Sunday, August 20, 2017

The Fox-con isn't for good policy. It's because of Walker's drop in polls.

I wanted to add some visuals and breakdowns of information related to the Foxconn package, that may help you (or your friends) understand the full fiscal picture better.

The first involves some good graphics and analysis from UW Professor Menzie Chinn at Econbrowser Professor Chinn uses the analysis of taxpayer costs and added jobs and tax revenue from the Legislative Fiscal Bureau to show the initial hole the state falls into, and how it eventually recovers those losses…if everything goes right.

Later on in the post, Professor Chinn brings up another good point.
In principle, [both benefits and costs] should have both deflated, and discounted, but I think in order to make the calculation as transparent as possible, they did what they did. Of course, had they deflated, and discounted, the cumulative net benefit calculation (or NPV) would have looked worse.
That’s exactly right, because 1. There is no limit on how many tax credits can be taken out in a given year, so they could be used up quicker if costs/salaries rise. 2. On the flip side, if salaries do not keep up with inflation, that means there is a bigger hole that has to be dug out of, because the higher payments that come out from 2017-2024 are “more costly” than whatever the state is making back in 2040.

Now let's throw in this analysis from the Wisconsin Budget Project, which illustrates how much has to go right for the Fox-con to pay off, and also how much we stand to lose if it doesn’t.
One of the important questions is the matter of making an estimate of the relationship between Foxconn’s hiring and payroll and the employment gains that Foxconn’s spending will generate elsewhere. The consulting company’s analysis for Foxconn estimates a multiplier effect of 2.7. What that means is that the creation of 13,000 jobs at Foxconn would generate an increase of 22,000 jobs elsewhere, for a total of 35,000 jobs.

With that in mind, the easiest way to consider scenarios with fewer workers at Foxconn would be simply to apply the same multiplier in each case. However, there are two major components of the multiplier effect. One is the employment at businesses that supply components or services to Foxconn. The other component is the positive impact on the local economy of the spending by Foxconn employees. If Foxconn builds a factory with state-of-the-art automation and fewer employees, that will significantly reduce the positive effects of having an influx of employee earnings flowing through the economy, but it will not necessarily cause a large decrease in Foxconn’s contracts with other businesses. (But keep in mind that those businesses will not all be in Wisconsin.)

With those considerations in mind, we decided to assume that a 50 percent reduction in the number of Foxconn workers would result in a 25 percent reduction in the employment gains resulting from the new economic activity. And for alternative #2 we assumed that if there are just 3,000 Foxconn employees there would be a 50 percent reduction in the indirect employment gains.
The Budget Project also illustrates just how much Wisconsinites would be left holding the bag if Foxconn decided to cut and run from Wisconsin once the handouts ended.
Considering how quickly television and other flat screen technology has been changing, there is a significant risk that the proposed Foxconn plant will not be operating long enough to come close to offsetting the state’s massive investments. Assuming the new plant does not become obsolete even before 2034, that year is when the risk of Foxconn pulling up stakes and going elsewhere is probably greatest because it is when the state would stop writing the company huge annual checks for 17 percent of payroll costs. When a company’s business plan relies on such large subsidies, how confident can we be that they will remain in Wisconsin when those subsidies are gone?...

One of the surprising findings of our analysis is that the net loss for Wisconsin taxpayers from Foxconn exiting Wisconsin in 2034 is in the same ballpark regardless of which of the three scenarios one assumes..... The difference between the three scenarios we analyzed becomes much clearer in later years, after the state stops paying job credits that are directly proportional to the size of its payroll.
And these analyses does not even consider which services and economic activities get hurt as a result of so much money and business being funneled over to Foxconn. When you look at the up-front costs that Wisconsinites have to take on for the Fox-con, there is no honest way that a giveaway of this size is justifiable.

But Scott Walker and the Wisconsin GOP don’t care about dealing with the damage that will happen to the state over the next few years due to this scam, as long as they get a nice kickback for their next campaign and/or head out the revolving door to some lobbying gig or other wingnut welfare where they can cash in. And make no mistake, this Fox-con is not about economics or good policy, but is a desperate attempt to reverse bad poll numbers.

If these GOP vandals shove through the Fox-con, it'll be Dems and others in the real world that'll be forced to be the adults to clean up from the fiscal and environmental mess (if we’re even able to). It’s sickening cynicism, but would we expect any less from the ALEC crew at this point?

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