Voice For Liberty

Tag: Economics

  • ‘The Power of the Poor’ to be shown in Wichita

    On Monday October 11, the video “The Power of the Poor” will be shown in Wichita, with discussion following.

    “The Power of the Poor is a compelling look at the surprising and vital role of inclusive laws and titled property in establishing peace and prosperity. It is also the story of real people with real struggles — all of whom share a commitment to entrepreneurship.”

    “De Soto and his team have proven that, even hobbled by great obstacles, the world’s hard-working poor entrepreneurs have created far more wealth than anyone had ever imagined possible — even with the absence of the legal frameworks people in the rich north take for granted. Prosperity is possible, if only we simplify the rules of the game. That means giving the poor titled property and the legal business tools we in the West enjoy. Such will enable them to harness the power of their considerable assets, as these stories illustrate.”

    The presentation will be at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The time is from 7:00 pm to 8:30 pm.

    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.

  • Socialism embraced in Washington today

    I’m not one to throw around charges of socialism lightly. For one thing, the term has devolved to have several meanings, and it’s not always clear which of the several meanings the speaker or writer intends.

    It’s also a highly charged term that usually overstates the case when it is used. Cathy Young explained in Reason Magazine: “To those who remember the murderous horror that was the USSR, this flippant use of Communist and Soviet analogies should be deeply offensive, indeed obscene — the right-wing equivalent of the leftist habit of flinging Nazi metaphors at conservatives.”

    But at today’s rally in Washington, Americans for Prosperity found many examples of people reveling in socialism.

  • Bankrupting America says ‘spending just got personal’

    The new website Bankrupting America features a video presentation of poll results that reveal that a strong majority of Americans — seven out of ten — feel that government spending is too high, and nearly as many say this spending affects them personally.

    A link to the video’s page is Spending just got personal, the video.

    Results of the poll tell us that only eight percent of likely voters say government spending is too low. The issue of government spending is very important to Republicans and Independents, but even 42 percent of Democrats say it is important, according to the survey.

    Bankrupting America is a relatively new site that seems to contain much useful information about government and the economy. Information from the site says “Bankrupting America is an educational project that explores the policies hindering economic opportunity and growth in America. The project focuses on the causes of the country’s current economic downturn and the future implications of careless policy-making.”

  • Raj Goyle anti-outsourcing plan likely to backfire

    A plan advocated by Democratic Party candidate for Congress Raj Goyle to reduce the outsourcing of jobs from the United States is likely to produce the opposite effect, according to the Wall Street Journal.

    Goyle is candidate for United States Congress from the fourth district of Kansas. He has criticized his leading opponent, Republican Mike Pompeo, claiming that Pompeo, as president of a manufacturing company, outsourced Kansas jobs to Mexico.

    On Goyle’s campaign website, under the heading “Economy: Jobs” we find: “It’s vital to create jobs and keep jobs in Kansas. The very first thing I will do in Congress is work to immediately repeal tax cuts for companies that ship jobs overseas. We must start providing tax breaks and incentives to those who create jobs and manufacturing bases in Kansas.”

    In a “Review and Outlook” piece titled The Send Jobs Overseas Act, the Journal explains how the tax breaks Goyle wants to end actually work. This is something that probably very few people understand, so here’s the explanation: “Under current tax law, American companies pay the corporate tax rate in the host country where the subsidiary is located and then pay the difference between the U.S. rate (35%) and the foreign rate when they bring profits back to the U.S. This is called deferral — i.e., the U.S. tax is deferred until the money comes back to these shores.”

    So it’s not really a tax break — if by that we mean the corporation never pays taxes on its profits. Instead, payment of the tax is deferred, although the deferral does have value.

    The Journal notes that the only major country with a higher corporate income tax rate is Japan. The tax rate on new capital investment in the U.S. is nearly twice the average of that in OECD countries.

    This high tax in the U.S. encourages investment overseas. A report this year by the White House tax reform panel concluded: “The growing gap between the U.S. corporate tax rate and the corporate tax rates of most other countries generates incentives for U.S. corporations to shift their income and operations to foreign locations with lower corporate tax rates to avoid U.S. rates.”

    And as other countries cut their tax rates, the inventive to leave the U.S. and its high taxes becomes stronger, the report also says.

    The piece also cites an earlier tax reform from 1986 where the U.S. eliminated tax deferral on shipping income. This is the same reform Goyle touts as good for the entire U.S. economy. But the Journal notes this reform 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.

    The path advocated by Goyle — President Obama wants this too — would be a disaster for America. “CEO Steve Ballmer has warned that if the President’s plan is enacted, Microsoft would move facilities and jobs out of the U.S.”

    The best solution for job creation in the U.S. is to reduce our corporate income tax rate to match or undercut the rate of other developed countries. This would spur investment in America, not only by domestic companies, but by foreign companies, too. Goyle’s plan to raise taxes on American corporations will only harm job creation both here and abroad.

  • Economic competition isn’t a sporting contest

    Last week USA Today carried an editorial by an Alexandria, Virginia school teacher that contains an unfortunate misunderstanding of the term competition as it applies to economics and education.

    The writer is Patrick Welsh, who is a member of member of USA Today’s Board of Contributors. The article is Schools can’t manage poverty.

    In the article, Welsh makes one of the most inept analogies that I’ve ever seen. Here’s the heart of it:

    Being an English teacher, I prepared a little analogy to ask him about the rationale for labeling schools on the basis of Adequate Yearly Progress. Duncan’s biographies often mention that he was co-captain of the Harvard basketball team during the 1986-87 season, his senior year. I reminded him that that team won only seven games and lost 17. Such a record, I told Duncan, was the mark of a “persistently low achieving” team, which made no “annual yearly progress.” I meant the analogy to be humorous, but teachers sitting near Duncan said he didn’t seem to take it that way.

    I went on to say that I assumed Duncan and his teammates did the best they could with the talent they had, and that no matter what improvements they tried to make, it would be foolish to think their team could ever reach the highest benchmark in college basketball — the Final Four.

    The ineptness is this: a basketball game is a competition that is designed to produce a winner and a loser (or maybe a tie in some sports). By definition — except for ties — there can’t be two winners. Someone has to lose.

    But learning things in school is not a competition of the same type. When one student learns something (wins, in other words), it doesn’t mean that someone else doesn’t get to learn (loses). In fact, if everyone masters the lesson, then all students are winners, and there are no losers.

    But maybe Welsh isn’t writing about that type of competition. He might be speaking of market competition. An example of this might be schools competing with other schools for students.

    This type of competition doesn’t necessarily produce a winner and a loser. Explaining competition in the The Concise Encyclopedia of Economics, Wolfgang Kasper explains one of the benefits of market competition:

    Discovery. Human well-being can always be improved by new knowledge. Competitive rivalry among suppliers and buyers is a powerful incentive to search for knowledge. Self-interest motivates ceaseless, widespread, and often costly efforts to make the best use of one’s property and skills. Central planning by government and government provision are sometimes advocated as a better means of discovering new products and processes. However, experience has shown that central committees are not sufficiently motivated and simply cannot marshal all the complex, often petty, and widely dispersed knowledge needed for broad-based progress.

    Competition inspires people to improve, while central planning is the opposite.

    Applying this locally to Kansas: As Kansas has a very weak charter school law that requires charter school approval by local school boards, there are very few charter schools. Combined with the lack of school choice implemented through vouchers or tax credits in Kansas, local school districts face very little competition.

    This lack of market competition means that Kansas schools do not benefit from the dynamic discovery process that market competition fosters. The beneficiaries of this are those who favor the status quo in the Kansas education establishment and bureaucracy, including the Kansas National Education Association (KNEA, the teachers union) and the Kansas Association of School Boards (KASB). The losers are Kansas schoolchildren.

  • Economic development planning in Wichita on tap

    Tuesday’s meeting of the Wichita City Council features four public hearings concerning Community Improvement Districts. One CID also will have a public hearing on its application for tax increment financing (TIF).

    CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.

    Under tax increment financing (TIF), developers get to use their property taxes to pay for the same infrastructure (or other costs) that everyone else has to pay for. That’s because in TIF, the increment in property taxes are used to pay off bonds that were issued for the exclusive benefit of a development. Or, as in the case with a new form of TIF called pay-as-you-go, the increment in property taxes are simply given back to the developer. (Which leads to the question: why even pay at all?)

    The developments seeking this form of public financing include a grocery story in Plainview, a low-income and, according to the application, underserved area of town. Material on this hearing provided by the city is at Plainview Grocery Store CID and TIF in Wichita, Kansas.

    A second applicant asks to charge an extra one cent per dollar sales tax for Central Park Place, a proposed suburban shopping center. Read more here: Community Improvement District at Central Park Place, Wichita, Kansas.

    Then the developers of Bowllagio, a proposed bowling alley and entertainment district, will make their pitch to add two cents per dollar sales tax. Read more here: Community Improvement District for Bowllagio (Maize 54 Development).

    Finally, the developers of the downtown Wichita Broadview Hotel will ask to add two cents per dollar sales tax on purchases made by the hotel’s visitors. Read more here: Community Improvement District for Broadview Hotel, Wichita, Kansas.

    All of these applications should be turned down by the city council, and for a variety of reasons.

    For example, the goal of the Plainview grocery store is to serve a low-income area of town. To do that, however, the store will be charging its customers an extra $1 for every $50 spent. Supporters make the case that many of the potential customers presently shop at Quik-Trip, which is not an inexpensive store, so the city is really doing these people a favor. The developer makes the case that he’s just trying to do something for the community, giving back something.

    But if the developer really wants to do something for the community, he should agree to pay his share of property taxes like almost everyone else pays. That won’t happen, as most of the taxes he will pay will be routed right back to him through the TIF district.

    The extra sales tax is a consumer protection issue, both in the case of the Plainview grocery store and the suburban shopping center. Shoppers won’t have any idea that they’re going to be paying extra sales tax by shopping at these merchants until after they get their receipt. Most people probably won’t notice then.

    There are several council members who normally would be in favor of exposing greedy merchants who overcharge people, but they haven’t shown this concern so far regarding Community Improvement Districts.

    The Broadview hotel is already the recipient of potentially $4.75 million in Kansas historic preservation tax credits. Despite the name of the program, the tax credits are in effect a grant of money to the developers — the state might as well write the developers a check. The City of Wichita has also assisted the hotel in several ways. But now it’s back at the government trough asking for even more corporate welfare.

    We ought to ponder the wisdom of renovating this hotel if it can’t survive without so much government assistance. And having plowed so much into an economically unfeasible project, we can easily see sometime a few years down the road where owner Drury Hotels come to the city saying they can’t make a profit, and they need some other form of assistance.

    Having given so much already, the city won’t be able to turn down the request for a little more. It’s happened before.

    Even pointing out how the city works at cross-purposes with itself doesn’t impress the council. We spend millions every year subsidizing airlines so that airfares to Wichita are low. Then we turn around and add extra tax to visitors’ hotel bills, with Vice Mayor Jeff Longwell and the Wichita Eagle editorial board approving this as a wise strategy.

    People remember high taxes. I don’t think it’s a good strategy to establish high-tax districts designed to capture extra tax revenue from visitors to our city. A good strategy for Wichita to pursue would be to establish itself as a low-cost destination, but we’re going the other way.

    Then we must consider: does all this economic development planning work? The answer, emphatically, is: No. City leaders tell us that they do these things to grow Wichita’s economy. The activity of developers who seek subsidy like this is called, in economic terms, rent seeking, and city leaders encourage it. But evidence shows that rent seeking activity harms economic growth.

    It’s usually pretty good for the favored developers who receive such economic rents (subsidy). But it’s a bad deal for everyone else. It illustrates one of the primary problems with government taxation and spending. John Stossel explains:

    The Public Choice school of economics calls this the problem of concentrated benefits and dispersed costs. Individual members of relatively small interest groups stand to gain huge rewards when they lobby for government favors, but each taxpayer will pay only a tiny portion of the cost of any particular program, making opposition pointless.

    We see this in play nearly every week in Wichita as the city seeks to manage economic development. City leaders portray “success stories” (that’s when a company accepts subsidy from the city to build something) as evidence of people having faith in Wichita. Someone has confidence in Wichita because they’re investing here, they say.

    But I wonder why these people won’t invest in Wichita unless they receive millions of dollars through preferential tax treatment such as tax abatements, CID, TIF, STAR bonds, forgivable loans, and other forms of local corporate welfare.

    These preferential tax treatments increase the cost of government for everyone else in the city. That fuels the cycle of people coming to city council saying their plans are not feasible unless they receive tax breaks. This expanding role of Wichita in centralized economic planning is great if you’re a city hall bureaucrat like Wichita city manager Bob Layton and Wichita economic development director Allen Bell. It satisfies the incentives and motivations of bureaucrats. But it’s bad for economic freedom and the people of Wichita.

    Finally, perhaps the simplest public policy issue is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? Why the roundabout process of the state collecting extra sales tax, only to ship it back to the merchants in the CID?

  • Raj Goyle fundraising plea: wrong facts

    Recently candidate for U.S. Congress from the fourth district of Kansas Raj Goyle sent out a fundraising email that distorts facts in order to stir up protectionist fears about the world economy.

    The email pokes fun at Republican rival Mike Pompeo using so-called facts that were shown to be false and misleading during the primary election campaign.

    The Goyle email mentions Kansans who “lost our job to Mike Pompeo’s factory in Mexico.” Goyle and his campaign believe that Kansas jobs were shipped to Mexico at Pompeo’s direction.

    What was found to be true is this: A company that Pompeo once managed created a small number of jobs in Mexico, at the request of a client. It was a condition of obtaining the contract.

    Doing that not only allowed a Kansas company to gain a new contract and new business, it also created more than twice as many jobs in Kansas.

    We have to recognize that manufacturers compete globally. Goyle may not recognize this, or he may not care.

    Free trade, too, benefits all parties. This transaction is evidence of this: creating new jobs in Mexico also created new jobs in Kansas. The choices made available to Pompeo’s company did not include placing all new jobs in Kansas. The choices were: A) some new jobs in Mexico and twice as many new jobs in Kansas. Or: B) no new jobs at all, anywhere.

    Goyle may not be aware of the competitive pressure that manufacturers face. After all, his job in the Kansas Legislature can’t be outsourced. But beyond not having an understanding of economics and the realities of the way the world works, we still ought to be able to expect one thing: that Raj Goyle will tell the truth.

    Other coverage: Goyle assails Pompeo over aviation jobs, outsourcing at Old Town labor rally.

  • U.S. needs permanent tax cuts, not Obama stopgap

    It’s good news that President Barack Obama now realizes that taxes are a drag on business investment and employment. But we need permanent tax cuts, not a temporary measure.

    The tax cuts proposed are in the form of allowing businesses to write off or “expense” capital investment faster than before. This effectively reduces the cost of making capital investments — the purchase of machinery, equipment, etc. intended to increase a firm’s productive capacity.

    The tax cuts Obama announced would take effect on September 8th, the day he announced the cuts. That’s only if the proposal makes it through Congress and becomes law. So there’s a dose of uncertainty there, although this legislation would seem likely to pass. But the tax cuts would last only through the end of 2011.

    These tax cuts are much preferred to the stimulus program that Obama relied on to jump-start the economy last year. Whether the stimulus spending was effective is disputed.

    In the case of tax cuts, each business gets to “spend” (make use of) the tax savings in the way it feels adds most value to it, and by extension, the economic output of the U.S. But stimulus spending had to make its way through the legislative appropriations process, where all sorts of competing — and non-economic — considerations came into play. Evidence of this: Jerry Brito and Veronique de Rugy looked at stimulus spending and found that Congressional districts in Democrat hands received nearly twice as much stimulus spending as Republican districts.

    But these proposed tax cuts are scheduled to expire, so we’ll be looking at a situation similar to the present, where the Bush income tax cuts are about to expire. The president favors letting them expire. But now that the president seems to have realized that tax cuts are good for business, good for jobs, and good for the economy, maybe he’ll consider changing his support of a large tax increase to take effect on January 1.

    There is the issue that these tax cuts are targeted, although the target is broad. But some firms may not be in a position to make capital expenditures over the next 15 months. These firms would not be able to take advantage of these tax cuts.

    Targeting these tax cuts also creates an additional class of capital assets that a firm has to keep track of, as assets purchased during the period of this legislation have to be depreciated in a different way than other assets.

    Accompanying the proposed tax cuts is a plan to spend $50 billion on infrastructure.

    While cutting taxes is always good, Obama’s plan does nothing to bring federal spending under control, or to reduce the uncertainty that accompanies the expiration — or not — of the Bush tax cuts and the oncoming implementation of Obama’s health care plan.

  • Capitalism means freedom

    In recent years, the ideas and principles of capitalism have taken a beating. The election of President Barack Obama in 2008 was a blow to the freedom that capitalism is built on, although President George W. Bush had done a fair job trampling on the principles of capitalism.

    Locally, it was a bad year for capitalism and economic freedom in the Kansas Legislature. The Wichita Eagle editorial board seems to have the disparagement of capitalism as its primary goal, as it promotes government action at the expense of economic freedom and individual liberty at every opportunity.

    What is capitalism? Milton Friedman, in introducing his book Capitalism and Freedom, wrote this as a way of defining capitalism: “… competitive capitalism — the organization of the bulk of economic activity through private enterprise operating in a free market — as a system of economic freedom and a necessary condition for political freedom.”

    Some writers allow government no role at all in the economy, unlike Friedman’s small-state capitalism.

    The economist George Reisman writes this in his monumental book Capitalism: A Treatise on Economics:

    Capitalism is a social system based on private ownership of the means of production. It is characterized by the pursuit of material self-interest under freedom and it rests on a foundation of the cultural influence of reason. Based on its foundations and essential nature, capitalism is further characterized by saving and capital accumulation, exchange and money, financial self-interest and the profit motive, the freedoms of economic competition and economic inequality, the price system, economic progress, and a harmony of the material self-interests of all the individuals who participate in it.

    Reisman’s lecture Some Fundamental Insights Into the Benevolent Nature of Capitalism is a useful look at the principles and benefits of capitalism.

    First, capitalism and freedom are intertwined, as Friedman wrote too. Reisman writes “Individual freedom — an essential feature of capitalism — is the foundation of security. He expands on the meaning of freedom, writing “Freedom means the absence of the initiation of physical force.” This is the libertarian belief in the nonagression axiom, as asserted by Murray N. Rothbard: “The libertarian creed rests upon one central axiom: that no man or group of men may aggress against the person or property of anyone else.”

    Being free from aggression means being free from the common criminal, but also, as Reisman explains, free from government aggression: “Even more important, of course, is that when one is free, one is free from the initiation of physical force on the part of the government, which is potentially far more deadly than that of any private criminal gang.”

    It is the recognition of government as aggressor that (partially) separates libertarian belief from conservative. As the libertarian John Stossel explained: “Increasingly, it seems that the biggest difference between conservatives and liberals is that the conservatives know government is force. But that doesn’t stop them from using it.”

    This is just the first insight into capitalism in Reisman’s lecture.