Tag Archives: boost

New York’s Buffalo Billion initiative has been underwhelming

New York’s Buffalo Billion plan has come under fire amidst an ongoing corruption probe looking into whether some contracts were inappropriately awarded to political donors. The investigation has led to funding delays and there are reports of some contractors and companies rethinking their investments. But even without these legal problems, it is unlikely that the Buffalo Billion initiative will remake Buffalo’s economy.

Buffalo, NY has been one of America’s struggling cities since the 1950s, but before then it had a long history of growth. After it became the terminal point of the Erie Canal in 1825 it grew rapidly; over the next 100 years the city’s population went from just under 9,000 to over 570,000. Growth slowed down from 1930 to 1950, and between 1950 and 1960 the city lost nearly 50,000 people. It has been losing population ever since. The Metropolitan Area (MSA), which is the economic city, continued to grow until the 1970s as people left the central city for the surrounding suburbs, but it has also been losing population since then. (click to enlarge figure)


Buffalo’s population decline has not escaped the notice of local, state and federal officials, and billions of dollars in government aid have been given to the area in an effort to halt or reverse its population and economic slide. The newest attempt is Governor Andrew Cuomo’s Buffalo Billion, which promises to give $1 billion of state funds to the region. The investment began in 2013 and as of January 2016, $870.5 million worth of projects have been announced. The table below lists some of the projects, the amount of the investment, and the number of jobs each investment is supposed to create, retain, or induce (includes indirect jobs due to construction and jobs created by subsequent private investment). This information is from the Buffalo Billion Process and Implementation plan (henceforth Buffalo Billion Plan).


The projects listed have been awarded $727 million in direct investment, $150 million in tax breaks and $250 million in other state funds. The total number of jobs related to these investments is 9,900 according to the documentation, for an average cost of $113,859 per job (last column).

However, these jobs numbers are projections, not actual counts. This is one of the main criticisms of investment efforts like Buffalo Billion—a lot of money is spent and a lot of jobs are promised, but rarely does anyone follow up to see if the jobs were actually created. In this case it remains to be seen whether reality will match the promises, but the early signs are not encouraging.

Executives of the first project, SolarCity, which received $750 million of benefits and promised 5,000 jobs in western New York, appear to have already scaled back their promise. One company official recently said that 1,460 jobs will be created in Buffalo, including 500 manufacturing jobs. This is down from 2,000 in the Buffalo Billion Plan, a 27% decrease.

The SolarCity factory is not scheduled to open until June 2017 so there is still time for hiring plans to change. But even if the company eventually creates 5,000 jobs in the area, it is hard to see how that will drastically improve the economy of an MSA of over 1.1 million people. Moreover, page eight of the Buffalo Billion Plan reports that the entire $1 billion is only projected to create 14,000 jobs over the course of 5 years, which is again a relatively small amount for such a large area.

Contrary to the local anecdotes that say otherwise, so far there is little evidence that Buffalo Billion has significantly impacted the local economy. Since the recession, employment in Buffalo and its MSA has barely improved, as shown below (data are from the BLS). There has also been little improvement since 2013 when the Buffalo Billion development plan was released. (City data plotted on the right axis, MSA on the left axis.)


Real wages in both Erie and Niagara County, the two counties that make up the Buffalo MSA, have also been fairly stagnant since the recession, though there is evidence of some improvement since 2013, particularly in Erie County (data are from the BLS). Still, it is hard to separate these small increases in employment and wages from the general recovery that typically occurs after a deep recession.


The goal of the Buffalo Billion is to create a “Big Push” that leads to new industry clusters, such as a green energy cluster anchored by SolarCity and an advanced manufacturing cluster. Unfortunately, grandiose plans to artificially create clusters in older manufacturing cities rarely succeed.

As economist Enrico Moretti notes in his book, The New Geography of Jobs, in order for Big Push policies to succeed they need to attract both workers and firms at the same time. This is hard to do since either workers or firms need to be convinced that the other group will eventually arrive if they make the first move.

If firms relocate but high-skill workers stay away, then the firm has spent scarce resources locating in an area that doesn’t have the workforce it needs. If workers move but firms stay away, then the high-skill workers are left with few employment opportunities. Neither situation is sustainable in the long-run.

The use of targeted incentives to attract firms, as in the aforementioned SolarCity project, has been shown to be an ineffective way to grow a regional economy. While such incentives often help some firms at the expense of others, they do not provide broader benefits to the economy as a whole. The mobile firms attracted by such incentives, called footloose firms, are also likely to leave once the incentives expire, meaning that even if there is a short term boost it will be expensive to maintain since the incentives will have to be renewed.

Also, in order for any business to succeed state and local policies need to support, rather than inhibit, economic growth. New York has one of the worst economic environments according to several different measures: It’s 50th in overall state freedom, 50th in economic freedom, and 49th in state business tax climate. New York does well on some other measures, such as Kauffman’s entrepreneurship rankings, but such results are usually driven by the New York City area, which is an economically vibrant area largely due to historical path dependencies and agglomeration economies. Buffalo, and western New York in general, lacks the same innate and historical advantages and thus has a harder time overcoming the burdensome tax and regulatory policies of state government, which are particularly harmful to the local economies located near state borders.

Buffalo officials can control some things at the local level that will improve their economic environment, such as zoning, business licensing, and local taxes, but in order to achieve robust economic growth the city will likely need better cooperation from state officials.

State and local policy makers often refuse to acknowledge the harm that relatively high-tax, high-regulation environments have on economic growth, and this prevents them from making policy changes that would foster more economic activity. Instead, politicians invest billions of dollars of taxpayer money, often in the form of ineffective targeted incentives to favored firms or industries, with the hope that this time will be different.

Discovering an areas comparative advantage and creating a sustainable industry cluster or clusters requires experimentation, which will likely result in some failures. Local and state governments should create an environment that encourages entrepreneurs to experiment with new products and services in their region, but they shouldn’t be risking taxpayer money picking winners and losers. Creating a low-tax, low-regulation environment that treats all businesses—established and start-up, large and small—the same is a better way to grow an economy than government subsidies to favored firms. Unfortunately the Buffalo Billion project looks like another example of the latter futile strategy.

Ignoring the adverse effects of the minimum wage may cost taxpayers billions

Today the Obama administration issued a statement calling for a ‘First Job’ funding initiative to connect young Americans with jobs.

The statement laments how difficult it is for young people to find employment and emphasizes how important a first jobs is for future career success:

“After the worst economic crisis of our lifetimes, the United States is in the midst of the longest streak of private-sector job growth in our history, with more than 14 million new jobs created during the past 70 months. But for too many young people, getting a first job—a crucial step in starting their career—is challenging.

When a young person struggles to get their first job, it can have a lasting negative impact on her lifetime income as well as her motivation, pride, and self-esteem.”  

I brought up this same issue 3 months ago in a previous blog post that highlighted the differences in teenage unemployment across cities. And unsurprisingly there are substantial differences – in 2012 teenage unemployment was over 45% in Atlanta and only about 26% in Houston.

So what’s the proposal? A $5.5 BILLION grab bag of grants, skills investment, and direct wage payments to put young people to work. Naturally, the most obvious solution to the teenage unemployment problem is never mentioned – eliminating the minimum wage. In fact, nowhere is it hinted at that the minimum wage may be contributing to teenage unemployment, despite several recent studies affirming this theory.

From a 2013 study:

“Thus, for older workers, the two effects offset one another, and there is little impact on their long-term employment rate. For teenagers, the extra reduction in hiring implies that their employment rates decline. The results are very similar for males and females.”

From a 2015 study:

Using three separate state panels of administrative employment data, we find that the minimum wage reduces job growth over a period of several years”

From a 2015 study:

We find that a higher minimum wage level is associated with higher earnings, lower employment and reduced worker turnover for those in the 14–18 age group. “ (My bold)

From a 2015 study:

I apply the estimator to estimate the impact of the minimum wage on the employment rate of teenagers. I estimate an elasticity of -0.10 and reject the null hypothesis that there is no effect.”

This glaring omission is unconscionable in light of the abundant evidence that the minimum wage harms the least skilled, least experienced workers, which includes teenagers.

As a Prof. David Neumark stated in a recent WSJ op-ed:

“…let’s not pretend that a higher minimum wage doesn’t come with costs, and let’s not ignore that some of the low-skill workers the policy is intended to help will bear some of these costs.”

An all too common occurrence in US policy is that government intervention causes a problem that the government then tries to solve with additional intervention, completely ignoring the possibility that the initial intervention was the source of the problem. In this case, price controls at the bottom of the labor-market ladder have prevented young people from getting on the first rung, so now the government wants to wheel over a $5.5 billion dollar stool to give them a boost.

While this series of imprudent events is not surprising, it’s still frustrating.

Has the Sequester Hurt the Economy?

Several weeks ago, Steve Forbes argued that the federal government spending cuts known as the “sequester” are actually having beneficial effects on the US economy, and not slowing growth as many economists and pundits in the media have claimed. Forbes’s statement attracted critics, and many economists have expressed skepticism about the sequester too. One economist even went so far as to say, “The disjunction between textbook economics and the choices being made in Washington is larger than any I’ve seen in my lifetime.”

So have the sequester cuts hurt the economy? One possible answer comes from a new paper by Scott Sumner of Bentley University. Sumner argues that cuts to government spending don’t have serious deleterious macroeconomic effects when the Federal Reserve is targeting inflation. This is because the Fed ensures that prices stay stable under an inflation targeting regime, which keeps demand stable even in the face of government spending cuts. Similarly, when the Fed stabilizes the price level it also offsets any beneficial effects that fiscal stimulus might have, which helps explain the lackluster results from the 2009 American Recovery and Reinvestment Act (aka the “stimulus”).

Implicit in Sumner’s theory is that expansionary austerity, or the idea that the economy can grow even in the face of large government spending cuts, is indeed possible. Some of my colleagues at the Mercatus Center have described other ways in which expansionary austerity is possible.

Luckily, there are still things Congress can do to improve the economic outlook, even as spending cuts take hold. Lawmakers can enact policies that boost the performance of the real economy. By this I mean policies that increase the amount of real goods and services the economy produces, as opposed to policies that affect demand (i.e. spending).

One example is reforming the regulatory system, which discourages production of all sorts. With over 174,000 pages of federal regulations in place, there must be a few obsolete or duplicative rules that can be eliminated to relieve the burden on businesses and entrepreneurs. Congress could also reform the tax code, with its perverse incentives and countless carve outs for special interests.

Starting new government programs isn’t likely to do much to benefit growth. New projects take too long to implement, politicians waste too much money on silly boondoggles, and monetary policy will likely offset any beneficial effects anyway. If Congress wants to do something to improve growth, it should focus on creating a regulatory and tax environment that encourages investment and entrepreneurial risk taking.

New York’s Population Challenge

Last week at City Journal, Aaron Renn explored the New York region’s loss of domestic residents since 2000. He demonstrates that one of the world’s economic powerhouses is falling victim to the trend of domestic outmigration that New York state is seeing. Between 2000 and 2010, the New YOrk region lost 2 million domestic residents and they took with them billions of dollars of income. In Freedom in the 50 States, Will Ruger and Jason Sorens rank New York as the country’s least-free state based on its regulatory and tax regimes. They point to its tax burden — the highest in the nation —  and indebtedness as a factors contributing to the state losing 9-percent of its domestic population on net since 2000. Renn also posits that high tax rates are a leading cause for residents leaving New York City, many of them moving to Sun Belt states.

While the New York City region is only maintaining a positive population growth rate through births and international immigration, it’s far from the case that no one is willing to suffer its high tax rates in exchange for the city’s economic dynamism and cultural amenities. Rather the city’s exorbitant rental rates demonstrate that millions of people are willing to pay a premium to live in the region in spite of city and state policies that hamper economic development.  The vacancy rate for apartments is below 2-percent, well under many estimates for the natural vacancy rate. While lower taxes at the state and municipal levels in the New York region would reduce the flow of domestic outmigration at the margin, they would also increase competition for the city’s coveted apartments.

Are New York City’s amenities so desirable that its policymakers don’t need to worry about losing more residents to other states than they’re gaining? Its own not-so-distant history indicates that even the Big Apple is susceptible to the ravages of population loss. From 1950 to 1980, the city’s population fell from 7.9 million to 7 million, with most of that loss occurring in the 1970s. This time period corresponded with sharp increases in crime and the city’s famous default. These are predictable consequences of urban population decline, particularly in indebted cities where a decrease in tax base equates with inability to meet obligations to creditors .

While pursuing policy reforms designed to boost the state’s competitive standing to attract businesses and residents is a key piece of ensuring the city does not fall prey to population exodus, perhaps most importantly, city policymakers should examine their land use restrictions that limit would-be residents from moving to the city. Over the past decade, New York’s housing stock has grown only 5.3% in the face of the highest rental rates in the country for much of this time period. Historic preservation, density restrictions, and an onerous review process prevent the city’s housing stock from growing to meet demand.

Renn points out that most of New York’s domestic inmigration comes from midwestern cities and college towns across the country. Presumably many of these new residents are early in their careers and are on the margin of being able to afford New York rents. If New York housing were more attainable, more American young people would select the city as the starting place for their careers and it would attract more of the foreign immigrants essential to maintaining the city’s diversity and innovation. Ed Glaeser explains that those states that are successfully attracting more residents, like Texas and Georgia, are also those in which developers are able to build more housing with fewer restrictions. By allowing more housing in New York City and the surrounding areas, policymakers would both protect their tax base and help to maintain the city as a center of innovation and economic growth. In their effort to retain citizens — and particularly high-income retirees — New York City and New York state policymakers will need to revisit their punishing tax schemes. But at least as importantly they should focus on allowing those residents who would like to move to the city for economic and cultural opportunities to be able to afford to do so.





The most egregious budget gimmicks of 2012: pension underfunding

Bob Williams at State Budget Solutions has a nice chart that shows by how much states are underfunding their pensions. Budgets are always about tradeoffs. But not funding the pension is similar to skipping credit card payments without cutting into your daily expenses at all (or figuring out how to boost your income).

Here’s the link.

In addition, the article notes all the other ways states  have of papering over deficits – floating bonds, revenue estimates, shifting dates around. This isn’t confined to the usual suspects (Illinois, New Jersey, California). There are plenty of examples to share from across the country.



Using incentives to save the prairie dogs

Growing up in Western Colorado, I was never aware that prairie dog populations were threatened. Frankly, I always considered them to be about one step up from rats. In fact though, the Utah prairie dog is an endangered species, causing challenges for developers in Iron County.

Until recently, landowners in Utah had to obtain permission to build on land that is considered prairie dog habitat in accordance with the Endangered Species Act. They would have to relocate the animals to a suitable new habitat, after which they would typically be allotted only a 60-day window in which to begin building, resulting in uncertain property rights and incentives to rush development. Now, developers can instead purchase Habitat Credits, or the right to build on current prairie dog habitats, from farmers and ranchers who own land suitable for prairie dogs.

The Associated Press reports:

The program works like a bank, allowing private landowners to sell “credits” if they own prairie dog habitat they’re willing to protect. Buyers who purchase those credits gain permission to develop other habitat areas on their own timeframes.

The number of credits up for purchase and the cost of the credits will vary depending on the population of prairie dogs on the land.

The arrangement would fulfill the Endangered Species Act requirement that bars destruction of a listed species’ habitat without developing new habitat.

Environmentalists are hopeful that this program will boost prairie dog populations enough to get them off of the endangered species list, and the policy change has made life easier for developers. Furthermore, this change is good for residents of Iron County, as reducing obstacles to development will result in an improved built environment.

This seemingly simple policy change illustrates the power of property rights. Assigning them in a way to better align incentives benefits everyone by allowing for improvements in land allocation.

Pension News From Around the Country

In California:

LOS ANGELES — Gov. Jerry Brown offered a far-reaching proposal on Thursday to reduce the cost to government of public pension programs, calling for an increase in the retirement age for new employees, higher contributions from workers to their own pensions and the elimination of what he termed abuses that have allowed retirees to inflate their pensions far beyond their annual salaries.

In Kansas:

TOPEKA — Kansas Gov. Sam Brownback and officials of the state’s public pension system aren’t saying publicly whether they favor issuing bonds to help close a close a long-term funding gap.

In Massachusetts:

The state House of Representatives today unanimously approved a plan to tighten the state’s pension provisions and raise the age that lawmakers and public employees are eligible for retirement. The move follows passage of a similar plan by the Senate earlier this fall. Both plans would only affect future hires, not current employees or retirees.

The House version passed today would boost the retirement age from 55 to 57 and could ultimately save $6.4 billion over 30 years, House lawmakers estimate. The Senate version went farther, raising the minimum age for retirement to 60.

In Mississippi:

JACKSON, Miss. (AP) — A group charged with studying the long-term viability of the state pension system is expected to release a formal report in two weeks.

During a meeting Monday, study commission chairman George Schloegel said he thinks several changes may be needed to shore up the Public Employees Retirement System.

The Clarion-Ledger reports…lawmakers alone can make changes, and it’s unclear whether they will make any radical alterations.

In North Carolina:

North Carolina is one state that’s planning to use a high-tech solution to look into the future and the present. The state’s Department of State Treasurer announced Thursday, Oct. 27, it will implement customized analytics software to better protect pensions for 850,000 state and local government employees….According to SAS, the customized software suite North Carolina will be using includes risk and performance measurement models for fixed-income equity, private markets and hedge funds.

And, in Rhode Island:

PROVIDENCE, R.I. — The General Assembly Joint Finance Committees will resume discussion of pension overhaul legislation Tuesday morning with a hearing on parts of the proposal that deal with municipal-run pension plans….Mayors have said they want the ability to make changes similar to what is proposed for state-run plans, such as suspending cost-of-living adjustments.

(here is Emily with more on RI)

Here, again, is Jeff Miron’s estimate of the date at which each state’s debt-to-GDP ratio will exceed 90 percent (the value at which economists believe debt tends to begin to hamper economic growth).


Unlike the calculations that the states themselves use, Miron’s calculations use the more-realistic discount rate assumptions of Novy-Marx and Rauh.

(HT to the National Association of State Budget Officers for their extremely helpful “state budget press clips”)

Great Myths of the Great Depression

The New Deal deficit spending helped boost the economy and bring the unemployment rate down to single-digit levels, but fear of deficits limited the scale of New Deal programs and caused Roosevelt to reverse course and cut back on spending in 1937, just as the economy was gaining momentum.

So writes Dean Baker in the New Republic. This is marginally better than the myth I learned in high school: FDR saved capitalism from itself by embracing the wisdom of Keynesian economics. He “primed the pump” with massive deficit spending and lifted the economy out of the Great Depression.

My high school story was a tad inconvenient for those who are fans of both Keynes and FDR: In 1940—7 years after the New Deal had begun—the unemployment rate still hovered at an astounding 14.6 percent.

But the high school myth turned out to be wrong: Keynesian economics didn’t end the Great Depression because Keynesian economics was never tried. Keynes, remember, called for deficit-financed spending during downturns (and surpluses during times of plenty to pay off the debt). The data show that FDR (and Congress) implemented half of the Keynesian stratagem: real spending dramatically increased throughout the Great Depression. 

The problem—from a Keynesian perspective—is that they also massively increased (already-high) taxes so that, even as the economy collapsed, revenue soared.  



A seminal piece in the American Economic Review by Cary Brown exploded the myth that Roosevelt was a Keynesian:

The primary failure of fiscal policy to be expansive in this period is attributable to the sharp increases in tax structures enacted at all levels of government.  Total government purchases of goods and services expanded virtually every year, with federal expansion especially marked in 1933 and 1934.  [But] the federal Revenue Act of 1932 virtually doubled full employment tax yields.

But notice, Brown doesn’t say that FDR failed to be Keynesian because he stopped spending; he failed to be Keynesian because he also raised taxes. But that doesn’t stop many in the punditry from claiming that, in his later years, FDR was converted into some sort of proto-Paul Ryan.

See this excellent post by Alex Tabarrok on the subject. See, also, these posts by Tyler Cowen.

Room for Debate, Governors Edition

Budgeting is not easy. While some Republicans claim budget cuts are a way to boost short-term growth, the data (see p. 5) suggest that spending cuts are no more stimulative than spending increases (which is to say they aren’t stimulative). But that isn’t why budgets need to be reined-in. They need to be reined-in because it is mathematically impossible for state budgets to continue to grow faster than the private sector on which they depend. And if they aren’t reined-in, future cuts will be far larger and far more painful than those being proposed today.

That is me, writing in today’s New York Times Room for Debate. It also features pieces by Joe Henchman of the Tax Foundation and Elizabeth McNichol of the Center on Budget and Policy Priorities.