Utopian Dreams and Subsidy Schemes

Billionaire entrepreneur Marc Lore recently laid out a vision for a new, built-from-scratch American city “that sets a global standard for urban living, expands human potential, and becomes a blueprint for future generations.” This city of Telosa — a name inspired by an ancient Greek word meaning “highest purpose” — would be founded on an economic model that Lore calls “equitism.” Under equitism, the city’s economy would purportedly be market-based, but the land would be owned by a community endowment that would use rising land values to finance “a much higher level” of social services.

It’s an ambitious project, to say the least. It could also be a missed opportunity to reassess the misguided relationship between local economic development and state and federal funding.

Promising an “open,” “fair,” and “inclusive” society that would be powered by renewable energy and have a city department for DEI (Diversity, Equity, and Inclusion), Telosa is already being labeled “America’s first woke city.” Woke or not, there’s nothing wrong with people coming together and voluntarily attempting to create a new city guided by a collective preference for a particular lifestyle and community. American history offers a number of examples, including Mormon pioneers, Shakers, and the Oneida Community.

According to Lore, it will require an estimated $25 billion in funding to get the city started and $400 billion to complete it. That’s a lot of money, but regardless of whether the project is practical or not, a well-connected and wildly successful entrepreneur like Lore would seemingly be an ideal person to raise the funds from private investors and philanthropists. That’s why it’s particularly unfortunate that plans include the pursuit of “federal and state grants” and “subsidies for economic development.” Whereas private investors and philanthropists could choose to help finance Telosa’s creation, taxpayers would be forced to help finance it.

According to the Congressional Research Service, the federal government has over 130 economic development programs. Most are designed to work in conjunction with state and local governments. Given the geographic basis for most such funding, it isn’t immediately clear how a non-existent city could obtain substantial start-up funds from Washington. Should Telosa come into existence, however, it would qualify for any number of federal handouts.

The state in which Telosa would be located hasn’t been determined — Arizona, Idaho, Nevada, Texas, Utah, and the Appalachian region have been mentioned — but it’s nonetheless worth asking why taxpayers in the other 49 states should bear any responsibility for a presumably wealthy and successful city created by a billionaire.

They shouldn’t, but let’s set that aside and focus on the more likely target for start-up funds: state governments. My Mercatus colleagues estimate that state and local governments spend $95 billion annually on economic development subsidies targeted toward commercial interests. Although Telosa would be a city and not a corporation, it’s not hard to imagine states competing to have the city built within their borders on the same specious claim that it will foster broader economic growth for the “winning” state. The recent example of state and local governments tripping over themselves to shower Amazon with taxpayer handouts to build a new headquarters comes immediately to mind.

It is possible that state policymakers will look at what Lore is selling and say, “No thanks.” But it’s also possible that one or more governors will be seduced by the allure of a ribbon-cutting ceremony for a futuristic city that its backers will undoubtably claim will draw exciting industries and high-tech jobs with minimal environmental damage. And if it turns out to be a boondoggle — an all-to-common result with economic development subsidies — that governor will likely be long gone before it’s time to face the music. Take the example of former Wisconsin Governor Scott Walker, who in 2017 oversaw the now-infamous $3.6 billion subsidy package for Taiwanese electronics giant Foxconn Corp to build an LCD manufacturing facility in the state. The deal turned out to be a fiasco, but Walker is no longer in office, so now it’s someone else’s problem.

The point is not to pick on Lore or any other entrepreneur with grand, but good, intentions. It is clear that Lore is passionate about the idea and determined to pursue it. I take no position on the practicality or desirability of the project. But in a day and age where seemingly little can be done without government largesse, wouldn’t it be refreshing if Lore ended up eschewing taxpayer handouts and embracing the idea that we can have economic growth and social progress without coerced financing?

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