Perhaps one of the most famous landmarks in the U.S. is the
site of the World Trade Center in New York City. It may also become a major expense for taxpayers.
We all know about the old World Trade Center buildings. The twin towers, along with Building 7,
all came down on September 11, 2001.
Since then, One World Trade Center, now the tallest building in the
U.S., has been built. It is also
more than 40 percent vacant.
But the developer of Three World Trade Center, another
skyscraper, is requesting over one billion dollars in loan guarantees from the
port authority of New York and New Jersey, the official owners of the site.
In other words, taxpayers will be on the hook for this
building and will pay the tab, especially if rents are less than expected.
There could be any number of reasons for vacancies and the
need to lower rent in One World Trade Center. It could be that some people are afraid of another terrorist
attack. It could be that it is too
expensive. It could be that
business is not booming as much as normal in New York City. But regardless, there is obviously a
problem with One World Trade Center and it will likely be the same with Three
World Trade Center.
It would not be a problem if the owner and developer and
lenders were all on the hook for it, if they were all private parties that did
not involve taxpayers. It should
be like any other business, where it is only those who voluntarily involved
themselves who suffer the losses.
Perhaps I shouldn’t say “any other business” because some
industries in the U.S. today are more like a fascist society than a
capitalistic one. The businesses
are not directly owned by the government (socialism), but rather controlled and
directed by government (economic fascism). Unfortunately, in favored industries that have friends in high
places, we see scenarios where the free market is allowed to work when they are
profitable, but then it is no longer a free market system when losses
appear. In other words, it isn’t a
free market system at all.
We saw this in 2008 when car companies, banks, and other
financial institutions were bailed out.
They were allowed to reap the rewards when they were highly
profitable. But then the taxpayers
had to foot the bill when things went bad.
Of course, this is a case of moral hazard, where the companies
are encouraged to take on more risk than they otherwise would, knowing that a
bailout is likely if things go bad.
For this reason, government guarantees of any kind are
harmful for multiple reasons. It
causes excessive risk taking in the first place and then taxpayers have to pay
for the consequences when those high-risk ventures don’t work out. It is a misallocation of resources that
makes us poorer.
If a project is worth pursuing, it should be up to the
entrepreneur/ business and the investors of the project who should pay for any
losses. It is not as if taxpayers
will get paid if the project is profitable. The free market system works so well because of profits and
losses. The loss portion is just
as important, as it tells entrepreneurs what not to do.
The World Trade Center project is obviously a misallocation
of resources at this point in time.
Unfortunately, it looks as if taxpayers might have to pay once again for
the mistakes of others. Or maybe
they really aren’t mistakes.