Goodyear: What’s Dumb about the Incentives

I’m surprised that virtually no one (with the exception of the Locke Foundation) has bothered to explain why the Goodyear economic incentive is so goofy in economic terms:

Let’s suppose we were to apply this Goodyear-type incentive as a principle: that is, any time a company threatens to leave in order to make the requisite adaptations to cut costs, become more efficient, to be profitable, to reinvest, and hopefully to grow, states/govts decided to pay them not to. Depending on the size of the company, you could pay them a corresponding amount to keep static. They may not need the labor, nor the additional product, nor the inefficiencies, nor whatever else would remain with the subsidy, but nevertheless the government – as a matter of principle – hands out cash to businesses so they don’t change in the name of the narrow-minded idea of keeping jobs.  What would happen? 

Companies would become fat, couch potatoes living off of their parents’ allowance. Wait, I mean they would become static and less likely to adapt in the necessary ways to changing market conditions. They would be more likely to invest in getting gov’t resources than making the wrenching changes required to compete, remain nimble, and especially to remain solvent in a dynamic economy. Competition and growth would be stifled as bloated industries are not sustainable. And such my basic point: subsidy as principle creates zombie companies. The economy loses its dynamism.

The idea that companies, plants, subsidiaries or otherwise should never go away is just not a sane idea. It’s like saying that no one should ever have to fail at anything. This sort of retarded economic utopianism isn’t just bad idea from the perspective of corporate efficiency, either, it overlooks the fact that people have to pay taxes to keep these companies in their bloated, inefficient conditions at the expense of other solvent sectors of the economy (i.e. what people would otherwise spend their money on). It is a cutting off of one’s nose to spite his face. Sure, people in Fayetteville may lose their jobs. A shame. But people in Podunk, Indiana may lose jobs as a plant moves to Fayetteville next month. People in both places (nationwide, for that matter) are likely to enjoy cheaper products and services as a result of both measures. Again: the economy is a dynamic ecosystem that we can’t design. And while some people in Fayetteville may lose their jobs, we cannot continue under the illusion that the government can keep companies from downsizing, adapting and changing. And while politicians may gain from some handout that keeps Goodyear from doing what it might otherwise do, you, me, and everyone in between will benefit very little from concentrating benefits on a large company and a handful of thankful voters.

Finally, we can’t pass over how profoundly unfair it is that mega-corporations enjoy the fruits of corporate welfare when small businesses do not. I’m not suggesting anybody should get handouts. But what I am suggesting is that this behavior isn’t principled at all — so it’s fundamentally unfair on the one hand and just plain stupid on the other. Who knows why Easley vetoed it, because he has certainly benefitted greatly from handing out the peoples’ money to corporations.

Of course, In another instance of being right for all the wrong reasons, NC Policy Watch – not a huge fan of the Goodyear corporate welfare – interviews some guy (Schweke) who is probably not an economist. In fact, the interviewee doesn’t like giving incentives to companies in the manner of Goodyear and Google, but he seems to have come down with the planners fallacy and advocates other forms of economic incentives that aren’t direct givaways — as if their is a right or wrong way to control and manipulate a complex system (and btw, screw the unseen losers):

Well, first of all, it is possible to fashion a solid strategy in the abstract. With a combination of accurate modeling and projections, cautious assumptions, a more open process and a lot of other protections like targeting the incentives at truly disadvantaged areas, job creation mandates, solid worker protections, and “clawback” provisions that allow the state to gets its money back when the company reneges on a deal, incentives can work.   

Horses%#t. Either Bill Schweke has been drinking the Keynes Kool-Aid, or he’s simply confused.