Voice For Liberty

Tag: Economics

  • Kansas Governor Sam Brownback on wind energy

    Recently Kansas Governor Sam Brownback wrote an editorial praising the benefits of wind power. (Gov. Sam Brownback: Wind offers clean path to growth, September 11, 2011 Wichita Eagle) Brownback has also been supportive of another form of renewable energy, ethanol.

    But not everyone agrees with the governor’s rosy assessment of wind power. Paul Chesser of American Tradition Institute offers a rebuttal of Brownback’s article, which first appeared in a Bloomberg publication.

    Chesser writes: “Apparently Gov. Brownback has overlooked the horrid results of efforts in recent years to spur the economy and employment with government renewable energy ‘stimulation’ from taxpayer dollars. … The lessons of failure with government mandates in pursuit of a renewable energy economy are not hard to find.”

    Chesser goes on to describe ATI’s study which illustrates the negative economic consequences of renewsable energy standards, which Brownback has supported. The study is The Effects of Federal Renewable Portfolio Standard Legislation on the U.S. Economy.

    Following is Chesser’s response to Governor Brownback.

    Kansas Gov., Former Sen. Brownback Incorrect on Promise, Economics of Renewable Energy

    By Paul Chesser

    American Tradition Institute today called attention to the many fallacies in a column written by Kansas Gov. Sam Brownback and published yesterday in the Bloomberg Government newsletter (subscription required), in which the former U.S. Senator touted the “long-term benefits” and “job creation” ability of renewable energy, predominantly with wind power.

    Apparently Gov. Brownback has overlooked the horrid results of efforts in recent years to spur the economy and employment with government renewable energy “stimulation” from taxpayer dollars. He wrote for Bloomberg, “Experience has taught us that investments in the renewable energy economy is creating jobs across all employment sectors, including construction, engineering, operations, technology and professional services, in both rural and urban communities.”

    “Unlike most of his fellow Republicans, it sounds like the governor continues to support President Obama’s failed initiatives to create ‘Green jobs’ in a hopeless attempt to save the U.S. economy,” said Paul Chesser, executive director of American Tradition Institute.

    Continue reading at ATI Release: Kansas Gov., Former Sen. Brownback Incorrect on Promise, Economics of Renewable Energy.

  • Walter Williams: Government must stick to its limited and legitimate role

    Walter E.
    Williams

    At two events in Wichita today, economist Walter E. Williams spoke on the legitimate role of government in a free society, touching on the role of government as defined in the Constitution, the benefits of capitalism and private property, and the recent attacks on individual freedom and limited government.

    The evening lecture was held in the Mary Jane Teall Theater at Century II, and all but a handful of its 652 seats were occupied. It was presented by the Bill of Rights Institute and underwritten by the Fred and Mary Koch Foundation.

    Williams said that one of the justifications for the growth of government — far beyond the visions of the founders of America — is to promote fairness and justice. While these are worthy goals, Williams said we must ask what is the meaning of fairness and justice, referring to the legitimate role of government in a free society.

    In the Constitution, Williams said the founders specified the role of the federal government in Article 1 Section 8. This section holds a list that enumerates what Congress is authorized to do. If something is not on the list, Williams said Congress is not authorized to do it.

    The Article 8 powers that Williams mentioned are to lay and collect taxes, duties, imposts, and excises; to pay the debts and provide for the common defense and general welfare of the United States; to borrow money on the credit of the United States; to coin money; to establish post-offices and post-roads; and to raise and support armies. It is regarding these powers, plus a few others, that Congress has taxing and spending authority. “Nowhere in the United States Constitution to we find authority for Congress to tax and spend for up to two-thirds to three-quarters of what Congress taxes and spends for today.”

    Farm subsidies, handouts to banks, and food stamps are examples Williams gave of programs that are not authorized by the Constitution. “I think that we can safely say that we’ve made a significant departure from the constitutional principles of individual freedom and limited government that made us a rich nation in the first place.”

    The institutions of private property and free enterprise are the embodiment of these principles, Williams said. But there have been many successful attacks on private property and free enterprise. Thomas Jefferson, Williams said, anticipated this when he wrote “The natural progress of things is for government to gain ground, and for liberty to yield.”

    Taxation and spending are the ways government has gained ground. Taxes represent government claims on private property.

    But an even better measure of what government has done is to look at spending. From 1787 to 1920, federal spending was only three percent of gross domestic product, except during wartime. Today, that figure is approaching 30 percent, Williams said: “The significance is that as time goes by, you and I own less and less of our most valuable property, namely ourselves and the fruits of our labor.”

    In the realm of economics, Williams said that the founders thought that free markets and capitalism was the most effective social organization for promoting freedom, with capitalism defined as a system where people are free to pursue their own objectives as long as they do not violate the property rights of others. An often-trivialized benefit of capitalism and voluntary exchange is that it minimizes the capacity of one person to coerce another, he told the audience. This applies to the government, too.

    But for the last half-century, Williams said that free enterprise has been under unrelenting attack by the American people. Whether they realize it or not, people have demonstrated a “deep and abiding contempt” for private property rights and individual liberty.

    Williams said that ironically, capitalism is threatened not because of its failure, but because of its success. Capitalism has eliminated things that plagued mankind since the beginning of time — he mentioned disease, gross hunger, and poverty — and been so successful that “all other human wants appear to us to be at once inexcusable and unbearable.”

    So now, in the name of ideals other than freedom and liberty, we pursue things like equality of income, race and sex balance, affordable housing, and medical care. “As a result of widespread control by our government in order to achieve these higher objectives, we are increasingly being subordinated to the point where personal liberty in our country is treated like dirt.”

    This ultimately leads to tyranny and totalitarianism, he said. To those who might object to this strong and blunt conclusion, Williams asked this question: “Which way are we headed, tiny steps at a time: towards more liberty, or towards more government control of our lives?” He said that the answer, unambiguously, is the latter.

    It is the tiny steps that concern Williams, as they ultimately lead to their destination. Quoting Hume, he said “It is seldom that liberty of any kind is lost all at once.” Instead, Williams said it is always lost bit by bit. If anyone wanted to take away all our liberties all at once, we would rebel. But not so when liberties are taken bit by bit, which is what is currently happening.

    It is people’s desire for government to do good — helping the disadvantaged, elderly, failing businesses, college students — that leads to the attack on private property and economic freedom. But Williams explained that government has no resources of its own, meaning that for government to give one person money it must first — “through intimidation, threats, and coercion” — confiscate it from someone else.

    Williams told the audience that if a private person used coercion to take money from someone and give it to another person, that would universally be considered theft and a crime. It doesn’t matter how needy or deserving the recipient, it would still be theft. But Williams asked if there is any conceptual difference between that act and when agents of the government do the same. Williams says no, except that in the second act, where Congress takes the money, the theft is legal.

    But mere legality doesn’t not make something moral. Slavery was legal in America for many years, but not moral. The purges of Stalin and Mao were legal under the laws of those countries. So legality does not equate to morality, Williams explained, and he said he cannot find a moral case for taking what belongs to one person and giving it to another to whom it does not belong.

    Charity is “praiseworthy and laudable” when it is voluntary, but it is worthy of condemnation when government reaches into others’ pockets for charity. Those who accept the forced takings are guilty, too, he explained.

    “The essence of our relationship with government is coercion,” Williams told the audience. This, he said, represents our major problem as a nation today: We’ve come to accept the idea of government taking from one to give to another. But the blame, Williams said, does not belong with politicians — “at least not very much.” Instead, he said that the blame lies with us, the people who elect them to office in order to get things for us. A candidate who said he would do only the things that the Constitution authorizes would not have much of a chance at being elected.

    The further problem is that if Kansans don’t elect officials who will bring federal dollars to Kansas, it doesn’t mean that Kansans will pay lower federal taxes. The money, taken from Kansans, will go to other states, leading to this conundrum: “That is, once legalized theft begins, it pays for everybody to participate.”

    We face a moral dilemma, then. Williams listed several great empires that declined for doing precisely what we’re doing: “Bread and circuses,” or big government spending.

    But there is a note — only one — of optimism, Williams believes. The first two years of the Obama administration, along with the Democratic Senate and House of Representatives, has been so brazen in their activities in “running roughshod over our liberties” that people are starting to argue and debate the Constitution. State attorneys general are bringing suits against the federal government over Obama’s health care plan. State legislatures are passing tenth amendment resolutions. The tea party and other grassroots movements give him optimism, too.

    We must also ask ourselves if we are willing to give up the benefits we get from government, he said. But most people want cuts in spending on other people, not ourselves, as “ours is critical and vital to the national interest.” With all of us feeling this way, Williams said the country is in danger.

    Young people have the greatest stake in the struggle for limited government and economic freedom, as the older generations have benefited from a relatively free country and the economic mobility that accompanied it. He said he’s afraid we’re losing that: “I’m hoping that future generations will not curse us for bequeathing to them a nation far less robust, far less free, than the nation that our parents and our ancestors bequeathed us.”

    In answering a question from the audience, Williams said he would be afraid of a constitutional convention to be held today, as some are advocating. We wouldn’t be sending people like John Adams. Instead, he said we’d be sending people like Barney Frank and others who have “deep contempt” for personal freedom.

    In response to a question on regulation, Williams said that regulations like health care and uncertainty over taxation cause businesses to be afraid to commit money to long term investments. Uncertainty “collapses the time horizon” causing firms to look for investments that pay off in the short term rather than the long term. This contributes to unemployment, he said.

    Williams also talked about the economic history of America. From its beginning to 1930, there were recessions and depressions, but there were not calls for the federal government to intervene and stimulate the economy. It wasn’t until the Hoover administration and the New Deal that the federal government intervened in the economy in order to “fix” the economy. Williams said that what should have been a “sharp two or three-year downtown” was turned in to the Great Depression — which was not over until after World War II — by government intervention. The measures being taken today are similarly postponing the recovery, he said. He added that most serious economic downturns are caused by government. It’s also futile for the government to spend the country out of a recession, which he likened to taking water from the deep end of a pool to the shallow end in order to raise the level of the shallow end. Government taking money from one person, giving it to another, and expecting the economy to rise is similarly futile.

    A question about mainstream media and their representation of the issues of today brought this response: “You have to make the assumption, I believe implied in your question, that those people are ignorant, and if only they knew better, they would change their behavior. Human ignorance is somewhat optimistic, because ignorance is curable through education. I’m very sure that many of these people want government control. The elite have always wanted government control, and the media was very responsible in getting President Obama elected.”

    In an interview, I asked what President Obama should say in his jobs speech tonight. Williams recommended the president should reduce regulation and lower taxes, especially capital gains and corporate income taxes. The spending programs of the past will not help. But Obama’s constituency will not favor this approach. The spending on roads and bridges benefits labor unions, for example.

    On those who accept who accept and benefit from government spending, Williams said that “one of the tragedies of our nation” is that the growth of government has turned otherwise decent people into thieves, because they participate in the taking of what belongs to someone else. But because of the pervasiveness of government, sometimes this is unavoidable.

    I asked do we need better politicians — ones who will work to limit government — or do we need different rules such as a balanced budget amendment or spending constraints? Williams said that the bulk of the blame lies with the people, as politicians are simply doing what voters ask them to do. “The struggle is to try to convince our fellow Americans on the moral superiority of liberty and its main ingredient, limited government.” Politicians will then follow, he added.

    I asked if we’ve passed some sort of tipping point, where people look first to government rather than voluntary exchange through markets. He said perhaps so, and mentioned another problem: Close to 50 percent of Americans pay no federal income tax. These people become natural constituents for big-spending politicians. As they pay no taxes — “no stake in the game” — they don’t care if taxes are raised or lowered.

    On the issue of the subsidy being poured into downtown Wichita, Williams said the issue is an example of the “seen and unseen” problem identified by Frederic Bastiat. We easily see the things that government taxation and intervention builds, such as a convention center. But what is not easily seen is what people would have done with the money that was taken from them through taxation. While the money taken from each person may be small, it adds up.

    On government funding for arts, an issue in Kansas at this time, Williams said that it ought to be an insult to artists that their work has to be funded through government forcing people to pay, as opposed to voluntary payments.

    Born in Philadelphia, Pennsylvania, Dr. Walter E. Williams holds a B.A. in economics from California State University, Los Angeles, and M.A. and Ph.D. degrees in economics from UCLA. He has served on the faculty of George Mason University in Fairfax, Virginia, as John M. Olin Distinguished Professor of Economics, since 1980. His website is Walter Williams Home Page.

  • Obama job plan not likely to help

    In order to help the economy President Barack Obama promises to soon reveal a plan to create jobs. Today’s preview before a union audience in Detroit didn’t provide many details, but based on the president’s past actions and guesses as to what the plan is likely to contain, it’s unlikely the plan will work.

    Various news reports and commentary have mentioned these as possible elements of an Obama jobs plan:

    A tax credit for hiring new workers. Some sources have suggested the plan might use tax credits to pay companies as much as $5,000 per new worker hired. Another estimate said Obama will have another tax credit plan that creates 900,000 additional jobs at a cost of $30 billion. That’s $33,333 per job. There’s evidence that these programs don’t work very well, as many of the jobs the government pays for are ones that companies were going to create anyway. This is also not a cut in marginal tax rates. Instead, it is more properly classified as a government spending program.

    Job training. This is a common response by government. Government, however, has a history of training the wrong people for the wrong jobs. The private sector is much better positioned to train its employees. But job training sounds like education, something that’s it’s difficult to be opposed to, no matter how poor a job the government does.

    Spending on infrastructure, especially school repairs.

    Extending the one-year cut in the payroll (Social Security and Medicare) tax. Less tax money flowing to government is always a good idea. Balanced against this is the need to pay for Social Security and Medicare.

    Extending unemployment insurance benefits. There’s some sense in doing this. Obama didn’t start the recession, but his policies are prolonging it and preventing recovery. So it’s not necessarily workers’ fault they were laid off and can’t find a job. But there’s a lot of evidence that extending unemployment insurance benefits extends the time many people will be out of work.

    Signing trade agreements. This is a good idea, as allowing free trade increases the wealth of everyone. But, you don’t need a treaty in order to have free trade.

    Help for homeowners. The housing crisis, caused by government, is a major problem. The value of houses must be allowed to fall to their natural level. Any programs that prevent this, or delays this market-clearing from happening, only prolongs the problem. It’s likely that any program coming from the Obama administration will do this.

    In his speech today, Obama’s speech today mentioned spending on “roads and bridges.” he also called for an extension of the payroll tax cut, which he said placed an extra $1,000 in the pocket of the average family, and he alluded to the trade agreements.

    He challenged Republicans to support tax cuts for working class companies, instead of for oil companies and the rich, and said “The time for Washington games is over. The time for action is now.”

    The problem with the president’s proposals is that they do not provide an environment for the growth of business. Some of his plans, like repairing schools, simply grow government at the expense of the private sector and leave future taxpayers a bill.

    The tax cuts for hiring workers is simply a spending program. The president — if he does propose these tax credits — will likely present them as a tax cut. That’s true in one sense, as it leaves more money in the private sector rather than government, which is good. But these tax credits aren’t what we need to really grow the economy, even through the program will leave more money in the private sector.

    For tax cuts to be productive in growing the economy, they have to be associated with something positive, namely with work, saving, or investment. What people positively respond to is a reduction in marginal tax rates, that is, the tax that must be paid on the next dollar earned.

    Programs that reduce the average tax rate like Obama’s Making Work Pay Tax Credit and the Bush tax rebates of 2008 aren’t effective because they don’t affect the marginal rate — the rate paid on the next dollar earned. This is not to say that I am not in favor of these programs. Anything that reduces the burden of taxes is welcome. But they are not the type of tax cuts that spur economic growth.

    Why are low marginal tax rates important to economic growth? First, high marginal tax rates discourage people from producing. As people get to keep less and less of what they produce after they pay higher tax rates, most decide to produce less. Some stop producing anything.

    Second, high marginal tax rates encourage people to invest in economically unproductive investments — like tax shelters — simply to avoid paying tax, without regard to the underlying wisdom of the investment. Or, people decide that since government takes so much of the money they earn, they might as well spend it on tax-deductible expenses that they might not buy otherwise. A company might hold an engineering conference at an expensive luxury resort instead of a modestly-priced facility — or instead of holding it electronically.

    Who responds most positively to reductions in marginal tax rates? First, with about half of American households paying no federal income tax at all — although they do pay payroll taxes — the idea of marginal tax rates doesn’t apply to them. That leaves high-income workers, or as Jeffrey A. Miron explains, the most economically productive members of society that are positively affected by marginal income tax rates:

    The Bush cuts provided lower taxes on ordinary income, especially for taxpayers at the high end of the income distribution. These are some of the most energetic and productive people in society; raising tax rates would discourage their effort and entrepreneurship. High-income taxpayers also have multiple ways of avoiding high tax rates, so any revenue gain from raising rates would be modest. The Bush cuts also lowered taxes on dividend and capital gains income; maintaining these lower rates is even more important for economic performance. Capital is mobile: when it is taxed heavily here, it flees somewhere else, meaning lower investment and employment in the United States. And because capital income taxes discourage investment or drive it overseas, they generate little if any tax revenue. (Jeffrey A. Miron, “Why the Bush Tax Cuts Worked”)

    It is these “energetic and productive” people that are responsible for a great deal of economic activity and job creation. When these people take steps to avoid taxes it means less productive economic activity and more unproductive tax shelters.

    In Slaying Leviathan: The Moral Case for Tax Reform, author Leslie Carbone explains the harm of high marginal taxes, especially progressive taxes, where rates become higher as more income is earned:

    The discouragement of earning money by working, saving, or investing inherent in any income tax is exacerbated by progressivity. While any high tax rates are economically destructive, high marginal rates are even worse, because high marginal rates particularly discourage productivity and inhibit economic growth. … By lowering potential pay off, high investment taxes especially discourage risky investment. Discouragement of risky investment squelches technological advancement, because new technologies are the most risky. This means our progressive tax system actually reduces progress and inhibits improve quality of life.”

    This is one of the things the president needs to do to grow jobs: reduce marginal tax rates. Then, reduce spending. This, along with sound monetary policies, has the best track record of producing private sector economic growth, and with that, jobs. But both of these, since they reduce rather than grow government, are not within Barack Obama’s realm of thinking, and so are not likely to be proposed.

  • Kansas and Wichita quick takes: Monday August 22, 2011

    How not to grow an economy. Wall Street Journal Review & Outlook How Not to Grow an Economy: A week in the life of the Obama recovery. from today: “Financial markets are in turmoil, investors are fleeing to safe havens, and the chances of another recession are rising. This would seem to be a moment when government should be especially careful to do no harm, to talk and walk softly, and to reassure business that Washington wants more private investment and hiring. But this is not how our current government behaves. Day after day brings headlines of another legislative, regulatory or enforcement action that gives CEOs and investors reason to hunker down, retain as much cash as possible and ride out whatever storms are ahead.” … After listing a number of headline events of the type mentioned, the Journal concludes: “None of these stories by themselves — or even a week of them — is enough to undermine a recovery. But the cascade of such stories day after day — about new regulations, new prosecutions or fines against business, new obstacles to investment, more spending and higher taxes — contributes to the larger lack of business and consumer confidence. It’s impossible to quantify the impact of such policies on lost GDP or lost job creation, but everyone in the real economy understands how such signals work. The great tragedy of the Obama nonrecovery is that this Administration still doesn’t realize the damage it is doing.” … Me, if wonder why if President Obama knows how to create jobs and has a plan to do so, why not introduce it today — or two and a half years ago, right after he became president? Are we to believe the he and his advisers know something now that they didn’t know then? We might hold some faint hope that Obama will reveal a plan that relies less on government and more on free markets and capitalism, but that doesn’t seem likely.

    Son of TARP. Also in the Wall Street Journal, Holman W. Jenkins, Jr. explains that the housing crisis isn’t over, thanks to government policies: “Under bailout theory, housing was supposed to hit bottom, but the bottom would be higher than if the economy had lapsed into depression. But housing hasn’t been allowed to hit bottom, thanks to policies designed to foil foreclosures and keep people in houses they can’t afford and have stopped paying for. As a result, the housing and construction industries remain paralyzed.” Bank of America, having bet on the success of the bailout, and now creatures of a government safety net: “They wouldn’t exist without it.” Holman contends the bailout isn’t working, and that raises a possibility for the future: “Our warning of two years ago — ‘bank nationalization will soon be back on the agenda unless the economy picks up’ — threatens to come true. If the tea party crowd didn’t like the debt-ceiling hike, think how they’d react to Son of Tarp.” The full article is The Bailout Isn’t Working: Bank of America is the canary in the coal mine.

    Wichita City Council. The Wichita City Council in its Tuesday meeting will consider consent items only as it is the fourth Tuesday of the month. Consent agendas are usually reserved for items thought to be of non-controversial nature, and items on them will not be discussed by the council unless a member asks to “pull” an item for discussion and a possible vote separate from the other consent agenda items. One item that may be of interest to citizens is a decision on purchasing four new city buses. This item is notable, according to Wichita Eagle reporting, because “The four buses the city is poised to purchase might be the last diesel buses it ever buys.” … Also on the consent agenda is a proposal to rezone large swaths of downtown property from various classifications to “CBD” Central Business District zoning. City document say this will allow existing land uses to continue while permitting new. The Metropolitan Area Planning Commission approved this proposal unanimously. … The council will also decide whether to accept petitions regarding the formation of a community improvement district and authorization of a facade improvement project at 104 South Broadway. That’s the Douglas Place Project being developed by David Burk and partners. There’s not much basis for refusing to accept the petitions, and all the agenda item does is accept the petition and set September 13 as the date for the public hearing on these matters. The council has already issued of letter of intent stating that it desires to go forward with these programs. … Earlier this year Jeff Longwell (district 5, west and northwest Wichita) voted against accepting CID petitions for the Eastgate shopping center. … As always, the agenda packet is available at Wichita city council agendas.

    Critique of Keynesian policies. Sheldon Richman in The Freeman: “The Keynesian pundits, then, are wrong on all counts. The government need not be the spender of last resort because 1) producers and consumers would spend just fine if it would get out of their way, and 2) the government can’t be relied on to create, rather than destroy, value in its use of scarce resources.” Richman also notes the intolerance, and also the “attitude that is at once arrogant and ignorant” of those who question “Keynesianism as the only truly scientific economics.” He explains that “The pundits can’t even acknowledge good faith in their opponents. This explains the intolerance shown those who refuse to agree that in a recession government spending is indispensable to raising aggregate demand and restoring economic growth.” … Boosters of government spending as stimulus often explain that the ARRA stimulus passed in 2009 was too small at only around $800 billion. But all government deficit spending counts as stimulus — and there’s been a lot of deficit spending the past few years.

    Junior Kansas legislators to speak. This Friday’s meeting (August 26th) of the Wichita Pachyderm Club features Kansas State Representatives Jim Howell and Joseph Scapa speaking on “Our freshmen year in the Kansas Legislature.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club … Upcoming speakers: On September 2 the Petroleum Club is closed for the holiday, so there will be no meeting. … On September 9, Mark Masterson, Director, Sedgwick County Department of Corrections, on the topic “Juvenile Justice System in Sedgwick County.” Following, from 2:00 pm to 3:00 pm, Pachyderm Club members and guests are invited to tour the Sedgwick County Juvenile Detention Center located at 700 South Hydraulic, Wichita, Kansas. … On September 16, Merrill Eisenhower Atwater, great grandson of President Dwight D. Eisenhower, will present a program with the topic to be determined. … On September 23, Dave Trabert, President of Kansas Policy Institute, speaking on the topic “Why Not Kansas: Getting every student an effective education.” … On September 30, U.S. Representative Mike Pompeo of Wichita on “An update from Washington.” … On October 7, John Locke — reincarnated through the miracle of modern technology — speaking on “Life, Liberty, and Property.” … On October 14, Sedgwick County Commission Members Richard Ranzau and James Skelton, speaking on “What its like to be a new member of the Sedgwick County Board of County commissioners?” … On October 21, N. Trip Shawver, Attorney/Mediator, on “The magic of mediation, its uses and benefits.”

  • For Wichita’s David Burk, subsidy machine is working again

    For Wichita real estate developer David Burk of Marketplace Properties, being on the receiving end of sweetheart lease deals with the City of Wichita is becoming a habit.

    According to a letter of intent approved by the city council — and sure to become law after a public hearing at a meeting of the Wichita City Council on September 13th — the city is planning to build about 8,500 square feet of retail space in a downtown parking garage. The garage is being built, partly, to serve a hotel Burk and partners are developing.

    Here are the details of the deal Burk and his partners are getting from the taxpayers of Wichita: The city plans to lease this space to Burk and $1.00 per year. Not $1.00 per square foot, but $1.00 for the entire space — all 8,500 square feet.

    That’s the plan for the first five years. For the next 10, the city would charge $21,000 rent per year, which is a rate of about $2.50 per square foot.

    For years 15 through 20, the rent increases to $63,000, or $7.41 per square foot. At the end of this period, Burk will have the option of purchasing the space for $1,120,000, which is a cost of about $132 per square foot.

    That cost of $132 per square foot is within the range of what sources in the real estate industry tell me top-quality retail space costs to build in Wichita, which is from $130 to $140 per square foot. Rents asked for that space would be from $15 to $18 per square foot per year.

    Using the low figure, Burk could expect to collect about $127,500 in annual rent on space he rents for $1.00, leaving a gross profit of $127,499 for him. As the $15 rent is a net figure, Burk’s tenants will pay taxes, insurance, and maintenance.

    As part of the Douglas Place Project, Burk and his partners will collect millions in the form of tax increment financing, forgiveness of property and sales taxes, capture of their hotel guest tax, community improvement district sales taxes, and historic preservation tax credits. This sweetheart lease is another layer in the cake — a very tall, many-layered cake of subsidies the city is baking for Burk.

    While most citizens might be shocked at the many layers of subsidy offered to Burk, he’s accustomed to such treatment. In 2003, the city offered a similar deal to Burk and his partners for retail space that is part of the Old Town Cinema project. That deal was made with Cinema Old Town, LLC, whose resident agent is David Burk. According to the Wichita Eagle, other partners in this corporation include Wichita theater owner Bill Warren, real estate agent Steven Barrett, Key Construction and seven others.

    David Wells, one of the owners of Key Construction, is a partner with Burk on the new hotel project, and Key is slated to build the garage under a process that doesn’t require competitive bidding, even though city money is used to pay for it.

    The Old Town project let Burk and his partners lease 17,500 square feet of retail space from the City of Wichita for $1.00 per year for the first five years. Like the proposed project, that’s not $1.00 per square foot, but $1.00 per year for all 17,500 square feet.

    Today this retail space probably rents for $15 to $18 per square foot, according to sources in the real estate industry. This means that Burk collected perhaps from $262,500 to $315,000 per year in rent. We don’t know the actual number, but it was likely in this ballpark. He had expenses, but not the main expense that most landlords face: the cost of the capital they have invested in their property. Burk had none of that expense, except for $1.00 per year.

    Like the proposed deal, the rent Burk pays for the Old Town space increased over time. For the second five years the agreement calls for Burk to pay $5.00 per square foot to the city. For the third five years, the rate rises to $7.50.

    Despite this sweetheart deal, Burk decided his property taxes were too high, and he appealed those taxes in a way the Wichita Eagle described as deceptive.

    It’s no wonder Burk and his wife regularly make generous campaign contributions to almost all city council members, regardless of their political stances. He’s developed an efficient machine, and its machinery expose all the problems with crony capitalism and the problem of concentrated benefits and dispersed costs as revealed by public choice economics.

    But I don’t think these problems bother the mayor, city council members (except for Michael O’Donnell), or city hall bureaucrats. For them — and most of all for Burk — it’s a process that worked once, and appears to be on the road to working again.

  • Kansas and Wichita quick takes: Wednesday August 17, 2011

    George Soros: Media Mogul. Dan Gainor and Iris Somberg of the Business and Media Institute, a division of the Media Research Center, have produced a report on the media-related activities of liberal financier George Soros. In the executive summary, Gainor and Somberg report: “George Soros is arguably the most influential liberal financier in the United States, donating more than $8 billion just to his Open Society Foundations. In 2004, he spent more than $27 million to defeat President George W. Bush and has given away millions more since to promote the left-wing agenda. But what goes almost without notice is Soros’ extensive influence on and involvement with the media. … His media funding has helped create a liberal ‘echo chamber,’ in the words of one group he backs, ‘in which a message pushes the larger public or the mainstream media to acknowledge, respond, and give airtime to progressive ideas because it is repeated many times.’” … As a person with an interest in news media, I can attest that the liberal echo chamber is quite effective, with stories spreading rapidly across a network of media outlets. Liberal politicians — even President Obama — pick up on and repeat the echoes. The executive summary of the report is at George Soros: Media Mogul — Lefty Businessman Spends Millions Funding Journalism. That page contains a link to the full report and additional material.

    ‘Nullify Now’ tour in Kansas City. The idea that states can nullify unconstitutional laws passed by Congress is gaining traction as a way to reign in the federal government. This week an event in Kansas City will help citizens learn more about this possibility. Write the event’s organizers: “Crushing debt, health care mandates, ‘super’ congress, and more. The list of constitutional violations from DC never seems to end. The good news is that we don’t have to wait for DC to fix itself. As Thomas Jefferson told us, state nullification is “THE RIGHTFUL REMEDY” to unconstitutional actions by the federal government. … At Nullify Now! Kansas City, you’ll hear nationally-renowned speaker Thomas Woods (and nine others) present the constitutional case for nullification. You’ll learn: the constitutional basis for nullification, how nullification has been used in history, how nullification is being called upon right now vs Obamacare, to protect gun rights, against the TSA, and more, and what YOU CAN DO RIGHT NOW to get your state to put a stop to the Feds.” The event is Saturday August 20, and tickets, ranging in cost from free to $75, are required. For more information click on Nullify Now! Kansas City.

    Krugman: government spending and inflation will save us. On a Sunday television show economist and New York Times columnist Paul Krugman revealed a plan to restore our economy: Pretend that an enemy is about to attack us — an imaginary enemy is best — and put concerns of inflation and budget deficits aside in favor of a massive defense buildup. Yes, he actually said that. He also repeated the myth that World War II ended the Great Depression. In the past, Krugman wrote that the terrorist attacks of September 11, 2001 “could even do some economic good” as rebuilding will increase spending. Video is at Paul Krugman: Massive Defense Buildup to Stimulate Economy. A very good analysis of Krugman’s ideas by Michael Pento is at Krugman’s War Won’t Avert Depression: “After all, the Keynesian economist’s favorite pastime is seeing people waste their lives digging holes in the ground or sacrifice their lives in war. Both acts create economic growth according to the topsy-turvy logic of men like Krugman. The truth is that wars are a miserable misallocation of capital and usually leave financial ruin in their wake. … The logical implication of Krugman’s arguments remains that working in productive employment is not at all necessary. If this is true, why not have people just save gas and stay home? The government could simply borrow and/or print money and send it to foreign countries that are dumb enough to produce goods and services for US consumption.”

    Stossel on history. In a recent episode of the John Stossel television program, now available on the free hulu service by clicking on Stossel: Politically Incorrect History, we learn of the falsehoods of labor union mythology, how unions limited the ability of minority workers to get jobs, how workplace safety was increasing before the Occupational Safety and Health Administration, how the New Deal didn’t fix the Great Depression despite what is taught in public school, and how President Hoover doubled government spending in spite of his reputation. This is all in just the first segment.

    Midwest economic model in decline. Michael Barone in the Wall Street Journal The Fall of the Midwest Economic Model: “Michigan is an extreme example of what has afflicted the industrial Midwest. Big corporations were replaced by big government as the leading employer, and public-employee unions replaced industrial unions as the chief financiers of the Democratic Party. In effect, public-employee unions have been a mechanism by which taxpayer money, in the form of union dues, permanently finances a lobby with a vested interest in higher spending and less accountability. It’s a lobby that’s benefited from the Democratic Party loyalties of black voters, of Latinos in Chicago (the only large Hispanic presence in the Midwest) and of culturally liberal suburbanites. This Midwestern model is unraveling before our eyes. The Midwest has not been hit as hard by foreclosures or unemployment as some other places, with Michigan an exception on both counts, but you have to look hard for green shoots of growth. They may be most evident in North Dakota, where low costs and light regulation have produced booms in energy and high tech. … So what does the president have to offer the Midwest? The idea that the wave of the future is an ever-larger public sector financed by a more or less stagnant private sector looks increasingly absurd. The Midwest’s public sector has, as Margaret Thatcher put it, run on ‘other people’s money.’”

    Optimal level of government spending. In a video by the Center for Freedom and Prosperity, Dan Mitchell explains that while some government is necessary, too much is harmful, and it’s certain that we have too much. In the video, Mitchell explains that government is useful when it provides core goods like rule of law and property rights, which gives people confidence to own property and produce goods and services. But once government gets too large, economic performance suffers, and prosperity is reduced. Mitchell cites a variety of studies that estimate that the economy works best when government spending is from 15 to 25 percent of gross domestic product (GDP). Today, Mitchell says government spending in the U.S. consumes 40 percent of GDP, which is far above the growth-maximizing level — perhaps twice as much. The trend is upwards, too. At least we’re not France, where the figure is over 50 percent. Concluding, Mitchell said “Government today is far too big and this is hurting growth, undermining prosperity, and reducing competitiveness. It doesn’t matter whether Republicans are spending too much money, or Democrats are spending too much money. … If we want a strong economy, the Rahn curve tells use we need to dramatically reduce the burden of government spending.”

  • Sweatshops best alternative for some workers

    From April, 2010.

    While sweatshops are not the place most Americans would choose to work, they are often the best alternative available to workers in some countries. Pay is low compared to U.S. standards because worker productivity is low, and the process of economic development will lead to increases in productivity and pay. But most policies promoted to help the purported plight of sweatshop workers actually lead to harm.

    That’s the message of Benjamin Powell, who spoke to a group of university students and citizens last night in Emporia on the topic “In Praise of Sweatshops.” Powell is a professor of economics at Suffolk University in Boston and is affiliated with The Beacon Hill Institute. His appearance was part of the Emporia State University “Lectures on Liberty” series.

    “Often when people say there’s something wrong with sweatshops, implicitly what they’re saying is ‘while this is bad, the alternative must be better.’ Often the alternatives in these countries are much, much worse.” The alternatives are often subsistence agriculture and working in farm fields, Powell said.

    A sweatshop, according to Powell, is a workplace with low wages (compared to U.S. standards), and poor, possibly unsafe, working conditions and benefits, again compared to U.S. standards. The sweatshops that Powell is defending are those where people voluntarily choose to work. Sweatshops where workers are forced to work under the threat of violence constitute slave labor, which cannot be defended. These are not better than the alternatives available to the forced workers, the evidence being that the workers are forced to work in these sweatshops.

    As evidence of non-sweatshop working conditions is some countries, Powell mentioned the case of a Cambodian girl and her working conditions, as reported by Nicholas D. Kristof in the New York Times in 2004:

    Nhep Chanda is a 17-year-old girl who is one of hundreds of Cambodians who toil all day, every day, picking through the dump for plastic bags, metal cans and bits of food. The stench clogs the nostrils, and parts of the dump are burning, producing acrid smoke that blinds the eyes.

    The scavengers are chased by swarms of flies and biting insects, their hands are caked with filth, and those who are barefoot cut their feet on glass. Some are small children.

    Nhep Chanda averages 75 cents a day for her efforts. For her, the idea of being exploited in a garment factory — working only six days a week, inside instead of in the broiling sun, for up to $2 a day — is a dream.

    Generally, sweatshop workers are paid much more than most other workers in the country, and their working conditions are much better. Powell mentioned that working inside — rather than outside — is very desirable in most countries. The fact that sweatshops pay higher wages and have better working conditions than the workers’ alternatives is important to remember.

    Powell explained the factors that determine how much workers are paid. The upper bound that employers are willing to pay workers is based on the amount of value that a worker can create. In economic terms, this is called the marginal productivity of labor.

    The lower bound, the minimum employers can pay, is the value of workers’ next best alternative.

    If we want to increase the earnings of sweatshop workers, we have to create policies that raise both the upper and lower bounds, Powell said, adding that about three-fourths of the variation in earnings across countries is explained by the upper bound. This points to the importance of increasing worker productivity.

    In one debate, Powell said his opponent wanted to take the question of sweatshop wages off the table, admitting that pay is higher in them. Instead, she wanted to focus on worker health and safety. But it’s important to remember, Powell told the audience, that working conditions, even those related to health and safety, are part of a total compensation package. Wages and working conditions are interconnected and can’t be separated.

    Sometimes people ask why apparel companies — the largest users of sweatshops — can’t simply pay the workers more, pointing to large profits and highly paid executives at these companies. But Powell said that apparel companies usually aren’t excessively profitable.

    Additionally, businesses are not charities. Forcing them to pay workers more means that companies will begin to look at ways to reduce the amount of labor they use. They may replace workers with machines, or use more productive workers in other countries. The result is sweatshop workers will lose their jobs.

    Powell reminded the audience that it’s important to remember that in most countries where sweatshops are used, these jobs are much better — both in terms of pay and working conditions — than what the workers face as alternatives. Anything that causes companies to shut down sweatshops or employ fewer workers, then, means that workers lose these better jobs and return to harder work at lower wages, or perhaps no work at all.

    In discussing the anti-sweatshop movement, Powell said that some groups sincerely want to help sweatshop workers, but don’t understand the economic realities in sweatshop-using countries. But labor unions such as UNITE do understand economics. The policies they advocate to help sweatshop workers — international labor standards and minimum or “living” wages, for example — increase the cost of sweatshop labor, causing companies to use less of it. It also makes unionized garment workers more attractive, and may lead to more employment in developed countries like the United States.

    “So unions advocate this not out of love for third world workers. They do it quite maliciously, actually, to unemploy third world workers for the benefit of already relatively wealthy union members in the United States and Western Europe countries.”

    The worst thing that advocates for sweatshop workers can do is to call for boycotts of products produced in sweatshops. If a boycott decreases demand for a product, the company must reduce its price, and the upper bound of what sweatshop workers can earn goes down. Then workers either have their wages reduced, or they lose their jobs.

    Powell presented the results of his research examining sweatshop wages. In many countries that use sweatshops, wages are very low, compared to U.S. wages. But that isn’t the appropriate comparison. Instead, when comparing the wages of sweatshop workers to the average income in the workers’ own country, we find that sweatshop workers do very well, often earning from two to seven times as much as the average worker in each country.

    Powell said that “ethical branding” is an idea that might help sweatshop workers. This is a marketing strategy where a company uses the fact that products are produced in sweatshops as a way to increase demand and prices. This, in turn, would increase the demand for sweatshop workers and increase their wages. But this has to be a voluntary strategy, Powell said. Companies must see this as a business success. If it is not successful in increasing demand but companies are forced to implement this strategy, it will lead to less sweatshop employment.

    Also, demand — in terms of the number of units sold — must not fall. This is a problem with “fair trade” coffee, where people purchase less of the more expensive fair trade coffee.

    The real solution for improving sweatshop wages and working conditions, Powell said, is the process of economic development. Sweatshops existed in Great Britain and the United States at one time. As capital is accumulated, better technologies are developed, and workers become more educated, workers become more productive and earn more, both in income and better working conditions.

    This process took over a century in the U.S., but countries like Hong Kong, Singapore, and South Korea, which were sweatshop countries in the 1950s and 1960s, made very rapid improvements in wages and working conditions. Capital and technology is available from abroad, Powell said, and this process can be repeated. But anti-sweatshop policies risk stalling this development, resulting in a permanent sweatshop country with low incomes.

    The real question, Powell said, is not why some countries are poor, but why some countries are rich. Rule of law, respect for property rights, and respect for individual liberty and economic freedom are policies that promote rapid economic growth. Countries that do not have these stagnate and do not increase their standard of living.

    In conclusion, Powell said that sweatshop wages and working conditions are better than what many workers face as alternatives, and that’s why people voluntarily choose to work in them. While wages are low compared to developed countries, this is because productivity is low. The process of economic development is the way to raise productivity and wages. Much of the work of anti-sweatshop groups risks undermining the economic development processes that will raise living standards.

    A question from the audience asked about the proliferation of sweatshops abroad leading to the loss of American jobs. Powell replied that sweatshops lead to the decline of the American apparel industry. But it is in the interest of America, he said, to get garments at lower cost overseas, freeing up high-skilled U.S. labor and capital to do what we’re relatively better at. This increases the wealth of America.

    Another question referred to the human costs of sweatshop labor, contrasting those workers to Nike executives who earn millions. What is the cost in terms of damage to human dignity? Powell replied that businesses are not charities, and they don’t pay executives high salaries simply because they want to. The extremely high pay of the top executive serves as an incentive for underlings to work harder in jobs that are hard to observe quality of effort. Most people do not understand this, Powell said.

    He also said that if we’re concerned about the dignity of sweatshop workers in third world countries, we should be even more concerned about those who don’t have sweatshop jobs. These people either have no jobs, or jobs with much lower pay and worse working conditions than sweatshop workers.

    Another question asked if it would help the economies of third world countries if we simply raised the wages of sweatshop workers, referring to companies that are making millions in profits. Powell said that laws mandating higher wages will change the behavior of sweatshop companies, resulting in a loss of sweatshop jobs. But voluntary programs like ethical branding could work.

    Related material on this topic by Powell includes a Christian Science Monitor op-ed Don’t get into a lather over sweatshops, a working paper titled Sweatshops and Third World Living Standards: Are the Jobs Worth the Sweat?, and an article In Defense of “Sweatshops.”

    The ESU Lectures on Liberty was conceived by Greg Schneider, professor of History at Emporia State University, to bring in important academics who support the idea of research and scholarship on critical issues regarding liberty in American history. The lecture series is underwritten by the Fred C. and Mary R. Koch Foundation in Wichita.

  • Supply-side economics, instead of taxes, is cure for recession

    From April, 2010.

    Sound money and income tax cuts — the elements of supply-side economics — have produced economic growth in America, according to Dr. Brian Domitrovic of Sam Houston State University. When our country imposes inflationary loose money policies and high income taxes, economic growth suffers, as in the period from 1973 to 1982. Unfortunately, these are the policies of President Barack Obama and his administration.

    Domitrovic lectured on principles in his book Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity last night at Friends University. His lecture was part of the Law, Liberty & the Market lecture series, which is underwritten by the Fred C. and Mary R. Koch Foundation in Wichita.

    “Unemployment at nine percent, five grueling quarters of decline in GDP growth, the stock market snapped back from its horrid 50 percent decline, but still needing a good 25 percent to get back to its old high: this has been some economic contraction.” While this may sound like a description of the current recession, it’s not. Instead, Domitrovic was describing the recession of 1974 and 1975. The stagflation period from 1973 to 1982, characterized by both high unemployment and high inflation, was a dark period in American history.

    There was also a mortgage and foreclosure crisis during that decade, but it affected the most prudent homeowners the worst. Property taxes in California went up five-fold in a period of ten years. Selling your house resulted in the loss of half your equity because of the capital gains taxes that were in effect then.

    While unemployment is high today, inflation is low, with prices even declining slightly last year. Being unemployed while prices are rising at nine percent per year — or 33 percent during one two-year period — is much worse than being unemployed today.

    In 1980 the bank prime interest rate reached 22%. (It’s 3.25% today.) It was impossible to save money in the 1970s, as the real tax rates on saving exceeded one hundred percent.

    Our economic crisis today is the “junior partner” to the stagflation decade. Our current political leaders should not be comparing the current situation to the Great Depression of the 1930s. Instead, the stagflation period has better lessons to teach us. It took 20 years for American living standards to recover to the level attained before the Great Depression started, Domitrovic told the audience, so we should not implement the same policies in response to the current recession.

    Instead, we have a fairly recent crisis — the stagflation period — which was solved “so firmly, so efficiently, so permanently” that the quarter-century following this period is known as the “Great Moderation.” There was economic growth year after year, inflation nearly vanished, unemployment was low, interest rates settled, businesses started, and stocks and bonds boomed.

    It was supply-side economics that ended the stagflation and lead to the long period of prosperity, the Great Moderation. Failing to embrace supply-side economics as a response to the economic problems that arose in 2008 was one of our greatest mistakes.

    As the current crisis enters its third year, we should not be surprised that recovery is slow to arrive. “Tepid and incomplete recovery was, in fact, the record of the New Deal, which our policymakers have looked to for inspiration,” Domitrovic explained.

    Supply-side economics consists of stable money and marginal tax cuts. These are the policies that defeated stagflation and lead to the Great Moderation.

    Domitrovic explained that in 1913, two great institutions of macroeconomic management were created, the Federal Reserve system and the income tax. Prior to this time, the United States had no ability to conduct macroeconomic policy, either fiscal or monetary policy.

    Since 1913, the economic history of the U.S. has been that of “serial disaster.” From 1913 to 1919, prices increased by 100 percent. Prior to that, there had never a peacetime inflation in the U.S. The top rate of the income tax, which started at a rate of seven percent, had increased to 77 percent by 1917. From 1919 to 1921, the U.S. experienced its worse recession up to that time. Unemployment rose to 18 percent. Prior to this time, unemployment was not a problem.

    The fix was President Warren Harding’s Treasury Secretary Andrew Mellon telling the Federal Reserve to keep the dollar stable instead of trying to manipulate the price level, and the income tax rate was cut by two-thirds. As a result, from 1921 to 1929 inflation was low, less than one percent, and that nation experienced the boom known as the Roaring Twenties. Economic progress boomed.

    But in 1929, the Federal Reserve started to deflate the currency in an attempt to get prices back to the 1913 level. In 1932 the top income tax rate was raised to 63 percent from 25 percent. “There you have the Great Depression,” Domitrovic said. It was a crisis of macroeconomic management, not a failure of capitalism, as is commonly believed.

    Franklin Roosevelt instructed the Federal Reserve to keep the price level steady, which was one good policy he implemented. But he increased income tax rates.

    In 1947 income tax rates were cut and the Federal Reserve pursued stable prices after the inflation of World War II.

    A pattern emerged: stable prices coupled with income tax cuts lead to recovery. When these policies are not applied, recovery was weak and collapsed. These patterns repeated through the rest of the century.

    During the Eisenhower Administration, the top tax rate was 91 percent. Eisenhower refused to cut taxes, and there were three recessions during his presidency.

    John F. Kennedy wanted to solve the crisis. His advisors told him to loosen money and raise taxes, even though the top marginal rate was 91 percent. The idea, according to recently-deceased economist and Kennedy adviser Paul Samuelson, was that by increasing the money supply people would spend money, which would cause production to increase and workers to be hired. But increasing the money supply produces inflationary pressures. The solution was very high income tax rates, which sops up the extra money that causes inflation.

    But Robert Mundell, only 29 years old at the time, wrote a memo that advised the opposite, advocating stable money and low taxes. Kennedy adopted this policy, and a great boom resulted for seven years.

    But Lyndon Johnson asked his Federal Reserve Chairman to increase the money supply, and passed an income tax surcharge to attempt to control the danger of inflation — the “neoclassical synthesis.” Inflation rose. Nixon increased the capital gains tax and established the alternative minimum tax. The result was the double-dip recession of 1969 to 1970, which cost more in economic output than the cost of the entire Viet Nam war.

    Still, the Federal Reserve kept increasing the money supply, and the income tax rate was increased. Nixon insisted that printing money would save the economy, and in order to control inflation, Nixon imposed price controls. The result was an investment strike. If businesses could not charge the prices they needed, they would enter other fields of businesses, such as commodities. The prices of commodities rose rapidly, and there was the terrible double-dip recession of 1974 to 1975.

    Mundell, along with Robert Bartley of the Wall Street Journal and others, started to encourage government to tighten the money supply and lower taxes. At the same time United States Representative Jack Kemp introduced a bill calling for a large tax cut and stable money. Kemp’s bill passed both houses of Congress with a veto-proof majority. But Jimmy Carter had it killed in committee.

    If not for Carter’s action, the Kemp-Roth tax cuts would have become law in November 1978. These tax cuts, had they been passed and been coupled with Carter’s appointment of Paul Volcker — an advocate of stable money — as chairman of the Federal Reserve in August 1979, would have found the policy elements of “Reaganomics” in place at that time. Domitrovic said the economy would have recovered rapidly, and it is likely that Ronald Reagan would not have run for president in 1980.

    Instead, the period from 1979 to 1981 was a brutal period of economic history, with high unemployment, high inflation, and tanking markets.

    Upon entering office, Reagan was able to implement sound money policy and tax cuts — by then called supply-side economics — and the economy started the boom that lasted for 25 years. During this time there was only one recession, in 1990 and 1991. This is in contrast to the three recessions during Eisenhower’s eight years in office.

    Supply-side economics is one of the greatest success stories in economics and government, Domitrovic said. Despite evidence of its success, despite the fact that every objection to it has collapsed, policymakers did not follow its policies in 2008. Objections to supply-side economics that have proven to be unfounded include:

    It is inflationary. This is the basis for George H.W. Bush’s characterization of supply-side economics as “voodoo” economics. But inflation since 1982 has been very low.

    It would cause crowding-out. This refers to the fact that tax cuts can cause budget deficits, and the government would have to borrow so much money that none would be available for private business investment. But the 1980s, 1990s, and 2000s were a period of historic expansion, with the Dow Jones stock market average increasing by a factor of 15 during this time.

    Government debt is a burden to future generations. But the nation experienced great prosperity and economic expansion during the Great Moderation, and interest payments on the debt were not a major burden.

    Tax cuts would place the U.S. in a “fiscal hole,” with budget deficits forever. But by the 1990s we were running budget surpluses. Domitrovic said that when Clinton balanced the budget in 2000, the total level of government expenditure was 18.4 percent of gross domestic product. In Reagan’s last year in office (1989) revenues were 18.4 percent of GDP. “In other words, Reagan’s tax policy plus Clinton’s spending policy was exactly sufficient for a perfectly balanced budget.”

    Supply-side economics causes inequality. But Domitrovic said that tax cuts mean that wealthy people don’t have to hide their income from taxes, making their income more productive publicly. Inequality has decreased.

    Summarizing, Domitrovic told the audience that the lessons of the Great Moderation are that when the institutions of 1913 — Federal Reserve and the income tax — are tamed, the American economy does wonderful things. Stable money and low taxes, combined with the entrepreneurial knack of Americans, produces remarkable economic growth and job opportunities. But when the macroeconomic institutions of 1913 run a muck the economy will suffer. The current policies of the Obama Administration — loose money and rising taxes — are not going to produce prosperity.

  • Wichita should reject the fads Portland has followed

    By Randal O’Toole. From February, 2010.

    Randal O'Toole speaking in WichitaRandal O’Toole in Wichita.

    Urban planners say they can make our cities more livable, our downtowns more vibrant, and our traffic calmer. The problem is that urban planners do not understand how cities work, so all of their plans often turn out disastrously wrong.

    Many urban planners are quite capable of planning a sewer line, a road, a bus route, or a school. But it is huge leap from “I can locate a water main” to “I should have the power to decide how every piece of land in your urban area should be used.”

    That is the power urban planners want. But cities are too complicated for anyone to plan, so giving anyone this power is asking for trouble.

    Take my former hometown of Portland, Oregon, whose planners say they are making streets “vibrant” and the city “livable” by encouraging walking and transit ridership and discouraging driving.

    To stop “sprawl,” planners told rural landowners around Portland that they cannot build a house on their own land unless they own at least 80 acres and earn $80,000 a year farming it. To promote “compact development,” planners rezoned many neighborhoods of single-family homes for multi-family housing with zoning so strict that, if someone’s house burns down, they can only replace it with an apartment.

    Planners believe your only property rights are the rights planning commissions decide to give you — subject to change any time.

    Portland has spent well over $2 billion building light-rail and streetcar lines. To encourage transit ridership, planners allowed rush-hour congestion on all major freeways and streets to increase to stop-and-go levels. Doing anything to relieve congestion, planners feared, “would eliminate transit ridership.”

    To further encourage transit and walking, planners zoned all the land near light-rail stations for high-density, mixed-use development, so people could walk from their apartment buildings to a cafe or grocery store. When nothing got built — developers said Portland already had a surplus of multi-family housing — the city started subsidizing it, and has so far given around $2 billion in public funds to developers.

    The results are attractive if you like the idea of dodging trolleys as you wander through canyons of four- and five-story apartment buildings. But the practical effects on Portland residents are mostly negative.

    Planners successfully increased congestion by more than six times since 1982, about the time most of these plans began. But that hasn’t gotten people out of their cars: the share of commuters taking transit to work declined from 9.8 percent in 1980 to 6.5 percent in 2007.

    Planners more than doubled housing prices, so a $150,000 home in Wichita would cost well over $300,000 in Portland. But that hasn’t made high-density housing particularly successful: many of these developments have high vacancy rates and several have gone bankrupt.

    High housing prices forced many families with children to move to distant suburbs, and the remaining childless households eat out a lot, so Portland has lots of restaurants. But it also has high taxes and urban services have deteriorated as funds once dedicated to fire, police, public health, and other programs have been diverted to subsidies to developers.

    Terrible traffic, unaffordable housing, high taxes, and reduced property rights: those are the legacies of Portland planning. That’s the future planners want to bring to Wichita. I recommend you just say no.

    Randal O’Toole (rot@cato.org) is senior fellow with the Cato Institute and author of The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future. He recently visited Wichita for a series of speaking engagements and meetings.