Voice For Liberty

Tag: Economics

  • Kansas and Wichita quick takes: Friday March 30, 2012

    Lee Fang: wrong again. “At 9 a.m. on Tuesday, March 27, 2012, when most civic-minded Americans were focused on the historic Supreme Court oral arguments about Obamacare, Lee Fang, a left-wing blogger for the liberal Republic Report blog, was posting yet another diatribe attacking Charles and David Koch. As usual, Fang’s piece stretches, distorts, ignores and misstates the facts.” So starts Cleta Mitchell writing in the Daily Caller piece Who’s paying Lee Fang and other left-wing bloggers to attack the Kochs? Readers should not be surprised that Fang is wrong again — it’s become his calling card. The political left doesn’t care, as long as Fang keeps up his attack on Charles and David Koch. Concludes Mitchell: “Fang, of course, gets away with making completely false statements because he sprinkles the Koch name as a negative modifier for every other noun in his blog, and the apparent rule is that there is no concern for facts or truth when a liberal attacks the Kochs. After reading Fang’s drivel, glancing at the Republic Report and United Republic websites and reading about their mission of getting money out of politics and exposing truth and corruption and all of that, here’s my question: Where do these sites get their money? And why don’t they publicly disclose their donors? Fang’s post and these projects are simply part of the massively well-funded liberal attack machine that is designed to vilify the Kochs and intimidate prospective conservative donors into staying on the sidelines. Indeed, Fang is hoping to intimidate all donors to conservative causes and organizations. … Whenever conservatives demonstrate the will and the resources to fight liberal orthodoxy, liberals become hysterical. The left tolerates diversity except when it comes to diversity of opinion. These ongoing attacks on the Kochs are outrageous and won’t stop until liberals have cut off conservative groups’ funding and silenced conservative voices. That isn’t likely to happen.”

    Action on sustainability. Next week the Sedgwick County Commission takes up the issue of whether to participate in a HUD Sustainable Communities Regional Planning Grant. Coverage of the last discussion the commission had on this matter is at Sedgwick County considers a planning grant. So that citizens may be informed on this issue, Americans for Prosperity, Kansas is holding an informational event on Monday April 2, from 7:00 pm to 8:30 pm at Spangles Restaurant, corner of Kellogg and Broadway. (Uh-oh. If the Kansas Jayhawks make it to the NCAA basketball title game, the television broadcast starts at 8:00 pm.) The meeting is described as follows: “On April 4, 2012 at 9:00 am on the 3rd floor of the Sedgwick County Courthouse, the Sedgwick County Commission will be holding a public hearing to consider approval of Sedgwick County’s participation as the fiscal agent on behalf of the Regional Economic Area Partnership (REAP) Consortium with an ‘in-kind’ commitment of $120,707 to implement a Regional Plan for Sustainable Communities Grant for South Central Kansas. Public comment will be invited. Learn about the Sustainable Communities Plan for South Central Kansas. Find out how you can get involved in this issue as a citizen. Consider testifying before the County Commission. Consider attending the Commission meeting as an interested citizen.” … For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Economic fascism. From Independent Institute: “On Friday, March 16, President Obama signed an executive order on national defense that amends and updates the executive branch’s sweeping powers over energy, transportation, human resources, and raw materials. ‘It shows plainly that private control of economic life in the United States, to the extent that it survives, exists solely at the president’s pleasure and sufferance,’ writes Independent Institute Senior Fellow Robert Higgs. ‘Whenever he chooses to put into effect a full-fledged operational fascist economy, controlled from his office, he has the statutory power to do so; all he has to do is to murmur the words ‘national defense’ and give the order.’ … Obama’s executive order sets no new precedent, Higgs notes. It’s just the latest in a string of edicts authorizing central economic planning that dates back at least to the Defense Production Act of 1950, a wartime statute that was never repealed after its passage during the Korean War. It’s also a classic example of how wars create new government powers that don’t go away after peace resumes.”

    Immigration. From LearnLiberty.org, a project of Institute for Humane Studies: “Is it true that immigration raises the U.S. unemployment rate? Is it true that immigration affects U.S. income distribution? The conventional wisdom says that both of these things are true. However, economist Antony Davies says there is evidence to suggest that they are not. Looking at the data, there is no relationship between the rate of immigration and the unemployment rate, nor is there a relationship between the rate of immigration and income inequality. Further, there is evidence to suggest that immigrants actually create more American jobs.”

  • Kansas and Wichita quick takes: Monday March 19, 2012

    Eisenhower expert to present. This Friday (March 23rd) the Wichita Pachyderm Club features David Nichols, Ph.D. Dr. Nichols is a recognized expert on the Eisenhower presidency and is currently working on his third book on Ike, this one dealing with Senator Joe McCarthy with a focus on Ike’s management techniques. On Friday, Nichols’ topic will be “The Eisenhower Leadership Model: What business people (and even politicians) can learn from Ike.” … The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … The club has an exceptional lineup of future speakers as follows: On March 30th: Tom DeWeese, President, American Policy Center, speaking on U.N. Agenda 21: Sustainable Development. … On April 6th: Jordan A. Poland, who will discuss his Master of Arts thesis in Public History at Wichita State University, titled “A case study of Populism in Kansas. The election of Populist Governor Lorenzo Lewelling from Wichita, and the Legislative War of 1893.” … On April 13th: Alvin Sarachek, Ph.D., Geneticist, Distinguished Professor Emeritus of Natural Sciences at Wichita State University, speaking on “Human Genetic Individuality and Confused Public Policy Making.” … On April 20th: Senator Steve Morris, President of the Kansas Senate, speaking on “Legislative update.” … On April 27th: Dr. Malcolm C. Harris, Sr., Professor of Finance, Friends University, speaking on “The Open Minded Roots of American Exceptionalism, and the Decline of America’s Greatness.”

    Pompeo town hall meeting. From the congressman’s office: “Kansas Fourth District Congressman Mike Pompeo will host a town hall meeting at the WSU Hughes Metroplex in Wichita on Saturday, March 24 at 11:30 am. Congressman Pompeo will take questions from constituents and discuss issues related to Congress and the federal government. The public and members of the media are welcome and encouraged to attend.” The WSU Hughes Metroplex is located at 5015 East 29th Street North.

    Crises of Governments. A new short book from Institute of Economic Affairs is Crises of Governments: The Ongoing Global Financial Crisis and Recession. Barro is Robert Barro is the Paul M. Warburg Professor of Economics at Harvard University; a Senior Fellow of the Hoover Institution of Stanford University; and a Research Associate of the National Bureau of Economic Research. The complete book is available online at no cost. Some highlights from the executive summary include these: “The ‘Great Recession’ has been particularly deep. In the USA, the loss of GDP relative to trend growth has been 9 per cent. The recovery from recession has also been much slower than the recovery from the recessions of the early 1980s and early 1990s. After those recessions, the USA achieved economic growth of 4.3 per cent and 3.6 per cent respectively.” … “One of the major causes of the crash was the boom in securitisation whereby inherently risky loans were packaged together and sold as very low-risk securities. This was strongly encouraged by the government; Fannie Mae and Freddie Mac, the government agencies responsible, should be privatised.” … “In general a fiscal stimulus package might raise output in the very short run but the long-term fiscal multiplier is negative. This leads growth to stall after an initial increase, as is happening at the moment.” … “Spending and welfare programme entitlements grew rapidly under President George W. Bush and that growth has continued under President Obama. In many respects, as far as economic policy is concerned, Bush and Obama are ‘twins’, just as Reagan and Clinton were ‘twins.’” … “The next crisis will be a crisis of government debt. This debt consists of both explicit borrowing and also of entitlements through social security programmes that have been dramatically expanded under Presidents Bush and Obama. This crisis of government debt is not just a US problem.” … “The coming crisis can be addressed in the USA only by reforming entitlement programmes and also by tax reform to reduce ‘tax expenditures’ or special exemptions from taxes for certain types of economic activity. In the EU, fiscal and monetary policy need to be decoupled so that member states do not become responsible for each other’s borrowing.”

    What are the limits of democracy? “Imagine if everything in society was determined through a majority vote.” Politics — elections, in particular — is an especially bad way to make decisions. Free markets allow people to get just what they want from an incredibly broad array of choices. In elections, we are usually left to choose between the lesser of two evils on the basis of their campaign promises. And once in office, we learn the worthlessness of promises made on the campaign trail. It is best that we remove decision-making from the public sphere, as much as we can. “Therefore it is important to remember that individual choice, limited government, and free markets are the necessary condition for a free and truly democratic society,” concludes narrator Professor Pavel Yakovlev in this video from LearnLiberty.org, a project of Institute for Humane Studies.

  • Stossel on “what is fair?”

    What is fair? It’s a timely question, as President Barack Obama has made this question a theme of his campaign for re-election. This week John Stossel took up this question in an episode of his weekly television show.

    In his closing segment, Stossel summed up what was learned on the show:

    The idea that government can make life more fair appeals to people. At least it does until they really think about it. So, I’ll try to help. The president says fairness requires higher taxes. But, is it fair that the richest ten percent of Americans already pay more of the nation’s income tax than the richest ten percent in every other industrial nation, even Sweden?

    Is it fair, as Art Laffer said, that American corporations pay the highest corporate tax rate in the world?

    And beyond taxes: the president says school vouchers aren’t fair because they’ll take money from government schools. But is it fair that the president sends his daughters to elite private schools, while denying other kids that opportunity? No, I would say.

    Clearly the term “fair” can be spun lots of ways. Politicians, for example, like to compare peoples’ incomes. But do equal incomes make life fair?

    Think about this. Who’s happier: this good-looking Florida surfer dude? He hangs out at the beach all day. I assume he’s popular with the ladies, but doesn’t make much money. Versus: This computer geek. This is Bill Gates when he was younger. He’s much richer, but he spent hours of his life hunched over a computer screen. I don’t presume to know whose life is better. …

    It seems reasonable to want government to make life more fair. But when government takes your money and freedom to try to do that, government makes life worse. It makes everyone poor. And the biggest threat is not just that government makes us poor, it makes us less. As government gets bigger, individuals get smaller. What’s really fair is to have limited government. That means the same rules for everyone. No special favors, no handouts.

  • Rebuilding Joplin

    Economic Freedom has a story about the rebuilding of Joplin, Missouri after last year’s devastating tornado.

    Daniel J. Smith, economics professor at Troy University, studied the rebuilding of Joplin, Missouri in the months following the tornado. The following video discusses how economic freedom can help areas recover from natural disasters. Says Smith:

    I think one of the key factors in the recovery process in Joplin, from the tornado, is that the government officials allowed the community to start rebuilding itself. I think Joplin is a great example of the power of people — free people — coming together and both using profit motive, in the businesses, using religious reasons for faith-based organizations, and just concern for your fellow man, in the community-based organizations, to rebuild a disaster stricken community.

    In the video, Smith explains that rising wages — sometimes increasing over 500 percent — were strong market signals that certain types of labor were needed in Joplin. If these prices for labor were controlled through government regulation, the price signals would not be heard by the needed laborers. Yes, governments and news media might let the country know that these types of workers are needed in Joplin. But unless workers can earn high wages in Joplin, what motive do they have to leave their current homes and travel to Joplin?

    The price system — operating in markets free from government regulation — proves again to be the most efficient way to allocate resources to where they are most urgently needed and valued.

  • Wind energy split in Kansas

    Despite the promise as a temporary subsidy when it started twenty years ago, wind energy is reliant on government handouts. Today’s Wall Street Journal brings this into focus, writing: “The truth is that those giant wind turbines from Maine to California won’t turn without burning through billions upon billions of taxpayer dollars. In 2010 the industry received some $5 billion in subsidies for nearly every stage of wind production.” (See Republicans Blow With the Wind: Another industry wants to keep its taxpayer subsidies..)

    The piece also properly refutes the argument that oil and gas receives the same type of tax credits as does wind and other renewable energy forms. “The most dishonest claim is that wind and solar deserve to be wards of the state because the oil and gas industry has also received federal support. That’s the $4 billion a year in tax breaks for oil and gas (which all manufacturers receive), but the oil and gas industry still pays tens of billions in federal taxes every year.” There’s a difference between tax deductions, which reduce taxable income, and tax credits, which are government spending programs in disguise.

    Despite this: Senator Jerry Moran of Kansas has joined with five other senators in urging the Senate to pass an extension of the subsidy program for wind power. Kansas, it should be noted, has a lot of wind. Our former governors Sebelius and Parkinson bought into the green energy fantasy, and current governor Kansas Governor Sam Brownback agrees, having penned op-eds in support of wind energy subsidy programs and usage mandates. Wichita Mayor Carl Brewer has been busy promoting Wichita as a site for wind energy-related industry, despite its failing economics based on government handouts.

    (By the way, it’s not only wind that is receiving subsidy on Kansas. Recently the Department of Energy announced the award of a $132.4 million loan guarantee to a cellulosic ethanol plant in southwest Kansas. At the time of the award, no commercial cellulosic ethanol had been produced in America. See Kansas and its own Solyndra.)

    Contrast this with U.S. Representative Mike Pompeo of Wichita, who has introduced legislation to end all tax credits related to energy production. Writes the Journal: “Here’s a better idea. Kill all energy subsidies– renewable and nonrenewable, starting with the wind tax credit, and use the savings to shave two or three percentage points off America’s corporate income tax. Kansas Congressman Mike Pompeo has a bill to do so. This would do more to create jobs than attempting to pick energy winners and losers. Mandating that American families and businesses use expensive electricity doesn’t create jobs. It destroys them.”

    Republicans Blow With the Wind

    Another industry wants to keep its taxpayer subsidies.

    Congress finally ended decades of tax credits for ethanol in December, a small triumph for taxpayers. Now comes another test as the wind-power industry lobbies for a $7 billion renewal of its production tax credit.

    The renewable energy tax credit — mostly for wind and solar power — started in 1992 as a “temporary” benefit for an infant industry. Twenty years later, the industry wants another four years on the dole, and Senator Jeff Bingaman of New Mexico has introduced a national renewable-energy mandate so consumers will be required to buy wind and solar power no matter how high the cost.

    The truth is that those giant wind turbines from Maine to California won’t turn without burning through billions upon billions of taxpayer dollars. In 2010 the industry received some $5 billon in subsidies for nearly every stage of wind production.

    Continue reading at the Wall Street Journal (subscription required)

  • Kansas and Wichita lag the nation in tax costs

    If we in Kansas and Wichita wonder why our economic growth is slow and our economic development programs don’t seem to be producing results, there is now data to answer the question why: Our tax rates are high — way too high.

    This week the Tax Foundation released a report that examines the tax costs on business in the states and in selected cities in each state. The news for Kansas is worse than merely bad, as our state couldn’t have performed much worse: Kansas ranks 47th among the states for tax costs for mature business firms, and 48th for new firms.

    The report is Location Matters: A Comparative Analysis of State Tax Costs on Business.

    The study is unusual in that it looks at the impact of states’ tax burden on mature and new firms. This, according to report authors, “allows us to understand the effects of state tax incentives compared to a state’s core tax system.” In further explanation, the authors write: “The second measure is for the tax burden faced by newly established operations, those that have been in operation less than three years. This represents a state’s competitiveness after we have taken into account the various tax incentive programs it makes available to new investments.”

    The report also looks at the tax costs for specific types of business firms. For Kansas, some individual results are better than overall, but still not good. For a mature corporate headquarters, Kansas ranks 30th. For locating a new corporate headquarters — one that would benefit from tax incentive programs — Kansas ranked 42nd. For a mature research and development facility, 46th; while new is ranked 49th. For a mature retail store, 38th, while new is ranked 45th.

    There are more categories. Kansas ranks well in none.

    The report also looked at two cities in each state, a major city and a mid-size city. For Kansas, the two cities are Wichita and Topeka.

    Among the 50 cities chosen, Wichita ranks 30th for a mature corporate headquarters, but 42nd for a new corporate headquarters.

    For a mature research and development facility, Wichita ranks 46th, and 49th for a new facility.

    For a mature and new retail store, Wichita ranks 38th and 45th, respectively.

    For a mature and new call center, Wichita ranks 43rd and 47th, respectively.

    In its summary for Kansas, the authors note the fecklessness of Kansas economic development incentives: “Kansas offers among the most generous property tax abatements and investment tax credits across most firm types, yet these incentives seem to have little impact on the state’s rankings for new operations.”

    Kansas tax cost compared to neighbors. Click here for a larger version.

    It’s also useful to compare Kansas to our neighbors. The comparison is not favorable for Kansas.

    More evidence of failure

    Recently the Greater Wichita Economic Development Coalition issued its annual report on its economic development activities for the year. This report shows us that power of government to influence economic development is weak. In its recent press release, the organization claimed to have created 1,509 jobs in Sedgwick County during 2011. According to the Bureau of Labor Statistics, the labor force in Sedgwick County in 2011 was 253,940 persons. So the jobs created by GWEDC’s actions amounted to 0.59 percent of the labor force. This is a very small fraction, and other economic events are likely to overwhelm these efforts.

    In his 2012 State of the City address, Wichita Mayor Carl Brewer took credit for creating a similar percentage of jobs in Wichita.

    The report by the Tax Foundation helps us understand why the economic development efforts of GWEDC, Sedgwick County, and Wichita are not working well: Our tax costs are too high.

    While economic development incentives can help reduce the cost of taxes for selected firms, incentives don’t help the many firms that don’t receive them. In fact, the cost of these incentives is harmful to other firms. The Tax Foundation report points to this harm: “While many state officials view tax incentives as a necessary tool in their state’s ability to be competitive, others are beginning to question the cost-benefit of incentives and whether they are fair to mature firms that are paying full freight. Indeed, there is growing animosity among many business owners and executives to the generous tax incentives enjoyed by some of their direct competitors.”

    But there is one incentive that can be offered to all firms: Reduce tax costs for everyone. The policy of reducing tax costs for the selected few is not working. This “active investor” approach to economic development is what has led companies in Wichita and Kansas escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

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

    In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Wichita and Kansas has been pursuing and which Wichita’s Brewer wants to step up: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

    In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.’”

    There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates is an example of such a policy. Abating taxes for specific companies through programs like IRBs is an example of precisely the wrong policy.

    We need to move away from economic development based on this active investor approach. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances, except to reduce the cost of government for everyone.

  • Mike Pompeo: We need capitalism, not cronyism

    In a guest column written for Americans for Prosperity, Kansas, U.S. Representative Mike Pompeo of Wichita explains why political cronyism, sometimes called crony capitalism, is wrong for our country. Pompeo coins a useful new term: “photo-op economics” to describe why some politicians support wasteful federal spending projects — as long as the spending is wasted in their districts. Then logrolling — the trading of legislative favors — applies, and those legislators who received votes from others to support wasteful spending must now reciprocate and support other wasteful spending.

    Pompeo touches on an important aspect of public policy that is not often mentioned: “Moreover, what about the jobs lost because everyone else’s taxes went up to pay for the subsidy and to pay for the high utility bills from wind-powered energy? There will be no ribbon-cuttings for those out-of-work families.” This describes the problem of the seen and unseen, as explained by Frederic Bastiat and Henry Hazlitt in the famous parable of the broken window.

    We Need Capitalism, not Cronyism

    By U.S. Representative Mike Pompeo

    The word “conservative” brings to mind family values, lower taxes, fiscal responsibility — and limited government. Limited government means a government limited in size, in its claim on national wealth, and — importantly — limited in the ends to which government’s power is used. It also means federal elected officials must act in the nation’s best interest and not allow their own parochial concerns to dominate their decision making. A big obstacle on the path to restoring limited government in America is cronyism.

    We all know the story. A flawed system has created incentives that make it easier for some companies to succeed by hiring a lobbyist rather than improving productivity or satisfying customers. Lobbyists for these businesses and the politicians who support them want the federal government picking winners and losers across our economy — so long as they are selected as “winners.” In my first term in Congress, we have eliminated earmarks that rewarded politically connected, rent-seeking advocates for federal largesse by tucking provisions into bills without adequate vetting or thorough review. But ever clever politicians have another tool — the tax code — to accomplish much the same outcome. This form of cronyism must stop too.

    “Tax earmarks” — be they deductions or credits — provide certain industries and businesses a means to gain financial advantage. Tax earmarks distort our free choices, waste tax dollars, and raise prices to provide goods and services that free markets provide more abundantly and more cheaply. They also force federal tax rates up, penalizing those who don’t receive them, because higher rates are required to capture the same revenue given all of the special interest tax earmarks now in effect. And, unlike standard earmarks, tax earmarks tend to be renewed year after year after year.

    One current fight against the insidious political tool of tax earmarks involves the energy sector. I am leading the charge to eliminate over two dozen energy tax credits tucked into the Internal Revenue Code. My proposed legislation would get rid of every single tax credit related to energy — ending tax favoritism that today goes to wind and solar, algae and electric vehicles and tax credits that go to the oil and gas industry as well. Tax subsidies miscast the role of the federal government. Energy sources are either viable without subsidies or else they do not make economic sense for taxpayers.

    Subsidies and giveaways redistribute wealth from productive, self-sustaining enterprises to unproductive, less efficient, albeit politically connected, ones. Although subsidies may have positive local effects, they penalize successful businesses — leading to less innovation, decreased productivity, fewer jobs, and higher prices for consumers. Cronyism also mistreats unsubsidized competitors, who wind up subsidizing their own competition to the detriment of their employees, consumers, and free-market competition.

    Together with tried-and-true conservative leaders like House Budget Committee Chairman Paul Ryan (WI), and Tea Party leaders like Sen. Jim DeMint (SC), and Sen. Mike Lee (UT), I am fighting to end this form of cronyism. Conservative groups including Americans for Prosperity, Americans for Tax Reform, Club for Growth, Council for Citizens Against Government Waste, Freedom Action, Heritage Action, National Taxpayers Union, and Taxpayers for Common Sense have all rallied to the side of limited government on this issue. They understand that picking winners and losers in the energy marketplace does not create long-term economic growth, and it harms our economic and political systems.

    One example of a tax earmark that should be eliminated is the Production Tax Credit (PTC) that goes to the wind industry. Yet, some Republican and Democrat members of Congress, not surprisingly from “wind states,” are pushing for yet another multi-year extension of the PTC, a multi-billion dollar handout to Big Wind. The PTC manipulates the energy market, drives up electricity bills for consumers and businesses, and creates a dangerous economic bubble. The PTC is a huge subsidy. Applied to oil companies, it would be the equivalent of giving $30 for every barrel of oil produced, according to the Heritage Foundation. The PTC has existed for the past 20 years, but it has not succeeded yet in making unsubsidized wind competitive. Politicians who pretend that a few more years of the PTC will make wind competitive could be right, but that is not a responsible bet to make with taxpayer dollars.

    Supporters of Big Wind, like President Obama, defend these enormous, multi-decade subsidies by saying they are fighting for jobs, but the facts tell a different story. Can you say “stimulus”? The PTC’s logic is almost identical to the President’s failed stimulus spending of $750 billion — redistribute wealth from hard-working taxpayers to politically favored industries and then visit the site and tell the employees that “without me as your elected leader funneling taxpayer dollars to your company, you’d be out of work.” I call this “photo-op economics.” We know better. If the industry is viable, those jobs would likely be there even without the handout. Moreover, what about the jobs lost because everyone else’s taxes went up to pay for the subsidy and to pay for the high utility bills from wind-powered energy? There will be no ribbon-cuttings for those out-of-work families.

    Here’s the data. The “green energy” 1603 grant program has given away $4.3 billion to 36 wind farms just since 2008. All together, these farms now employ 300 people. That’s $14 million per job. This is an unconscionable return on investment, especially for your tax dollars. Given that consumers also pay higher energy prices for electricity generated from wind, one has to wonder why some in Washington continue to push for Big Wind subsidies. Often the answer is that politicians care more about making good political investments than they do about making bad financial investments.

    In this respect, the PTC handout is virtually indistinguishable from the program that led to the Solyndra debacle. The Obama Administration gave 500 million taxpayer dollars to a private solar panel company to prop up a failed business model. As soon as government money ran out, the company folded. Solyndra could not attract sufficient private capital for financing because its solar panels could not compete in the consumer market. So it turned to its lobbyists in Washington and friends in the Obama Administration for its financing. The result was a skewed consumer marketplace and the waste of taxpayer dollars. Like the earmark for the Bridge to Nowhere, political allocation of your taxpayer dollars is failed policy.

    I get the game. Elected officials in Michigan want your money for electric cars. Those from California want your money for solar panels. And those from the Midwest want your money for wind turbines. In a country that has a $15 trillion national debt, annual deficits of over $1 trillion as far as the eye can see, and a $100 trillion unfunded liability in entitlement programs, this must stop.

    I believe that American ingenuity will eventually bring new energy sources to market successfully. It may be wind or algae, it may be biomass or solar. It may be the enormous natural gas and oil reservoirs that can now be reached affordably right here in North America. I also believe that American families making good choices for themselves will lead the way in deciding which new energy source or technology succeeds. Trying to pick that next great source from Washington, D.C. — and with your money — just leads to more cronyism, more debt, more bad decisions, more dependence on the Middle East and a much less limited federal government — outcomes that none of us can afford.

    Congressman Mike Pompeo represents Kansas’ 4th Congressional District.

  • Wichita economic development isn’t working

    Recently the Greater Wichita Economic Development Coalition issued its annual report on its economic development activities for the year. That report, along with a Wichita Eagle article from January, tells us that the traditional methods of economic development used in the Wichita area isn’t working very well.

    In the Eagle article, (Why isn’t Wichita winning projects?, January 22, 2012 Wichita Eagle), after listing four items economic development professionals say Wichita needs but lacks, the reporter wrote “The missing pieces have been obvious for years, but haven’t materialized for one reason or another.”

    If these pieces are truly needed and have been obviously missing for years: Isn’t that a startling assessment of failure of Wichita’s economic development regime?

    While Wichita Mayor Carl Brewer was quoted in the article as saying “You hear a lot from the loud minority,” the fact is that the minority rarely wins. Six of seven members of the Wichita City Council will vote for almost any giveaway to any company, no matter how unnecessary or unwise the subsidy program is.

    With two of its five members having a realistic view of government’s power to influence economic development, it’s a little tougher to push programs through the Sedgwick County Commission. But most programs make it through or don’t need the county’s participation.

    The GWEDC report also shows us that power of government to influence economic development is weak. In its recent press release, the organization claimed to have created 1,509 jobs in Sedgwick County during 2011. According to the Bureau of Labor Statistics, the labor force in Sedgwick County in 2011 was 253,940 persons. So the jobs created by GWEDC’s actions amounted to 0.59 percent of the labor force. This is a very small fraction, and other economic events are likely to overwhelm these efforts.

    In his 2012 State of the City address, Brewer took credit for creating a similar percentage of jobs in Wichita.

    Not mentioned are the costs of creating these jobs. These costs have a negative economic impact on those who pay these costs. This means that economic activity and jobs are lost somewhere else in order to pay for the incentives.

    Also, at least some of these jobs would have been created without the efforts of GWEDC. All GWEDC should take credit for is the marginal activity that it purportedly created. Government usually claims credit for all that is good, however.

    GWEDC website stale and out-of-date

    If GWEDC is looking for ways to improve its efforts in marketing Wichita, it might start with its own website. While the site features a high level of design sophistication, examining its contents reveals a lack of attention being paid to the site.

    For example, on a GWEDC page titled Recent Relocations Highlights, the most recent item is from 2009.

    The “News” page holds as its most current story one encouraging attendance at a conference that took place in 2010. The second and final story on this page notifies us that someday in the future there will be an Intrust Bank Arena in downtown Wichita. That arena has now been open for two years.

    The site also promotes an RFP (request for proposal) with a deadline in 2009 — three years ago.

    Anyone who comes across the GWEDC site would conclude from this negligence that this is an organization — and by extension, a city — that simply doesn’t care about its online presence.

    Going forward

    The danger we in Kansas, and specifically the Wichita area, face is the overwhelming urge of politicians to be seen doing something. For example, in response to the departure of Boeing, Wichita Mayor Carl Brewer called for the community to “launch an aggressive campaign of job recruitment and retention.”

    It is likely that we will become susceptible to large-scale government interventions in an attempt to gain new jobs. Our best course would be to take steps to make Kansas and Wichita an inviting place for all firms to do business. The instinct of politicians such as Brewer, however, is to take action, usually in the form of targeted incentives as a way to spur economic development. GWEDC is the agency responsible for this.

    We’ve seen the disappointing results — not only with Boeing, but also in a report showing that Wichita has declined in economic performance compared to other areas.

    These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This, however, does not stop governments from creating policies for the awarding of incentives. It also doesn’t stop the awarding of incentives willy-nilly without a policy, as the Wichita City Council has done for a hotel.

    This “active investor” approach to economic development is what has led to Boeing and other companies escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

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

    In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Wichita is sure to undertake in response to the loss of Boeing: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

    In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.’”

    There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates is an example of such a policy. Abating taxes for specific companies through programs like IRBs is an example of precisely the wrong policy.

    We need to move away from economic development based on this active investor approach. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances.

  • Kansas Senator Jerry Moran wants to pick losers in the market: His choice is big wind

    In Kansas, we have a lot of wind — no doubt about that. But the economics of wind as a source of electricity generation is another matter. There’s a split in Kansas over this. On one side are Kansas Governor Sam Brownback, who has been vocal in his support of wind power, along with Wichita Mayor Carl Brewer, who has been busy promoting Wichita as a site for wind energy-related industry. Now we see Kansas’ newest U.S. Senator Jerry Moran jumping in to promote the wind power subsidy program. Contrast this with U.S. Representative Mike Pompeo of Wichita, who has introduced legislation to end all tax credits related to energy production. It’s important to remember that the government subsidy program for wind power is in the form of tax credits, which are equivalent to grants by the government. The term “tax expenditures” is starting to see widespread usage to accurately describe the economic effect of tax credits.

    Senator Jerry Moran wants to pick losers in the market: His choice is big wind

    By Daniel Horowitz

    If I were pressed to offer one anecdote exemplifying our failure to elect consistent conservatives to Congress last November, the story of Senator Jerry Moran and Big Wind would be at the top of the list.

    In 2010, then-Congressman Jerry Moran beat former Congressman Todd Tiahrt for the Republican nomination for Senate in Kansas running as a red meat conservative. He easily won the seat in this solid Republican state and summarily joined the ‘Tea Party Caucus’ in the Senate. Nothing emblematizes the convictions of the Tea Party more than its fervent opposition to special interest handouts and government interventions in the private sector as a way of picking winners and losers. Yet, Senator Moran let the cat out of the bag last week that he has absolutely no compunction about picking winners and losers, or in the case of Big Wind, big losers.

    Last week, Senator Moran announced that he is submitting an amendment to the terrible Senate highway bill (S.1813) that would extend the 2.2 cent/ per kilowatt-hour Production Tax Credit (PTC) for another 4 years. This special interest handout to Solar and Wind is slated to expire at the end of the year. What happened to Moran’s Tea Party views? Well, he unabashedly threw them under the solar-powered bus:

    Asked about opposition to extending the credit expressed by Rep. Mike Pompeo of Wichita, Moran said: “There are members of Congress who feel we ought not to pick winners and losers, to let the markets decided. I believe it’s better to get this industry up and running, then let the country decide … rather than pull the rug out overnight.”

    Wow! At least he’s honest. I wish we had known that before the election.

    The PTC is the corporate version of the Earned Income Credit for green energy. It is among 51 ‘tax extenders’ that have either expired last December or are slated to expire this December. The PTC offers a 2.2 cent/per kilowatt-hour refundable credit for wind, solar, or geothermal. According to the Heritage Foundation, if the oil industry received a commensurate subsidy, they would get a $30 check for every barrel produced.

    Headed into the November elections, one of our most potent and popular arguments we have is to paint the Democrats with the Solyndra economy — an economy where the government intervenes to pick winners and losers, at the detriment of consumers and taxpayers. How can we effectively articulate an alternative free-market vision when we have a member of “the Tea Party Caucus” supporting Obama’s policy of picking losers in the energy sector? Talk about pale pastels!

    Folks, this is not how we win elections. Moreover, this type of special interest peddling — from energy subsidies to farm welfare — creates dependency in some of the reddest states. This is not a winning message for the future of conservatism, especially when it emanates from such a Republican state.

    There is a better way. Congressman Mike Pompeo (R-KS) introduced legislation (HR 3308) to sunset all targeted energy tax credits and grants, including those for fossil fuels and nuclear power. The bill would use the savings from the repeal of these credits (roughly $90 billion over ten years) to lower the corporate tax rate on everyone. Senator DeMint has introduced a companion bill in the Senate (S.2064).

    Every member of Congress who seeks a clean break from a centrally-planned Solyndra economy must cosponsor this bill. Additionally, as we look for more congressional candidates to endorse, it is these issues — energy and farm subsidies — that will separate the men from the boys. We must fight this election by offering voters a choice, not an echo.

    Cross-posted from The Madison Project