Cuomo Courts Amazon with Our Money

Let’s get this disclosure out of the way first. We use Amazon. We’re Amazon Prime members. Our parent company, Pandamensional Solutions, Inc., uses Amazon print and distribution services for the books it publishes. In all, we spend a lot of money at Amazon and Amazon generates revenue for us. We have certainly benefited from Amazon.

That being said, we don’t think New York State taxpayers will benefit from Andrew Cuomo’s terrible deal to bring Amazon to his state. Enough was revealed when Amazon announced its decision to “split the baby in half” and create two “second headquarters” instead of one. The “lucky” winners were Long Island City in New York and Arlington in Virginia. Amazon promises to hire 25,000 employees at each location. In addition, the on-line retail behemoth also declared it would open a smaller regional hub in Nashville, Tennessee (where they will hire 5,000).

As we said last year (“This is How the Greater Western New York Region Should Respond If Amazon Picks Another Option,” Mendon-Honeoye Falls-Lima Sentinel, October 26, 2017), bowing to Amazon’s extortion-like tactics was absolutely a terrible idea. We stand by our original editorial. We believe the money New York State proposed to spend should have financed a regional competitor to Amazon.

Amazon is one of the largest corporations in the world (even though its stock price has dropped roughly 25% from its high earlier this year). It doesn’t need government handouts to survive (or even thrive). Yet, Andrew Cuomo somehow masterfully negotiated away $2 billion dollars of taxpayer money to woo Amazon. That’s not his money. It’s your money. It’s our money.

This means the good folks of the Greater Western New York region, having been virtually shut out from all state business going forward (courtesy of this year’s election), gets to put up it’s cold hard-earned cash to benefit a large private company and the denizens of downstate who will soon be hired by said firm. It doesn’t require much imagination to understand why Sam Adams and other American patriots had a problem with this whole “taxation without representation” thing.

Does this get your goat? Wait. There’s more.

Let’s talk about Cuomo’s inartful dealing. It turns out, according to various published articles, it will cost New York State taxpayers $48,000 per employee to lure Amazon to Queens (which, despite its name, is where Long Island City is located). Virginia only paid $22,000 per employee and Tennessee only $13,000. So much for Cuomo’s negotiating skills. Apparently, this explains why political scion Andrew Cuomo is merely the governor of a fading state while businessman Donald Trump managed to win the presidency.

Of course, Western New Yorkers shouldn’t complain too much. At least we don’t live in Long Island City. It’s expected, as has already happened in Seattle, local rent will rise dramatically. There are already reports that speculators have begun buying real estate in anticipation of this increased demand.

And yet, for all this subsidization, Amazon will no doubt suffer from a higher cost of doing business in the high cost New York City metropolitan market. These aren’t just build-out costs. These are ongoing costs. For example, those 25,000 new employees will earn an average of $150,000. So, in a way, New York State (i.e., you) will be paying their income taxes. And, because marginal costs for Amazon won’t be going down as a result, expect to see some changes. And not all of them will make you happy. But, hey, it’s your tax money that’s paying for it.

Behavioral economics has a term for this. It’s called the “Winner’s Curse.” It’s well studied. It tends to occur in competitive auctions. Richard Thaler wrote about this in 1988, q.v., “Anomalies: The Winner’s Curse,” Journal of Economic Perspectives). The paper outlines what conditions must exist for the Winner’s Curse to occur. If you’re a seller, you benefit from the Winner’s Curse. If you’re a buyer, you are harmed by the Winner’s Curse.

Jeff Bezos, CEO of Amazon, was the seller. Jeff Bezos probably read Richard Thaler’s paper. Andrew Cuomo acted like he didn’t read Richard Thaler’s paper. Andrew Cuomo was the buyer.

Oh, and, by the way, Richard Thaler is a Nobel Prize winner. He doesn’t appear to be cursed.

Speaking of a curse, there’s an old adage on Wall Street called the “New Headquarters’ Curse.” Supposedly, companies that build a new headquarters soon see their stock price fall or some such similar calamity. This may be more of a myth than a provable correlation. On the other hand, in an internal Amazon meeting, Jeff Bezos was recently recorded saying, “Amazon is not too big to fail … In fact, I predict one day Amazon will fail,”

Perhaps he knows something Andrew Cuomo doesn’t.

In either case, witnessing the slow demise of Facebook, Bezos is probably right. Who will ultimately replace Amazon? We don’t know, but watching it will make a great show.

A show bought and paid for with our money.