Juliette Sellgren 

Science is the great antidote to the poison of enthusiasm and superstition. Hi, I'm Juliet Sellgren and this is my podcast, the Great Antidote named for Adam Smith, brought to you by Liberty Fund. To learn more, visit www AdamSmithWorks.org. Welcome back Today on April 16th, 2025. I'm excited to welcome Peter Calcagno to the podcast. He is an economist and public choice scholar at the College of Charleston. He's also the director of the Center for Public Choice and Market Process down there. He is a fellow at the AIER, American Institute of Economic Research, Public Choice and Public Policy Program. Today we're going to be talking about targeted incentives, which are kinds of tax break subsidies, different sorts of incentives that politicians love to hand out talk about. Very relevant right now, so it's going to be a great conversation. Welcome to the podcast.

Peter Calcagno 

Thank you, Juliette. I really appreciate being on today and I'm excited to be on. I've been listening for a long time. I'm a super fan.

Juliette Sellgren (1:20)

That means so much to me and is also a little scary, but we'll pretend it's not. First question one, you might be well versed in what is the most important thing that people my age or in my generation should know that we don't?

Peter Calcagno (1:37)

I've thought about this a lot. I've thought about this many times listening to your podcast and how I would answer this, and so I actually have two things if that's all right. Perfect. One is really sort of geared towards you and your generation. The other I think is just a broader concept that everyone needs to remember, but especially the younger generation. So I'll start with that, which is that we have to remember again, as we're going to think about the world, we want to think about the world and how it really exists. So we need to understand that politicians are the same as everyone else. They are rationally, they want to do what's in their interest. These people are not saviors. They are not necessarily benevolent despots that are going to do always what's in the best interests of society or public as a whole.

They may do what benefits their particular constituency, and they may want to, right? There can be people who may want to actually do what they consider to be principled things, but we can't treat them as if they are somehow above and beyond the fray of other individuals. They're just like everyone else, and we need to understand that and we need to remember that. The other thing is, and this is where I think it's more relevant specifically to your generation, be confident. If I had one thing to go back and tell my younger self, it would be to have more confidence and try things because when I thought, I don't know about this or I think that I don't know how to do this, turns out no one else did either. And so it wasn't that I was really lost or didn't know what I was doing.

I was the same as everyone else. And so just be willing to put yourself out there, be willing to ask, be willing to take opportunities. Don't think that you may be unqualified, whether it's just coming, going up and talking to a person that you want to meet or taking a chance on maybe asking someone to be part of your network. Just meeting people, you are not everyone else is struggling in your generation at that same point in time is also struggling with fitting in, trying to do things the right way, and even the most put together person probably is still a little insecure. So just be confident and know that you can do what you want and just ask. And what's the worst that happens if someone says yelling,

Juliette Sellgren (4:19)

That's great. I mean, the first is just public choice right there. And then the second one is, well, given that we're all people, it's great. Okay, well, let's get into it. I mean, the confidence thing I have to work on, but I'm here asking questions, so we're at least getting started, but I guess kind of first maybe a little off topic, but kind of synthesizing those things. So you do a ton of public choice. I mean, from what it seems like your job, your days are public choice, public choice, public choice. Your first response was related to public choice. How did you come into that? Did you have the confidence to do it? Did you just fall into it somehow? Would you synthesize those two responses to be related at all in how your life has taken shape?

Peter Calcagno (5:32)

Yes and no. I've been lucky to sometimes be in the right places at the right time, and as an undergraduate, I went to Hillsdale College and didn't go there. Today. Everybody's like, oh, Hillsdale's the most conservative school in the US and that's why you go there. But when I went there, the focus was we're a small liberal arts school that does things in sort of the Judeo-Christian Western traditions and we value those, and the economics department was very free market and more specifically, very Austrian. Richard Ebeling was my professor and had a huge impact on me, so I got exposed to Austrian economics right away. The public choice stuff sort of came towards the end as I was dealing with and thinking about questions and the way that certain scholars were posing things about big guys and bad guys, and these people know their policy stuff.

These people don't, and one of the things that was said to me, well, what if you put it in a public choice context? What if you just put it in the context of these people are all being rationally? Does that make better sense than saying, oh, that person's just a bad guy, or This person's a good guy and they understand it, they get it, and it did. And when I went to Auburn for my PhD, a lot of the professors there went to UVA for their PhDs, so they were surrounded by public choice scholars, and so they also had that as part of their tradition, and I started to take more and more courses, and the first paper I wrote was very public choice oriented, and that's where it ended up landing and I went to the conference and very much became my intellectual home, started to network and meet people, and I've been focused on that and I think since 1995, I think I've only missed two. Two.

Juliette Sellgren 

Wow.

Peter Calcagno 

Mike Munger was president the first time I went to the Public Choice Society.

Juliette Sellgren 

That must have been something.

Peter Calcagno (8:09)

Honestly, I almost, I tried not to go a little fanboy on him because I'd been working on stuff that had just cited a bunch of his and Kevin Grier's work, and I was 30 feet from him as still a graduate student, and I'm fortunate enough to now count Mike among my friends and colleagues, and so it's been a great journey and it's been a real intellectual point of stimulation for me and networking, and it's a phenomenal network and been professional development.

Juliette Sellgren (8:49)

Do you think that doing the thing you love and finding an intellectual home that fits in with the work that you're doing and the work you want to be doing, does that inspire confidence? Is it kind of like a self-fulfilling prophecy of you have to have confidence to get your foot in the door, but once you have your foot in the door, that kind of inspires confidence and it's just kind of roles?

Peter Calcagno (9:14)

I think it does build, right. I have friends that are far better scholars in terms of they've published a lot more, and yet people are willing to always work with me and think through the ideas and the research. I do a lot with my students, but I love this. There is not a day, I mean, there's drudgery to academia in terms of the grading, in terms of the day-to-day and administrative things that have to be done, but talking about these ideas, this does not get old of me. I'm happiest when I'm either in the classroom or presenting research or doing something like this and this I can talk all day about and I can feel confident in what I'm doing.

Juliette Sellgren (10:16)

Then let's talk about these ideas. So the subject of our conversation today, the more specific part is targeted incentives. What the heck does that mean? It sounds like some economics mumbo jumbo. What does that mean?

Peter Calcagno (10:36)

So what we're really talking about is people are familiar with these all the time. It's state and local governments identifying firms and then offering them a variety of subsidies, tax breaks, tax credits, loans, sometimes direct cash payments to locate in their state, their city with the idea that it's going to bring jobs and it's going to bring business, and it's going to then create economic growth and prosperity. And they're targeted because whatever deals they offer go to that firm and that firm alone. So all the existing firms in the city state still face whatever tax rates the state has already implied, property tax, sales tax, state income, tax, whatever it may be. Those things remain the same for the existing firms, and then they do something and bring in usually large, very visible firms. South Carolina over the last few years, the last decade or so, we've brought in Boeing, we've now brought in Volvo, they did a Mercedes plant, and all of them are given all of these special incentives, but just those firms get those incentives, and so it puts the other firms one at a disadvantage. It does some cost shifting because revenues still have to be made up in order to provide the public services that state and local governments are responsible for, but oftentimes these firms are not paying all of the taxes that they otherwise would.

Juliette Sellgren (12:31)

How does it actually work? So obviously there are a bunch of questions about what are the implications of this, but when we're thinking about this even existing, it seems like if you were to apply it to people, how the government treats people, how the government protects people's rights, the sort of benefits and rewards and opportunities that the government who follows the Constitution and the Bill of Rights, which protects the equality of people, it seems like on the individual level, that would never fly. So is it codified when that sort of stuff happens? Is it constitutional? Does it, I mean, I would think it matters 14th amendment,

Peter Calcagno (13:17)

Whether or not it's constitutional at the federal level, these are state decisions, and so they're not federal decisions, and so it's going to vary from state to state whether or not they are allowed within their own constitution. There's a scholar, Carly Patrick, who's done some work basically looking at various state constitutions and how easy or difficult it may be. She created an index to show how to get an estimate of how easy or difficult it may be for states to offer these types of incentives. Sometimes they're trying to actually get around the constitution In South Carolina, it's a very strange thing in that they've written some of the taxes literally into the Constitution

Juliette Sellgren 

That feels like it doesn't make sense

Peter Calcagno (14:18)

It does not make sense, it does not make sense, but rather than reform the constitution and those taxes are relatively high, they were on manufacturing services initially, and this was back in the last version of the Constitution for South Carolina, which was in the late 19th century. And so they were trying to sort of, I think, punish some of the manufacturing relative to agriculture. So they set really high rates, they wrote 'em into the Constitution, and then rather than reform this, now the South Carolina legislature says, well, we know we have tax rates that put us at a real disadvantage, so we need to offer these breaks to put us at a more even playing field. And my thought is, well just reform the constitution. It's really not that hard.

This is the, I'm going to maybe jump to the end of the story here, which is what states should be doing is making themselves look attractive to firms and to all firms, not just through these targeted packages. So they should have low, broad tax bases. They should have put resources into making sure that they have a good and well-educated labor force, good infrastructure, good distribution networks by allowing those things that firms want and have them available not just to this larger one targeted firm, but for everyone so that people want to come to North Carolina, South Carolina, Georgia, whatever your state is, because it's going to be at an advantage for them. The truth is these things don't usually change the decision making process. Most of the firms one already decided to build a plant, so they've already made that decision that they're going to do it.

Question becomes where and the things that are important to them, distribution networks, they need to be close to a court if they need to be close to an airport, if they need a relatively well-trained labor force, those things all come into the decision and they identify a few places. And then to be honest, they are just looking for privilege, and it's crazy for them. Timothy Barick, who's probably the scholar that writes on this the most and gets a lot of things right, but he doesn't get the public choice piece of it. He thinks we just need to better train the politicians to better understand how these policies work and then we'll get all the right policy implications. I think they know what they're doing personally. I think they know that this is keeping them in office, it's giving them contributions and it's helping them. But he did a study a few years ago where he looked at all the literature, did a meta-analysis and looked at all the literature that had studied what were the outcomes of firms and decision making processing. It says somewhere between maybe two to 25% of the time, that package changes their mind, which means somewhere between 75 to 98% of the time, it doesn't matter. They've already made up their mind, they've already decided where they're going to go and getting these benefits just enhances their decision.

Juliette Sellgren (18:11)

So that's crazy. I mean, that seems super ineffective. What are the benefits, I guess, so to firms, there's the money, the tax breaks, the whatever it is that your incentive looks like, that only applies to you, but then I mean, how does it affect people in a state or even the country, right? Because at the end of the day, we're all a country, but then obviously it benefits the politicians, otherwise we wouldn't do it. So how does it affect those two groups?

Peter Calcagno (18:57)

So one thing I've always thought about, I always try to explain to people when I do meet state legislators that actually work on this stuff, and there's also organizations that are usually sort of quasi-public that are economic development agencies that work with state and local governments to help put together the packages, and they go out and they do the marketing and say, come to Virginia, we've got X, Y, and Z to offer you, and then they work with the state legislators to do this, and it depends on the state. Sometimes it has to be a bill that's passed to give them these things. Sometimes again, it's just already laid out. It's part of the Congress has the authority to do it without having to make a bill. So it varies a little bit from state to state, but the firms, as you said, clearly benefit, right? They get tax advantages, they get infrastructure that is built for them.

A lot of times they get the property tax reduced significantly, and that's the obvious thing. This is a little bit like tariffs and trade in the sense that, so this is a little bit like industrial policy at the state level where you're picking leaders, but with trade where almost all the economists agree, free trade is a desirable thing. It's just the public we can't seem to, and the politicians we can't seem to convince. But similarly, the literature that's written on targeted development incentives almost universally says these have no real economic benefits to the locales. We don't see huge changes in say, per capita income or growth or unemployment rates. All the metrics that we would say would be desirable. Most of the time these things don't change on a grand scale as opposed to putting one firm there. And what I always tell legislators is that they say, well, we have to do this. If we don't, the other states are going to and they'll get all the businesses. So it becomes this whole zero sum game in their mind.

And I said, well, let them be attractive to everyone, not just to these firms and then see what develops. But they're always worried about that, and I always try to explain to them, I said, you're just moving, end of the day, you're moving chiefs pieces around the chess boy because it's still the us. So if the Mercedes plant locates in Birmingham, Alabama or Atlanta, Georgia, it's still in the us, it's still going to be producing in terms of overall impact. It's going to be the same. It could be actually better if it locates in a place that may have better features for that firm. So they're not doing anything on a national scale, but they do believe that they've won out somehow against all the other states, but the data doesn't support that. So I've always argued that the real benefit here is a political one, and it's only recently in a couple of papers, one that I got published about a couple of years ago and then one that is out that I'm working on getting out right now, that we really started to test the political benefits. It's always been something I have argued that that's where the benefit lies, but now we have better data and empirical techniques to demonstrate that that's where that's the true benefit of this. If there is a rent extraction game going on,

Juliette Sellgren 

How do you measure that? What sort of metrics can you even use to isolate that?

Peter Calcagno (23:05)

Well, we're using political benefits. Two ways we're trying to measure. We've measured it is margin of victory in elections. So do the candidates win by larger margins when they award these incentives and are they getting more campaign contributions if they give out the larger incentives? And so it's a little bit of a difficult thing to measure because everyone does this. Every state does this, so there's not a great way to create a say treated group, we'll call it treated group when they're offering these and then a test case or a control group,

What we had to do was create something that allowed for that treated group. And so we said, okay, we're going to talk about thresholds and what historically have you done? So states, what have you historically given to firms in terms of these tax breaks and so forth. And then if there's been a major change in the threshold, we were doing two, three, 4,000 times your historical level, and then we say, okay, now you put yourself in this treated category and the ones that are willing to, we tested various thresholds and I'm going to talk about literally 3000 times what you were historically doing. And so now we get going. Now we get things that were in the hundreds of millions to now in billions of dollars right now they're offering billions of dollars at a time.

Juliette Sellgren 

States

Peter Calcagno 

Billions with a B,

Juliette Sellgren (25:05)

Do they have billions?

Peter Calcagno 

I mean, it's not all money being directly given to firms, so it's the value of these tax breaks. True. So it's infrastructure, which is some of this is, and so some of these are overstated.

Juliette Sellgren 

So…

Peter Calcagno (25:27)

When you build an off ramp from the interstate to this where this new plant is going to be, everybody can use that. The question is, is that where they would've? Is that where the Department of Transportation would've put that off ramp? Otherwise, The counterfactual is always an interesting thing, which is really a difficult thing to measure in these things. But we're trying to look at that and say, okay, look, if didn't, when you give these really large incentives, what happens? I mean, we're up to now, I want to give you this figure that before 2001 states were making about 300 awards per year after 2001, it jumps up about since 13,000 per year. That's all states, right? But that's big 2003. Most of the awards were less than 15 million. Median was even 31,000. By 2009, they were around 500 million. Now they're over 20 billion per year. Again, that's everyone. So we went from averaging 500 million a year for all of these incentives to 20 billion a year for all these incentives across all these states. So these things are becoming more prevalent and it keep getting bigger, and it states competing with each other. It's an arms race where they're building up, building up and not getting good outcomes.

Juliette Sellgren (27:12)

There are two lines of things. I kind of want to break down the arms race bit. Makes sense. It feels kind of like tariffs, and that has been in the news. That's what we've been talking about for a minute. And so I feel like that's a relatively accessible idea, but when you talk about increasing the margin of victory and these political benefits, what is the mechanism? Is it that they get more donations from these firms? Is it that people, voters think it's great? How does that work?

Peter Calcagno (27:52)

It's exactly both of those things. One of the things that we find is that, and this won't be surprising, it's the incumbents that benefit because the challengers actually can't offer anything for the firms. They could say, if you vote me in, I will bring jobs to the state of Virginia, the state of South Carolina, but they can't actually do it yet. Whereas the incumbents can say, here's what we can give you. And so it's truly the incumbents that are benefiting and they're benefiting in the way of, again, so firms, once firms realize that states are willing to sort of go to that next level in terms of offering incentives, they have every incentive to want to lobby for that and know and ask for those themselves. So the firms are willing to go and ask for these privileges. And then in doing so, right, they do make contributions to particular politicians in those states, and the politicians can say, look what I'm doing for the state, right? I am bringing jobs to the state. That is the thing more than anything else that politicians emphasize is the number of jobs that this company is going to create for people. And people like jobs, voters like jobs. I've often said this is relatively complex and idea to understand, and I could probably do it in a couple minutes and tell someone why it's a bad idea, but a politician in a soundbite can say, I'm going to create jobs and I've lost.

Juliette Sellgren (29:47)

Yeah, that really looks good.

Peter Calcagno (29:50)

The interesting thing is that the firms don't always live up to even creating the jobs that they say they're going to. They tend to overemphasize it because again, that's going to help them. The literature has shown that when they say they're going to offer more jobs, they're more likely to get better deals, and politicians can say, look, again, I brought Boeing here and I brought 50,000 jobs, but I had an entrepreneur friend of mine point out to me one time, why would you want to emphasize jobs? He's like, we don't like jobs. Jobs are a cost. I don't want to create more jobs for my firm. He's like, I want to figure out ways to be more productive and have fewer people, not more people.

Juliette Sellgren 

That doesn't look good to people who want jobs.

Peter Calcagno 

You say, we're going to create X number of jobs. And the problem is that there's very little one, there's not a lot of transparency in these deals. So we don't know all that was promised by the state and all that was promised by the firm.

Juliette Sellgren 

Where are they happening?

Peter Calcagno (31:03)

Behind closed doors. They do these deals. It's interesting because when they do these deals, they don't, and they're negotiating, they don't reveal the names of the firms. So it's Firm X is going to come here and promises to bring 10,000 jobs, and we're going to offer them a tax abatement on their state income tax. We're going to offer them what they call a fee in lieu of property tax. So they pay a nominal fee instead of paying what their property tax would be, we're going to build out infrastructure leading up to their new facility, et cetera, et cetera. And the best you can do is the newspaper articles try to find these information out and they'll come out and say, well, this is a deal worth 5 billion, but we don't actually know necessarily all that was given. We generally don't know what fee was they're paying for the property tax. You can look it up after the fact, and it's not until after the deal is all signed and everybody's agreed to it, then you go, oh, company X is Boeing or Company X is Volvo.

Juliette Sellgren (32:16)

So this is super minor, but something that kind of came to mind when you were talking that must complicate this is the idea of how do you measure bringing jobs? If they agree to bring jobs, then jobs haven't actually been created yet. Creating jobs, at least from my understanding, and the way that we teach it in principals classes only happens once the position is filled. So it's kind of like a really,

Peter Calcagno (32:45)

So they're promising, right? They're promising that we need to have X number of openings. And again, the literature pretty widely shows that very few firms actually live up to all the jobs that they've promised. But then the problem becomes, as I mentioned, most of these firms would locate in these places anywhere, and these are successful firms, so people are going to build these jobs, which are not always filled by people that live in those states. A lot of times people move to those locales to get those jobs. I have met in the last few years, I don't know how many people that worked for Boeing that moved here to get a job, whether it was they were already, they were working for Boeing somewhere else and moved here and now took a position for whether or not they moved here because they knew Boeing was coming and they knew there would be openings.

Juliette Sellgren 

That really complicates things, right? 

Peter Calcagno (33:49)

It makes it really hard to measure and say, what are the benefits? This is why it doesn't seem to have a huge impact on unemployment, not necessarily the people who are, say, currently unemployed that are getting these jobs.

Juliette Sellgren (34:03)

Well, because it also I think makes the idea of it's still within the us, it still counts. The automatic response to that is, but whoever the government official is, whoever the agency is, cares about this place, these people. But if it's not these people and it's this place anyways,

Peter Calcagno (34:22)

And that's the thing, but no one follows up.

We get to have the ribbon ceremonies and the cuttings and the ribbon cuttings and all of that. They claim how many jobs. Nobody knows how many jobs, and they don't know who fills them. And then they say, well, the economic impact of them being here is X on the economy. But what I was going to say before is that you expect a company like Volvo, BMW, Boeing, right? They're going to be successful in those places regardless of where they locate. And then unfortunately, politicians and everyone else says, look, Boeing's here. Look at how well they're doing. Well, of course they were going to do well, right? They're a successful company that knows how to operate. They know how to find people. They know how to produce this. They've already been doing this and they would've been successful whether they located in Alabama, in Georgia, South Carolina, Texas, wherever. But everybody says, we'll, see, it was because of the incentives. That's why they're here. And that's why they're, look at how successful it has been for us. And that's hard to argue that counterfactual, but there is a counterfactual.

What would've happened to those tax dollars? How else would we have spent them? Right? And what other public services would the state have provided? What other things would, if people weren't being taxed to have say, to provide these subsidies or have to bear additional tax burdens because of these tax breaks, what else would've developed on its own? And that's the hard part.

Juliette Sellgren (36:08)

Well, and so what you said earlier about the lack of economic benefit is part of how you gauge that. Do you look at the firms that changed where they were moving based on agreeing, or do you look at all of them? Do you even,

Peter Calcagno (36:29)

So it's always based on firms and where they've agreed to go. So it's the actual deals that are made, and it does happen that firms move. In other words, a firm's existing in a place and then it moves, right? But oftentimes the bigger deals are things like when Amazon announced it was going to build a second headquarters, something like 38 states immediately put in bids of Virginia and Virginia one, right? $750 million.

Juliette Sellgren 

And it's beautiful. There's so many new buildings everywhere. It's great.

Peter Calcagno (37:11)

And everybody sees that it's a bit of [Frederic] Bastiat’s the seen and the unseen, right? So everybody looks at the shiny new Amazon building and says, look at how great that is for us. But that didn't exist until the deal was made. So it wasn't that they didn't move out of where they were. They built a second one. And oftentimes when Boeing, I hate to keep harping on Boeing, but when they moved to Charleston, they didn't close down their plants in Seattle.

Juliette Sellgren 

They opened another one.

Peter Calcagno (37:44)

They opened up another one, another facility. Same thing with a lot of the car plants. They're not moving from say, Indianapolis or Detroit to Nashville or Birmingham. They're opening up a new plant. And so everybody's talking about, oh, well, this is a new facility and this is a job, and then this is going to be the impact. So that's what you try to measure is what's the impact of this new firm coming into existence? But firms know how to take advantage of this smaller ones. There's a great story. There's a firm in Pennsylvania called Ken Metal, and they were threatening to move out of the state. They were threatening to move out of Pennsylvania. They were in Latrobe, Pennsylvania. And the governor said, no, no, no. We don't want you to move out of the state. You've been here a long time. They gave them a million dollars to stay in the state, like cash.

I don't know what all forms it took. That again is part of the transparency, just the newspaper accounts or there's a database called, there's an organization called Good Jobs First, and they have a subsidy tracker and they try to do this, but they don't always have the breakdowns. So the deal, whatever that package was, was worth a million dollars to stay in Pennsylvania. But then they closed in Latrobe and moved to Pittsburgh. They stayed in the state, they closed down this longtime standing plant in Latrobe, Pennsylvania, which is a more smaller, more rural community to move to the larger city. And then when they do that, it's all considered to be new jobs.

Juliette Sellgren 

Even though a bunch of jobs…

Peter Calcagno 

Lot of double counting,

Juliette Sellgren 

A lot of double counting, right?

Peter Calcagno (39:39)

In Kansas City, so Kansas City is right along the border of Kansas and Missouri. And so there's the Kansas City, Missouri, there's the Kansas City, Kansas, and there was actually a paper written a few years ago that was on the border wars because firms were literally moving back and forth across the states and getting deals to move from one side of the state line to the other and kept getting subsidies to do that. And finally the governors said, okay, we can't do this anymore. We've got to come to Sun Deal to stop this. And they didn't completely stop it. So here's what it was estimated. So this comes from an organization called the Hall Family Foundation. They estimated in the past decade, Missouri spent over 151 million on inside food track companies from the Kansas border counties to the other side. In turn, Kansas spent 184 million to bring them over back over to the Kansas side. So over 300 million in subsidies and tax breaks to move firms back and forth across the borders. And then they said, okay, well we're going to stop this. We'll only give you incentives if you're going to create new jobs. So you said, well, we had a hundred jobs and we move here, we'll create 150. Well, then they're still going to give them money for those 50 jobs assuming they get created. Well,

Juliette Sellgren (41:29)

Especially if they can't really count them. And it's not really a contract. I mean, a promise is not a contract, right?

Peter Calcagno (41:35)

No, these are not contracts that can be lived up to, it's again, the terms are very fuzzy. They're not very transparent. That would be at a minimum, if you could get states to stop doing these altogether, it would be a desirable thing. A first best step would at least be very transparent and stating all the things explicitly that the firm said that they would do and that the state promises or the local government pharmacists,

Juliette Sellgren 

Because otherwise, how can you track it? 

Peter Calcagno 

It's really difficult.

Juliette Sellgren (42:15)

I mean, how feasible is it that this could be stopped altogether? What is there to do about this sort of issue? Are there changes…

Peter Calcagno 

Yeah, so I've thought about this a lot, and the firms clearly benefit and know how to play the game. The politicians clearly benefit and know how to play the game, and they're the two parties that are benefiting from this. Again, it's not to say that if you bring in a large manufacturing firm, it's not a desirable thing, but at what cost, and I just want to get this point out here really quick. One of the better metrics I think, of looking at how effective these are is looking at the number of jobs promised and the amount that you say that the value of the package you're basically giving to this firm. And so almost always, if you look at the automobile plants, the average job is somewhere in the neighborhood of between a hundred and $150,000. I promise you, those floor workers are not making a hundred, $150,000 a year. There was one in a FedEx plant in North Carolina a few years ago, and it worked out to be something like $77,000 per job. The average person working in that plant was going to make like 35 to $40,000. So I mean, we are paying a lot to create these jobs more than, and we're paying a lot more. So this is, again, to me,

Juliette Sellgren (43:55)

Especially if they're already getting created, there're in the first place because the firms are already decided offer,

Peter Calcagno (44:02)

They're going to offer some jobs and they're going to offer them to some people. Why do we have to let the state pay two, three times what those jobs are actually going to be paid out? So if we think of it as investments, right? The ROI is not good on these, but I think there are potentially two ways that you could get these to go away. I'm not confident necessarily in either one. The first is federal legislation that says states can't do this. So this is actually one of the things that got me into this. I think it was in 1996, the Minneapolis Fed had a conference on this and brought in a bunch of players, a bunch of economists, and debated whether or not the federal government should just create a piece of legislation that says states can't do this anymore. And they all agreed that states shouldn't do it, but that was as far as it got, and nothing's ever been done at the federal level. And I don't know that that's the right way to do it.

The next best thing that we could do is to get states to do what Kansas and Missouri did, which is basically create a compact and they agree and say, we're not going to do this. There is the National Association of Governors of State Governors or something like that, and they could come together and put together a compact that says, we're no longer going. We all agree. We're no longer going to do this. Even if it was regional, even if the Southeast governors or the Northeast Governors said, we're not going to do this, that would be helpful. And instead, if we can get them to think about, okay, how do we offer better tax policy? How do we offer better labor forces education and think about the things that we might want state governments to focus on and make the state attractive to all businesses, because that's the difference. This is politicians say, well, look, we're so business friendly. Look at how good we are to business here. I don't want you to be business friendly. I want you to be market friendly. I want you to understand that these are market ideas and that we want the markets to be successful and not be picking winners and users

Juliette Sellgren (46:39)

Well, because also, I mean, business friendly kind of gets it exactly right. You're certain business friendly, and it's certainly not even the people with the jobs that you're trying to be friendly towards that are benefiting from it because we know that those workers are not getting that money, and neither should they necessarily if that's not the value of the work that they do. But neither should the firm just to have it.

Peter Calcagno (47:05)

Well, and that's the thing. And so that's what we've been trying to look at lately. I've got a working paper with Gary Wagner and Russell Sobel, who I've been working with on this a lot recently, and we are now trying to demonstrate that when you really ramp up, when states really ramp up what they give you, just encourage the rentier behavior. And so we look at lobbying as a share of employment in states and see that once you wrap this up, the number of employees or the share of the employment in the US or in those states and various counties in those states increase the amount of lobbyists that they have and not surprisingly in the capital city.

And so we're back to, I think you're familiar with the William Ball, most productive and unproductive entrepreneurship. So we're encouraging states, we're encouraging businesses to engage in unproductive entrepreneurship of lobbying and asking for these packages. And more importantly, once states do it, they're opening it up and saying, Hey, look at us. We will give the really big deals. And again, I think that just leads to getting votes from constituents, from the interest groups to the degree that they can marshal them in that state and then contributions to those particular politicians in those locales. So there's the benefit. And so how do we discourage the unproductive entrepreneurship and give them to focus on just actually operating their firms well and getting them to do good business, and then trying to convince the politicians that they would do better overall for their state. They would see more growth, more benefits to everyone in their state if they were just an attractive locale for all businesses.

Juliette Sellgren

Yeah, I think that's a little hard. Someone has to take a loss first and asking a politician to do that even…

Peter Calcagno (49:31)

This is a very good representation of one of my favorite public choice ideas that I don't think gets enough attention.

Juliette Sellgren 

And that is?

Peter Calcagno (49:38)

Which is the transitional gains trap. So all the benefits have been dissipated and all the benefits have been dissipated. And now if you were to take some of this stuff away or not promise it, there could actually be real lawsuits. But I do think, and those losses might actually be to the politicians, not just to the firms,

So they don't want to stop it. I think this is an instance where we should be looking at government as the special interest group as well, and they don't have a lot of incentive to stop doing this. So I think convincing them that this is a good idea, and it's not unlike trying to convince politicians now on trade that we could do unilateral free trade, right? As long as our borders are open and we have zero tariffs, that would still help us, even if other people have tariffs. So even if others don't want to stop offering the incentives, if you stopped offering the incentives and had really good policies, you could outcompete these other states. That's a hard sell.

Juliette Sellgren (50:57)

Well, you've left us in a tough place. I have one last question for you, and that is, what is one thing that you believed at one time in your life that you later changed your position on? We've heard so much of problems. Do you have some optimism? Is it good?

Peter Calcagno (51:17)

So I'll try to spin this in an optimistic way, and I think this is an optimistic thing. I used to think that I had to be really dogmatic and really in people's faces and my principles of markets always work. They're always the best thing. Government will always fail. Government will always not do a good job or be the first one to take that strong of Mises stance of, if you've ever heard the story about the Mont Pelerin society where they're talking about stuff and how to [?], and Mises pulls on his lapels and says they're all socialists and walk out. And I used to think that that was sort of how I, and I would say things like, oh, Milton Friedman, he's a complete socialist, and I've learned that you've got to meet people where they are, that I can talk to people on the left and on the right and say, you know what? Corporate welfare is really bad. We don't want big business and big government together, right? So how do the people on the left think? It means more regulation for business? And my argument is, well, we just want less government over the business, and then we won't ask for these privileges. So being able to find that common point and then starting to talk through this, I think is much better than just saying you're a socialist and you don't get it.

So I like to take a more softer approach these days. Meet people where they are, tell them what my ideas are, listen and not just come at it and go, no, markets will always work and only work, and there's no other solutions. We have to talk about things as they really are.

Juliette Sellgren (53:29)

Once again, I'd like to thank my guests for their time and insight. I'd also like to thank you for listening to the Great Antidote Podcast. It means a lot. The Great Antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at Great antidote@libertyfund.org. Thank you.