Voice For Liberty

Tag: Economics

  • 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.

  • Wichita trash cooperative: gateway to mandatory recycling?

    Opposition to a proposed trash pickup cooperative in Wichita focuses mostly on two issues: the free market, and specific problems with the program.

    Conservative city council members — Paul Gray and Sue Schlapp in this case — advocate for a free market in trash collection. I appreciate that. But it is confusing to hear them advocate for a free market in trash collection when at the same time they vote for big-spending economic development programs that don’t work.

    Brent Wistrom’s Wichita Eagle article Questions pile up as Wichita eyes trash plan does a fine job of laying out the unanswered questions and issues left to be resolved — if they can be solved.

    These issues are important. But here’s the biggest reason to oppose this plan: it’s a gateway to mandatory recycling in Wichita.

    Recycling, while held up by its supporters as a moral imperative if we care anything about the planet, is a gigantic waste of resources. There are only a few settings in which recycling makes any sense at all. Automobiles and commercial cardboard are two such situations.

    In almost any other area, recycling uses more resources than it saves, despite the claims of its proponents.

    We need to look no farther than economics to learn the true value of an activity or a resource. In the case of recycling — except for the narrow examples mentioned above — most people have to pay to have their recycled goods hauled away. Or, they must incur costs themselves in hauling them somewhere that will accept them.

    Yes, Waste Connections in Wichita has a recycling program that pays people to recycle. Or does it? The program works this way: First, people pay $3.75 per month for recycling bins and their pickup twice monthly. By filling the recycling bin people can earn points which they may redeem for rewards.

    The roundabout approach to paying people to recycle only highlights the unfavorable economics of recycling. Why doesn’t Waste Management simply pay people for their recycled goods? Or why don’t they pick them up for free?

    The fact that Waste Management won’t engage in a straightforward transaction with its recycling customers allows the company to appear to be politically correct towards recycling, while at the same time escaping the fact that household recycling simply does not pay. Here’s Daniel K. Benjamin explaining the economics of curbside recycling in Eight Great Myths of Recycling:

    The numbers I have presented here avoid these problems and make clear that, far from saving resources, curbside recycling typically wastes resources — resources that could be used productively elsewhere in society.

    Indeed, a moment’s reflection will suggest why this finding must be true. In the ordinary course of everyday living, we reuse (and sometimes recycle) almost everything that plays a role in our daily consumption activities. The only things that intentionally end up in municipal solid waste — the trash — are both low in value and costly to reuse or recycle. Yet these are the items that municipal recycling programs are targeting, the very things that people have already decided are too worthless or too costly to deal with further. This simple fact that means that the vast bulk of all curbside recycling programs must waste resources: All of the profitable, socially productive, wealth-enhancing opportunities for recycling were long ago co-opted by the private sector.

    Commercial and industrial recycling is a vibrant, profitable market that turns discards and scraps into marketable products. But collecting from consumers is far more costly, and it results in the collection of items that are far less valuable. Only disguised subsidies and accounting tricks can prevent the municipal systems from looking as bad as they are.

    That’s right: The sober assessment of the price system is that in the context of households, recycling is a waste of resources. Although if people want to pursue it as a pastime or hobby, I have no objection.

    Nonetheless, supporters of recycling such as Wichita City Council member Janet Miller still believe in the false moral imperative of recycling. At last week’s workshop on Wichita trash, she said “There is only a finite amount of space on earth to bury stuff. At some point there’s not going to be any more room to bury stuff.”

    The fact is that landfills occupy a minuscule fraction of available space. We have plenty of space for trash.

    But the misinformed or uninformed attitude of Miller and a few others on the council — and maybe some bureaucrats too — is that recycling activity by Wichitans must increase, no matter how much of a waste of time it is.

    Answer this question: once Wichita has a mandatory, city-controlled and city-regulated trash pickup process in place, what’s to stop city hall from mandating that we recycle?

    Nothing, as far as I can tell.

    That’s the best reason for opposing takeover of our trash system by the city.

  • Myth of Obama tax cuts

    As the nation’s attention is focused on whether Congress will extend the Bush tax cuts of 2001 and 2003, some are calling attention to the Obama tax cuts and calling for their extension.

    These tax “cuts” — and I use quotes deliberately — are part of the stimulus bill passed in February 2009. Polls show that very people know of these tax cuts.

    So what are the Obama tax cuts? There was one program that qualified — sort of — as a “cut,” and several tax credit programs. More information about these programs from the Obama Administration is at Recovery.gov,

    The largest item that benefited most people is the Making Work Pay Tax Credit, a two-year program that rebates $400 per year to individual taxpayers, or $800 per year for married couples. This is not a reduction in marginal tax rates, although the program will reduce the average tax rate that people pay. At its core, it is simply a reduction in the overall amount of tax someone must pay.

    This tax credit is not associated with any positive effort or activity by the recipients other than doing what they already do. The same criticism applies to the Bush tax rebate in 2008, too.

    Besides the Making Work Pay Tax Credit, the Obama tax cuts consist of other tax credits that apply not to everyone, but only to people who qualify.

    For example, a child care tax credit pays up to $1,200 per year in child care expenses. Obviously, the only people who can claim this credit are working people with children who chose to place them in daycare. Beyond that, it is not a “tax cut” by any stretch of the imagination. Properly, it is a spending program implemented through the tax system. Sometimes called tax expenditures, these measures often escape the usual scrutiny that spending receives. Since they’re billed as a “tax cut,” they sound like a good thing to most people, as few like paying taxes.

    If we need any more evidence that these programs are really spending disguised as tax cuts, consider the description of the child care tax credit as provided by the Internal Revenue Service: “It is a refundable credit, which means taxpayers may receive refunds even when they do not owe any tax.”

    That’s right. Even if you have no income tax liability, you can still get a tax credit — that is, a payment from the government.

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

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

    Who responds most positively to reductions in marginal tax rates? As Jeffrey A. Miron explains, it is the most economically productive members of society:

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

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

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

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

    If the goal of the Obama Administration is to create private sector economic growth instead of growth in government, it needs to keep the Bush tax cuts in place and avoid increases in marginal tax rates for everyone, especially the most productive members of society. A better strategy would be to reduce these tax rates farther to create even more economic growth.

    There is a lesson to be learned locally, too. Kansas needs to cut its marginal tax rates, both for personal income and for corporations. Miron spoke of capital leaving the United States because of high taxes. It’s even easier for capital — and its accompanying jobs — to move from one U.S. state to another. States with low tax burdens are experiencing growth in jobs and population, while high tax states have losses in both areas. Kansas is in the middle of the pack, but moving in the wrong direction.

    The current economic development strategy of Kansas and many of its cities and counties is to offer targeted incentives to attract new industry and keep current companies from leaving. A better strategy in the long run is to join the ranks of low tax burden states.

  • Kansas and Wichita quick takes: Wednesday November 17, 2010

    Kansas Senator Lee to tax court. State of the State KS reports that Kansas Senator Janis Lee has been appointed by Governor Mark Parkinson to the Kansas State Court of Tax Appeals. Lee is a Democrat from Kensington in northwest Kansas. This action opens another position in the senate — another three pending vacancies need to be filled due to senators who won election to other offices — and others are likely to follow as incoming governor Sam Brownback fills his cabinet. Lee scored 13 percent on the Kansas Economic Freedom Index for this year, which is a voting record more in favor of economic freedom than some other Senate Democrats — and some Republicans such as Senate President Steve Morris, for that matter. Lee’s replacement will be selected by the Democratic Party precinct committeemen and committeewomen in that senate district.

    Saving is good. A letter in today’s Wichita Eagle holds this observation: “Rich people don’t spend money in hard times. Give them a tax break, and they will stash it away. That’s why they are rich.” This letter contains a misconception that news media mistakenly repeats over and over: that consumer spending is good and saving is bad. What happens to savings — the “stash it away” the letter writer refers to? Few people stuff cash in the mattress or in a safe. Instead, they do several things with they money they decide not to spend on immediate consumption, which is the definition of savings. If put it in a bank, the bank lends it to others who will spend it. If used to pay down debt, that frees up funds for others to spend. If used to buy stocks and bonds, that provides funds for business to invest. Importantly, these funds usually go into increasing the nation’s stock of capital. This capital spending is especially desirable, as it supports current economic activity — that is, the people and companies that work today to produce capital goods — but it sets up the country to produce even more wealth in the future.

    Voters express pessimism. Consistent with other recent Rasmussen polls, voters are not optimistic that Congress will be able to accomplish very much in the next two years. See Voters Hold Little Hope for What New Congress Is Likely To Achieve.

    KDOT seeks public comment on public involvement policy. This seems almost like circular reasoning, but the Kansas Department of Transportation seeks public comment on a document titled “Sharing the Future — Public Involvement in the Kansas Transportation System.” The document — all 113 pages — may be found on this page. Comments should be directed to Kansas Department of Transportation, Bureau of Public Involvement, 700 S.W. Harrison, Topeka, 66603-3754, (785) 296-3526, fax (785) 368-6664, or maggiet@ksdot.org.

    Texas stimulus spending — not. Texas Watchdog takes a look at federal stimulus spending in Texas and finds some disturbing results. An example: “A closer look at spending by each agency shows wild differences in the amount of money spent and the number of jobs created. At least eight agencies have reported spending $500,000 or more for every job claimed. In the case of the Texas State Library and Archives Commission, its $883,993 per job is an estimate because more than a year after it was awarded nearly $8 million for a statewide library broadband upgrade project, nothing has been spent and none of its projected nine employees have been hired.”

    Who stole Election Day? A candidate for Maine governor wonders whether the rise of advance voting — “convenience voting,” he calls it — is good for the country. Besides meeting a voter who expressed regret in having already voted for his opponent, Eliot Cutler writes this of convenience voting: “At a time when sea changes are roiling our democracy, political parties are in decline, and public confidence in the political system is plummeting, convenience voting is having all the wrong effects. In Maine, at least, it appears to be discouraging voter engagement, providing life support to withering political parties, and undermining one of our most enduring and important institutions.” More in the Wall Street Journal at Who Stole Election Day? Too many voters are making decisions when horse-race coverage dominates the news, attention to issues is limited, and key debates haven’t taken place.

    Adapt, don’t overreact to climate change. Bjorn Lomborg — The Skeptical Environmentalist — of the Copenhagen Consensus Center argues in the pages of the Washington Post that mankind has shown that it can adapt to climate change. This record, he argues, means we should not panic about climate change. We can afford a long-term perspective: “… when it comes to dealing with the impact of climate change, we’ve compiled a pretty impressive track record. While this doesn’t mean we can afford to ignore climate change, it provides a powerful reason not to panic about it either.” He cites the example of the Netherlands: “Keeping Holland protected from any future sea-level rises for the next century will cost only about one-tenth of 1 percent of the country’s gross domestic product.” Concluding, he writes: “[adaption] will enable us to get by while we figure out the best way to address the root causes of man-made climate change. This may not seem like much, but at a time when fears of a supposedly imminent apocalypse threaten to swamp rational debate about climate policy, it’s worth noting that coping with climate change is something we know how to do. ”

  • Kansas Statehouse renovations examined

    The restoration of the Kansas Statehouse was featured on a recent episode of Sunflower Journeys. While providing an interesting look at the history of the stonecarvings on the building’s exterior, the show made a mistaken argument about the economics of the project.

    During the episode Vance Kelley, a project manager for Treanor Architects, promoted the economic development aspects of the capitol building’s restoration. Since the workers are local, he said that utilizing local labor forces, means that tax dollars get passed along to local merchants: “Actually we’re generating, I think it’s been estimated between six and seven times the amount of money within the local economy. Preservation actually creates jobs. It is economic development in itself.”

    This argument — that government spending of this type creates jobs — is commonly heard from advocates of more government spending. It’s a popular argument among historic preservationists, too, as they seek to justify why their work is so expensive, and why public money should be expended on it.

    Does government spending create jobs? The short answer is no. The primary reason is that government can only spend what it takes from someone else. It might do the taking now, in the form of taxation, or it might borrow, which delays taxation to the future. Either way, many people have less money to spend, save, and invest because of the taxation.

    Kelley’s argument does have a ring of truth to it. Local merchants — Topeka, he means — are benefiting. Taxpayers across the state are taxed to send money to be spent largely in Topeka. This benefit, however, comes at the expense of spending — and related jobs — in other parts of Kansas. This, however, is a selfish argument.

    Kelley may not be aware of the seen and unseen fallacy that pervades popular thinking. When we go to Topeka — or watch taxpayer-funded public television — we can see the glory and magnificence of the government spending on the Kansas Capitol. Finding the harm caused by the taxation necessary to pay for this, however, is disbursed across the state and very difficult to find. But it exists.

    Kelley also referenced the multiplier. That’s the observation that money spent gets spent again, and again, and again. That’s true. But advocates of government spending like Kelley think that only government spending is magically multiplied. The truth is that any spending is multiplied in this way. It’s a natural phenomenon of economics.

    Some people make the argument that people may not spend their money during uncertain times. Instead, they may save it. But where do savings go? Many people put their money in a bank, which then lends it to people who want to spend it. Other people buy stocks or bonds, or pay down debt. Either action provides funds for others to spend. It’s only when people save money by stuffing it in their mattresses that this argument — that government must spend — applies. And very few people do this.

    The further truth is that when spending their own money, people are usually careful. Government? Not so much. Evidence of this is the ornate decorative carvings illustrated in the Sunflower Journeys episode. Few private building are built to this standard, because people — even wealthy people — spending their own money don’t value this frivolity very highly.

    Instead, it’s government, spending taxpayers’ money, that ends up building elaborate monuments to itself.

    There are some cases where government spending creates wealth, such as in the building of needed highways. It does not follow, however, that only government is capable of making this investment. Further, streets and highways are far removed from ornate stonecarvings on a government monument.

  • Outsourcing Kansas jobs

    In the campaign for United States Congress from the fourth district of Kansas, Democrat Raj Goyle uses the issue of outsourcing of Kansas jobs as his main issue against Republican Mike Pompeo.

    Goyle’s criticism of Pompeo is based on a claim that Pompeo could have created jobs in Kansas, but instead chose to create them in Mexico and China. The latest allegations are regarding Sentry International, a company servicing the oilfield industry. Pompeo is currently president of that company.

    A lengthy page on Goyle’s campaign website details the allegations. Some of the criticism Goyle levels against Pompeo is for things that many Kansans would applaud.

    For example, one piece of Goyle’s evidence or criticism is this: “In February 2008, the Wichita Eagle reported that Sentry International sold mostly in Kansas, Oklahoma and Texas until Pompeo came on board as President. After that, the company began selling in other states and international markets.”

    Normally, we would applaud a company growing its markets and sales. But evidently to Goyle, a Kansas company expanding is not good news.

    Goyle’s argument then proceeds to criticize Sentry International for manufacturing some of the equipment it sells overseas, when it could — according to Goyle — be made in Kansas. He further claims that trade with China has cost Kansas jobs.

    So far the only plan Goyle has advanced for stopping outsourcing is to eliminate the deferral of taxation of income that U.S. companies earn overseas. Currently, companies pay the host country’s tax, and then pay the difference between that tax and the U.S. tax when those profits are transferred to the U.S. Goyle — following President Obama’s lead — would do away with this referral.

    The problem is that this action will probably drive more jobs overseas. The Wall Street Journal reported that when this tax deferral was eliminated to the U.S. shipping industry, the results was “a real disaster for U.S. shipping,” with U.S. shipping capacity falling by 50 percent over a period of years following this reform.

    A case study on the effects of eliminating the deferral on the U.S. shipping industry concluded:

    • In a competitive industry, taxing U.S.-owned operations at non-competitive international tax rates simply diminishes U.S. activity and advantages our foreign competitors.
    • Reduced U.S. operations result in reduced employment and lower wages for American workers.
    • Non-competitive international taxation of U.S. businesses leads to a lower standard of living for American workers.

    In addition, the case study finds: “Recent analyses indicate that the 2004 legislation restoring deferral for foreign shipping income is reversing the decline in the U.S. shipping industry.”

    Part of the problem is that U.S. corporate tax rates are highest in the developed world, next to Japan. Lowering U.S. tax rates — instead of increasing them, as Goyle advocates — would spur investment, including investment by foreign companies in the U.S.

    Does outsourcing cost U.S. jobs?

    Matthew J. Slaughter of Dartmouth University has researched and written extensively on outsourcing and its effects. Writing in the Wall Street Journal earlier this year about outsourcing and President Obama’s proposal to do away with the tax deferral — that’s the only solution Goyle is proposing — Slaughter wrote:

    The fundamental assumption behind these proposals is that U.S. multinationals expand abroad only to “export” jobs out of the country. Thus, taxing their foreign operations more would boost tax revenues here and create desperately needed U.S. jobs.

    This is simply wrong. These tax increases would not create American jobs, they would destroy them.

    Academic research, including most recently by Harvard’s Mihir Desai and Fritz Foley and University of Michigan’s James Hines, has consistently found that expansion abroad by U.S. multinationals tends to support jobs based in the U.S. More investment and employment abroad is strongly associated with more investment and employment in American parent companies.

    When parent firms based in the U.S. hire workers in their foreign affiliates, the skills and occupations of these workers are often complementary; they aren’t substitutes. More hiring abroad stimulates more U.S. hiring. … To climb out of the recession, we need to create millions of the kinds of jobs that U.S. multinationals tend to create. Economic policy on all fronts should be encouraging job growth by these firms. The proposed international-tax reforms do precisely the opposite.

    So while many people assume that when a U.S. company creates a job overseas it means one lost American job, that is simply not the case.

    Protectionism — the next step?

    Any plan to protect U.S. jobs from being sent overseas will have to resort to protectionist measures such as tariffs on imported goods. Goyle hasn’t advocated this. Instead, he has simply criticized his major opponent for running a global business, and has not advanced a plan to protect U.S. jobs except for eliminating the tax deferral. As we’ve seen above, that would harm U.S. job growth instead of helping.

    What advocates of protectionism fail to realize is that trade is a two way street. It benefits both parties, or the transactions would not take place. And when governments try to intervene and restrict trade, everyone is hurt.

    When President George W. Bush placed tariffs on imported steel in 2002, it was seen as a political move to protect steel-making jobs in Pennsylvania and West Virginia, two states he needed for his reelection, according to Washington Post analysis.

    As a result of the tariff, steel-making jobs were saved. But jobs in steel-using industries were lost, and U.S. consumers paid more for products that contained steel.

    When President Obama imposed tariffs on Chinese tires last year, he increased the cost of those tires for U.S. consumers. While this undoubtedly saved U.S. tire-making jobs, U.S. consumers of Chinese tires pay more. As these tires are primarily at the lower range of prices, it is mostly low income consumers who have to pay more to prop up U.S. tire worker jobs.

    Then even more harm arises. China — perhaps in retaliation — has imposed tariffs on imported chicken. According to the New York Times, “The commerce ministry started the investigation less than two days after President Obama imposed steep tariffs on Chinese tires a year ago. Chinese officials have denied that the inquiry was in retaliation, but poultry is one of the few categories in which the United States runs a trade surplus with China, making it an ideal target for Chinese trade actions.”

    While protectionist rhetoric sounds good to workers who are facing pressure from overseas competitors, we again have to remember that trade is a two way street. We also need to be aware that locally, Wichita exports a lot airplanes. If foreign nations were to restrict imports of U.S. aircraft, that would seriously harm the prospects of Wichita’s aviation industry. Kansas farmers, too, are exporters.

    This is what the harsh reality of economics tell us — and there’s a reason why it’s called “the dismal science.”

    The politics, however, are on Goyle’s side. As recently reported: “A Wall Street Journal/NBC News poll released Sept. 28 found that outsourcing was the top reason cited by Americans as the cause of the country’s economic problems — and that for the first time in years a majority (53%) of Americans say free-trade agreements have hurt the U.S.”

    The residents of the fourth district of Kansas need to ask Goyle what specifically will he do to retain jobs in Kansas, and what will be the economic impact of these policies. All evidence tells us that the result will be harmful to Kansas and America.

  • Kansas and Wichita quick takes: Tuesday October 12, 2010

    Wichita Visioneers in Louisville. The Wichita Business Journal’s Emily Behlmann reports on a trip by Wichitans to Louisville to get ideas on transforming Wichita’s downtown. Hopefully they won’t get this idea, as reported yesterday by the Louisville Courier-Journal: “The heavily subsidized 4th Street Live entertainment district has come under criticism from locally owned businesses for receiving millions of dollars in tax breaks and government subsidies — including a controversial, $950,000 city loan that won’t necessarily have to be repaid.” According to Wichita planner Goody Clancy, heavy subsidy isn’t supposed to be necessary in Wichita. And, I hope all the planners read Jack Cashill’s take on Louisville’s planning: Good intentions, and planners, can sap a city’s soul.

    Lynn Jenkins: Don’t try to make Koch Industries a scapegoat. From today’s Wichita Eagle: “Koch management is dedicated to keeping the company growing. It reinvests 90 percent of company profits back into the businesses, allowing them to expand product lines and hire more employees. That is good for consumers and for workers. However, the company has come under fire because its owners support free-market principles inconsistent with the current Democrat leadership.”

    Should candidates bother to debate? Rasmussen finds that nearly half of likely voters have watched at least one debate, and about half find them informative.

    Costly approach to Kansas economic development — or defense. “Insiders were still not talking Wednesday about the potential cost of saving 6,000 aircraft workers’ jobs in Wichita. Outsiders say that some circumstances at their employer, Hawker Beechcraft, are so different from other companies Kansas has fought to keep that it may be impossible to gauge what it might cost to help prevent the 80-year-old Wichita firm from moving lock, stock and avionics to Baton Rouge, La., and cashing in on Louisiana incentive packages rumored to be worth as much as $400 million.” From Kansas Reporter.

    FiveThirtyEight. More about the political site FiveThirtyEight, which I took a look at on Sunday, especially its coverage of Kansas races. Here, James Taranto discusses FiveThirtyEight, concluding: “The recent acquisition of Nate Silver’s FiveThirtyEight.com makes for a striking contrast with the paper’s uneven news reporting and dreadful op-ed columnists.”

    No Wichita city council today. It’s the League of Kansas Municipalities conference in Overland Park this week. LKM is a special interest group working in favor not of the citizens who live in Kansas towns and cities, but the politicians and bureaucrats that run them — and their cronies — who benefit from the LKM’s advocacy of things like TIF districts, STAR bonds, tax abatements, and eminent domain for economic development.

    County commissioner forum tonight. Tonight at 7:00 pm at Gloria dei Lutheran Church, 1101 N. River Blvd. Oletha Faust-Goudeau and Richard Ranzau will appear.

    Parkinson is moderate — he says again. Kansas Governor Mark Parkinson — yet again — engages in self-congratulation over “how Kansas has weathered the economic recession by setting politics aside and working together to find moderate, common-sense solutions.” He’s done this several times since the legislative session was over — so many times that I’ve lost count. Evidence of a guilty conscience, perhaps? Parkinson’s abandonment of the Kansas Democratic Party by not choosing to run for reelection has put that party at a tremendous disadvantage in this year’s elections.

    Bureaucracy vs. Bureaucracy? “Andrew Gray, Libertarian Candidate for Kansas Governor, says that simplifying or repealing unnecessary statutes and regulations is a key part of his administration’s plan to empower the private sector to create jobs and prosperity in Kansas. He also says he’s pleased that Senator Brownback is at least talking about similar actions. However, Gray finds it ridiculous that Senator Brownback is actually planning to create more bureaucracy in order to cut bureaucracy.” I think he’s got a point. But anything that is necessary to reduce the size of government is what we need to do.

    The impossibility of an informed electorate. D.W. MacKenzie writing for Mises Daily, reacting to a John Stossel suggestion that uninformed people have a duty not to vote: “The problem with voting in modern America is that we have a politicized society, and modern society is extraordinarily complex. Stossel suggests that only people who follow politics should vote. However, even those who follow politics very closely do not understand the implications of changes in public policy. The lesson here is that efforts to incrementally reform government policies and programs through the democratic process are futile. To the extent that we vote at all, rational people should vote to depoliticize the economy. … What this means is that we need to reintroduce the price system as the primary method of economic communication, and the profit-and-loss sorting mechanism as the primary method of social reform.”

    Gallup: Americans negative towards federal government. “More than 7 in 10 Americans use a word or phrase that is clearly negative when providing a top-of-mind reaction to the federal government.” Details here: Americans’ Image of “Federal Government” Mostly Negative.

    A minority opinion, or a delusion? Paul Krugman in the New York Times: “Here’s the narrative you hear everywhere: President Obama has presided over a huge expansion of government, but unemployment has remained high. And this proves that government spending can’t create jobs. Here’s what you need to know: The whole story is a myth. There never was a big expansion of government spending. In fact, that has been the key problem with economic policy in the Obama years: we never had the kind of fiscal expansion that might have created the millions of jobs we need.”