I recently discovered usgovernmentspending.com. It seems like a great place to get data not only for the federal government, but for the states, too.
Tag: Economics
Pencils Reveal the Impossibility of Government Planning
I, Pencil is one of the most important and influential writings that explain the necessity for limited government. A simple object that we may not give much thought to, the story of the pencil illustrates the importance of markets and the impossibility of centralized economic planning.
The size and scope of government, both at the national and local level, has been growing. Now our country is entering a period where the possibility of even larger and more intrusive government, growing faster than it has been, is very real. Those who love liberty must keep principles like those illuminated in I, Pencil at the forefront of debate.
From the afterword to I, Pencil by Milton Friedman:
Leonard E. Read’s delightful story, “I, Pencil,” has become a classic, and deservedly so. I know of no other piece of literature that so succinctly, persuasively, and effectively illustrates the meaning of both Adam Smith’s invisible hand — the possibility of cooperation without coercion — and Friedrich Hayek’s emphasis on the importance of dispersed knowledge and the role of the price system in communicating information that “will make the individuals do the desirable things without anyone having to tell them what to do.”
Link to a pdf of I, Pencil: http://www.fee.org/pdf/books/I,%20Pencil%202006.pdf
Link to Leonard E. Read reading I, Pencil: http://www.fee.org/events/detail.asp?id=6239
Problems with Wichita’s Economic Forecasts
On October 7, 2008, the Center for Economic Development and Business Research at Wichita State University released a glowing economic forecast for the near future in Wichita. Events immediately following the release of this report, however, illustrate just how hard it is to forecast economic conditions. When policymakers rely on these reports, bad decisions are the fully predictable result.
The report Wichita’s Economic Outlook: 2008 Review and 2009 Forecast, says “Next year will bring continued job growth in the Wichita market, despite the national economic downturn,” according to reporting in the Wichita Business Journal. But recent articles in the Wichita Eagle with titles such as Cessna warily eyes economy and Hawker Beechcraft plans to lay off 500 paint a different picture.
It’s hard to forecast the economy, and events the past few months have unfolded at an alarmingly fast pace. But the Center for Economic Development and Business Research has produced other research that is problematic. I’ve written about these reports in posts such as Wichita School District Economic Impact and Stretching Figures Strains Credibility.
Incredibly, as I report in WSU Study on Downtown Wichita Arena Not Complete, the former director of this center was not aware of important new government accounting standards when she and her staff prepared the forecasts that were used to justify the downtown Wichita arena in 2004.
The problem is that Wichita and Sedgwick County policymakers use these studies to plan and justify their actions in intervening with our economy. As a result, we often proceed with plans based on unreliable information.
Why Austrian Economics Matters More Than Ever
Here’s a talk recently delivered by Lew Rockwell, president of the Ludwig von Mises Institute. This organization remains the best place to learn about why our economy is in such trouble. The full speech can be read at Why Austrian Economics Matters More Than Ever. An excerpt:
I report on this not so that we can say “We told you so,” but rather to underscore the need to stick to principle, depart from the crowd, avoid the fashion, and adhere to the truth no matter what. This is what Mises taught us, and if he had done nothing more than be his era’s most tough-minded resister to collectivism of all types, it would be enough to earn him an institute founded in his name.
Wichita School Bond Economic Impact
In February 2008, Janet Harrah of the Center for Economic Development and Business Research at Wichita State University produced a report titled “Wichita Public Schools: Impact Analysis Operations Impact, Bond Impact and Success Measures.” This report painted a glowing picture of the USD 259 (Wichita, Kansas public school district) bond issue in 2000. The district uses it to promote the success of the 2000 issue, and to promote the proposed bond issue in 2008.
This study has a number of defects and omissions: not realizing that tax funds could be spent elsewhere if not sent to government, not realizing that benefits that government receives are the taxes that people pay, and separating government into compartments that play off each other to create artificial returns. These defects need to recognized as we read this report. The study may be viewed at the CEDBR website here.
Besides the defects, we must consider the possibility of bias. The author of the study told me that the Wichita school district paid $1,500 for this study. Usually, research like this that is purchased by the customer is treated as just that: something bought because it suits the customer’s needs. Since the customer controls what is done with the product, it is certain that if this study had produced a result that didn’t show a fantastically positive benefit for Wichita school district spending, the school board would not have released it to the public. But as we shall see, the way this study is structured guarantees a positive result. Also, the price of $1,500 is astonishingly low for a study of some 28 pages with three authors.
Perhaps the primary problem with this study is that it treats the cost of the bond issue as though it doesn’t exist. The study presents evidence of the benefits of school district spending, but mentions only in passing school district taxation:
An opportunity cost exists for the use of public funds for education. If public funds were not used to provide public education, they would be available for alternative use. Estimating the potential economic impact of alternative uses of these opportunity costs was beyond the scope of this analysis. (Page 6)
It is the lack of analysis of these “alternative uses” that is most important. Actually, not much analysis is required. All that is needed is to recognize that when money is paid to the Wichita public schools, that money is not available for other spending. It means that when a construction worker is hired to build a Wichita school, that construction worker isn’t working on something else in Wichita. It cannot be any other way. As Henry Hazlitt explained in his classic work Economics in One Lesson:
Therefore for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $1,000,000 taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project.
The study also uses the technique of the “multiplier,” which is to say that spending by the school district causes other spending to happen, and other jobs are therefore created. But the construction worker, whether working on a school building or a shopping mall, is paid the same and spends his wages in the same way. The multiplier effect is the same.
This study also analyzes the impact of the bond issue (and ongoing operations) on local governments such as the City of Wichita and Sedgwick County. From page 6: “These measures view the taxing entities’ expenditures as a public investment. Public benefits are measured by tax collections. If public benefits exceed public costs then the rate of return is greater than 100 percent and the benefit-cost ratio is greater than 1.”
These rates of return can be fantastic. For Wichita and Sedgwick County, their rate of return for the 2000 bond issue is over 1,000%! By way of explanation the study states: “These ROI percentages for the city and county are relatively high since these jurisdictions derive significant benefits from increased sales tax collections as a result of the District’s payroll, while incurring very few costs.”
The problems with this analysis are these: First, the taxing entities’ investment is raised by taxing their residents. Second, the public benefits, as explained above, are the taxes that the government collects. It is as though we tax ourselves so that we can pay even more taxes, all this to feed the machinery of government. And if you believe in limited government and personal liberty, it is not a benefit to pay more taxes.
While it is true that the City of Wichita derives benefits from Wichita school district spending, the city’s benefits are funded by taxes paid to the school district. It is only by considering these local governmental entities to be separate from each other that this fantastic rate of return on “investment” is possible. If the total cost of government is considered, the picture is different.
These defects and omissions — not realizing that tax funds could be spent elsewhere if not sent to government, not realizing that benefits that government receives are the taxes that people pay, and separating government into compartments that play off each other to create artificial returns — need to recognized as we read this report.
Pat Buchanan: Comrade Obama?
Pat Buchanan’s recent column Comrade Obama? contains much I agree with, keeping me liking and admiring him, even through I disagree with a few of his positions.
This column accurately describes the current political landscape, and it’s not complimentary to Barack Obama, Democrats, or Republicans. A few excerpts:
Indeed, how do Republicans who call Obama a socialist explain their support for Social Security, Medicare, Medicaid, food stamps, welfare and the Earned Income Tax Credit? …
Since August, the Bush-Paulson team has seized our biggest S&L, Washington Mutual, and largest insurance company, AIG. It has nationalized Fannie and Freddie, pumped scores of billions into our banks, bailed out GM, Ford and Chrysler, and paid the $29 billion dowry for Bear Stearns to enter its shotgun marriage with JPMorgan Chase. And with federal, state and local taxes taking a third of gross domestic product, and government regulating businesses with wage-and-hour laws, civil rights laws, environmental laws, and occupational health and safety laws, what are we living under, if not a mixed socialist-capitalist system?
And then this:
Norman Thomas is said to have quit running for president on the Socialist ticket after six campaigns because the Democratic Party had stolen all his ideas and written them into its platforms.
This is the same Norman Thomas who said “The American people will never knowingly adopt socialism, but under the name of liberalism, they will adopt every fragment of the socialist program until one day America will be a socialist nation without ever knowing how it happened.”
Some Articles Worth Reading
Making Social Security More Harmful. From the Foundation for Economic Education. “Consider first that ever since Social Security was enacted in 1935 Americans have been told that their ‘contributions’ are being deposited into their own account to pay for their retirement benefits. … The other fraudulent claim made about Social Security (again, from the very beginning of the program) is that employees pay only half the cost, with employers paying the other half.”
Banking Without Regulation. Another fine article from FEE. Could banking be done without regulation? It has been done in the past.
The Election Choice: Unions. “Obama’s pro-union agenda is the most ambitious in decades.”
Labor Unions Prolonged the Depression. Obama wants a new Wagner Act. “As Amity Shlaes observed in her recent history of the Great Depression, ‘The Forgotten Man,’ within a few months after the Wagner Act was upheld, industrial production began to plummet and “the jobs started to disappear, with unemployment moving back to 1931 levels,” even as the number of workers under union control was ‘growing astoundingly.’”
Money For Nothing. “The urge to spend lavishly on schools is part of the Democratic Party’s DNA. But fatter budgets would not be balanced by accountability, higher standards or parental choice.”
The Myth that Laissez Faire Is Responsible for Our Present Crisis
Professor George Reisman contributes the excellent (and lengthy) article The Myth that Laissez Faire Is Responsible for Our Present Crisis. I’ve had the distinct honor of attending a number of Professor Reisman’s lectures at the Ludwig von Mises Institute, and I’m slowly working my way through his monumental book Capitalism: A Treatise on Economics. Here’s a few excerpts from this article:
“Laissez-faire capitalism is a politico-economic system based on private ownership of the means of production and in which the powers of the state are limited to the protection of the individual’s rights against the initiation of physical force.”
Then Professor Reisman lists some of the ways in which our present system is far removed from anything resembling laissez-faire capitalism:
The utter absurdity of statements claiming that the present political-economic environment of the United States in some sense represents laissez-faire capitalism becomes as glaringly obvious as anything can be when one keeps in mind the extremely limited role of government under laissez-faire and then considers the following facts about the present-day United States: 1. Government spending in the United States currently equals more than forty percent of national income … 2. There are presently fifteen federal cabinet departments, nine of which exist for the very purpose of respectively interfering with housing, transportation, healthcare, education, energy, mining, agriculture, labor, and commerce … 3. The economic interference of today’s cabinet departments is reinforced and amplified by more than one hundred federal agencies and commissions … 4. the Federal Register contained fully seventy-three thousand pages of detailed government regulations. This is an increase of more than ten thousand pages since 1978, the very years during which our system, according to one of The New York Times articles quoted above, has been “tilted in favor of business deregulation and against new rules.” 5. And, of course, to all of this must be added the further massive apparatus of laws, departments, agencies, and regulations at the state and local level.
What this brief account has shown is that the politico-economic system of the United States today is so far removed from laissez-faire capitalism that it is closer to the system of a police state. The ability of the media to ignore all of the massive government interference that exists today and to characterize our present economic system as one of laissez faire and economic freedom marks it as, if not profoundly dishonest, then as nothing less than delusional.
Then, under the heading “Government Intervention Actually Responsible for the Crisis:”
Beyond all this is the further fact that the actual responsibility for our financial crisis lies precisely with massive government intervention, above all the intervention of the Federal Reserve System in attempting to create capital out of thin air, in the belief that the mere creation of money and its being made available in the loan market is a substitute for capital created by producing and saving. This is a policy it has pursued since its founding, but with exceptional vigor since 2001, in its efforts to overcome the collapse of the stock market bubble whose creation it had previously inspired.
I could go on for some time with more quotes from this article, but it is well worth reading the entire piece. Please do so at The Myth that Laissez Faire Is Responsible for Our Present Crisis.
Beyond Bailouts Is Recommended
I recommend BeyondBailouts.org as a place to learn about the current situation in our financial markets. From their site:
BeyondBailouts.org is a joint venture of the National Taxpayers Union (NTU) and Competitive Enterprise Institute (CEI). The purpose of the website is to educate about government’s role in our current financial difficulties, suggest reforms that address those root causes, and provide a clearinghouse for the latest analysis of the financial crisis. But most of all, it’s an outlet for Americans to contact their Members of Congress and the Administration to express their frustration.