Buried in the ocean of news regarding our three wars has been what I think is the biggest U.S. economic story of the year: the federal government’s lawsuit against Boeing, seeking to prevent the opening of its $2 billion factory in South Carolina, for which 1000 workers have reportedly already been hired (in case you missed the news altogether: story, story, story).
Whatever the ultimate decision in the lawsuit, the very existence of the dispute will change the business landscape here in the U.S. for the next decade or two. First, the fact that this happened to Boeing, a company with vastly more political power than average (you might say that it is practically an arm of the federal government itself) is significant. There are hardly any U.S. or foreign companies that can rely on similar influence. For a U.S. company, for example, the prospect that Boeing’s $2 billion investment might be effectively confiscated by the government will be one more reason to build the next factory in a foreign country. The U.S. government won’t be able to sue to prevent the startup of production in Mexico, Canada, China, etc. For a Chinese investor, for example, contemplating investing in the U.S., imagine the impact of the story. The Chinese investor has no political influence in the U.S., a tenuous grasp of American geography and language, and no hope of getting the ear of politicians who take calls every week from Boeing and its lobbyists. Given the vicissitudes of American politics and this unpredictable aggression against investors by government, the Chinese businessman is not going to finance the U.S. project unless it can deliver a rate of return comparable to what would be expected in other countries where there is a lot of risk from capricious governments (historically these have been Third World countries led by dictators or owned by families).
The Chrysler and GM bankruptcies already showed bond investors that the black letter law may not have as much to do with how their investment works out as the sentiments of politicians and bureaucrats in Washington, D.C. (link). Now the federal government is stirring up uncertainty among those who would directly operate factories in the U.S. How to price that uncertainty is going to be a huge challenge, but the price is certainly not going to be $0.
[Loosely related: Folks have been expressing confusion as to why the Federal Reserve’s monkeying with U.S. currency (e.g., printing money to buy Treasury bonds) hasn’t had a bigger effect on business investment and jobs. I think that the answer is that every investor has to get out a checkbook and write a check. Economists and politicians tend to forget that because they’ve never had to make an investment in a business enterprise, so they don’t account for “What happens when a manager is about to write a $2 billion check for a new factory in the U.S. and reads about the Boeing mess?”]