Voice For Liberty

Tag: Capitalism

  • Kansas and Wichita quick takes: Friday December 9, 2011

    Ethanol subsidy. According to Wichita Eagle reporting, the head of an ethanol trade group says the subsidy for ethanol will likely disappear after January 1, but the change might be good for the industry. It has to do with image, said the speaker. The subsidy the speaker mentioned is in the form of a tax credit, and is one of the programs that would be eliminated by proposed legislation introduced by U.S. Rep. Mike Pompeo of Wichita. His bill would end tax credits for all forms of energy. … The production tax credit is just one of three government interventions that benefit ethanol. Besides the tax credit, we should also ask for the end of mandates for ethanol use, and an end to the tariff on imported ethanol. We also need to ask for the end of interventions aimed at benefiting the cellulosic ethanol industry, like the $132.4 million loan guarantee for such a plant in Kansas.

    Cronyist Warren Buffet. “Warren Buffett’s MidAmerican Energy Holdings company has agreed to buy a giant, 550-megawatt photovoltaic farm currently under construction in San Luis Obispo County for $2 billion, giving a huge boost to the solar industry that could spur investment by other major players.” Concludes John Hinderaker of Powerline Blog: “Meanwhile, I am warming up to the idea that Warren Buffett should pay more in taxes. I would settle for just getting his federal subsidies back.” More at Crony Capitalism, Episode #…What Are We Up To Now?

    Natural gas subsidies for Pickens. While on the topic of energy and harmful subsidies, Timothy P. Carney of the Washington Examiner provides an update on H.R. 1380: New Alternative Transportation to Give Americans Solutions Act of 2011, or NATGAS act. The bill provides a variety of subsidies, implemented through tax credits, to producers and users of natural gas. The goal is to promote the use of natural gas as the fuel the nation uses for transportation. … Carney explains the personal financial of the bill’s backer, energy investor T. Boone Pickens. He holds options on 15 million shares of a company known as Clean Energy Fuels. These options expire on December 28th, and their value would skyrocket if the NATGAS bill can pass by then. … Carney notes the opposition to this bill from Wichita-based Koch Industries. As a large producer of fertilizer, the price of a key input — natural gas — would likely increase if NATGAS passes. But we all ought to worry about increases in the price of fertilizer, which would like lead to higher grocery prices. These price increases harm low income families hardest.

    Planning grant to be topic of meeting. On Monday December 12th Americans for Prosperity Foundation will feature Sedgwick County Commission Member Richard Ranzau speaking on the topic “The $1.5 million dollar Regional Economic Area Partnership (REAP) HUD Sustainable Development Planning Grant: Economic Development or Economic Destruction?” Some background on this item may be found at Sedgwick County considers a planning grant. This free event is from 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. 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.

    Tilting at wind turbines. “Switching from conventional sources of electricity like coal and natural gas to renewables like wind and solar, our elected leaders tell us, will reduce pollution, advance renewable technology and spark a green jobs revolution. Is renewable energy really a green pathway to a brighter economic future? Or is it nothing more than a heavily subsidized impossible dream?” Reason TV takes a look at wind energy in the video Tilting at Wind Turbines: Should the Government Subsidize Renewable Energy? Locally, Wichita Mayor Carl Brewer promotes manufacturing of wind power machinery as good for Wichita’s economic development, and Kansas Governor Sam Brownback supports renewable energy standards for Kansas.

  • Wichita’s political class

    From June.

    The discussion at yesterday’s Wichita City Council meeting provided an opportunity for citizens to discover the difference in the thinking of the political class and those who value limited government and capitalism.

    At issue was Mid-Continent Instruments, Inc., which asked the city for a forgivable loan of $10,000. It received the same last week from Sedgwick County. According to city documents, the State of Kansas through its Department of Commerce is also contributing $503,055 in forgivable loans, sales tax exemptions, training grants, and tax credits.

    At the city council meeting Clinton Coen, a young man who ran for city council earlier this year, spoke against this measure, which he called corporate welfare.

    In response to Coen, Council Member James Clendenin (district 3, south and southeast Wichita) asked if we should ignore companies that want to do business here, or should we allow them to leave? Implicit in the question is that the threat dangled by Mid-Continent is real: that unless the city gives them $10,000, they will expand somewhere else. How citizens and council members feel about this issue largely depends on their perceived genuineness of this threat.

    When Coen recommended that the city cut spending, Clendenin said “I can guarantee you, from what I have seen, this city government has cut a tremendous amount of spending.” When pressed by Coen for examples of cuts, he demurred. Clendenin also said that the $10,000 is needed to show the city’s commitment to the company.

    Perhaps coming to the rescue of her younger and less experienced colleague, Council Member Janet Miller asked City Manager Bob Layton how much has been cut from the budget, and he replied “we’ve cut over $20 million in the general fund over three years.”

    In saying that, Layton is using the language and mind-set of bureaucrats and politicians. In this world, it’s a cut if spending does not rise as fast as planned or hoped for. As you can see from the accompanying chart, Wichita general fund spending has not been cut in recent years. It has risen in each of the last three years, and plans are for it to keep rising.

    Wichita general fund spending

    This illustrates a divide between the thinking of the political class and regular people. Blurring the distinction between plans and reality lets politicians and bureaucrats present a fiscally responsible image — they cut the budget, after all — and increase spending at the same time. It’s a message that misinforms citizens about the important facts.

    Miller also praised the return on investment the city receives for its spending on economic development, citing Wichita State University Center for Economic Development and Business Research and the cost-benefit calculations it performs. These calculations take the cost of providing the incentives and compare it to the returns the city and other governmental entities receive.

    What is rarely mentioned, and what I think most people would be surprised to learn, is that the “returns” used in these calculations is manifested in the form of increased tax revenue. It’s not like in the private sector, where business firms attempt to increase their sales and profits by providing a product or service that people willingly buy. No, the city increases its revenue (we can’t call it profit) by collecting more taxes.

    It’s another difference between the political class and everyone else: The political class craves tax revenue.

    Aside from this, the cost-benefit calculations for the city don’t include the entire cost. The cost doesn’t include the county’s contribution, the majority of which comes from residents of its largest city, which is Wichita. Then, there’s the half-million in subsidy from the state, with a large portion of that paid for by the people of Wichita.

    But even if you believe these calculations, there’s the problem of right-sizing the investment. If an investment of $10,000 has such glowing returns — last week Sedgwick County Commissioner Jim Skelton called the decision a “no-brainer” — why can’t we invest more? If we really believe this investment is good, we should wonder why the city council and county commission are so timid.

    Since the applicant company is located in his district, Council Member Pete Meitzner (district 2, east Wichita), praised the company and the state’s incentives, and made a motion to approve the forgivable loan. All council members except Michael O’Donnell (district 4, south and southwest Wichita) voted yes.

    Going forward

    While the political class praises these subsidies and the companies that apply for them, not many are willing to confront the reality of the system we’re creating. Some, like O’Donnell and Sedgwick County Commissioner Richard Ranzau, have recognized that when government is seen as eager to grant these subsidies, it prompts other companies to apply. The lure of a subsidy may cause them to arrange their business affairs so as to conform — or appear to conform — to the guidelines government has for its various subsidy programs. Companies may do this without regard to underlying economic wisdom.

    We also need to recognize that besides simple greed for public money, businesses have another reason to apply for these subsidies: If a publicly-traded company doesn’t seek them, its shareholders would wonder why the company didn’t exercise its fiduciary duty to do so. But this just perpetuates the system, and so increasing amounts of economic development fall under the direction of government programs.

    While most people see this rise in corporate welfare as harmful — I call it a moral hazard — the political class is pleased with this arrangement. As Meitzner said in making his motion, he was proud that Wichita “won out” over the other city Mid-Continent Instruments considered moving to.

    Another harmful effect of these actions is to create a reputation for having an uncompetitive business environment. Not only must businesses of all types pay for the cost of these subsidies, some face direct competition by a government-subsidized competitor. This is the situation Wichita-area hotels face as a result of the city granting millions in subsidy to a hotel developer to build a Fairfield Inn downtown.

    Even those not in direct competition face increased costs as they attempt to hire labor, buy supplies, and seek access to capital in competition with government-subsidized firms. Could this uneven competitive landscape be a factor that business firms consider in deciding where to locate and invest?

    We can expect to see more government intervention in economic development and more corporate welfare. Former council member Sue Schlapp in April took a job with the Kansas Department of Commerce. Her job title is “senior constituent liaison,” which I think can be better described as “customer service agent for the corporate welfare state.” Her office is in Wichita city hall.

    Increasingly we see politicians and bureaucrats making decisions based on incorrect and misleading information, such as claiming that the city’s general fund budget has been cut when spending has increased. Sometimes they are fed incorrect information, as in the case of a presentation at Sedgwick County Commission that bordered on fraudulent.

    Sometimes, I think, officeholders just don’t care. It’s easiest to go along with the flow and not raise ripples. They participate in groundbreakings and get their photograph in the newspaper and on television that way. Which brings up an important question: why do none of our city’s mainstream media outlets report on these matters?

  • For President Obama, internet is just another job-killer

    John Hinderaker of Powerline Blog seems to understand just where President Barack Obama thoughts come from.

    Hinderaker writes: “This is one more reminder — as if we needed it — that President Obama has no understanding of the economy. He is, at heart, a Luddite. He doesn’t understand that when work is made more efficient, as by the internet, our economy becomes more productive and we are all better off.”

    Luddites were 19th-century English textile artisans who smashed mechanical looms because they felt the machines were destroying jobs. Here’s the full article, including video: Welcome to Texas!

  • Kansas and Wichita quick takes: Wednesday November 23, 2011

    Standing up for fundamental liberties. A particularly troubling objection that those who advocate for liberty face is that we want to deny freedom and liberty to others — as if the quantity of liberty is fixed, and I can have more only if you have less. This is the type of false accusation that leftists make against Wichita-based Koch Industries. In this excerpt from the company’s Koch Facts page, the work that Koch does to advance liberty for everyone is explained: “Throughout Koch’s long-standing record of public advocacy, we have been strong and steadfast supporters of individual liberties and freedoms. These values permeate all that we do as a company and every part of our public outreach. We help fund public and school-based educational programs across the country in an effort to increase citizens’ understanding of the relationship between economic liberty and democracy. We support voter registration efforts in the communities where we live and work, and for our tens of thousands of employees. We support civil rights programs through numerous organizations. We also help build entrepreneurial initiatives that foster the fundamental reality that economic freedom creates prosperity for everyone, especially the poor, in our society. … For many years, we have directly contributed to Urban League, Andrew Young Foundation, Martin Luther King Center, Latin American Association, 100 Black Men, Morehouse College, United Negro College Fund, and dozens of other worthy organizations pursuing similar civic missions. We founded and continue to support Youth Entrepreneurs in schools throughout Kansas, Missouri and Atlanta. This year-long course teaches high school students from all walks of life the business and entrepreneurial skills needed to help them prosper and become contributing members of society. … Many of the attacks against Koch in recent months are cynical posturing at best and deliberate falsehoods divorced from reality at worst. For proof, look no further than the false claim from groups like SEIU that we are somehow trying to suppress the right to vote. … Our freedom as individual Americans relies on the ability to hold the government accountable through the direct exercise of voting rights and the exercise of other individual liberties. We are unwavering in our commitment to these rights and we stand firmly behind our track record in defending them.”

    Private property saved the Pilgrims. At Thanksgiving time, the Economic Freedom Project reminds us how an early American experiment with socialism failed miserably, and how private property rights and free enterprise saved the day. See So, Is That My Corn or Yours?

    Did Grover Norquist derail the Supercommittee? To hear some analysts, you’d think that Grover Norquist of Americans for Tax Reform is responsible for no deal emerging from the United States Congress Joint Select Committee on Deficit Reduction (the “Supercommittee”). It’s ATR’s pledge to not increase taxes that is blamed, so they say. All members of the Kansas Congressional Delegation except Kevin Yoder signed the pledge. Paul Jacob is thankful for Norquist and that a tax increase was averted.

    Drive-through petition signing. From Americans for Prosperity, Kansas: The Wichita area chapter of the free-market grassroots group Americans for Prosperity (AFP) and other local groups have been working to collect signatures for a petition to put the hotel guest tax ordinance to a public vote. Volunteers will be collecting signatures this weekend during a “drive-thru” petition signing Friday, Saturday and Sunday at two Wichita hotels. Wichita activists are continuing their efforts to collect signatures for a petition to put the hotel guest tax ordinance to a public vote. Registered voters simply drive up to the listed locations and volunteers will bring a petition out to them. The times are from 9:00 am to 5:00 pm Friday and Saturday (Nov. 25 and 26), and 12:00 noon to 5:00 pm Sunday (Nov. 27). The locations are Wichita Inn East (8220 E. Kellogg Dr.) and Best Western Airport Inn (6815 W. Kellogg/US-54).

    Job creation. Governments often fall prey to the job creation trap — that the goal of economic development is to create jobs. We say this today in Wichita where several labor union leaders appeared before the Sedgwick County Commission to encourage the county to grant a subsidy to Bombardier Learjet. The labor leaders, naturally, pleaded for jobs. To them, and to most of our political and bureaucratic leaders, the more jobs created, the better. Our business leaders don’t do any better understanding the difference between capitalism and business. In his introduction to the recently-published book The Morality of Capitalism, Tom G. Palmer writes: “Capitalism is not just about building stuff , in the way that socialist dictators used to exhort their slaves to ‘Build the Future!’ Capitalism is about creating value, not merely working hard or making sacrifices or being busy. Those who fail to understand capitalism are quick to support ‘job creation’ programs to create work. They have misunderstood the point of work, much less the point of capitalism. In a much-quoted story, the economist Milton Friedman was shown the construction on a massive new canal in Asia. When he noted that it was odd that the workers were moving huge amounts of earth and rock with small shovels, rather than earth moving equipment, he was told ‘You don’t understand; this is a jobs program.’ His response: ‘Oh, I thought you were trying to build a canal. If you’re seeking to create jobs, why didn’t you issue them spoons, rather than shovels?” … After describing crony capitalism — the type practiced in Wichita, Sedgwick County, and Kansas, with deals like the complete funding by taxpayers of the Bombardier LearJet facility, Palmer explains: “Such corrupt cronyism shouldn’t be confused with ‘free-market capitalism,’ which refers to a system of production and exchange that is based on the rule of law, on equality of rights for all, on the freedom to choose, on the freedom to trade, on the freedom to innovate, on the guiding discipline of profits and losses, and on the right to enjoy the fruits of one’s labors, of one’s savings, of one’s investments, without fearing confiscation or restriction from those who have invested, not in production of wealth, but in political power.”

    Experts. David Freedman and John Stossel discuss experts, our reliance on them, the political advocacy that’s often involved, and how often experts are wrong.

  • Bombardier Learjet should pay just a little

    In a presentation made to economic development officials, aviation manufacturer Bombardier LearJet speaks with pride of its investment in Kansas. But for the present project before the Sedgwick County Commission today, it appears that the company is planning to make no investment at all.

    Bombardier LearJet financing plan. Later the document states “Requesting State of Kansas support to help find gap of $16M.”

    Taking the total project cost of $52.7 million and subtracting the government funding already secured, there is a gap of $16.1 million. Instead of being grateful for the $36.6 million in subsidy already (or about to be) secured, the company is asking for more: Bombardier LearJet is asking the State of Kansas to fund this gap.

    What happened to capitalism?

    What happened to companies funding even a portion of their capital requirements?

    The proponents of economic development incentives often make their case that the incentives are just a “sweetener” to secure the deal. But in the present case with Bombardier LearJet, local governments — the City of Wichita, Sedgwick County, and the State of Kansas — are being asked to pay for the entire meal.

    We in Kansas and Sedgwick County are already doing much for Bombardier LearJet. It is likely that we will agree to let LearJet forgo paying any property tax at all — the same property taxes that other business struggle to pay. These businesses compete with LearJet for labor and other things they need.

    The State of Kansas is allowing the income taxes of Lear Jet employees to be used for the exclusive benefit of that company.

    Both of these actions call into question the fundamental question of fairness in taxation: that all pay their fair share. When companies like the applicant company ask to be excused from the burden of taxation, others have to pay.

    If you are not persuaded by this appeal to principle, there is evidence that chasing the big catch is often counterproductive, and that the net economic effect of these deals is overestimated. One study finds: “Large-employer businesses have no measurable net economic effect on local economies when properly measured.”

    Perhaps the worst thing we take away from this episode is that our state is making no progress towards a concept developed by Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business. He has made a convincing case that Kansas needs to move away from the “active investor” approach to economic development. This is where government decides which companies will receive special treatment, be it in the form of tax abatements, tax credits, grants, and other forms of subsidy. This is what we are doing with the present applicant, Bombardier LearJet.

    In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”

    Later, Hall writes this regarding “benchmarking” — the bidding wars for large employers we are considering today: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

    We need to move away from economic development based on this active investor approach. This commission needs to advocate for policies — in this chamber, at Wichita City Hall, and at the Kansas Statehouse — that lead to sustainable economic development. What we’re doing today is not sustainable.

    A small and reasonable step towards this goal is to ask Bombardier LearJet to consider paying just $1 million themselves on a project with a cost of $52.7 million.

  • TIF and other subsidies harm Wichita

    Everyone who cares about Wichita — the entire city, not just special interests — ought to be opposed to the continued use of tax increment financing (TIF) districts and other forms of subsidy that direct benefits to a small group at the expense of everyone else.

    Proponents of these programs such as Wichita Eagle editorial writer Rhonda Holman, most elected officials, and nearly all bureaucrats, need to justify these incentives. They make their case, of course, but the case is shallow. We need to look at research that studies these programs. We need to consider the effect of these programs on the city as a whole, and on the civic attitudes of Wichitans. When we do, we find that these programs just don’t deliver what they promise, unless you focus only on the special interest groups that feed off these programs. We also see that these programs contribute to the cynicism that is destructive to a civil society where people exist and trade harmoniously.

    What is the purpose? Development? Jobs?

    Some people want TIF because it promises development that otherwise would not happen. Others want the jobs that they see TIF create.

    The problem is that both promises are false — if you are able to look beyond stage one. There’s no doubt that things happen in TIF districts, usually. Buildings are built or renovated. Businesses open. People go to work.

    This simple analysis appeals to elected officials and newspaper editorial writers. But if we are concerned about the overall prosperity of our city, we need to look beyond the borders of the TIF district. When we do that, we come to a different assessment.

    Regarding the effect of TIF on overall development, economists Richard F. Dye and David F. Merriman have studied tax increment financing extensively. Their article Tax Increment Financing: A Tool for Local Economic Development states in its conclusion:

    TIF districts grow much faster than other areas in their host municipalities. TIF boosters or naive analysts might point to this as evidence of the success of tax increment financing, but they would be wrong. Observing high growth in an area targeted for development is unremarkable.

    So TIFs are good for the favored development that receives the subsidy — not a surprising finding. It’s what self-serving elected officials, bureaucrats, and newspaper editorial writers can see and focus on. But what about the rest of the city? Continuing from the same study:

    If the use of tax increment financing stimulates economic development, there should be a positive relationship between TIF adoption and overall growth in municipalities. This did not occur. If, on the other hand, TIF merely moves capital around within a municipality, there should be no relationship between TIF adoption and growth. What we find, however, is a negative relationship. Municipalities that use TIF do worse.

    We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF. (emphasis added)

    So if we are concerned about overall growth in Wichita, we need to realize that TIF simply shifts development from one place to another. The overall impact, according to uncontroverted research, is negative: less growth, not more.

    What about jobs? Paul F. Byrne of Washburn University authored a recent report titled Does Tax Increment Financing Deliver on Its Promise of Jobs? The Impact of Tax Increment Financing on Municipal Employment Growth. In its abstract we find this conclusion regarding the impact of TIF on jobs:

    Increasingly, municipal leaders justify their use of tax increment financing (TIF) by touting its role in improving municipal employment. However, empirical studies on TIF have primarily examined TIF’s impact on property values, ignoring the claim that serves as the primary justification for its use. This article addresses the claim by examining the impact of TIF adoption on municipal employment growth in Illinois, looking for both general impact and impact specific to the type of development supported. Results find no general impact of TIF use on employment. However, findings suggest that TIF districts supporting industrial development may have a positive effect on municipal employment, whereas TIF districts supporting retail development have a negative effect on municipal employment. These results are consistent with industrial TIF districts capturing employment that would have otherwise occurred outside of the adopting municipality and retail TIF districts shifting employment within the municipality to more labor-efficient retailers within the TIF district. (emphasis added)

    While this research might be used to support a TIF district for industrial development, TIF in Wichita is primarily used for retail development. And, when looking at the entire picture, the effect on employment is negative.

    Verge of corruption

    The ability and willingness of local elected officials to dish out TIF and other forms of subsidy places them, as Randal O’Toole has written, “on the verge of corruption.” In Wichita, David Burk and the principals of Key Construction make extensive use of political campaign contributions, and have benefited handsomely from TIF and other forms of subsidy. A recent analysis of campaign contributions by these parties to Wichita City Council members showed just how prevalent are these contributions.

    In Wichita city elections, individuals may contribute up to $500 to candidates, once during the primary election and again during the general election. As you can see in this table complied from Wichita City Council campaign finance reports, spouses often contribute as well. So it’s not uncommon to see the David and DJ Burk family contribute $2,000 to a candidate for their primary and general election campaigns. That’s a significant sum for a city council district election campaign cycle. Click here for a compilation of campaign contributions made by those associated with the Douglas Place project, a recent collaboration between Burk, Key Construction, and others.

    Council Member Jeff Longwell (district 5, west and northwest Wichita), in his second term as council member and with his heart set on becoming the next mayor, leads the pack in accepting campaign contributions from parties associated with the Douglas Place project. For his most recent election, he received $4,000 from parties associated with Key Construction, and $2,000 from David Burk and his wife. Total from parties associated with the Douglas Place project: $6,000.

    Lavonta Williams, (district 1, northeast Wichita), who is also vice mayor, received $5,000 from parties associated with Douglas Place: $4,000 from parties associated with Key Construction, and $2,000 from David Burk and his wife.

    Mayor Carl Brewer received $4,000 from parties associated with Douglas Place: $3,500 from parties associated with Key Construction, and $500 DJ Burk, David Burk’s wife.

    Council Member Janet Miller (district 6, north central Wichita) received $3,500 during her 2009 election campaign from parties associated with Douglas Place: $1,500 from parties associated with Key Construction, and $2,000 from David Burk and his wife.

    For his 2011 election campaign, newly-elected Council Member Pete Meitzner (district 2, east Wichita) received $2,500 from parties associated with Douglas Place: $1,500 from parties associated with Key Construction, and $1,000 from David Burk and his wife.

    The people who make these contributions and the officeholders who receive them deny that they make any difference. That’s hard to believe. These donors don’t often contribute to candidates for the Kansas Legislature or U.S. Congress. That’s because these bodies don’t have the power to dish out the subsidies that the Wichita City Council does. I’d say these donors are acting rationally, in their self-interest.

    If you’re still not convinced, consider the case of Reverend Kevass Harding, who wanted to redevelop the Ken-Mar shopping center, and Wichita City Council member Lavonta Williams, (district 1, northeast Wichita), who is presently serving as vice mayor.

    As reported in 2009, Harding and his wife made campaign contributions to Williams. These campaign contributions, made in the maximum amount allowable, were out of character for the Hardings. They had made very few contributions to political candidates, and they appear not to have made many since then.

    But in June 2008, just before the Ken-Mar TIF district was to be considered for approval, the Hardings made contributions in the maximum allowable amount to Williams, who represents Ken-Mar’s district. Harding would not explain why he made the contributions. Williams offered a vague and general explanation that had no substantive meaning.

    The close linkage between these political contributions the awarding of money illustrates the need for pay-to-play laws in Wichita and Kansas. These laws impose various restrictions on the activities of elected officials and the awarding of contracts or other largesse to those who have made political contributions.

    Citizens become cynical when they feel there is a group of insiders — commonly called the “good ol’ boy network” — who get whatever they want from city hall at the expense of taxpayers. It’s surprising that the Wichita Eagle editorial board is either not aware of this, or doesn’t see it as a problem. In the meantime, our newspaper, along with those in the network of city hall insiders, continue to contribute to the destruction of civil society in Wichita.

    Additional Reading:

    • Wichita property taxes are high, leading to other problems: “An ongoing study by the Minnesota Taxpayers Association tells us that Wichita has high business property taxes. This may be a reason why the Wichita City Council feels it is necessary to offer relief from these taxes, but it is not an effective economic development strategy.”
    • Tax increment financing: The right tool for Wichita jobs?: “Tax Increment Financing (TIF) is an economic development tool that uses the expected growth (or increment) in property tax revenues from a designated geographic area of a municipality to finance bonds used to pay for goods and services calculated to spur growth in the TIF district. The analysis performed for this study found TIF does not tend to produce a net increase in economic activity; favors large businesses over small businesses; often excludes local businesses and residents from the planning process; and operates in a manner that contradicts conventional notions of justice and fairness. We recommend seeking alternatives to TIF and reforms to TIF that make the process more democratic and the distribution of benefits more fair to residents of TIF districts.”
    • Giving away the store to get a store: “Largely because it promises something for nothing — an economic stimulus in exchange for tax revenue that otherwise would not materialize — this tool is becoming increasingly popular across the country. Originally used to help revive blighted or depressed areas, TIFs now appear in affluent neighborhoods, subsidizing high-end housing developments, big-box retailers, and shopping malls. And since most cities are using TIFs, businesses such as Cabela’s can play them off against each other to boost the handouts they receive simply to operate profit-making enterprises.”
    • Wichita’s economic development strategy: rent seeking: “It is wealth, after all, that defines prosperity. Our goal ought to be to create an environment where everyone lives in an environment conducive to creating prosperity and wealth. But in a misguided effort, our city leaders, week after week, take actions that produce just the opposite.”
    • Wichita economic development: And then what will happen?: “Critics of the economic development policies in use by the City of Wichita are often portrayed as not being able to see and appreciate the good things these policies are producing, even though they are unfolding right before our very eyes. The difference is that some look beyond the immediate — what is seen — and ask “And then what will happen?” — looking for the unseen.
    • Wichita and its political class: “Discussion at a Wichita City Council meeting provided an opportunity for citizens to discover the difference in the thinking of the political class and those who value limited government and capitalism.”
    • Wichita on corporate welfare, again: “An award of $2.5 million by the City of Wichita to aircraft manufacturer Hawker Beechcraft to ward off a threatened move to Louisiana stands out as an example of corporate welfare given for its own sake, and not in response to any real threat.”
    • Wichitans mislead on Warren IMAX incentives: “With the possibility of another IMAX theater being built not too far from Wichita, we now know that Wichitans were mislead in awarding economic development incentives.”
    • Wichita again to bet on corporate welfare as economic development: “The Wichita City Council may take action that promotes corporate welfare and the city’s economic development policy.”
    • In Wichita and Kansas, economic development is not working: “The effort of Wichita and Kansas to retain Hawker Beechcraft, one of our leading employers and a Wichita institution, provides a lesson in the futility of corporate welfare as an economic development policy: Someone is usually willing to pay more. We would be much better off if we start transforming Kansas to a state where all companies are nurtured, not by bureaucratic and political oversight and handouts, but by a low taxing and spending environment, and a reasonable regulatory regime.”
    • Tax increment financing is not free money: “Cato Institute Senior Fellow Randal O’Toole has written extensively on the subject of urban planning, development, and tax increment financing (TIF) districts. The following article contains many points that the Wichita City Council may wish to consider as it considers expansion of a downtown Wichita TIF district at tomorrow’s council meeting.”

  • Kansas and Wichita quick takes: Thursday November 10, 2011

    Occupy Wall Street. One of the most troubling things about OWS is the anti-semitism. FreedomWorks has a video which explains. Also from FreedomWorks, president Matt Kibbe contributes a piece for the Wall Street Journal (Occupying vs. Tea Partying: Freedom and the foundations of moral behavior.). In it, he concludes: “Progressives’ burning desire to create a tea party of the left may be clouding their judgment. Even Mr. Jones has grudgingly conceded that tea partiers have out-crowd-sourced, out-organized, and out-performed the most sophisticated community organizers on the left. ‘Here’s the irony,’ he said back in July. ‘They talk rugged individualist, but they act collectively.’ He and his colleagues don’t seem to understand that communities can’t exist without respect for individual freedom. They can’t imagine how it is that millions of people located in disparate places with unique knowledge of their communities and circumstances can voluntarily cooperate and coordinate, creating something far greater and more valuable than any one individual could have done alone. In the world of the contemporary Western left, someone needs to be in charge — a benevolent bureaucrat who knows better than you do. They can’t help but build hierarchical structures — a General Assembly perhaps — because they don’t understand how freedom works.”

    Johnson Controls. Rhonda Holman’s recent Wichita Eagle editorial criticized those who spoke against the award of a forgivable loan to Johnson Controls, specifically mentioning the claim by Sedgwick County Commissioner Richard Ranzau that Johnson was going to move these jobs to Wichita “no matter what.” No one has disputed Ranzau. I specifically asked at the commission meeting that someone from Johnson address this assessment. The Johnson people in the audience chose not to answer. It would be helpful if someone at the newspaper or county at least pretended as through they cared about the truth of these matters. … At one time newspapers might have objected to Commission member Jim Skelton voting on this matter due to a family member working at Johnson. True, Kansas law says he was eligible to vote on the matter. Sedgwick County has no code of ethics that prohibited it, either. But Skelton could have acted as though the county had a code of ethics, and a model code of ethics says Skelton should not have voted on this matter.

    Save-A-Lot store opens. Yesterday a Save-A-Lot grocery store opened in Wichita’s Planeview neighborhood. This is a store that was said to be impossible to build without subsidy in the form of tax increment financing (TIF) and an extra community improvement district (CID) sales tax of two cents per dollar. The Sedgwick County Commission exercised its veto power over the TIF district, and developer developer Rob Snyder canceled his plans for the store. But someone else found a way. Said Snyder at the time to the Wichita City Council: “We have researched every possible way, how do we make this project work with the existing funding that’s available to us. … We might as well say if for some reason we can’t figure out how to get this funding to go through, there won’t be a shopping center over there.” As part of his presentation to the council Allen Bell, Wichita’s Director of Urban Development explained that to be eligible for TIF, developers must demonstrate a “gap,” that is, an analytical finding that conventional financing is not sufficient for the project, and public assistance is required: “We’ve done that. We know, for example, from the developer’s perspective in terms of how much they will make in lease payments from the Save-A-Lot operator, how much that is, and how much debt that will support, and how much funds the developer can raise personally for this project. That has, in fact, left a gap, and these numbers that you’ve seen today reflect what that gap is.” … This episode has severely harmed the credibility of those who plead for incentives and subsidies, and also of the city hall bureaucrats who plead their cases for them. For more see For Wichita, Save-A-Lot teaches a lesson.

    Teacher pay. A look at public school teacher pay by American Enterprise Institute finds that — opposite of the myth spread by school spending advocates — teachers are paid much more than they could earn in the private sector. While teachers are paid less than private sector workers with similar college degree attainment, the course of study for teachers is less demanding than most other fields. Fringe benefits for teachers are much higher than for private sector workers. Job security, even in the face of recent layoffs, is much greater for teachers and has a value: “Consider that one-fifth of the highest-performing public school teachers in Washington, D.C., recently declined to give up even part of their job security in exchange for base salary increases of up to $20,000.” … The authors note the study is based on averages: “Our research is in terms of averages. The best public school teachers — especially those teaching difficult subjects such as math and science — may well be underpaid compared to counterparts in the private sector.” But teachers have formed unions that ensure that all teachers are paid the same without regard to ability. See Public School Teachers Aren’t Underpaid: Our research suggests that on average — counting salaries, benefits and job security — teachers receive about 52% more than they could in private business. … Naturally, the best way to set teacher salaries is through voluntary exchange in markets. That doesn’t happen with public school teachers.

    Ranzau, Skelton to speak. This week’s meeting (November 11th) of the Wichita Pachyderm Club features Sedgwick County Commission Members Richard Ranzau and Jim Skelton, speaking on “What its like to be a new member of the Sedgwick County Board of County commissioners?” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers: On November 18th: Delores Craig-Moreland, Ph.D., Wichita State University, speaking on “Systemic reasons why our country has one of the highest jail and prison incarceration rates in the world? Are all criminals created equal?” … On November 25th there will be no meeting.

    Making economics come alive. On Monday November 14th Americans for Prosperity Foundation will show the video “Making Economics Come Alive” with John Stossel. Topics included in this presentation are Economics of Property Rights, Private Ownership and Conservation, Property Rights and the Status of Native Americans, Atlas Shrugged: Selfishness and the Economics of Exchange, Economics and the Military Draft, Regulation and Unintended Consequences, Regulation: Louisiana Florist, The Unintended Consequences of the Ethanol Subsidies, The Unintended Consequences of Minimum Wage Laws, Public Choice Economics and Crony Capitalism, Trade Restrictions and Crony Capitalism, Stimulus Spending and Crony Capitalism, and Political Versus Market Choices. This free event is from 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. 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.

    Economics in two minutes. In two minutes, Art Carden explains the important ideas of economics in Economics on One Foot: “Individuals strive to achieve their goals in the best ways possible, every action has a cost, incentives matter, value is determined on the margin, profits and losses help gauge value creation and destruction, and government interventions often have unintended and undesirable consequences.” … This video is from LearnLiberty.org, a project of Institute for Humane Studies, and many other informative videos are available.

  • Kansas and Wichita quick takes: Thursday November 3, 2011

    Energy bill to be introduced today. According to a press release, U.S. Representative Mike Pompeo of Wichita will introduce the “Energy Freedom and Economic Prosperity Act.” This bill would eliminate all tax credits related to energy production. For more, see Pompeo to introduce ‘Energy Freedom and Economic Prosperity Act.’

    Crony capitalism disputed. At yesterday’s meeting of the Sedgwick County Commission, chair Dave Unruh objected to my use of the term “crony capitalism” on the basis of the term having a pejorative connotation. A dictionary definition of “crony” is a “close friend especially of long standing.” Applied to government, the implication is that jobs or favoritism is given based on friendship or patronage. But when talking about capitalism, the term “crony capitalism” the definition is “Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay.” This is the description given by Charles G. Koch in his Wall Street Journal piece Why Koch Industries Is Speaking Out: Crony capitalism and bloated government prevent entrepreneurs from producing the products and services that make people’s lives better. It precisely describes what happened when the county granted a forgivable loan to Johnson Controls. More about this issue is available here.

    Kansans For No Income Tax. The new group Kansans for No Income Tax is, according to its website, “a nonprofit working to educate Kansas taxpayers about the benefits of eliminating the state income tax.” The problem, as the group sees it: “Kansas has the 19th highest state and local tax burden in the country and our economic outlook is ranked 37th in the nation. With this economic environment, it is no surprise that Kansas continues to lose businesses, revenue and its citizens. We cannot continue down the path of reckless spending and policy that includes one year fixes to get us by. We must instead focus on a long-term path to prosperity for our state. This path includes the regulation of our tax base with less volatile taxes paired with a more business friendly regulation environment.” … The groups is conducting a bus trip across Kansas this Friday and Saturday. More information, including locations and times, is in this press release.

    Misguided efforts to improve capitalism. From Eamonn Butler: Ludwig von Mises — A Primer on how efforts by government to intervene in markets fail: Indeed, our efforts to manipulate the market economy, and make it conform to a particular vision, are invariably damaging. Capitalism is superbly good at boosting the general standard of living by encouraging people to specialise and build up the capital goods that raise the productivity of human effort. But when we tax or regulate this system, and make it less worthwhile to invest in and own capital goods, then capitalism can falter. But that is not a “crisis of capitalism,” explains Mises. It is a crisis of interventionism: a failure of policies that are intended to “improve” capitalism but in fact strangle it. One common political ideal, for example, is “economic democracy” — the idea that everyone should count in the production and allocation of economic goods, not just a few capitalist producers. But according to Mises, we already have economic democracy. In competitive markets, producers are necessarily ruled by the wishes of consumers. Unless they satisfy the demands of consumers, they will lose trade and go out of business. If we interfere in this popular choice, we will end up satisfying only the agenda of some particular political group. A more modest notion is that producers’ profits should be taxed so that they can be distributed more widely throughout the population. But while this shares out the rewards of success, says Mises, it leaves business burdened with the whole cost of failure. That is an imbalance that can only depress people’s willingness to take business risks and must thereby depress economic life itself.

    Markets: exploitation or empowerment? Do markets lead to a centralization of political and economic power, or do markets decentralize and disseminate wealth? In an eight-minute video from LearnLiberty.org, a project of Institute for Humane Studies, Antony Davies presents evidence and concludes that markets and free trade empower individuals rather than exploit them.

  • The use of regulation by business, contrary to markets

    There are many examples of how the conventional wisdom regarding regulation is wrong: 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 busy crafting regulations to protect the common man from the evils of big business. As it turns out, both Democrats and Republicans love creating regulations, and big business loves these regulations.

    For example, in 2005 Walmart came out in favor of raising the national minimum wage. The company’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. Many, particularly liberals, 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.

    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.