Articles / Interesting Case of the Month
Amazon and Empty Storefronts:
Civic Economics and the American Booksellers Association studied the impact of Amazon on the American economy, focusing on just two classes of impact: land use and public revenue. The report’s findings, to this author at least, while not surprising with respect to its high-level conclusions, were stunning in terms of the breath and scope of the impact revealed.
“Headline” revelations of the study: During calendar year 2015 –
- “Nearly half of all states still collect no sales tax revenue from Amazon sales and others collect only partial sales taxes, producing a nationwide sales tax gap of $704 million, up from $625 million in 2014”
- “[T]he shift to online sales has resulted in a national reduction in demand for retail space totaling 133 million square feet in 2015, the equivalent of over 39,000 traditional storefronts employing 222,000 workers. These land use changes result in uncollected property taxes of $528 million dollars.”
The Report’s essential findings:
- In 2015, Amazon sold $55.6 billion worth of retail goods nationwide (an increase of 26 percent from 2014), all while avoiding $704 million in sales taxes (an increase of 13 percent). The cost of lost sales taxes falls equally on state and local governments.
- These sales are the equivalent of 39,000 retail storefronts (an increase of 26 percent) or 133 million square feet of commercial space (an increase of 24 percent), which might have paid $528 million in property taxes (an increase of 26 percent).
- A total of more than $1.2 billion in revenue (an increase of 18 percent) is lost to state and local governments.
- Amazon also operated 75 million square feet (an increase of 15 percent) of distribution space, employing roughly 111,000 workers (an increase of 15 percent).
- Even counting all the jobs in Amazon distribution centers, Amazon sales produced a net loss of 222,000 retail jobs (an increase of 29 percent) nationwide
For anyone thinking about job creation and the re-energizing of American towns, this study should be mandatory reading. I’ve presented articles and reports in prior issues of theNewsletter discussing job losses due to robotics and mechanization, but prior to this report I had not seen studies showing the impact on land use. History may well write that Jeff Bezos has had a greater impact on changing the world than Henry Ford or perhaps any other business leader.
Civic Economics and American Booksellers Association, “Amazon and Empty Storefronts, 2015 Update,” September, 2016
The 2014 Study:
Longevity: Practical Considerations:
The article’s authors, all benefits professionals (a lawyer, an actuarial, and a pension consultant), take an objective look at the economic and planning consequences of the increasing lengths of peoples’ lives. As they state in one of the opening paragraphs of the article, “the longer we live the more assets we need to support us.”
In analyzing the consequences of increasing longevity we should bear in mind an equation:
Retirement Plan Benefits + Public Programs (for example Social Security Benefits and Medicare Benefits) + Personal Savings and Investments – Taxes = Assets Available upon Retirement.
[A]ny change in one factor might have an effect on the other ones. Each of the stakeholders – workers, employers, and governments – can be expected to have significant responses to changes in any one of the factors.
The article explores the interrelationships between these and other factors, and how people change their conduct with respect to each.
“For example, if workers are anxious about the value of their investments they will seek to remain in the workforce for increased periods of time beyond the normal” retirement age of 65 and they may well demand increases in governmental programs.”
Explored are impacts on workers, employers, and federal, state and municipal governments.
Concluding the authors write:
Longevity risk needs to be considered by all the constituent elements of society. Various alternative strategies should be examined to determine how they will affect future courses of conduct. No one size fits all. Moreover, the best strategy may well change over rime and advice from various key professionals should be obtained to increase the likelihood that individuals, their families, and their employers will satisfy their objectives.
The financial impact of people living longer is like the iceberg, the biggest problems are those hidden from view.
Thomas M. White, Timothy R. Leier, And Corwin Zass, “Longevity: Practical Considerations,” Employee Benefit Plan Review, August, 2015
How To Build/Stop An Autocracy:
I know – I said a couple of months ago that I’d avoid political articles and I will continue to try. But we’re in such an extraordinary time and there’s too much “good stuff” being written that we should all think about that on occasion I’ll break from my practice and present a political piece.
Presented here is an essay by David Frum appearing in the March issue of The Atlantic – “How to Build an Autocracy” – which has stimulated great discussion, and a corollary piece by Ezra Klein appearing in VOX titled “How to Stop an Autocracy.”
Both are worthy reads and worthy of thought.
First, the Frum piece: “How to Build an Autocracy.” Frum opens with an imagined 2021 reelection of Donald Trump and the state of the Union at that time – not a pretty picture. He then returns to reality and states:
Over the past generation, we have seen ominous indicators of a breakdown of the American political system: the willingness of congressional Republicans to push the United States to the brink of a default on its national obligations in 2013 in order to score a point in budget negotiations; Barack Obama’s assertion of a unilateral executive power to confer legal status upon millions of people illegally present in the United States—despite his own prior acknowledgment that no such power existed.
Donald Trump, however, represents something much more radical. A president who plausibly owes his office at least in part to a clandestine intervention by a hostile foreign intelligence service? Who uses the bully pulpit to target individual critics? Who creates blind trusts that are not blind, invites his children to commingle private and public business, and somehow gets the unhappy members of his own political party either to endorse his choices or shrug them off? If this were happening in Honduras, we’d know what to call it. It’s happening here instead, and so we are baffled.
* * *
If the president uses his office to grab billions for himself and his family, his supporters will feel empowered to take millions. If he successfully exerts power to punish enemies, his successors will emulate his methods.
If citizens learn that success in business or in public service depends on the favor of the president and his ruling clique, then it’s not only American politics that will change. The economy will be corrupted too, and with it the larger culture. A culture that has accepted that graft is the norm, that rules don’t matter as much as relationships with those in power, and that people can be punished for speech and acts that remain theoretically legal—such a culture is not easily reoriented back to constitutionalism, freedom, and public integrity.
* * *
Those citizens who fantasize about defying tyranny from within fortified compounds have never understood how liberty is actually threatened in a modern bureaucratic state: not by diktat and violence, but by the slow, demoralizing process of corruption and deceit. And the way that liberty must be defended is not with amateur firearms, but with an unwearying insistence upon the honesty, integrity, and professionalism of American institutions and those who lead them. We are living through the most dangerous challenge to the free government of the United States that anyone alive has encountered. What happens next is up to you and me. Don’t be afraid. This moment of danger can also be your finest hour as a citizen and an American.
And now the Klein piece: “How To Stop An Autocracy.” Klein opens what may seem a shocking statement: “There is nothing about the Trump administration that should threaten America’s system of government.” Explaining, he states:
The Founding Fathers were realistic about the presence and popularity of demagogues. The tendency of political systems to slip into autocracy weighed heavily on their minds. That power corrupts, and that power can be leveraged to amass more power, was a familiar idea. The political system the founders built is designed to withstand these pressures, and to a large extent, it has.
So why, then, are we surrounded by articles worrying over America’s descent into fascism or autocracy? There are two reasons, and Trump is, by far, the less dangerous of them. . . . [T]he danger of a demagogic, aspirational autocrat winning the White House is one problem the Madisonian constitutional order is exquisitely designed to handle. The founders feared charismatic populists, they worried over would-be monarchs, and so they designed a system of government meant to frustrate them.
So, what then keeps Mr. Klein awake at night?
[The Framers’] vision of American government — a vision children are still taught in civics classes — was that it would be balanced by competition among branches. The president, the courts, and the Congress would compete for power and prestige. They would check each other naturally, as a byproduct of exerting and protecting their authority.
The reality of American government today is quite different. American politics is balanced by organized political parties competing across branches of government. The president is checked not by Congress, but by the opposition party in Congress. The courts remain more independent. . . but they are by no means untouched by partisan competition. Federal judges are selected through a political process driven by organized ideological groups that vet candidates with the goal of ensuring predictable, friendly rulings in the future.
In normal times, this works well enough. These are not normal times. Congressional Republicans find themselves, or at least feel themselves, yoked to Donald Trump — an abnormal president who hijacked their primary system and mounted a hostile takeover of their party. Trump now holds them hostage: Their legislation requires his signature, their reelection requires his popularity, and he is willing to withhold both.
And so the institution meant to check the president now finds itself protecting him.
* * *
In the end, it is as simple as this: The way to stop an autocracy is to have Congress do its damn job.
David Frum, “How to Build an Autocracy,” The Atlantic, March, 2017
Ezra Klein, “How to Stop an Autocracy,” Vox.com, February 7, 2017