Economic Development: The Joke’s on Us - The American Spectator | USA News and Politics
Economic Development: The Joke’s on Us

In the HBO show Silicon Valley, there’s a running joke about server farms as gulags. The data center on the show is utterly removed not just from the currents of innovation and finance, but from normal human contact, and it’s managed by a character borrowing his affectless demeanor from Ben Stein in Ferris Bueller’s Day Off.

Even if you know nothing about tech, the vast rows of servers unattended by humans give you all the visual information you need for the setup — these places have all the glamour of storage units. The payoff comes when the developers learn that they’re about to personally share in the delustered fate of their once-promising product. “Why, exactly, would we need to be here,” one asks, in horror.

There’s one group of humans who just wouldn’t get the joke: the economic development teams at most city governments. They’re clueless. Tell them Facebook wants to do something with computers in their town, and they’ll stack up so much cash in wheelbarrows you might confuse one for a Weimar hausfrau going to the store for bread.

Two years ago, Fort Worth did just that, granting Facebook $150 million worth of tax exemptions to build a data center with the power and water demands of a midsize town, with the Legislature kicking in a sweetener. Gov. Greg Abbott even showed up to the groundbreaking to declare that “high-tech companies are welcome to the state of Texas.”

With data centers, the buildings themselves are basically massive cooling systems of such intensity that Facebook once tried building one in the Arctic Circle. So you can imagine the scale of the subsidies required in order to make business sense out of something that makes no other kind of sense — in this case, a subsidized 17,000-acre wind farm to power the thing.

The net of all of this hassle and scale-tilting: an estimated 40 jobs and $2.4 million a year in local tax payments. Even those meager numbers are just an official guess. Nobody follows up on this sort of thing. That is, after all, the beauty of tax breaks, the reason that Democrats and Republicans both love them — there are no monthly checks for gadflies to add up and get mad about. It’s free money.

Governments, quite literally, didn’t even have to account for the giveaways, but that is now changing. The Governmental Accounting Standards Board has started requiring state and local government agencies to total up all of the tax abatements they have granted, and to break them down by category, although it is leaving it up to the agencies to decide whether or not to name specific corporate beneficiaries. (GASB is the private, independent board that sets generally accepted accounting principles for state and local governments in the United States. It has no direct legal authority, but auditors require compliance with it to fully vouch for a government agency’s books.) GASB Statement No. 77 went into effect this year, and as financial statements for the fiscal years just ended start coming out towards calendar year-end, we should get for the first time a look at just how much crony capitalism is going on in state and local government.

There have been a few attempts to figure it out. A few years ago, the New York Times arrived at a figure of $80 billion in tax breaks across the country (with $19 billion just in Texas), while a more recent estimate was $70 billion. But without any standard reporting of tax breaks, much less any required follow up on the actual effect of the giveaways, the actual total is anybody’s guess.

At the state level, the giveaways are often driven by foolish and romantic notions: incentives for movies and video game developers, racetracks, green energy, etc. That’s also true of local giveaways, particularly with stadium deals, but the tax incentives sometimes make superficial sense on the local level.

That is, although taxpayers on the whole lose out when cities play beggar-thy-neighbor, the deals seem to make sense for the city that wins out. In our example, that was the $2.4 million a year in tax payments for Fort Worth. That’s either/or money; either the city cuts the deal, or it never sees that money.

But that focus on the city government’s bottom line leaves out things that could matter more, or are simply unaccounted for.

In this case, there’s the blight of high voltage power lines that serve no public purpose, there’s infrastructure maintenance, there’s opportunity cost, there’s the risk of drought (over which the county is spending $2.3 billion on a backup water pipeline) being exacerbated by the data center’s water cooling system, and there’s just the general downside risk to any massive project, the possibility that your thin projected margins will be swallowed many times over.

In all cases, though, there’s the problem of picking winners and losers, and I think we’ve been picking some losers. Consider a typical case — the massive break or even outright subsidy for a big box retailer such as Walmart. Cities are wrong to treat Walmart coming to town as an unalloyed good.

Now, the left is utterly wrong to criticize Walmart for paying market wages as part of a system that drives down costs and raises the standard of living for the rest of us, especially the working class. There’s no question that in the aggregate, Walmart is a force for good. That doesn’t mean we should subsidize it.

When Walmart crushes the hardware store or the small grocer, we have a tendency to shrug and chalk it up to low prices, when actually, tax giveaways were part of the advantage. You don’t have to romanticize artisanship to believe that we shouldn’t subsidize its destruction.

Over the last 60 or 70 years, we’ve often undone advances in efficiency for the sake of our own enjoyment. Small shops replaced by malls replaced by boutiques. Farm-to-market replaced by canned goods and refrigerated trucks replaced by farm-to-market.

I do think it’s regrettable that, thanks to chains and standardization, every place you go in America looks pretty much like every other place, just with different shrubbery. It probably can’t be helped, but I would like to know how much we’re all paying for this project of emblandishment.

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