Wasteful interstate competition14th November 2018
Arms control agreements occur when there is a divergence between the interests of individual countries and the interests of countries considered as a group. It’s a way of overcoming the “prisoner’s dilemma”. Derek Thompson discusses the concessions that Amazon was able to extract from state and local governments, and then suggests that a sort of fiscal competition disarmament is needed:
Why the hell are U.S. cities spending tens of billions of dollars to steal jobs from one another in the first place?
Every year, American cities and states spend up to $90 billion in tax breaks and cash grants to urge companies to move among states. That’s more than the federal government spends on housing, education, or infrastructure. And since cities and states can’t print money or run steep deficits, these deals take scarce resources from everything local governments would otherwise pay for, such as schools, roads, police, and prisons.
I suppose one could argue that tax breaks don’t use up real resources, but they do make the economy less efficient. And since the location of these investments is roughly a zero sum game, this subsidy competition is wasteful from a national perspective. If only states could come together and agree to unilaterally disarm. Thompson suggests several promising approaches:
First, Congress could pass a national law banning this sort of corporate bribery. Mark Funkhouser, a former mayor of Kansas City, Missouri, envisions the law as the domestic version of the Foreign Corrupt Practices Act, which makes it illegal for Americans to bribe foreign officials.
It’s not entirely clear whether that would pass constitutional muster. . . .
Second, Congress could make corporate subsidies less valuable by threatening to tax state or local incentives as a special kind of income. “Congress should institute a federal tax of 100 percent” on corporate subsidies, Jack Markell, a former governor of Delaware, wrote in The New York Times.
PS. A week ago I said:
The Dems need to adopt a “patriotism, not nationalism” theme.
French President Macron must have been reading my blog, as a few days later he suggested:
Patriotism is the exact opposite of nationalism. Nationalism is a betrayal of patriotism. By saying our interests first, who cares about the others, we erase what a nation holds dearest, what gives it life, what makes it great and what is essential: its moral values.
I like Macron. Of course if I was French I’d hate him. The French always hate their presidents.
Speaking of France, here’s an appropriate tweet:
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