Why Amazon will and should choose Montgomery County, MD, and *also* Northern Virginia

by on January 23, 2018 at 6:58 pm in Current Affairs, Political Science, Web/Tech | Permalink

That is the topic of my latest Bloomberg column, here is one bit about why they might not:

In any of these Washington area locations, Amazon is taking an implicit stance on the nature of talent and education. It’s well known that the D.C. area has high education levels, including in science and technology fields. At the same time, it has not bred a lot of rapidly scaling, dynamic startups comparable to, say, Silicon Valley or Austin, Texas. The work ethic and competition here are strong, but the orientation is too much toward the government as customer and arbiter. If Amazon settles in or near Washington, the company is betting that educated human beings are flexible and can reorient their priorities and ethos to a changing business environment. If there is any argument against Amazon picking the D.C. area, it’s this one.

There are many more points at the link.

1 Benny Lava January 23, 2018 at 7:11 pm

I thought you believed in markets. And right now the betting markets are saying Boston.

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2 ant1900 January 23, 2018 at 8:11 pm

DMV is #2 when you combine the odds for DC, MD, and NOVA.

Also, at the moment we only have Paddy Power odds as far as I know. Markets work best when insiders can trade, and there are limitations on a US insider betting with Paddy Power. Would be nice to see PredictIt make a market for it.

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3 ptuomov January 24, 2018 at 4:27 pm

MA will almost certainly move to progressive state income tax. It doesn’t make any sense for any high revenue per employee business to relocate to MA. I’d rule that out.

Logical place for Amazon for many reasons (tax, political, cost of living, university access) is the research triangle in NC.

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4 Anonymous January 23, 2018 at 7:31 pm

A good piece. I had not thought of the political angle, but of course you are right, and they should be thinking about gaining influence the old fashioned way. By that I mean by providing jobs in a state.

A headquarters in Seattle and one in California would be in many ways redundant.

I’d still like to see something like Iowa City..

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5 Careless January 23, 2018 at 9:23 pm

Iowa City has 75000 people. Amazon wants to move 50,000 people in. Not only could they not hire more than a small fraction of their workforce from the metro area, even at the lowest skill levels, but it would also take an ungodly amount of time just to build the houses for the people moving in

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6 Anonymous January 24, 2018 at 8:10 am

I guess it depends on how fast they want to get to 50000 and how much a city of the future turns them on. Tomorrowland, baby.

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7 Mark Thorson January 24, 2018 at 12:23 pm

Yes, they should build a new city from scratch in desert scrubland. Nevada, for example.

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8 Mark Thorson January 24, 2018 at 7:57 pm

My concept is to have a city in which everyone has access to a driverless car. Not only that, but it would be electric and not have batteries. I call it Slot Car City. The roads would have embedded conductors for electricity, and the cars would have brushes to connect to the power. This eliminate dragging around heavy batteries all the time and disposing them in hazmat landfill at the end of their life.

9 clamence January 23, 2018 at 9:28 pm

Iowa is boring and reeks of hogs

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10 Ray Lopez January 23, 2018 at 7:35 pm

Wait a minute, has TC jumped the shark? He told us just the other day, yesterday, that he hopes AMZN does not pick No.VA and now he says they should? Or is TC so sophisticated that he does not let his own mood affect his own opinion?

Bonus trivia: my confidential sources told me AMZN would pick no VA back in the fall of last year. I even know the location, and could ethically buy real estate in that region, and trade on it. But I am rich enough already and more people in the DC area means more money for me and mine, indirectly, as we are landlords/slumlords.

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11 Jan January 23, 2018 at 8:12 pm

I hope you make enough money one day so you no longer need to anonymously lie to strangers in the MR comments section about how rich you are.

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12 Efim Polenov January 23, 2018 at 8:55 pm

One of the most difficult intellectual tasks is to wish – correctly wish – for others what would be most good for them.

People might laugh at me when I say this, but an easy way to understand how, say, Tolstoy or Dickens might one day be considered outdated and impossible to fully understand and appreciate, except by the more unusually enthusiastic antiquarians of the future, is to consider the fact that they had very little skill at achieving that most important of intellectual tasks for a novelist – correctly wishing, for individual human beings, that which would be most good for them.

Other second-raters on this scale are Dante (who, to be fair, despite a defective education, will never be considered second-rate, due to his artistic innocence and all-around concern for those close to him, which overcomes a host of faults), Vergil, Goethe, and, except in the best of his comedies, Shakespeare. (I will not list the first-raters on this scale, but there are quite a few).

So, you might ask, what would I wish for Ray Lopez, who posts here with enough frequency and enthusiasm for me to guess what type of character he seeks to portray in these corridors of the academic internet? …. if you were to ask, I might answer: incrementally better understanding, every year, starting right now; the ability to forget past muddled thoughts; and the triumph of prayer.

See how easy it is?

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13 Brian Donohue January 24, 2018 at 11:02 am

Efim, I like the cut of your jib and am interested in your list of first-raters.

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14 Efim Polenov January 24, 2018 at 8:49 pm

That is more a crowd sourcing question, given the parameters, not a question for one single person, but … I will give it a try ….- for the tragedies of Shakespeare’s approx. time – Calderon’s Life is a Dream, Racine’s Phedre and Andromaque. As for English writers who did or may have known people who knew Shakespeare – Traherne’s poetry and prose is generally at Hamlet level or better, and Book IV of Paradise Lost also is at that level.

Americans – Eliot’s 4 Quartets, Stevens – Credences of Summer and Auroras of Autumn. Any poem of Emily Dickinson that names a flower (in her unlovely world, each flower symbolized a friend, and the biographers will never chase down the real names of all those friends). The first page of almost every short story by Poe is spectacular at describing human beings who are not Poe, and the reason the most famous American writers are famous is never their mastery of prose or their deep philosophical intellect (not even Melville) but because they always have a few pages, here or there, that are indescribably accurate about the human soul (even the famous non-Christians can do this – the famous fireside scene in The Portrait of a Lady where the wife realizes her husband is not who she thought he was, the riverside scenes in Huckleberry Finn where the narrator discusses the world at night and what we need to do in a world of tragedy, and, my favorite chapter in any American novel (not that I am all that well-read, there might be better chapters elsewhere) the chapter where the narrator describes how he much he missed, over the years, being near his friend Antonia (Willa Cather….). All of these moments are what I was thinking of.

In non-English books, there are the chapters of the Brothers Karamazov that begin that book (including a cameo from the original Efim Polenov), all the way up to Dmitri’s dream (about the mother and her baby) where he finally wakes up, late in his 20s (so young, right?) to who he really is and to who he (heartbreakingly) could have been, and realizes who he was – a progression of chapters I did not understand all that well until I read the commentary by Victor Terras – and there is the eighth book of Eugene Onegin, and there is Tolstoy describing the joy of being young and healthy in that way he has and then one page later describing what time does to those who think time would never do to them what time regularly does: and (back to English books) there are all those chapters in Jane Austen which describe regret and remorse and friendship so well, and there is George McDonald’s Phantastes and Lilith, and (to go to people who were alive when I was young) dozens of passages in Tolkien’s books and Wodehouse’s books, there are the Yugoslavian chapters in Sword of Honor: and Bernanos (younger – much younger – than my grandfather) got things right in the Diary of a Country Priest (quite possibly the best prose description of anything I have ever read was the narrator’s description of the regret (slight spoiler alert, but this is fairly obscure even in the context of that novel) – regret that he (the Country Priest) felt after that day when he fell asleep early on the evening of the day he (basically) saved the despairing soul of a person who was falling into despair. All of these things I have read, and thought about, and as much as one admires the Shakespeare who wrote Hamlet and Lear, he just did not get it as well as the authors I have described, at least not when he was not writing comedies (which, by the way – comedy, that is – he understood perfectly, and when Eco said he could not describe the lost book of Aristotle on Comedy, Eco was just being Italian – no English writer would have said that, knowing what Shakespeare did with comedy). Well, shifting gears a little, my favorite of all books might be – if the index is ‘the understanding by a talented writer of a creature that could never be a talented writer in its turn” (and not available for checking out, according to the Fairfax Library on-line catalog) “Platero y Yo” – I have never thought about this before tonight, but I would much prefer to have written Platero y Yo than to have written Hamlet. Just saying.

How about you? I would be interested to hear a similar list from you – if it is not too much trouble ….

15 carlospln January 23, 2018 at 9:21 pm

He’s not.

Otherwise, he wouldn’t bray about it continually.

As if this mattered.

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16 Ray Lopez January 24, 2018 at 12:15 pm

Seriously? Do you think I get off impersonating a rich man on the internet, anonymously? It’s far more probable that I’m telling the truth. My family and I have lived in the DC area since the 1950s and have constantly bought real estate in what turned out to be Metro stops (by luck, I will freely admit). We even had a house we sold in the prestigious Kalorama district of DC, where the world’s richest man, Jeff Bezos, bought the most expensive house in DC. Sorry carlospin and you others who are dirt poor, but me and mine are in the 1% in the USA, and that means a minimum net worth of close to $10M USD. Deal with it. And if you Google it, you’ll find most of the richest Americans are found in the counties surrounding the US capital of Washington DC. This is not even controversial inside the Beltway, but I guess for you types who have never visited DC and/or are reading from outside the United States, what I say strikes you as hyperbole. In my neighborhood I don’t know of a single person, and that includes black Americans, who don’t have at least a million dollars in net worth. Not a single one. And I would say it’s just a upper-middle class neighborhood.

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17 msgkings January 23, 2018 at 9:51 pm

Eh, it’s his troll character. Mildly amusing sometimes.

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18 Bill January 23, 2018 at 7:37 pm

I think Amazon should

Ask

Watson on where to locate.

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19 Clay January 23, 2018 at 7:59 pm

Overrated or underrated.: The cool factor of White Flint/North Bethesda.

I says overrated. It’s also not really that easy to get to for those who aren’t on the red line, much as the Loudoun location won’t be easy for those not on the Silver.

Also no mention of Arlington/Alexandria locations, which would probabaly rate somewhere between the Maryland and Virginia locations Tyler mentions.

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20 Matt2 January 24, 2018 at 5:16 am

Probably overrated now that I live here.

Paladar closing last week was a big negative! Pike and Rose is coming along nicely though and being able to walk to work is tough to put a price on, but I’m estimating $500-600 a month.

Question is when I moved from Twinbrook which neighborhood got cooler?

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21 Clay January 24, 2018 at 8:39 am

That price of walking is an interesting calculation. Commute costs seem to vary a lot, but so far as I can tell, for commutes to metro or paid parking garages the commuter is usually in for $10-$15/day, which works out to around 200 – 300. That’s before adding in time saving and physical and mental health benefits that may come from walking – taking all that into account I would think your calculation is not far off.

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22 Matt2 January 24, 2018 at 9:15 am

My rough math was:

$75 monthly parking
$75 gas (from Gaithersburg or Germantown)
$125 insurance
$50 Maintenance
$250 car payment

The intangibles really are priceless. Walk to work, elevator to gym, restaurants, etc. I used to live 30 miles/75-80 minutes outside Boston and all I can say is Never Again.

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23 Clay January 24, 2018 at 11:33 am

Ah, I was leaving payment and insurance out as costs of ownership that most people ( well, most that I know, but maybe not most Amazon employees?) would incur anyway.

Nonetheless, agreed that the direct financial costs are really just small part of the appeal of being close enough to walk. As to how many Amazon employees make the decision to live close and work there….hard to say, though no doubt wherever they put it will become a mini-downtown just by virtue of their presence.

24 Matt2 January 24, 2018 at 1:26 pm

We were able to eliminate one car entirely. Obviously may not work for everyone, but we are almost perfect examples of the people that “New Urbanism or whatever you want to call it is designed for.

25 ant1900 January 23, 2018 at 8:07 pm

Why not DC-proper as an impetus to blow up the ridiculous building height restriction? Pipe dream, meh.

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26 charlie January 23, 2018 at 8:11 pm

I’d agree the DC public and charter schools are a likely barrier.

Seattle has a similar sized school system, about the same budget, but I strongly suspect more than 1 in 10 Seattle public school graduates are literate.

DC could offer tax credits of maybe 20K to Amazon employees to attend private school.

In terms of Trump interfering with the District, the President doesn’t have much power over the District. Congress has enormous power on paper, but in reality it is just approving a budget.

DC would be limited the debt cap (imposed by congress) on types of incentives and grants.

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27 Jan January 23, 2018 at 8:21 pm

Many of the DC charter schools are actually quite good, but there is no guarantee any given kid will get a spot at one of them.

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28 msgkings January 23, 2018 at 9:57 pm

I imagine wherever Amazon picks, some schools will spring up.

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29 dave schutz January 23, 2018 at 8:21 pm

The Mercatus Center – and how can Tyler disagree with THE MERCATUS CENTER, hm? – puts Jersey, Maryland, and Massachusetts into their bottom five worst states for fiscal health. https://www.mercatus.org/statefiscalrankings Illinois is in there, too, as is Kentucky. So, Bezos is going to put his large and valuable and highly taxable second headquarters into the cross hairs of the politicians in one of those states? I think not, somehow. Eileen Norcross and Olivia Gonzales, your feelings should be hurt, that this guy is discarding your analysis! Virginia is ranked eighteenth – not great, but not dreadful.

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30 C.J. January 23, 2018 at 8:38 pm

>”If Amazon settles in or near Washington, the company is betting that”

This sentence should have ended:

“…the future of the tech sector generally, and AMZN especially, depends on purchasing a sufficiently-large number of ‘flexible’ federal politicians and bureaucrats. AMZN can most conveniently avoid (say) DoJ antitrust investigations via the implicit promise of a geographically-convenient post-government sinecure.”

In general, the HQ2 tea-leaf-reading punditry has been peculiarly devoid of the phrase “crony capitalism”.

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31 C.J. Brown January 23, 2018 at 8:45 pm

…And I see that I carelessly overlooked the final paragraph, which addresses this point (albeit not quite extensively enough, IMO). I stand corrected.

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32 chuck martel January 23, 2018 at 10:47 pm

Amazon is taking an implicit stance on the nature of talent and education. It’s well known that the D.C. area has high education levels, including in science and technology fields.

What are talented,educated people going to do for Amazon? Are talented, educated people needed to shuffle orders around and notify manufacturers and suppliers that someone needs their stuff? Amazon isn’t a cancer research center or a nuclear energy lab, it’s a retailer, kind of an internet Montgomery Ward, who didn’t manufacture its own stuff, either. Any high school student, much less graduate, should be able to handle the work.

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33 cfh January 23, 2018 at 11:18 pm

Ben Carson’s 60+ doctorates are skewing the education data.

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34 DevOps Dad January 24, 2018 at 2:34 pm

The Brain: Pinky, are you pondering what I’m pondering?
Pinky: I think so Brain, but Zero Mostel times anything will still give you Zero Mostel.

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35 Chris January 24, 2018 at 8:23 pm

Amazon invests heavily in Supply Chain knowledge,warehouse technology (including robotics), and research into unmanned delivery vehicles like drones. Not to mention web infrastructure.

The people who do the grunt work in the warehouses (which is increasingly automated) may not need much knowledge, but there is a lot of knowledge base needed for their business plans.

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36 Juan Manuel Pérez Porrúa Pérez January 23, 2018 at 11:52 pm

I suppose the capiTal to the capital of The Empire would have nothing do with it?

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37 Juan Manuel Pérez Porrúa Pérez January 23, 2018 at 11:52 pm

I suppose closeness to the capital of The Empire would have nothing do with it?

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38 Rob January 24, 2018 at 1:08 am

Four points here on why Northern VA is really the only option of the three in the D.C. area. I like Philadelphia as a pick also, for what it’s worth. Boston is a nonstarter, despite what Paddy Power says.

1. Education
D.C does not, in fact, have good technical education (see list of D.C. schools https://en.wikipedia.org/wiki/List_of_colleges_and_universities_in_Washington,_D.C.) Virginia and Maryland are far stronger with a slight edge going to MD (JHU, USNA, UMD, UMBC) over VA (VT, UVA, GMU, VMI & JMU). Maryland really punches above it’s weight in terms of education, but these graduates are fairly flexible and moving to NoVA is not a big ask. Also, VA’s programs, while not as elite as say JHU or Navy, not to mention UMD which produced Sergey Brin, are much bigger and produce the sheer numbers of tech talent necessary. Virginia eeks out a win here.

2. Customers
Amazon’s biggest customer is already the government, specifically the Defense/Intelligence sector. $600 million in contracts with the Intelligence Community back in 2013, that we know of, and who knows how much more Amazon got for the top secret data facilities they are building (https://www.cnbc.com/2017/11/20/amazon-launches-aws-secret-region.html). This tilts in favor of NoVA, as Tyler mentioned briefly in his piece. Virginia scores one more point.

3. Federal Politics
Political representation in congress is likely important and why Amazon will not consider any state that is not a battleground. Sure it would be nice to pick up the senators from Maryland, but MD is as blue as it gets and already quite friendly to tech. Maybe the NSA (biggest employer in MD) will want data centers closer to home, but the suburban sprawl from Baltimore to DC is already too thick for a discrete project of that size. Virginia wins this round.

4. Local Subsidies
Finally, Virginia is more likely to give Amazon what they really want, tax credits and subsidies. You may think a Governor who is a doctor and friendly with unions (Northam, MD) would be a bad bet versus a former real estate business man (Hogan, MD). You would be wrong. First of all, they are constrained by the fiscal health of their states and the stakeholders they have to deal with. Maryland ranks 46th in terms of fiscal health, while VA is a pretty reasonable 18 (https://www.mercatus.org/statefiscalrankings). A doctor with a working class bent is likely to sell out the VA tax base, which is mostly NoVA defense pork and the highly educated, to bring jobs to VA, even if many of the jobs are going to those very same highly educated. Somebody who was formerly in real estate is not likely to value land cheaply and knows the worth of perpetual rents. Getting a one shot economic boost in the form of jobs is not worth the trade-off, and what is more, he is probably familiar with negotiating tactics and the adverse selection of auctions. Virginia puts the nail in the coffin for the final round.

Philadelphia wins on points 1 and 3. 4 is tough in a state with nearly as poor fiscal health as MD. Number 2 is questionable. Maybe Philadelphia is big enough given that is either the 5th or 6th largest city in the US with a huge suburban population in surrounding PA and NJ. In the end the 4th point is likely all that matters (https://en.wikipedia.org/wiki/Winner%27s_curse). Truly a Phyrric victory.

One final point, Tyler’s hope that the culture of D.C. will change is a waste of energy. Cities have cultures determined by anchor industries. New York and finance. L.A. and media. S.F. and tech. Houston and energy. Boston and academia. D.C. and government. Moving Amazon there would not make it any more entrepreneurial. Amazon is a proto-monopoly! It won’t even make it more tech savvy. D.C. is already incredibly tech savvy in it’s own government focused way. Philadelphia is an interesting case because it’s anchor industry, healthcare, is not as firmly entrenched as the cultural epicenter of the city.

Philadelphia has a fairly well diversified economy (insurance, healthcare/pharma, media distribution, chemicals, and even food services). Historically, it was a great trading and textiles hub. This fits well with Amazon who sells everything (diversification), and the Quaker ethic actually fits neatly with Amazon’s philosophy. Simplicity, peace, integrity, community and equality might as well be Amazon ethics. Quakers such as Wharton, Cadbury and Barclays all did very well by doing good.

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39 Jeff Crandall January 24, 2018 at 5:50 am

I would love to see Philly get it.

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40 ptuomov January 24, 2018 at 4:30 pm

They can’t literally locate to Philadelphia, because of the city income tax. That’s like a neutron bomb: Leaves buildings but people are all gone. Also, Philly suburbs don’t have talent that Amazon needs. That’s a non-starter.

DC suburbs are one relevant option. The research triangle in NC is the best option in my opinion.

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41 rayward January 24, 2018 at 7:04 am

Cowen’s post is about the DC area, which seems to be where many of the readers of this blog reside. I’ve spent most of my adult life in a Sun Belt city. This is what Cowen says in his post about the Sun Belt: “It’s also a sign that the sprawl of the Sun Belt will face upper limits in terms of attracting technology companies.” Sun Belt cities, I am sad to say, have become magnets for low skill service jobs. Sure, Sun Belt cities have tried to attract technology companies and jobs and to promote development of an urban core, but it’s mostly been a losing strategy. There are exceptions, Dallas with its urban core and Austin with its technology companies, but those two place have advantages besides mild (or hot) climates, Dallas with its oil wealth and Austin with its excellent university. Cowen’s comment about the Sun Belt relates to his explanation for why Amazon will pick the DC area, namely to attract millennials; and what millennials want is an urban lifestyle, one that requires an urban residential core and isn’t dependent on a car. Sun Belt cities suffer from sprawl, have no or very little transit, and are hot most times of the year (which makes walking to one’s destination a sweaty challenge). That Cowen would dismiss an entire region (the Sun Belt) in one throw-away sentence was jarring. Those in the Sun Belt can only hope that his prediction for the Sun Belt is no more accurate than most predictions by economists. But I fear that this time the economist’s prediction is accurate.

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42 Matt January 24, 2018 at 8:21 am

It would be interesting to look at correlation between market chances of Purdue-Cotton immigration bill and market chances of Amazon ending up in Toronto. As far as social-political tea leaves go, Amazon moving to Canada would be a big negative indicator for US prospects.

Also, ‘plump for’, not ‘plumb for’

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43 Butler T. Reynolds January 24, 2018 at 9:46 am

I would think that everyone should have assumed that Amazon knew where it wanted to move from the very start of their announcement about HQ2. All of this publicity has been about seeing if they can get a sweet deal in the area where they already planned to move.

I’ve gotten bored with the speculation, but what will be interesting is the analysis that will follow Amazon’s announcement.

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44 Dan Lavatan January 24, 2018 at 12:34 pm

As someone born and educated in the DC area, it is by far the worst place on earth they could pick. Anyone with any sense leaves when they finish their education and never looks back. I would rather kill myself than spend another day in Montgomery County and the rest of the area isn’t much better. Whether or not human beings are flexible and can reorient their priorities the ones there are too busy torturing their kids and using the country government to micromanage every detail of each other’s lives. If Amazon does locate there they entire company will be insolvent within three years and is an easy short.

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45 jorod January 24, 2018 at 7:34 pm

Why build a business near people who lack common sense?

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46 Jonathan Pine January 25, 2018 at 12:31 pm

The headquarters for Amazon’s profitable cloud business, AWS, is in Herndon, VA. If Amazon were to ever spinoff AWS into a separate publicly traded company it would make sense for all the affiliated businesses with AWS to be in the general vicinity.

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47 Al V January 25, 2018 at 8:26 pm

Am I missing something on the use of plumb (v. plump) in the last paragraph?

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