Monday, September 29, 2014

Don't Expect a "Free Lunch".

Earlier this month, Carson City was in ecstasy... Or was Carson City on Ecstasy? We're still trying to figure that one out.

We're also still trying to figure out what we can actually expect of our state government's giant wet kiss to Tesla. Already, Northern Nevada "tourism executives are salivating" over magically full airplanes and wondrous conventions popping up all over Reno. And already, Southern Nevada must endure yet another round of navel gazing over "why we didn't get Tesla" and "what Reno got right that Las Vegas gets wrong".

But what if the navel gazing that's considered "analysis" today is wrong? What if it's not based on actual facts?

Last week, the Los Angeles Times' Chris Kirkham interviewed some actual economists who have done some real analysis on what Governor Brian Sandoval (R) and the Nevada Legislature gave Tesla. Here's some of what they had to say.

"To assume that the economic impact is $100 billion assumes that everybody who was ever going to work at that battery plant was unemployed," said Enrico Moretti, an economics professor at UC Berkeley.

Choosing a 20-year time frame to analyze also makes the projected economic effect look huge compared with any benefits given to Tesla. But that's misleading, said [David] Swenson, the Iowa state economist.

"It doesn't mean anything," he said. "Let's assume I made $50,000 over the last 20 years. Therefore, I'm a millionaire, right?" [...]

"They're treating all this revenue as if it's free profit that's just going to be sent back to everyone as a rebate," said Dan Rickman, an economics professor at Oklahoma State University who specializes in regional economic analysis and reviewed the Nevada studies for The Times.

Further, Tesla will collect benefits upfront, which could starve local governments of vital revenue, said Peter Fisher, an Iowa expert on tax incentive programs.

"They're giving back 99% of Tesla's direct taxes in the first nine years, yet there are going to be all these new workers with families and children," said Fisher, research director of the Iowa Policy Project and a professor emeritus of urban and regional studies at the University of Iowa. "One way or another, I think the locality is going to find themselves with a strain on local government services."

Hmmmm... We wonder where we've heard this before. Oh, yes. That's right. The Atlantic's Richard Florida and the LA Times' Michael Hiltzik were among several actual economic thinkers who were warning us not to buy into #Teslamania. And there's a reason why Good Jobs First has been criticizing the Tesla deal. While Tesla and its technology hold plenty of promise for the future, there's no guarantee that the State of Nevada's $1.2 billion corporate welfare gift card to this company will magically wash away all of Nevada's economic woes.

But hey, what do public policy think tanks and top-grade columnists (who actually know what they're talking about) know about any of this? According to certain local media pundits, they just don't know how to "play long ball" because they refuse to sit back and enjoy the bright & sunny "optics" emanating from The Governor's Mansion.

Even some local officials in Reno & Washoe County are now admitting there are indeed high costs to the Tesla deal. After all, this deal was never truly "free". Roads, schools, mass transit, and water infrastructure will be needed. And last we checked, those are never free.

And we'll eventually discover how much economic benefit the state will gain from this. Hopefully, it will eventually be enough to make this trade-off worthwhile. But now, it's becoming increasingly obvious that the Governor's rosy projections were way too rosy.

Economists often like to joke that there's truly no such thing as a "free lunch". Here in Nevada, it looks like we'll have to learn that lesson the hard way. Again. Even after we took a bite out of that rotten Apple.

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