Kansas and Wichita quick takes: Wednesday September 28, 2011


Obama’s intercontinental railroad. Burton Folsom notices a recent speech by President Barack Obama that mentioned how America built the “intercontinental railroad.” Folsom grants Obama some slack for the gaffe — we all make them, after all — and explains to readers the most important lesson that should be learned from our experience building the transcontinental railroad: “… the story of the transcontinental railroads really is a great teaching tool for today. If we study the Union Pacific, the Central Pacific, and the Northern Pacific Railroads, we learn they all went broke after receiving a combined total of 61 million acres of land. And they ran the nation deep into debt, too. … federal spending on transcontinentals meant corruption, land grabs, and wasted taxpayer dollars. But wait. The Great Northern Railroad, which went from St. Paul to Seattle, never went bankrupt and was one of the best-built railroads in the United States. Why did the Great Northern succeed when the others failed? Because James J. Hill, the president, built his railroad with no federal subsidies. He built the Great Northern slowly and made each part profitable before expanding it further. … Hill made profits and never went bankrupt. Here is the lesson: that which is privately owned is properly cared for and is best positioned to create jobs and profits. When the government gets involved, profits vanish and quality declines. Therefore, the president is right. Let’s discuss railroad history and apply what we learn to the present day.” The article is Interfacing with Obama’s Intercontinental Railroad.

Alain festival starts. Today marks the first day of Jehan Alain, 1911-1940 — The American Festival, a three-day event celebrating the music of the French organist and composer, who died at the age of 29 fighting for his country against Germany in World War II. This three-day event is organized by Lynne Davis of Wichita State University. If you can attend only one event, I would suggest the opening recital to be performed by Davis at 7:30 pm tonight. The location is Wiedemann Recital Hall (map) on the campus of Wichita State University. … For more about Davis and WSU’s Great Marcussen Organ including photographs I took while climbing around the interior of the massive instrument, see my story from last year.

How business loves regulation and hates markets. In a chapter of the book Back on the Road to Serfdom: The Resurgence of Statism edited by Thomas E. Woods Jr., Timothy P. Carney writes about the cultural costs of corporatism: “Despite the widespread assumption that a free market is the ideal economy for big business, and that regulation checks the power of big business, more often the opposite is true. Regulation, by adding to the cost of doing business, disproportionately hurt smaller business and acts as a barrier to entry, keeping out new competitors. Likewise, government subsidies can be far more valuable, or at least more reliable, then income for consumers, for which businesses must continually fight with competitors. The dynamics of the lobbying game are crucial here. Bigger companies enjoy a greater advantage in Washington than they do in the market. Not only can bigger companies hire the better lobbyists — former lawmakers are top administration aides — and handout more in campaign contributions, but they also matter more to lawmakers. The more workers you employ and the more taxes you pay, the more lawmakers care about your well-being, desires, and wishes.” … Carney goes on to explain that big government enables political entrepreneurs to succeed over market entrepreneurs. And big companies are better equipped to be political entrepreneurs. So while the standard account is that Walmart kills small-town retailers, the reality is that Walmart is effective at political entrepreneurship in ways that mom-and-pop retailers can’t be. “An unbridled free market isn’t killing Mom and Pop; an untethered state is.” The effect of this is, he writes: “And so reading the market is no longer as valuable as reading the polls. Research and development is not as good an investment as political connections. A good lobbyist is now worth more than a good idea.” … While Carney is writing about the situation at the federal level, we see the same dynamic at work in Wichita, where the city Council and its surrogates such as the Wichita Downtown Development Corporation and Greater Wichita Economic Development Coalition have large power over the granting of government favors. Connections to the politicians and bureaucrats that control these organizations replaces market allocation and market decisions.

The Buffet rule won’t work. In a Cato daily podcast, Cato Institute Senior Fellow Alan Reynolds says “It doesn’t work. We tried it.” He’s referring to raising tax rates to collect more revenue from high-income earners. Reynolds explains that starting in 1986 and for the next 10 years the capital gains tax rate was 28 percent. But then President Bill Clinton lowered the rate to 20 percent, and Reynolds said that the stock market soared and the government was flush with cash. This, he said, was an example of lower tax rates increasing tax revenue. … Reynolds also explained that Berkshire Hathaway — the company Warren Buffet formed — was a tax avoidance device until 2003. As a holding company, it purchased companies that paid dividends, but Berkshire didn’t pay dividends itself. This practice avoided the higher dividends tax by converting dividends into capital gains. (Prior to 2003, dividends were taxed as ordinary income, which for most taxpayers was higher than the capital gains tax rate. Plus, capital gains can be deferred.) This purposeful design by Buffet belies his current contention that the wealthy should pay higher taxes.


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