Voice For Liberty

Tag: Economics

  • 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.

  • Wichita economic forecast to be presented

    This Friday (August 27) the Wichita Pachyderm Club will feature a presentation titled “Economic Forecast for the Wichita Area.” The presenter will be Debra Franklin, Regional Labor Force Analyst at the Center for Economic Development and Business Research at Wichita State University.

    All are welcome to attend Wichita Pachyderm Club meetings. The program costs $10, which includes a delicious buffet lunch including salad, soup, two main dishes, and ice tea and coffee. The meeting starts at noon, although it’s recommended to arrive fifteen minutes early to get your lunch before the program starts.

    The Wichita Petroleum Club is on the ninth floor of the Bank of America Building at 100 N. Broadway (north side of Douglas between Topeka and Broadway) in Wichita, Kansas (click for a map and directions). You may park in the garage (enter west side of Broadway between Douglas and First Streets) and use the sky walk to enter the Bank of America building. The Petroleum Club will stamp your parking ticket and the fee will be $1.00. Or, there is usually some metered and free street parking nearby.

  • How does Kansas rank in economic freedom?

    In measures of economic and personal freedom, Kansas ranks relatively well among the states, but lags behind some neighboring states. Recent actions by the Kansas legislature might drive its ranking down.

    Last year the Mercatus Center at George Mason University published a paper that ranks the states in several areas regarding freedom. According to the authors, “This paper presents the first-ever comprehensive ranking of the American states on their public policies affecting individual freedoms in the economic, social, and personal spheres.”

    What is the philosophical basis for measuring or determining freedom? Here’s an explanation from the introduction:

    We explicitly ground our conception of freedom on an individual rights framework. In our view, individuals should be allowed to dispose of their lives, liberties, and property as they see fit, so long as they do not infringe on the rights of others. This understanding of freedom follows from the natural-rights liberal thought of John Locke, Immanuel Kant, and Robert Nozick, but it is also consistent with the rights-generating rule-utilitarianism of Herbert Spencer and others.

    According to the authors, “No current studies exist that measure both economic and personal freedom in the fifty states.” So this is a ground-breaking work.

    How does Kansas do? Surprisingly, not too badly. Not outstanding, but not as bad as I might have thought.

    For the four areas measured, here’s how we did: In fiscal policy, Kansas is 28. In regulatory policy, 4. In economic freedom, 18. In personal freedom, 15. (In all cases, a ranking of 1 means the most freedom.)

    Our overall ranking is 12.

    Some of the remarks the authors made about Kansas include noting our large public employee payroll, even though state employees are not paid as well as private sector workers. Also: “The area of spending that could most stand to be cut is education, while the taxes that should have priority for cutting are individual income and property taxes.”

    Some of our neighbors do pretty well in the overall ranking. Colorado is 2, Texas is 5, Missouri is 6, and Oklahoma is 18. Nebraska is not as good at 28.

    Colorado undoubtedly benefited from its taxpayer bill of rights (TABOR) law, which places limits on the rate of growth of government spending, although it had been suspended for several years. Those in Kansas who favor government spending over private sector spending use Colorado as an example of a state that TABOR has destroyed, but in terms of economic freedom, it does very well.

    In case you’re wondering, for overall ranking, New Hampshire is best. The worst? It’s no surprise that it’s New York by a wide margin, with New Jersey, Rhode Island, California, and Maryland rounding out the bottom five.

    If this index were to be recomputed this year, Kansas might fall in rankings due to outgoing Governor Mark Parkinson‘s two landmark achievements — the increase in the statewide sales tax and the statewide smoking ban. Some of the other enacted laws detailed in the article In Kansas Legislature, a bad year for freedom and liberty would push Kansas’ ranking down, too.

    But since rankings are relative and consider what happened in other states, Kansas might not have changed much, as many states have passed tax increases and other freedom-killing legislation and regulations.

    The full study contains discussion of the politics surrounding these rankings, and a narrative discussion of the factors present in each state.

    You may read the entire study by clicking on Freedom in the 50 States: An Index of Personal and Economic Freedom.

  • Investment strategies to be discussed in Wichita

    This Friday (August 13) the Wichita Pachyderm Club features a program titled “Could any investment strategy be successful in today’s economic climate?” The presenter will be Dr. Malcolm Harris, who is Professor of Finance at Friends University. His blog is Mammon Among Friends, and he is regularly quoted in Wichita news media regarding financial and economic matters.

    All are welcome to attend Wichita Pachyderm Club meetings. The program costs $10, which includes a delicious buffet lunch including salad, soup, two main dishes, and ice tea and coffee. The meeting starts at noon, although it’s recommended to arrive fifteen minutes early to get your lunch before the program starts.

    The Wichita Petroleum Club is on the ninth floor of the Bank of America Building at 100 N. Broadway (north side of Douglas between Topeka and Broadway) in Wichita, Kansas (click for a map and directions). You may park in the garage (enter west side of Broadway between Douglas and First Streets) and use the sky walk to enter the Bank of America building. The Petroleum Club will stamp your parking ticket and the fee will be $1.00. Or, there is usually some metered and free street parking nearby.

  • Avoiding bad decisions in good times

    By Dave Trabert, Kansas Policy Institute.

    An associate of mine once said, “Some of the worst decisions are made in the best of times.” His observation pertained to negotiating agreements with labor unions but I was reminded of it by a news report saying local governments may eliminate 500,000 jobs across the country if Congress doesn’t pony up more federal tax dollars. The story was based on a survey released by the National League of Cities, the National Association of Counties and United States Conference of Mayors.

    Here’s the taxpayer perspective.

    According to the US Census Bureau and the Bureau of Economic Analysis, the country’s population grew 34.4% between 1980 and 2008 but local government employment jumped 51.3%. If local government employment had simply kept pace with population gains, there would be 1.6 million fewer local government jobs today. Instead, we’ve seen runaway property taxes (93% over the last twelve years in Kansas) and higher local sales taxes. Governments chose to add extra employees when revenues were flowing (instead of reducing taxes and improving the economy), and now face the painful task of backing off some of their excess employment.

    Local government job growth outpaced population growth in most states but some were extreme, including Kansas, which had 65% local government job growth but only an 18% population increase. In 2008 Kansas had 65.7 local government employees for every thousand residents; that’s 39% above the national average and the second-worst state ratio in the country.

    No one wants to see someone lose their job, but using tax dollars to subsidize employment is bad policy to begin with and spending federal dollars on local government employment destroys the Constitutional protections of state sovereignty. Governments have no money of their own; they simply take money from taxpayers and redistribute it. Raising federal taxes to maintain a bloated local government workforce will only make an already weak economy even worse.

  • Hayek vs. Keynes to be discussed in Wichita

    This Friday (July 30) the Wichita Pachyderm Club features “A celebration of Milton Friedman’s birthday featuring a discussion of the Friedrich Hayek and the John Maynard Keynes economic schools of thought.”

    Presenters will be Karl Peterjohn, Sedgwick County Commissioner, for Hayek, and Bill Miles, WSU Assoc. Professor of Economics For Keynes.

    All are welcome to attend Wichita Pachyderm Club meetings. The program costs $10, which includes a delicious buffet lunch including salad, soup, two main dishes, and ice tea and coffee. The meeting starts at noon, although it’s recommended to arrive fifteen minutes early to get your lunch before the program starts.

    The Wichita Petroleum Club is on the ninth floor of the Bank of America Building at 100 N. Broadway (north side of Douglas between Topeka and Broadway) in Wichita, Kansas (click for a map and directions). You may park in the garage (enter west side of Broadway between Douglas and First Streets) and use the sky walk to enter the Bank of America building. The Petroleum Club will stamp your parking ticket and the fee will be $1.00. Or, there is usually some metered and free street parking nearby.

  • The ‘tax expenditure’ solution for our national debt

    While most critics of government spending focus on entitlements, regular appropriations, and earmarks, there is a category of spending that not many pay much attention to. The spending is called “tax expenditures.”

    It’s a big issue. As economist Martin Feldstein writes in the Wall Street Journal, tax expenditures will increase the federal budget deficit by $1 trillion this year.

    Tax expenditures are implemented through the tax system. It’s usually the income tax system, especially at the federal level. Taxpayers may receive tax credits, which reduce the tax that must be paid dollar for dollar. Many credits are refundable, meaning that if the taxpayer has no tax liability, the government will send the recipient a check. Examples cited by Feldstein include “$500 million annual subsidy for the rehabilitation of historic structures and a $4 billion annual subsidy of employer-paid transportation benefits.”

    While supporters of many of these programs portray them as not costing the government anything, Feldstein writes that they do: “These tax rules — because they result in the loss of revenue that would otherwise be collected by the government — are equivalent to direct government expenditures.”

    I argued this in testimony I presented to a committee in the Kansas Legislature this year, when it was considering restoring and expanding the Kansas historic preservation tax credit program. I told committee members: “We must recognize that a tax credit is an appropriation of Kansans’ money made through the tax system. If the legislature is not comfortable with writing a developer a check for over $1,000,000 — as in the case with one Wichita developer — it should not make a roundabout contribution through the tax system that has the same economic impact on the state’s finances.”

    In that committee, not one member voted against this program, even though the committee has some members who consider themselves very fiscally conservative and hawks on spending.

    Here in Wichita, the city council regularly steers spending to certain companies through the tax system by granting property tax exemptions and tax increment financing.

    Feldstein describes problems with spending implemented through the tax system:

    • Politicians use tax expenditures to grow the welfare state. While proposing a freeze on discretionary spending, President Obama at the same time proposed an expansion of a tax credit program for child or elderly care.
    • Once enshrined in the tax law, these appropriations don’t have to be reauthorized each year. They’re on auto-pilot, so to speak.
    • Eliminating tax expenditures is looked on by Republicans as a tax increase, so they are reluctant to support their elimination. Felstein counters: “But eliminating tax expenditures does not increase marginal tax rates or reduce the reward for saving, investment or risk-taking.”
    • Tax expenditures distort the economy in harmful ways: “[Eliminating tax expenditures] would also increase overall economic efficiency by removing incentives that distort private spending decisions.”

    Feldstein concludes: “Cutting tax expenditures is really the best way to reduce government spending. And to be politically acceptable, the cuts in tax expenditures must be widespread, requiring most taxpayers to give up something so that the fiscal deficits can decline.”

    The ‘Tax Expenditure’ Solution for Our National Debt

    The credits and subsidies that make the tax code so complicated cost big bucks. Reduce them by third and the debt will be 72% of GDP in 2020 instead of 90%.

    By Martin Feldstein

    When it comes to spending cuts, Congress is looking in the wrong place. Most federal nondefense spending, other than Social Security and Medicare, is now done through special tax rules rather than by direct cash outlays. The rules are used to subsidize a wide range of spending including education, child care, health insurance, and a myriad of other congressional favorites.

    These tax rules — because they result in the loss of revenue that would otherwise be collected by the government — are equivalent to direct government expenditures. That’s why tax and budget experts refer to them as “tax expenditures.” This year tax expenditures will raise the federal deficit by about $1 trillion, according to estimates by the congressional Joint Committee on Taxation. If Congress is serious about cutting government spending, it has to go after many of them.

    Continue reading at the Wall Street Journal (subscription required)

  • Economic principles to be applied at event in Wichita

    The Americans for Prosperity Foundation announces a meeting with the title “Applying Economic Principles to Current Events and International Issues.”

    The special guest presenters at this meeting are Gabriella Megyesi and Gregory Rehmke. These two speakers are also presenting at the Free the World Seminar 2010. This evening event allows people who are unable to attend the three-day seminar a chance to hear from these presenters.

    The event will be held on Tuesday, July 27, 2010, from 7:00 pm to 8:30 pm at the Wichita Downtown Public Library at 223 S. Main, on the third floor.

    Gabriella Megyesi taught economics at the Britannica International School in Budapest, Hungary, and earlier taught economics (in English) at Alternaltív Kôzgazdásgi Gimnázium, a Hungary’s first private school after the fall of communism. She currently develops course materials on economics and entrepreneurship, as well as speaking regularly for Economic Thinking and the Foundation for Teaching Economics seminars.

    Gregory Rehmke directs programs for Economic Thinking and lectures at seminars for the Foundation for Economic Education, the Independent Institute, and the Institute for Economic Studies-Europe. He is coauthor of The Complete Idiot’s Guide to Global Economics.

    For more information contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.