7.8.17

PROJECT ANALYSIS IS HARD WORK.

Put another way, rosy corporate scenarios are not the same thing as cost-benefit analyses.
The economic impact study that provided this figure came with a high status logo on its cover, too, that of the global accounting and consulting firm EY.

Given that big number, though, it’s still far from a no-brainer for Wisconsin public officials to jump up and claim credit for this one. That’s because the economic impact would be the same if Foxconn paid for everything with its own money. And it’s not going to.

There could be more than $3 billion of Wisconsin taxpayer subsidies thrown into the project. Could all that subsidy, spread around a thousand Wisconsin businesses, generate twice as many good jobs as the Foxconn project?

What the people of Wisconsin needed was a cost-benefit analysis to answer that question. What they got was Foxconn’s economic impact study — and few things are as useless as one of those when trying to make a good decision.

But these impact studies are enduringly popular. A huge number is exactly what promoters are eager to pitch when they go looking for taxpayer money.

“Our lawmakers, if they ever hear of an economic impact study, they should just recoil in fear,” said John Spry, economist and finance professor at the University of St. Thomas. “They are being hoodwinked.”

No one bothers to teach students in economics how to do one of these, Spry said, because it’s hard to justify an analysis that omits the very fundamental idea of how much a rational person would be willing to pay for whatever benefit they got. He described, with genuine exasperation, some memorable economic impact studies he has seen crop up in recent years.
To the contrary, being able to assess opportunity costs is exactly what economics students learn to do; and more than a few young men rushed into their capstone papers eager to tout stadium subsidies, only, once it dawned on them that they ought not generalize from their own enthusiasm, to figure out just how little economic benefit a facility open only in summer, or for eight to ten games in fall, produced.

The same sorts of arguments apply, where a new flat screen factory is concerned.
For economists like Timothy Bartik of the W.E. Upjohn Institute for Employment Research in Michigan, one big unanswered question is what other beneficial use the state could put $200 million a year to, rather than mailing it to the home office of a global electronics manufacturer.

The state might miss out on the economic benefits of having that $200 million go into K-12 education. Or maybe the Foxconn subsidies get funded by higher individual income taxes, costing the state the economic impact of money that won’t be spent on home improvements, new cars or other household items.

The way you get to a bottom line on this kind of choice is to do a cost-benefit analysis. They sound costly and complex to do, but the concept is really no more complicated than just the “Is spending this money worth it?” exercise that business owners do all the time.

No business owner would be happy with just an economic impact study. Imagine the boss receiving a recommendation from the CFO to build a new facility for all the great benefits it would provide, but the memo didn’t quite get around to saying it would also cost $10 million to build.
That last is true in part: what is the return on investment from that $10m?  Likewise, it appears as though the company's "economic impact study" claims "We're going to hire 10,000 people" and a proper cost-benefit analysis asks "From where?" and "In this factory's absence, what might those people otherwise be doing?"  But we have to push the discussion further.  Sure, some of those Foxconn employees might be living in Illinois, and they're going to pay Illinois income taxes.  But in the absence of a Foxconn plant employing Illinoisans, will there be welfare migration into Wisconsin as Illinois continues to come apart.  And thus do capstone papers not write themselves.

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