The NIMBY Backlash Against Amazon’s HQ2

(Bloomberg Opinion) -- Splitting Amazon’s second headquarters between Queens and the Virginia suburbs of Washington was probably not the best decision from a social perspective. Added traffic will strain already crowded local infrastructure, and New York and Washington are already highly productive cities with thriving technology economies. For the country as a whole, Amazon’s decision represents a missed opportunity.

That said, critics of HQ2 go too far when they paint the investment as a disaster for local residents. The backlash has been immediate, with some community groups vowing to fight the expansion. The objections can be grouped into three basic categories, neatly summarized in a series of tweets from Representative-elect Alexandria Ocasio-Cortez, whose district includes part of Queens.

The first concern is that Amazon will get money that could be put to better use:

This worry is misplaced. Tax dollars to pay for New York’s crumbling subways have to come from somewhere. Local business activity creates the tax revenue to help to pay for infrastructure like subways, sewers and streets. It pays for things that help to make the city affordable — housing vouchers, housing subsidies and construction of new housing. It helps to pay the salaries of city workers. And it helps to pay for social services for the poor, the homeless, the addicted and other vulnerable populations. This is isn’t trickle-down economics — it’s social democracy in action.

Amazon will pay property tax on its new Long Island City offices. It will pay corporate tax — not just on its profits, but on its capital base. Its employees, especially highly paid ones, will pay the city’s personal income tax. Those taxes, of course, will be somewhat offset by the incentives that the city has promised the company — up to $2 billion, depending on how many people the company hires and how many facilities it builds. Those incentives were a wasteful way to attract corporate investment. But in the long run, the tax revenue New York City gets from HQ2 will probably far exceed the cost.

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And that’s not even taking into account Amazon’s effect on surrounding businesses and property values. Other technology companies will want to move to Queens now that Amazon is there. Their employees will spend their money locally, buying everything from lattes to MRIs. Some estimates place HQ2’s local economic boost at $17 billion a year. Even dividing that in half, and even assuming that the estimate is optimistic by a factor of 2 or 3, it seems likely that the economic benefit Queens reaps from HQ2 will quickly exceed the upfront cost — unlike, say, Wisconsin’s ill-advised Foxconn factory.

The second main concern is wages:

The crucial point here is that HQ2 is not an Amazon fulfillment center, where Amazon only raised wages after a combined rhetorical assault by socialists and populists. HQ2 employees will mostly be skilled, college-educated workers — some local, some moving in from out of town. But they’ll spend their money locally, and the increased demand will drive up local wages and pull people into the labor market. That may sound like trickle-down, but it’s the reason working-class people are able to live in New York in the first place.

Finally, opponents are concerned about rent and displacement:

This is a legitimate worry. The centralization of economic activity in big cities and technology hubs like New York and San Francisco has driven up rent and made these cities less affordable. Amazon’s HQ2 will contribute to that trend.

But there are several factors mitigating the danger. The first, in New York at least, is a stringent system of rent control, which, for all its faults, is effective at protecting long-time tenants from displacement. The second is the tax system — the increased revenue from HQ2 and the nearby business activity it creates will give city leaders more money to subsidize housing for low-income New Yorkers throughout the city, not just near HQ2. Of course, allowing more housing development in Queens would also help mitigate the impact of displacement.

Fundamentally, cities need business activity to grow. Businesses create the wealth that then gets spread throughout the populace — through taxation and spending, through stimulation of local economic activity, and through the wages they pay to their employees. Those mechanisms all need to be improved, but the solution to economic inequality is not to crush business activity or push it out of town. Instead of killing the goose, political leaders should focus on finding better ways of redistributing the eggs.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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