Voice For Liberty

Category: Economics

  • ‘The Power of the Poor’ to be shown in Wichita

    On Monday October 11, the video “The Power of the Poor” will be shown in Wichita, with discussion following.

    “The Power of the Poor is a compelling look at the surprising and vital role of inclusive laws and titled property in establishing peace and prosperity. It is also the story of real people with real struggles — all of whom share a commitment to entrepreneurship.”

    “De Soto and his team have proven that, even hobbled by great obstacles, the world’s hard-working poor entrepreneurs have created far more wealth than anyone had ever imagined possible — even with the absence of the legal frameworks people in the rich north take for granted. Prosperity is possible, if only we simplify the rules of the game. That means giving the poor titled property and the legal business tools we in the West enjoy. Such will enable them to harness the power of their considerable assets, as these stories illustrate.”

    The presentation will be at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The time is from 7:00 pm to 8:30 pm.

    For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

  • We can balance the budget without new taxes

    Politicians and interest groups claim higher taxes are necessary because it would be impossible to cut spending by enough to get rid of red ink. This Center for Freedom and Prosperity video shows that these assertions are nonsense. The budget can be balanced very quickly by simply limiting the annual growth of federal spending.

  • Bankrupting America says ‘spending just got personal’

    The new website Bankrupting America features a video presentation of poll results that reveal that a strong majority of Americans — seven out of ten — feel that government spending is too high, and nearly as many say this spending affects them personally.

    A link to the video’s page is Spending just got personal, the video.

    Results of the poll tell us that only eight percent of likely voters say government spending is too low. The issue of government spending is very important to Republicans and Independents, but even 42 percent of Democrats say it is important, according to the survey.

    Bankrupting America is a relatively new site that seems to contain much useful information about government and the economy. Information from the site says “Bankrupting America is an educational project that explores the policies hindering economic opportunity and growth in America. The project focuses on the causes of the country’s current economic downturn and the future implications of careless policy-making.”

  • Raj Goyle anti-outsourcing plan likely to backfire

    A plan advocated by Democratic Party candidate for Congress Raj Goyle to reduce the outsourcing of jobs from the United States is likely to produce the opposite effect, according to the Wall Street Journal.

    Goyle is candidate for United States Congress from the fourth district of Kansas. He has criticized his leading opponent, Republican Mike Pompeo, claiming that Pompeo, as president of a manufacturing company, outsourced Kansas jobs to Mexico.

    On Goyle’s campaign website, under the heading “Economy: Jobs” we find: “It’s vital to create jobs and keep jobs in Kansas. The very first thing I will do in Congress is work to immediately repeal tax cuts for companies that ship jobs overseas. We must start providing tax breaks and incentives to those who create jobs and manufacturing bases in Kansas.”

    In a “Review and Outlook” piece titled The Send Jobs Overseas Act, the Journal explains how the tax breaks Goyle wants to end actually work. This is something that probably very few people understand, so here’s the explanation: “Under current tax law, American companies pay the corporate tax rate in the host country where the subsidiary is located and then pay the difference between the U.S. rate (35%) and the foreign rate when they bring profits back to the U.S. This is called deferral — i.e., the U.S. tax is deferred until the money comes back to these shores.”

    So it’s not really a tax break — if by that we mean the corporation never pays taxes on its profits. Instead, payment of the tax is deferred, although the deferral does have value.

    The Journal notes that the only major country with a higher corporate income tax rate is Japan. The tax rate on new capital investment in the U.S. is nearly twice the average of that in OECD countries.

    This high tax in the U.S. encourages investment overseas. A report this year by the White House tax reform panel concluded: “The growing gap between the U.S. corporate tax rate and the corporate tax rates of most other countries generates incentives for U.S. corporations to shift their income and operations to foreign locations with lower corporate tax rates to avoid U.S. rates.”

    And as other countries cut their tax rates, the inventive to leave the U.S. and its high taxes becomes stronger, the report also says.

    The piece also cites an earlier tax reform from 1986 where the U.S. eliminated tax deferral on shipping income. This is the same reform Goyle touts as good for the entire U.S. economy. But the Journal notes this reform was “a real disaster for U.S. shipping,” with U.S. shipping capacity falling by 50 percent over a period of years following this reform.

    The path advocated by Goyle — President Obama wants this too — would be a disaster for America. “CEO Steve Ballmer has warned that if the President’s plan is enacted, Microsoft would move facilities and jobs out of the U.S.”

    The best solution for job creation in the U.S. is to reduce our corporate income tax rate to match or undercut the rate of other developed countries. This would spur investment in America, not only by domestic companies, but by foreign companies, too. Goyle’s plan to raise taxes on American corporations will only harm job creation both here and abroad.

  • Economic competition isn’t a sporting contest

    Last week USA Today carried an editorial by an Alexandria, Virginia school teacher that contains an unfortunate misunderstanding of the term competition as it applies to economics and education.

    The writer is Patrick Welsh, who is a member of member of USA Today’s Board of Contributors. The article is Schools can’t manage poverty.

    In the article, Welsh makes one of the most inept analogies that I’ve ever seen. Here’s the heart of it:

    Being an English teacher, I prepared a little analogy to ask him about the rationale for labeling schools on the basis of Adequate Yearly Progress. Duncan’s biographies often mention that he was co-captain of the Harvard basketball team during the 1986-87 season, his senior year. I reminded him that that team won only seven games and lost 17. Such a record, I told Duncan, was the mark of a “persistently low achieving” team, which made no “annual yearly progress.” I meant the analogy to be humorous, but teachers sitting near Duncan said he didn’t seem to take it that way.

    I went on to say that I assumed Duncan and his teammates did the best they could with the talent they had, and that no matter what improvements they tried to make, it would be foolish to think their team could ever reach the highest benchmark in college basketball — the Final Four.

    The ineptness is this: a basketball game is a competition that is designed to produce a winner and a loser (or maybe a tie in some sports). By definition — except for ties — there can’t be two winners. Someone has to lose.

    But learning things in school is not a competition of the same type. When one student learns something (wins, in other words), it doesn’t mean that someone else doesn’t get to learn (loses). In fact, if everyone masters the lesson, then all students are winners, and there are no losers.

    But maybe Welsh isn’t writing about that type of competition. He might be speaking of market competition. An example of this might be schools competing with other schools for students.

    This type of competition doesn’t necessarily produce a winner and a loser. Explaining competition in the The Concise Encyclopedia of Economics, Wolfgang Kasper explains one of the benefits of market competition:

    Discovery. Human well-being can always be improved by new knowledge. Competitive rivalry among suppliers and buyers is a powerful incentive to search for knowledge. Self-interest motivates ceaseless, widespread, and often costly efforts to make the best use of one’s property and skills. Central planning by government and government provision are sometimes advocated as a better means of discovering new products and processes. However, experience has shown that central committees are not sufficiently motivated and simply cannot marshal all the complex, often petty, and widely dispersed knowledge needed for broad-based progress.

    Competition inspires people to improve, while central planning is the opposite.

    Applying this locally to Kansas: As Kansas has a very weak charter school law that requires charter school approval by local school boards, there are very few charter schools. Combined with the lack of school choice implemented through vouchers or tax credits in Kansas, local school districts face very little competition.

    This lack of market competition means that Kansas schools do not benefit from the dynamic discovery process that market competition fosters. The beneficiaries of this are those who favor the status quo in the Kansas education establishment and bureaucracy, including the Kansas National Education Association (KNEA, the teachers union) and the Kansas Association of School Boards (KASB). The losers are Kansas schoolchildren.

  • Federal government spending: With all due respect Mr. President, we’re still waiting

    “We will go through our federal budget — page by page, line by line — eliminating those programs we don’t need.” — President-Elect Barack Obama, November 2008.

    How has that promise worked out? A newspaper advertisement placed by the Cato Institute reminds us of President Obama’s pledge — and its lack of fulfillment:

    It’s been nearly two years since you made that pledge, Mr. President. Since then, you’ve signed into law an $800 billion “stimulus” package and a massive new health care entitlement — adding trillions of dollars in unfunded liabilities to our grandchildren’s tab.

    Our looming debt crisis threatens to destroy the American dream for future generations. Yet your administration continues piling up deficits of over a trillion dollars a year. By 2012 our national debt will be larger than the entire U.S. economy. Isn’t it past time you identified the programs you’d cut?

    This is at the same time the president criticizes small-government advocates for their lack of ideas. Countering that criticism, the Cato advertisement list many ways that federal spending could be cut. A companion website, Downsizing the Federal Government, contains more. From the site:

    The federal government is running massive budget deficits, spending too much, and heading toward a financial crisis. Without a change of direction in Washington, average working families will be faced with huge tax increases and a lower standard of living.

    This website is designed to help policymakers and the public understand where federal funds are being spent and how to reform each government department. It describes the failings of federal agencies and identifies specific programs to cut. It also discusses the systematic reasons why government programs are often obsolete, mismanaged, or otherwise dysfunctional.

    Some people have lofty visions about how government spending can help society. But the essays on this website put aside such “bedtime stories” about how government programs are supposed to work, and instead focuses on how they actually work in the real world.

    Downsizing the Federal Government is a project of the Cato Institute. Scholars at Cato believe that cutting the federal budget would enlarge personal freedom, increase growth and prosperity, and leave a positive fiscal legacy to the next generation.

    Yes, Mr. President, we have lots of ideas. But we’re not prescriptive — so most of our ideas center around the government doing less, leaving more freedom and liberty in the hands of the people, not government.

  • U.S. needs permanent tax cuts, not Obama stopgap

    It’s good news that President Barack Obama now realizes that taxes are a drag on business investment and employment. But we need permanent tax cuts, not a temporary measure.

    The tax cuts proposed are in the form of allowing businesses to write off or “expense” capital investment faster than before. This effectively reduces the cost of making capital investments — the purchase of machinery, equipment, etc. intended to increase a firm’s productive capacity.

    The tax cuts Obama announced would take effect on September 8th, the day he announced the cuts. That’s only if the proposal makes it through Congress and becomes law. So there’s a dose of uncertainty there, although this legislation would seem likely to pass. But the tax cuts would last only through the end of 2011.

    These tax cuts are much preferred to the stimulus program that Obama relied on to jump-start the economy last year. Whether the stimulus spending was effective is disputed.

    In the case of tax cuts, each business gets to “spend” (make use of) the tax savings in the way it feels adds most value to it, and by extension, the economic output of the U.S. But stimulus spending had to make its way through the legislative appropriations process, where all sorts of competing — and non-economic — considerations came into play. Evidence of this: Jerry Brito and Veronique de Rugy looked at stimulus spending and found that Congressional districts in Democrat hands received nearly twice as much stimulus spending as Republican districts.

    But these proposed tax cuts are scheduled to expire, so we’ll be looking at a situation similar to the present, where the Bush income tax cuts are about to expire. The president favors letting them expire. But now that the president seems to have realized that tax cuts are good for business, good for jobs, and good for the economy, maybe he’ll consider changing his support of a large tax increase to take effect on January 1.

    There is the issue that these tax cuts are targeted, although the target is broad. But some firms may not be in a position to make capital expenditures over the next 15 months. These firms would not be able to take advantage of these tax cuts.

    Targeting these tax cuts also creates an additional class of capital assets that a firm has to keep track of, as assets purchased during the period of this legislation have to be depreciated in a different way than other assets.

    Accompanying the proposed tax cuts is a plan to spend $50 billion on infrastructure.

    While cutting taxes is always good, Obama’s plan does nothing to bring federal spending under control, or to reduce the uncertainty that accompanies the expiration — or not — of the Bush tax cuts and the oncoming implementation of Obama’s health care plan.

  • Prices mean something, even life and death

    In the five years since Hurricane Katrina flooded New Orleans, some $15 billion has been spent rebuilding and strengthening that city’s flood defenses. The goal is to protect against the loss of life and property that happened in 2005 when the levies failed.

    Is this wise? Will it work? Mark Thornton wrote “The sad truth is that the government is only making things worse over time. Higher levies only increase the destructive force of future levy breaks.”

    But engineers say that if Katrina arrived today, the city would experience only light flooding. But what will happen in the future? The network of flood protection structures and machinery needs constant maintenance. Reporting in the Wall Street Journal cautions that “Another big question is who will pay the tens of millions of dollars in annual maintenance costs for the new structures once they are complete. Typically, the Corps hands the responsibility of upkeep to state and local authorities after completing a flood-control project. But city officials say the infrastructure is so large and complex that they don’t have the technical expertise to go it alone — or pay for it alone.”

    So there is a definite risk that the strengthening of the city’s flood defenses may make future failures even more disastrous. There’s also the risk that these structures will not be maintained as required. In the latter case, how will we know if the protections are being maintained adequately?

    The answer is we probably won’t know. That’s because the property in New Orleans is insured by the federal government’s flood insurance program. That program, unlike private insurance, doesn’t have to earn a profit, and therefore doesn’t have to price its insurance according to the risks it is covering.

    That’s different from the way fire insurance, for example, is priced. In this case, fire insurance companies have to price their product to cover their expected loses, their other costs, and return some profit. The expected loses are based on a variety of factors, such as characteristics of the home, distance from a fire hydrant, and the qualities of a city’s fire department.

    Many cities have their fire departments rated by a company called Insurance Services Office (ISO). This rating is a major factor in the insurance rates that companies will offer to customers in a city. If a city’s ISO rating declines, meaning that its fire defenses are not as good as before, insurance rates will rise. People will notice. They’ll wonder why and seek answers.

    But government does not face the discipline of profit as do private insurers. As has been noted, government will insure insane risks for very low premiums. And if it pays a loss, it will insure the same property again. Since it isn’t in the insurance business to make money, it doesn’t really have much motive to rate the risk of the property it is insuring.

    That’s the source of the problem. The New Orleans flood protection systems lacked the oversight and inquiring eyes of profit-minded companies. The result was death and destruction on a massive scale.

    So prices and their importance are not of interest only to economists and academics. They contain, as Hayek has taught us, a tremendous amount of information gathered from many sources. Prices can literally mean the difference between life and death.

    Some may object that insurance in some locations, like New Orleans, would be expensive if it was priced to reflect the actual risk faced. That’s probably true, and that’s good. When that extra cost is spread across the entire country through government insurance programs, residents of New Orleans can get cheap insurance. But as we’ve seen, the cost of the missing information that accurate prices provide is very high.

  • Social Security: A good and moral deal?

    Social Security and its future have been in the news lately. Supporters promote it as one of the best examples of successful government programs, and denigrate its critics as pessimists.

    Locally in the campaign for United States Congress from the fourth district of Kansas, one candidate promises to defend the current system, while another has spoken approvingly of Wisconsin Congressman Paul Ryan and the reforms recommend in his Roadmap for America’s future.

    Many of the arguments in favor of Social Security and strengthening the system revolve around the issue of fairness, even casting a moral tone. So what about the fairness of the Social Security system?

    In Slaying Leviathan: The Moral Case for Tax Reform, author Leslie Carbone looks at the economic impact of Social Security and its payroll taxes on middle income people:

    Payroll taxes actually have the bizarre effect of leaving families less able to ensure what they are specifically purported to provide — security in old age. According to The Heritage Foundation, Social Security’s inflation-adjusted rate of return is a paltry 1.2 percent for an average household of two 30-year-old earners, each making just under $26,000, with children. This family will pay about $320,000 in Social Security taxes (including their employers’ share) and can expect to receive about $450,000 back in payments (1997 dollars, before taxes, assuming that they begin collecting at age 67). Had this typical family allocated the same amount to conservative private investment vehicles, such as traditional retirement accounts, they could expect to enjoy a real rate of more than 5 percent per year before taxes, or $975,000 (1997 dollars). Social Security taxes of $320,000 cost this family $525,000.

    Social Security is not a very good investment, as we now see. It’s even worse — cruel and unfair, we might say — when workers pay into the system for years and then die shortly after starting to receive benefits. If people owned their own retirement savings, they could pass these assets on to their heirs or anyone else they choose.

    An argument often used against privatizing the Social Security system is that people will have to make investments in stocks and bonds. Securities markets sometimes go down, as they have recently, and sometimes do not perform very well for long periods. So the Social Security supporters ask: Do we want Americans’ retirement security dependent on such uncertain investments?

    It’s true that markets go up and down. But over the long term, the direction has been up. Young workers do not need to be concerned about the performance of the market over the next few years. Their time horizon is measured in decades.

    Furthermore, over long periods of time, the performance of securities markets is closely tied to the performance of the American and world economies. If markets do not perform well over time, it is almost certain that the economy is underperforming too. Such a poor economy makes it even more difficult for young workers to pay the taxes necessary to pay the Social Security benefits that retirees will demand. Those young workers will have to pay, as there is no Social Security trust fund that can be drawn upon, despite the claims of its backers.

    It’s contrary to economic freedom and personal liberty for the government to force Americans to participate in a retirement program. Forcing us to participate in one that performs as poorly as Social Security is a tragedy, not a mark of kindness and moral superiority.