AOC, Amazon, and Tax Breaks

Alexandria Ocasio-Cortez has made it clear that she has a massive misunderstanding of how tax breaks work. As quoted on camera for CBS News:

"If we were willing to give away away $3 billion for this deal, we could invest $3 billion in our district ourselves if we want to. We could hire more teachers, we can fix our subways, we can put a lot of people to work for that money if we wanted to," Ocasio-Cortez told reporters. "There was no guarantee those jobs for the New Yorkers that were here. We were looking at a deal that was not primarily putting the community first."

Notice this: she thinks the city was going to spend $3 billion, and now they can spend that money on other things. That's not remotely true. In reality, it's $3 billion that they wouldn't have collected as an incentive to gain 25,000 jobs. Tax revenues would have still increased somewhat in the local economy as Amazon's presence increased the revenues of surrounding businesses. Now NY won't get the $3B AND they won't get all those jobs. To be clear, it's future money that they did not save and will never collect.

Note that my main point here is that Ocasio-Cortez isn't familiar with economics... not that I'd expect her to be. As a self-described socialist, she has scant interest in learning the subject. Unfortunately, it's a subject that any politician should have at least a passing familiarity with.

Fortunately, my Facebook friends are somewhat more thoughtful than Ocasio-Cortez. One responded to me as follows, and I reprint it here because it makes more sense than anything Ocasio-Cortez has said:

FYI, Long Island City and the areas around it on the Queens/Brooklyn side are mostly commercial and residential. An increase in local business revenue is likely to result in an increase in rent, which is already pretty high. 

Additionally, the trains that run through there are also pretty trash and have always been. It would have been a nightmare for anyone passing through, which would likely result in ridiculous MTA fare increases, affecting all of NYC. 

Many NYCers already struggle with rent and fare increases on the regular. Amazon would have blown that up beyond belief.

Now, this is good information, and though none of those points were listed by Ocasio-Cortez, I can imagine that they were part of the discussion. However, they're far from convincing, in no small part because these concerns belie what both psychologists and businessmen call "fear of success". Success necessitates change, and change itself is exciting and scary; therefore we imagine the worst possible outcomes at the cost of the far more usual and likely beneficial outcomes.

In the following, keep in mind that NYC and Long Island are very different from my local rural/smaller city environs. Nevertheless, I have some observations based on our experiences here.

I live in an area to which businesses have been locating; including BMW, Michelin, Belk and Dollar General, etc. Some of these are manufacturers, some are distribution centers. They've located in the area as a result of a combination of lower cost of living (therefore lower cost of labor) as well as significant tax breaks.

The results have been dramatic. Tax breaks incentivized the companies to build not only their facilities, but to help shore up the infrastructure that they need. Employees have bought or built new housing. Other businesses that supply these larger companies have moved to the area. Local vendors -- retailers, restaurants, etc. -- sell to employees who have more disposable income. Our roads have improved and continue to do so. Major construction is underway in Greenville to improve the interchange at I-85/I-385 and I-26... something long past overdue. Workers displaced from the sagging textile industry have found new employment.

Keep in mind that tax incentives are neither an expense, nor a subsidy, nor an 'investment'. An investment indicates that you've put some capital in the pot. That's not what happens here. With tax incentives, the monies talked about are those that you don't have, and that you will not collect anyway if the businesses don't build in your area. Rather, tax incentives are a limited promise to temporarily stay out of the way so that the relocating businesses can make investments in your area... investments from which you will benefit.

And from what we've seen, tax incentives work.

What would Amazon have done with that money? To hear their detractors, you would imagine that they'd have pocketed it and gone sailing. But what would have happened is this: Amazon would have used the money that would otherwise have gone to taxes for that limited time ($270M/year, or $2.7B total) to actually construct their facilities and shore up the surrounding infrastructure to support their operations. In order to do this they would have hired local construction firms to do the bulk of the work. These firms would have seen their revenues increase, and the tax revenues for the city would have increased overall. Surrounding businesses would cater to the operation; and once construction was complete, 25,000 workers would have taken their places in new employment, earning money, paying rent, buying products, and paying income tax. At the end of the 10 year period, the city would begin collecting taxes on the revenues generated from Amazon's facility.

--==//oOo\\==--

In my area, we've also seen what happens when you take the other path... that of obstructionism. Keep in mind that this isn't a perfect parallel, but it's close enough to illustrate the point. Originally, I-26 was intended to go from Columbia to Spartanburg through my home county, Union. In the late '60s, local leaders were afraid that the increased traffic would result in many of those things my Facebook friend warns about: increased cost of housing and a general increase in the cost of living. Business leaders warned against the increased cost of labor, and felt that it would make them less competitive. Exhibiting fear of success, they blocked the proposal, and instead of taking the straight shot through Union, the highway was routed around the county borders through neighboring Newberry County.

The result was decades of economic stagnation for Union. The status quo was not maintained. Rather, traffic and business were diverted to the West. When the textile mills inevitably fell to competition from China, the prospects for our future were bleak; and that was the situation for the next 20 years. Shortly after I moved here, in the early '90s, US176 was widened to help alleviate the situation, but the economic damage was severe. Tax incentives have helped to turn some of that around, and we are still recovering. Learning from past mistakes, county planners are dusting off decades-old plans to beef up the route from Newberry and Union to Charlotte; a route that's currently woefully inadequate. These are expensive government projects are now required to lure businesses that the earlier planners had previously pushed away. That's the cost of fear of success.

Conversely, tax incentives cost the taxpayers nothing. It's money that you don't have. You're simply saying to the company, "We're not going to take it from you right now." What you're bargaining with isn't cash, it's a promise of limited interference, and it's free. And companies like Amazon are right to seek such agreements. Without them, the company is faced with moving to a location that is unsuitable to their operations, and will never be made suitable by the government. Look at what Ocasio-Cortez wants to spend the fictional 'subsidy' money on instead; none of them will provide the facilities or infrastructure required to make the location profitable and thus generate the projected tax revenue. Not a single one. The local tax revenue depends on profitability. Not the profitability of Amazon, but that of that location. By waiting, the government stands to gain far more than they would have otherwise. And if your local government doesn't see that... fine: others will.

--==//oOo\\==--

These agreements aren't simple, and they're not suicidal. You bargain the details, so that if the company needs a railroad spur (for example), they pay for it. You condition the deal on certain kinds of income and/or property taxes, and you limit the deal to a specific time duration, etc. In Amazon's case, it would have been 10 years. This gives a company time to build their facilities, move in, and put them to work before you start banging on their door demanding rent like Joe Pesci in The Super. It's a reasonable, don't-be-a-dick way to start a working relationship.

But in it's basics, that's it. You're simply letting them alone to build facilities and put people to work, and the local government doesn't foot the lion's share of the up-front bill as they would if a large number of smaller companies occupied the same space. And when that happens and people are employed, all of the other surrounding businesses benefit from doing businesses with them... not to mention the investments in parks etc. that result because these large companies love seeing their names on things... as well as liking having those facilities for their employees to use.

That 'working relationship' I wrote of above is what Amazon is seeking. It was extremely clear that they weren't going to get it in New York. As reported in the New York Times:

While small protests greeted the company after its initial announcement in November, the first inkling that opposition had taken hold among the city’s Democratic politicians came during a hostile City Council hearing the next month. Protesters filled the seats, unfurled banners and chanted against the company. Not a single council member spoke up in defense of the deal or the company.

--==//oOo\\==--

Amazon did not need to relocate to the NYC area, as they had options, and plenty of other locales are aching to accommodate them, among them, Chicago. The frictions that you feel before you've even cohabitated are only amplified when you get married. And if you can't even get through the speed-dating... move on. So Amazon decided to terminate their plans. Here's a link to their full statement; and it's a well-crafted, highly professional, respectful document. It reads, in part:

We are disappointed to have reached this conclusion—we love New York, its incomparable dynamism, people, and culture—and particularly the community of Long Island City, where we have gotten to know so many optimistic, forward-leaning community leaders, small business owners, and residents. There are currently over 5,000 Amazon employees in Brooklyn, Manhattan, and Staten Island, and we plan to continue growing these teams.

They're not abandoning New York, nor are they walking away from it. They're simply not moving forward with this particular deal.


Contrast that with the sour grapes tweet by Bill de Blasio, with its passive-aggressive insults (implying that Amazon is neither 'tough' nor a 'good neighbor'). This only underscores the wisdom of Amazon's decision. As a general rule, you shouldn't do business with petty people who are more committed to ideology than facts. Those opposed have made the claim, for instance, that Amazon hired no spokespersons from the NY area, although the record shows they did. And they claim that Amazon gave no indication that they would pull out until it happened. However, Amazon was not alone in these negotiations. When a company says "we won't agree to such terms", and you're not willing to bend either, then you should reasonably expect the predictable result. NY Governor Andrew Cuomo seems to have understood the situation more clearly, as reported by Matt Binder. This isn't a Democrat/Republican tribal battle. Cuomo, Blasio, and Ocasio-Cortez are all Democrats. This is a divide between those who are economically savvy and those who aren't.

So from here, it looks like New York has tossed aside a golden opportunity to have someone else spend their coin to lift Long Island City's economy; instead choosing a proven downward spiral where poor people don't get better jobs because they can't afford the current shitty housing and transportation; even though they would be able to afford the better housing and transportation that they would gain given increased employment. My perspective is that the opposition to this deal was based on a combination of economic ignorance, ideological intransigence, and fear of the change that accompanies success. Well, if it's success that New York is afraid of, good news: the way they're going, I see a lot less of it in the future.

Tires

I'm going to take this time to talk about automobile tires... or more accurately, mounting the wheels. It's an important conversation. Recently I took my car in for a set of tires. The end result was horrific, and getting action was tedious and mind-numbingly frustrating.

Before I air dirty laundry, let's get a few facts out of the way:

1. The lug nuts that hold your wheels on the car are intended to be tightened to a very specific value. Too loose and they're insecure. But too tight, and they'll over-stretch, weaken, break and/or damage the bolts; damage your brake rotors (resulting in a pulsating sensation when you brake the car); or even potentially damage the wheel itself. Losing a wheel or locking a brake is dangerous. But being stuck on the side of the road with a flat, unable to change it is dangerous as well. A properly fitted wheel is designed to be removed in less-than-ideal circumstances on the side of the road by an average person using hand tools.
2. A torque wrench, improperly used, is worse than useless. It makes you believe things are correctly adjusted when they're not. And it's VERY easy to improperly use one. Many mechanics are at fault here. The most common failure is to use an pneumatic wrench to over tighten, then "check" with a torque wrench. MAJOR FAIL.

This second point is vital. Unfortunately, many of the resources that claim to teach you how to use a torque wrench don't do it properly. Even Popular Mechanics is at fault here. What they say in the linked article is correct: but they leave out the single most important point, which is...

This is what overtightening can do
to a wheel.
(via OrangeTractorTalks.com)

You can NOT use a torque wrench to validate the tightness of a nut that has already been tightened to its maximum extent. In an extreme example, consider this: if I were to solidly weld a nut to a metal tabletop, and you use a torque wrench to check it for a torque of 70ft/lbs, is it "properly tightened"? The tool will say "yes", every time. Every. Single. Time. In fact, it doesn't even matter what value you're looking for. It will read whatever you want. And you can't use the tool to untighten the nut to verify this. That's not what the tool is for, and not how it works. To make sure it's right, you have to loosen the nut and do it again properly.

So how does it work? How do you use it correctly? It's a three-part process:

1. First lightly fasten all of the nuts. "Half-torque" is the usual phrasing for "snug, but not tight". The important point is that when you go to finish it up and apply the wrench again, the nut must move. Otherwise, you don't know if it stopped moving at the specified torque. It's common sense, really.
2. Then go back and tighten to spec. The spec is found in the owner's manual of the car, but references are available and accessible to any qualified mechanic. To tighten to spec, simply use the torque wrench to tighten the nut until the bending bar needle reads the proper value or the torque wrench clicks (depending on the type of wrench you're using).
3. Go back and tighten them all to spec again. This is important because the wheel may shift a bit as all the lug nuts are tightened, and some that you thought were tight initially may wind up a bit looser the first time 'round.

This WikiHow describes how to do it (almost) properly. I say "almost" because the pictures don't exactly match the text. They show improper gripping of the tool, and the discussion of using a bending bar isn't illustrated with a bending bar. But the text is correct. Many "professional" resources gloss over step 1, presumably because it is common sense. You use a wrench to tighten, not to check.

What Happened To Me

I took my car into a professional tire center in December and got two tires. These were placed on the back wheels, and those wheels were moved to the front steering axles. This is normal procedure which prevents fishtailing on wet roads. My intent was to come back the next month and get the other tires replaced.

The tires had other ideas. Although my tread was good, in January the valve stem gave way on my driver's side front tire. When I tried to change the flat, I found the nuts over-tightened an extraordinary amount, to the point where the nuts wouldn't come loose. Keep in mind here that the recommended torque for these nuts is 77ft/lbs.  I then sprayed them down with penetrating oil and waited 12 hours before trying again. I applied well over 300ft/lbs using body weight and a lever before my lug wrench shattered. After buying a new, larger carbon steel wrench, I tried again. To remove each nut I had to apply full body weight with greater leverage using the larger tool, and another person using a lever. Well over 300ft/lbs torque and several minutes labor were required to remove each nut.

I mounted the half-spare and took it back to the shop. I showed it to the shop manager, who told me that they always use a torque wrench to prevent such problems and, "Here's your problem. This wrench is made of cheap metal". Well, NO. That's NOT the problem. But it did tell me that they don't know how to use the torque wrench. The problem was over-tightened nuts which made it necessary to apply enough force to far exceed the operational limits of the wrench and shatter it. I bought the two remaining tires and told him to loosen every nut on every wheel and re-tighten them properly.

When the job was done, the mechanic came to see me, re-iterated that they always use a torque wrench to prevent such problems, and again pointed out the metal of the wrench. AGAIN, NO. The wrench gave its life to a task made futile by unconscionable maladjustment.

That would have been the end of it had I not received a message from them asking how I enjoyed my visit. I responded that I now feel the vibrations of a warped brake rotor and will not return, but thanking them for the follow-up. They responded yet again that they use "torque sticks" to prevent these problems, and that they'd be happy to correct the problem. Sigh.

This led me to write an email to the owner detailing the above, including a screenshot of the texts. I concluded the email as follows:

As you can see, I'm assured once again that your techs use torque sticks. This lead me to write this letter, because the implications are astonishing. It's undeniable that my lug nuts were tightened with excessive force. The amount of force is inexcusable. And yet, I'm told for the third time that the torque sticks are in use. Well, I don't deny that they are. But there is no way, no how, that they could have possibly been used properly. The laws of Physics forbid it. So one of two things is happening here, neither of them good: 1. You're attempting to limit liability. No problem there, as I have no intent of suing you. I call this a "lesson learned", and will go elsewhere. If you can't admit that there's a problem, then we can't have a serious conversation about fixing it. 2. You honestly don't know that there's a problem. If so, you've got a far bigger problem, because there are other people who use your services, and they're the ones in danger. This situation could have been avoided by simply saying, "Ooh, that's a problem. We'll administer refresher training on the torque sticks." But not once did I hear that there even was a problem. I've been assured several times (in person and in text) that you're using the tools to "prevent the problems" I had. Obviously, I still had the problems, so how can that be believed? Please imagine this: You eat at a restaurant, and get food poisoning. You tell the manager about your nausea and fever, and you've also got good evidence-based reason to conclude that they're not storing food properly. The manager and the cook assure you that, despite any evidence you may see, they're doing everything properly, and the problem must have been with your fork. The manager then offers a free meal to make it right. Would you eat that meal? Me, neither. PLEASE train your folks. They need it badly.

AFTER TWO WEEKS, I received an email 'survey', and simply cut and replied the entire email into it. The following day I received this text:

David, Thank you for bringing your concerns to our attention. I appreciate your comments and the time you took to let us know. Rest assured additional training will be done.

That's all I ask.

--==//oOo\\==--

I have 12 years experience working for a major automotive manufacturer. The company described in the above is a local tire retailer with two locations in the Spartanburg, SC area. Because of their promise to retrain, I'm not naming them here; however, I won't be using them again. However, I can strongly recommend Firestone, Midas, or NTB, all of which have done excellent work for me.