Voice For Liberty

Tag: Economic development

  • Wichita Mayor Carl Brewer: State of the City 2011

    This week Wichita Mayor Carl Brewer delivered his annual “State of the City” address. While the Wichita Eagle editorial commenting on the mayor’s speech is titled “Cause to boast, hope,” a look at some of the important topics the mayor addressed will lead some to conclude otherwise.

    The text of the mayor’s address may be read at several places, including here.

    Economic development

    Regarding Wichita’s economic development, the mayor said that the city’s efforts saved 745 jobs and created 435 jobs, for a total impact of 1,180 jobs. To place those numbers in context, we note that American Community Survey data from the U.S. Census Bureau indicates the labor force in Wichita is 191,760 persons. This means that the economic development efforts of the City of Wichita affected a number of jobs equivalent to 0.6 percent of the city workforce.

    This small number of jobs impacted by the city’s economic development initiatives is dwarfed by other economic events. Additionally, these efforts by the city are counterproductive — if our interest is creating a dynamic economy in Wichita. Analysis by the Kauffman Foundation finds that it is new firms — young firms, in other words — that are the primary drivers of job creation. But the economic development policies of cities like Wichita are definitely biased toward older, established firms. The cost of these economic development efforts, which are paid for by everyone including young businesses firms struggling to grow, means that we prop up unproductive companies at the expense of the type of firms we need to really grow the Wichita economy.

    In particular, the mayor’s proudest achievement — he nearly burst with pride when speaking of it — pours a large amount of state, county, and city funds into Hawker Beechcraft, an old-line company that is shrinking its employment in Kansas. This deal with Hawker Beechcraft should not be viewed as a proud moment for Wichita and Kansas. Instead, we should view this as succumbing to economic blackmail by Hawker, based on a threat that may not have been genuine. We responded by making in investment in an old-line, shrinking company, apparently the first time that the state has invested public funds in a downsizing company.

    Furthermore, the investment in Hawker comes on the heels of an analysis that says Hawker should divest itself of all its lines of business except for one. The analysis paints a grim future for Hawker: “In addition, backlogs are dwindling, R&D budgets are miniscule, employee pensions are underfunded by $296 million and the prospects of paying down its long-term debt are remote. At this point, it would be a monumental task just to roll-over the debt, let alone pay it off entirely. At the root of the problem is the state of Hawker Beechcraft’s business jet product lines. … At the heart of HBC’s current strategy is the assumption that a market recovery will fix what’s ailing the company, and that is just not true. The company’s business aviation products are seriously underperforming with new products relegated to minor upgrades due to a token R&D budgets based on an across-the-board derivative strategy.”

    The mayor also touted an agreement with Bombardier Learjet for the company to produce a new jet in Wichita. This deal required that the state issue bonds to raise money to give to Bombardier. The bonds will be paid off by the company’s employee withholding taxes. That’s money that would normally go to the state’s general fund. Instead, this deal raises the cost of government for everyone else.

    The mayor said of these deals: “As I suggested at the time of the Hawker deal, this was a declaration that Kansas and Wichita will fight to keep its aircraft industry. As I said then, ‘You’re not going to take what’s most important to us, and that’s our aviation industry.’ Simply put, we will not lose these jobs. Period.”

    Unfortunately, the mayor’s declaration is an invitation to Kansas companies of all types to seek public funds just as these two companies did, and as others have across Kansas. The result is increased costs of government and a state and city less inviting to the dynamic and innovative young companies that we now know are the engine of prosperity and job growth.

    The mayor also lauded the use of “revenue bonds” used for the construction of a IMAX movie theater in west Wichita. Focusing on the bonds allowed the mayor to gloss over the large measure of property tax forgiveness — corporate welfare — granted to the Warren Theater. The theater’s owners have received corporate welfare before from the city.

    Plans for downtown

    On the master plan for the revitalization of downtown Wichita, the mayor said the plan will “lead us to a point where ultimately the private investment exceeds public investment by a 15 to 1 ratio.” At the time agitation for a downtown plan started two years ago, research indicated that the ratio of private to public investment in downtown was approximately one to one. It’s quite a stretch for the mayor to promise an eventual 15 to one ratio, especially since the Goody Clancy plan recently adopted by the city council calls for — over the next 20 years — $500 million in private investment supported by $100 million of public investment. That’s a five to one ratio, not the 15 to one mentioned by the mayor. Even then, it will be surprising if anything near a five to one ratio is achieved.

    The mayor also promoted the decision by Cargill to build a new facility downtown as a sign of success. This facility, however, required over $2.5 million in various subsidy from state and local governments. It hardly seems a measure of proud success when companies are able to extract this level of corporate welfare in exchange for locating facilities in Wichita.

    Accountability and transparency

    In his address, Mayor Brewer promoted the city’s efforts in accountability and transparency, telling the audience: “We must continue to be responsive to you. Building on our belief that government at all levels belongs to the people. We must continue our efforts that expand citizen engagement. … And we must provide transparency in all that we do.”

    This an instance in which the actions of the city do not match with Brewer’s rhetoric. A small example is from last fall when the city had a stakeholder meeting to discuss the city’s community improvement district policy. While the term “stakeholder” is vague and means different things to different people, you might think that such a gathering might include representatives from the community at large. Instead, the meeting was stacked almost exclusively with those who have an interest in extracting as much economic subsidy as possible from the city. Often we find that meetings of this type are designed so that no dissenting voices are present.

    More importantly, the City of Wichita has failed to follow a fundamental law that provides accountability and transparency: the Kansas Open Records Act.

    I have made requests for records from three quasi-governmental agencies, two of which are under the city’s direct influence: Wichita Downtown Development Corporation, Go Wichita Convention and Visitors Bureau, and Greater Wichita Economic Development Coalition. Each of these organizations denied that they are public agencies as defined in the KORA, and therefore refused to fulfill my requests.

    Two times last year I appeared before the city council when the city was considering renewal of its contract with Wichita Downtown Development Corporation and Go Wichita Convention and Visitors Bureau. I asked the mayor that as a condition of renewing the contracts, the city ask that the agencies follow the law. But the mayor and the city rely on an incorrect interpretation of the KORA from city attorney Gary Rebenstorf and refused to act on my request. It should be noted that Rebenstorf has been wrong several times before when issuing guidance to the council regarding the Kansas Open Meetings Act, which is similar to the Open Records Act. He’s taken the blame and apologized for these violations.

    The Kansas Open Records Act in KSA 45-216 (a) states: “It is declared to be the public policy of the state that public records shall be open for inspection by any person unless otherwise provided by this act, and this act shall be liberally construed and applied to promote such policy.” Governments in Kansas should be looking at ways to increase availability of information. Instead, the City of Wichita uses a narrow — not liberal — interpretation of the records law restrict citizen access to records. At some time I believe the city’s legal position will be shown to be wrong.

    At any time the mayor could ask — and it could have been written into their contracts — that these agencies comply with the Kansas Open Records Act. The mayor’s refusal to do so indicates an attitude of accountability and transparency on the city’s terms, not on citizens’ terms and the law.

    Citizen response

    At many levels of government, when the chief executive makes an annual address like this, time is provided for someone to make a response, usually someone with a different point of view. This is the practice at the federal level, and also in Kansas when the governor delivers the state of the state address.

    The City of Wichita ought to do the same.

  • Arts funding in Kansas

    Arts funding by the State of Kansas has been in the news recently, as Governor Sam Brownback has proposed that the state stop funding the Kansas Arts Commission. This is a good move, as Kansas would be better off without state-funded art for two reasons: economic and artistic.

    The economic case for government art funding

    Supporters of government art funding make the case that government-funded art is good for business and the economy. They have an impressive-looking study titled Arts & Economic Prosperity III: The Economic Impact of the Nonprofit Arts and Culture Industry in the State of Kansas, which makes the case that “communities that invest in the arts reap the additional benefit of jobs, economic growth, and a quality of life that positions those communities to compete in our 21st century creative economy.”

    I read this report in 2007 when it was first used to promote government funding of arts in Wichita. Its single greatest defect is that it selectively ignores the secondary effects of government spending on the arts.

    As an example, the report concludes that the return on dollars spent on the arts is “a spectacular 7-to-1 return on investment that would even thrill Wall Street veterans.” It hardly merits mention that there aren’t legitimate investments that generate this type of return in any short time frame. If these returns were in fact true and valid, we should invest more — not less — in the arts. But as we shall see, these returns are not valid in any meaningful economic sense.

    Where do these fabulous returns come from? Here’s a passage from the report that government art spending promoters rely on:

    A theater company purchases a gallon of paint from the local hardware store for $20, generating the direct economic impact of the expenditure. The hardware store then uses a portion of the aforementioned $20 to pay the sales clerk’s salary; the sales clerk respends some of the money for groceries; the grocery store uses some of the money to pay its cashier; the cashier then spends some for the utility bill; and so on. The subsequent rounds of spending are the indirect economic impacts.

    Thus, the initial expenditure by the theater company was followed by four additional rounds of spending (by the hardware store, sales clerk, grocery store, and the cashier). The effect of the theater company’s initial expenditure is the direct economic impact. The subsequent rounds of spending are all of the indirect impacts. The total impact is the sum of the direct and indirect impacts.

    The fabulous returns erroneously attributed to spending on the arts derive from this chain of spending starting at the hardware store. But there’s a problem with this reasoning. It ignores the secondary effects of economic action. What the authors of this study fail to see is that anyone who buys a gallon of paint for any reason sets off the same chain of economic activity. There is no difference — except that a homeowner buying the paint is doing so voluntarily, while an arts organization using taxpayer-supplied money to buy the paint is using someone else’s money. Money, we might add, that is taken through the government’s power to tax.

    The study also pumps up the return on government spending on arts by noting all the other spending that arts patrons do on things like dinner before and desert after arts events. But if people kept their own money instead of being taxed to support the arts, they would spend this money on other things, and those things might include restaurant meals, too.

    This report — like most of its type that attempt to justify and promote government “investment” in someone’s pet program — focuses only on the benefits without considering secondary consequences or how these benefits are paid for. Henry Hazlitt, in his masterful book Economics in One Lesson explains:

    While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

    It is, as Hazlitt terms it, “the special pleading of selfish interests” that drive much of the desire for government spending on the arts. Government-funded arts advocates can promote their case with economic fallacies all they want, but in the end that’s what their case relies on: “the special pleading of selfish interests.” You can see an example of this type of campaign by visiting the Kansas Arts Commission.

    No government art means better art

    Arts organizations need to survive on their own merits. They need to produce a product or service that satisfies their customers and patrons just as any other business or human endeavor must. This is especially true and important with something so personal as art. David Boaz, in his book The Politics of Freedom: Taking on The Left, The Right and Threats to Our Liberties writes this in a chapter titled “The Separation of Art and State”:

    It is precisely because art has power, because it deals with basic human truths, that it must be kept separate from government. Government, as I noted earlier, involves the organization of coercion. In a free society coercion should be reserved only for such essential functions of government as protecting rights and punishing criminals. People should not be forced to contribute money to artistic endeavors that they may not approve, nor should artists be forced to trim their sails to meet government standards.

    Government funding of anything involves government control. That insight, of course, is part of our folk wisdom: “He who pays the piper calls the tune.” “Who takes the king’s shilling sings the king’s song.”

    Government art. Is this not a sterling example of an oxymoron? Must government weasel its way into every aspect of our lives? And the fact that government arts funding means tax dollars taken through coercion — don’t the government arts promoters realize this? How better to crush the human spirit — the same spirit that the arts are meant to uplift and enrich.

    Government arts funding means that artists and arts organizations are distanced from their customers. Instead of having to continuously meet the test of the market, they must please government bureaucrats and politicians to get their funding. Instead of producing what the great unwashed mass of people want, they produce what they think will get government funding.

    Without government funding, organizations that provide culture and art will have to satisfy their customers by providing products that people really want. That is, products that people are willing to pay for themselves, not what people say they want when someone else is paying the bill. With government funding, these organizations don’t have to face the discipline of the market. They can largely ignore what their customers really want. They can provide what they think their customers want, or, as I suspect is the case, what they believe the people of Kansas should want, if only we were as enlightened as the elitists that staff arts commissions.

    Without the discipline of the market, arts organizations will never know how their customers truly value their product. The safety net of government funding allows them to escape this reality. We have seen this many times in Wichita and Sedgwick County, as organizations fail to generate enough revenue to cover their costs, only to be bailed out by the government. Other businesses learn very quickly what their customers really want — that is, what their customers are willing to pay for — or they go out of business. That’s the profit and loss system. It provides all the feedback we need to determine whether an organization is meeting its customers’ desires. The arts are no different.

    Some say that without government support there wouldn’t be any arts or museums. They say that art shouldn’t be subject to the harsh discipline of markets. Personally, I believe there is little doubt that art improves our lives. If we had more art and music, I feel we would have a better state. But asking government commissions to judge how much art and which art we should have is not the way to provide it. Instead, let the people tell us, through the mechanism of markets, what art and culture they really want.

    It might turn out that what people want is different than from what government arts commission members believe the people should want. Would that be a surprise? Not to me. In the name of the people, we should disband government arts councils and government funding and let people decide on their own — without government intervention — how to spend their personal arts budgets on what they really value.

    (The material by David Boaz is from a speech which may be read here: The Separation of Art and State.)

  • Kansas and Wichita quick takes: Sunday January 16, 2011

    Wichita swoons over Boston attention. The self-congratulatory back-patting by a group of Wichitans over attention paid by a Boston Globe travel writer is starting to be embarrassing for us. The Wichita Eagle article on this topic mentions chicken-fried steak and biscuits and gravy in its opening sentence, a sure sign that the article will attempt to draw a contrast between our image and our purported reality. Which is, if I understand, mostly street statues, the Old Mill Tasty Shop, and Exploration Place. … As it turns out, Geoff Edgers, the writer, has a financial motive in his praise of Wichita. On his initial visit: “Festival directors put up Edgers, his wife and two small children at the Hotel at Old Town.” Now Wichitans are raising money to help the writer, who is also a filmmaker, get his movie on television, and “the Wichita groups offered to raise money to help Edgers’ get his film shortened and syndicated for public broadcasting. … If he raises $2,500 while in Wichita next month, Edgers intends to include a ‘thank-you’ to Wichita in the credits of his syndicated film.”

    Harm of expanding government explained. Introducing his new book Back on the Road to Serfdom: The Resurgence of Statism, Thomas E. Woods, Jr. writes: “The economic consequences of an expanded government presence in American life are of course not the only outcomes to be feared, and this volume considers a variety of them. For one thing, as the state expands, it fosters the most antisocial aspects of man’s nature, particularly his urge to attain his goals with the least possible exertion. And it is much easier to acquire wealth by means of forcible redistribution by the state than by exerting oneself in the service of one’s fellow man. The character of the people thus begins to change; they expect as a matter of entitlement what they once hesitated to ask for as charity. That is the fallacy in the usual statement that ‘it would cost only $X billion to give every American who needs it’ this or that benefit. Once people realize the government is giving out a benefit for ‘free,’ more and more people will place themselves in the condition that entitles them to the benefit, thereby making the program ever more expensive. A smaller and smaller productive base will have to strain to provide for an ever-larger supply of recipients, until the system begins to buckle and collapse.” … Phrases like “smaller and smaller productive base” apply in Wichita, where our economic development policies like tax increment financing, community improvement districts, and tax abatement through industrial revenue bonds excuse groups of taxpayers from their burdens, leaving a smaller group of people to pay the costs of government.

  • In Wichita, two large community improvement districts proposed

    On Tuesday (January 11) the Wichita City Council will decide whether to accept petitions calling for the formation of two Community Improvement Districts (CIDs) in Wichita. In both cases, city staff recommends that the council accept the petitions and set February first as the date for the public hearing. It is on that date that the council will accept public input and vote whether to form each of the CIDs.

    CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.

    The districts proposed are two well-established Wichita shopping centers. Westway Shopping Center is at the southwest corner of West Pawnee Avenue and South Seneca Street. Eastgate Center is at the southeast corner of Kellogg and Rock Road.

    In the case of Westway, city documents indicate that the funds from the CID proceeds are to be used for “public and private improvements and the payment of certain ongoing operating costs.” At Eastgate, funds will be used for “renovation and modernization.”

    Both projects ask for one cent per dollar to be added to shoppers’ sales tax. Both ask to be implemented using the “pay-as-you-go” method, meaning that the city will not issue bonds. Instead, the city will send to the applicants the proceeds from the extra sales tax as it is collected.

    Both applicants are represented by Polsinelli Shughart, an Overland Park law firm that has represented other clients that have received approval for community improvement districts from the Wichita City Council.

    Signage discussion at city council

    At the December 7, 2010 meeting of the Wichita City Council, the council considered whether stores in CIDs should be required to post signs warning shoppers of the amount of extra tax being charged. Some, including myself, feel that shoppers should have this information before deciding to shop in such a store.

    At the meeting Korb Maxwell, a representative of Polsinelli Shughart, spoke to the city council in support of the CID legislation. While Maxwell spoke as though he was advocating for the public interest, he in fact works for a law firm that is representing the narrow interests of its clients.

    Speaking to the council, Maxwell denied that developers “have any interest in hiding something from the public, or keeping citizens from having full knowledge about these community improvement districts.”

    But he said — rather obliquely — that the retailers they are trying to bring to Wichita would be discouraged by full disclosure of the extra sales tax that citizens would pay in their stores. “We want to make sure that anything that we do, or anything that we implement within a policy is appropriate and will not counteract the very tool we’re creating here.”

    He provided a suggested sign design that states that community improvement district financing was used, but not that customers will pay a higher sales tax in CID stores. Retailers would accept this, he said.

    In discussion from the bench, Vice Mayor Jeff Longwell said it is important that we disclose these “types of collections” as they are taxing the public. But in a convoluted stretch of reasoning, he made a case that posting a sign with a specific sales tax would be confusing to citizens:

    “I was leaning to putting a percentage on there, but again if we have a website that spells out the percentage, I think that’s important. And number two, I guess I would be a little bit concerned how we would work through it — if you put a percentage on a development over here in downtown that’s only collecting one percent and someone walks in and sees a CID tax collected of one percent and just assumes every CID tax is one percent it would be confusing when they go to the next one, and it may scare them off if they see one that’s two percent, they’ll never go to one that’s maybe only one percent. So I think that proves an additional concern for some confusion. So having something on the front door that says we are financing this with a CID tax, where they’re made well aware that it’s collected there, I think to try and include a percentage might even add some confusion as we collect different CID taxes around the city.”

    I think this means that Longwell’s okay with telling people as they enter a store that they’re being taxed, but not how much tax they’re being asked to pay. We can summarize his attitude as this: Giving citizens too much information will confuse them.

    Council Member Sue Schlapp said she supported transparency in government:

    “Every tool we can have is necessary … This is very simple: If you vote to have the tool, and then you vote to put something in it that makes the tool useless, it’s not even any point in having the vote, in my opinion. Either we do it, and we do it in a way that it’s going to be useful and accomplish its purpose. … I understand totally the discussion of letting the public know. I think transparency is absolutely vital to everything we do in government. So I think we’re doing that very thing.”

    Schlapp understands and said what everyone knows: that if you arm citizens with knowledge of high taxes, they’re likely to go somewhere else.

    Mayor Brewer said he agreed with Schlapp and the other council members.

    In the end, the council unanimously voted for requiring signage that reads, according to minutes from the meeting: “This project made possible by Community Improvement District Financing and includes the website.”

    This sign doesn’t mention anything about extra sales tax that customers of CID merchants will pay. Contrary to Schlapp’s assertions, this is not anything like government transparency.

    This episode is a startling example of the council and staff being totally captured by special interests.

    Sales tax increase spreading across Wichita

    These two CIDs break new ground in that these shopping centers are not tourist destinations or trendy shops. Some council members like Longwell have justified past CIDs on the basis that since they are tourist destinations, much of the tax will be paid by visitors to Wichita. This is not a wise policy, but even it it was, it does not apply to these two shopping centers.

    Instead, these two applications are more indications that soon Wichita — its major retail centers and destinations, at least — is likely to be blanketed with community improvement districts charging up to an extra two cents per dollar sales tax. Currently, merchants in a CID are running the very real risk that once their customers become aware of the extra sales tax, they will shop somewhere else. But as CIDs become more prevalent in Wichita, this competitive disadvantage will disappear.

    Step by step, a sales tax increase is engulfing Wichita, and our city council and mayor are fine with that happening. This is on top of the statewide sales tax increase from last year, which, despite claims of its supporters and opposition by conservatives, is likely a permanent fixture.

  • Kansas: business-friendly or capitalism-friendly?

    Plans for the Kansas Republican Party to make Kansas government more friendly to business run the risk of creating false, or crony capitalism instead of an environment of genuine growth opportunity for all business.

    An example is the almost universally-praised deal to keep Hawker Beechcraft in Kansas. This deal follows the template of several other deals Kansas struck over the past few years, and outgoing Governor Mark Parkinson is proud of them. Incoming Governor Sam Brownback approved of the Hawker deal, and probably would have approved of the others.

    Locally, the City of Wichita uses heavy-handed intervention in the economy as its primary economic development tool, with several leaders complaining that we don’t have enough “tools in the toolbox” to intervene in even stronger ways.

    The problem is that these deals, along with many of the economic development initiatives at the state and local level in Kansas, create an environment where the benefits of free market capitalism, as well as the discipline of a market-based profit-and-loss system, no longer apply as strongly as they have. John Stossel explains:

    The word “capitalism” is used in two contradictory ways. Sometimes it’s used to mean the free market, or laissez faire. Other times it’s used to mean today’s government-guided economy. Logically, “capitalism” can’t be both things. Either markets are free or government controls them. We can’t have it both ways.

    The truth is that we don’t have a free market — government regulation and management are pervasive — so it’s misleading to say that “capitalism” caused today’s problems. The free market is innocent.

    But it’s fair to say that crony capitalism created the economic mess.

    But wait, you may say: Isn’t business and free-market capitalism the same thing? Here’s what Milton Friedman had to say: “There’s a widespread belief and common conception that somehow or other business and economics are the same, that those people who are in favor of a free market are also in favor of everything that big business does. And those of us who have defended a free market have, over a long period of time, become accustomed to being called apologists for big business. But nothing could be farther from the truth. There’s a real distinction between being in favor of free markets and being in favor of whatever business does.” (emphasis added.)

    Friedman also knew very well of the discipline of free markets and how business will try to avoid it: “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.”

    The danger of Kansas government having a friendly relationship with Kansas business leaders is that these relationships will be used to circumvent free markets and promote crony, or false, capitalism in Kansas. It’s something that we need to be on the watch for, as the relationship between business and government is often not healthy. Appearing on an episode of Stossel Denis Calabrese, who served as Chief of Staff for Majority Leader of the U.S. House of Representatives Congressman Richard Armey, spoke about crony capitalism and its dangers:

    “The American public, I guess, thinks that Congress goes and deliberates serious issues all day and works on major philosophical problems. Really a typical day in Congress is people from the private sector coming and pleading their cases for help. It may be help for a specific company like the [window manufacturing company] example, it may be help for an entire industry, it may be help for United States companies vs. overseas companies.”

    He went on to explain that it is wrong — corrupt, he said — for Congress to pick winners and losers in the free enterprise system. Congress wants us to believe that free enterprise will be more successful when government gets involved, but the reverse is true. Then, the failures are used as a basis for criticism of capitalism. “This is an unholy alliance,” he said, and the losers are taxpayers, voters, and stockholders of companies.

    Later in the show Tim Carney said that “A good connection to government is the best asset a company can have, increasingly as government plays a larger role in the economy.”

    Host John Stossel challenged Calabrese, wondering if he was part of the problem — the revolving door between government, lobbyists, and business. Calabrese said that “Every time you see a victim of crony capitalism you’re looking at a potential client of mine, because there’s somebody on the other side of all these abuses. When Congress tries to pick a winner, there are losers, and losers need representation to go tell their story.” He added that he lobbies the American people by telling them the truth, hoping that they apply pressure on Congress to do the right thing.

    He also added that it is nearly impossible to find a single area of the free enterprise system that Congress is not involved in picking winners and losers.

    While the speakers were referring to the U.S. federal government, the same thing happens in statehouses, county courthouses, and city halls across the country — wherever there are politicians and bureaucrats chasing economic development with government as the tool.

    It is difficult to blame businessmen for seeking subsidy and other forms of government largesse. They see their competitors do it. They have a responsibility to shareholders. As Stossel noted in the show, many companies have to hire lobbyists to protect them from harm by the government — defensive lobbying. But as Carney noted, once started, they see how lobbying can be used to their advantage by gaining favors from government.

    The danger that Kansas faces is that under the cover of a conservative governor and legislature, crony capitalism will continue to thrive — even expand — and the people will not notice. The benefits of a dynamic Kansas economy as shown by Dr. Art Hall in his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy may never be achieved unless Kansas government — at all levels — commits to the principles of free market capitalism.

  • In Kansas, prosperity is achievable — if we’re willing to change

    The health of the Kansas economy — past and future — is the subject of some debate, with supporters of big government like the Wichita Eagle’s Rhonda Holman thanking outgoing Governor Mark Parkinson for his promotion of the increase in the statewide sales tax and other forms of economic interventionism. These policies, with the exception of the approval of the expansion of a coal-fired electrical plant, largely carried forward the programs of his predecessor Kathleen Sebelius. As a result, Kansas is in the situation that Dave Trabert of the Kansas Policy Institute describes below.

    Prosperity Is Achievable — If We’re Willing To Change

    By Dave Trabert, President, Kansas Policy Institute

    “The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” — Thomas Sowell, The Hoover Institution, Stanford University

    Sowell’s point about the scarcity of resources is essential to understanding economics, which may be as much about human behavior as supply, demand and other commonly-associated factors. Taxpayers have finite resources, so the more they must pay in taxes, the less they have to spend on goods and services. Accordingly, raising taxes always has a negative impact and especially so when taxes rise faster than the ability to pay.

    Unfortunately, the last ten years were defined by Sowell’s first law of politics. State and local governments in Kansas ignored the implications of finite resources and significantly increased the tax burden. From 2000 to 2009, state and local taxes increased 59 percent but personal income available to pay taxes only rose 44 percent. (The 2010 figures aren’t yet published but last year’s increase in sales, unemployment and property taxes certainly didn’t ease the burden.)

    Predictably, we suffered the consequences.

    Kansas had 18,800 fewer private sector jobs in 2009 than in 2000, a reduction of 1.7 percent. There was job growth prior to the recession but it was well below the national average. From 1998 to 2008 (Kansas employment peaked in April, 2008) private sector jobs increased 7.9 percent nationwide but only 5.2 percent in Kansas. And comparing the performance of low-burden and high-burden states (as ranked by the non-partisan Tax Foundation) makes the implications of defying Sowell’s first law of economics even more clear. The ten states with the highest combined state and local tax burden averaged 6.1 percent private sector job growth, whereas the ten states with the lowest burdens averaged a remarkable 16.5 percent gain.

    Domestic migration (U.S. residents moving in and out of states) is another good measure. Between 2000 and 2009, the ten states with the lowest tax burdens averaged a 3.8 percent population increase from domestic migration; the ten states with the highest burdens lost an average of 3.3 percent. Kansas lost 2.5 percent population from domestic migration.

    Jobs and people naturally gravitate toward low-burden states where they get to keep more of their hard-earned, finite resources. The next ten years must therefore be defined by Sowell’s first law of economics or Kansas will continue to suffer the consequences. In order to compete for jobs and attract new residents, the state and local tax burden must be reduced — and that means government must spend less.

    Fortunately, there are many ways to reduce spending and still provide essential services. Ineffective and unnecessary programs have to go and government must operate much more efficiently.

    Change won’t be easy but the choice is simple — reduce the tax burden and create an environment that attracts jobs and new taxpayers or preserve big government and continue to suffer the consequences.

  • In Kansas, everything is okay — not

    A few weeks ago Kansas University political science professor Burdett Loomis had an opinion piece in The Wichita Eagle. Commenting on it at the time, I wrote “Overall, Loomis presents an argument for the status quo in Kansas government, and the potential for change in the direction of restraining its growth has Loomis — in his own words — ‘concerned — worried, even.’” Now Alan Cobb of Topeka, who is vice president of state operations at Americans for Prosperity Foundation, comments. Following is the unabridged version of Cobb’s op-ed that appeared in today’s Wichita Eagle.

    A few weeks ago, noted KU political science professor and nice guy, Burdett Loomis, commented that everything is fine here in Kansas, so why would anyone want to lower taxes or change anything?

    Where to start? If you compare Kansas to much of the world, yes, we are okay. Hot water comes out of the hot water tap, you can watch your favorite college team on TV, and you have about two dozen different road combinations to make it to Grandma’s house for the Holidays. (We don’t need that many options, but that is another editorial.)

    If you compare Kansas to places more similar to Kansas than Bhutan or Belarus, we have a bit different story.

    One of the simplest ways to measure economic growth is population growth. People go where there is economic opportunity.

    Over the last decade, Kansas’ population increased 6.1 percent while Colorado increased 16.9 percent, (remember tax and spending limits decimating Colorado?) Missouri 7 percent, Oklahoma 8.7 percent, and Nebraska 6.7 percent. Maybe the most sobering statistic is South Dakota’s growth of 7.86 percent, an astonishing rate of nearly 30 percent higher than Kansas. South Dakota has a lot of fine attributes. But there is no reason that Kansas can’t at least equal that, is there? Or maybe come closer? Or if we really put on our thinking caps, maybe even we can beat South Dakota.

    Kansas’ population growth is because our birth rate exceeds our mortality rate. We aren’t attracting folks from out of state. We still have more people moving out of Kansas than moving in. And the folks moving out have a higher annual income than those moving in and they are leaving Kansas on some of the best roads in America. Oh, South Dakota is a net importer of residents and South Dakota doesn’t have an income tax.

    One can think about this stuff until the cows come home, or until one tries to do Chinese math with a liberal arts mind, but it is really pretty simple. People live in and move to where they think they can improve their lives.

    There are a few parts of Kansas that are growing, though I can’t say that is improvement, at least not with a straight face. During the last decade, the number of Kansas government employees has increased by 15,000 jobs while private sector employment has decreased by 35,000. The size of today’s private sector workforce in Kansas smaller than it was in 2000. Oh, but everything is fine, really.

    To make the dwindling private sector worker feel even better, the average annual salary for a State government worker in Kansas is $46,000 while the private sector is $38,500. Of course that doesn’t include the generous health and retirement benefits rarely seen in the private sector.

    Though some are satisfied with the status quo, I and the 40,000 members of AFP are not.

    The final point to address is Bird’s kind of lame back handed swipe at AFP as if we represent only wealthy interests. I’ve been with AFP-Kansas since the beginning. I’ve attended hundreds and hundreds of AFP events and meetings. I’ve been to Pittsburg, Liberal, Leavenworth, Goodland and many towns in between. Bird would have been awed by the vast amounts of wealth present at the Big Cheese Pizza in Independence, at Spears Cafeteria in Wichita, the Liberal Train Depot or the Topeka Public Library.

    But, I’ve never seen Bird attend any of those meetings.

    I am sure that among that 40,000 members of AFP in Kansas there are some rich folks. But their interests are the same as all AFP members: personal liberty, economic freedom and growth, and debate based on facts.

  • Kansas and Wichita quick takes: Friday December 31, 2010

    This Week in Kansas. On This Week in Kansas guests Rebecca Zepick of State of the State KS, Kansas Public Radio Statehouse Bureau Chief Stephen Koranda, and myself discuss the upcoming session of the Kansas Legislature. Tim Brown is the host. This Week in Kansas airs on KAKE TV channel 10, Sunday morning at 9:00 am.

    Tax increment financing. “Largely because it promises something for nothing — an economic stimulus in exchange for tax revenue that otherwise would not materialize — this tool [tax increment financing] is becoming increasingly popular across the country. … ‘TIFs are being pushed out there right now based upon the but for test,’ says Greg LeRoy. ‘What cities are saying is that no development would take place but for the TIF. … The average public official says this is free money, because it wouldn’t happen otherwise. But when you see how it plays out, the whole premise of TIFs begins to crumble.’ Rather than spurring development, LeRoy argues, TIFs ‘move some economic development from one part of a city to another.’ … In Wichita, those who invest in TIF districts and receive other forms of subsidy through relief from taxes are praised as courageous investors who are taking a huge risk by believing in the future of Wichita. Instead, we should be asking why we have to bribe people to invest in Wichita. Much more on tax increment financing at Giving Away the Store to Get a Store: Tax increment financing is no bargain for taxpayers from Reason Magazine.

    Lessons for the Young Economist. The Ludwig von Mises Institute has published a book by Robert_P._Murphy titled Lessons for the Young Economist. Of the book, the Mises Institute says “It is easily the best introduction to economics for the young reader — because it covers both pure economic theory and also how markets work (the domain of most introductory books).” From my reading of samples of the book, I would agree, and also add that readers of all ages can enjoy and learn from this book. The book is available for purchase, or as is the case with many of the works the Institute publishes, it is also available to download in pdf form at no charge. Click on Lessons for the Young Economist.

    The worst Congress. While liberals praise the 111th Congress as one of the most productive ever, not all agree. The Washington Examiner reprises some of the worst moments of this Congress, and concludes: “Our Founding Fathers were always wary of those who wanted government to do lots of big things. That’s why they created a system that separated powers among three more or less equal branches and provided each of them with powerful checks and balances. When professional politicians become frustrated with Congress, it is a sign that our system is working as intended. Columbia University historian Alan Brinkley told Bloomberg News recently that ‘this is probably the most productive session of Congress since at least the ’60s.’ When Congress votes on bills that no one reads or understands, it can be quite ‘productive.’ Americans have already rendered a verdict on such productivity and elected a new Congress with orders to clean up the mess in Washington.”

    China has seen the future, and it is coal. George Will in The Washington Post: “Cowlitz County in Washington state is across the Columbia River from Portland, Ore., which promotes mass transit and urban density and is a green reproach to the rest of us. Recently, Cowlitz did something that might make Portland wonder whether shrinking its carbon footprint matters. Cowlitz approved construction of a coal export terminal from which millions of tons of U.S. coal could be shipped to Asia annually. Both Oregon and Washington are curtailing the coal-fired generation of electricity, but the future looks to greens as black as coal. The future looks a lot like the past.” Will goes on to explain how it is less expensive for coastal Chinese cities to import American and Australian coal rather than to transport it from its inland region. China uses a lot of coal, and that is expected to increase rapidly. The growth of greenhouse gas emissions in China trumps — by far — anything we can do in American do reduce them, even if we were to destroy our economy in doing so.

  • Government is not business, and can’t be

    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. 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 one year) 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 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.