When the President Takes On Amazon, Nobody Wins
Posted May 18, 2018 5:29 p.m. EDT
If President Donald Trump resumes his fight with Amazon, the ultimate loser is clear: It will be the U.S. economy.
Economists are a disputatious bunch, but across the political spectrum, we agree on one thing: Politicians shouldn’t be attacking specific companies based on their own whims or preferences.
The president has attacked Amazon on two fronts. First, he asserted that Amazon has avoided paying taxes. Second, he claimed that the U.S. Postal Service loses money delivering Amazon’s packages. These claims have been fact-checked and their merits argued at length. They do not stand up to close scrutiny.
But putting the factual basis of these claims aside, there is another problem that may be even bigger: The president was unnecessarily specific about a single company.
Some economic interventions necessarily pinpoint particular companies. When talking about the major credit rating agencies, for example, it’s hard to avoid talking about the big three: Moody’s, Standard & Poor’s and Fitch.
That isn’t the case here. The issues the president raised about Amazon actually apply to large parts of the economy. For example, every retail transaction on the web raises the thorny issue of how to handle local sales taxes. But Amazon itself collects taxes for 45 states and the District of Columbia.
Some retailers do not even do that. For example, the online store owned by the Trump Organization, Trumpstore.com, collects taxes only on orders shipped to three states. But Trump has not complained about that store, or about most others.
He does not appear to be fostering a policy discussion about local sales taxes in a connected economy; instead, there is reason to suspect that the president has used his political muscle to target a firm he simply dislikes. Shortly after he began attacking Amazon on Twitter, the president issued an executive order demanding that the Postal Service review its finances.
As The New York Times has reported, while that order made no mention of Amazon, it appeared that he was seeking “to substantiate his repeated claim that the financial arrangement between the Postal Service and Amazon, its biggest shipper of packages, is a money loser.”
Political interference in markets is always dangerous. But when it is narrowly targeted, it is particularly so.
First, such interference creates unclear rules.
Any sports fan knows the frustration of watching a game with arbitrary and unpredictable refereeing. Consistency is equally important for a well-functioning economy.
Capricious refereeing complicates managerial decision-making. It distorts cost-benefit calculations, delaying decisions and wasting resources.
Second, political targeting opens the door to various forms of corruption. When politicians play an outsize role in the economy, companies must curry their favor.
This is obvious in many countries, particularly poor ones, where politicians interfere heavily in local economies by deciding such matters as which companies will get a license to operate and which will be audited by the tax authority. Managers must focus as much effort on catering to politicians as to customers, not just through campaign contributions but through bribes, both subtle and overt.
These incentives don’t merely warp the economy. They alter the political sphere, too.
Companies have many tools at their disposal when they seek to influence politicians. A few weeks before an election, a company seeking to help a candidate can announce a major plant opening. Or it can cut prices in response to a politician’s entreaties.
In France, one study found that politically connected chief executives created jobs and opened factories when doing so would help local politicians win re-election. Another study found that U.S. companies have directed their philanthropy to gain favor with congressmen.
Taken to an extreme, political favor can become a corporate asset, one that easily depreciates in value. Raymond Fisman, now an economist at Boston University, demonstrated this by studying corporate performance during President Suharto’s 32-year dictatorship in Indonesia.
Fisman found that when Suharto’s health was reported to be poor, the shares of companies most closely linked to the ultimate leader declined the most sharply. As Fisman put it, “A large percentage of a well-connected firm’s value may be derived from political connections.”
I am not saying that the United States in 2018 is equivalent to Suharto’s Indonesia. In fact, a 2012 study by Fisman and several colleagues showed that political connections are not as valuable in the United States as they were in Indonesia. The U.S. study used the same methodology and applied it to companies connected to former Vice President Dick Cheney.
Stock prices of such companies did not budge when his political fortunes rose — as when he was first chosen as the vice-presidential candidate — or when his health was impaired while in office.
The heartening truth is that until now, the United States has, by and large, done a good job of insulating the economy from political interference. Should that insulation wear down, though, we will find ourselves in a troubling world. That’s why Trump’s campaign against Amazon is worthy of continuing scrutiny.
Moreover, the president’s motivation for focusing on Amazon is open to question. One plausible hypothesis is that Jeff Bezos, the company’s founder, owns The Washington Post, which has unflinchingly reported on the Trump presidency.
It is noteworthy that the president often refers to The Washington Post as “The Amazon Washington Post.”
Any possible interference with freedom of the press endangers the economy — and much more. An efficient economy — and a democracy — requires uniform application of the law.
We live in partisan times. But we can all root for the rule of law. It’s not a particularly exciting cause, but it is in dire need of supporters.