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Tyler Cowen

What Amazon Didn’t Get From New York

With outrage over the failed deal fading, maybe there can be a rational debate about how governments attract business.

Not how government works.

Not how government works.

Photographer: Drew Angerer/Getty Images North America

The collapse of the Amazon deal in New York City has focused renewed attention on public subsidies for corporate relocations. My view is that local governments overuse such subsidies. Even so, I have been struck by the excessively polemical nature of this debate. The reality is that these kinds of subsidies are quite common, and their inefficiencies are usually small.

Consider, by way of illustration, entitlement and discretionary spending on the federal level. A program such as Social Security or Medicare is done entirely by formula, as it should be; large companies cannot lobby for higher payments or lower taxes for their workers. Much of discretionary spending, by contrast, is research grants and procurement contracts. One company or researcher wins, and the others do not. Furthermore, the government will usually offer different prices and terms, based on how much value it thinks the winning bidder can bring to the project. All of which is to say: Discretionary spending requires … government discretion.