Amazon

Spring 2019

Amazon decided not to set up one of its headquarters in Queens, New York City.  Queens didn’t lose much.  My understanding is that Amazon provided no actual commitment on the number of jobs to be created. Amazon did commit to spend $5 million for training. That does not sound like much for what was supposed to be 25,000 jobs.  My sense is that Amazon liked New York City because tech savvy people like New York City.  Rather than give lower income folks opportunity, Amazon would be looking for people already skilled in tech, marketing, and human resources, already earning at the top of the middle class – by offering them more money. 

What our country needs is to get more people into the middle class. Middle class is defined by the Pew Foundation as earning 2/3 to 2 times the median area household income. For New York City, middle class means earning $50K – $150K, higher than all but a few metropolitan areas.   Economist Mark Zandi pointed out, while global trade has benefitted us immensely, it has hurt the middle class.  Middle class share of income, wealth and spending continues to shrink.  If Amazon was going to offer tech training so that the $50K and lower New York earners might move up in skills and income, then they’d be doing something.  Middle class in Newark, NJ, means earning $23-$70M. Imagine the shot in the arm 25,000 Amazon jobs would give there? 

As we file our income tax returns, Bloomberg announced that Amazon will not be paying US income taxes for 2018. The company had $232 billion in revenue in 2018 and $9.4 billion in profit.  Amazon benefits from carryover losses, depreciation, investment in research and development, spending on furniture fixtures and equipment.  For individuals, there is an alternative minimum tax (AMT), a catch-all so that even if one has avoided taxes, there is still a minimum tax to be paid. The 2018 Tax Act eliminated corporate AMT. Even a 2% tax on Amazon would mean a couple of hundred million dollars for the US Treasury.

Amazon is the biggest player in online buying and delivery.  My brother-in-law recently ordered coffee online.  As Amazon Prime members, they receive free shipping. The coffee came inside a box filled with bubble wrap- lots to recycle or discard. Our township encourages recycling. While there is a charge per can of refuse set at the curb, we can set out as much recycling as we want – free.  The economics of recycling changed recently.  In 2017, 1/3 of US recycling was exported to China. In 2018, China decided it would no longer take many types of recycling.  Now, instead of earning money from selling recyclables, municipalities have to pay to get rid of most of them.  The cost for recycling/disposal of the boxes and wrappings is borne by municipalities and citizens.  Are we subsidizing Amazon? 

Avoiding taxes, hiring skilled employees, and making a profit is what Amazon is supposed to do in our free enterprise system. However, free enterprise unhampered leads to a Wild West society, where the strong dominate the others.  Achieving regulatory balance is not easy, but benefits most of us. 

Recently, I went to a presentation by Guy Kawasaki, an early Apple hire, tech guru and Silicon Valley venture capitalist. Stephen Klasko, President and CEO of Jefferson University interviewed him. Klasko asked Kawasaki something like: why can’t we in healthcare be more innovative like Silicon Valley? I can’t remember how Kawasaki answered it, but I do remember my initial thought.  Most of what the tech industry has achieved is “permissionless”.  Entrepreneurs have little in the way of approvals required to develop software, hardware – almost all tech things.  By contrast, the healthcare industry is loaded with required approvals, and needs to be. Can we imagine development of new drugs without testing and supervision?  It does now seem that there is talk of reining in the big tech companies which would certainly mean more permission is required.  We need to find balance in this area.

With continuing progress in technology, the factory of the future will consist of machines, a dog, and one employee. The employee’s job is to feed the dog. The dog is there to keep the employee from touching the machines! 

Enjoy spring.

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