Voice For Liberty

Tag: Economics

  • Economic growth is slowing

    While the United States economy started to grow after the recent recession, the trend in growth is slowing.

    During the 80s and 90s the federal government spent at around the level of 19 percent of GNP. Now the federal government spends at the rate of 25 percent of the economy. Add in state and local governments, and we’re at 36 percent.

    This is not trickle-down government, it’s suffocating government, where government threatens to overwhelm the private sector. As government intervenes in more areas of the economy, as Obama’s bureaucrats extend their span of control over the economy (think General Motors), we have a certain process taking place. Charles Koch in September in Wall Street Journal observed: “Put simply, cronyism is remaking American business to be more like government. It is taking our most productive sectors and making them some of our least.”

    This didn’t start when Barack Obama assumed office. The process was already in place. But it has accelerated under the current president. Not by accident, but by design.

    Most people worry about deficits and debt. But do you think President Obama is truly concerned about huge deficits year after year, with many more predicted? These huge deficits are not a bug in the program. They’re a feature. The point of the deficits is to create a crisis that makes it necessary to raise taxes. Government grows again.

    Yes, President Obama inherited a tough economy when he took office nearly four years ago. But, according to the official record-keepers, the recession ended in the summer of 2009. Does it feel like the recession is over?

    Do you remember “Recovery Summer?”

    Here’s a news report: “Vice President Joe Biden today will kick off the Obama administration’s Recovery Summer, a six-week-long push designed to highlight the jobs accompanying a surge in stimulus-funded projects.”

    What year was that? 2010. Does it seem like we’re in recovery?

    Now David Axelrod denies that there was such a claim.

    George Will accurately diagnosed the problem two years ago: “We can’t tolerate any more of the Obama cure.”

  • Capitalism and business: The same thing?

    Is “capitalism” and “business” the same thing? Most people would probably answer yes, but that’s a mistake.

    In a video from LearnLiberty.org, a project of Institute for Humane Studies, Professor Steve Horwitz explains the difference: “He refutes the often recited claim that ‘What is good for General Motors is good for America’ by explaining that pro-business legislation encourages behavior that is not beneficial to society or the business itself. He suggests that, in a free market, factors such as profit and competition encourage behavior that ultimately benefits society. Professor Horwitz illustrates that pro-business legislation restricts progress and therefore caters to the interests of industry rather than to consumers, whereas ‘supporters of free markets are ultimately pro-human and pro-people because it is through markets that we get the most innovation and we get the most goods and the cheapest prices.’”

    Still, you may be asking: Isn’t business and free-market capitalism the same thing? Here’s what Milton Friedman had to say: “There’s a widespread belief and common conception that somehow or other business and economics are the same, that those people who are in favor of a free market are also in favor of everything that big business does. And those of us who have defended a free market have, over a long period of time, become accustomed to being called apologists for big business. But nothing could be farther from the truth. There’s a real distinction between being in favor of free markets and being in favor of whatever business does.” (emphasis added.)

    Friedman also knew very well of the discipline of free markets and how business will try to avoid it: “The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system. Naturally, existing businesses generally prefer to keep out competitors in other ways. That is why the business community, despite its rhetoric, has so often been a major enemy of truly free enterprise.”

    We see this confusion daily in Wichita and Kansas. Many members of the Wichita City Council — Democrats and Republicans — hold pro-business views. But the cronyism — the continual creation of subsidies, preferential treatment, no-bid contracts, and general intervention into the economy — destroys capitalism.

    What about the local chamber of commerce? Isn’t it a bastion of capitalism? Here’s Stephen Moore: “In as many as half the states, state taxpayer organizations, free market think tanks and small business leaders now complain bitterly that, on a wide range of issues, chambers of commerce deploy their financial resources and lobbying clout to expand the taxing, spending and regulatory authorities of government. This behavior, they note, erodes the very pro-growth climate necessary for businesses — at least those not connected at the hip with government — to prosper.” (Local chambers of commerce: tax machines in disguise.)

    This accurately describes the Wichita Metro Chamber of Commerce. Earlier this year it decided that eight government subsidy programs supporting the Ambassador Hotel were not enough: The Chamber said there must be a ninth.

    Fortunately, the Kansas Chamber of Commerce does a much better job supporting capitalism and free market principles.

    At the state government level we also have to be watchful, even though we have a conservative governor and legislature (sort of). Earlier this year Kansas Governor Sam Brownback supported extending the STAR bonds program, thereby giving life support to cronyism for another five years. Kansas STAR bonds vote a test for capitalism. A majority of legislators supported him. Other anti-capitalist programs have been started or expanded at his initiative.

  • Cost of an Obama tire job: $900,000

    It’s entirely predictable that trade sanctions are costly to the country that imposes them. Yet politicians can be persuaded to support them in the name of saving American jobs and getting “tough” with countries perceived to be a problem.

    We see this in the case of President Barack Obama and the tariffs, or taxes, on tires imported from China. Here’s what The Peterson Institute for International Economics said in its report US Tire Tariffs: Saving Few Jobs at High Cost:

    However, our analysis shows that, even on very generous assumptions about the effectiveness of the tariffs, the initiative saved a maximum of 1,200 jobs. Our analysis also shows that American buyers of car and light truck tires pay a hefty price for this exercise of trade protection. According to our calculations, explained in this policy brief, the total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1 billion in 2011. The cost per job manufacturing saved (a maximum of 1,200 jobs by our calculations) was at least $900,000 in that year. Only a very small fraction of this bloated figure reached the pockets of tire workers. Instead, most of the money landed in the coffers of tire companies, mainly abroad but also at home.

    The additional money that US consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment in the retail industry. On balance, it seems likely that tire protectionism cost the US economy around 2,531 jobs, when losses in the retail sector are off set against gains in tire manufacturing. Adding further to the loss column, China retaliated by imposing antidumping duties on US exports of chicken parts, costing that industry around $1 billion in sales.

    It’s not like this hasn’t happened before. When President George W. Bush imposed tariffs on imported steel, the result was similar. The Consuming Industries Trade Action Coalition found that steel trade protectionism resulted in the loss of nearly 200,000 American jobs, and cost approximately $4 billion in lost wages over ten months. A further conclusion was that “more American workers lost their jobs in 2002 to higher steel costs than the total number employed by the U.S. steel industry.”

    Instead of these presidents bowing to the very concentrated special interests that benefit from trade protectionism, we should embrace trade with other countries.

    But it’s easy to beat up on certain countries when jobs are lost, blaming the problem on foreigners. Mitt Romney should take this advice, as the Wall Street Journal recently editorialized: “This China-bashing is especially odd for Mr. Romney, who professes elsewhere that he wants to expand trade because it will create jobs. So trade is good for America except when it is conducted by ‘cheaters’ who happen to sell more of some goods and services to us than we sell to them. This is called mercantilism, not free trade.”

  • Duration of unemployment isn’t improving

    Although the unemployment rate has declined, there are still problems in the labor market that don’t appear to be improving. The duration of unemployment — that is, how long it is until people find jobs — rose rapidly during the recession. It peaked and has stayed largely unchanged for the past year, as shown in the chart below.

    In March a Wall Street Journal article explained the problems facing the long-term unemployed:

    “But some economists argue that in the wake of a severe recession, the lines between cyclical and structural unemployment can become blurred. Workers who lose their jobs because of cyclical factors — a factory that lays off workers, a restaurant that closes, an office that decides to go without a front-desk receptionist — might stay out of work so long that they become effectively unemployable. Their skills erode, they fall behind on the latest technologies and industry trends, or they become stigmatized by employers who assume there must be something wrong with anyone who’s been unemployed so long.”

    Average (Mean) Duration of Unemployment

  • Kerr’s attacks on Pompeo’s energy policies fall short

    We often see criticism of politicians for sensing “which way the wind blows,” that is, shifting their policies to pander to the prevailing interests of important special interest groups. The associated negative connotation is that politicians do this without regard to whether these policies are wise and beneficial for everyone.

    So when a Member of Congress takes a position that is literally going against the wind in the home district and state, we ought to take notice. Someone has some strong convictions.

    This is the case with U.S. Representative Mike Pompeo, a Republican representing the Kansas fourth district (Wichita metropolitan area and surrounding counties.)

    The issue is the production tax credit (PTC) paid to wind power companies. For each kilowatt-hour of electricity produced, the United States government pays 2.2 cents. Wind power advocates contend the PTC is necessary for wind to compete with other forms of electricity generation. Without the PTC, it is said that no new wind farms would be built.

    The PTC is an important issue in Kansas not only because of the many wind farms located there, but also because of wind power equipment manufacturers that have located in Kansas. An example is Siemens. That company, lured by millions in local incentives, built a plant in Hutchinson. Employment was around 400. But now the PTC is set to expire on December 31, and it’s uncertain whether Congress will extend the program. As a result, Siemens has laid off employees. Soon only 152 will be at work in Hutchinson, and similar reductions in employment have happened at other Siemens wind power equipment plants.

    Rep. Pompeo is opposed to all tax credits for energy production, and has authored legislation to eliminate them. As the wind PTC is the largest energy tax credit program, Pompeo and others have written extensively of the market distortions and resultant economic harm caused by the PTC. A recent example is Puff, the Magic Drag on the Economy: Time to let the pernicious production tax credit for wind power blow away, which appeared in the Wall Street Journal.

    The special interests that benefit from the PTC are striking back. An example comes from Dave Kerr, who as former president of the Hutchinson/Reno County Chamber of Commerce played a role in luring Siemens to Hutchinson. Kerr’s recent op-ed in the Hutchinson News is notable not only for its several attempts to deflect attention away from the true nature of the PTC, but for its personal attacks on Pompeo.

    There’s no doubt that the Hutchinson economy was dealt a setback with the announcement of layoffs at the Siemens plant that manufactures wind power equipment. Considered in a vacuum, these jobs were good for Hutchinson. But we shouldn’t make our nation’s policy in a vacuum, that is, bowing to the needs of special interest groups — sensing “which way the wind blows.” When considering everything and everyone, the PTC paid to producers of power generated from wind is a bad policy. We ought to respect Pompeo for taking a principled stand on this issue, instead of pandering to the folks back home.

    Kerr is right about one claim made in his op-ed: The PTC for wind power is not quite like the Solyndra debacle. Solyndra received a loan from the Federal Financing Bank, part of the Treasury Department. Had Solyndra been successful as a company, it would likely have paid back the government loan. This is not to say that these loans are a good thing, but there was the possibility that the money would have been repaid.

    But with the PTC, taxpayers spend with nothing to show in return except for expensive electricity. And spend taxpayers do.

    Kerr, in an attempt to distinguish the PTC from wasteful government spending programs, writes the PTC is “actually an income tax credit.” The use of the adverb “actually” is supposed to alert readers that they’re about to be told the truth. But truth is not forthcoming from Kerr — there’s no difference. Tax credits are government spending. They have the same economic effect as “regular” government spending. To the company that receives them, they can be used — just like cash — to pay their tax bill. Or, the company can sell them to others for cash, although usually at a discounted value.

    From government’s perspective, tax credits reduce revenue by the amount of credits issued. Instead of receiving tax payments in cash, government receives payments in the form of tax credits — which are slips of paper it created at no cost and which have no value to government. Created, by the way, outside the usual appropriations process. That’s the beauty of tax credits for big-government spenders: Once the program is created, money is spent without the burden of passing legislation.

    If we needed any more evidence that PTC payments are just like cash grants: As part of Obama’s ARRA stimulus bill, for tax years 2009 and 2010, there was in effect a temporary option to take the federal PTC as a cash grant. The paper PTC, ITC, or Cash Grant? An Analysis of the Choice Facing Renewable Power Projects in the United States explains.

    Astonishingly, the wind PTC is so valuable that wind power companies actually pay customers to take their electricity. It’s called “negative pricing,” as explained in Negative Electricity Prices and the Production Tax Credit:

    As a matter of both economics and public policy, no government production tax subsidy should ever be so large that it creates an incentive for a business to actually pay customers to take its product. Yet, the federal Production Tax Credit (“PTC”) for wind generation is doing just that with increasing frequency in electricity markets across the United States. In some “wind-rich” regions of the country, wind producers are paying grid operators to take their generation during periods of surplus supply. But wind producers more than make up the cost of the “negative price” payment, because they receive a $22/MWH federal production tax credit for every MWH generated.

    In western Texas since 2008, wind power generators paid the electrical grid to take their electricity ten percent of the hours of each day.

    Once we recognize that tax credits are the same as government spending, we can see the error in Kerr’s argument that if the PTC is ended, it is the same as “a tax increase on utilities, which, because they are regulated, will pass on to consumers.” Well, government passes along the cost of the PTC to taxpayers, illustrating that there really is no free lunch.

    Kerr attacks Pompeo for failing to “crusade” against two subsidies that some oil companies receive: Intangible Drilling Costs and the Percentage Depletion Allowance. These programs are deductions, not credits. They do provide an economic benefit to the oil companies that can use them (“big oil” can’t use percentage depletion at all), but not to the extent that tax credits do.

    Regarding these deductions, last year Pompeo introduced H. Res 267, titled “Expressing the sense of the House of Representatives that the United States should end all subsidies aimed at specific energy technologies or fuels.”

    In the resolution, Pompeo recognized the difference between deductions and credits, the latter, as we’ve seen, being direct subsidies: “Whereas deductions and cost-recovery mechanisms available to all energy sectors are different than credits, loans and grants, and are therefore not taxpayer subsidies; [and] Whereas a deduction of costs and cost recovery with respect to timing is not a subsidy.”

    Part of what the resolution calls for is to “begin tax simplification and reform by eliminating energy tax credits and deductions and reducing income tax rates.”

    Kerr wants to deflect attention away from the cost and harm of the PTC. Haranguing Pompeo for failing to attack percentage depletion and IDC with the same fervor as tax credits is only an attempt to muddy the waters so we can’t see what’s happening right in front of us. It’s not, as Kerr alleges, “playing Clintonesque games of semantics with us.” As we’ve seen, Pompeo has called for the end of these two tax deductions.

    If we want to criticize anyone for inconsistency, try this: Kerr criticizes Pompeo for ignoring the oil and gas deductions, “which creates a glut in natural gas that drives down the price to the lowest levels in a decade.” These low energy prices should be a blessing to our economy. Kerr, however, demands taxpayers pay to subsidize expensive wind power so that it can compete with inexpensive gas. In the end, the benefit of inexpensive gas is canceled. Who benefits from that, except for the wind power industry? The oil and gas targeted deductions also create market distortions, and therefore should be eliminated. But at least they work to reduce prices, not increase them.

    By the way, Pompeo has been busy with legislation targeted at ending other harmful subsidies: H.R. 3090: EDA Elimination Act of 2011, H.R. 3994: Grant Return for Deficit Reduction Act, H.R. 3308: Energy Freedom and Economic Prosperity Act, and the above-mentioned resolution.

    I did notice, however, that Pompeo hasn’t called for the end to the mohair subsidy. Will Kerr attack him for this oversight?

    Finally, Kerr invokes the usual argument of government spenders: Cut the budget somewhere else. That’s what everyone says.

    Creating entire industries that exist only by being propped up by government subsidy means that we all pay more to support special interest groups. A prosperous future is best built by relying on free enterprise and free markets in energy, not on programs motivated by the wants of politicians and special interests. Kerr’s attacks on Pompeo illustrate how difficult it is to replace cronyism with economic freedom.

  • The Obama tax cuts

    In the presidential debate last week, President Barack Obama spoke of his tax cuts: “So at the same time that my tax plan has already lowered taxes for 98 percent of families, I also lowered taxes for small businesses 18 times. And what I want to do is continue the tax rate — the tax cuts that we put into place for small businesses and families.”

    Are these Obama tax cuts “real” cuts that will lead to economic growth, or just government spending programs in disguise? For tax cuts to be productive in growing the economy, they have to be associated with something positive, namely with work, saving, or investment. What many people positively respond to is a reduction in marginal tax rates, that is, the tax that must be paid on the next dollar earned.

    Many of the Obama tax cuts were part of the stimulus bill passed in February 2009. Polls show that very people know of these tax cuts. Many were temporary.

    The largest item that benefited most people was the Making Work Pay Tax Credit, a two-year program that rebates $400 per year to individual taxpayers, or $800 per year for married couples. The program was effective for tax years 2009 and 2010 only. This is not a reduction in marginal tax rates, although the program will reduce the average tax rate that people pay. It is simply a reduction in the overall amount of tax someone must pay.

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

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

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

    If we need any more evidence that these programs are really spending disguised as tax cuts, consider the description of the child care tax credit as provided by the Internal Revenue Service: “It is a refundable credit, which means taxpayers may receive refunds even when they do not owe any tax.” That’s right. Even if you have no income tax liability, you can still get a tax credit — that is, a payment from the government.

    As to the claim of 18 business tax cuts, a CNN analysis finds “If extensions or expansions aren’t double counted, the list comes out to 14 tax breaks — and only five are still around.”

    In its analysis of the business tax cuts, a New York Times article concluded “As you can see, some of these aren’t tax cuts in the way many people would define them. Rather, they’re tax incentives — you’ve got to spend money (on health insurance, a new employee or new equipment) to save money.”

    An example of one of the temporary business tax measures that were part of the ARRA stimulus bill was bonus depreciation. This measure allowed businesses to capture depreciation of assets more quickly than usual. This reduces taxable income, and therefore would act as an incentive for businesses to make capital investments.

    Ironically, when business jets received a similar accelerated depreciation benefit, President Obama denounces this as a harmful tax break.

    These measures, while reducing the amount of tax a business might pay, don’t change the marginal tax rate. Reducing marginal tax rates is what contributes to growth.

    There has been the temporary payroll tax cut, which is a reduction in tax rates that pay for Social Security and Medicare. This tax, however, applies only to income up to $110,100, so after that level, the reduction no longer applies. Further, this is an example of reducing taxes, but not making corresponding reductions in spending. This means that government has to borrow more, which is a negative factor for economic growth.

    Programs that reduce the average tax rate like Obama’s Making Work Pay Tax Credit and the Bush tax rebates of 2008 aren’t effective because they don’t affect the marginal rate — the rate paid on the next dollar earned. While anything that reduces the burden of taxes is welcome, we ought to implement the type of tax cuts that spur economic growth.

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

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

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

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

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

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

  • On sweatshops, Romney is right

    In the recently-released recording of Mitt Romney talking to donors, the “47 percent” remarks are not all the left is pummeling Romney with: Misinformed beliefs about sweatshops contribute, too.

    In a column, Jim Hightower wrote “But that was not the presidential contender’s only comment in the video that seemed to come from some cold, warped, faraway universe. He also babbled on insensibly about how impoverished Third World people love working in sweatshops. … See, in MittWorld, even life in a Chinese sweatshop is beautiful.” This is typical of liberal reaction to Romney’s remarks, and it’s a reaction that’s based on emotion, not reality.

    While sweatshops are not the place most Americans would choose to work, they are often the best alternative available to workers in some countries. Pay is low compared to U.S. standards because worker productivity is low, and the process of economic development will lead to increases in productivity and pay. But most policies promoted to help the purported plight of sweatshop workers actually lead to harm.

    That was the message of Benjamin Powell. Powell is a professor of economics at Suffolk University in Boston and is affiliated with The Beacon Hill Institute.

    In a lecture given in Kansas, Powell said “Often when people say there’s something wrong with sweatshops, implicitly what they’re saying is ‘while this is bad, the alternative must be better.’ Often the alternatives in these countries are much, much worse.” The alternatives are often subsistence agriculture and working in farm fields, Powell said.

    A sweatshop, according to Powell, is a workplace with low wages (compared to U.S. standards), and poor, possibly unsafe, working conditions and benefits, again compared to U.S. standards. The sweatshops that Powell is defending are those where people voluntarily choose to work. Sweatshops where workers are forced to work under the threat of violence constitute slave labor, which cannot be defended. These are not better than the alternatives available to the forced workers, the evidence being that the workers are forced to work in these sweatshops.

    As evidence of non-sweatshop working conditions is some countries, Powell mentioned the case of a Cambodian girl and her working conditions, as reported by Nicholas D. Kristof in the New York Times in 2004:

    Nhep Chanda is a 17-year-old girl who is one of hundreds of Cambodians who toil all day, every day, picking through the dump for plastic bags, metal cans and bits of food. The stench clogs the nostrils, and parts of the dump are burning, producing acrid smoke that blinds the eyes.

    The scavengers are chased by swarms of flies and biting insects, their hands are caked with filth, and those who are barefoot cut their feet on glass. Some are small children.

    Nhep Chanda averages 75 cents a day for her efforts. For her, the idea of being exploited in a garment factory — working only six days a week, inside instead of in the broiling sun, for up to $2 a day — is a dream.

    In another column, after describing conditions in the dump, Kristof wrote “Talk to these families in the dump, and a job in a sweatshop is a cherished dream, an escalator out of poverty, the kind of gauzy if probably unrealistic ambition that parents everywhere often have for their children.”

    Generally, sweatshop workers are paid much more than most other workers in the country, and their working conditions are much better. Powell mentioned that working inside — rather than outside — is very desirable in most countries. Sweatshops pay higher wages and have better working conditions than the workers’ alternatives. Otherwise, the workers would choose the alternatives.

    Powell reminded the audience that it’s important to remember that in most countries where sweatshops exist, these jobs are much better — both in terms of pay and working conditions — than what the workers face as alternatives. Anything that causes companies to shut down sweatshops or employ fewer workers, then, means that workers lose these better jobs and return to harder work at lower wages, or perhaps no work at all.

    I would ask Hightower, the Texas columnist, this: Who is living in cold, warped, faraway universe? Those who want to close down sweatshops and send people back to scavenging garbage dumps?

  • Special interests will capture south-central Kansas planning

    Special interest groups are likely to co-opt the government planning process started in south-central Kansas as these groups see ways to benefit from the plan. The public choice school of economics and political science has taught us how special interest groups seek favors from government at enormous costs to society, and we will see this at play over the next few years.

    Sedgwick County has voted to participate in a HUD Sustainable Communities Regional Planning Grant. While some justified their votes in favor of the plan because “it’s only a plan,” once the planning process begins, special interests plot to benefit themselves at the expense of the general public. Once the plan is formed, it’s nearly impossible to revise it, no matter how evident the need.

    An example of how much reverence is given to government plans comes right from the U.S. Supreme Court in the decision Kelo v. New London, in which the Court decided that government could use the power of eminent domain to take one person’s property and transfer it to someone else for the purposes of economic development. In his opinion for the Court, Justice Stevens cited the plan: “The City has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community.” Here we see the importance of the plan and due reverence given to it.

    Stevens followed up, giving even more weight to the plan: “To effectuate this plan, the City has invoked a state statute that specifically authorizes the use of eminent domain to promote economic development. Given the comprehensive character of the plan, the thorough deliberation that preceded its adoption, and the limited scope of our review, it is appropriate for us, as it was in Berman, to resolve the challenges of the individual owners, not on a piecemeal basis, but rather in light of the entire plan. Because that plan unquestionably serves a public purpose, the takings challenged here satisfy the public use requirement of the Fifth Amendment.”

    To Stevens, the fact that the plan was comprehensive was a factor in favor of its upholding. The sustainable communities plan, likewise, is nothing but comprehensive, as described by county manager Bill Buchanan in a letter to commissioners: “[the plan will] consist of multi-jurisdictional planning efforts that integrate housing, land use, economic and workforce development, transportation, and infrastructure investments in a manner that empowers jurisdictions to consider the interdependent challenges of economic prosperity, social equity, energy use and climate change, and public health and environmental impact.”

    That pretty much covers it all. When you’re charged with promoting economic prosperity, defending earth against climate change, and promoting public health, there is no limit to the types of laws you might consider.

    Who will plan?

    The American Planning Association praised the Court’s notice of the importance of a plan, writing “This decision underscores the importance for a community to have a comprehensive development plan formulated through a democratic planning process with meaningful public participation by everyone.”

    But these plans are rarely by and for the public. Almost always the government planning process is taken over and captured by special interests. We see this in public schools, where the planning and campaigning for new facilities is taken over by architectural and construction firms that see school building as a way to profit. It does not matter to them whether the schools are needed.

    Our highway planning is hijacked by construction firms that stand to benefit, whether or not new roads are actually needed.

    Our planning process for downtown Wichita is run by special interest groups that believe that downtown has a special moral imperative, and another group that sees downtown as just another way to profit at taxpayer expense. Both believe that taxpayers across Wichita, Kansas, and even the entire country must pay to implement their vision. As shown in Kansas and Wichita need pay-to-play laws the special interests that benefit from public spending on downtown make heavy political campaign contributions to nearly all members of the Wichita City Council. They don’t have a political ideology. They contribute only because they know council members will be voting to give them money.

    In Wichita’s last school bond election, 72 percent of the contributions, both in-kind and cash, was given by contractors, architects, engineering firms and others who directly stand to benefit from new school construction, no matter whether schools are actually needed. The firm of Schaefer Johnson Cox Frey Architecture led the way in making these contributions. It’s not surprising that this firm was awarded a no-bid contract for plan management services for the bond issue valued at $3.7 million. This firm will undoubtedly earn millions more for those projects on which it serves as architect.

    The special interest groups that benefit from highway construction: They formed a group called Economic Lifelines. It says it was formed to “provide the grassroots support for Comprehensive Transportation Programs in Kansas.” Its motto is “Stimulating economic vitality through leadership in infrastructure development.”

    A look at the membership role, however, lets us know whose economic roots are being stimulated. Membership is stocked with names like AFL-CIO, Foley Equipment Company, Heavy Constructors Association of Greater Kansas City, Kansas Aggregate & Concrete Associations, Kansas Asphalt Pavement Association, Kansas Contractors Association, Kansas Society of Professional Engineers, and PCA South Central Cement Promotion Association. Groups and companies like these have an economic interest in building more roads and highways, whether or not the state actually needs them.

    The planners themselves are a special interest group, too. They need jobs. Like most government bureaucrats, they “profit” from increasing their power and sphere of influence, and by expansion of their budgets and staffs. So when Sedgwick County Commissioner Jim Skelton asks a professional planner questions about the desirability of planning, what answer does he think he will get? It’s not that the planners are not honest people. But they have a vested economic and professional interest in seeing that we have more government planning, not less.

    And we have evidence that planners watch out for themselves. It is not disputed that this planning grant benefits Regional Economic Area Partnership (REAP). Sedgwick County Commissioner Richard Ranzau says that John Schlegel, Wichita’s Director of Planning, told him that “acceptance of this grant will take REAP to another level, because right now they are struggling, and this will help plot the course for REAP.” He said that REAP, which is housed at the Hugo Wall School of Public Affairs at Wichita State University, needs to expand its role and authority in order to give it “something to do.”

    We see that REAP is another special interest group seeking to benefit itself. In this case, our best hope is that REAP engages in merely make-work, that the plan it produces is put on a shelf and ignored, and that the only harm to us is the $1.5 million cost of the plan.

    By the way, did you know that Sedgwick County Commissioner Dave Unruh, who voted in favor of the plan that benefits REAP, is now chairman of REAP? Special interest groups know how to play the political game.

  • Energy subsidies exposed

    On the campaign trail, President Barack Obama calls for an end to energy subsidies for the fossil fuel industry. It turns out, however, that this industry receives relatively little subsidy, while the president’s favored forms of energy investment — wind and solar — receive much more. Additionally, coal, oil, and gas industries paid billions in taxes to the federal government, while electricity produced by solar and wind are a cost to taxpayers.

    Saturday’s Wall Street Journal piece The Energy Subsidy Tally: Wind and solar get the most taxpayer help for the least production gathers the facts: “The nearby chart shows the assistance that each form of energy for electricity production received in 2010. The natural gas and oil industry received $2.8 billion in total subsidies, not the $4 billion Mr. Obama claims on the campaign trail, and $654 million for electric power. The biggest winner was wind, with $5 billion. Between 2007 and 2010, total energy subsidies rose 108%, but solar’s subsidies increased six-fold and wind’s were up 10-fold.”

    When looking at subsidy received per unit of power produced, the Journal found that oil, gas, and coal received $0.64 per megawatt hour, hydropower $0.82, nuclear $3.14, wind $56.39, and solar $775.64. Commented the Journal: “So for every tax dollar that goes to coal, oil and natural gas, wind gets $88 and solar $1,212. After all the hype and dollars, in 2010 wind and solar combined for 2.3% of electric generation — 2.3% for wind and 0% and a rounding error for solar. Renewables contributed 10.3% overall, though 6.2% is hydro. Some ‘investment.’”

    In Kansas, there is disagreement among elected officials over wind power. Kansas Governor Sam Brownback and U.S. Senator Jerry Moran favor the production tax credit that makes wind feasible. Together they penned an op-ed that tortures logic to defend the tax credits. Each has spoken out on his own on the national stage. See Brownback on wind, again and Wind energy split in Kansas.

    Brownback has also supported, at both federal and state levels, renewable portfolio standards. These in effect mandate the production of wind power. Recently Kansas Policy Institute produced a report that details the harmful effect of this law: “Renewable energy is more expensive than conventional energy, so government mandates are necessary to ensure that more renewable energy is purchased. However, the unseen consequences of well-intended efforts to increase energy independence are rarely considered. The authors estimate that by 2020, the average household’s electricity bill will increase by $660, approximately 12,000 fewer jobs will have been created, and business investment in the state will be $191 million less than without the mandate.” See The Economic Impact of the Kansas Renewable Portfolio Standard.

    In Wichita, Mayor Carl Brewer is recruiting wind power companies to come to Wichita. If he is successful, you can be sure it will be at great cost to Kansas and Wichita taxpayers.

    Contrast with the position taken by U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district, which includes the Wichita metropolitan area. Recently he wrote: “Supporters of Big Wind, like President Obama, defend these enormous, multi-decade subsidies by saying they are fighting for jobs, but the facts tell a different story. Can you say ‘stimulus’? The PTC’s logic is almost identical to the President’s failed stimulus spending of $750 billion — redistribute wealth from hard-working taxpayers to politically favored industries and then visit the site and tell the employees that ‘without me as your elected leader funneling taxpayer dollars to your company, you’d be out of work.’ I call this ‘photo-op economics.’ We know better. If the industry is viable, those jobs would likely be there even without the handout. Moreover, what about the jobs lost because everyone else’s taxes went up to pay for the subsidy and to pay for the high utility bills from wind-powered energy? There will be no ribbon-cuttings for those out-of-work families.”

    Pompeo has introduced legislation in Congress that would end tax credits for all forms of energy production. See H.R. 3308: Energy Freedom and Economic Prosperity Act.

    The Energy Subsidy Tally
    Wind and solar get the most taxpayer help for the least production.

    President Obama traveled to Iowa Tuesday and touted wind energy subsidies as the path to economic recovery. Then he attacked Mitt Romney as a tool of the oil and gas industry. “So my attitude is let’s stop giving taxpayer subsidies to oil companies that don’t need them, and let’s invest in clean energy that will put people back to work right here in Iowa,” he said. “That’s a choice in this election.”

    There certainly is a subsidy choice in the election, but the facts are a lot different than Mr. Obama portrays them. What he isn’t telling voters is how many tax dollars his Administration has already steered to wind and solar power, and how much more subsidized they are than other forms of electricity generation.

    Continue reading at the Wall Street Journal (subscription required)