Voice For Liberty

Category: Regulation

  • Special interests will capture south-central Kansas planning

    Special interest groups are likely to co-opt the government planning process started in south-central Kansas as these groups see ways to benefit from the plan. The public choice school of economics and political science has taught us how special interest groups seek favors from government at enormous costs to society, and we will see this at play over the next few years.

    Sedgwick County has voted to participate in a HUD Sustainable Communities Regional Planning Grant. While some justified their votes in favor of the plan because “it’s only a plan,” once the planning process begins, special interests plot to benefit themselves at the expense of the general public. Once the plan is formed, it’s nearly impossible to revise it, no matter how evident the need.

    An example of how much reverence is given to government plans comes right from the U.S. Supreme Court in the decision Kelo v. New London, in which the Court decided that government could use the power of eminent domain to take one person’s property and transfer it to someone else for the purposes of economic development. In his opinion for the Court, Justice Stevens cited the plan: “The City has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community.” Here we see the importance of the plan and due reverence given to it.

    Stevens followed up, giving even more weight to the plan: “To effectuate this plan, the City has invoked a state statute that specifically authorizes the use of eminent domain to promote economic development. Given the comprehensive character of the plan, the thorough deliberation that preceded its adoption, and the limited scope of our review, it is appropriate for us, as it was in Berman, to resolve the challenges of the individual owners, not on a piecemeal basis, but rather in light of the entire plan. Because that plan unquestionably serves a public purpose, the takings challenged here satisfy the public use requirement of the Fifth Amendment.”

    To Stevens, the fact that the plan was comprehensive was a factor in favor of its upholding. The sustainable communities plan, likewise, is nothing but comprehensive, as described by county manager Bill Buchanan in a letter to commissioners: “[the plan will] consist of multi-jurisdictional planning efforts that integrate housing, land use, economic and workforce development, transportation, and infrastructure investments in a manner that empowers jurisdictions to consider the interdependent challenges of economic prosperity, social equity, energy use and climate change, and public health and environmental impact.”

    That pretty much covers it all. When you’re charged with promoting economic prosperity, defending earth against climate change, and promoting public health, there is no limit to the types of laws you might consider.

    Who will plan?

    The American Planning Association praised the Court’s notice of the importance of a plan, writing “This decision underscores the importance for a community to have a comprehensive development plan formulated through a democratic planning process with meaningful public participation by everyone.”

    But these plans are rarely by and for the public. Almost always the government planning process is taken over and captured by special interests. We see this in public schools, where the planning and campaigning for new facilities is taken over by architectural and construction firms that see school building as a way to profit. It does not matter to them whether the schools are needed.

    Our highway planning is hijacked by construction firms that stand to benefit, whether or not new roads are actually needed.

    Our planning process for downtown Wichita is run by special interest groups that believe that downtown has a special moral imperative, and another group that sees downtown as just another way to profit at taxpayer expense. Both believe that taxpayers across Wichita, Kansas, and even the entire country must pay to implement their vision. As shown in Kansas and Wichita need pay-to-play laws the special interests that benefit from public spending on downtown make heavy political campaign contributions to nearly all members of the Wichita City Council. They don’t have a political ideology. They contribute only because they know council members will be voting to give them money.

    In Wichita’s last school bond election, 72 percent of the contributions, both in-kind and cash, was given by contractors, architects, engineering firms and others who directly stand to benefit from new school construction, no matter whether schools are actually needed. The firm of Schaefer Johnson Cox Frey Architecture led the way in making these contributions. It’s not surprising that this firm was awarded a no-bid contract for plan management services for the bond issue valued at $3.7 million. This firm will undoubtedly earn millions more for those projects on which it serves as architect.

    The special interest groups that benefit from highway construction: They formed a group called Economic Lifelines. It says it was formed to “provide the grassroots support for Comprehensive Transportation Programs in Kansas.” Its motto is “Stimulating economic vitality through leadership in infrastructure development.”

    A look at the membership role, however, lets us know whose economic roots are being stimulated. Membership is stocked with names like AFL-CIO, Foley Equipment Company, Heavy Constructors Association of Greater Kansas City, Kansas Aggregate & Concrete Associations, Kansas Asphalt Pavement Association, Kansas Contractors Association, Kansas Society of Professional Engineers, and PCA South Central Cement Promotion Association. Groups and companies like these have an economic interest in building more roads and highways, whether or not the state actually needs them.

    The planners themselves are a special interest group, too. They need jobs. Like most government bureaucrats, they “profit” from increasing their power and sphere of influence, and by expansion of their budgets and staffs. So when Sedgwick County Commissioner Jim Skelton asks a professional planner questions about the desirability of planning, what answer does he think he will get? It’s not that the planners are not honest people. But they have a vested economic and professional interest in seeing that we have more government planning, not less.

    And we have evidence that planners watch out for themselves. It is not disputed that this planning grant benefits Regional Economic Area Partnership (REAP). Sedgwick County Commissioner Richard Ranzau says that John Schlegel, Wichita’s Director of Planning, told him that “acceptance of this grant will take REAP to another level, because right now they are struggling, and this will help plot the course for REAP.” He said that REAP, which is housed at the Hugo Wall School of Public Affairs at Wichita State University, needs to expand its role and authority in order to give it “something to do.”

    We see that REAP is another special interest group seeking to benefit itself. In this case, our best hope is that REAP engages in merely make-work, that the plan it produces is put on a shelf and ignored, and that the only harm to us is the $1.5 million cost of the plan.

    By the way, did you know that Sedgwick County Commissioner Dave Unruh, who voted in favor of the plan that benefits REAP, is now chairman of REAP? Special interest groups know how to play the political game.

  • Municipal stormwater regulation on White House agenda

    Some scoff at those who raise warnings about overreaching federal regulation. But even though the national economy is suffering and we are drowning in debt, the administration of President Barack Obama can find time to meddle in the regulation of municipal stormwater.

    Following is an email from NACo, the National Association of Counties, to county commissioners, presumably across the nation. The email, which presumes that “green” stormwater management practices are most desirable, asks for suggestions from commissioners to present at a national conference on the topic, hosted by the White House.

    The agenda for the conference is White House Conference Municipal Stormwater Infrastructure: Going From Grey to Green. Following is the email commissioners received.

    From: Julie Ufner [mailto:jufner@naco.org]
    Subject: Green Infrastructure Information Request

    Next week, I will be representing NACo at the White House’s Stormwater Infrastrucutre [sic] event. The White House asked participants to be prepared to discuss the questions below. If you have any comments or responses to the questions, please feel free to forward those responses no later than COB on Wednesday, September 19th.

    1. What do you see as the most significant barriers to the wider use of green infrastructure practices to manage municipal stormwater?

    2. What steps should federal agencies, communities, or others take to promote the use of green infrastructure practices in municipal stormwater management?

    3. Are there specific infrastructure practices, or categories of practices, that you believe are most effective, provide the greatest benefits, or are most easily implemented?

    4. Are there funding strategies for municipal green infrastructure that you have employed and would recommend?

    Thank you in advance for any comments you may have.

    Julie Ufner
    Associate Legislative Director
    Environment, Energy and Land Use
    National Association of Counties
    202-942-4269
    jufner@naco.org

  • Republicans recognize overcriminalization

    A section of the platform agreed to at the Republican National Convention expresses concern over the rise of overcriminalization:

    “The resources of the federal government’s law enforcement and judicial systems have been strained by two unfortunate expansions: the over-criminalization of behavior and the over-federalization of offenses. The number of criminal offenses in the U.S. Code increased from 3,000 in the early 1980s to over 4,450 by 2008. Federal criminal law should focus on acts by federal employees or acts committed on federal property — and leave the rest to the States. Then Congress should withdraw from federal departments and agencies the power to criminalize behavior, a practice which, according to the Congressional Research Service, has created ‘tens of thousands’ of criminal offenses. No one other than an elected representative should have the authority to define a criminal act and set criminal penalties. In the same way, Congress should reconsider the extent to which it has federalized offenses traditionally handled on the State or local level.”

    Overcriminalization has risen to become a serious threat to the freedom and liberty of citizens, placing increasing and arbitrary power in the hands of federal officials. According to The Heritage Foundation, overcriminalization is characterized by these factors:

    1. The use of strict liability crimes (i.e., offenses that dispense with the requirement that a person act with a “guilty mind,” however defined) to outlaw conduct, particularly in commercial and regulatory fields;
    2. The passage of several laws applicable to the same conduct, which enables prosecutors to multiply charges and thereby threaten a person with a severe term of imprisonment if he does not accept a plea bargain;
    3. The delegation to administrative agencies of the responsibility for filling in the details of a substantive criminal law, which thereby vests in the agency responsible for enforcing the law the power also to define its terms; and
    4. Enforcing through the criminal law conduct that, if it is to be enforced by the government at all, should be enforced through administrative or civil mechanisms.

    The first item should be particularly troubling to citizens, as it removes one of the elements necessary to convict someone of a crime — that the person intended to commit a crime. The Heritage Foundation paper Without Intent: How Congress Is Eroding the Criminal Intent Requirement in Federal Law explains:

    “A core principle of the American system of justice is that individuals should not be subjected to criminal prosecution and conviction unless they intentionally engage in inherently wrongful conduct or conduct that they know to be unlawful. Only in such circumstances is a person truly blameworthy and thus deserving of criminal punishment. This is not just a legal concept; it is the fundamental anchor of the criminal justice system.”

    After noting the 4,450 federal laws and estimating that tens of thousands more are located in federal regulations, the authors explain the problem regarding intent:

    “But something fundamental is often lacking from this tidal wave of penal provisions: meaningful mens rea requirements. Mens rea is a Latin term describing a culpable mental state, without which there can be no crime. Lamentably, Congress has enacted scores of laws with weak or no mens rea requirements, the result of a legislative process that is haphazard at best and arbitrary at worst. In doing so, it has eroded the principle of fair notice beyond recognition and dangerously impaired the justification for criminal punishment that has for centuries been based on an individual’s intent to commit a wrongful act.”

    While overcriminalization is often seen as a federal problem, it infects states and cities, too. Recently the Wichita City Council passed a sign ordinance that has the characteristics of overcriminalization. A key provision is this: “The existence of a temporary sign in the right of way or on public property directing attention to a person is prima facie evidence that such person has caused the placement of such sign in the right of way or on public property.”

    This means that the mere existence of a sign promoting a candidate being in the wrong place is evidence that the candidate is guilty of a crime. No matter how well a candidate trains staff and volunteers on proper sign placement, if a sign is in the wrong place, the candidate is presumed guilty. It’s difficult to defend against this presumption.

    The National Association of Criminal Defense Lawyers has created a series of short videos that explain more about overcriminalization. The first, titled “Overcriminalization: Criminalizing the Everyday” is presented below, and additional titles may be viewed here.

  • Kansas counties decline sustainable communities planning

    Two of the five Kansas counties that were asked to participate in a sustainable communities planning grant have decided not to join the effort. Of the five counties (Sedgwick, Butler, Reno, Harvey and Sumner), Butler and Sumner county commissioners voted against participation.

    The REAP sustainable communities planning process is designed to, in the words of REAP, “create a long-term regional plan for ensuring the health and productivity of our local economy. The grant will support community engagement to identify common values and goals, followed by local and regional efforts to enhance economic development, connect people with jobs, reduce housing and transportation costs, ensure public safety, and use of limited public funds efficiently in the years ahead.”

    Critics of government planing processes such as this are concerned that the planning process would subject us to additional control by the federal government. These are the so-called strings that are thought to accompany federal grants.

    (For those who are interested in what strings look like, here’s an example of one that is relatively innocuous. A HUD document titled Program Policy Guidance OSHC-2012-01 explains “Applicants that reach a certain qualifying score under the Regional Planning Grant Program or the Community Challenge Grant Program will receive PSS designation. PSS designation provides your entity access to bonus points for selected other HUD grant programs, technical assistance, and other capacity building opportunities that will strengthen future efforts to apply to the program.” REAP has been awarded this status, as it complied with this “string.”)

    When the Wichita City Council deliberated its endorsement of and participation in this program, Council Member James Clendenin (district 3, southeast and south Wichita), asked a series of questions of Joe Yager, chief executive officer of REAP, as to whether these concerns were true. Yager said no, there are no strings accompanying the grant. But what about after the planning process is over in three years? Will the plan be forced upon us, Clendenin asked?

    Yager answered no, that local governing bodies would have to vote to implement any of the ideas or programs that resulted from the plan. Nothing will be forced upon us, nothing is mandated, he said. We wold simply have a “toolkit” of things to use.

    This view or attitude — that local elected officials will protect us from the harmful elements that will emerge from the plan — is dangerously naive. First, in his short time in office, Clendenin has regularly voted for expansions of government planning, power, and spending. He doesn’t stand out from most other council members, not even the Republican members (except for one), as they also regularly vote for these things.

    Second, we know that after the plan is complete there will be the argument that since we have the plan, that since we spent three years and $2.2 million on the process, we might as well go ahead and implement it.

    Then, there will be the future grants and undoubtedly increased local spending required to implement the plan. There is now research that looks at the effect of federal grants on future local spending. In their research paper titled Do Intergovernmental Grants Create Ratchets in State and Local Taxes? Testing the Friedman-Sanford Hypothesis economists Russell S. Sobel and George R. Crowley concluded this: “Federal grants often result in states creating new programs and hiring new employees, and when the federal funding for that specific purpose is discontinued, these new state programs must either be discontinued or financed through increases in state own source taxes.”

    The authors cautioned: “Far from always being an unintended consequence, some federal grants are made with the intention that states will pick up funding the program in the future.” See Federal grants increase future local spending.

    Sedgwick County Commissioner Richard Ranzau has researched the sustainable development movement, and has written a paper explaining what he found.

    Randal O’Toole, Senior Fellow at the Cato Institute, has written extensively on government planning, especially regarding land use and transportation. His op-ed on this topic follows:

    The vast majority of Americans, surveys say, aspire to live in a single-family home with a yard. The vast majority of American travel — around 85 percent — is by automobile. Yet the Obama administration thinks more Americans should live in apartments and travel on foot, bicycle, or mass transit.

    To promote this idea, the administration wants to give the south central Regional Economic Area Partnership (REAP) the opportunity to apply for a $1.5 million grant to participate in “sustainable communities.” Also sometimes called “smart growth,” the ideas promoted by these programs are anything but sustainable or smart. (As members of REAP, the governing bodies for both Wichita and Sedgwick County endorsed this grant.)

    The urban plans that come out of these kinds of programs typically call for:

    • Redesigning streets to increase traffic congestion in order to discourage people from driving;
    • Increasing subsidies to transit, bike paths, and other “alternative” forms of travel even though these alternatives are used by few people;
    • Denying owners of land on the urban fringes the right to develop their property in order to make single-family housing more expensive;
    • Subsidizing high-density, developments that combine housing with retail shops in the hope that people will walk to shopping rather than drive;
    • Rezoning neighborhoods of single-family homes for apartments with zoning so strict that, if someone’s house burns down, they will have to replace it with an apartment.

    My former hometown of Portland, Oregon has followed these policies for two decades, and the results have been a disaster. In their zeal to subsidize transit and high-density developments, the region’s officials have taken money from schools, libraries, fire, and police, leaving those programs starved and in disarray.

    Since 1980, Portland has spent more than $3 billion building light-rail lines. Far from improving transit, the share of commuters taking transit to work has fallen from 9.8 percent in 1980 to 7.5 percent today, mainly because the region cut bus service to pay for the trains. Traffic congestion quadrupled between 1984 and 2004, which planners say was necessary to get people to ride transit.

    The region’s housing policies made single-family homes so expensive that most families with children moved to distant suburbs where they can afford a house with a yard. Residents of subsidized high-density housing projects drive just about as much as anyone else in the Portland area, and developers have learned to their sorrow that if they follow planners’ guidelines in providing less parking for these projects, they will end up with high vacancy rates.

    Despite these problems, Portland has received lots of positive publicity. The reason for this is simple: by forcing out families with children, inner Portland is left mainly with young singles and childless couples who eat out a lot, making Portland a Mecca for tourists who like exciting new restaurants. This makes Portland a great place to visit, but you wouldn’t want to live there unless you like noisy, congested streets.

    The idea of “sustainable communities” is that planners can socially engineer people into changing their travel behavior by redesigning cities to favor pedestrians and transit over automobiles. Beyond the fact that this is an outrageous intrusion of government into people’s lives, it simply doesn’t work. Such experts as University of California economist David Brownstone and University of Southern California planning professor Genevieve Giuliano have shown that the link between urban design and driving is too weak to make a difference.

    To protect livability and avoid unsustainable subsidies to transit and high-density development, Wichita, Sedgwick County, and other REAP members of south central Kansas should reject the $1.5 million grant offered by the federal government.

  • Kansas auto dealers benefit from anti-competitive law

    In Johnson County, a car dealer wants to move its dealership five blocks down the street. Amazingly, this simple act requires regulatory agency approval, and while unlikely in this case, existing auto dealers can block such actions under some circumstances.

    In Kansas, as in many states, existing automobile dealers have input as to whether competition will be allowed into their market areas. In Kansas, the statue is 8-2430, captioned “Establishment of additional or relocation of existing new vehicle dealer; procedure; relevant market area.”

    Examination of this statute reveals its anti-competitive nature. A person proposing a new dealership must state in writing why the new dealership should be allowed to be formed. The law requires that the applicant provide “a short and plain statement of the evidence the licensee, or proposed licensee, intends to rely upon in meeting the burden of proof for establishing good cause for an additional new vehicle dealer.”

    If the director of vehicles holds a hearing and finds that “good cause has not been established,” the director shall deny the application, according to the statute. The burden of proof is on the applicant for the new license, and must be proved “by a preponderance of the evidence presented.”

    The statute says that in determining whether there is good cause for a new dealer, the director of vehicles shall consider:

    • “permanency of the investment of both the existing and proposed new vehicle dealers”
    • growth in population
    • “effect on the consuming public in the relevant market area”
    • “whether it is injurious or beneficial to the public welfare for an additional new vehicle dealer to be established”
    • whether dealers of the same make of cars are “providing adequate competition and convenient customer care”
    • whether the proposed new dealer would increase competition and if that increased competition would be “in the public interest”
    • the effect of a new dealer on existing dealer(s)

    The decision of the director is not limited to these considerations, says the statute. Some of these factors are so vague and subjective that they give the director reason to deny a new license virtually at his discretion. Will a new dealer have an effect on an existing dealer? Sure. Licensed denied.

    We also have to wonder how it could injure “the public welfare” for people to have more choice in automobile dealers. Competition is the customer’s friend. Competition is always in the public interest. New business firms should not have to petition government regulators for permission to enter a market.

    These laws that restrain trade and competition are harmful to the consumer. In his recent book The Right to Earn a Living: Economic Freedom and the Law, author Timothy Sandefur discusses the Illinois Motor Vehicle Franchise Act, which has language similar to the Kansas law. He writes:

    Although cloaked in the language of public benefit, such laws are really private-interest legislation designed to allow the government to choose each company’s “fair share” of the trade. But the only way of determining what share of the trade is “fair” for any business is its success with consumers who are free to choose. If bureaucrats, rather than consumers, decide what amount of economic success is “fair,” businesses will devote their time not to providing quality products at affordable prices but to wooing government officials to give them special favors. … Consumers, again, are victims of anti-competitive laws of which most of them are not even aware.

    Sandefur cites studies that show that states with laws like Kansas’ have fewer new-car dealerships and higher prices for new cars. “This price difference means that consumers are forced to pay more for cars without getting any increased value; the extra money is merely transferred into the pockets of politically influential car dealers.”

    This law is bad for all Kansans except for one special interest group: those who own automobile dealerships. It ought to be repealed.

  • Regulation for the sake of business

    There are many examples of how the conventional wisdom regarding regulation is wrong, That wisdom being Republicans and conservatives are in bed with government, seeking to unshackle business from the burden of government regulation. Democrats and liberals, on the other hand, are busily crafting regulations to protect the middle class from the evils of big business. As it turns out, both Democrats and Republicans love creating regulations, and big business loves these regulations. Business often uses government regulation as way to harm its competitors or gain advantage for itself, which is contrary to the principles of free markets and capitalism.

    Holman W. Jenkins., Jr. explains how regulation works in the real world: “When some hear the word “regulation,” they imagine government rushing to the defense of consumers. In the real world, government serves up regulation to those who ask for it, which usually means organized interests seeking to block a competitive threat. This insight, by the way, originated with the left, with historians who went back and reconstructed how railroads in the U.S. concocted federal regulation to protect themselves from price competition. We should also notice that an astonishingly large part of the world has experienced an astonishing degree of stagnation for an astonishingly long time for exactly such reasons.” (Let’s Restart the Green Revolution, Wall Street Journal.)

    Another example of a big business using regulation as a competitive weapon comes from 2005 when Walmart came out in favor of raising the national minimum wage. Providing an example of how regulation is pitched as needed for the common good, Walmart’s CEO said that he was concerned for the plight of working families, and that he thought the minimum wage level of $5.15 per hour was too low. If Walmart — a company the political left loves to hate as much as any other — can be in favor of increased regulation of the workplace, can regulation be a good thing? Had Walmart discovered the joys of big government?

    The answer is yes. Walmart discovered a way of using government regulation as a competitive weapon. This is often the motivation for business support of regulation. In the case of Walmart, it was already paying its employees well over the current minimum wage. At the time, some sources thought that the minimum wage could be raised as much as 50 percent and not cause Walmart any additional cost — its employees already made that much.

    But its competitors didn’t pay wages that high. If the minimum wage rose very much, these competitors to Walmart would be forced to increase their wages. Their costs would rise. Their ability to compete with Walmart would be harmed.

    In short, Walmart supported government regulation as a way to impose higher costs on its competitors. It found a way to compete outside the marketplace. It abandoned principles of free markets and capitalism, and provided a lesson as to the difference between capitalism and business. And it did it while appearing noble.

    Many, particularly liberals and progresives, make no distinction between business and capitalism. But we need to learn to recognize the difference if we are to have a thriving economy based on free-wheeling, competitive markets that foster innovation, or continue our decline into unproductive crony capitalism.

    In the following excerpt from his book The Big Ripoff: How Big Business and Big Government Steal Your Money, author Timothy P. Carney explains that big business is able to use regulation as a blunt and powerful tool against competitors, and also as a way to improve its image, just like Walmart asking for a higher minimum wage.

    How does regulation help big business?

    Excerpt from The Big Ripoff: How Big Business and Big Government Steal Your Money, by Timothy P. Carney

    If regulation is costly, why would big business favor it? Precisely because it is costly.

    Regulation adds to the basic cost of doing business, thus heightening barriers to entry and reducing the number of competitors. Thinning out the competition allows surviving firms to charge higher prices to customers and demand lower prices from suppliers. Overall regulation adds to overhead and is a net boon to those who can afford it — big business.

    Put another way, regulation can stultify the market. If you’re already at the top, stultification is better than the robust dynamism of the free market. And according to Nobel Laureate economist Milton Friedman:

    The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system. Naturally, existing businesses prefer to keep out competitors in other ways. That is why the business community, despite its rhetoric, has so often been a major enemy of truly free enterprise.

    There is an additional systemic reason why regulation will help big business. Congress passes the laws that order new regulations, and executive branch agencies actually construct the regulations. The politicians and government lawyers who write these rules rarely do so without input. Often the rule makers ask for advice and information from labor unions, consumer groups, environmental groups, and industry itself. Among industry the stakeholders (beltway parlance to describe affected parties) who have the most input are those who can hire the most effective and most connective lobbyists. You can guess this isn’t Mom and Pop.

    As a result, the details of the regulation are often carefully crafted to benefit, or at least not hurt, big business. If something does not hurt you, or hurts you a little while seriously hindering your competition, it is a boon, on balance.

    Another reason big business often cries “regulate me!” is the goodwill factor. If a politician or bureaucrat wants to play a role in some industry, and some executive says, “get lost,” he runs the risk of offending this powerful person. That’s bad diplomacy. Bureaucrats, by their nature, do not like to be told to mind their own business. Supporting the idea of regulation but lobbying for particular details is usually better politics.

  • The role of speculators

    As gasoline prices rise, we hear the call for regulation of speculators, with Fox News populist Bill O’Reilly a leading voice. Part of the complaint is true: Speculators are selfish people, acting only to make as much profit as possible for themselves. But by doing so, they provide a valuable public service.

    That’s not what we hear when oil and gasoline prices — to take a recent example — go up. News commentators from across the political spectrum condemn speculators, blaming them for rising gasoline prices.

    The mechanism of the speculator is to buy something like oil when prices are low, then to sell it when prices are high. By doing so he earns a profit. (An alternative is to sell things he does not yet own when prices are high, and then buy to fulfill his obligation when prices are low.)

    The speculator, in this definition, does not hope to profit by processing and distributing the commodity he is buying and selling, as does an oil refiner or flour miller. He simply hopes to make a profit based on the changing prices — up or down — of oil or wheat.

    It is said that speculators are buying oil now and therefore driving up the price. That’s probably true, and it illustrates one of the beneficial services that speculators provide: they reduce volatility in prices. If speculators are correct and the price of oil spikes sometime soon, the present buying by speculators makes the spike less steep. It also induces consumers to conserve.

    Writing about speculation in food markets, Walter Block explains the beneficial effects:

    First, the speculator lessens the effects of famine by storing food in times of plenty, through a motive of personal profit. He buys and stores food against the day when it might be scarce, enabling him to sell at a higher price. The consequences of his activity are far-reaching. They act as a signal to other people in the society, who are encouraged by the speculator’s activity to do likewise. Consumers are encouraged to eat less and save more, importers to import more, farmers to improve their crop yields, builders to erect more storage facilities, and merchants to store more food. Thus, fulfilling the doctrine of the “invisible hand,” the speculator, by his profit-seeking activity, causes more food to be stored during years of plenty than otherwise would have been the case, thereby lessening the effects of the lean years to come.

    If the spike in prices does occur, what will speculators do? They will sell their oil, and that action will drive down prices, making the spike less steep. Here the speculator makes a profit by providing the service of making the oil shortage less severe. His hoarding of oil, bought when prices were low, makes it available in times of need, and less expensive, too. The speculator is rarely given credit for that in public, although this is how the speculator earns a profit.

    More evidence of how speculators reduce price volatility is found in Oil Speculators Are Your Friends, by Jerry Taylor and Peter Van Doren of the Cato Institute:

    Questions of cause and effect aside, economists Robert Kolb and James Overdahl reviewed the literature to ascertain whether physical prices exhibited more or less volatility after futures markets were introduced. They found 26 published studies examining various agricultural, energy, and financial markets but noted that only two of those studies (pertaining to cattle and mortgages) found that prices were more volatile after futures markets were established. Fourteen studies, on the other hand, found that cash market volatility decreased after futures markets were introduced (the remainder found no effect).

    The upshot is that futures markets — and the speculation that occurs therein — provide a public service. Regulating, restricting, or eliminating those markets would not bring prices down or make them more predictable. All it would do is prevent these agents for social good from doing their job, which is to tell us the truth — as best they see — about the future cost of crude and to offer a means by which we can insure ourselves against the impact of increasing or declining crude oil prices.

    It is possible for speculators to do harm, however. If the speculator buys, he drives up prices. Then suppose the price of oil falls, and the speculator is forced to sell. His actions have increased the volatility of oil prices and have sent false price signals to the market. Citing again Block’s food example: “What if he is wrong? What if he predicts years of plenty — and by selling, encourages others to do likewise — and lean years follow? In this case, wouldn’t he be responsible for increasing the severity of the famine? Yes. If the speculator is wrong, he would be responsible for a great deal of harm.”

    In these cases, the speculator has suffered financial losses. These loses are a powerful market force that drives “bad” speculators — meaning those who guess wrong about future prices — out of the market.

    The real danger we face is when government attempts to speculate. That’s a possibility at the current moment, as many are recommending that the U.S. government sell oil from the strategic petroleum reserve in an effort to lower the cost of oil. That’s speculation — the oil was bought at a time when the price was lower, and is now contemplated being sold at a higher price.

    The problem with government speculation is that government does not face the market discipline that private-sector speculators face. When private-sector speculators are wrong, they lose their capital. They go out of business. But government faces no such discipline. When government is wrong, it goes on. Taxpayers and consumers, however, have to pay for the mistakes of politicians and bureaucrats.

    Government attempts at regulating speculators are certain to fail, too. Almost any such regulation will seek to reduce the profit potential of speculation. But the potential of profits is what motivates speculators and makes the system work. Without the potential for profits, speculators will not take the risk of losses, and they will not perform their beneficial function.

  • Congress should reserve the right to protect our wireless future

    From Erik Telford
    Wireless technology is great. Only a few years ago, most Kansans were using their phones to call, and perhaps even text, now mobile devices are essentially small computers in the palms of our hands — capable of almost anything.

    According to Nielsen research, about 44 percent of U.S. mobile subscribers now own smartphones.[i] In Kansas, there are more than 2.4 million wireless subscribers[ii] and nearly 450,000 of those subscribers have data plans with full Internet access for more than 1 million high-speed mobile devices as of December 2009.[iii]

    With mobile devices capable of almost anything, Kansans are finding more ways to use them — from uploading pictures during a concert at the Sprint Center to updating their Facebook status about K-State’s football team to checking into their favorite Wichita restaurant on Foursquare.

    However, in what is becoming an all too familiar occurrence, some of these efforts are unsuccessful because we just can’t seem to connect online in a stadium or arena full of people. This is just one localized example of how the looming spectrum crisis could become a widespread reality — crippling innovation and investment in one of our country’s most vibrant sectors.

    Thankfully, Congress is currently considering legislation that would help avoid the looming crisis by freeing up more spectrum through an auction process. Spectrum auctions are widely supported by both Republicans and Democrats; however, as with most things — the devil is in the details.

    As the agency in charge of spectrum auctions, the FCC is pressuring Congress to give the FCC complete control over the auction design process. While the FCC’s request seems somewhat innocuous, if allowed, it could have dangerous consequences.

    Recent actions by the FCC suggest it would use its power to limit which companies will get to participate in the auction, effectively determining the winners and losers.

    Some members of Congress, support the FCC’s request and argue that proposals that would restrict the FCC from imposing eligibility conditions on auction participants “could have a deterring effect on fostering competition and maximizing auction proceeds to pay for a public safety network and deficit reduction.”[iv] The argument that fewer auction participants would result in more competition and more revenue, however, just doesn’t make sense.

    The FCC’s desire to impose conditions to increase competition and encourage innovation is not only counterintuitive; it is unnecessary. As the FCC’s own data demonstrates, the wireless market is already fiercely competitive. Nearly 90 percent of Americans have a choice of five or more wireless providers.[v]

    In, Kansas, consumers in communities both large and small have a number of options for wireless services. Consumers in Salina and in Wichita can choose from six or more wireless providers.[vi] In Garden City, subscribers can choose from seven or more wireless companies.[vii]

    Furthermore, eligibility restrictions could prevent companies like Sprint, Verizon and AT&T from acquiring more spectrum, which could prevent them from deploying 4G service to other communities outside the Kansas City market due to spectrum constraints.

    As the expert agency, the FCC is right to ask for some flexibility with the auction design process. Congress, however, should reserve its right to protect our wireless future by preventing FCC overreach and ensure that all companies can participate in the auction process. It’s only the fair choice to make.

    Notes:
    [i] Nielsen Wire, “Android and iPhones Dominating App Downloads in the U.S.” November 29, 2011
    [ii] Federal Communications Commission, 15th Annual Mobile Wireless Competition Report, Table C-2: FCC’s Semi-Annual Local Telephone Competition Data Collection: Mobile Telephone Subscribership, in Thousands,” p. 248, June 27, 2011
    [iii] Federal Communications Commission, 15th Annual Mobile Wireless Competition Report, Table C-5: Mobile Wireless Devices Capable of Sending or Receiving Data at Speeds Above 200 kbps and Subscribers with Data Plans for Full Internet Access as of December 31, 2009, in Thousands,” p. 260, June 27, 2011
    [iv] Sen. John Kerry, Press Release, “Democratic and Republican Senators Urge Smart, Inclusive Spectrum Reform,” January 9, 2012
    [v] Federal Communications Commission, 15th Annual Mobile Wireless Competition Report, “Estimated Mobile Wireless Voice Coverage by Census Block, 2010,” p. 6, June 27, 2011
    [vi] Cell phone provider coverage as found by zip code on http://www.wirelessadvisor.com/
    [vii] Cell phone provider coverage as found by zip code on http://www.wirelessadvisor.com/

  • Sustainable planning: The agenda and details

    Sedgwick County Commissioner Richard Ranzau has produced a document that explains the dangers contained with the “sustainable development” movement that is spreading across the country. Recently both the City of Wichita and Sedgwick County voted to participate in a planning grant devoted to starting the implementation of this ideology that government can plan better than markets can.

    In the document Ranzau writes: “Proponents of these grants often speak in general terms that make it difficult to disagree. But as they say, the devil is in the details. It is very important for you to know what they are not telling you. We all need to look beyond the fancy talk and find out what the agenda is really about. … The intent of this paper is to share information and insight about ‘sustainable development’ so that citizens and elected officials can have a more complete understanding of what the planning grants will entail and what possible consequences our communities may face if these policies are implemented.”

    One of the concerns Ranzau identifies is the attack on the automobile-based suburban lifestyle that many in Wichita and the surrounding area prefer, based on their revealed choices: “One of the most important reasons to be concerned about the agenda behind these grants is the effect it could have on housing costs and property rights. Smart Growth supporters decry suburban development (single family home with a yard) as unsustainable and work to push people into high density housing (and government transportation).”

    This attitude is creeping into Wichita. At a January 2010 presentation by Goody Clancy, the planning firm that developed the plan for downtown Wichita, I reported on the attitudes expressed by planners and how they believe they know what people should want, if only the people were as smart as the planners:

    At a presentation in January, some speakers from Goody Clancy revealed condescending attitudes towards those who hold values different from this group of planners. One presenter said “Outside of Manhattan and Chicago, the traditional family household generally looks for a single family detached house with yard, where they think their kids might play, and they never do.”

    David Dixon, who leads Goody Clancy’s Planning and Urban Design division and was the principal for this project, revealed his elitist world view when he told how that in the future, Wichitans will be able to “enjoy the kind of social and cultural richness” that is only found at the core.

    The document holds many links to valuable resources, a timeline of sustainable planning activities, and contact information for local officials.

    Sustainable Planning Grants and UN Agenda 21