Carrier Deal and Govt. Boeing Contracts are Not the Same Thing

Mike recently put out a Periscope defending Trump’s Carrier deal and equating the Carrier deal with govt. Boeing contracts, both as being ‘cronyism’, and that it’s hypocritical of National Review to attack Carrier and Trump but defend Boeing.

Mike’s argument initially seemed convincing, but then I thought about it deeper.

As I explained a few days ago, the Carrier deal didn’t live up to the hype. Both conservatives and liberals attacked it because it pretty much amounted to Trump bribing Carrier, not because Carrier felt any sort of moral impetus to not move the jobs.

For this reason, the Boeing-Carrier comparison does not hold. The govt. requests airplanes and Boeing builds and delivers them. Even if it’s cronyism, it’s still a business transaction where goods are rendered in exchange for payment, and this reflects demand for a service that Boeing provides. However, The Carrier deal gave Carrier more money then they would have saved moving the jobs, so Carrier got paid by taxpayers to effectively do nothing – no goods are exchanged or service rendered.

It’s kinda like the American Recovery and Reinvestment Act of 2009, in which Obama boasted about ‘saved jobs’ but the math later revealed that each saved or created job cost taxpayers $200,000 or more.

Also, others have noted that Boeing employs Americans (156,921 total). It would be a potential national security issue to have Airbus, the European equivalent, build those planes, and it would cost American jobs.

Additionally, not all off Boeing’s earnings come from government contracts. In 2013, Boeing’s revenue was $87 billion, but $58 billion came from commercial orders. In 2013, the U.S. federal government pledged $21 billion to Boeing.

The issues with govt. contracts is over-billing and no-bid contracts. But it’s probably cheaper that the government use contractors than build the planes themselves. But it’s worth noting that Boeing’s Defense, Space & Security division, which are govt. contracts, has slightly lower profit margins (9.5%) than the commercial contracts (10%). We would expect higher margins if there was over-billing.

Maybe it can be defended by invoking a consequentialist argument that enough economic value in the long-run is created by not having Carrier outsource the jobs, that taxpayer subsidies are justified – although that seems like a stretch.

A third, perhaps a libertarian philosophical one, is why the government exists in the first place, that it needs to buy these planes and the pubic has to acquiesce to it. Then the question is, is a centralized government necessary, and if so, how should tax payer dollars be allocated, and how much.