Subsidizing people instead of corporations

February 3, 2012

Reaganomics is so well established that state officials, both Republican and Democratic, don’t call it that anymore. They simply call it smart policy.

Even so, the idea of boosting supply to raise demand, instead of the other way around, is hardly uncontroversial. States spend billions annually on economic development subsidies to try and create jobs. But recent evidence suggests tax breaks, “forgivable loans,” and the like don’t work as well as hoped.

Up to now the thinking went like this: Devoting public funds to pull companies into the state will eventually yield returns, which is to say, yield jobs. Those jobs stimulate spending, which raises demand for the very products and services of the corporation that brought the jobs in the first place. And thus the virtuous cycle is sent into overdrive. That, at least, has been the theory.

But let’s entertain another theory. What if we took those same billions and reversed the equation? That is, what if we just gave the money away. We know what people would do with it. They’d spend it. Consider the efficacy of unemployment checks. Every dollar spent on unemployment checks saw $1.61 in return, according to a 2010 report by Moody’s Analytics. It’s safe to say the same would happen if you gave those billions away.

Which brings us back to a bizarro version of our virtuous cycle. Giving away the money might raise demand, which would increase job creation, which would lead to more demand. Theoretically speaking, that strategy could do more to revive states’ zombie economies than would giving tax dollars to private interests.

So, give the money we were going to give to the corporations to the people! I know, I know. It sounds crazy — and a little immoral. After all, we Americans feel there is something wrong with giving money to people who haven’t earned it. It undermines one of our defining national narratives: that anyone can succeed in the land of opportunity. All you have to do is work for it.

The flip-side of that belief is that giving money to corporations — in the form of tax breaks, “forgivable loans,” etc. — is morally justifiable, because they are investing the money. They’re taking the risk. Sure, they might profit a little, but that’s all right as long as profit leads to growth and shared prosperity.

In terms of policy, we trust corporations more than people. But maybe we shouldn’t, and maybe we should reconsider at the very least the basic utility, not to mention morality, of corporate welfare.

That’s because, according to a December study, states are getting a raw deal from their treasured job-generators. That study, from Good Jobs First, a nonprofit that advocates for more responsible corporate subsidies, says state governments spend more on corporate subsidies than they get in return from corporations. The study looked at 238 economic development programs in 50 states. Some highlights:

  • Less than half impose wage requirements on the companies that receive tax breaks; minimum wage jobs are equal to high-wage jobs.
  • Just over half require companies to provide health insurance, but only 31 development programs demand employers contribute to the cost of healthcare premiums.
  • Many states subsidize companies that would have created jobs anyway or that are job-shuffling — not creating new jobs but repurposing old ones.

The report’s researcher, Philip Mattera, wrote: “If subsidies do not result in real public benefits, they are no better than corporate giveaways.”

Good Jobs issued a follow-up study this month. It was the first-ever database of published reports and government studies that tracked corporate subsidies.

In Connecticut, companies failed to meet job quotas 44 percent of the time in 2010. In Ohio, $82 million went to creating only half the jobs agreed on. Five of six deals in Missouri had not met job goals. Sears got a huge tax break in Illinois to stay headquartered in Chicago right before it announced it would close 100 stores nationwide.

The study goes on and on, and the takeaway is pretty obvious: States are at the mercy of these huge corporations. But what are states to do?

We live in a society that in many ways believes there is no such thing as society. There are only men, women and families, as Margaret Thatcher put it, who must look to themselves first. Ronald Reagan agreed, as he argued against high marginal tax rates and the then-accepted notion of wealth redistribution.

Self-reliance is the classically American ideology that envisions a world of competing self-interests. States are no exception, and in their haste to offer ever-sweeter deals, they end up racing to the bottom.

So why not pursue self-interest through collectivization? That’s what labor does. With business holding all the capital, labor’s only power is collective power.

According to a 2010 report in Remapping Debates, states can forge alliances similar to those in the European Union, where cross-border raids on businesses are largely unheard off. Former Massachusetts state legislator Steven D’Amico, a Democrat, told Remapping Debates that promises not to lowball neighbors would in theory allow states to recoup revenues, fill budget deficits, improve education and modernize infrastructure.

As it is, D’Amico said, the minute one cash-strapped state dares to raise taxes, another state rushes to pick the jobs landscape clean. Such is the paradox of our neoliberal world and its habit of generating vicious cycles: Vulture capitalism leads to corporate welfare, which leads to more vulture capitalism.

It’s time to question an ideology that minimizes the value of individuals but maximizes the value of corporations. The argument against individual welfare is that individuals then won’t want to work. Given the evidence thus far, it appears states are doing the same for corporations. Handing out billions may sound crazy and immoral, but it’s not much crazier or more immoral than what we’re already doing.


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Small business has always been the main driver of job growth/employment growth. That’s the case in the U.S., and that’s confirmed internationally.

Megabucks to corporations don’t drive job growth. Instead, both directly and indirectly, they make the costs of social and economic infrastructure harder to pay.

Posted by larrymotuz | Report as abusive

“Self-reliance is the classically American ideology that envisions a world of competing self-interests.”

Well, it sure seemed to work pretty well since 1776!

“So why not pursue self-interest through collectivization?”

And what do you wind up with? Venezuela, or Cuba.

“That’s what labor does. With business holding all the capital, labor’s only power is collective power.”

No, that’s what unions do, the champions of favoritism and mediocrity among an artificially restricted and mandated labor force workers MUST join in order to work.

Non-union workers who demonstrate their worth by more skilled work or more ordinary work or by profitable ideas or by inspiring those under them, etc. are paid more and/or promoted over others. Unions don’t allow that.

In our schools, unions protect the teachers who just go through the motions. They mandate the laying off of the innovative and/or the more successful in teaching skills, insisting the process be on the basis of seniority. Results are ignored. That’s one of the major reasons American schools are in a race to the bottom of the western democracies.

“States are at the mercy of these huge corporations.”

No, states must COMPETE to create favorable conditions for business, whether corporate, partnership or sole proprietorship because. In America each is still free to take their toys and go offshore when economic incentives make that the logical choice. Some states make bad choices, and others enact Right to Work legislation. If we want to change those incentives, the place to do it is in the tax codes.

And please explain to me on what basis America should believe states that can’t govern within their tax revenues could possibly be allowed to tell businesses what kind of jobs to offer and how many when the demands of making a profit and even staying in business vary so much between good times and bad? Sears DID stay headquartered as promised, and their “promise” of jobs could have only been an estimate as of that time.

Long since, Kodak is bankrupt, and economic conditions have FORCED Sears’ management into a Hobbs’ choice…”downsize or die”. Nobody negotiates in hindsight.

No business can promise what the future holds. Those who would have them do so need to grow up and enter the REAL world, in which there are FEW guarantees.

Posted by OneOfTheSheep | Report as abusive

OneOfTheSheep: Sir, I’m not sure I understand your argument. Are you saying that states should continue to subsidize corporations, and that giving our money back to us is a bad idea? I would also submit that our economic history since 1776 does not show that everything is working well. We seem to have fewer and fewer people (as a percentage of the population) with more and more of the money. And what do we do with those who, for whatever reason, do not compete well and end up poor? Throw them away.?

Posted by steve778936 | Report as abusive

No one else challenged “subsidizing people”, so I will.

Mr. Stoehr observes that “…very dollar spent on unemployment checks saw $1.61 in return…”. Accordingly, he proposes that government :…just give money away…” to one and all. We won’t need companies, jobs, education, skills, effort, intelligence or personal motivation. Why bother ourselves with “gross national product” anymore?

Once upon a time government could not give away any dollar that it had not taken from a someone that actually produced a dollar’s worth of something and paid a percentage of that in taxes to the society that made that possible. That was then, this now. Today all government “financial gurus” need do is put the right kind of paper and ink into printing presses and flip a switch. Endless dollars flow forth backed by absolutely nothing.

So, indeed, why bother with schools, business, a degree, a specialty, a profession, a job, insurance, taxes, etc. if all that is necessary is for the government to print out as many dollars as is necessary that there is no more want, no more poverty, no more scholastic tyranny of grades or SAT scores, no more success or failure? When the government distributes those “dollars”, give everyone the same amount and there is no more “inequality”. The immediate spending of all these dollars creates an economic perpetual motion machine to assure universal affluence and happiness between Canada and Mexico! Presto, no more “wage slaves”!

Well, let’s pour a little reality into this big bowl of stupid. To start with, no teachers, so pretty soon everyone will be illiterate. You can’t text on the internet if you can’t read, because texting is a response. Who is going to grow, transport, clean, or sell food; and why? Without math proficiency how much do you pay? Same thing for gasoline or diesel fuel. Same thing for your car, or truck or a bus. Same thing for electricity. Same thing for entertainment. Same thing for shelter. If no one were a judge, there would be no legal system to adjudicate the inevitable disputes. No planes without builders or pilots or maintenance. No taxis, buses or trains.

The reality is that a functioning society requires people to get off their butts and do SOMETHING, and yet it seems more than half of the present U.S. society, for all economic purposes, already doesn’t! Are you starting to understand what the “new” problem is? Our “modern, “compassionate” society is paying more and more people NOT to work, farm, think, etc. Every such “road to success” is, instead, a dead end.

I remember in school being told about an “incredible amount of dollars that was called the “national debt”; but it didn’t matter because it was money that, in essence, we “owed ourselves”. I didn’t really understand that. In my youth, I figured if it didn’t affect me, personally, in some tangible manner, who cares?

We all should. In researching another post not long ago I found that a vehicle I bought in 1970 for $3,600 would have cost $20,879.63 if bought with 2011 dollars. That original $3,600 price “inflated” 4.8 times over 41 years, or an average of almost twelve percent per year over that period! The house I bought in 1966 for $21,900 sold in 1988 for $178,000. I not only LOST 1,962.04 in original purchasing power, but would have owed tax on a PHANTOM “gain” of $156,100 (less improvements) in that year had I not bought again within two years.

Let’s look at this a different way. $20,879.63 less $3,600 is $17,279.63. And $3,600 is 17-1/4% of $20,879.63. As I see it, “our” government via it’s “management” of OUR money has LOST 83% of it’s purchasing power. If a senior citizen 59 years old had put after-tax money earned honestly in a mattress, had had only that to live on, and lived to be 100,the purchasing power of that “nest egg” would have been simultaneously plundered by “our government” 83%; and they would likely have slowly starved to death as a direct result.

Of course, once someone dies, the heirs never calculate how much the government “owes” the deceased. But our government steals from each and every one of us in exactly the same way every day of every week of every month of every year. What’s worse, BECAUSE it takes more and more dollars worth less and less from us, we pay ever-increasing property taxes on houses that, in an honest world, actually depreciate in value and “service life” with each year until they are torn down and replaced. With a “progressive” income tax, we pay ever more for LESS “income purchasing power”, a scam that reaches absolute political perfection in the non-indexed “minimum tax” concept. And 41 years of “raises”? Mostly financial mirages.

So, I understand why our government wants stupid taxpayers. I disrespectfully refuse to comply.

Posted by OneOfTheSheep | Report as abusive

I suspect that the $1.61 produced by every dollar given away to the unemployed went into the pockets of the big corporations who just kept the cash, thereby making their management look like they really are worth all the millions spent on them. So giving away the money to individuals perpetuates the status quo. Until we can break up the ‘too bigs’, whether it’s banks or giant corporations, small businesses cannot compete. And I don’t mean pizza parlors, I mean companies producing solar panels and finding ways to develop clean energy. They are the ones who will provide good jobs to Americans, who can then afford to buy houses and all the things that go with them.

If we ever give money away to corporate America, there needs to be a rule that says in return, their upper management cannot be paid, in cash or stocks, or by any means whatever, more than twenty times the wage of an average worker.

Posted by lhathaway | Report as abusive

I think this is a great opportunity for there to be a higher level of law like the Uniform Commercial Code that informs businesses what the law of the land is. States and smaller governmental organizations will welcome a law that says that they cannot compete with what amounts to bribery when the states give companies tax breaks or other incentives to locate in them. They know all about the “race to the bottom”, but just like individuals, unless they are grouped together and follow a set of regulations, they can be taken advantage of, just like individuals without any labor laws. Luckily the states have a union they can use to effectively make such rules, the Federal Government. And such laws should be passed. They will be good for everybody.

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