Political whims have economic consequences – Twin Cities

The Florida legislature’s decision last week to revoke the Walt Disney Co.’s special tax district in Orlando at the instigation of GOP Gov. Ron DeSantis highlights many economic issues.

Edward Lotterman

Special tax treatment for wealthy corporate projects, including those that enrich team owners with taxpayer money for sports stadiums, is cancerous for the economy and society. So, in general, many economists are happy to see them held back. But the move reflects one man’s desire to reach the Oval Office by deepening the animosity surrounding divisive cultural issues.

Personal views aside, the action in Florida raises an interesting economic question, which also applies to the seizure of the Russian oligarch’s yachts and private jets, the freezing of the Russian government’s dollar-denominated foreign exchange reserves.

The question, at its most fundamental level, is the basis on which all economic reasoning rests, namely the “opportunity cost”. Resources, including time and even personal emotional energy, are limited. Choose to use them on one alternative and you won’t be able to dedicate them to another. When you bite into a hoagie, you can’t also bite into a walleye sandwich. Spend a week in Branson and you can’t spend the same week in Vegas. Work 70 hours a week to upgrade to the executive suite and you’ll spend less time watching your kids grow up.

Seizing a country’s US dollar foreign exchange reserves just because it’s doing something you don’t like, awful as it is, and because you have the power to do it, screams to other nations that they should keep their reserves in alternative currencies to minimize the possibility of the same fate. Abolish a special local tax and service district created 55 years ago that all concerned hoped to continue because a wayward governor thinks it will give him a political head start, and you tell future investors planning to build in your state that they would be well advised to go elsewhere. This is true for blue states as well as red ones.

That such political actions create economic incentives is clear. Yet, the extent of the incentives created and the extent to which time will show negative consequences for the entity initiating the dispute is not at all clear. Economists always look at what happens “at the margins,” and the marginal effects of such actions, immediate or long term, can be small.

Russian oligarchs, whom leaders like Boris Yeltsin and Vladimir Putin let steal hundreds of billions of dollars of Russia’s raw assets and resources, like to bask in the Mediterranean sun with lithe mistresses on the decks of mega-yachts . But the democracies of the Mediterranean coasts have shown that such yachts, even if they are not mistresses, can be seized on what seems like a whim.

The oligarchs would be much safer from such slights if they crossed the Suez Canal and the Yellow Sea separating China from North Korea. Neither country would be outraged by what Putin is doing, at least in Europe. But the Yellow Sea is freezing in winter, swept by the Siberian winds. The ports available to disembark have no casinos and can best be described with a vulgar term that Donald Trump used for some African countries. Wealth wouldn’t be fun.

Similarly, it is now clear that placing its foreign exchange reserves in dollars can lead to their temporary or permanent loss. But what are the options? The EU shows that it will treat your euros a little differently. The Chinese renminbi is the currency of an economic superpower, but ruled by an increasingly arrogant dictator, where there is no free and liquid market for renminbi bonds, where the foreign exchange market is highly manipulated from opaque way and where the economy is full of badly quantified obligations. and poorly rated debt, some of which represents the savings of a billion Chinese households. The whole situation screams a financial time bomb. Why place critical foreign exchange reserves there?

Thus, wealthy Russians and their government may have few alternatives at this time. But they and their counterparts in many other countries will record the financial events of 2022 in their collective memory and this will influence future decisions.

Tit-for-tat, often with collateral damage, is common. Sanctions by the United States and EU countries against Russia have been backed up by Russian seizures of Western-owned commercial facilities. Many Western companies have already cut their losses and announced a permanent withdrawal from Russia. Foreign oil companies play a big role in Russia’s oil industry, and brokering those deals was former Exxon chief Rex Tillerson’s qualification for diplomacy as Trump’s first secretary of state. These are now in the air. Russia needs them as much as they need Russia.

Boeing and Airbus airliners leased to Russian airlines by Western leasing companies are taken hostage. No rental payments are made. If the planes are confiscated altogether, several leasing companies will go bankrupt dramatically. But Western courts will ensure that planes, or others belonging to Russian carriers, are seized upon landing anywhere outside of Russia or its friendly countries. Who, if anyone, will win the stalemate?

Likewise, Disney, which is publicly traded and too deeply entrenched in Florida to be truly undermined, will still be around after DeSantis leaves — and all parties involved know that.

Loss of local tax benefits may affect Disney’s bottom line. But they can’t just load up their circus and move to cheap land in Winnemucca, Nevada. But while adjacent cities and counties could now impose property taxes on “the happiest place on Earth,” taking on the costs of police, roads, sewage treatment, etc., would be enormous . Taxpayers in these municipalities could also be liable for millions in Disney debt, formerly the responsibility of the soon-to-be dissolved district. And tens of billions of dollars of private business have grown around the huge facility. Walt Disney essentially created the modern metropolitan area of ​​Orlando.

Comparative situations may seem like a bunch of spaghetti (Disbanding the Disney District won’t happen until next year, and a lot could happen, legally or politically, to unravel the plan), but the effects will show up over time. . In some cases, these will affect the global or US economy, including your business or job. Bullwinkle Moose might modify his usual adage to say, “Oh, what a tangled web we weave when we first practice political retaliation and punishment.

St. Paul economist and writer Edward Lotterman can be reached at [email protected]

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