Voice For Liberty

Tag: Economics

  • 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.

  • Prices mean something, even life and death

    In the five years since Hurricane Katrina flooded New Orleans, some $15 billion has been spent rebuilding and strengthening that city’s flood defenses. The goal is to protect against the loss of life and property that happened in 2005 when the levies failed.

    Is this wise? Will it work? Mark Thornton wrote “The sad truth is that the government is only making things worse over time. Higher levies only increase the destructive force of future levy breaks.”

    But engineers say that if Katrina arrived today, the city would experience only light flooding. But what will happen in the future? The network of flood protection structures and machinery needs constant maintenance. Reporting in the Wall Street Journal cautions that “Another big question is who will pay the tens of millions of dollars in annual maintenance costs for the new structures once they are complete. Typically, the Corps hands the responsibility of upkeep to state and local authorities after completing a flood-control project. But city officials say the infrastructure is so large and complex that they don’t have the technical expertise to go it alone — or pay for it alone.”

    So there is a definite risk that the strengthening of the city’s flood defenses may make future failures even more disastrous. There’s also the risk that these structures will not be maintained as required. In the latter case, how will we know if the protections are being maintained adequately?

    The answer is we probably won’t know. That’s because the property in New Orleans is insured by the federal government’s flood insurance program. That program, unlike private insurance, doesn’t have to earn a profit, and therefore doesn’t have to price its insurance according to the risks it is covering.

    That’s different from the way fire insurance, for example, is priced. In this case, fire insurance companies have to price their product to cover their expected loses, their other costs, and return some profit. The expected loses are based on a variety of factors, such as characteristics of the home, distance from a fire hydrant, and the qualities of a city’s fire department.

    Many cities have their fire departments rated by a company called Insurance Services Office (ISO). This rating is a major factor in the insurance rates that companies will offer to customers in a city. If a city’s ISO rating declines, meaning that its fire defenses are not as good as before, insurance rates will rise. People will notice. They’ll wonder why and seek answers.

    But government does not face the discipline of profit as do private insurers. As has been noted, government will insure insane risks for very low premiums. And if it pays a loss, it will insure the same property again. Since it isn’t in the insurance business to make money, it doesn’t really have much motive to rate the risk of the property it is insuring.

    That’s the source of the problem. The New Orleans flood protection systems lacked the oversight and inquiring eyes of profit-minded companies. The result was death and destruction on a massive scale.

    So prices and their importance are not of interest only to economists and academics. They contain, as Hayek has taught us, a tremendous amount of information gathered from many sources. Prices can literally mean the difference between life and death.

    Some may object that insurance in some locations, like New Orleans, would be expensive if it was priced to reflect the actual risk faced. That’s probably true, and that’s good. When that extra cost is spread across the entire country through government insurance programs, residents of New Orleans can get cheap insurance. But as we’ve seen, the cost of the missing information that accurate prices provide is very high.

  • Kansas airports and their economic impact

    Last week’s release by the Kansas Department of Transportation of a study of the economic impact of Kansas airports caused quite a stir, with newspapers such as the Los Angeles Times (at least its online version) carrying the Associated Press coverage.

    Perhaps the reason so many distant newspapers were interested in the story is the sensationally large economic impact figures reported. The number of jobs purported to airports is large, by any standard.

    But there’s a problem with these numbers. They’re similar to sensational claims made a few years ago when the case for subsidizing airlines in Wichita was made. Those figures were bogus. So are these.

    The staggeringly large figures come from two aspects of the study. First, the study counts the economic activity from businesses near the airport as attributable to the airport. In the case of the Wichita airport, this means that the employees of Cessna and Bombardier Learjet, and all the economic activity these companies produce, is credited as economic impact of the airport.

    This economic sleight-of-hand allows the study to attribute 22,313 jobs to the Wichita airport. The total economic impact of the Wichita airport is reported as $4.7 billion.

    All these employees don’t work for the airport. Almost all of them work at business firms located near the airport. But the study doesn’t really make that distinction. And when you do things like this, you can really pump up some inflated figures.

    It is a convenient circumstance that these two manufacturers happen to be located near the airport. To credit the airport with the economic impact of these companies — as though the airport was involved in the actual manufacture of airplanes instead of providing an incidental (but important) service — is to grossly overstate the airport’s role and its economic importance.

    A second problem is the study’s use of economic impact multipliers to pump up the figures. A multiplier reflects the fact that money spent at, say an airport, get spent again. Proponents of multipliers forget that money spent elsewhere get multiplied too. In fact, money that is saved and invested get multiplied, too.

    These two factors inspired the Associated Press reporter to lead off a story with “Airports in Kansas support more than 47,000 jobs, generate $2.3 billion in payroll and have an annual economic impact of $10.4 billion …” With numbers so big, you can see why news editors in far-away cities might run the story.

    There’s another problem: these studies usually assume that all the activity is the responsibility of the entity being promoted, that none of it would have happened without the celebrated entity, and that since (usually) the promoted entities are government-owned, all this is evidence of the goodness of government.

    Another problem is that these economic impact figures get used several times to support various government subsidies to business. Here we have the airport claiming two aircraft manufacturing companies’ employees and their economic impact as the product of the airport.

    But when these companies want corporate welfare from the Kansas state government, the economic impact of the companies and their employees will be cited as justification. Politicians, bureaucrats, and the public will believe their case.

    Then, the same numbers might be cited again at Wichita city hall, and maybe before the Sedgwick County Commission as the company makes its case for industrial revenue bonds, tax abatements, forgivable loans, and other forms of local corporate welfare.

    But this economic impact can’t be recycled like this. It exists only once. If the Wichita airport claims it, then it can’t be used again to justify some other program or request.

    Another way the study leaps beyond credibility is its inclusion of the Beech Factory Airport in east Wichita. This is an airport without commercial air service. It exists solely for the convenience of Hawker Beechcraft, and is undoubtedly a necessary component of the capital plant needed to manufacture airplanes.

    The study, however, mixes this airport in with all other Kansas airports, so this airport’s claimed $1.8 billion in economic impact is treated the same as any other Kansas airport. But regular people can’t catch a flight at this airport.

    When government officials use stretched and inflated figures like these, they diminish their credibility. The Kansas Department of Transportation already snowed the Kansas public earlier this year with their claims of the need for huge spending on Kansas roads and highways.

    Now they’re at it again, with claims that simply make no economic sense at all. The fact that news media laps up these figures without any skepticism or critical thought doesn’t help.

    Does this mean that Kansas and its local government shouldn’t offer airports and businesses like aircraft manufacturers help from the public treasury? That’s a different question for a different day.

    Today, however, we need to realize that accurate, reasonable, and believable information about Kansas airports and other transportation infrastructure isn’t available from the Kansas Department of Transportation.

  • At Americans for Prosperity, George Will is optimistic

    Friday night’s dinner at the Americans for Prosperity Foundation fourth annual Defending the American Dream summit featured Pulitzer Prize-winning journalist George Will as keynote speaker.

    Will’s message was that while progress in limiting the growth of government has been reversed, this can be overcome, and he believes that a restoration of liberty and economic freedom will happen.

    As the dinner was a tribute to former President Ronald Reagan, Will told the audience one of his favorite lines from Reagan during the 1980 campaign: “A recession is when your neighbor loses his job. A depression is when you lose your job. Recovery is when Jimmy Carter loses his job.”

    Continuing, he said that “Barack Obama is Jimmy Carter 2.0 and it is time to hit the delete button.”

    Will told the audience that the “retreat of the state” that started with the election of Margaret Thatcher in 1979 and the election of Ronald Reagan has been reversed. This should be reversed again, he said.

    On the federal stimulus, Will said that the downward revision of GDP from a bad number to an even worse number is evidence that the stimulus is not working.

    There are two things that the administration is saying that are “funny,” Will said. One is that our current crisis was brought on because there was too little government regulation and administration. The second is that the problem with the stimulus is that Republicans made it too small. “The government is dangerously frugal at the moment,” he said to laughter from the audience.

    But Will said that the government controls the money supply and interest rates, leading to control of home mortgages. He traced the edicts of government that increasing percentages of mortgages must be given to those with poor credit. These expansions of the federal government, along with the No Child Left Behind education law, happened under Republican administrations, evidence that not only Democrats are too blame.

    Government is dominating the energy sector too. He said that matters because “no less of an authority of energy” than Speaker Nancy Pelosi said that “America should use more natural gas rather than fossil fuels.”

    In health care, half of spending is already government money, and that will increase, as will the 138,000 pages of health care regulations.

    As to the alleged dangerous frugality of the government, Will said we are “marching into the most predictable financial crisis the world has ever seen.” This crisis is self-inflicted, he said.

    Illustrating the size of government, he said that at the time of the first world war, when federal government spending exploded, the richest man in American could have personally retired the federal debt. But today’s richest man could pay for only two month’s interest on the deficit.

    The administration’s planned spending program will result in a situation ten years from now when federal entitlement programs (Social Security, Medicare, Medicaid) plus the interest on the federal debt will consume 93 percent of federal revenue. The debt will be one hundred percent of GDP. This will crowd out private borrowing and investment. As a nation, he said we don’t save enough to fund both government and the investment needs of the private sector economy.

    Will noted the remarkable progress of American medicine during his lifetime. But both presidential candidates campaigned against the pharmaceutical industry in 2008, which Will said was “shocking.” “It is time to quit stigmatizing those who create wealth, those who extend life, those who reduce pain. Get the government out of the way, and let them get on.”

    The economy is fragile, Will said, and we need not burden it more with taxes. He referred to Congressman Paul Ryan, who said we have a nation with “too many takers and not enough makers.”

    On education, he said we need an education system that “equips people to compete in a free society.” He criticized the short school year in the U.S., as compared to other countries. He told the audience that a major problem with schools is the teachers unions. The increased spending on schools has not worked. 90 percent of the difference between schools can be explained by characteristics of the students’ families, he said. “Don’t tell me the pupil-teacher ratio, tell me the parent-pupil ratio.”

    Even with as many problems as there are, he said that an “aroused citizenry” like that in the room tonight can fix the problems. He’s not pessimistic, he said, because Obama has stimulated a “new clarity” from the American people.

    There is a tension today between freedom and equality, two polar values. Liberals today stress equality of outcomes, and believe that the multiplication of entitlement programs to produce this equality serves the public good. But conservatives stress freedom, and that multiplication of entitlement programs is “subversive of the attitudes and aptitudes essential for a free society of self-reliant, far-sighted, thrifty and industrious people.”

    The Obama presidency has passed its apogee, Will told the audience. Quoting Winston Churchill, he said that “The American people invariably do the right thing, after they have exhausted all the alternatives.” Will said he believes that Americans believe that “a benevolent government is not always a benefactor, capitalism doesn’t just make us better off, it makes us better.”

    Will told the audience that “Americans for Prosperity exists on the principle that when you change the nation’s economy, you change the national character in the process.” Urging the citizen activists to get involved, he echoed a remark made by Minnesota Congresswoman Michele Bachmann, who had spoken earlier: “You are the point of the lance. Go to work.”

    Before his speech, Americans for Prosperity Foundation Chairman David H. Koch awarded Will the George Washington award. This is AFP’s highest award, given to Will for his work in defending and advancing economic freedom.

    Koch also spoke about the goals of Americans for Prosperity Foundation, which he said are to advance economic freedom and prosperity by limiting government growth, spending, and taxation. It is a grassroots movement that holds political leaders of every party accountable. AFP advocates for the free market economy, which he said improves lives and created the greatest nation on the face of the Earth.