Voice For Liberty

Tag: Economics

  • Kansas and Wichita quick takes: Sunday March 13, 2011

    Wichita city council this week. There is no meeting of the Wichita City Council this week, as most members will be attending a meeting of the National League of Cities in Washington, DC. These conferences are designed to help council members be more effective. But for three of the council members that will be attending, their future service on the council is measured in days, not years. These three lame duck members — Sue Schlapp, Paul Gray, and Roger Smith — will be leaving the council in April when their terms end. Their participation in this conference, at taxpayer expense, is nothing more than a junket — for lame ducks.

    How attitudes can differ. At a recent forum of city council candidates, one candidate mentioned the five or six police officers conducting security screening of visitors seeking to enter Wichita city hall, recognizing that this doesn’t create a welcoming atmosphere for citizens. Vice Mayor Jeff Longwell said he thought the officers are “accommodating and welcoming.” It should be noted that Longwell carries a card that allows him to effortlessly enter city hall through turnstiles that bypass the screening that citizens endure. Further, it’s natural that the police officers are deferential to Longwell, just as most employees are to their bosses. … This attitude of Longwell is an example of just how removed elected officials can be from the citizens — and reality, too. Coupled with the closing of the city hall parking garage to citizens and the junket for lame ducks described above, the people of Wichita sense city hall elected officials and bureaucrats becoming increasingly removed from the concerns of the average person.

    Private property and the price system. In The Science of Success, Charles Koch succinctly explains the importance of private property and prices to market economies and prosperity, how government planning can’t benefit from these factors, and the tragedy of the commons: “Private property is essential for both a market economy and prosperity. There cannot be a market economy without private property, and a society without private property cannot have prosperity. To ensure ongoing innovation in satisfying people’s needs, there must be a robust and evolving system of private property rights. Without a market system based on private property, no one can know how to effectively allocate resources. This is because they lack the information that comes from market prices. Those prices depend on voluntary exchanges by owners of private property. Prices and the resulting profit and loss guide entrepreneurs toward satisfying the needs of consumers. Through this system, consumers are able to direct entrepreneurs in efficiently allocating resources through knowledge and incentives in a way no central authority can. … The biggest problems in society have occurred in those areas thought to be best controlled in common: the atmosphere, bodies of water, air, streets, the body politic and human virtue. They all reflect aspects of the ‘tragedy of the commons’ and function much better when methods are devised to give them characteristics of private property.”

    Toward a free market in education. From The Objective Standard: “More and more Americans are coming to recognize the superiority of private schools over government-run or ‘public’ schools. Accordingly, many Americans are looking for ways to transform our government-laden education system into a thriving free market. As the laws of economics dictate, and as the better economists have demonstrated, under a free market the quality of education would soar, the range of options would expand, competition would abound, and prices would plummet. The question is: How do we get there from here?” Read more at Toward a Free Market in Education: School Vouchers or Tax Credits?. … This week in Kansas a committee will hold a hearing on HB 2367, known as the Kansas Education Liberty Act. This bill would implement a system of tax credits to support school choice, much like explained in the article.

    Are lottery tickets like a state-owned casino? This week a committee in the Kansas House of Representatives will hear testimony regarding HB 2340, which would, according to its fiscal note, “exempt from the statewide smoking ban any bar that is authorized to sell lottery tickets under the Kansas Lottery Act.” The reasoning is that since the statewide smoking ban doesn’t apply to casinos because it would lessen revenue flowing to the state from gaming, the state ought to allow smoking where lottery tickets are sold, as they too generate revenue for the state.

    Money, Banking and the Federal Reserve. This month’s meeting of the Wichita chapter of Americans for Prosperity, Kansas features a DVD presentation from the Ludwig von Mises Institute titled “Money, Banking and the Federal Reserve.” About the presentation: “Thomas Jefferson and Andrew Jackson understood “The Monster.” But to most Americans today, Federal Reserve is just a name on the dollar bill. They have no idea of what the central bank does to the economy, or to their own economic lives; of how and why it was founded and operates; or of the sound money and banking that could end the statism, inflation, and business cycles that the Fed generates.” The event is Monday (March 14) at 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Wichita-area legislators to meet public. Saturday (March 19th) members of the South-Central Kansas Legislative Delegation will meet with the public. The meeting will be at Derby City Hall, 611 Mulberry Road (click for map), starting at 9:00 am. Generally these meetings last for two hours. Then on April 23 — right before the “wrap-up session” — there will be another meeting at the Wichita State University Hughes Metropolitan Complex, 5015 E. 29th Street (at Oliver).

    Pompeo to meet with public. If you don’t get your fill of politics for the day after the meeting with state legislators, come meet with United States Representative Mike Pompeo, who is just completing two months in office. Pompeo will be holding a town hall meeting at Maize City Hall, 10100 W. Grady (click for map) starting at 1:00 pm on Saturday March 19th.

    Losing the brains race. Veronique de Rugy writing in Reason: “In November the Organization for Economic Cooperation and Development (OECD) released its Program for International Student Assessment scores, measuring educational achievement in 65 countries. The results are depressingly familiar: While students in many developed nations have been learning more and more over time, American 15-year-olds are stuck in the middle of the pack in many fundamental areas, including reading and math. Yet the United States is near the top in education spending.” … A solution is to introduce competition through markets in education: “Because of the lack of competition in the K–12 education system. Schooling in the United States is still based largely on residency; students remain tied to the neighborhood school regardless of how bad its performance may be. … With no need to convince students and parents to stay, schools in most districts lack the incentive to serve student needs or differentiate their product. To make matters worse, this lack of competition continues at the school level, where teacher hiring and firing decisions are stubbornly divorced from student performance, tied instead to funding levels and tenure.” The author notes that wealthy families already have school choice, as they can afford private schools or can afford to move to areas with public schools they think are better than the schools in most urban districts.

    Teachers unions explained. A supporter of the teachers unions is questioned about her belief that the unions need more money and power. In Kansas, the teachers union in the form of Kansas National Education Association (KNEA) and its affiliates consistently opposes any attempt at reform.

  • Please feel free to ignore Lou Dobbs

    Television personality Lou Dobbs is starting a new television show on Fox Business Network, and judging by his recent remarks, viewers will want to be cautious when relying on Dobbs for information.

    Appearing yesterday on The O’Reilly Factor, Dobbs made the same mistake that New York Times columnist and Nobel prize winner Paul Krugman made. He wrote in The New York Times that “the terror attack [of 9/11/2001 that destroyed the World Trade Center] could even do some economic good.”

    On the earthquake in Japan, Dobbs said “There is a perverse effect here, which is beneficial to the world economy. That is the materiel, the expertise, the labor that will be required to rebuild will be something of a boon to the rest of the world.”

    Where Krugman and Dobbs are mistaken is that they fail to see the unnseen effect of the economic activity that goes into recovering from disasters, whether they be natural or man-made. That is, quite simply: The effort that goes into rebuilding is not available for something else. Henry Hazlitt explains in an excerpt from his book Economics in One Lesson:

    Part Two — The Lesson Applied — The Broken Window

    Let us begin with the simplest illustration possible: let us, emulating Bastiat, choose a broken pane of glass.

    A young hoodlum, say, heaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Fifty dollars? That will be quite a sum. After all, if windows were never broken, what would happen to the glass business?

    Then, of course, the thing is endless. The glazier will have $50 more to spend with other merchants, and these in turn will have $50 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever- widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.

    Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $50 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $50 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.

    The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.

    The Blessings of Destruction

    So we have finished with the broken window. An elementary fallacy. Anybody, one would think, would be able to avoid it after a few moments thought. Yet the broken-window fallacy, under a hundred disguises, is the most persistent in the history of economics. It is more rampant now than at any time in the past. It is solemnly reaffirmed every day by great captains of industry, by chambers of commerce, by labor union leaders, by editorial writers and newspaper columnists and radio commentators, by learned statisticians using the most refined techniques, by professors of economics in our best universities. In their various ways they all dilate upon the advantages of destruction.

    Ignore Bill O’Reilly, too

    On the same show, host Bill O’Reilly was doubtful about the economic benefit — which we now know is not really a benefit — of the rebuilding in Japan doing much good for America. He said “They don’t buy a lot of American stuff over there.”

    But figures from the U.S. Census Bureau for 2010 indicate that Japan is the fourth largest purchaser of American exports, ahead of the U.K. and Germany:

    Canada         248.8
Mexico         163.3
China           91.9
Japan           60.5
United Kingdom  48.5
Germany         48.2
Korea, South    38.8
Brazil          35.4
France          27.0
Taiwan          26.0

  • Speculators selfishly provide a public service

    Speculators are selfish people, acting only to make as much profit as possible for themselves without concern for the welfare of others. By doing so, they provide a valuable public service.

    That’s not what we hear in this moment of rising oil and gasoline prices. News commentators from across the political spectrum condemn speculators, blaming them for rising gasoline prices.

    The mechanism of the speculator is to buy something like oil when prices are low, then to sell it when prices are high. By doing so he earns a profit. (An alternative is to sell things he does not yet own when prices are high, and then buy to fulfill his obligation when prices are low.)

    The speculator, in this definition, does not hope to profit by processing and distributing the commodity he is buying and selling, as does an oil company or flour miller. He simply hopes to make a profit based on the changing prices — up or down — of oil or wheat.

    It is said that speculators are buying oil now and therefore driving up the price. That’s probably true, and it illustrates one of the beneficial services that speculators provide: they reduce volatility in prices. If speculators are correct and the price of oil spikes sometime soon, the present buying by speculators makes the spike less steep. It also induces consumers to conserve.

    Writing about speculation in food markets, Walter Block explains the beneficial effects:

    First, the speculator lessens the effects of famine by storing food in times of plenty, through a motive of personal profit. He buys and stores food against the day when it might be scarce, enabling him to sell at a higher price. The consequences of his activity are far-reaching. They act as a signal to other people in the society, who are encouraged by the speculator’s activity to do likewise. Consumers are encouraged to eat less and save more, importers to import more, farmers to improve their crop yields, builders to erect more storage facilities, and merchants to store more food. Thus, fulfilling the doctrine of the “invisible hand,” the speculator, by his profit-seeking activity, causes more food to be stored during years of plenty than otherwise would have been the case, thereby lessening the effects of the lean years to come.

    If the spike in prices does occur, what will speculators do? They will sell their oil, and that action will drive down prices, making the spike less steep. Here the speculator makes a profit by providing the service of making the oil shortage less severe. His hoarding of oil, bought when prices were low, makes it available in times of need, and less expensive, too. The speculator is rarely given credit for that in public, although this is how the speculator earns a profit.

    It is possible for speculators to do harm, however. If the speculator buys, he drives up prices. Then suppose the price of oil falls, and the speculator is forced to sell. His actions have increased the volatility of oil prices and have sent false price signals to the market. Citing again Block’s food example: “What if he is wrong? What if he predicts years of plenty — and by selling, encourages others to do likewise — and lean years follow? In this case, wouldn’t he be responsible for increasing the severity of the famine? Yes. If the speculator is wrong, he would be responsible for a great deal of harm.”

    In these cases, the speculator has suffered financial losses. These loses are a powerful market force that drives “bad” speculators — meaning those who guess wrong about future prices — out of the market.

    The real danger is when government attempts to speculate. That’s a possibility at the current moment, as many are recommending that the U.S. government sell oil from the strategic petroleum reserve in an effort to lower the cost of oil. That’s speculation — the oil was bought at a time when the price was lower, and is now contemplated being sold at a higher price.

    The problem with government speculation is that government does not face the market discipline that private-sector speculators face. When they are wrong, they lose their capital. They go out of business. Government faces no such discipline. When government is wrong, it goes on.

    Government attempts at regulating speculators are certain to fail, too. Almost any such regulation will seek to reduce the profit potential of speculation. But that is what drives the speculators and makes the system work. Without the potential for profits, speculators will not take the risk of losses, and they will not perform their beneficial function.

  • Kansas and Wichita quick takes: Monday February 21, 2011

    Kansas legislature website. Over the weekend a new version of the website for the Kansas Legislature appeared. It has a new design over what’s been available for the last six weeks or so. It will take a while to shake out the new site, but here are a few observations: Finally, pdf documents are displayed in a standard — that is to say plain — method that should be usable on devices of all types. … Attempting a search produces a “page not found” error. … There is no mobile version that works on devices like an Iphone, which is a popular thing to have these days. … There is a link named “A/V Live” which is not active at this time, but points to the goal of having committee testimony broadcast on the website. Here’s a better idea: almost all conferees that testify before committees have written testimony that is provided to committee members. Make that testimony available to the people of Kansas. This could be done fairly easily — and inexpensively — and is more useful. … The Wichita Eagle has some reporting today about the troubles with the new site. But the biggest question is: why is this work being done during the legislative session? Why not do it from June through December when the legislature is not in session and demand for the site is less? Why wasn’t the old site left running while the new site was built?

    Legislators on Governor’s plan. At a meeting with Wichita-area legislators on Saturday, some spoke on Governor Brownback’s economic development plan. As with much of the news media, legislators seem mostly oriented on the reorganization of some agencies rather than the call for an end — or at least reduction — of targeted incentives and subsidies. Some legislators emphasized that we are competing with other states for jobs. It will be difficult for elected officials to give up the arms race of offering subsidy to companies to come to Kansas, or as we see in the Hawker Beechcraft deal, simply agree to remain in Kansas, even with a smaller number of jobs. … The governor’s plan still contains a slush fund for attracting jobs to Kansas, which should keep the big-government fans happy for a while.

    Could Wisconsin demonstrations come to Kansas? At the meeting with legislators, I asked if the demonstrations taking place in Wisconsin could be seen in Kansas. There, state employees are protesting the governor’s proposal to ask them to pay more for health insurance and pensions. Also proposed are measures that would reduce the power of the state workers union. Representative Jim Ward said: “I don’t think it would happen in Kansas.” While people in Kansas are passionate, we have a tradition of civility, he added. … The Kansas public employee retirement system is among the most underfunded and will probably require someone to pay more. The process of selecting who has to pay — employees or taxpayers — is likely to be contentious.

    Wichita trash. It seems likely that Wichitans will see another trash plan proposed, according to Wichita Eagle reporting. The urge by government bureaucrats like city manager Robert Layton to create a solution to a problem that doesn’t exist is compelling, it seems. While some Wichitans are paying much more than others for trash service, the publicity generated by the Eagle reporting has informed everyone as to how much trash service should cost. … Most candidates for city council seem to be against city involvement in trash service.

    Wichita mayoral forum didn’t go well. According to reporting from KWCH, a forum for candidates for Wichita mayor didn’t go well: “Wichita residents came to a political forum to listen to political issues, but left shaking their heads.” Continuing in the story: “Some say they weren’t impressed with incumbent Carl Brewer either. ‘The Mayor was just relying on his name and everyone else just had wild views,’ said one listener. ‘The Mayor basically knew he wasn’t going anywhere,’ said another listener. Onlookers say a meeting that was supposed to educate them on important issues, just left them with a bad feeling about the political future of Wichita. ‘They just proved why I shouldn’t vote for them in my opinion,’ said Graham.”

    Wichita City Council this week. The Wichita City Council will not meet this week, as it’s a Tuesday after a holiday. Most private sector workers might have trouble remembering there is a holiday today, but not so for the city council.

    Sedgwick County commission this week. At Wednesday’s meeting, the Sedgwick County Commission has several important items on its agenda. The commission will be asked to adopt Project Downtown: The Master Plan for Wichita, November 2010 as an amendment to the Wichita-Sedgwick County Comprehensive Plan. This is the plan for the revitalization of downtown Wichita prepared by planning firm Goody Clancy. This item is not a public hearing, and it is not known how much time commission chair Dave Unruh, who assumed that position in January, will allow for citizens to address the commission. Previous chairs Karl Peterjohn and Kelly Parks — as well as current Wichita Mayor Carl Brewer — always asked if citizens wanted to speak on an item and were generous with time allotted. … Also Jeremy Hill of Wichita State University Center for Economic Development and Business Research will make a presentation. CEDBR has been criticized for for a report it produced on the economic impact of the Affordable Airfares program. That report was produced before Hill started his tenure at CEDBR. … The appraiser will report on real estate valuation trends in Sedgwick County.

  • Wichita again to bet on corporate welfare as economic development

    This week the Wichita City Council will consider three measures that, if adopted, will further establish corporate welfare and rent-seeking as Wichita’s economic development strategy.

    When people are living on welfare, we usually see that as a sad state of affairs. We view it as a failure, both for the individual and for the country. We seek ways to help people get off welfare so that they become self-sufficient. We want to help them contribute to society rather than being a drain on its resources.

    But Wichita’s leaders don’t see corporate welfare as a bad thing. Instead, as these three measures — all of which will likely pass unanimously — illustrate, welfare is good when you’re a business in Wichita. Especially if you can raise speculation that your company might move out of Wichita.

    The term rent, or more precisely, economic rent is somewhat unfortunate, as the common usage of the term — paying someone money for the use of an asset for a period of time — contains no sinister connotation. But economic rent does carry baggage.

    What is rent seeking? Wikipedia defines it like this: “In economics, rent seeking occurs when an individual, organization or firm seeks to earn income by capturing economic rent through manipulation or exploitation of the economic environment, rather than by earning profits through economic transactions and the production of added wealth.”

    This explanation doesn’t do full justice to the term, because it doesn’t mention the role that government and politics usually play. The Concise Encyclopedia of Economics adds this: “The idea is simple but powerful. People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors.”

    The three deals the Wichita City Council will consider tomorrow are both corporate welfare and rent-seeking. All three are harmful to our city.

    The three deals

    The first item to be considered Tuesday concerns MoJack Distributors, LLC, a company that makes an accessory for riding lawn mowers. It is proposed that the City of Wichita and Sedgwick County each make a forgivable loan of $35,000 to this company. If the company maintains a certain level of employment, the loans do not need to be repaid.

    But this is not the only welfare being given to this company. The city also proposes a 100% Economic Development Exemption (EDX) property tax exemption. The term would be five years, with renewal for another five years if conditions are met. The city’s material on this matter may be read at Approval of Forgivable Loan Agreement, MoJack.

    The company will also receive tax credits and grants under programs offered by the State of Kansas.

    Another company, Apex Engineering International LLC, is proposed to receive forgivable loans of $220,000 each from Wichita and Sedgwick County. The company will also receive grants and tax credits totaling $1,272,000 from the state. Surprisingly, no property tax exemption is mentioned for this company. The city’s material on this matter may be read at Approval of Forgivable Loan Agreement (Apex Engineering International).

    For both companies, there was the threat of moving operations elsewhere, and the incentives offered made the difference.

    The final action of corporate welfare to be considered is a community improvement district (CID) for the Eastgate shopping center at Kellogg and Rock Road. The CID, if approved, would require merchants to add an additional tax of one cent per dollar on all sales. That money, less a five percent fee, would then be given to the shopping center’s owners for their exclusive use. This could be worth as much as $18,528,596 over 22 years, according to city documents.

    The Eastgate item is on the agenda for a second time after being withdrawn in January. At the time, Rhonda Holman of The Wichita Eagle wrote: “As it was, insufficient time had been allowed for staff vetting of the proposals and thorough consideration by the council and public.”

    The action the council is asked to take at tomorrow’s meeting is to accept petitions asking for formation of the CID, and to set March 1st as the date of a public hearing.

    Targeted investment, or welfare

    Government bureaucrats and politicians promote programs like these as targeted investment in our region’s economic future. They believe that they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by city hall that shapes the future direction of Wichita’s economy.

    Arnold King has written about the ability of government experts to decide what investments should be made with public funds. There’s a problem with knowledge and power:

    As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.

    When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.

    I emphasized the last sentence to highlight the problem of the dispersed nature of knowledge.

    Yet this week, our Wichita city bureaucrats feel they have the necessary knowledge to recommend to the city council that the citizens of Wichita make investments of public funds in these three instances. Our city council members are gullible enough to believe it.

    One thing is for sure: the city has the power to make these investments. They just don’t have — they can’t have — the knowledge as to whether these are wise.

    We need a dynamic job creation engine

    Furthermore, we have to question the wisdom of investing in these established companies, especially a company involved in aviation, as Wichita always is seeking to diversify its economy away from dependence on aviation.

    Through research conducted by Dr. Art Hall and others, we now know that it is dynamic young companies that are the main drivers of job creation in Kansas. Hall wrote: “Embracing dynamism starts with a change in vision. Simply stated, the state government of Kansas should abandon its prevailing policy vision of the State as an active investor in businesses or industries and instead adopt the policy vision of the State as a caretaker of a competitive “platform” — a platform that seeks to induce as much commercial experimentation as possible.” (While Hall wrote about the State of Kansas, the City of Wichita is playing the same role at a local level.)

    The “active investor” role that the city of Wichita is about to take with regard to these three companies is precisely the wrong role to take. These actions increase the cost of government for the dynamic small companies we need to nurture. Instead these efforts concentrate and focus our economic development efforts in an unproductive way.

    Sales tax increase spreading across Wichita

    These proposed Eastgate shopping center CID, and one still likely to be proposed for Westway shopping center, break new ground in that these shopping centers are not tourist destinations or trendy shops. They’re run-of-the mill shopping centers that have stores that Wichitans visit every day. Some council members like Vice Mayor Jeff Longwell have justified past CIDs on the basis that since they are tourist destinations, much of the tax will be paid by visitors to Wichita. This is not a wise policy, but even it it was, it does not apply to these two shopping centers.

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

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

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

    Some downtown Wichita properties plummet in value. A strategy of Real Development — the “Minnesota Guys” — in Wichita has been to develop and sell floors of downtown office buildings as condominiums. Some of these floors have been foreclosed upon and have come back on the market. Some once carried mortgages of $400,000 or more, meaning that at one point a bank thought they were worth at least that much. But now four floors in the Broadway Plaza Building, three floors of the Petroleum Building, two floors of Sutton Place, and one floor of the Orpheum Office Center are available for sale at prices not much over $100,000, ranging from $14 to $25 per square foot. Other downtown office buildings — very plain properties — are listed at much higher prices. For example, one downtown property is listed at $82 per square foot. … Some of these floors have had declining appraisals. According to the Sedgwick County Treasurer, the fifth floor of Sutton Place, which is listed for sale at $135,000, was appraised in 2008 for $530,900. In 2009 the appraised value dropped to $215,000.

    Kansas Days. The primary news made at this year’s Kansas Days gathering was the election of Todd Tiahrt to replace Mike Pompeo as national committeeman. Otherwise, there was a large turnout in Topeka with many receptions and meals that provided opportunities to meet officeholders and new friends, and to reacquaint with old friends from across the state. Plus, I got to sample the “Brownback” beer. It’s pretty good.

    Williams named to national economic development committee. From Wichita Business Journal: “Wichita City Council member Lavonta Williams has been named to a National League of Cities steering committee on Community and Economic Development Policy and Advocacy.” Undoubtedly for her unfailing support of any form of corporate welfare that comes before the Wichita City Council.

    Mises University this summer. If you’re a college student and would like to receive instruction in Austrian Economics — “a rigorous and logical approach to economics that gives free markets their due and takes full account of the reality of human choice” — I suggest applying to the Ludwig von Mises Institute to attend Mises University this summer. I attended as a member observer in 2007, and it was a wonderful and very intense week. For more information, click on Mises University 2011. Scholarships are available.

    A Rosa Parks moment for education. Kevin Huffman in the Washington Post: “Last week, 40-year-old Ohio mother Kelley Williams-Bolar was released after serving nine days in jail on a felony conviction for tampering with records. Williams-Bolar’s offense? Lying about her address so her two daughters, zoned to the lousy Akron city schools, could attend better schools in the neighboring Copley-Fairlawn district. … In this country, if you are middle or upper class, you have school choice. You can, and probably do, choose your home based on the quality of local schools. Or you can opt out of the system by scraping together the funds for a parochial school. But if you are poor, you’re out of luck, subject to the generally anti-choice bureaucracy.” Kansas has no school choice programs to speak of, and so far Kansas Governor Sam Brownback has not expressed advocacy for school choice.

    The state against blacks. The Wall Street Journal’s Jason L. Riley interviews economist Walter E. Williams on the occasion of the publication of his most recent book Up from the Projects: An Autobiography. The reason for the article’s title: “‘The welfare state has done to black Americans what slavery couldn’t do, what Jim Crow couldn’t do, what the harshest racism couldn’t do,’ Mr. Williams says. ‘And that is to destroy the black family.’” … On economics and why it is important, Riley writes: “Over the decades, Mr. Williams’s writings have sought to highlight ‘the moral superiority of individual liberty and free markets,’ as he puts it. ‘I try to write so that economics is understandable to the ordinary person without an economics background.’ His motivation? ‘I think it’s important for people to understand the ideas of scarcity and decision-making in everyday life so that they won’t be ripped off by politicians,’ he says. ‘Politicians exploit economic illiteracy.’” … On the current state of politics: “Mr. Williams says he hopes that the tea party has staying power, but ‘liberty and limited government is the unusual state of human affairs. The normal state throughout mankind’s history is for him to be subject to arbitrary abuse and control by government..”

    Professor Cornpone. From The Wall Street Journal Review & Outlook: “The last time these columns were lambasted by a presidential candidate in Iowa, he was Democrat Richard Gephardt and the year was 1988. The Missouri populist won the state caucuses in part on the rallying cry that ‘we’ve got to stop listening to the editorial writers and the establishment,’ especially about ethanol and trade. Imagine our amusement to find Republican Newt Gingrich joining such company. The former Speaker blew through Des Moines last Tuesday for the Renewable Fuels Association summit, and his keynote speech to the ethanol lobby was as pious a tribute to the fuel made from corn and tax dollars as we’ve ever heard. Mr. Gingrich explained that ‘the big-city attacks’ on ethanol subsidies are really attempts to deny prosperity to rural America … Yet today this now-mature industry enjoys far more than cash handouts, including tariffs on foreign competitors and a mandate to buy its product. Supporters are always inventing new reasons for these dispensations, like carbon benefits (nonexistent, according to the greens and most scientific evidence) and replacing foreign oil (imports are up). … Given that Mr. Gingrich aspires to be President, his ethanol lobbying raises larger questions about his convictions and judgment.” Another advocate for the ethanol boondoggle, and perhaps again a presidential candidate, is Kansas Governor Sam Brownback.

    Politics and city managers to be topic. This Friday (February 4) the Wichita Pachyderm Club features as its speaker H. Edward Flentje, Professor at the Hugo Wall School of Urban and Public Affairs, Wichita State University. His topic will be “The Political Roots of City Managers in Kansas.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club.

    Wednesdays in Wiedemann this week. Wednesday (February 2) Wichita State University’s Lynne Davis presents an organ recital as part of the “Wednesdays in Wiedemann” series. These recitals, which have no admission charge, start at 5:30 pm and last about 30 minutes. The location is Wiedemann Recital Hall (map) on the campus of Wichita State University. For more about Davis and WSU’s Great Marcussen Organ, see my story from earlier this year.

    Government bird chirping. American Majority’s Beka Romm wonders about the wisdom of a mayor’s plan to broadcast bird songs on the city’s streets, and how we can decide whether government should be doing things like this.

  • Arts funding in Kansas

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

    The economic case for government art funding

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

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

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

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

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

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

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

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

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

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

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

    No government art means better art

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

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

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

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

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

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

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

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

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

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

  • Kansas and Wichita quick takes: Thursday January 20, 2011

    Pompeo to host first district event. This Saturday (January 22nd) newly-elected Kansas fourth district Congressman Mike Pompeo will hold an event billed as “Mike Pompeo’s Conversation with the Congressman.” It well be held Saturday, January 22, 2011 at 10:00 am, at the WSU Hughes Metropolitan Complex Sudermann Commons, 5015 E. 29th Street (at Oliver).

    Prognosticator Journey to address Pachyderms. Friday’s (January 21st) meeting of the Wichita Pachyderm Club features District Court Judge and former Kansas Senator Phil Journey speaking on the topic “Musings and Prognostications on State and Federal Government.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club.

    Feeling too good about our schools. Eric Hanushek looks at the results of U.S. students on the recent international tests and the attempts to explain away our generally poor performance. Is education important to our country’s economy? Absolutely, Hanushek explains: “Research has shown that international performance on these tests is very closely related to the economic growth of nations. Does the difference between 550 points (roughly Finland) and 500 points (roughly the U.S.) make a difference? By the historical record of growth, such a difference is consistent with one percent per year in the growth of per capita income. If we project this out over the lifetimes of children born today, the present value of economic gains from the U.S. reaching the level of Finland would be $100 trillion! These potential economic gains from improved schools should be compared to the huge political fights in the U.S. over a stimulus package of one trillion dollars, or one hundredth of the magnitude of the gains we are leaving on the table from ignoring the achievement in our schools.” Hanushek explains that the relatively free enterprise economy of the U.S. has attracted the “brightest from abroad” and has created an economy that spurs innovation. But our advantage is fading, he says, and the brightest often stay at home. We need to fix this now, or in a decade or two it may be impossible to recover.

    Obama order on regulation seen as ineffectual. The Competitive Enterprise Institute is a watchdog on federal regulation, having published Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State since 1996. On President Obama’s recent order to review the effect of regulations, CEI is not impressed. In a press release, the organization said: “The number of rules in the pipeline at agencies has surged in the past year, from 4,041 at the end of 2009 to 4,225 now, as will be detailed in CEI’s upcoming Ten Thousand Commandments report. ‘Major’ rules, those expected to cost over $100 million annually, have experienced an even greater surge. Indeed, just to get where we were a year ago, many rules would have to be cut. Yet Obama’s Wall Street Journal op-ed today announcing the Executive Order utterly glossed over the EPA CO2 rules, the FCC’s unauthorized net neutrality push, and the torrent of rules yet to come from the health care and financial reform bills.” … CEI notes that an executive order issued by President Bill Clinton, still in effect, already orders what Obama’s order does. CEI asks: “Actually confronting regulation, the crippling extent of which remains unappreciated by both parties, requires going far beyond the words of an executive order.” … Phil Kerpen of Americans for Prosperity is interviewed on this topic and notes the problem of “back door” legislation through regulation. … It should be noted that Obama inherited many regulations, as despite the claims of liberals, President George Bush greatly expanded the scope of the federal regulatory state.

    Massachusetts health care presages Obamacare. Sally Pipes of the Pacific Research Institute, writing in Investor’s Business Daily, notes the promises and the reality of health care reform in Massachusetts. The plan was implemented by Mitt Romney, a Republican, who promised, according to Pipes, “Every uninsured citizen in Massachusetts will soon have affordable health insurance, and the cost of health care will be reduced. And we need no new taxes, no employer mandate and no government takeover to make this happen.” But here’s the reality of what’s happened, again according to Pipes: “The only measure by which Massachusetts can be judged a success is the number of people enrolled in Medicaid and other government-subsidized insurance plans. Of the 410,000 newly insured in Massachusetts, three in four are either paying nothing or very little for their insurance. … Despite the near-universal insurance, the state still spends $414 million on uncompensated care, an expense that Romney and his architects promised would disappear. Emergency-room use has not dropped as predicted. From 2006 to 2008, emergency room use under Mass Care increased by 9%. And private employer insurance costs, far from dropping, have continued to increase.” … Prior to this plan, health insurance premiums in Massachusetts increased at a rate slower than the national average. Now they increase faster than average.

    Sowell on fixing America’s economic problems. Thomas Sowell has published the fourth edition of his now-classic work Basic Economics: A Common Sense Guide to the Economy. Now eighty years young, Sowell appears in an interview on the topics in his book.

  • Stossel on politicians’ promises

    Recently John Stossel produced a television show titled Politicians’ Top 10 Promises Gone Wrong. The show features segments on government programs and why they’ve gone wrong, with a focus on the unintended consequences of the programs. Particularly illuminating are the attempts by programs’ supporters to justify their worth.

    Now the program is available to view on the free hulu service by clicking on Politicians’ Top 10 Promises Gone Wrong.

    One of the segments on the show explained the harm of Cash for Clunkers, in which serviceable cars were destroyed so that new cars could be sold. The program simply stole sales from the months before and after the program. The mistaken idea that destruction can be a way to create new wealth is held by many who should know better, and Stossel reminds us of the New York Times’ Paul Krugman, who wrote that the terrorist attacks of September 11, 2001 “could even do some economic good” as rebuilding will increase business spending. It’s the seen vs. unseen problem, Stossel and David Boaz of the Cato Institute explain. It’s easy to see people buying new cars. It was reported on television. But it’s more difficult to see all the dispersed economic activity that didn’t take place because of the programs.

    “Living wage” laws, in which people would be paid enough to live on — whatever that means — is next. While increasing wages of low-paid workers is a noble goal, increasing the cost of labor results in an entirely predictable result: less labor is demanded. Fewer people will have jobs. The Grand Canyon National Park, for example, switched to automated ticket machines. Christian Dorsey of the Economic Policy Institute, said that elimination of minimum wage laws would leave employers free to drive down wages as low as possible. But Stossel noted businesses hire employees in a competitive market, and it is that market that sets wages. Only about five percent of workers earn the minimum wage. Why do the others earn more than that? Competitive markets force employers to pay more, not laws.

    A segment on “fancy stadiums” boosting the economy holds a lesson for Wichita and the Intrust Bank Arena in its downtown. The claimed benefits of these venues rarely appear, and the unseen costs are large — “at the local bar there’s one less bartender, there was one less waitress hired at a restaurant, a movie theater that had one less theaterfull. It’s handing money from your right hand to your left and declaring I’m rich.” While Wichita’s arena seems to be doing well, it’s still well within its honeymoon period. Even then, there was a month where no events took place at the arena.

    A segment on the new credit card regulations, intended to protect consumers, shows that the regulations resulted in fewer people being able to get credit cards. Now these people have to go to payday lenders or pawn shops, which are much more expensive than credit cards. Arkansas once capped credit card interest at ten percent. The result was that few people in Arkansas could get a credit card, and the state became known as the pawn shop capital of America.

    Ethanol is the topic of a segment. Promised as a way to solve our energy problem, many politicians of both parties support ethanol. But we’ve come to realize the problems with government support of ethanol: rising price of food, excessive use of fertilizer and fuel to produce corn, and an awareness that ethanol is more harmful to the environment than gasoline. “But it makes us feel good,” Stossel says. In Kansas, Governor Sam Brownback is firmly in favor of government support of ethanol, which Boaz called “pound-for-pound, the dumbest program ever.”

    On the role of government in causing the housing bubble, Howard Husock said “Government exaggerates, rather than minimizes, the age-old impulse to greed. The government made it harder for bankers who wanted to do the right thing.” Stossel explained that bankers who wanted to stay with safe home loans lost out on profits they could earn selling high risk loans to Fannie Mae and Freddie Mac, the government-sponsored agencies.

    At the end, Stossel said: “And that’s the number one promise gone wrong. These guys say they’ll be fiscally responsible. And then we elect them, and they spend more. They’re spending us into bankruptcy. There must be 10,000 harmful programs, and yet they keep creating more. Why can’t we cut them?” Boaz explained: “Every one of those 10,000 programs has a lobbyist in Washington. … They always know when the bill is up before Congress, and they send political contributions, they send people to Washington to lobby. The rest of us don’t do that. … People should be more engaged, people should be better citizens. But the fact is we have lives, and there’s no way that any normal person can know about the 10,000 programs that make up the $3.5 trillion federal budget.”

    And so the programs keep growing, Stossel said, and we must pay their costs and unintended consequences forever — “Unless, there’s a new wind blowing in America. A new attitude, a new expectation that maybe Washington should do less. I hear there is. I sure hope so.”