Voice For Liberty

Tag: Economics

  • Kansas and Wichita quick takes: Thursday March 23, 2011

    Owens still blocks judicial selection reform. Kansas Reporter writes that one man, Senator Tim Owens, an attorney and Republican from Overland Park, is still blocking judicial selection reform. But a move by the House gives Senate President Stephen Morris a chance to let Senators vote to concur with the reform measure passed by the House. Or, Morris could refer the measure to Owens’ Judiciary committee, where it will die. See New way of picking appeals judges gets second shot.

    Greed is killing Detroit. Greed is often portrayed as a negative quality of the rich. But Investor’s Business Daily tells what happens when union greed — yes, everyone can be greedy — runs wild in a city: “Census data released Tuesday show Detroit’s population has plunged 25% since 2000 to just 713,777 souls — the same as 100 years ago, before the auto industry’s heyday. As recently as the 1970s, Detroit had 1.8 million people. What’s happening is no secret: Detroiters are fleeing an economic disaster, the irreversible decline of the Big Three automakers. … Sure, a lot of the blame goes to a generation of bad management. But the main reason for Detroit’s decline is the greed of the industry’s main union, the UAW, which priced the Big Three out of the market.” … Having killed the goose with the golden egg once, union leadership seeks seek to do it again: “Even as Detroit collapses, new UAW chief Bob King promises to ‘pound’ the transplants into submission and force them to drink his union’s poison, too. Given what we know, every town that is now home to a foreign automaker should be very afraid. If King has his way, they’ll soon suffer Detroit’s fate.”

    Liberal Bias at NPR? Stephen Inskeep, co-host of the National Public Radio program Morning Edition, defends his network against charges of liberal bias. In The Wall Street Journal Inskeep writes that NPR draws an audience with diverse political views, including conservatives: “Millions of conservatives choose NPR, even with powerful conservative alternatives on the radio.” Which, I would say, is all the more reason why the network should stand on its own without government funding. … Inskeep also writes about the recent undercover video by James O’Keefe, who NPR claims, through a spokesperson, to have “inappropriately edited the videos with an intent to discredit” NPR. If true, shame on O’Keefe. The NPR spokesperson concedes that then-NPR chief fundraiser Ron Schiller made some “egregious statements.”

    Electric cars questioned. Margo Thorning writing in The Wall Street Journal, explains that the new crop of all-electric or near-all-electric cars not worthy of government support. She notes the Consumer Report opinion of the Chevrolet Volt: “isn’t particularly efficient as an electric vehicle and it’s not particularly good as a gas vehicle either in terms of fuel economy.” … Batteries remain a problem: “A battery for a small vehicle like the Nissan Leaf can cost about $20,000 and still only put out a range of 80 miles on a good day (range is affected by hot and cold weather) before requiring a recharge that takes eight to 10 hours. Even then, those batteries may only last six to eight years, leaving consumers with a vehicle that has little resale value. Home installation of a recharging unit costs between $900 and $2,100.” … Thorning notes that half of the electricity that powers America is generated by coal, so all-electric cars are still not free of greenhouse gas emissions. Also, “a substantial increase in the numbers of them on the road will require upgrading the nation’s electricity infrastructure.” … While electric cars are not ready to save the earth, the U.S. government insists on intervention: “Despite these significant flaws, the government is determined to jump-start sales for plug-ins by putting taxpayers on the hook. The $7,500 federal tax credit per PEV is nothing more than a federal subsidy that will add to the deficit. There are also federal tax credits for installing charging stations in homes and businesses and for building battery factories and upgrading the electric grid. The administration’s goal — one million PEVs on the road by 2015 — could cost taxpayers $7.5 billion.” And saddle Americans with expensive automobiles that do little to address the problem they’re designed to solve. Reading the Journal article requires a subscription, but it is also available at The American Council for Capital Formation, where Thorning is Senior Vice President and Chief Economist.

    Government as business. Yesterday’s reading from Robert P. Murphy’s book Lessons for the Young Economist explained the value of the profit-and-loss system in guiding resources to where they are most valued. For those who wan to “run government like a business” I offer today’s excerpt from the same book, which explains how lack of the ability to calculate profit means this can’t happen: [Regarding a capital investment made by Disney as compared to government:] The crucial difference is that the owners of Disneyland are operating in the voluntary market economy and so are subject to the profit and loss test. If they spend $100 million not on personal consumption (such as fancy houses and fast cars) but in an effort to make Disneyland more enjoyable to their customers, they get objective feedback. Their accountants can tell them soon enough whether they are getting more visitors (and hence more revenue) after the installation of a new ride or other investment projects. Remember it is the profit and loss test, relying on market prices, that guides entrepreneurs into careful stewardship of society’s scarce resources. In contrast, the government cannot rely on objective feedback from market prices, because the government operates (at least partially) outside of the market. Interventionism is admittedly a mixture of capitalism and socialism, and it therefore (partially) suffers from the defects of socialism. To the extent that the government buys its resources from private owner — rather than simply passing mandates requiring workers to spend time building bridges for no pay, or confiscating concrete and steel for the government’s purposes — the government’s budget provides a limit to how many resources it siphons out of the private sector. (Under pure socialism, all resources in the entire economy are subject to the political rulers’ directions.) However, because the government is not a business, it doesn’t raise its funds voluntarily from the “consumers” of its services. Therefore, even though the political authorities in an interventionist economy understand the relative importance of the resources they are using up in their program — because of the market prices attached to each unit they must purchase — they still don’t have any objective measure of how much their citizens benefit from these expenditures. Without such feedback, even if the authorities only want to help their people as much as possible, they are “flying blind” or at best, flying with only one eye.

  • Kansas and Wichita quick takes: Wednesday March 23, 2011

    Health information campaign. What happened to an all-star group that was to promote President Obama’s health care plan? Politico reports: “Democrats are under siege as they mark the first anniversary of health care reform Wednesday — and they won’t get much help from the star-studded, $125 million support group they were once promised. Wal-Mart Watch founder Andrew Grossman unveiled the Health Information Campaign with great fanfare last June. … But nine months later, the Health Information Campaign has all but disappeared.”

    Eisenhower book author to speak in Wichita. At this Friday’s meeting (March 25) of the Wichita Pachyderm Club, David A. Nichols, Ph.D. will speak on his new book Eisenhower 1956: The President’s Year of Crisis — Suez and the Brink of War . Nichols is formerly of Southwestern College in Winfield. Copies of the new book will be available for purchase at the meeting. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers include Derrick Sontag of Americans for Prosperity on April 1, Deputy Public Defender Jama Mitchell on April 8, Kansas Senator Chris Steineger on April 15, Friends University Associate Professor of Political Science Russell Arben Fox on April 22, and Wichita State University Political Scientist Ken Ciboski on April 29.

    Kansas agencies mum on travel spending. From Kansas Policy Institute: “State agencies, boards and universities in Kansas claimed they did not have to disclose details on $21.4 million in spending on various forms of travel and entertainment in FY 2010, according to a Kansas Policy Institute (KPI) analysis of the state’s checkbook.” According to KPI president Dave Trabert: “$39 million is a lot to spend on travel in any year, and especially so when some agencies say they are being forced to cut services. Maybe the Kansas Bureau of Investigation needs some discretion when conducting investigations, but the breadth and volume of these confidentiality claims are incomprehensible.” While the Kansas Open Records Act (KORA) has many categories of information that are exempt from disclosure, agencies have discretion as to which information to disclose. None of the exemptions mention travel. Says Trabert: “State checkbook records don’t indicate which exemption from disclosure is invoked on travel spending, but disclosing the names of hotels, airlines and restaurants that received taxpayer money would not be an unwarranted invasion of anyone’s personal privacy. It is, however, an unwarranted invasion of taxpayers’ right to not know how their money is being spent and state law should be changed to eliminate gaping loopholes in KORA.” … I’m really curious to learn more about this finding: “KPI’s review of state travel records also found many examples of the vendor being listed as the agency or university itself rather than the actual vendor that provided the service.” … KPI’s press release is at State Agencies Claim Confidentiality on Travel Spending.

    Kansas wind energy jobs. Again we find that the promise of green energy projects being an economic development driver is overplayed. In “Goal of many more ‘green’ jobs is elusive” (February 14, 2011 Kansas City Star) we find the same skepticism that most now see justified regarding ethanol is applicable to wind power: “‘We need to temper our expectations on wind energy,’ said David Swenson, an Iowa State University economist known for deflating the ethanol industry’s job claims. Now, he says, the same ‘environment of hype’ is developing around wind power.” It’s been good for China, though: “… more than 80 percent of $1 billion in federal stimulus grants for wind projects went to foreign countries. One of the projects, a $1.5 billion wind farm in Texas, expected to collect $450 million in stimulus money — but use wind turbines made in China.” The counting of a job as “green” is highly suspect, as the article notes: “Kansas officials have trumpeted that the state already has 20,000 green jobs — and hopes for 10,000 more, many from manufacturing and assembly work for generating wind power. But so far, most of the jobs in that count by the state Department of Labor have been around for years, including carpenters installing energy-efficient windows and plumbers putting in toilets that don’t use much water. Even maids, if they use green products, are classified as green-collar workers.” … Wichita Mayor Carl Brewer promotes manufacturing of wind power machinery as good for Wichita’s economic development, and Kansas Governor Sam Brownback supports renewable energy standards for Kansas.

    The role of profits and losses. From Robert P. Murphy, Lessons for the Young Economist: Many naïve observers of the market economy dismiss concern with the “bottom line” as a purely arbitrary social convention. To these critics, it seems senseless that a factory producing, say, medicine or shoes for toddlers stops at the point when the owner decides that profit has been maximized. It would certainly be physically possible to produce more bottles of aspirin or more shoes in size 3T, yet the boss doesn’t allow it, because to do so would “lose money.” On the other hand, many apparently superfluous gadgets and unnecessary luxury items are produced every day in a market economy, because they are profitable. Observers who are outraged by this system may adopt the slogan: “Production for people, not profit!” … Such critics do not appreciate the indispensable service that the profit and-loss test provides to members of a market economy. Whatever the social system in place, the regrettable fact is that the material world is one of scarcity — there are not enough resources to produce all the goods and services that people desire. Because of scarcity, every economic decision involves tradeoffs. When scarce resources are devoted to producing more bottles of aspirin, for example, there are necessarily fewer resources available to produce everything else. It’s not enough to ask, “Would the world be a better place if there were more medicine?” The relevant question is, “Would the world be a better place if there were more medicine and less of the other goods and services that would have to be sacrificed to produce more medicine?” … Loosely speaking, the profit and loss system communicates the desires of consumers to the resource owners and entrepreneurs when they are deciding how many resources to send into each potential line of production. … In a market based on the institution of private property, profits occur when an entrepreneur takes resources of a certain market value and transforms them into finished goods (or services) of a higher market value. This is the important sense in which profitable entrepreneurs are providing a definite service to others in the economy.

  • Less spending, not more taxes, is required to balance the budget

    Last week the Congressional Budget Office estimated that President Obama’s budget will cost more than first thought, leading to larger deficits than originally forecast. If we hadn’t received the news by now, we need to cut federal spending.

    In commentary made available through the Mercatus Center, Antony Davies notes that there are proposals to cut spending, but even proposals by Republicans aren’t enough: “The President initially offered to cut the budget by $6.5 billion, and Republicans responded by asking for 10 times that amount. The truth is, we need 100 times that amount before we come close to balancing the budget. On any given day, the government spends $6.5 billion before lunch.”

    The president estimates this year’s deficit at $1,645 billion. The deficit, of course, is not the total amount of federal spending. It’s the part of federal spending that isn’t being paid for by current year revenue.

    Spending needs to be cut, but the cuts don’t have to be overwhelming, as liberals contend they must. Jason J. Fichtner writes in The 1 Percent Solution that reducing real federal spending by one percent each year would balance the federal budget by 2016. This requires actual cuts in spending, not just cuts in budget requests.

    It seems inconceivable that we can’t cut spending by one percent each year. But if we could hold down the rate of spending growth to one or two percent per year, we could still balance the budget in less than ten years.

    Raising taxes won’t work

    There are many who call for raising taxes, especially on the rich, as a way to generate more revenue and balance the budget. But try as we might, raising tax rates won’t generate higher revenues (as a percentage of gross domestic product), due to Hauser’s law. W. Kurt Hauser explains in The Wall Street Journal: “Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration’s budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues. Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this ‘Hauser’s Law.’”

    People react to changes in tax law. As tax rates rise, people seek to reduce their taxable income, and make investments in unproductive tax shelters. There is less incentive to work and invest. These are some of the reasons why tax hikes usually don’t generate the promised revenue.

    The subtitle to Hauser’s article is “Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.”

    Hauser's LawHauser’s Law illustrated. No matter what the top marginal tax rate, taxes collected remain an almost constant percentage of GDP.

  • Kansas and Wichita quick takes: Tuesday March 22, 2011

    Progressive government. Stephen Goldsmith in The Wall Street Journal: “Across the country, the interests of organized labor, elected officials and taxpayers are colliding over wages, work rules and the astronomical costs of retiree pensions and health care. As important as these specific issues are to resolve, there is another, more fundamental problem causing so many Americans to lose faith in their government: It is not government unions per se but progressive government itself — long celebrated in Wisconsin, New York and elsewhere — that no longer produces progressive results.” … Goldsmith is deputy mayor of New York City. “In the early 20th century, the progressives championed a rule-based approach to public-sector management that was a big step forward from the cronyism and corruption of Tammany Hall. Today, however, the very rules that once enhanced accountability, transparency and efficiency now stifle the creativity of public-sector workers and reduce the ability of public investments to create opportunities for citizens — outcomes precisely the opposite of those intended by Progressive Era reformers.”

    Identity theft possible. Michael Schwanke of KWCH Television finds a large dumpster full of employee records in an alley behind a Wichita business. These records could be used to commit identity theft and fraud. While many people are aware of the threat of using a personal computer regard regarding identity theft, most people use anti-virus and other security software, and take steps like using good passwords when creating online accounts. These steps are under the control of each person. But the companies we transact with — including your employer and the government — may not be as careful with your data as you are. There’s not much individuals can do about this.

    Is the automobile this bad? From a letter in today’s Wichita Eagle: “Perhaps it would be helpful if we all spent five minutes imagining the car in our garage is a murderer worse than Osama bin Laden, a disaster worse than the Tohoku earthquake, a polluter worse than coal, a drug more addictive than crack. It doesn’t have to be this way. We have allowed real-estate developers to zone our lives so there is quite literally nothing for us to walk to. Maybe those five minutes of imagining will move some of us to demand ultralight commercial development in our suburban residential deserts.” … Putting aside the wild and unsubstantiated claims the writer makes, the automobile gives us mobility, which is priceless. In his recent book Gridlock: why we’re stuck in traffic and what to do about it, Randal O’Toole explains the benefits of mobility: “The benefits of mobility are huge and undeniable. The most tangible benefit is to our personal incomes. Increased travel speeds allow people to reach more potential jobs in a given commute time. Research in France found that, for every 10 percent increase in travel speeds, the pool of workers available to employers increased by 15 percent. This gives employers access to more highly skilled workers, which in turn increases worker productivity by 3 percent. Similarly, research in California has found that doubling the distance workers can commute to work increases productivity by 25 percent. … Mobility also reduces our consumer costs and gives us access to a wider diversity of consumer goods. … Thanks to our mobility, most Americans enjoy much better housing than they did a century ago and better than most other people in the world today. Mobility not only increases the income available for housing; it allows us to reach areas where housing, and the land it requires, is more affordable. The most intangible benefit of mobility may be the thing many Americans say they value most: freedom.”

    Voters Boot Mayoral Marauder. From CommonSense with Paul Jacob: “On March 15, Miami-Dade Mayor Carlos Alvarez got the boot, with almost nine out of ten county voters (88 percent) agreeing to get rid of him. The Miami Herald calls the event ‘the largest recall of a local politician in U.S. history.’ Brandon Holmes of Citizens in Charge calls it ‘the most significant recall election since California ousted former governor Gray Davis in 2003.’ Alvarez was shown the door for larding aides with hefty pay raises (from $185,484 to $206,783, for his chief of staff) and increasing the salaries of other county employees while hiking property taxes 18 percent in the name of preventing layoffs. Meanwhile, the mayor tooled around town in a taxpayer-subsidized BMW Gran Turismo.” Wall Street Journal reporting notes: “What really seems to have sent the recall into nearly unanimous territory is that the mayor and his government used both taxpayer and union funds to finance their fight to stay in office.” Concluding, the Journal writes: “Union protesters in Madison, Wisconsin have commanded the headlines of late, but what happened in Miami on Tuesday is a reminder that the taxpayer revolt against elected officials who treat voters like cash dispensers is alive and well. Every Governor and Member of Congress should be warned.”

    Public union issues. William F. Shughart of the Independent Institute writing in the Milwaukee Journal Sentinel: “Public employee wages and benefits are typically not the result of simple collective bargaining. They are the result of the public employee unions’ political and lobbying activities — which, in many states, are financed with union dues employees are forced to pay as a condition of employment. … Thus, the unions use their power and purse to elect politicians willing to grant them more power – and use that power to extract financial concessions from the same politicians. It’s been an ongoing vicious cycle in some states for many years, with the ultimate bill-payer — the taxpayer — the odd man out.” The author notes that we don’t have the choice but to consume and pay for public services provided by public employee unions. For private sector companies and their unions, consumers have choice, which is a regulating factor.

    The naysayers’ plan. Murray N. Rothbard in defense of the naysayers who are criticized because they have no plan, except for relying on the ingenuity of free people trading freely in markets. From For a New Liberty: The Libertarian Manifesto: The libertarian who wants to replace government by private enterprises in the above areas is thus treated in the same way as he would be if the government had, for various reasons, been supplying shoes as a tax-financed monopoly from time immemorial. If the government and only the government had had a monopoly of the shoe manufacturing and retailing business, how would most of the public treat the libertarian who now came along to advocate that the government get out of the shoe business and throw it open to private enterprise? He would undoubtedly be treated as follows: people would cry, “How could you? You are opposed to the public, and to poor people, wearing shoes! And who would supply shoes to the public if the government got out of the business? Tell us that! Be constructive! It’s easy to be negative and smart-alecky about government; but tell us who would supply shoes? Which people? How many shoe stores would be available in each city and town? How would the shoe firms be capitalized? How many brands would there be? What material would they use? What lasts? What would be the pricing arrangements for shoes? Wouldn’t regulation of the shoe industry be needed to see to it that the product is sound? And who would supply the poor with shoes? Suppose a poor person didn’t have the money to buy a pair?” These questions, ridiculous as they seem to be and are with regard to the shoe business, are just as absurd when applied to the libertarian who advocates a free market in fire, police, postal service, or any other government operation. The point is that the advocate of a free market in anything cannot provide a “constructive” blueprint of such a market in advance. The essence and the glory of the free market is that individual firms and businesses, competing on the market, provide an ever-changing orchestration of efficient and progressive goods and services: continually improving products and markets, advancing technology, cutting costs, and meeting changing consumer demands as swiftly and as efficiently as possible.”

  • Kansas migration trends

    The rate that Kansans leave for other states is slowing down, but the trend for Kansas income is not. These figures are based on statistics that the Internal Revenue Service collects collects, based on address changes noticed when people file tax returns. The IRS collects three statistics. The number of returns filed is an approximation of the number of households that changed addresses, while the number of exemptions approximates the number of people. The adjusted gross income measures the earnings that changed addresses.

    The Tax Foundation collects these statistics from the IRS and makes them available on a page called State to State Migration Data.

    For Kansas, the statistics for returns filed (approximating households) tell us that each year many households leave the state. The trend, however, is in a better direction as can be seen in the accompanying chart. Still, for the years 2007 to 2008, 37,842 households moved to Kansas from other states, while 39,415 households moved from Kansas to other states. The net out-migration was 1,573 households. (The trend in exemptions, representing people, is very similar.)

    While the trend is that each year fewer households are leaving Kansas, the chart tells us that many have left, year after year. For the period from 2000 to 2008, a net of 34,259 returns (households) representing 55,370 exemptions (people) left Kansas. That’s like the entire city of Manhattan packing up and leaving Kansas — in less than a decade.

    The trend in AGI (adjusted gross income), however, is not moving in a good direction. For the past several years the trend of income leaving Kansas has been on a downward trajectory, meaning that while each year there is an out-migration of income from Kansas, the pace of income leaving is increasing. This is at the same time the trend of people leaving Kansas is moving in a better direction. While it’s difficult to draw a conclusion from this data, a possibility is that Kansas is becoming poorer, relative to other states.

    Kansas migration trendsKansas migration trends. Out-migration of households is slowing, while out-migration of income is not.

  • Quantitative easing: another round?

    With uncertainty on the rise globally, talk of a new round of quantitative easing — it would be QE3 — is increasingly common. QE is a policy where the U.S. Federal Reserve System creates additional money through its open market operations.

    Last year the Fed announced QE2, a policy of buying $600 billion in bonds, meaning that $600 billion in new money will have been created by the time the program ends in June. While it is commonly said that the Fed prints new money to pay for these bonds, the bonds are paid for via bookkeeping entries, sort of an electronic bill pay system between the Fed and banks who sell the bonds. That’s even cheaper than printing stacks of $100 bills. Reason explains in more detail how QE works:

    One simplified way to describe how this round of quantitative easing will work is this: The Fed doles out $600 billion in made-up money to the world’s biggest banks, who make a tidy profit on the sale and then split that profit up into bonuses. As Reuters financial blogger Felix Salmon writes, “We’re not exactly helping the unemployed here.”

    The actual process is slightly more complicated, but not much more appealing. Once the members of the Federal Open Market Committee vote to buy additional bonds, the Fed schedules a series of sales, and notifies the banks on its list of primary dealers — 18 very large banks. Those banks then buy up bonds with the intention of selling them at higher rates to the Fed. And then when the scheduled sales come around, they trade their store of bonds for money that the Fed has newly created, as The Washington Post explained, “essentially out of thin air.” Interest rates go down. Inflation goes up. Investors, knowing that money is cheap now and might not be worth as much later, start to spend. The economy gets back in gear.

    At least that’s the idea. It’s not the first time the Fed has pursued the QE strategy (hence QE2), and the first go-round wasn’t an obvious success. When the financial crisis first landed, the Fed pumped $1.7 trillion into the system, yet failed to lift the economy out of its sluggish state. By the time this round of quantitative easing ends, the Fed will have added almost $3 trillion to the money supply — and that’s if it quits with $600 billion.

    One major worry is that all that extra currency will only lead to out of control inflation.

    For another explanation of QE and whether it works, a video from last November explains.

  • 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.