Franklin Foer has an interesting, but ultimately badly confused article in the New Republic about Amazon and its growth. The article is debating the appropriate anti-trust approach to Amazon, questioning whether it merits government intervention to protect producers and not just consumers.

This is a reasonable question, but the confusion comes in the first sentence of the second paragraph, which tells readers:

"Rather than pocketing the profits from this creation, Amazon has plowed revenue into bettering itselfinto the construction of well-placed fulfillment centers that further hasten the arrival of its packages, into technologies that attempt to read our acquisitive minds and aptly suggest our next purchase."

The problem here is that there were actually few profits to pocket and what little profits did exist were due to the enormous subsidy Amazon enjoyed from not being required to collect state sales tax. The first point is straightforward. Amazon has always had very thin profits and has had almost as many losing quarters as profitable ones.

The people who say that this is due to the fact that they are investing in building up their business are showing their ignorance. Reinvesting and profits are two separate issues. Profits reflect the difference between revenues and costs on current business operations. These can all be used for investment in expansion (as opposed to being paid out as dividends and share buybacks), but they should still show up as profits. Amazon doesn't show profits or at least not much. This means that it costs them as much to run their business as they are getting from customers in revenue. That is not viable as a long-term model even if they are always expanding.

The other point should make all right-thinking people's blood boil. Amazon has enjoyed an enormous subsidy from taxpayers in most states in most of its existence since it has not been required to collect the same sales tax as its brick and mortar competitors. This is a loophole of enormous value with zero economic or moral rationale. It means that a multibillion dollar business doesn't have to collect the same tax as a family operated book store. That's good policy, right?

The justifications put forward by Amazon's flacks run from absurd to laughable. One popular one is that as a mail order outfit they don't use local services. That one doesn't cut it, the tax is on consumers, the retailer is collecting it. Who gives a damn if the store itself uses city services?

If you can't understand this as a huge subsidy for Amazon, think harder. Suppose we randomly exempted a store from the obligation to pay rent for its building (gift from taxpayers), would that help it compete with other stores? The basic story is that Amazon gets to split the sales tax savings with customers, getting more business that way and more than accounting for the modest profits it has actually booked since it came into existence.

(One of the laughable excuses for not paying taxes is that it is too hard to keep track of the sales tax rates in 50 states and which could even vary across counties within states. I sent a note to Mr. Bezos telling him that my 6th grade neighbor can help him design the spreadsheet.) 

Anyhow, there are important anti-trust issues with Amazon, but let's first deal with a really simple question. Let's stop the taxpayer subsidy that gives Jeff Bezos an enormous advantage over his smaller competitors.