Amazon’s Second Headquarters: Another Sign of the Bubble?Paul-Martin Foss
Online retail giant Amazon announced a nationwide search for its second headquarters, looking to complement its existing headquarters in Seattle. The company is looking to locate its second headquarters in a metropolitan area with more than 1 million people, with close proximity to an international flight hub, good public transit, and the ability to attract a talented and educated workforce. Over 200 cities across the United States have submitted bids to the company in attempt to gain what they expect could be up to 50,000 jobs and $5 billion in construction contracts. Cities are falling all over themselves to attract Amazon’s headquarters, but why?
We are told that the economy is in the midst of a phenomenal recovery. Stock markets are reaching record levels, unemployment is low, and the worst memories of the financial crisis are well behind us. Then why are so many cities so desperate to attract Amazon?
These cities aren’t all economic backwaters either, as natural hubs like Chicago and New York have jumped into the race. Cities are offering billions of dollars of tax breaks to get Amazon to pick them. If the economy really were in such great shape, why are cities so desperate to attract Amazon? Isn’t this a sign that low unemployment numbers are masking subpar job growth, which is what is making cities so desperate to attract companies like Amazon?
Then there’s the question of whether Amazon’s growth is really sustainable. How much of Amazon’s success is due to its business model, and how much is due to bubble finance boosting the fortunes of Internet companies? Amazon survived the dotcom bubble, but given how much the fortunes of stock markets are currently reliant on the FANG stocks, will it survive Dotcom 2.0?
There’s no doubt that Amazon has a great assortment of products and is a great place to shop, but much of its growth is fueled too by its ability to secure tax breaks from local and state governments. When those tax breaks expire and Amazon has to raise prices to cover its costs, will it remain the Internet’s retail giant? Is the company in sound financial shape or is its growth, like that of many other companies in recent years, fueled by easy money? Isn’t the fact that over 200 cities are bidding for Amazon also indicative of easy money since the cities offering billions in dollars of tax breaks figure that they can make up for lost tax revenue by continuing to sell bonds at low interest rates?
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Time will ultimately tell whether Amazon’s business model remains sustainable and whether the city lucky enough to get Amazon’s business will kick itself many years down the road. Given the history of cities that have taken on huge tax burdens to fund sports stadiums, transit centers, and other projects that never panned out, though, there’s a good chance that Amazon’s second headquarters may go down in history as one of the hallmarks of the current economic bubble.