Image courtesy of AP Government Blog
I’m quite selective about posting anything political these days. There is enough noise in the discourse, and I want to pick particularly interesting things to talk about, if anything at all. The Carrier AC deal in Indiana is just such a thing. It’s important to understand not only what happened here, but also how different people feel about it. The differences of opinion here highlight precisely the disconnect between different segments of the American population.
Some Myth Busting – What Really Happened?
Let’s start with the facts, because we should only begin to form our opinions once we understand what actually happened. I’m not going to post sources mostly because it’s too cumbersome, but you’re welcome to fact check anything I’ve written.
Keep in mind that we don’t know everything. We have round figures about tax incentives and jobs, but there is probably much more to the story than we will ever know. That in itself, though, is pretty dangerous, as a side note. That the government can make deals offering corporate incentives without the information being publicly available is pretty worrisome.
Fact 1: Trump just made a phone call. The deal was made by Indiana.
This is not Donald Trump’s doing. Negotiations with United Technologies have been occurring for nearly a year, since they announced they would be moving their plants to Mexico. Most of the work on this deal was done by Mike Pence and others in Indiana. The other thing to understand is that this deal was put together through a method which does not require legislative approval in Indiana. The money is Indiana money, and the tax incentives we know about are to be provided by Indiana, not the federal government. This is important because it leads to a much more significant impact on the Indiana taxpayer, but more on that later.
Fact 2: This deal is not keeping over 1000 jobs in Indiana. The number is closer to 700 at best, probably less.
Carrier is still moving an entire production facility to Mexico, which accounts for over half of the original jobs which were supposed to move. Not only that, part of Carrier’s plan to stay in Indiana is to invest $16 million in the facility to introduce automation, reduce jobs, and reduce costs. These are the United Technologies’ CEO’s words, not mine. So where did the 1000 jobs number come from? Part of the deal for Carrier to stay was that they would get credit for keeping about 300 jobs that they had never planned to move in the first place. It sounds strange, I know, but that’s what happened.
Fact 3: We know about a $7 million tax incentive, but not much else.
We know that Carrier was given a lower tax rate which will allow them to save $7 million over the next ten years. Unlike the bailout which saved the auto industry, there is no plan to repay this money to the taxpayer. The $7 million has to come from somewhere, but we don’t know where just yet. We also know that at least 10% of United Technologies’ revenue comes from government contracts and that they are looking forward to a “better regulatory environment,” whatever that entails. What we do know is that the combination of all incentives provided made it so keeping this one facility in Indiana made financial sense for Carrier. $7 million isn’t enough for it to make financial sense, so there had to be something more, but we don’t know what that was.
Perspectives – How Different People Feel About It
As is the case with any significant event, different people see it differently. There are a number of perspectives here which need to be understood, and I’ve included those perspectives below. After this, I’ll talk about my own opinion and explain what I think about the deal.
Perspective #1 – I get to keep my job!
This is the most fundamental one to understand. The people who get to keep their jobs are happy about the deal. They are able to continue working and making money. Their families are probably excited about this turn of events as well. The thing about this perspective is that it’s simple and unbiased, and so it’s easy to appreciate. This doesn’t require an understanding of macro economics or the larger market. A person gets to keep their job, and for them, that’s a good thing.
Perspective #2 – I’m still losing my job!
The majority of people who were going to lose their jobs before are still going to lose their jobs. They are not pleased about this outcome, and it’s easy to see why.
Perspective #3 – This is some shady government crap designed to keep the fat cats fat!
There are a lot of people who are concerned about the precedent this deal sets. This type of deal harkens back to the days of late 1800s/early 1900s economics where there would be a lot of political economic handshaking that the people weren’t necessarily aware of, or fully aware of. The deal doesn’t actually do anything for workers. No employee is going to see a cent of that $7 million. It also goes against the promises Trump’s campaign made. He boisterously claimed that he would heavily fine and tax companies that decided to outsource jobs, but this deal is doing just the opposite. It provides incentives to stay. People are worried that other companies will begin threatening to leave to get similar incentives. The other thing is that the deal is unregulated, which means United Technologies is basically free to use the incentives they receive however they want. That makes people nervous as well.
Perspective #4 – My state of Indiana gets to keep jobs! Go Trump!
This is perhaps the most vital one to grasp. The sentiment in the state of Indiana, and across the Trump supporter community, is that this is a tremendous win. Carrier is staying in Indiana and not going to Mexico! Yay! The problem with this perspective is the same as with most other such viewpoints, it doesn’t rely on facts. The perspective stops here. It doesn’t encourage research or investigation into the realities of the deal. It doesn’t encourage learning about economic theory and history to understand what kind of impacts something like this might.
The Opinion – This deal is terrible. The jobs will still be lost, and United Technologies just got richer.
With that, let’s talk about my perspective. There are a number of factors to consider, and I’ve tried to outline them as best as I can below.
The U.S. is no longer a manufacturing nation. As a nation becomes more technologically advanced, it ceases to be a significant producer of staple goods and products. Rather, it becomes more of a consumer, and the nature of the workforce shifts away from production. Even the CEO of United Technologies argues that manufacturing jobs are going away; they are not the jobs of the future. This is important because it means we actually don’t want to keep manufacturing jobs in the U.S. They are low paying low skilled jobs that actually contribute to poverty. Contrary to popular belief, there is an argument to be made that outsourcing is economically beneficial for the U.S. Human and labor rights issues notwithstanding, the actual economics often benefit the United States.
Tax incentives and tax penalties are both bad policies. It seems that whenever we think about these situations, we ask the question, “How do we make the company stay in the U.S.?” Instead, the better question is to ask how we can leverage the company’s leaving to create a more educated and advanced workforce. Why low skilled low paying jobs when you can replace them with higher skilled higher paying jobs? Carrier had already offered to provide its employees with severance pay and tuition assistance so they could learn new skills and pursue other employment. Imagine if instead of tax penalties, we required companies shipping jobs overseas to provide 2 years of severance pay and the equivalent of full tuition payment for an undergraduate degree for any U.S. employees losing their jobs. For some companies, this would make it more economical to keep the jobs in the U.S. For others, they would still move, but we would boost the skilled workforce instead, without any tax penalty to other citizens. Our government needs to be more visionary.
This deal does set a terrible precedent and signals the reemergence of an era of economic policy which led us into the recession. The U.S. government cannot indicate that it will provide incentives for the rich to do the right thing. The rich don’t need incentives; it’s a large part of the reason we have such a large wage and wealth gap in this country. The wealthy get access to better economic incentives, and that is harmful. Incentives are for individuals, like the worker, not for large multi-billion dollar corporations.
The jobs are going to disappear anyway, so this deal is particularly stupid. The deal shows a stunning lack of vision from our government officials. If they did it purely as a political move to get some positive press, then I get it, but I sincerely hope they don’t believe it’s actually sound economic policy. Carrier is going to spend $16 million to automate the production facility which is staying in Indiana, and that automation will cause a large number of those manufacturing jobs to disappear, not to mention the 1000+ jobs which are still being sent to Mexico. The problem is that, as that happens, the workers will no longer have as much leverage or collective bargaining force to demand higher severance and educational reimbursement, which they were getting before. You know what’s even crazier about that? The $16 million will probably be paid to another company producing the automation equipment overseas. It’s like one big terrible cycle of stupid.
Anyway, that’s that. Hope this helped you understand a little bit more about what’s going on.