisconsin. The Foxconn, GOP con continues. Friday, Oct 25, 2019.
Well, here’s the latest part of the story:
CRONY CAPITALISM
Study Says Foxconn Deal Cost Wisconsin $20 Billion in Lost Economic Growth
Once again, government-subsidized projects fail to deliver
VERONIQUE DE RUGY | January 9, 2020In June 2018, President Donald Trump attended the groundbreaking ceremony for a Foxconn factory in Wisconsin.
Ever exuberant in his comments, he called the project the “eighth wonder of the world” and “one of the great deals, ever.”
Always a bragger, his praise was directed at himself for orchestrating the use of state subsidies and tax credits to bring the Taiwanese multinational electronics company to Wisconsin for it to manufacture high-resolution LCD screens.
You should know that the author, Veronique de Rugy, according to her own biography:
“Veronique de Rugy is a Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist.
“Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.
“Her popular weekly charts, published by the Mercatus Center, address economic issues ranging from lessons on creating sustainable economic growth to the implications of government tax and fiscal policies.
She has testified numerous times in front of Congress on the effects of fiscal stimulus, debt and deficits, and regulation on the economy.”
And like the rest of the people at the Mercatus Center, she has zero understanding of Monetary Sovereignty, the financial differences between state vs. federal deficits and debt.
Further, Trump is a lousy business operator, who has destroyed many businesses, with numerous bankruptcies, and has made most of his money passively, by lending his name to businesses run by people who actually know how.
To make this deal happen, the state legislature offered a subsidy package of $4.5 billion, mostly in direct cash payments, and lower-priced land acquired through eminent domain.
In exchange, Foxconn promised to create more than 13,000 middle-class manufacturing jobs, a revived manufacturing sector and loads of tax revenue—the combination of which was projected to produce economic returns ranging from $39 billion to $78 billion over the next 15 years.
If these returns sound like a great deal, you’ve been conned.
You had read all of the above in the above-mentioned posts, as early as September, 2017.
A year and a half after Trump paraded at the site with his golden shovel, the reality isn’t as bright.
Before the ceremony, Foxconn announced that the factory would ultimately be smaller than the one initially promised.
It would also be highly automated, with almost all of the assembly work done by robots, and would only require 3,000 employees—90 percent of them “knowledge workers” such as engineers, programmers, and designers.
There’s nothing wrong with such a modern factory, except that it’s not what Trump and other government officials thought they were buying with taxpayers’ money.
Unlike federal spending, the dollars for which are created out of thin air, at the touch of a computer key, state and local spending is indeed funded by taxpayers.
All things considered, the Foxconn fiasco cost every man, woman, and child in Wisconsin something like $4 thousand each, and about $100,000 per new job –assuming even those relatively few jobs materialize.
An by the way, Wisconsinites, the citizens of Illinois thank you, because a large percentage of the jobs will be taken by residents of nearby Chicago. And it didn’t cost Illinois one cent.
And what about the promised economic growth? Even under the deal’s original terms, there’s no way it would have produced much growth.
That’s because, as is often the case, the original projections offered by economic development consultants only considered the expected benefits from the subsidies; the costs were ignored.
In the real world, however, these subsidies don’t fall from the sky. Every single cent comes from additional taxes paid by actual people. When you consider these costs, the economic outlook for the project dims quite a bit.
And that is why you will see Donald Trump nowhere in the vicinity of the site. He is very big on taking credit, even for things he hasn’t done, but he never, ever will admit to being wrong.
In a recent paper on the issue, my Mercatus Center colleagues Matthew Mitchell and Michael Farren did the math and found that “the $3.6 billion in taxes needed to fund the subsidies will likely decrease Wisconsin’s long-run GDP by about $20 billion over the 15-year life of the handout.
And this estimate doesn’t include the local utility infrastructure, and federal subsidies that total another $1.4 billion.” These numbers are harder to sell to taxpayers than the la-la land ones we hear about before every big subsidy deal.
The Wisconsin Republicans, who foisted this deal on the people of Wisconsin, apparently were incapable of, or loathe to, “do the math.”
Many might have assumed that this particular deal was going to be a disaster because it was orchestrated by Trump and Scott Walker, Wisconsin’s Republican governor at the time.
Yes, it’s true that our current president believes in economic engineering and cronyism—which is another way to describe this kind of deal.
Trump has failed elsewhere when trying to spark growth with subsidies. Take, for instance, the Carrier air conditioner plant in Indianapolis, which received large state handouts under Trump’s pressure, only to end up laying off hundreds of workers.
And so, it would be a mistake to assume that this debacle is specific to Trump or to Foxconn.
It might be a mistake “to assume that this debacle is specific to Trump,” except for the fact that the creator of Trump University and Trump Foundation has the unfailing ability to surround himself with the most dishonest and incompetent people:
Health and Human Services Secretary Tom Price, EPA Administrator Scott Pruitt, HUD Secretary Ben Carson, Campaign manager Paul Manafort, Deputy campaign manager Rick Gates, National security adviser Michael Flynn, Personal lawyer Michael Cohen, Commerce Secretary Wilbur Ross, mobster Salvatore Testa, mobster Fat Tony Salerno, Roger Stone, Jeffrey Epstein, Secretary of Labor Alexander Acosta, Trump Campaign Foreign Policy Adviser George Papadopoulos, and Konstantin Kilimnik.
You might wonder how I, a relative stranger to the project, easily was able to foretell its failure, while the team of Trump/ Walker couldn’t.
Easy. Given Trump’s lack of common and business sense, and Walker’s dubious achievements, their assurances about the project were bound to be wrong.
A new paper in the Journal of Economic Perspectives by Cailin Slattery of Columbia University and Owen Zidar of Princeton University looks at state and local business tax incentives and finds yet again that narrow, firm-specific tax breaks aimed at attracting businesses and boosting employment aren’t the way to go.
The study shows that the largest deals benefit the recipients, but not the overall state economy.
Lower-income states also tend to be more generous with their handouts, only to jack up the cost per job created, sometimes up to as much as $400,000 per job.
Unfortunately, a slogan like “subsidized projects aren’t worth the money you pay for them” doesn’t make for a great sound bite at ribbon-cutting ceremonies.
Now we shall see whether the good citizens of Wisconsin, who were among those supporting Trump at the last Presidential election, are smart enough to stop supporting a man who conned them into an expensive, worthless project.
Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell
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The most important problems in economics involve:
- Monetary Sovereignty describes money creation and destruction.
- Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.
Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:
Ten Steps To Prosperity:
2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)
4. Free education (including post-grad) for everyone
5. Salary for attending school
6. Eliminate federal taxes on business
7. Increase the standard income tax deduction, annually.
8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
9. Federal ownership of all banks
10. Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.
MONETARY SOVEREIGNTY
Foxconn is a high-tech company.
#Monetary Sovereignty - Mitchell 