Voice For Liberty

Tag: Capitalism

  • Johnson Controls loan not needed

    Tomorrow the Sedgwick County Commission will consider making a forgivable loan in the amount of $42,500 to Johnson Controls.

    A forgivable loan means that the county immediately pays the loan principle to the company. Then, if performance goals are met over the next five years in this case, the county forgives a portion of the loan each year. At the end of five years the company will owe the county nothing, if the criteria are met.

    Economically, the forgivable loan is equivalent to a grant of money subject to meeting performance criteria. In this case, the criteria consists of maintaining a certain level of employment.

    Johnson is a very large company, with 137,000 worldwide employees and a profit of $1,540,000,000. So this is not a small company, or a startup company, or a company that lacks for money, or a company that isn’t successful. Its stock has far outperformed leading market indexes over the past ten years. The City of Wichita approved a forgivable loan for the same amount.

    The harm of crony capitalism

    The harm of economic development programs like this is that when the city, county, and state make them available, companies will take advantage of them. Evidently companies find it’s easy to persuade this state and this commission to grant them money.

    At least easier than it is to raise equity, where you have to trade shares of ownership for money. Or in debt markets, where you have to pay interest and principal.

    This behavior creates a self-fulfilling feedback loop. Company A sees what Companies B, C, D, E, F (and so on …) have received from the city, county, and state, and they want it too. Soon we may find ourselves in the situation where few companies will consider Wichita and Sedgwick County without some form of handout.

    But the real harm that these programs do is the destruction of civil society. By that I mean a society that respects individuals and property rights, and where people trade harmoniously with others through markets. This includes companies attempting to raise investment capital, like the applicant company today.

    Instead, we replace a civil society and market entrepreneurship with political entrepreneurship, and with all the negatives that accompany that.

    If we in Sedgwick County are looking to distinguish ourselves, let’s start today by rejecting crony capitalism as our economic development tool.

    The proposal document

    The proposal document delivered to Johnson Controls by the Kansas Department of Commerce was written by a business consultant in Hoffman Estates, Illinois. This naturally leads to the question: can’t someone in Kansas do this work? A Department of Commerce official explained that the department has several consultants “on the ground in the markets they serve” to better work with clients in their markets. The Department believes this work can be done at lower cost and with greater flexibility this way.

    Second, the Department of Commerce document includes as part of the incentive package an item labeled “Personal Property Tax Exemption” with a value of $1,143,563. Other incentives are valued at $1,168,000, for a total of $2,311,563.

    Interestingly, when this proposal came before the Wichita City Council, the value of the state incentives was given as $1,168,000. In its presentation, Wichita officials didn’t include the personal property tax exemption in the value of the deal.

    There’s good reason for that. The $1,168,000 represents incentives crafted specifically for Johnson. But the personal property tax exemption is available to anyone, as the porposal document later explains. Kansas hasn’t taxed this type of property since 2006.

    So whether to include the value of this tax savings as an incentive is open to question. The Department of Commerce says that since not all states offer this tax exemption, it is an advantage that Kansas can offer. It’s the type of advantage that Kansas ought to create more of, as it is something that applies equally to all companies, not just to those who apply and fit into state-developed criteria. This represents the state acting as a caretaker of a level competitive playing field, rather than as an active investor in specific companies. (The other incentives, the $1,168,000 is the state acting as active investor.)

    What is most troubling about this forgivable loan and the state incentive package is that it isn’t necessary in this case. Commissioner Richard Ranzau participated in a tour of the Johnson facility, and he says that company officials said the jobs were coming to Wichita no matter what, in Ranzau’s assessment.

    And in response to a question by Commissioner and Chair Dave Unruh as to where else the jobs could go, Ranzau reported the answer was that Wichita is the only place that made sense.

    So the obvious question is: Why are we spending money on these subsidies when the company already has planned to move the equipment and jobs to Wichita?

    Conflict of interest

    Another issue involving the proposed forgivable loan to Johnson is the fact that, according to Ranzau, Commissioner Jim Skelton’s brother works for Johnson.

    Under Kansas law, this fact alone does not establish a conflict of interest. Sedgwick County, apparently, does not have a code of ethics that covers situations like this.

    CityEthics.org has a model ethics code that cities and counties might adopt. It states: “An official or employee may not use his or her official position or office, or take or fail to take any action, or influence others to take or fail to take any action, in a manner which he or she knows, or has reason to believe, may result in a personal or financial benefit, not shared with a substantial segment of the city’s population, for any of the following persons or entities …”

    The code goes on to define sibling as a member of the class of persons to which this code applies.

    If the county had a code of ethics like this, Commissioner Skelton would not be able to participate or vote on this matter. So while Kansas law does not require Skelton to step aside for this item, he certainly could do so on his own initiative, and he should.

  • Kansas and Wichita quick takes: Monday October 31, 2011

    Wichita City Council. The Wichita City Council this week considers two items of interest. Spirit AeroSystems will ask for $15 million in IRBs. Spirit will purchase the bonds itself. It will receive a property tax exemption for ten years and exemption from sales tax. No dollar amount is given for the value of the exemptions. … Then, Southfork Investment LLC, a group headed by Jay Maxwell, is asking for the formation of a new tax increment financing (TIF) district. This item, if the council approves, will set December 6 as the date for a public hearing. The vote to form the district would be taken then. … According to city documents, the project is near 47th Street South and I-135. It is planned for 50 acres and one million square feet of retail, hotel, restaurants and office space. For comparison, Towne East Square has slightly less than 1.2 million square feet of space. There will be a medical park on an additional 22 acres. … It appears that all the TIF financing will be pay-as-you go, which is a recent revision to the Kansas TIF law. No bonds would be sold. Instead, the increment in property tax would be refunded to the developer as it is paid. There’s also a joining of TIF and special assessments, where TIF revenue will be used to pay special assessment taxes. … Only a simply majority vote is needed to form the TIF district after the December 6 public hearing. There will have to be redevelopment plans approved after that, and those require a two-thirds majority. Sedgwick County and USD 259, the Wichita public school district each may pass ordinances objecting to the formation of the district. Sedgwick County did that regarding the Save-A-Lot TIF last year, and that project went ahead, despite the claims of the developer that TIF was necessary. USD 259 Superintendent John Allison has recently stated that the school district would not be participating in the formation of TIF districts in the future, as they lose revenue. This will be the first test of that. In 2008 John Todd and I testified that the district should not agree to the formation of a TIF district because of the lost revenue. Officials assured us that the Kansas school finance formula held them harmless, and it didn’t matter if a TIF district was formed. … There will also be a community improvement district (CID) with an additional sales tax of one cent per dollar. … As always, the agenda packet is available at Wichita city council agendas.

    Crony capitalism. The Occupy Wall Street protests, as well as the group that protested against Koch Industries on Saturday, seem to be opposed to capitalism. Their efforts would be better directed against business specifically, or crony capitalism in particular. There’s a huge difference. Capitalism is a system of absolute respect for property rights and free exchange in free markets. As Tom G. Palmer wrote in his introduction to the recently-published book The Morality of Capitalism, “Indeed, capitalism rests on a rejection of the ethics of loot and grab.” … As for free markets and enterprise Milton Friedman explained that business is not always in favor: “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 generally 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.” Even one liberal New York Times columnist realizes this, as did Nicholas D. Kristof when he recently wrote “But, in recent years, some financiers have chosen to live in a government-backed featherbed. Their platform seems to be socialism for tycoons and capitalism for the rest of us. They’re not evil at all. But when the system allows you more than your fair share, it’s human to grab. That’s what explains featherbedding by both unions and tycoons, and both are impediments to a well-functioning market economy.” Kristof goes on to explain that capitalism means the freedom to fail as well as succeed: “Capitalism is so successful an economic system partly because of an internal discipline that allows for loss and even bankruptcy. It’s the possibility of failure that creates the opportunity for triumph. Yet many of America’s major banks are too big to fail, so they can privatize profits while socializing risk.” … While most want more regulation on Wall Street and banks, I think that it’s impossible for government to write effective regulations. Instead, markets — if allowed to work — provide the most effective regulation: if you fail, you fail. It’s as simple as that. But George W. Bush gave a bailout, and Barack Obama has followed along. The Dodd-Frank banking regulations, for example, make “too big to fail” an explicit policy.

    Kansas pensions. Do we know the true magnitude of Kansas’ unfunded pension problem? Do we want to know? Perhaps not, writes Paul Soutar at Kansas Watchdog: “Even though taxpayers in the rest of America eventually may find out what public pensions really cost them, Kansas school accounting practices and the way school retirement is funded may let school districts avoid reporting the true cost of district employee pensions. Some estimates show the unfunded actuarial liability of the Kansas Public Employees Retirement System will more than double from its current official $8.3 billion based on optimistic assumptions to more than $20 billion using the more realistic calculations.” The full story is School Districts May Get to Dodge Accounting Rules on Pensions . … State Budget Solutions, in a recent report (Report reveals aggregate state debt exceeds $4 trillion) made similar findings, writing that our unfunded pension liability is $21.8 billion, well over twice as high as the numbers used by most official sources. The difference: “The AEI figures estimate how large public pension liabilities would be if states used private sector market-valuation methods.” In other words, the real world.

    Global economics to be discussed in Wichita. This week’s meeting (November 4th) of the Wichita Pachyderm Club features Chris Spencer, Vice President, Regional Sales Manager Oppenheimer Funds, speaking on “Goliath vs Goliath — The global battle of economic superpowers.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club Upcoming speakers: On November 11th: 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?” … 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.

    Progress, or not. Today’s Wichita Eagle carries a letter that laments the jobs lost due to self-serve checkout lanes, online bill payment, online banking, and online reservation services. Concluding, the letter asks readers to “consider how many jobs could be saved if all of us stopped demanding immediate service or answers.” This reminded me of a recent column by Donald J. Boudreaux, commenting on similar remarks by U.S. Rep. Barbara Lee (D-CA). He wrote: “Fred Barnes reports in the Weekly Standard that you refuse to use computerized checkout lanes at supermarkets (“Boneheaded Economics,” Oct. 24). As you — who are described on your website as ‘progressive’ — explain, ‘I refuse to do that. I know that’s a job or two or three that’s gone.’ Overlooking the fact that you overlook the lower prices on groceries made possible by this labor-saving technology, I’ve some questions for you: Do you also avoid using computerized (‘automatic’) elevators, riding only in those few that still use manual elevator operators? Do you steer clear of newer automobiles equipped with technologies that enable them to go for 100,000 miles before needing a tune-up? I’m sure I can find for you, say, a 1972 Chevy Vega that will oblige you to employ countless mechanics. Do you shun tubeless steel-belted radial tires on your car — you know, the kind that go flat far less often than do old-fashioned tires? No telling how many tire-repairing jobs have been destroyed by modern technology-infused tires. Do you and your family refuse flu shots in order to increase your chances of requiring the services of nurses and M.D.s — and, if the economy gets lucky and you and yours get seriously ill, also of hospital orderlies and administrators? Someone as aware as you are of the full ramifications of your consumption choices surely takes account of the ill effects that flu shots have on the jobs of health-care providers. You must, indeed, be distressed as you observe the appalling amount of labor-saving technologies in use throughout our economy. It is, alas, a disturbing trend that has been around for quite some time — since, really, the invention of the spear which destroyed the jobs of some hunters.”

    Business and politics. We often hear that government should be run like a business. But the two institutions are entirely different, explains Burton Folsom: “The differences between business and politics, however, is where our focus needs to be. In business, you hire people with your profits to make and sell your product. With those jobs, your employees earn money, spend money, and thereby create other jobs by their demand for houses, cars, iPhones, and household products. Wealth expands, new entrepreneurs get new ideas for products to make, and, if society is free, it becomes prosperous. In politics, you do hire people to run your campaigns and your administration once you’re in office; you do sometimes dole out jobs to build highways, snoop on business, or run the IRS. But almost all of those jobs require other people’s money (i.e. tax dollars) to continue. They take money out of the economy. For example, the jobs created by the Justice Department to check on the trading practices of corporations, the jobs created by the agriculture department to interact with farmers, or the thousands of jobs created to bring trillions of tax dollars each year to Washington are all jobs that take wealth out of the private sector. Looked at this way, the jobs created in business are the productive jobs, the ones that create wealth and give us the thousands of choices we enjoy in breakfast cereal, cars, clothes, and houses. By contrast, each job created in the political class subtracts a job that could be continued or created in the private sector.” … More at The Difference between Business and Politics.

  • The government-as-business myth

    As Wichita begins its implementation of the plan for the revitalization of downtown Wichita, stakeholders like to delude themselves that the plan is “market-driven,” that the city will make prudent use of public “investment,” and that the plan’s supporters really do believe in free markets after all. It’s a business-like approach, they say.

    But government is not business. The two institutions are entirely different. Government cannot act as a business does — the incentives and motivations are wrong. Furthermore, as Ludwig von Mises taught us, government can’t calculate profit and loss, the essential measure that lets us know if a business is making efficient use of resources. Thomas DiLorenzo elaborated, writing: “There is no such thing as real accounting in government, of course, since there are no profit-and-loss statements, only budgets. Consequently, there is no way of ever knowing, in an accounting sense, whether government is adding value or destroying it.”

    This lack of accounting for value lets politicians run government for the benefit of, well, politicians. John Steele Gordon explains in the Wall Street Journal: “Governments are run by politicians, not businessmen. Politicians can only make political decisions, not economic ones. They are, after all, first and foremost in the re-election business. Because of the need to be re-elected, politicians are always likely to have a short-term bias. What looks good right now is more important to politicians than long-term consequences even when those consequences can be easily foreseen.”

    Not looking beyond what is immediate is an example of one-stage thinking that is prominent in government, as seen in Wichita economic development: And then what will happen?

    But some refuse to accept the distinction between the two, insisting that just because an organization — say the Wichita Downtown Development Corporation — is entirely supported (except for a little private fundraising) by taxpayer funds, it’s not the same as a government institution.

    The City of Wichita suffers from all the problems cited in this excerpt from Central Planning Comes to Main Street by Steven Greenhut, which appeared in the August 2006 issue of The Freeman: Ideas on Liberty. As our city moves away from development based on markets to development based on government planning, and as Wichita moves away from a dynamic free market approach to economic development towards political and bureaucratic management of our destiny, we can expect these problems to become more ingrained.

    Problems with Incentives

    By Steven Greenhut

    Most city managers and economic-development officials that I’ve talked to fancy themselves as CEOs of companies, and they argue that what they are doing is no different from what private companies do: maximizing revenues. “Why wouldn’t a libertarian support what we’re doing given that you value private business and understand the importance of profit?” I’ve often been asked.

    The answer is simple. Cities are not businesses. They take the tax dollars of residents and make decisions about land use that are backed by police powers. They do not operate in a market; they do not have voluntary stockholders. Despite the delusions of city managers, the city staff usually is not as sophisticated or as skilled as corporate staff, which means cities often get a poor deal when negotiating with rent-seeking corporations.

    When cities insert themselves into the economic development game, either with carrots or sticks, they:

    • Shift decision-making from individuals to governments;
    • Take money from taxpayers and redistribute it to individuals and companies;
    • Undermine property rights and other freedoms;
    • Encourage a class of rent-seekers, who learn to lobby city officials for favors and special financial benefits;
    • Put unfavored businesses at a competitive disadvantage with those who are favored; and
    • Stifle political dissent, as companies that are dependent on the city for lucrative work become reluctant to speak their minds about any number of city issues.

    Despite what city managers will tell you, the choice is not between economic development and letting a city rot. The choice is between central planning, empowering officials to decide which businesses are worthy of their help, and the good old free market, which lets free people decide which business should succeed or fail.

    City officials like to be “proactive,” as they say, and help with economic development. There is something they can do. They can get out of the way, by lowering tax rates, deregulating, ending zoning restrictions, and eliminating exclusive contracts with utilities and developers. It’s not out of the question. The city of Anaheim is doing just that, with remarkable results.

    Mackinac’s LaFaive puts it well in a 2003 article: “The best business climate is one in which government ‘sticks to its knitting’ and does its particular assignments well, at the lowest possible cost while creating a ‘fair field with no favors’ environment for private enterprise.”

    Not a bad template. Sure beats a world of central planning, where city officials can choose who gets handouts and even who gets driven out of town.

  • At Wichita City Council, a big company asks for a forgivable loan

    Notes for remarks delivered to the Wichita City Council, October 18, 2011. Johnson Controls asked the city for a forgivable loan.

    Mayor, members of the council,

    I can understand the city’s desire to help out homegrown companies that might be struggling to get a foothold in business. I don’t think it’s wise to do so, but I can understand how people might think it is.

    But Johnson Controls doesn’t fall into this category.

    In Wichita, the labor force is 191,760. Johnson’s 137,000 worldwide employees amount to 71 percent of this figure.

    Johnson’s profit of $1,540,000,000 is 2.8 times the city’s all funds budget of $549,313,783, or 7.1 times the city’s general fund budget of $217,912,874

    So this is not a small company, or a startup company, or a company that lacks for money, or a company that isn’t successful. Its stock has far outperformed leading market indexes over the past ten years.

    The State of Kansas is contributing $1,168,000 through various programs. This is not in the form of loans that need to be repaid. It is in the form of grants, forgiveness from paying the taxes that most others have to pay, and by expenditures through the tax system.

    I remind this council that the cost-benefit calculations performed by the Wichita State University Center for Economic Development and Business Research are not of the same type that a business makes, or that people make in their personal lives. There are not legitimate business investments that have a return of five-fold over any reasonable period of time, at least not without accepting huge risks.

    Instead, the “benefit” that goes into this equation is in the form of future anticipated tax revenues. It simply recognizes that economic activity is good, and since government taxes based on economic activity, its tax revenues go up. This happens whether or not government claims responsibility for creating the economic activity.

    The harm of programs like this is that when the city, county, and state make these programs available, companies will take advantage of them. Evidently companies find it’s easy to persuade this state and this council to grant them money.

    At least easier than it is to raise equity, where you have to trade shares of ownership for money. Or in debt markets, where you have to pay interest and principal.

    This behavior creates a self-fulfilling feedback loop. Company A sees what Companies B, C, D, E, F (and so on …) have received from the city, county, and state, and they want it too. Soon we may find ourselves in the situation where few companies will consider Wichita without some form of handout.

    But the real harm that these programs do is the destruction of civil society. By that I mean a society that respects individuals and property rights, and where people trade harmoniously with others through markets. This includes companies attempting to raise investment capital, like the applicant company today.

    Instead, we replace a civil society and market entrepreneurship with political entrepreneurship, and with all the negatives that accompany that.

    If we in Wichita are looking to distinguish ourselves, let’s start today by rejecting crony capitalism as our economic development tool.

    The forgivable loan measure passed 6 to 1, with Michael O’Donnell (district 4, south and southwest Wichita) voting against it.

  • Kansas and Wichita quick takes: Friday October 14, 2011

    Kansas school reform. Kansas Governor Sam Brownback is preparing to release a plan for reform of Kansas school finance. The reform plans, however, appear to do nothing to actually improve Kansas schools. Missing is any plan to introduce school choice to Kansas, whether in the form of charter schools, vouchers, or tax credit scholarships. While the school spending establishment says that these programs rob the existing public schools of money, the reverse is true: school choice programs cost less. An example: “Pennsylvania’s tax-credit program had saved Keystone State residents $144 million since 2001.” … It’s unfortunate for Kansas schoolchildren that the governor will not introduce these programs, as many other states are introducing or expanding choice programs.

    Occupy Wall Street vs. Jobs. Steve Jobs, that is. After contrasting the behaviors of the Occupy Wall Street protests with the business accomplishments of Apple’s Jobs and how the products Apple developed have lead to better lives, Michael D. Tanner draws a line between government and the private sector: “The Occupy Wall Street crowd, and for that matter President Obama, see government as the center of our existence. It is government that makes for a better society, while the rich, businessmen, and entrepreneurs are ‘takers’ who don’t ‘pay their fair share.’ But would we really have been better off if we had taken more of Jobs’s wealth and given it to the government? Would President Obama really have used it better than Jobs did? Would the government have given us all that Jobs did? Government has spent trillions on schools that don’t educate, anti-poverty programs that don’t lift people out of poverty, stimulus programs that don’t stimulate, and health-care programs that don’t control the cost of health care. Compare Apple or Pixar’s record of success with the failures of government. For that matter, what government jobs program has created as many net new jobs as Jobs? In fact, the next time someone suggests that what we need is more taxes, more regulation, more class warfare, more government programs, we should instead suggest that what we really need are policies that encourages a poor boy from San Francisco to become rich and thereby make the rest of us a little richer as well.” … The complete article is Occupy Wall Street vs. Jobs.

    OWS and Tea Party united? Are the Occupy Wall Street protesters and the Tea Party political allies? Maybe, or maybe not, explains Fred Smith of Competitive Enterprise Institute, writing in USA Today: “The problems we face come not from capitalism, Wall Street variety or any other, but rather from crony-capitalism. Tea Partiers distinguish capitalism from crony-capitalism. Occupiers confuse them. In fact, some Occupiers seek their own form of cronyism — an expanded government that will help the ‘right’ beneficiaries, such as students and homeowners, instead of bankers and automakers. … The economist Joseph Schumpeter, in his essay “Can Capitalism Survive?”, warned long ago that too many business leaders would seek success through politics rather than competition, and that this would destroy true capitalism. Certainly, too many in Wall Street have succumbed to that temptation, and capitalism has suffered accordingly. But it suggests that Occupiers and the Tea Partiers share at least one common enemy. The Solyndra scandal illustrates that crony-capitalists are found far beyond Wall Street. Thus, instead of focusing on one small part of Manhattan Island, shouldn’t we liberate the whole American economy?” … It should be noted that the economic development policies of Wichita are firmly rooted in crony capitalism.

  • Kansas and Wichita quick takes: Thursday October 13, 2011

    Wichita city leaders too cozy with developers? Yesterday I participated in a KAKE Television news story where I explained the need for pay-to-play laws in Wichita and Kansas. These laws generally restrict officeholders from participating in votes or activities that would enrich their campaign contributors. In the story I said “What I, and some of my political allies object to, is what is happening in plain sight: In that there is a relatively small group of people — and their spouses and people who work at their companies — who regularly contribute to a wide variety of city council members, both political liberals and political conservatives, because they know that they are going to be coming to the city council and asking for taxpayer money.” Officeholders and the developers who contribute deny there is a connection between contributions and votes. Curiously, these developers generally don’t make contributions to school board members, county commissioners, state legislators, or federal representatives. Actually, it’s not so curious: It’s primarily the Wichita City Council that is able to vote to give them money. I would say the contributors are acting rationally. … If there is no connection between contributions and votes or consideration, there should be no problem in getting the council to agree to some form of pay-to-pay law for Wichita. An example is a charter provision of the city of Santa Ana, in Orange County, California, which states: “A councilmember shall not participate in, nor use his or her official position to influence, a decision of the City Council if it is reasonably foreseeable that the decision will have a material financial effect, apart from its effect on the public generally or a significant portion thereof, on a recent major campaign contributor.” … KAKE correspondent Deb Farris reported that Wichita Mayor Carl Brewer doesn’t look at the list of campaign contributors. I wonder: does he send thank you letters to his contributors? … Video and story at Wichita City Leaders Too Cozy With Developers?

    Obama economic strategy questioned. This year’s Nobel prize in economics went to Thomas J. Sargent of New York University and Stanford University’s Hoover Institution, and Christopher A. Sims of Princeton University. In its reporting, the Wall Street Journal explained (A Nobel for Non-Keynesians: People’s expectations about government policy make it difficult for officials to affect the economy in the ways they intend to): “The Swedish economists announcing the award emphasized, correctly, the importance of Messrs. Sargent’s and Sims’s thinking about the role people’s expectations play in economic decision making and the larger economy. But what they failed to mention is that their work has also offered empirical evidence that the school of thought known as Keynesian economics — which believes that government can turn a flagging economy around with the right combination of fiscal ‘stimulus’ (generally government spending) and monetary policy — is fallible.” In further explanation, the Journal writes: “One of Mr. Sargent’s key early contributions, along with University of Minnesota economist Neil Wallace, was the idea that people’s expectations about government fiscal and monetary policy make it difficult for government officials to affect the economy in the ways they intend to. If, for example, people get used to the Federal Reserve increasing the money supply when unemployment rises, they will expect higher inflation and will adjust their wage demands higher also. The result: The lower unemployment rate that the Fed was trying to achieve with looser monetary policy won’t happen. This conclusion was at odds with the Keynesian model, which dominated economic thinking from the late 1930s to the early 1970s. The Keynesian model posited a stable trade-off between inflation and unemployment.” The 1970s however, saw stagflation — both high unemployment and high inflation at the same time, a danger that some feel will grip us in the near future. Keynesianism, of course, is the basis of the economic policy of President Barack Obama and the reason why the economy has not recovered. … While these economists worked on national economies, does the theory of rational expectations apply to state and local governments, meaning that it is very difficult for local government officials to micro-manage their economies through intervention? I think so.

    Public vs. private. One of the curious statements in Rhonda Holman’s Sunday Wichita Eagle editorial (Say ‘no’ to naysayers, October 9, 2011) was where she wrote of the “crowds increasingly assembling downtown for concerts and events.” Curious because not long ago she begrudgingly realized the cool down at the Intrust Bank Arena, writing: “Intrust Bank Arena’s strong performance during its inaugural year of 2010 couldn’t last. And it didn’t.” (Make case for arena, August 19, 2100 Wichita Eagle) I don’t know if these two editorials are at odds with each other. … I have noticed one downtown Wichita venue that seems to have a lot of concerts, that being the Orpheum Theater. That venue doesn’t suffer from government genesis and ownership as does the arena, although the arena’s management is in the hands of the private sector. As part of its restoration the Orpheum may qualify for historic preservation tax credits, a government spending program that I oppose. That subsidy, if obtained, is quite small compared to the total taxpayer funding of the arena.

    Kansas tax policy. Several news outlets have reported on how hard Kansas state officials are working on crafting a new state tax policy. That worries me. The best tax policy is one that is simple and fair to all. The more tax policy is worked on, the more likely it is to contain measures designed to manage the behavior of people and business firms. This would be a continuation of the conceit that the state can manage economic growth, and contrary to the concepts of economic dynamism for Kansas, where fertile ground is created for all companies.

    Petition drive is on. Last Friday citizen activists started the petition drive to give the people of Wichita a chance to vote on crony capitalism or free markets. See Our Downtown Wichita (motto: “Limited government and free markets in Downtown Wichita benefit everyone. Centralized planning and crony capitalism benefit only a few.”) for more information.

    Kansas education scores mixed. From Kansas Reporter: “Kansas students’ performance on reading and math proficiency improved for the 11th consecutive year, according to Kansas State Department of Education’s latest State Report Card for schools released Tuesday. Some 87.6 percent of the students tested turned in scores in the top three of five performance levels for reading and 84.7 percent achieved similar scores in math. But two other performance yardsticks show different results. Statewide Kansas test scores on ACT college entrance exams, which are averaging 22 points out of a perfect 36, have been flat for the past five years. … Most Kansas statewide reading, writing and math scores on the National Assessment of Educational Progress, or NAEP, tests have changed little since 2000, according to the U.S. Education Department, which counts the test results as the broadest national measure of how school systems compare state by state. ‘Fourth-grade math tests have improved significantly, but that’s about it,; said Arnold Goldstein, program director for the federal Education Department’s National Center for Education Statistics.” Complete story on Kansas Reporter at Kansas education scores proved mixed picture of schools’ success.

    ‘Federalists’ author to appear in Wichita. On October 25th Kansas Family Policy Council is hosting an event in Wichita featuring Joshua Charles, a recent KU graduate who has teamed up with Glenn Beck to write the book The Original Argument: The Federalists Case for the Constitution Adapted for the 21st Century. The book debuted at the top of the New York Times Bestseller List in July. … KFPC says “The event will be at Central Christian Church (2900 North Rock Road in Wichita) on Tuesday October 25th at 7:00 pm. Doors will open at 6:30 pm. This is a free event and dessert will be provided for attendees.” RSVP is requested to 316-993-3900 or contact@kansasfpc.com.

    Kansas gas wells appraisals. Some Kansas counties use different methods of gas well valuation for tax purposes, writes Paul Soutar in Kansas Watchdog: “The method used to appraise the tax value of gas wells in Stevens County is ‘not correct or appropriate’ according to a report commissioned for Stevens County and released at their latest meeting. The method is or has been used for at least nine years, possibly since the early 1990s, in nine Southwest Kansas counties covering much of the Hugoton gas field, the ninth highest producing field in the U.S. in 2010.” … The complete investigate report is at Report Says Gas Well Appraisal Method ‘Not Correct or Appropriate’.

    Lieutenant Governor in Wichita. This week’s meeting (October 14th) of the Wichita Pachyderm Club features Lieutenant Governor Jeff Colyer, M.D. speaking on “An update on the Brownback Administration’s ‘Roadmap for Kansas’ — Medicaid Reform” … Upcoming speakers: On October 21st: N. Trip Shawver, Attorney/Mediator, on “The magic of mediation, its uses and benefits.” … On October 28th: U.S. Representative Tim Huelskamp, who is in his first term representing the Kansas first district, speaking on “Spending battles in Washington, D.C.” … On November 4th: Chris Spencer, Vice President, Regional Sales Manager Oppenheimer Funds, speaking on “Goliath vs Goliath — The global battle of economic superpowers.” … On November 11th: Sedgwick County Commission Members Richard Ranzau and James Skelton, speaking on “What its like to be a new member of the Sedgwick County Board of County commissioners?” … 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?”

    Urban renewal. “The goal was to replace chaotic old neighborhoods with planned communities.” Planned by government, that is, with all the negatives that accompany. The fascinating video from Reason.tv is titled The Tragedy of Urban Renewal: The destruction and survival of a New York City neighborhood. Its introduction reads: “In 1949, President Harry Truman signed the Housing Act, which gave federal, state, and local governments unprecedented power to shape residential life. One of the Housing Act’s main initiatives — “urban renewal” — destroyed about 2,000 communities in the 1950s and ’60s and forced more than 300,000 families from their homes. Overall, about half of urban renewal’s victims were black, a reality that led to James Baldwin’s famous quip that “urban renewal means Negro removal. … The city sold the land for a token sum to a group of well-connected Democratic pols to build a middle-class housing development. Then came the often repeated bulldoze-and-abandon phenomenon: With little financial skin in the game, the developers let the demolished land sit vacant for years.”

  • Intellectuals against the people and their freedoms

    At a recent educational meeting I attended, someone asked the question: Why doesn’t everyone believe what we (most of the people attending) believe: that private property and free exchange — capitalism, in other words — are superior to government intervention and control over the economy?

    It’s question that I’ve asked at conferences I’ve attended. The most hopeful answer is ignorance. While that may seem a harsh word to use, ignorance is simply a “state of being uninformed.” That can be cured by education. This is the reason for this website. This is the reason why I and others testify in favor of free markets and against government intervention. It is the reason why John Todd gives out hundreds of copies of I, Pencil, purchased at his own expense.

    But there is another explanation, and one that is less hopeful. There is an intellectual class in our society that benefits mightily from government. This class also believes that their cause is moral, that they are anointed, as Thomas Sowell explains in The vision of the anointed: self-congratulation as a basis for social policy: “What all these highly disparate crusades have in common is their moral exaltation of the anointed above others, who are to have their very different views nullified and superseded by the views of the anointed, imposed via the power of government.”

    Murray N. Rothbard explains further the role of the intellectual class in the first chapter of For a New Liberty: The Libertarian Manifesto, titled “The Libertarian Heritage: The American Revolution and Classical Liberalism.” Since most intellectuals favor government over a market economy and work towards that end, what do the intellectuals get? “In exchange for spreading this message to the public, the new breed of intellectuals was rewarded with jobs and prestige as apologists for the New Order and as planners and regulators of the newly cartelized economy and society.”

    Planners and regulators. We have plenty of these at all levels of government, and these are prime examples of the intellectual class.

    As Rothbard explains, these intellectuals have cleverly altered the very meaning of words to suit their needs:

    One of the ways that the new statist intellectuals did their work was to change the meaning of old labels, and therefore to manipulate in the minds of the public the emotional connotations attached to such labels. For example, the laissez-faire libertarians had long been known as “liberals,” and the purest and most militant of them as “radicals”; they had also been known as “progressives” because they were the ones in tune with industrial progress, the spread of liberty, and the rise in living standards of consumers. The new breed of statist academics and intellectuals appropriated to themselves the words “liberal” and “progressive,” and successfully managed to tar their laissez- faire opponents with the charge of being old-fashioned, “Neanderthal,” and “reactionary.” Even the name “conservative” was pinned on the classical liberals. And, as we have seen, the new statists were able to appropriate the concept of “reason” as well.

    We see this at work in Wichita, where those who advocate for capitalism and free markets instead of government intervention are called CAVE people, an acronym for Citizens Against Virtually Everything. Or, in the case of Wichita Mayor Carl Brewer and Wichita Eagle editorial writer Rhonda Holman, “naysayers.”

    The sad realization is that as government has extended its reach into so many areas of our lives, to advocate for liberty instead of government intervention is to oppose many things that people have accepted as commonplace or inevitable.

    Rothbard further explains the role of intellectuals in promoting what they see as the goodness of expansive government:

    Throughout the ages, the emperor has had a series of pseudo-clothes provided for him by the nation’s intellectual caste. In past centuries, the intellectuals informed the public that the State or its rulers were divine, or at least clothed in divine authority, and therefore what might look to the naive and untutored eye as despotism, mass murder, and theft on a grand scale was only the divine working its benign and mysterious ways in the body politic. In recent decades, as the divine sanction has worn a bit threadbare, the emperor’s “court intellectuals” have spun ever more sophisticated apologia: informing the public that what the government does is for the “common good” and the “public welfare,” that the process of taxation-and-spending works through the mysterious process of the “multiplier” to keep the economy on an even keel, and that, in any case, a wide variety of governmental “services” could not possibly be performed by citizens acting voluntarily on the market or in society. All of this the libertarian denies: he sees the various apologia as fraudulent means of obtaining public support for the State’s rule, and he insists that whatever services the government actually performs could be supplied far more efficiently and far more morally by private and cooperative enterprise.

    The libertarian therefore considers one of his prime educational tasks is to spread the demystification and desanctification of the State among its hapless subjects. His task is to demonstrate repeatedly and in depth that not only the emperor but even the “democratic” State has no clothes; that all governments subsist by exploitive rule over the public; and that such rule is the reverse of objective necessity. He strives to show that the very existence of taxation and the State necessarily sets up a class division between the exploiting rulers and the exploited ruled. He seeks to show that the task of the court intellectuals who have always supported the State has ever been to weave mystification in order to induce the public to accept State rule, and that these intellectuals obtain, in return, a share in the power and pelf extracted by the rulers from their deluded subjects.

    And so the alliance between state and intellectual is formed. The intellectuals are usually rewarded quite handsomely by the state for their subservience, writes Rothbard:

    The alliance is based on a quid pro quo: on the one hand, the intellectuals spread among the masses the idea that the State and its rulers are wise, good, sometimes divine, and at the very least inevitable and better than any conceivable alternatives. In return for this panoply of ideology, the State incorporates the intellectuals as part of the ruling elite, granting them power, status, prestige, and material security. Furthermore, intellectuals are needed to staff the bureaucracy and to “plan” the economy and society.

    The “material security,” measured in dollars, can be pretty good, as shown by these examples: The Wichita city manager is paid $185,000, the Sedgwick county manager is paid $175,095, and the superintendent of the Wichita school district is paid $224,910.

  • The Wichita Eagle on naysayers: a disservice to Wichita

    Yesterday’s op-ed by Rhonda Holman in The Wichita Eagle reveals a crucial need for a newspaper with at least one conservative voice on its editorial board (Say ‘no’ to naysayers, October 9, 2011). Here are a few ways in which Holman and her newspaper’s editorial section are wrong about downtown Wichita development and a few other issues, and how the op-ed is a disservice to the people of Wichita:

    The real world, according to Holman

    While Holman cites the “real world” as the need to pour massive subsidy into downtown Wichita, I might ask this question: Why is downtown Wichita such an unattractive investment that lavish subsidy must be heaped upon those who invest there?

    Actually, the broader question needs to be asked, as the city often subsidizes development all over town. An example is the new Cabela’s store, an example of “greenfield” development that supposedly sucks away all the money from downtown, and which the elitists despise. In that case the city lent its taxing authority to Cabela’s to be used for its own purposes. A more direct example was when the city granted, through a forgivable loan, $48,000 to The Golf Warehouse, located in a suburban office park.

    So what is it about Wichita? Won’t anyone invest in Wichita without subsidy?

    It turns out, fortunately, that many do.

    In the “real world,” there’s a lot of development going on. It just isn’t always taking place where Holman and other elites think it should be taking place.

    Interestingly, when the elites advocate for public funding of their goals, their own actions often belie their true preferences. For example, a lot of development in Wichita is taking place near Holman’s suburban home. Many other supporters of subsidized downtown development don’t live anywhere near downtown — or even in Wichita, in at least two examples.

    Why this building?

    There’s much more in Holman’s article that deserves discussion. For example, Holman writes: “The Union National Bank building is a prime example: If it could be developed without the use of public tools, it wouldn’t still be empty after 12 years.” Underlying this statement is the assumption that this property should be developed. I don’t know where she and the supporters of subsidized downtown development get these ideas. What is it about this property that gives it priority over other properties in the city or downtown?

    If Holman makes the case that this small piece of land deserves massive public spending to support its development, can’t the same argument be made for every other vacant building or empty plot of land in downtown Wichita? We can anticipate that it will be.

    Scrutiny, by cheerleaders only

    Holman praises the scrutiny that the project has undergone, writing that the project has been “vetted by a public-private evaluation team.” By my reckoning, the committee that performs this function doesn’t have a single member who is skeptical of subsidies for downtown development. Can’t these people tolerate even one person who might voice dissent?

    Further, that committee decided to approve the project despite the involvement of David Burk of Marketplace Properties. Holman’s own newspaper reported this last year: “Downtown Wichita’s leading developer, David Burk, represented himself as an agent of the city — without the city’s knowledge or consent — to cut his taxes on publicly owned property he leases in the Old Town Cinema Plaza, according to court records and the city attorney. … Officials in the city legal department said that while Burk was within his rights to appeal taxes on another city-supported building in the Cinema Plaza, he did not have authorization to file an appeal on the city-owned parking/retail space he leases. … As for Burk signing documents as the city’s representative, ‘I do have a problem with it,’ said City Attorney Gary Rebenstorf, adding that he intends to investigate further.”

    The development agreement for the current project contains restrictions on the type of behavior that Burk has exhibited in the past. Call it the “Burk clause.”

    Election as referendum?

    Holman claims that the recent spring city elections were a referendum on downtown, and that subsidized downtown development won. (Here again Holman doesn’t make a distinction between “development” and “subsidized development.”)

    But elections are a decidedly poor way to make these decisions. For one thing, policy regarding subsidized downtown development is just one issue that candidates ran on. Voters have to vote for the entire package. They can’t pick and choose among issues, and it’s a reason why we need to leave more economic activity in the realm of markets — where people can pick and choose what they want — rather than turning it over to politics.

    Then, there’s the low turnout for these elections. In the past, Holman described the turnout for the spring primary as “depressingly low.” But now — since the results largely fit her ideology — she describes the election is a “referendum.”

    Then, there’s this: A recent Rasmussen poll carried the headline: “Just 6% Think Most Politicians Keep Their Campaign Promises.” Elaborating, the pollster explained: “Voters remain overwhelmingly convinced that most politicians won’t keep their campaign promises, but they’re a little less convinced that their elected officials deliberately lie.”

    As shown in my reporting of one of the first times two new city council members faced a test, they didn’t fare well at all (Wichita forgivable loan action raises and illustrates issues):

    Politically, Wichitans learned today the value of promises or statements made by most candidates while campaigning. Most candidates’ promises along with $3.75 will get you a small cappuccino at Starbucks — if you don’t ask for whipped cream.

    Particularly interesting is the inability of politicians to admit they were wrong, or that they made a mistake, or that they were simply uninformed or misinformed when they made a campaign promise or statement. … City council members Clendenin and Meitzner could not bring themselves to admit that their votes today were at odds with their statements made while campaigning. This lack of honesty is one of the reasons that citizens tune out politics, why they have such a cynical attitude towards politicians, and perhaps why voter turnout in city elections is so low.

    As one young Wichitan said on her Facebook page after sharing video of the three new council members today, obviously referring to city council district 2’s Pete Meitzner: “How to use your mouth: 1. Campaign under the guise that you are a fiscal conservative. 2. Insert foot.

    Finally, there are the out-sized campaign contributions made by those who ask the city council for money. See Wichita City Council campaign contributions and Douglas Place for details on the campaign contributions made by these developers.

    One more thing: If Holman is advocating using the results of elections as a measure of city sentiment, why oppose this election, where the ballot question addresses one issue, and there can be no confusion as to what the voters mean?

    The naysayers

    Holman, as do many downtown supporters, falsely frames the issue. She writes: “To oppose the Ambassador project is, in effect, to oppose downtown redevelopment.” She uses, as does Mayor Carl Brewer, the term “naysayer.” They don’t mean it as a compliment.

    What I — and the people I ally myself with — oppose is subsidized development. We oppose this whether it is downtown, suburban, or elsewhere. As it turns out, we can’t even have an honest assessment of the level of public involvement in the current project under consideration. While the City of Wichita employs a very narrow definition of public involvement, a more realistic look shows that the hotel benefits from $15,470,000 in public money to get started, and then $321,499 per year for the first five years, with smaller amounts for 22 years.

    Saying no to government intervention doesn’t mean saying no to progress. It does mean saying “no” to the self-serving plans of politicians and bureaucrats and the crony capitalists who seek to profit from political entrepreneurship.

    It means saying “no” to Wichita’s political entrepreneurs, who seek to earn profits through government coercion rather than meeting the needs of customers in the marketplace. It means saying “no” to the public-private partnership, where all too often it is the risk that is public and the profit that is private.

    So yes, I guess I and Wichita’s other naysayers are saying “no” to a lot of things.

    But what we’re saying “yes” to is liberty and freedom. We’re saying “yes” to a civil society that respects the rich diversity of human individuality instead of government planning and bureaucracy. We’re saying “yes” to free people cooperating voluntarily through free markets rather than forced government transfers from taxpayers to politically-favored individuals and programs.

    We’re saying “yes” to consumers choosing which businesses in Wichita thrive, rather than politicians on the city council — and their elitist sycophants — choosing. We’re saying “yes” to people making their own choices, rather than government “incentivizing” the behavior it desires through TIF districts and tax abatements, those incentives being paid for by taxpayers.

  • Kansas and its own Solyndra

    At this moment, we can’t say that Kansas has its own version of Solyndra, the subsidized and politically-connected solar energy firm that recently shut down its operations and declared bankruptcy. But as far as absorbing the important lessons from Solyndra, we may have another chance to learn them in Kansas.

    Solyndra is a failure in several ways. Much money was lost. It may be that corrupt or criminal activity was involved; we don’t know that yet. It appears that Solyndra will be a useful political scandal for Republicans to exploit, especially in the upcoming election campaign against the president. We can be sure that Republicans will keep us informed on this.

    But the largest and most important lesson from Solyndra is one that many politicians — Democrats and Republicans both — don’t want to recognize: Government intervention in the economy is wrong for the health of the country.

    The problem is that when government intervenes in the economy, it almost always gets it wrong. It’s not that Obama and other politicians aren’t smart. It’s the problems inherent in government interventionism: There will be both routine and spectacular examples of waste, as people — politicians and bureaucrats, especially — are not spending their own money. Decisions will be made to benefit the well-connected and for political, not market-based reasons. Cronyism and corruption flourish, as many will find it easier to compete in the marketplace for politicians rather than in the free market where fickle consumers rule with their fleeting tastes and preferences.

    But politicians and bureaucrats love to intervene. For bureaucrats, intervention — government programs, that is — provides jobs, and well-paid jobs, too. Since much government intervention in the economy is in the form of subsidies, it allows politicians to dispense other peoples’ money and take credit for having “created” jobs or having built a bridge, probably to be named for them later on.

    Other government intervention is in the form of creating unneeded regulations or tax loopholes that favor politicians’ friends or harm their competition.

    All of this means that economic activity is directed according to political, not economic, considerations. It’s wasteful. It’s harmful. It diminishes market-based investment, that is, investment made according to what people really want and need. It reduces the freedom, liberty, and prosperity of everyone.

    Back to Kansas: Last week the Department of Energy announced the award of a $132.4 million loan guarantee to Abengoa Bioenergy Biomass of Kansas, LLC. This is the same federal agency and the same loan guarantee program involved in the Solyndra matter. The difference is that it’s an even newer so-called green energy technology involved: cellulosic ethanol production.

    The plant in Kansas is to be at Hugoton, in southwest Kansas. The press release from DOE promotes the number of jobs that will be created.

    Cellulosic ethanol is produced from plant material that is usually considered waste, such as corn stalks or wheat straw. That’s different from the usual input to ethanol production in America, which is corn that would otherwise be used as animal or human food. Because of this, cellulosic ethanol is thought of by many as the “silver bullet” that will dramatically improve the path of America’s energy future. That may be the case, or it may not be. Because of the reasons listed above, government is particularly unsuited to make that decision and to participate in the scientific and entrepreneurial experimentation that will produce the answer.

    At one time President George W. Bush praised the potential of this fuel. A Reuters analysis from July opens with: “The great promise of a car fuel made from cheap, clean-burning prairie grass or wood chips — and not from expensive corn that feeds the world — is more mirage than reality. Despite years of research, testing and some hype, the next-generation ethanol industry is far from the commercial success envisioned by President George W. Bush in 2006, when he pledged so-called cellulosic biofuels would be ‘practical and competitive’ by 2012.”

    That hints at the problem: despite much effort, scientists haven’t been able to demonstrate cellulosic ethanol production on a commercially-successful scale. According to the Wall Street Journal, as of this summer, no commercial cellulosic ethanol has been produced.

    The loan guarantee is not the only form of government subsidy and boost ethanol producers received. There is a tax credit for each gallon produced and a tariff that protects producers from cheaper imported ethanol.

    Despite these very large measures of government intervention, cellulosic ethanol backers blame the government for lack of progress in the industry, citing the government’s failure to mandate production levels and provide assurances that the industry would receive subsidies. And the loan guarantees are not made fast enough, they add to the list of complaints. An analysis by ClimateWire that appeared in the New York Times in January had industry boosters blaming the federal Department of Energy for its slow pace in issuing loan guarantees.

    We won’t know the success or failure of the Abengoa plant in Kansas for some time, and now we taxpayers are placed in the position of hoping that it succeeds. But it has the pedigree of a government plan to correct a perceived market failure, and that’s a danger sign.

    Both Kansas Senators Pat Roberts and Jerry Moran have spoken approvingly of this plant despite the government intervention involved; Moran in a statement after the announcement, and Roberts in previous years as plans were being made. U.S. Representative Tim Huelskamp, who represents the district where the plant is located, has not commented on this plant, and offered no comment for this story.