Why Closing Ford’s Claycomo Plant Would Be Good for the Economy
When I was a guest on Sarah Steelman’s radio show on Thursday, a person called in to ask what would happen to the people who work at Ford’s Claycomo plant if it were to close. This is a common concern raised when discussing the fate of struggling industries, and it is designed to tug at our emotions. Those who employ this argument intend to makes us feel sympathy for the people who are in danger of losing their jobs, and open our collective wallets to save them. I explained on the air that the workers’ skills would not disappear when the door to the plant closes permanently, and that many of them will be able to find work elsewhere in the economy by performing a task that is demanded. The caller didn’t seem to be convinced by my argument. “Tell that to Detroit,” he said. After thinking more about the subject, I realize that there are other additional arguments that I could have made that may be more convincing.
First, I realize that the caller suffers from “make-work bias,” a concept developed by Bryan Caplan, a professor of economics at George Mason University, in his book The Myth of the Rational Voter: Why Democracies Choose Bad Policies. In an excerpt published in Reason, “The 4 Boneheaded Biases of Stupid Voters,” Caplan writes (emphasis mine):
The public often literally believes that labor is better to use than conserve. Saving labor, producing more goods with fewer man-hours, is widely perceived not as progress but as a danger. I call this the make-work bias, a tendency to underestimate the economic benefits of conserving labor. Where noneconomists see the destruction of jobs, economists see the essence of economic growth: the production of more with less.
Second, I failed to point out that the caller focuses on the needs of a select group rather than those of everybody in the economy. This is a common error that people make when evaluating policies, as Frédéric Bastiat discussed in “What Is Seen and What Is Not Seen.” On the subject of subsidizing employment, Bastiat writes (emphasis mine):
[I]t is clear that the taxpayer who will have been taxed one franc will no longer have this franc at his disposal. It is clear that he will be deprived of a satisfaction to the tune of one franc, and that the worker, whoever he is, who would have procured this satisfaction for him, will be deprived of wages in the same amount.
Let us not, then, yield to the childish illusion of believing that [a vote in favor of subsidy] adds anything whatever to national well-being and employment. It reallocates possessions, it reallocates wages, and that is all.
When arguing in favor of tax incentives for the Claycomo plant, the radio caller considered only the benefit to the 3,700 plant workers who will keep their jobs. He doesn’t consider the unseen cost that, if the state legislature approves the proposal to provide $150 million in tax credits, the rest of the tax base (a much larger group) will be $150 million poorer. This policy doesn’t increase income; it merely displaces it. As a related unintended negative consequence, the organizations that may have employed these factory workers, had they been laid off, will be restricted in their growth because they would face a smaller supply of labor.
This brings me to my third point. Subsidizing the Claycomo plant would contribute to a higher level of unemployment in the long run, negatively affecting all of the workers in the Claycomo region. Caplan explains this too:
The hard lesson to learn is that giving people “rights to their jobs” is a drain on productivity—and makes employers think twice about hiring people in the first place.
The fact that Claycomo Ford plant will close if unsubsidized indicates that the area no longer has a comparative advantage in manufacturing Ford cars. The area would be better off if its resources — human and otherwise — were employed in activities that do not require subsidies. As a direct consequence, the region would have the capacity to produce more, and the individuals in the market would be able to keep a greater percentage of their income.
Assume, for sake of argument, a liquidity trap…
Comment by Eapen Thampy — June 28, 2010 @ 1:17 p.m.
No, thanks.
Comment by Eric D. Dixon — June 28, 2010 @ 2:03 p.m.
ha, that was pretty clever.
Comment by Eapen Thampy — June 28, 2010 @ 6:24 p.m.
I guess that was a very eloquent way of saying that they can starve!!!! Don’t forget all of the other companies that will also go under as they supply Ford with parts. I was of the understanding that there would not be a tax increase for anyone because of this bill. Correct me if I am wrong.
Comment by d'on — June 30, 2010 @ 3:43 p.m.
d’on,
Unfortunately, the mechanics of public finance necessarily mean that giving money to Ford comes at the cost of either slashing state services or raising taxes and fees to backfill the outlay.
If you think that spending on Ford in Claycomo is the number one priority for our state, then you should be quite pleased.
Comment by Thomas Duda — June 30, 2010 @ 4:43 p.m.
As a Ford union member here in Clasycomo,remember that the parts companys here in Missouri, truck drivers, venders,schools,doctors,housing market, unemployement,places that you do business with every day will take a very large hit do to the fact 4000 workers not counting their families all do business with each one of these companies will take a hard hit. If you think you can survive with no Ford Co in Missouri you are wrong and the pressure will be on you to survive.
Comment by john — July 1, 2010 @ 1:35 p.m.
$150 million in tax credits over 10 years. 3700 factory employees making a base wage of $55,000 brings $203,500,000/year into our local economy in the form of taxes, wages, etc (not even factoring overtime and the wage is factored on the low side). Now, factor in the people who work indirectly because of the Ford plant and add in many, many more jobs and wages (easily tens of millions/year). By the way, over 10 years, the Ford plant employees will have then made $3,052,500,000 in wages compared to the $150,000,000 spent to keep them there. Something to think long and hard about. It’s hard to believe and economy is better off minus $3,052,500,000 over 10 years. In fact, that’s probably why other states are trying to woo them. Bad argument, sister
Comment by Kourtney — July 2, 2010 @ 12:06 p.m.
Chrissy, great post!
Check out a video with Chuck Purgason talking about why he opposed giving Ford Motor Co. tax credits: http://www.youtube.com/watch?v=uK_3SJOE0gM
Comment by Ruth Carlson — July 5, 2010 @ 9:44 p.m.
Christine,
Great analysis! Oh for a few more Bastiats today. At least we have some bright folks, like you, who are wise enough to sit at his feet.
Fortunately for us we have a few state legislators who are also willing to learn. Last May Sens. Jim Lembke and Chuck Purgason read from Bastiat’s “The Law” in their effort to filibuster another mercantilistic bill.
Another bright spot is Rep. Ed Emery, who bucked the crowd and voted against these subsidy bills as they came to the floor.
We need to support such men.
Comment by Ron Calzone — July 5, 2010 @ 10:37 p.m.
I used to work as a Private contractor for Ford motor company. I’m born and raised here in KC metro area. I have several family members that work or have retired from ford. When ford offered me a job at the Ohio Assembly plant a jumped all over it. When I moved up there a didn’t realize they USE to have 2 running plants 20 miles from each other. One of them Loraine had recently closed down. A booming town right off of Lake Erie is now a ghost town. I had talked to several towns people that said for every ford worker there was 5 other people that had lost there job. Foreclosures were at an all time high, Insurance companies had to close. The list goes on and on.
If you think that this is not going to effect us if the Claycomo plant closes you are insane. You might say that ford doesn’t need this but everybody is not going to realize this will effect all businesses including SMALL. If you think that Liberty is a booming town now wait, it will turn into the ghost town I saw when I moved to Ohio.
Comment by Libby — July 10, 2010 @ 9:21 a.m.
All I hear from Ford supporters is that Missouri can’t survive without the Ford plant. Oh, really? The economic reality, as described in the article, is that Missouri will prosper if Ford is left to survive on its own. State legislatures need to protect tax revenues and use them to advance all Missourians’ interests not just those tied to the Ford plant. What happens after the 10 year subsidy is over, then what? Will Missourians be blackmailed again with the same threat: pay up or we’ll move out…….Make Missouri a competitive business environment and it will ATTRACT business and jobs. Special back room deals that target one industry over another or one company over another only fosters corruption among the greedy, power hungry politicians, lobbyists, and corporate executives that know nothing about running a business unless they have a government bailout.
Comment by Michael Harry — July 13, 2010 @ 8:12 p.m.