Monday, September 4, 2017

Neutral experts find flaws in pro-Foxconn math

Props to Urban Milwaukee for publishing an op-ed by two leading professors which explains how the state officials' sales pitch being used to rush rush $3 billion in public subsidies for Foxconn is based on bad assumptions.

That sales pitch, say the experts, overstates so-called 'multiplier' benefit likely to flow from the Foxconn package because the Foxconn crowd is treating the $3 billion "as if [it] fell out of the sky, having no valuable alternative use."

The business and economics experts who produced the op-ed have impeccable credentials - - 
William L. Holahan is emeritus professor and former chair of the Department of Economics at the University of Wisconsin-Milwaukee. Charles O. Kroncke served as Professor and Associate Dean of Business at UW-Madison as well as Dean of the School of Business at UW-Milwaukee and the School of Management at UT-Dallas. They are co-authors of “Economics for Voters” 
- - and they demolish Walker's rosy, pro-Foxconn claims:
 ...even if their multiplier were measured accurately, it would be a “gross multiplier,” i.e., a multiplier that refers to Foxconn alone, without taking into account the negative effect of drawing the money totally from the Wisconsin economy. 
It’s as if the $3 billion fell out of the sky, having no valuable alternative use. When applying the multiplier concept to evaluate spending money that has alternative uses, we must calculate a “net multiplier” by simply subtracting the multiplier associated with the alternative spending from their estimated gross multiplier.
If the money is raised by new taxes, the taxpayers lose the opportunity to spend the money according to their own preferences. If the taxpayers had instead spent that money, their spending would have had a multiplier. That multiplier would then have to be subtracted from the Foxconn gross multiplier to yield the net multiplier. Alternatively, if the money is acquired through spending cuts, say, to the university system or K-12 education or more delays in road repair, spending on those activities would have to be reduced, and the state would forgo the spending multiplier generated by those activities. 
Again, this requires subtraction to arrive at the net multiplier; it’s the “net multiplier” that counts, not the “gross multiplier,” when estimating the net benefit of the Foxconn subsidy..
Think of it this way: it's like saying you're worth a million dollars without deducting your $300,000 mortgage from the bottom line, or saying you got a great deal on house paint at $5-a-gallon before someone points out you came home with paint by the quart.

Labor Day is the wrong day to overlook and overspend on politicized claims of job creation by a Governor who is nearly three years behind meeting his signature pledge to create 250,000 new jobs after one four-year term in office.

Fool us once...

Somebody should put a copy of this op-ed on every State Senator's desk before that body duplicates the rush job for the Foxconn deal already approved by the heavily-partisan, pro-Walker State Assembly.

Urban Milwaukee has added a good list of related Foxconn items at the bottom of the op-ed posting.

Here's another

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