Thursday, June 23, 2011

Aerotropolis and economic-impact nonsense

Patrick Ishmael blogs about the ever-changing job-creation claims for the proposed tax credits for the so-called Aerotropolis warehouse project at Lambert Airport.  The current claim from the St. Louis Regional Chamber and Growth Association (RCGA) is that the tax credits would lead to the creation of 29,000 or so jobs. 

The RCGA's analysis makes just about every classic error typical of this variety of economic impact study.  For one, it assumes that the project will be a roaring success: Not only would the credits be fully subscribed, but the resulting warehouse space would be pretty much fully utilized, despite the glut of warehouse space in the area already.  That assumption at least has the virtue of being a theoretical possibility, even if it is extremely remote.

The most egregious error the study makes, which cannot possibly be true, is that the resources used to construct and staff the warehouses would not have been used to do anything else (i.e., the project has no opportunity costs).  But all of the capital, land, steel, manpower, equipment, etc. that would be involved in the project needs to come from somewhere.  Specifically, these resources would be drawn from other projects and activities elsewhere in the local economy, thereby reducing employment in other sectors.  It is the existence of these opportunity costs that make it very unlikely that the Aerotropolis credits would have anything like their projected impact.  In fact, nearly every independent study on state tax credits finds a zero or negligible impact on local employment.