Voice For Liberty

Tag: Economics

  • Kansas and Wichita quick takes: Monday December 27, 2010

    This week at Wichita City Council. This week, as is the usual practice for the fourth Tuesday of each month, the agenda for the Wichita City Council features only consent items. These consent items are thought — at least by someone — to be of routine and non-controversial nature, and the council votes on them in bulk as a single item, unless a council member wishes to “pull” an item for discussion and possibly a separate vote. One such consent item is “Payment for Settlement of Claim — Estate of Christopher Perkins.” As Brent Wistrom reports in the Wichita Eagle’s, Wichitopekington blog, “A police car en route to an emergency call smashed into a Saturn coup last December, killing the coup’s 30-year-old driver, Christopher Perkins. Perkins’ family filed a negligence claim, and, on Tuesday, Wichita City Council members will vote to settle the case for $300,000.” The agenda packet is at Wichita City Council, December 28, 2010. … Also, the city will vote whether to spend $400,000 for an analysis of nine aging fire stations and what repairs and upgrades they might require. Whatever work is found to be necessary would cost much more, presumably. The cost of the analysis is being paid for by borrowing money through general obligation bonds. … Usually these “fourth Tuesday” meetings are followed by a workshop, but as of this moment, no agenda is available. … The Sedgwick County Commission will not meet this week.

    Kansas schools’ unspent funds. Perhaps this will be the year in which Kansas schools — along with other state agencies — will publicly confront the reality of their budgets and unspent funds. Kansas Watchdog takes a look on Truth Emerging on Unencumbered K-12 Education Funds .

    Which Brownback will govern? The Lawrence Journal-World looks at the future of incoming Kansas Governor Sam Brownback and wonders how he will govern. Perhaps the most telling observation is that of Wichita State University professor H. Edward Flentje: “Then Brownback got elected to Congress as a budget-taming conservative, Flentje said. But the budget couldn’t be tamed, and Brownback morphed into the social conservative for which he is most well-known, or, as Flentje describes it, ‘wearing his faith in the public square.’” So now I’m wondering: Can this year’s Kansas budget be tamed? … On the role of national politics: “Kansas University political science professor Burdett Loomis said that although Brownback is known for his social conservative views, he may be moderated somewhat by national aspirations.”

    Rapidly rising costs at Kansas Universities criticized. Tuition at our state’s two flagship universities — The University of Kansas and Kansas State University have risen much faster than inflation, writes John R. LaPlante, educational policy fellow the Kansas Policy Institute in a letter to the Topeka Capital-Journal. Rapidly rising administrative costs are one reason, he writes. But costs can be controlled: “Cutting administrative expenses isn’t just a nice thing to do, it is possible. Iowa State, Texas A&M and the University of Missouri actually reduced their administrative expenses. It should be no surprise that they had smaller tuition increases than every other university in the conference, save Texas Tech.”

    States and their pension problems. George Will in the Washington Post writing on the problem with under-funded state employee pension plans: “The nation’s menu of crises caused by governmental malpractice may soon include states coming to Congress as mendicants, seeking relief from the consequences of their choices. Congress should forestall this by passing a bill with a bland title but explosive potential.” Will goes on to describe a bill in Congress that would mandate transaprency of just how bad the problem is: H.R. 6484: Public Employee Pension Transparency Act. … In Kansas, efforts to merely describe the severity of the problem result in attacks on the messenger. In Wichita, the head of Service Employees International Union Local (SEIU) 513 appeared before the board of USD 259, the Wichita public school district, in order to denounce the reports and what he claimed where the political motives behind it. See video at KPERS report sparks backlash from Wichita SEIU.

    Airport security found lacking. From the ABC News report Gaping Holes in Airline Security: Loaded Gun Slips Past TSA Screeners: “But the TSA did miss [the loaded gun], and despite what most people believe about the painstaking effort to screen airline passengers and their luggage before they enter the terminal, it was not that unusual. Experts tell ABC News that every year since the September 11 terror attacks, federal agencies have conducted random, covert “red team tests,” where undercover agents try to see just how much they can get past security checks at major U.S. airports. And while the Department of Homeland Security closely guards the results as classified, those that have leaked in media reports have been shocking.”

    Compact strategy against Obamacare outlined. From the Weekly Standard: “An issue of interest to two or more states can lead to a compact. It works this way: State legislatures approve a proposal, the states agree on the parts of mutual concern (such as buying insurance across state lines), then the compact is dispatched to Washington for ratification by Congress and the president (though the need for White House assent isn’t spelled out in the Constitution). Ratification turns the compact into federal law. However, there’s a bigger reason for forming a compact against Obamacare. By banding together, states would have far more political clout in Washington.”

  • Wind power: a wise investment for Wichita and Kansas?

    Writing in The Wall Street Journal, Robert Bryce explains the terrible economics now facing the wind power energy, with emphasis on T. Boone Pickens, who has made a big splash with his plans to invest in wind power. A few takeaways:

    • Pickens’ $2 billion investment in buying wind turbines has left him with “a slew of turbines he can’t use.”
    • U.S. government subsidies amount to $6.44 per million BTUs generated by wind, but natural gas costs just $4 now. These low prices may be around for years, with gas market futures contracts below $6 through 2017.
    • Even with the subsidy, gas can’t compete with wind. Wind power installations are down 72 percent in 2010 as compared to 2009. That trend is expected to continue.
    • “Texas Comptroller Susan Combs reported that property tax breaks for wind projects in the Lone Star State cost nearly $1.6 million per job.”
    • Because Canada has renewable energy mandates, Pickens hopes to sell his turbines there.

    With the economics of wind power looking so grim and with $2 billion of turbines sitting around looking for a buyer, we have to question the wisdom of Wichita Mayor Carl Brewer recruiting wind power companies to come to Wichita.

    Incoming Kansas governor Sam Brownback is a supporter of renewable energy standards. These standards require utility companies to produce a certain level of power from renewable sources, which in Kansas is primarily wind. When Kansas electric generator Westar announced plans to increase its wind energy portfolio, Brownback said “Kansas wind is an important resource for our state that will provide clean energy for our residents and businesses and contribute to our economic growth. I applaud Westar Energy’s leadership in wind energy.”

    A Wind Power Boonedoggle

    T. Boone Pickens badly misjudged the supply and price of natural gas.
    By Robert Bryce

    After 30 months, countless TV appearances, and $80 million spent on an extravagant PR campaign, T. Boone Pickens has finally admitted the obvious: The wind energy business isn’t a very good one.

    The Dallas-based entrepreneur, who has relentlessly promoted his “Pickens Plan” since July 4, 2008, announced earlier this month that he’s abandoning the wind business to focus on natural gas.

    Continue reading at The Wall Street Journal (subscription required) or at Bryce’s site (free)

  • Economic freedom at decline, across the U.S. and in Wichita

    Earlier this year Robert Lawson appeared in Wichita to speak about economic freedom throughout the world. While the United States presently ranks well, that is changing. Writing this month in The Freeman, Lawson and his colleagues warn of dangerous trends — particularly the Obama Administration’s response to the recession — that pose a threat to the economic freedom that powers growth and prosperity.

    While the article is focused primarily at the national economy, there are lessons to be learned locally, too. In particular, increasing intervention into the state and local economy leads to compounding the loss of economic freedom.

    As an example, the Wichita City Council has just approved a plan for the revitalization of downtown Wichita that calls for public investment to be made downtown. While the plan is promoted as a market-based plan, it is, instead, a government plan to redirect investment from where people have decided it should be to where politicians, bureaucrats, and their patrons think it should be. These patrons are sometimes called “crony capitalists,” as explained in this passage from the article (James D. Gwartney, Joshua C. Hall and Robert A. Lawson:
    The Decline in Economic Freedom    ):

    It is important to distinguish between market entrepreneurs and crony capitalists. Market entrepreneurs succeed by providing customers with better products, more reliable service, and lower prices than are available elsewhere. They succeed by creating wealth — by producing goods and services that are worth more than the value of the resources required for their production. Crony capitalists are different: They get ahead through subsidies, special tax breaks, regulatory favors, and other forms of political favoritism. Rather than providing consumers with better products at attractive prices, crony capitalists form an alliance with politicians. The crony capitalists provide the politicians with contributions, other political resources, and, in some cases, bribes in exchange for subsidies and regulations that give them an advantage relative to other firms. Rather than create wealth, crony capitalists form a coalition with political officials to plunder wealth from taxpayers and other citizens.

    We are now in the midst of a great debate between the proponents of limited government and open markets on the one hand and those favoring more collectivism and political direction of the economy on the other. The outcome of this debate will determine the future of both economic freedom and the prosperity of Americans and others throughout the world.

    In Wichita, “those favoring more collectivism and political direction of the economy” are winning. Not only are they winning the actual political votes, they are also winning the battles within their own minds. Astonishingly, many of the crony capitalists in Wichita have deluded themselves into believing that they are supporters of free markets and capitalism. But taxpayer-supported institutions like Wichita Downtown Development Corporation and Visioneering Wichita exist for the very purpose of directing taxpayer funds toward the crony capitalists. Even the Wichita Metro Chamber of Commerce plays a role in the plunder of the taxpayer, with its president nodding in approval as nominally conservative members of the Wichita City Council expressed their support for the collectivist, anti-market vision for downtown Wichita.

    The heads of each of these organizations, along with city council members Sue Schlapp, Paul Gray, Jim Skelton, and Vice Mayor Jeff Longwell consider themselves to be conservatives. Many of these have personally assured me they are in favor of free markets.

    The actions of the council members, not only their enthusiastic embrace of the downtown plan, but their interventions — at nearly every meeting, week after week — that interfere with the market economy and destroy economic freedom, show that none have even a basic understanding of the difference between the economic means and the political means. Writing in his recent book The Science of Success, Koch Industries Chairman and CEO Charles Koch explains the difference:

    The economic means of profiting involves voluntarily exchanging your goods or services for the goods or services of others. Parties will not voluntarily enter into an exchange unless they both believe they will be better off. Therefore, you can only profit over time in a system of voluntary exchange (a market) by making others better off.

    The political means of profiting transfers goods or services from one party to another by force or fraud. A coerced or fraudulent exchange leaves at least one of the parties worse off. Examples are stealing, committing fraud, polluting, using unsafe practices, filing baseless lawsuits, lobbying government to hamper competitors or obtain subsidies and promoting self-serving redistribution programs.

    The economic means creates wealth by making each participant, and, therefore, society as a whole, better off. The political means, at best, merely distributes wealth. As a general system, it causes the overcoming majority of people to be worse off. (emphasis added)

  • Growth of Wichita’s Koch Industries profiled

    Two recent Wichita Eagle articles profiled Wichita-based Koch Industries and its recent growth.

    In Wichita, Koch employs about 2,300 workers, and about 50,000 across the U.S. in nearly all the states. When standard economic multipliers are used, these Koch jobs support about 203,000 total jobs.

    While Koch’s headquarters are in Wichita, Kansas ranks seventh among the states in the number of Koch employees, with Georgia, Texas, Arkansas, Wisconsin, Alabama, and South Carolina having more Koch employees.

    Of note in the article Koch cautious in acquiring other businesses:

    • Koch has been cautious in its acquisitions, looking for acquisitions that provide a “long-term, sustainable advantage.”
    • A fit with Koch’s culture is necessary. That culture is described in Charles Koch’s 2007 book The Science of Success: How Market-Based Management Built the World’s Largest Private Company. More information on this book, including excerpts, is available at The Science of Success.
    • Besides the costs of acquisition, Koch has spent $10 billion on capital improvements since 2003.
    • Nationwide Koch has 1,500 job openings, including need for workers in accounting, finance, and information technology in Wichita.

    A report created by Harrah Analytics of Koch’s economic impact in the U.S. is available at Koch Companies Creating Jobs Nationwide.

    The second article, Fertilizer helps Koch grow describes a Koch anhydrous ammonia plant near Enid, Oklahoma. This plant produces 3,000 tons per day, described as 10 percent of the country’s production. The article describes Koch’s efforts to comply with emissions regulations.

    Also, the article describes how a partially Koch-owned plant in Venezuela was seized by Hugo Chavez as that country moved away from a market economy to a socialized economy.

  • Kansas economic growth policy should embrace dynamism

    A dynamic market where many new business startups attempt to succeed and thrive while letting old, unproductive firms die is what contributes to productivity and economic growth. But most economic development policies, including those of Kansas and Wichita, do not encourage this dynamism, and in fact, work against it.

    That’s the message of Dr. Art Hall, who spoke to the Wichita Pachyderm Club on the topic “Business Dynamics and Economic Development in Kansas.” Hall is Director of the Center for Applied Economics at the Kansas University School of Business.

    At the start of his talk, Hall said that economic development has become an industry of its own, a public industry sometimes implemented as public-private partnerships. But its agenda is often not genuine economic development, he said.

    In a short history lesson, Hall described how Walter Beech came to Wichita from North Carolina simply because Clyde Cessna was in Wichita. Sprint began in Abilene in 1899. Fred Koch, who founded the company that became Koch Industries, came to Wichita because Lewis Winkler was here. “Serendipity — that’s the theme.”

    Hall displayed a map of taxpayer migration. There is a huge and wide swath of deep blue — representing the highest rate of out-migration — stretching north to south through the Great Plains, including much of Kansas. The Plains are urbanizing, Hall said. Pockets are doing well, but generally the rural areas are losing population. Economic development strategies must realize this long-term trend, he said.

    A chart showed the geographic distribution of income earned in Kansas. In 1970, 55 percent of income was earned outside the state’s two major urban areas: Wichita and the Kansas City and Lawrence areas. In 2008, that number had declined to 38 percent. The cause of this is people moving to cities from small towns and rural areas.

    On a map of Kansas counties, Hall showed how jobs are moving — concentrating — to a few areas of the state. “I think this is a positive development, because density tends to be a precursor to productivity, and productivity — meaning the value of output per worker — is one of the core fundamental definitions of economic growth.” It’s the reason, generally speaking, as to why cities are prosperous.

    Hall said that we should care about our rural communities, but if we slow down the process of densification, we may be losing out on productivity growth and its benefit to economic development.

    Continuing on this important theme, Hall said that the key to real and sustainable economic development is productivity growth: “Productivity growth happens on the front lines of individual businesses. You cannot will productivity growth. You cannot legislate productivity growth. You must create the conditions under which individual businesspeople, slogging it out on the front lines every day, create prosperity and productivity by trying new things and working hard. That requires a climate in which they feel optimistic enough to try new things, are rewarded for their efforts, and are willing to test new ideas.”

    Dynamism is one of the most underappreciated aspects of the U.S. economy among those working in economic development, Hall told the audience. There is a high correlation between the average size of a business and economic growth, and particularly employment growth. In other words, small companies tend to grow faster than large companies. In the chart Hall displayed, there is a clear demarcation at companies with about 20 employees.

    But most of our economic development policies have a bias towards big business. Hall said this is understandable. Further, he said that Wichita is a big business town, meaning that statistically, it is not poised to be a fast-growing area. Hall said we should create an atmosphere where we have lots of small businesses, where there is lots of experimentation. “If our economic development policies are biased against that, that is not helpful.”

    A chart showed that each year many business firms die or contract, and many others are born or expand. These numbers are large, relatively speaking: in most years, around 150,000 jobs are created through new firms or expansion of existing firms, and about the same number are lost. Given that Kansas has about one million jobs, each year about 30 percent of Kansas jobs are in in play, just as a result of business dynamics.

    Hall said that when the Kansas Department of Commerce announces the creation of 80 new jobs in Kansas, we need to remember that the marketplace swamps anything that individual economic development agencies can do. Hall called for policies that can handle a large volume of businesses — 15,000 to 25,000 — in growth mode each year. Our state’s economic development policies can not handle this level of volume, he said.

    Another chart of the states illustrated the relationship between job reallocation rate — the “churn” of jobs — and the economic growth rate in a state. States with high growth rates have high turnover rates in jobs. Kansas ranks relatively low in economic growth.

    Economic development policy should encourage new business startups, Hall said, although there is a high correlation between newness and death of businesses. “What you’re trying to do is have enough experimentation that enough good experiments take hold, and they grow.” This concept of experimentation is related to serendipity, or “making desirable discoveries by accident” that Hall mentioned earlier.

    But much economic development policy focuses on retaining jobs. Hall said that if what we mean by job retention is saving jobs in companies that ought to die, the policy is not productive. Instead, job retainment policies should create a climate where people can find new jobs quickly here in Kansas. Job retention should not mean bailouts, he added.

    Hall emphasized that while there is a high correlation between new businesses and being small, he said it is new businesses that are most important to driving economic growth.

    Newness of business firms is vitally important, Hall said. Summarizing a chart of Kansas job creating by age of the firm, he told the audience: “Without year-zero businesses [meaning the newest firms], the entire state of Kansas is almost always losing jobs. It’s the same for the United States. It’s the newness that matters. We want new businesses, but new businesses create churn, as there’s a high correlation between birth and death.”

    Hall said this is a complicated process, and that most discussions of economic development do not recognize this complexity.

    Hall explained that the state, in conducting economic development activity, often acts as an investor in a company. Specifically, he said that the state acts as an “active manager” similar to an actively managed stock mutual fund. The other type of investor or mutual fund is the passively-managed index fund, where the fund invests in all stocks, usually weighted by the size of the firms. Which approach works best: active management, or investing in all companies. This historical record shows that very few actively-managed funds beat index funds, only 2.4 percent from 1994 to 2004.

    Hall said the data shows it is very difficult to predict which are the right firms to pick to come to Kansas. Therefore, we need policies that benefit all companies in order to have a dynamic market in new business firms. “Everyone gets the same deal,” he said.

    Hall recommended three specific policies: First, universal expensing of all new capital investment made in Kansas, which means that companies can deduct new investment immediately. Second, eliminate the tax on capital gains. Third, automatic property tax abatements for new or improved business investment for a period of five years.

    Hall’s talk was based on his paper from earlier this year titled Embracing Dynamism: The Next Phase in Kansas Economic Development Policy. That paper contains the charts referred to, and also more detail, additional information, and policy recommendations.

  • Kansas economic expert to speak in Wichita

    This week Dr. Art Hall will appear twice in Wichita. Hall is the Director of the Center for Applied Economics at the Kansas University School of Business. Hall has performed extensive research on the Kansas economy, and has produced a number of reports that have generated controversy, largely for their blunt assessment of the situation in Kansas.

    On Thursday (December 16), Hall will speak at an event sponsored by Americans for Prosperity, Kansas chapter. The topic of this free lecture is “The Size of Local Government in Kansas.” This event will be held at the Wichita Downtown Public Library at 223 S. Main, on the third floor, from 7:00 pm to 8:30 pm. For more information 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.

    Then on Friday (December 17) Hall will speak at the Wichita Pachyderm Club on the topic “Business Dynamics and Economic Development in Kansas.” The public is welcome at Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club.

  • Kansas and Wichita quick takes: Monday December 6, 2010

    Cato scholar to speak on economic freedom. Friday’s meeting (December 10) of the Wichita Pachyderm Club features noted Cato Institute scholar, Principal Attorney at the Pacific Legal Foundation, and author Timothy Sandefur. He will discuss his recent book The Right to Earn a Living: Economic Freedom and the Law. A description of the book at Amazon.com reads: “America’s founders thought the right to earn a living was so basic and obvious that it didn’t need to be mentioned in the Bill of Rights. Yet today that right is burdened by a wide array of government rules and regulations that play favorites, rewrite contracts, encourage frivolous lawsuits, seize private property, and manipulate economic choices to achieve outcomes that bureaucrats favor. The Right to Earn a Living charts the history of this fundamental human right, from the constitutional system that was designed to protect it by limiting government’s powers, to the Civil War Amendments that expanded protection to all Americans, regardless of race. It then focuses on the Progressive-era judges who began to erode those protections, and concludes with today’s controversies over abusive occupational licensing laws, freedom of speech in advertising, regulatory takings, and much more.” … Of the book, Dick Armey said: “Government today puts so many burdens and restrictions on entrepreneurs and business owners that we’re squandering our most precious resource: the entrepreneurial spirit and drive of our people. Sandefur’s book explains how this problem began, and what steps we can take to ensure that we all enjoy the freedom to pursue the American Dream.” … The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club.

    Success factor for liberals identified. On last night’s installment of The Right, All Along: The Rise, Fall & Future of Conservatism, economist Arthur Laffer issued this assessment of the presidency of Bill Clinton: “Two groups I love are principled conservatives and unprincipled liberals. And Bill Clinton I viewed as an unprincipled liberal. And he did one of the best jobs — one of the best presidents we’ve ever had.” It’s an interesting observation by Laffer that for liberals to have success, they must be unprincipled.

    Joshua Blick for Wichita City Council. A website for a candidate for Wichita City Council district 4 is up and running. Joshua Blick’s site says: “Joshua Blick is an active leader in District 4; he is the President of his neighborhood association and a local business owner. Joshua also passionately supports the growth and sustainability of new jobs for Wichita, and improving the quality of living for every resident in this great city.” District 4 covers the southwest side of Wichita. The incumbent council member, Paul Gray, may not run again because of term limits.

    Washington is why the economy is not growing. Mark Tapscott of the Washington Examiner runs through the reasons why the economy is not growing: “On every front, the federal government is creating more investment-killing tax uncertainty, issuing endless pages of new bureaucratic regulations on the economy, and preventing firms from taking actions that could create hundreds of thousands of new positions and kick-start a muscular recovery with real legs. … Obama is also tightening the federal bureaucracy’s regulatory straightjacket on economic growth. As the Heritage Foundation reported a week before the election, the hidden tax of regulation costs at least $1.75 trillion annually. … Then there is the Obama Permitorium on energy exploration and production here in the United States, which threatens even greater long-term damage to the economy’s ability to generate new jobs and growth. … Instead, Obama is spending billions of tax dollars to subsidize alternative energy programs that cannot possibly replace the energy produced by oil, coal or natural gas until 2030 at the earliest.” The full article is Mark Tapscott: Washington is why the economy is not growing.

    Rasmussen polls from last week. Current Congress not appreciated: “Most voters continue to give this Congress poor marks in its closing days, and they still don’t believe the national legislature has passed anything to significantly improve life in America.” Full story here. Ability of Congress to substantially cut spending is doubted, especially by Republicans. See Most Voters Don’t Expect Big Spending Cuts From New Congress. About half of Americans believe that lenghty unemployment benefits increase the number of unemployed people. See Americans Question Whether Extended Unemployment Benefits Do More Harm Than Good. Almost half say repeal of Obamacare would be good for the economy. See Health Care Law.

    Kansas Democrats not quite dead. Tim Carpenter of the Topeka Capital-Journal looks at the results of the November election in Kansas and the future for Kansas Democrats. An important process to watch is reapportionment, when new legislative districts will be drawn: “The reapportionment debate is likely to have an urban vs. rural character as districts are reconfigured to correspond with population growth in urban counties, especially Johnson County, and erosion of residents in rural areas of the state. The math isn’t clear yet, but results of the 2010 Census could trigger loss of two rural Senate districts and six rural House districts.” As for the future of Democrats, two observers say “They are back in the Stone Ages” and “We’re seeing a definite balance-of-power shift.” One observer warns that breakdown of the “union of Republican social and economic conservatives” could be an opening for Democrats and moderate Republicans. See KS Dems: Weaker, but not dead.

    Young Republicans group started. Lynda Tyler of Kansans for Liberty is shepherding a new group of young Republicans. Writes Lynda: “Do you know a high school student, child, grandchild in the teen years who is interested in learning more about politics and getting involved? Perhaps you would like to get them involved. Chase Blasi has started the Sedgwick Teen Age Republicans group known as STARS. We are sponsoring them and would like to help the group grow so see below for details on their next meeting.” Lynda is hosting a Christmas Party for this group. Write to her at lyndaty@swbell.net for more information.

  • Obama’s spending stimulus failed

    The school of thinking known as Keynesian economics holds that government should actively and aggressively manage the economy, most importantly by stepping up spending when demand is low. Through this deficit spending, it is said that government action can increase employment. This government spending purportedly accomplishes this through a multiplier effect, as dollars are spent again and again.

    The value of the spending multiplier — is it big or small? — is an important question. Also, the multiplier effect may be different for government spending versus private spending.

    Now, we’re starting to understand why Keynesian economics doesn’t work. Writing in the Wall Street Journal, Stanford economist Michael J. Boskin summarizes recent research that finds that the spending multiplier is small, and actually turns negative by the start of the second year. Furthermore, the government spending crowds out private sector spending. The effect of Obama’s 2009 stimulus bill is estimated at 0.2 percent of GDP, an amount described as “puny.”

    Tax cuts, however, are estimated to have a multiplier of 3.0, with “substantial tax cuts” having a multiplier of up to 5.0.

    In context, Obama’s economic advisers, at the time he took office, estimated that the spending multiplier for government purchases was 1.57, while the multiplier for tax cuts was 0.99.

    Of the new studies finding a small spending multiplier, Boskin writes: “These empirical studies leave many leading economists dubious about the ability of government spending to boost the economy in the short run. Worse, the large long-term costs of debt-financed spending are ignored in most studies of short-run fiscal stimulus and even more so in the political debate.”

    In conclusion, he writes: “The complexity of a dynamic market economy is not easily captured even by sophisticated modeling (an idea stressed by Friedrich Hayek and Robert Solow). But based on the best economic evidence, we should reject increased spending and increased taxes.” He calls for reductions in personal and corporate marginal tax rates and an “enforceable gradual phase-down of the spending explosion of recent years.”

    We should note that Obama and many of those in government are easily seduced by the allure of Keynesian deficit spending. It’s government, after all, that gets to spend the money. Republicans, even those who consider themselves conservative, have been seduced in this way, too.

    Tax cuts, on the other hand, leave money and spending decisions in the private sector.

    Why the Spending Stimulus Failed

    New economic research shows why lower tax rates do far more to spur growth.

    By Michael J. Boskin

    President Obama and congressional leaders meeting yesterday confronted calls for four key fiscal decisions: short-run fiscal stimulus, medium-term fiscal consolidation, and long-run tax and entitlement reform. Mr. Obama wants more spending, especially on infrastructure, and higher tax rates on income, capital gains and dividends (by allowing the lower Bush rates to expire). The intellectual and political left argues that the failed $814 billion stimulus in 2009 wasn’t big enough, and that spending control any time soon will derail the economy.

    But economic theory, history and statistical studies reveal that more taxes and spending are more likely to harm than help the economy. Those who demand spending control and oppose tax hikes hold the intellectual high ground.

    Continue reading at the Wall Street Journal (subscription not required)

  • Kansas and Wichita quick takes: Thursday December 2, 2010

    Kansas lags in charter schools. It won’t be a surprise to regular readers of this site, but Kansas is way behind most states in taking advantage of charter schools. This is a school reform measure that, while not perfect and doesn’t succeed in all cases, provides a way to increase opportunity for often the most disadvantaged students. It also increases opportunity for those students who don’t directly use them. Paul Soutar takes a look at how Kansas earns such a poor evaluation regarding charter schools in his article Weak Charter School Law Works Against Taxpayers’ Interests.

    Bureaucrats Gone Wild in Cancun. Global warming alarmists are meeting, and Americans for Prosperity is there to keep an eye on them. AFP says: “The United Nations Climate Change Conference is meeting in Cancun, Mexico from November 29 — December 10, 2010 where bureaucrats will work to transfer wealth and technology from developed to developing nations by raising the cost of traditional energy. But before these international bureaucrats get to ‘work’, they decided to throw a lavish party for themselves.” A news headline spotlighted in a video produced by AFP reads “Cancun climate change summit: scientists call for rationing in the developed world. The video is here: Bureaucrats Gone Wild in Cancun. AFP is taking its Hot Air Tour there. There are two ways to view this event: online, or by attending a watch party. There’s one in Wichita Thursday evening. Click on Hot Air Tour: Live from Cancun for more information and to register.

    Obama federal employee pay freeze — or not. President Barack Obama has been praised for instituting a pay freeze for federal employees. But the freeze may not be all it seems to be. Vincent Vernuccio of the Competitive Enterprise Institute reports: “President Obama’s proposal of a pay freeze for federal employees is a small step towards curbing government spending. However, a closer look shows there is less to it than meets the eye. In fact, many federal employees will still see their salaries increased. While Obama’s plan would stop the annual across-the-board cost of living adjustment (COLA) for all federal workers, it will not stop workers from getting raises altogether. The freeze will not affect pay raises for job classification upgrades. As an official at the Office of Management and Budget told Federal News Radio, ’employees will still be eligible for step increases.’” The full analysis is at the Daily Caller in Federal workers will still receive raises despite pay freeze.

    The moral case against spreading the wealth. From The Moral Case Against Spreading the Wealth by Leslie Carbone: “After two years, the results of President Obama’s wealth-spreading policies have confirmed centuries of economics, political philosophy, and common sense: Forced wealth redistribution doesn’t make things good for everybody; it makes things worse, both fiscally and morally.” Carbone explains the two reasons: Government-mandated wealth distribution does create prosperity, and it’s not a legitimate function of government. On the type of behavior we’d like to see in people, she writes: “Wealth redistribution discourages the virtuous behavior that creates wealth: hard work, saving, investment, personal responsibility.” After explaining other problems that progressive taxation — wealth redistribution — causes, she sounds a note of optimism: “Through Tea Parties and popular protests, millions of Peters and Pauls, and Joe the Plumbers are rejecting what F.A. Hayek so aptly called the fatal conceit of paternalistic government. Decades of federal expansion have demonstrated what history, economics, philosophy, and common sense have told us all along: People, working through the market, are the engines of prosperity, both moral and financial — but only if we get government out of their way.” Leslie Carbone is the author of Slaying Leviathan: The Moral Case for Tax Reform. That book expands on the ideas presented in this article.