A Ruinous Mystification: On Downtown Development, the New Rochelle IDA and 19th Century French Philosophers

The purpose of this article is not to say that there have been no benefits whatsoever to the development of New Roc City, Trump Plaza or the Avalons and other projects. There have been some benefits.

The purpose of this article is to give critics of the Idoni-Bramson vision for New Rochelle a language with which to articulate their opposition to specific completed projects, a reason to celebrate the demise of LeCount Square and the apparent demise of the Echo Bay Project and a basis upon which to demand a true, full cost-benefit analysis of imagined future projects like the Main Street Corridor and David’s Island. It is not to be “against virtually everything” to demand that any proposed tax-payer funded government intervention in our local economy is made to consider the “unseen” costs of the projects, the possible unintended consequences of a project and be based upon an independent, verifiable cost-benefit analysis that is then used as a benchmark to check and recheck progress on a particular project at each phase in the development.

Talk of the Sound asks what a 19th century French economist and political philosopher can teach us today about men like Noam Bramson, Tim Idoni, Louis Capppelli and the Ratner Family.

Some in New Rochelle have said that no one should be cheering the end of the Cappelli Enterprises MOU on LeCount Square. Others have called the downtown development effort of the Idoni-Bramson years a success, pointing primarily to the construction of Avalon 1 and 2, Trump Plaza and New Roc City. These are people who would have you believe that but for government intervention, the parcels occupied by those structures would be vacant lots. And at least one pundit has recently put forward the idea that the tearing down of a diner three years ago demonstrates that “free markets” operate in New Rochelle when it comes to real estate and, in particular, commercial development, and that “most Americans, even liberals, will talk glowingly of the free market”.

First, to dismiss that last obvious canard, most Americans, let alone liberals, do not talk “glowingly” about the free market.

For liberals it is quite the opposite. Unless referring to classic liberals from 19th century England, modern liberalism which came to this country in the form of FDR is based on Keynsian policies of state intervention in the economy and deficit spending. They absolutely reject the concept of free markets and believe that the state should control and intervene in markets to provide employment, healthcare, education, and social justice primarily in the form of income redistribution through high taxes and generous “entitlement” programs.

Going back to Franklin Roosevelt, modern liberals believe the solution to economic downturns is massive deficit spending to “prime the pump” through government intervention in the market with an eye towards increasing employment, specifically government employment, as opposed to maintaining or cutting spending levels but reducing government receipts through massive tax cuts with an eye towards putting money back into the private sector. Modern liberalism is predicated on the belief that the public sector is the engine of economy recovery in a down economy. It is the basis for all Obama administration policies. It is the basis for Idoni-Bramson policies.

How’s that been working so far?

As for the “success” of the Idoni-Bramson development scheme, if Americans are known for anything it is judging work on what it actually produces as opposed to what the author of the work had hoped to produce. There is a reason the road to hell is paved with good intentions. In evaluating the downtown development of New Rochelle over the past 15 years, New Rochelle residents would do well to familiarize themselves with Frederic Bastiat, a man of his time writing more than 150 years ago who is today remembered for his writings on the “seen and unseen” effects of economic intervention by the state.

Bastiat wrote:

In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, – at the risk of a small present evil.

Avalon, Trump and New Roc City were the result of economic intervention by the state in the form of state and federal funding and massive tax breaks from the local government. Writing on such public works, Bastiat said:

Nothing is more natural than that a nation, after having assured itself that an enterprise will benefit the community, should have it executed by means of a general assessment. But I lose patience, I confess, when I hear this economic blunder advanced in support of such a project. “Besides, it will be a means of creating labour for the workmen.”

The State opens a road, builds a palace, straightens a street, cuts a canal; and so gives work to certain workmen – this is what is seen: but it deprives certain other workmen of work, and this is what is not seen.

The road is begun. A thousand workmen come every morning, leave every evening, and take their wages – this is certain. If the road had not been decreed, if the supplies had not been voted, these good people would have had neither work nor salary there; this also is certain.

That work on a publicly-funded project will have both a positive, visible effect — workers engaged on the project, the hustle and bustle — and a negative, invisible effect — other workers not engaged but unaware that that they could be otherwise engaged, the taking of private funds for a public purpose — is a truism. It is false accounting to tally up only the visible benefits while ignoring the unseen costs.

This visible effect is precisely why career politicians are addicted to state intervention in the economy — beneficiaries know who to “thank” while those suffering the invisible effects do not know they have been deprived or who to blame. This is precisely why Mayor Bramson is now backing yet another dubious real estate development scheme that the developers, Albanese, admitted to Council would not go forward without state intervention and why he has put together a committee with a pre-ordained outcome on what to do with David’s Island. To get in office and stay in office, career politicians like Bramson need to show “something happening” even if that something is full of sound and fury but, in the end, signifying nothing. Does anyone actually believe that Noam Bramson will be able to develop anything larger than a tool shed on David’s Island?

Yet, there are deeper, more pernicious negative effects of state intervention in markets. Bastiat continues:

In order that the evolution may be complete, as it is said, must not the State organise the receipts as well as the expenditure? must it not set its tax-gatherers and tax-payers to work, the former to gather, and the latter to pay? Study the question, now, in both its elements. While you state the destination given by the State to the millions voted, do not neglect to state also the destination which the taxpayer would have given, but cannot now give, to the same. Then you will understand that a public enterprise is a coin with two sides. Upon one is engraved a labourer at work, with this device, that which is seen; on the other is a labourer out of work, with the device, that which is not seen.

Money taken by the state to fund a public project is money that might otherwise have been invested privately. What projects and business and payrolls might that money have funded? Once the money is taken, the world can never know. Bastiat calls this line of reasoning sophistry, a false argument, whose impact is more profound when it comes to enterprises such as so-called “public-private partnerships” where the public gets all of the downside risk and the private entity gets all the upside gain.

The sophism which this work is intended to refute, is the more dangerous when applied to public works, inasmuch as it serves to justify the most wanton enterprises and extravagance. When a railroad or a bridge are of real utility, it is sufficient to mention this utility. But if it does not exist, what do they do? Recourse is had to this mystification: “We must find work for the workmen.”

Accordingly, orders are given that the drains in the Champ-de-Mars be made and unmade. The great Napoleon, it is said, thought he was doing a very philanthropic work by causing ditches to be made and then filled up. He said, therefore, “What signifies the result? All we want is to see wealth spread among the labouring classes.”

Consider Bastiat in the light of our own Industrial Development Agency. According to the New York State Comptroller, the New Rochelle IDA has only ever approved projects for which it has done no cost-benefit analysis, for which it has relied entirely on developers for data and analysis of that data and never once bothered to evaluate the success of a completed project against the promised benefits put forth by the developers. Were the citizens of New Rochelle gathered together and asked to support the IDA projects at the time what might the answer have been of the community at large?

But let us go to the root of the matter. We are deceived by money. To demand the cooperation of all the citizens in a common work, in the form of money, is in reality to demand a concurrence in kind; for every one procures, by his own labour, the sum to which he is taxed. Now, if all the citizens were to be called together, and made to execute, in conjunction, a work useful to all, this would be easily understood; their reward would be found in the results of the work itself.

But after having called them together, if you force them to make roads which no one will pass through, palaces which no one will inhabit, and this under the pretext of finding them work, it would be absurd, and they would have a right to argue, “With this labour we have nothing to do; we prefer working on our own account.”

A proceeding which consists in making the citizens cooperate in giving money but not labour, does not, in any way, alter the general results. The only thing is, that the loss would react upon all parties. By the former, those whom the State employs, escape their part of the loss, by adding it to that which their fellow-citizens have already suffered.

If ever there was a palace which no one will inhabit it is Trump Plaza yet the Mayor now wants to building yet more luxury condos to compete with the still empty building standing all but silent on Parcel 1A. Have the laws of supply and demand ceased to exist?

Bastiat would presumably recoil at the mere existence of NRIDA but the idea that such a body should operate independently of the elected government would seem to him preposterous. The State Comptroller Audit of the New Rochelle IDA cries out for placing the IDA directly under Council control as has been proposed by Council Member Richard St. Paul. Even Democrats like Assemblywoman Amy Paulin are questioning the wisdom of the continued existence of IDA’s throughout the State of New York which have proved more a means of allowing developers a venue to more easily pit municipalities against one another than a path towards sound industrial development.

Even the name is lie. How much “industrial” development has occurred in New Rochelle since the inception of the IDA? None.

To be fair, Bastiat does not argue that there is no role for the state but rather demands a true accounting of costs and benefits, of foresight to consider the seen and unseen benefits of a particular project and for accountability. None of which has existed in New Rochelle under the Idoni-Bramson regime.

There is an article in our constitution which says: – “Society favours and encourages the development of labour – by the establishment of public works, by the State, the departments, and the parishes, as a means of employing persons who are in want of work.”

As a temporary measure, on any emergency, during a hard winter, this interference with the tax-payers may have its use. It acts in the same way as securities. It adds nothing either to labour or to wages, but it takes labour and wages from ordinary times to give them, at a loss it is true, to times of difficulty.

As a permanent, general, systematic measure, it is nothing else than a ruinous mystification, an impossibility, which shows a little excited labour which is seen, and bides a great deal of prevented labour which is not seen.

If it were really true that Bramson supporters were concerned with “smart” transit-oriented development centered on the area around the New Rochelle train station and the downtown shopping area then perhaps all of New Rochelle would join in endorsing the Idoni-Bramson vision. The reality is that the preponderance of the Bramson supporters are people who frequent train stations in Crestwood, Scarsdale and Larchmont, who shop at the malls in Eastchester and White Plains, who buy their groceries at the Golden Horseshoe, Quaker Ridge Shopping Center or the Palmer Avenue Shopping Center. These are people, for the most part, would not be caught dead shopping in downtown New Rochelle or watching a movie at Regal Cinemas at New Roc and could not find the New Rochelle Armory with a GPS system, a compass and a sherpa guide let alone tell you what the building is or was.

Their goal is not to “develop” downtown but rather to lower their taxes by shifting the tax burden south while increasing their property values by insisting that all noisy, dirty, messy services like hospitals, truck depots, cement mixing plants, garbage transfer stations, leaf storage stations, transit centers, salt domes, police stations, water treatment plants, and the like be kept out of their pristine neighborhoods. With regard to the biggest source of taxation, the reason Westchester has the highest taxes in the country, they are willing to accept higher school taxes so long as funds are unevenly distributed to insure that the best facilities, teachers and programs are centered around the “North End/Albert Leonard Middle School” feeder system such as the AP/Honors programs, the high school’s new wing “white” cafeteria, and elite programs like PAVE and Kaleidoscope which eschew “affirmative action” to produce outcomes where 80-90% of the students benefiting from the most expensive program are from the North End and disproportionately white.

This is our democracy. If voters in New Rochelle want to maintain a status quo bent on exclusionary policies, shifting property tax burdens to the elderly and middle/lower income residents, jamming more people and more vehicles into an increasingly dense but unproductive downtown and tolerating a criminal regime that rules our city departments and school system all while driving out productive, loyal citizens and welcoming transient, unproductive ones then so be it. One might think, however, that even the most politically disinterested residents might want to see a government that is accountable, transparent and honest.

It is time to end the ruinous mystification in our two governments.

Talk of the Sound has already documented for years the way incompetent people get no-show or near no-show jobs for which they are not legally, ethically or intellectually qualified, the corruption and wrong-doing in City departments including Development, Public Works, Police and — soon — Parks and Recreation and School departments including Transportation, Buildings and Grounds and Security. The State Comptroller has already demonstrated through audit the incompetent management of the IDA which could not produce a single document showing they had properly evaluated any project they had ever approved.

Perhaps 2011 will the year the scales fall from the eyes of even the least aware residents that ours has become a city of bag men, envelopes stuffed with cash, no-show jobs, kickbacks and a friends and family network for jobs, political patronage and favoritism. And perhaps this will be the year that tax-payer funded government projects are based on verifiable cost-benefit analysis which gives due consideration to “unseen” costs and considers the possibility of unintended consequences.

Perhaps.