Tuesday, June 21, 2011

Public Risk for Private Gain

Red Bull Stadium from NJ.com
How do the rich make their money? They get poor people to make it for them. Increasingly, they get the middle class not only to make their money for them, but to shoulder the riskiest parts of their speculative investments. The story of Harrison, New Jersey -- a less-affluent neighbor of Newark -- and the titan of Red Bull is a recent case in point.

In 2006, the town agreed to underwrite the purchase of land on which billionaire Deitrich Mateschitz would build a professional soccer stadium. The usual arguments were made in favor of exorbitant public investment in a private sports venture. George Zoffinger, then president of the New Jersey Sports & Exposition Authority, was among those who criticized the deal, and he was widely criticized for his pessimism.

As the Boston Globe reported yesterday, the city invested so deeply that is now in financial ruin, with mounting debt, layoffs of public workers, and a credit rating in the lower reaches of junk-bond territory. Bloomberg News reports that city officials remain optimistic, even as they prepare to sell off other city assets in order to continue making payments on the land that continues to enrich Mr. Mateschitz.

This story makes me wish for the good old days, when the robber barons could measure their pay in multiples of hundreds in comparison to that of their workers. In the case of Harrison, the arrangement of a literal playing field is an apt metaphor. The CEO of Wal-Mart now takes home more each hour than most of his employees make in a year, and yet the judicial and legislative branches continue to tilt the (figurative) playing field in his favor. Professor (and former Labor Secretary) Robert Reich gives a two-minute overview of how this fits into much broader trends.

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