Voice For Liberty

Tag: Free markets

  • Pompeo on energy tax simplification

    In an email alert sent to members, Americans for Prosperity–Kansas calls for support for a Kansas Congressman who is fighting for free markets in energy. AFP–Kansas State Director Derrick Sontag wrote: “U.S. Representative Mike Pompeo (R-Kan.) is getting attacked for standing up for the free market principles that Kansas voters sent him to Washington to defend. You may have seen that T. Boone Pickens is trying to use out-of-state pressure from Oklahoma to lean on Pompeo. Pickens wants Pompeo to end his opposition to Pickens’ effort to get special tax treatment for natural gas vehicles. But Pompeo has it exactly right; Washington shouldn’t be picking winners and losers in the energy industry.”

    The bill in question is H.R. 1380: New Alternative Transportation to Give Americans Solutions Act of 2011, or NAT GAS act. The bill provides a variety of subsidies, implemented through tax credits, to producers and users of natural gas. Last week the Wichita Eagle printed an op-ed from T. Boone Pickens which unsuccessfully attempted to make the case that these credits are not the same as subsidies.

    Pickens also criticized Pompeo for failure to come out against all subsides, a criticism which is false and uninformed. On May 12th Pompeo introduced H. Res. 267, which is subtitled “Expressing the sense of the House of Representatives that the United States should end all subsidies aimed at specific energy technologies or fuels.”

    The summary of the bill as provided by the Congressional Research Service is: “Declares that the House of Representatives should: (1) provide by refusing any legislative proposal that includes new energy subsidy programs of any kind; (2) prohibit the expansion or extension of existing energy subsidies; (3) eliminate existing energy subsidies; and (4) begin tax simplification and reform by eliminating energy tax credits and deductions and reducing income tax rates.”

    That sounds clear and unequivocal to me: refusing … new energy subsidy programs — prohibit the expansion or extension — eliminating existing energy subsidies — eliminating energy tax credits and deductions.

    (The full text of the Pompeo resolution is below.)

    In yesterday’s Wichita Eagle, oilman Wink Hartman, who ran against Pompeo in last year’s primary election, argued against removal of tax credits currently in place for oil companies: “First, removal of tax credits for energy companies will not only hurt the intended political scapegoats — large oil companies — but will also hit small energy companies, too, including the dozens of Kansas oil producers fighting hard to find much-needed additional oil reserves and compete with the larger oil companies for their survival.”

    But as argued recently in Forbes Magazine, these oil industry subsidies, like all subsidies, “make the economy less — not more — efficient.”

    Authors Jerry Taylor and Peter Van Doren also argue that “Many conservatives argue that the elimination of these energy tax provisions and others like them for other sectors are tax increases. They are correct in a narrow sense. But in a larger sense they are incorrect because the elimination of such tax provisions makes the tax code more neutral and a more neutral tax code is a more conservative tax code.”

    They also write that these tax favors “direct private investment to the favored businesses and away from the unfavored” and that “such favors are as much a part of big government as explicit appropriated spending. Tax breaks like this constitute big government on the sly.”

    To the extent that the oil business — and any other industry — has incorporated special tax treatment into their business plan, we can support a phase-out of all tax favors instead of overnight elimination. This will give the companies time to plan for the transition. But aside from this consideration, we must end all such preferential treatment if we are to have a truly sound and robust economy.

    Those wishing to express support for Pompeo can do so at AFP’s Action Center.

    The resolution by Mike Pompeo and co-sponsors Raúl Labrador and Tom McClintock:

    Expressing the sense of the House of Representatives that the United States should end all subsidies aimed at specific energy technologies or fuels.

    Whereas companies continue to innovate and adapt to a growing and volatile energy market;

    Whereas the primary role of the Government in the energy markets is to create an economic climate where companies can continue to innovate and compete, and thereby provide value and affordability to families and businesses;

    Whereas it is not the role of the Government to favor one fuel source or energy sector over another;

    Whereas taxpayers have subsidized the energy industry with grants, direct loans and loan guarantees, and tax credits aimed at specific industries for decades;

    Whereas deductions and cost-recovery mechanisms available to all energy sectors are different than credits, loans and grants, and are therefore not taxpayer subsidies;

    Whereas a deduction of costs and cost recovery with respect to timing is not a subsidy;

    Whereas the current system of energy subsidies is opaque and unduly complex;

    Whereas energy subsidies have consistently failed to bring down the price of gasoline for consumers, and electricity and natural gas for industrial users; and

    Whereas eliminating energy subsidies from the Internal Revenue Code of 1986 will allow us to lower the overall rate of corporate income tax without increasing deficits: Now, therefore, be it

    Resolved, That the House of Representatives should —

    (1) provide no new energy subsidies by refusing any legislative proposal that includes new energy subsidy programs of any kind;

    (2) prohibit the expansion or extension of existing energy subsidies;

    (3) eliminate existing energy subsidies; and

    (4) begin tax simplification and reform by eliminating energy tax credits and deductions and reducing income tax rates.

  • Kansas and Wichita quick takes: Monday May 23, 2011

    Wichita City council. As it is the fourth Tuesday of the month, the Wichita City Council handles only consent agenda items. The council will also hold a workshop. Consent agendas are usually reserved for items thought to be of non-controversial nature. Today’s Wichita Eagle spotlights one item where the city is proposing to hire an outside firm to inspect the roof of the airport for damage from last September’s storm. Some, including Council Member Michael O’Donnell (district 4, south and southwest Wichita) wonder why the city can’t do the inspection with it’s own engineering staff and resources. … Of further note is that the city proposes to use general obligation bonds to borrow the funds to pay for this inspection. This is similar to last December, when the city decided to also use bonds to borrow money to pay for an analysis of nine aging fire stations and what repairs and upgrades they might require. While borrowing to pay for long-term capital projects is fine, this is borrowing for thinking about long-term projects. … The workshop will cover Century II parking meters, something involving the North Industrial Corridor, and a presentation on next year’s budget. The detailed agenda packet is at Wichita City Council May 24, 2011. No similar information is available for the workshop topics. … Next week is the fifth Tuesday of a month and the day after a holiday, so there’s two reasons to explain why there won’t be a city council meeting next week.

    Sedgwick County Commission. In its Wednesday meeting, the Sedgwick County Commission will consider approval of the county’s portion of the Hawker Beechcraft deal. In order to persuade Hawker to stay in Kansas rather than move to Louisiana, the State of Kansas offered $40 million in various form of incentive and subsidy, and it was proposed at the time that the City of Wichita and Sedgwick County each add $2.5 million. Last week the Wichita City Council approved its share, which can only be described as corporate welfare. It was widely reported that Hawker had received an offer, said by some to be worth as much as $400 million, to move to Louisiana. But that offer was not a valid threat of Hawker leaving Kansas, as in a December 2010 television news report, Louisiana’s governor said “they couldn’t guarantee the number of jobs that would have been required for them to come here.” … The meeting agenda is at Sedgwick County Commission, May 25, 2011.

    Kobach on voter reform in Wall Street Journal. Today’s Wall Street Journal opinion section carries a piece by Kris W. Kobach, who is Kansas Secretary of State. The title is The Case for Voter ID: You can’t cash a check, board a plane, or even buy full-strength Sudafed over the counter without ID. Why should voting be different? In it, Kobach writes Kansas is the only state with all of these elements of voter ID reform: “(1) a requirement that voters present photo IDs when they vote in person; (2) a requirement that absentee voters present a full driver’s license number and have their signatures verified; and (3) a proof of citizenship requirement for all newly registered voters.” In support of the need for these reforms, Kobach provides evidence of the prevalence of election fraud. He also cites evidence that there is already widespread possession of the documents necessary to vote: “According to the 2010 census, there are 2,126,179 Kansans of voting age. According to the Kansas Department of Motor Vehicles, 2,156,446 Kansans already have a driver’s license or a non-driver ID. In other words, there are more photo IDs in circulation than there are eligible voters. The notion that there are hundreds of thousands of voters in Kansas (or any other state) without photo IDs is a myth.” … Some critics of these reforms fear that they will suppress voter turnout, and primarily that of Democratic Party voters. Kobach counters: “If election security laws really were part of a Republican scheme to suppress Democratic votes, one would expect Democrats to fight such laws, tooth and nail. That didn’t happen in Kansas, where two-thirds of the Democrats in the House and three-fourths of the Democrats in the Senate voted in favor of the Secure and Fair Elections Act. They did so because they realize that fair elections protect every voter and every party equally. No candidate, Republican or Democrat, wants to emerge from an election with voters suspecting that he didn’t really win. Election security measures like the one in my state give confidence to voters and candidates alike that the system is fair.” … The bill is HB 2067, and is the easiest way to understand it is by reading the supplemental note.

    Tiahrt, former Congressman, to address Pachyderms. This week the Wichita Pachyderm Club features Todd Tiahrt, Former Congressman for the fourth district of Kansas, speaking on the topic “Outsourcing Our National Security — How the Pentagon is Working Against Us.” I suspect the prolonged decision process of selecting where the build the Air Force refueling tanker will be a topic. After the Pentagon awarded to contract to AirBus in 2008, which Boeing protested, the Wall Street Journal wrote: “The Pentagon’s job is to defend the country, which means letting contracts that best serve American soldiers and taxpayers, not certain companies. Defense Department rules explicitly state that jobs cannot be a factor in procurement and that companies from certain countries, including France, must be treated as if they are U.S. firms in contract bids. Such competition ensures that taxpayers get the best value for their money and soldiers get the best technology.” More on this decision is here. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club.

    Wichita speaker lineup set. The schedule of speakers for the Wichita Pachyderm Club for the next several weeks is set, and as usual, it looks to be an interesting set of programs. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. Upcoming speakers are: On June 3, Nola Tedesco Foulston, District Attorney, Eighteenth Judicial District of Kansas, speaking on “An office overview and current events at the Eighteenth Judicial District of Kansas District Attorney’s office.” On June 10, John Allison, Superintendent of USD 259, the Wichita public school district, on “An update from USD 259.” On June 17, The Honorable Lawton R. Nuss, Kansas Supreme Court Chief Justice on “The State of the Kansas Courts.” On June 24, Jim Mason, Naturalist at the Great Plains Nature Center will have a presentation and book signing. Mason is author of Wichita’s Riverside Parks, published in April 2011. On July 1, Jay M. Price, Director of the Public History Program at Wichita State University, speaking on “Classes of Values in Kansas History.” On July 8, Dave Trabert, President, Kansas Policy Institute, on “Stabilizing the Kansas Budget.”

    Blue Ribbon Commission coming to Wichita. “Local residents will have an opportunity to voice concerns and offer suggestions on how to improve the state’s court systems during two public meetings next week in Wichita. A panel from the Blue Ribbon Commission (BRC), which was appointed by the Kansas Supreme Court to review the state’s court systems, will listen to public comments during the meetings at 3:00 pm and 7:00 pm, Thursday, May 26, 2011 at Century II, in Room 101, in Wichita. The BRC will examine ways to assure proper access to justice, the number of court locations, services provided in each location, hours of operation, the use of technology, possible cost reductions, and flexibility in the use of court personnel and other resources, and any other topic that may lead to the more efficient operation of our courts.” For more information, see the Blue Ribbon Commission Website.

    School choice cast as civil rights issue. Star Parker, after citing the case of a homeless mother who falsified an address so her child could get into a good school: “Public school reality today for black kids is one that overwhelmingly keeps them incarcerated in failing, dangerous schools. It’s evidence of the indomitable human spirit that, despite horrible circumstances, many poor unmarried black mothers understand the importance of getting their child educated and will do whatever it takes to get their kid into a decent school. … But let’s not forget the bigger picture that the NAACP has consistently opposed school choice and voucher initiatives and has been a stalwart defender of the public school system that traps these kids and prohibits the freedom and flexibility that these mothers seek. … Generally, black establishment politicians and organizations such as the NAACP have defended government public schools and education status quo and sadly have hurt their own communities. Nothing contributes more to the growing income gaps in the country than disparities in education, and the impact continues to grow.” … A common choice of allowing widespread school choice is that poor and uneducated parents aren’t capable of making wise selections of schools for their children.

    Medicare reform necessary. Wall Street Journal in Republicans and Mediscare: Paul Ryan’s GOP critics are ObamaCare’s best friends: “With ObamaCare, Democrats offered their vision for Medicare cost control: A 15-member unelected board with vast powers to set prices for doctors, hospitals and other providers, and to regulate how they should be organized and what government will pay for. The liberal conceit is that their technocratic wizardry will make health care more rational, but this is faith-based government. The liberal fallback is political rationing of care, which is why Mr. Obama made it so difficult for Congress to change that 15-member board’s decisions. Republicans have staunchly opposed this agenda, but until Mr. Ryan’s budget they hadn’t answered the White House with a competing idea. Mr. Ryan’s proposal is the most important free-market reform in years because it expands the policy options for rethinking the entitlement state.” The unelected board referred to is the Independent Payment Advisory Board. With its mission to reduce spending, some have aid this board is the feared “death panel.”

    Science, public agencies, and politics. Cato Institute Senior Fellow Patrick J. Michaels explains the reality of cap-and-trade proposals in this ten minute video. If the Waxman-Markey bill was implemented, world temperature would be reduced by 0.04 degrees. That compares to a forecast increase of 1.584 degrees. If implemented worldwide by the Kyoto nations, the reduction would be 0.08 degrees worldwide. … Michaels says the growth in emissions by China eclipses anything we in America can do. … Michaels echos Dwight Esienhower’s warning that “we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite. The prospect of domination of the nation’s scholars by Federal employment, project allocations and the power of money is ever present — and is gravely to be regarded.” He goes on to explain some of the dangers of “public choice science.”

  • Pickens and his energy plan

    It’s surprising how those who are successful in business can torture logic and reason when attempting to convince someone of their beliefs. Today’s Wichita Eagle carries such an example from T. Boone Pickens in his quest to move America towards a future powered by natural gas.

    Whether natural gas is good for our future is an issue that deserves discussion. But the way Pickens wants to accomplish his goal is harmful, and the arguments he makes are mistaken.

    In the Eagle piece today, Pickens wrote this in criticism of U.S. Representative Mike Pompeo, who represents the Kansas fourth congressional district: “What Pompeo might not understand is that there is a difference between a targeted incentive and a never-ending subsidy paid by the federal government on a per-gallon, per-kilowatt or per-anything basis. The latter is a check from the Treasury to a producer. The New Alternative Transportation to Give Americans Solutions Act (H.R. 1380) extends highly targeted tax incentives (not federal grants) to organizations that have heavy vehicles currently burning diesel.”

    He goes on to write that these “incentives for fleet owners to change” would be limited in amount and time.

    Where Pickens is confused is in the difference between “tax incentives” and “subsidy.”

    A subsidy is a check from the government, as Pickens says. Tax credits, on the other hand, are mysterious. The very term credit has a positive connotation, like when someone deserves credit for doing something well. Using such a term allows people like Pickens to make arguments that sound noble and lets them obscure the true economic transaction. A transaction, of course, which benefits them, and one they don’t want you to know about.

    Instead of tax credits or business credits it would be more accurate to use the term tax expenditures, as that accurately describes what is happening: government spends money through the tax system.

    It’s easy to see how this works. When government issues a tax credit, it takes the form of a coupon (conceptually) with a dollar amount, say $1,000,000, written on it. When it comes time for a company to pay taxes, it computes its tax liability using the normal methods, and might come up with a liability of, say, $2,500,000. But instead of sending that amount to the tax collector, the company would send a check for $1,500,000 and its coupon (the tax credit) worth $1,000,000.

    To the company that received the tax credit, it’s just like receiving a cash payment, except it’s restricted to use in paying its taxes. But since taxes must be paid, this is a restriction without meaning.

    (Sometimes companies have no tax liability, in which case the credits might not be able to be used, or might have to be used in future years. But often tax credits are refundable, meaning that the government will issue a tax refund, so that the full value of the credit is realized. Or, sometimes tax credits may be sold to someone else who may use them.)

    In addition to this misunderstanding or blatant disingenuousness — take your pick — Pickens’ article is contradictory. Near the end he criticizes Pompeo for inconsistency: “If Pompeo is opposed to using federal dollars to ‘pick winners and losers,’ then he should come out in opposition to all such subsidies.”

    But at the start of the article Pickens wrote of Pompeo’s “highly public opposition to subsidies for fuels of any kind.” Indeed, in the article Pickens refers to, Pompeo called for an end to all energy subsidies.

    Pickens contradicts himself here.

    In the end, the largest problem is that one person is proposing a solution to what he perceives as a problem. Then he wants to use the power and force of government to implement his solution. If Pickens is correct about natural gas — and he may be — we’ll never know if he gets his way. Government social and industrial engineering — implemented by grants of money made through tax expenditures — strips away all the benefits of dispersed knowledge possessed by millions of smart people throughout the world. It takes away the ability of free markets to truly evaluate the worth of products.

    It’s only by allowing ideas to compete in the marketplace that we’ll know which solution, or combination of solutions, is best. Government subsidies to industry, including all its present subsidies, lead to suboptimal solutions made for political rather than economic reasons. As Pompeo has recommended, we need to end these as soon as we can.

  • Charles Koch: Advancing economic freedom

    In recent years Charles Koch and his brother David Koch have emerged as prominent defenders of economic freedom and the freedom and prosperity it promises. In today’s Wichita Eagle, Charles Koch explains the importance of economic freedom and warns of the threats to freedom and prosperity that our country faces.

    A key component of economic freedom is property rights. In his 2007 book The Science of Success: How Market-Based Management Built the World’s Largest Private Company, Mr. Koch explained the importance of property rights: “Countries that clearly define and protect individual private property rights stimulate investment and grow. Those that threaten and confiscate private property lose capital and decline. They also lose the capability and efforts of the individuals who would be the greatest contributors to economic growth.”

    In the Economic Freedom of the World report, there are five broad areas that are measured to determine the relative economic freedom of countries:

    • Size of Government: Expenditures, Taxes, and Enterprises;
    • Legal Structure and Security of Property Rights;
    • Access to Sound Money;
    • Freedom to Trade Internationally; and
    • Regulation of Credit, Labor, and Business.

    We can see the importance of property rights to economic freedom. When government taxes, it takes our property and gives it to someone else — often to business firms in the form of corporate welfare. Without a developed legal system, property rights are not secure. Without sound money, government takes our property by devaluing our savings through inflationary monetary policies.

    It is the advancement of policies that promote economic freedom that, as Koch writes, “help societies prosper.” We see this in the rankings of countries on the economic freedom index. Countries with high levels of economic freedom, like Hong Kong, are prosperous even through they often have little in the way of natural resources. And countries that are rich in resources but not in economic freedom: Their people suffer, although corrupt leaders usually live richly.

    Economic freedom is not just for rich people. Everyone — especially those on the lowest rungs of the economic ladder — benefits.

    Charles Koch: Economic freedom key to improving society

    By Charles G. Koch

    My brother David and I have long supported the principles that help societies prosper. I have actively done so for nearly 50 years, as has my brother for more than 40.

    In recent years, we have stepped up our efforts to deal with the enormous threats to the future well-being of the people of this country. This has prompted some extreme criticism. From the White House to fringe bloggers, we are now being vilified, mischaracterized and threatened.

    In a perverse way, these attacks indicate that we are having a positive effect on public awareness and policymaking. That is why we are working even harder to advance economic freedom and prosperity.

    We do so because we believe economic freedom is essential for improving the well-being of society as a whole, especially those who work hard to provide for their families, as well as our most vulnerable. History and sound theory are clear on this point. If we allow our government to waste scarce resources and become the ultimate decision maker, almost everyone will suffer a lower standard of living.

    Continue reading at The Wichita Eagle. A slightly different version of Mr. Koch’s editorial is available on the Koch Industries website at Advancing economic freedom.

  • In Kansas, school choice programs could help the most needy students achieve

    While Kansas schools perform well in comparison to other states, there is much room for improvement, as the country as a whole does not do well in teaching students to their full potential. School choice programs, either through vouchers or tax credit scholarships, would help Kansas students do even better, and would help close the gap between low-performing students and the rest.

    Last week Kansas Policy Institute and The Friedman Foundation for Educational Choice held a press conference discussing school choice and other school reform measures. KPI and FFEC recently launched the “Why Not Kansas” initiative to educate Kansans on the need to reform the state’s K-12 educational system to allow Kansas schools to continue to improve. Due to travel problems, the FFEC representative was not able to attend.

    One of the insights Dave Trabert, KPI President, told the audience is that since rapidly increasing spending hasn’t helped student performance, cutting spending shouldn’t hurt it. Total school funding across Kansas declined 2.6 percent for the 2009 — 2010 school year, and will probably decline by a smaller amount this year and the next.

    Kansas test scores and spendingKansas school spending and NAEP test scores. Since large increases in spending haven’t improved student achievement, smaller cuts should not harm it, says Dave Trabert of Kansas Policy Institute.

    “It maybe isn’t great that we haven’t seen tremendous improvement, but especially because we’re concerned with school finance and how it will impact funding, this is really good news. If we’ve put that much more money — $2.5 billion more into our school system since 1998 — and we haven’t changed the numbers, then we shouldn’t be concerned. We have a problem we have to deal with, but money clearly isn’t the answer. Thank goodness it isn’t, because citizens don’t have billions more to put into this problem.”

    Trabert said there are alternatives with a proven record of raising achievement. He used Florida as an example, noting that state started a series of reforms in 1998. School choice was one of Florida’s earliest reform measures, and one that the “Kansas education industry” consistently opposes.

    School choice implemented through vouchers is one program Florida used. A voucher is a payment from the state made to a school — usually a private school — where a parent chooses to send a child. Today, Florida has a variety of school choice programs focused mostly on children from low income families and special needs children. School choice through tax credit scholarships are also used in Florida. Kansas has neither program.

    Charter schools are also not available in Kansas on a widespread basis. Charter schools are publicly funded, but operate more independently, usually with less regulation. Generally the teachers do not belong to the teachers union.

    In Kansas, the local school district is the only authorizer of charter schools. “Imagine, if you will, if Spangles had to get permission from McDonald’s to open restaurants. We wouldn’t have Spangles today if that was the case.”

    While there are many successful charter schools, Trabert said there are examples of private schools and charter schools that have not worked well. As these schools don’t have a ready market of students forced to attend them by reason of geography, the bad examples usually close.

    One of the benefits of schools choice is the competition it provides. Public schools do better when faced with competition from school choice, Trabert said. Public schools respond to competition and get better, as they don’t want to lose students.

    Another benefit is — perhaps paradoxically — funding, on a per-pupil basis, goes up for public schools: “One of the knocks against school choice is that it would drive money away from school districts, and how could they afford that? In every state I’ve looked at where they have school choice programs, the money that is allowed to follow the student, whether to a charter school or a private school, is set at or below the state aid per pupil. In fact, in a lot of states they’re looking at school choice as a way to reduce costs.”

    School choice and other reforms have helped Florida close the achievement gap, with low-income and minority students making large gains.

    Trabert also said that school choice programs especially benefit low income children. “We have a lot of kids in the state and around the country whose education really depends on how much their parents make. That’s wrong. We shouldn’t accept that.”

    A question from the audience asked why Trabert focused on school choice in Florida, when that state has implemented many reforms, such as merit pay for teachers and alternative certification. Trabert said we in Kansas should be doing these things, too. School choice was one of Florida’s first reforms, and Trabert again pointed to the benefits of competition and its effects on improving all schools.

    I asked a question relating to a school choice bill introduced in Kansas this year that would fund scholarships through tax credits for low income students. Some criticized the bill by saying it would allow private schools to choose only the best students, the ones they wanted in their schools, even though the bill was specifically targeted to low income students. This is a common criticism of private schools and sometimes charter schools, that they “cherry pick” the best students, leaving the public schools to deal with the rest. Trabert said “That’s one of the misconceptions that’s commonly put out. The facts don’t support those assumptions.”

    Another question had to do with the marketplace for private schools, either for special needs students or other students. Critics of school choice say there are currently very few public schools, so there is a lack of capacity to handle a large number of new students seeking admission using vouchers or tax credit scholarships as full or partial payment. Underlying these criticisms is a failure to recognize the dynamic nature of markets. Analyzed statically, the criticism is valid: markets tend towards equilibrium, with supply equal to demand. With private school tuition being what it is, relatively few parents can afford to send their children to these schools. But with the effective cost of a private school reduced dramatically by a voucher or tax credit scholarship, we would expect to see many new schools open.

    Video of the press conference is available here.

  • Downtown Wichita regulations on subsidy to be considered

    Tomorrow the Wichita City Council will consider policies relating to the award of subsidies for development in downtown Wichita. While the policies have the sheen of government authority, that the policies are government policies means that downtown development is certain to miss out on the benefits of free markets, capitalism, and the dispersed knowledge that only markets can generate and channel. In its place we’re left with a form of social engineering that seeks to remake Wichita in the vision of planners and their supporters.

    Perhaps the most absurd idea surrounding the revitalization of downtown Wichita is that planning and subsidy is required. The idea that government officials know what the people of Wichita would really like and can then deliver that is nonsense. Yes, there have been many meetings with downtown planners. We paid $500,000 to a firm to plan for us, and based on recent news of additional consultants being hired, that wasn’t enough. The planners dutifully solicited the opinions of citizens, which is almost always that people want more of everything. That’s natural. But citizens sitting in focus groups are not markets. They make decisions in the abstract, without the constraints of the actual world.

    One of the most absurd concepts of the plan is that the city is limited to investing only in money-losing projects. As a “minimum threshold criteria” for a project to receive city assistance, the document requires: “Economic analysis confirms that the project is infeasible ‘but for’ public investment.”

    Is investing in otherwise money-losing projects a wise course for government to follow? The fact that something is economically infeasible tells us something: people don’t want it as much as they want something else. But, thanks to our city’s politicians and bureaucrats, Wichitans will be forced to pay for it anyway. It is thought by some that there is “market failure” here, that Wichitans aren’t smart enough to know what they really want or should want. But just because people make decisions that downtown visionaries don’t approve of, that’s not market failure.

    The distinction that public dollars will go only towards things that have a “public purpose” — parking is most frequently mentioned — is really a distinction without a difference. An example might be a multi-story parking facility located between a residential building and an office building. The theory is that residents use the garage mostly at night and the office workers use it mostly during the day, so the two uses complement each other. But — aren’t we supposed to have a downtown where people live near where they work, and the whole place is walkable and transit-oriented?

    Constructing parking spaces on a surface parking lot outside of downtown is expensive, too, although not as much as in multi-story parking garages. And we’re still left with the fact that downtown developers get their parking for free is an example of the entire city subsidizing something that benefits relatively few.

    The proposed policy has a matrix that will be used to evaluate a project. Based on how well projects meet criteria, points will be awarded. A certain minimum number of points must be achieved for a project to be considered for public subsidy, and then the terms of such subsidy.

    We can sort of understand the motivations of government officials when creating policies like this. They want to let citizens know that they are dishing out subsidy in a responsible manner. They want to avoid the appearance of giveaways to the politically-favored at the expense of everyone else. Now, it looks like we’re implementing policies to route taxpayer giveaways to the bureaucratically-favored. I’m not sure if one is better than the other.

    The fact is that planning even a relatively small area such as downtown Wichita is an incredibly complex tax that is beyond the capability of government. Except — government will still try. And its regulations — that’s what this downtown plan is — will lead to something less than what downtown could be if government stepped aside. Israel Kirzner explains:

    The perils associated with government regulation of the economy addressed here arise out of the impact that regulation can be expected to have on the discovery process, which the unregulated market tends to generate. Even if current market outcomes in some sense are judged unsatisfactory, intervention, and even intervention that can successfully achieve its immediate objectives, cannot be considered the obviously correct solution. After all, the very problems apparent in the market might generate processes of discovery and correction superior to those undertaken deliberately by government regulation. Deliberate intervention by the state not only might serve as an imperfect substitute for the spontaneous market process of discovery; but also might impede desirable processes of discovery the need for which has not been perceived by the government. Again, government regulation itself may generate new (unintended and undesired) processes of market adjustments that produce a final outcome even less preferred than what might have emerged in a free market.

    Firms will still be free to develop in downtown Wichita if they forgo the subsidies that are available by conforming to the plan. I wouldn’t expect many to do so, however.

  • Kansas and Wichita quick takes: Monday May 16, 2011

    Wichita City Council this week. This week the Wichita City Council handles several important issues. One is approval of the policies regarding incentives for downtown development. Then, the council will consider approval of the city’s portion of the Hawker Beechcraft deal. In order to persuade Hawker to stay in Kansas rather than move to Louisiana, the State of Kansas offered $40,000 in various form of incentive and subsidy, and it was proposed at the time that the City of Wichita and Sedgwick County each add $2.5 million. Of note is the fact that Hawker’s campus in east Wichita … oops, wait a moment — their campus is not within the boundaries of the city. Like Eastborough, Hawker is surrounded on all four sides by Wichita, but is not part of the city itself. I don’t know if this should have any consideration as to whether the city should give Hawker this grant. … Then, there’s approval of the Industrial Revenue Bonds for the Fairfield Inn in downtown at WaterWalk. The agenda material says that the hotel is now complete, so the construction loan is being refinanced with the IRBs, “which will be initially purchased by the construction loan lender and then later redeemed with the proceeds of a permanent commercial loan insured by the Small Business Administration.” The benefit of the bonds is that the hotel escapes paying $328,945 in sales tax on its furnishings, etc. The city has already issued a letter of intent to do this, so it’s likely this item will pass and someone else will have to pay the sales tax this hotel is escaping. … The complete agenda packet is at Wichita City Council May 17, 2011.

    Wichita as art curator. The controversy over spending $350,000 on a large sculpture at WaterWalk promoted one reader to write and remind me of the city’s past experience as custodian of fine art. In 2004, the city mistakenly sold a sculpture by James Rosati as scrap metal. Realizing its mistake, the city refused to complete the transaction. The buyer sued, the city lost and appealed, losing again. Estimates of the sculpture’s worth ranged up to $30,000. Editorialized Randy Scholfield at the time in The Wichita Eagle: “That the sculpture ended up in an auction of surplus junk in the first place says something about how much the city valued it or exercised proper stewardship.”

    Legislature fails to confront KPERS. This year the Kansas Legislature failed to confront the looming problem of the Kansas Public Employees Retirement System, or KPERS. A small revision was made to the program, and a study commission was created. Neither action comes anywhere near to solving this very serious problem, as described in Economist: KPERS must undergo serious reform.

    Over 30 major news organizations linked to George Soros. Business and Media Institute: “When liberal investor George Soros gave $1.8 million to National Public Radio, it became part of the firestorm of controversy that jeopardized NPR’s federal funding. But that gift only hints at the widespread influence the controversial billionaire has on the mainstream media. Soros, who spent $27 million trying to defeat President Bush in 2004, has ties to more than 30 mainstream news outlets — including The New York Times, Washington Post, the Associated Press, NBC and ABC.” … This is from the first of a four part series.

    Romney seen as candidate of business, not capitalism. Timothy P. Carney in To Mitt Romney, big government is good for business: “Mitt Romney has the strongest business backing of any Republican presidential hopeful, and he carries himself as a technocratic problem solver. … Examine Romney’s dalliances with big government that have caused him such grief, and you’ll see a trend: They all are described as ‘pro-business,’ they all amount to corporate welfare, and they all reflect the technocratic mind-set you’d expect of a business consultant. Romney’s record and rhetoric show how managerialism veers away from the free market and into corporatism.” … Carney discusses Romney’s disastrous health care program in Massachusetts — which is seen as a prototype for Obamacare, his efforts to lure business to the state with subsidies, his support of ethanol subsidies, a national catastrophic insurance fund, and the Troubled Asset Relief Program.

    Programs for elderly must be cut. Robert Samuelson in The Washington Post: “When House Speaker John Boehner calls for trillions of dollars of spending cuts, the message is clear. Any deal to raise the federal debt ceiling must include significant savings in Social Security and Medicare benefits. Subsidizing the elderly is the biggest piece of federal spending (more than two-fifths of the total), but trimming benefits for well-off seniors isn’t just budget arithmetic. It’s also the right thing to do. I have been urging higher eligibility ages and more means-testing for Social Security and Medicare for so long that I forget that many Americans still accept the outdated and propagandistic notion that old age automatically impoverishes people.” … Samuelson goes on to show that many are doing quite well in old age and gets to the heart of the problem: “The blanket defense of existing Social Security and Medicare isn’t ‘liberal’ or ‘progressive.’ It’s simply a political expedient with ruinous consequences. It enlarges budget deficits and forces an unfair share of adjustment — higher taxes, lower spending — on workers and other government programs. This is the morality of the ballot box.” In other words, the elderly, which are a powerful voting bloc, have found they can vote themselves money. Concluding, he writes “Social Security was intended to prevent poverty, not finance recipients’ extra cable channels.”

    Social Security seen as unwise, financially. A video from LearnLiberty.org, a project of Institute for Humane Studies, explains that apart from the political issues, Social Security is a bad system from a purely financial view. Explained in the video is that 22 year-olds can expect to earn a 1.6 percent rate of return on their “investment” in Social Security contributions. Further, the “investment” is subject to a “100 percent estate tax.”

    Market development in Wichita. From Wichita downtown planning, not trash, is real threat: “While the downtown Wichita planners promote their plan as market-based development, the fact is that we already have market-based development happening all over Wichita. But because this development may not be taking place where some people want it to — downtown is where the visionaries say development should be — they declare a ‘market failure.’ But just because people make decisions that visionaries don’t approve of, that’s not market failure. And this is one of the most important reasons why Wichitans should oppose the downtown plan. It proposes to direct public investment away from where free people trading in free markets want public investment to be. The public investment component of the downtown plan says that people who decided not to live or work downtown are wrong, and they must now pay for others to be downtown. … We have market-based development in Wichita. We don’t need a government plan to have market-based development.”

  • Wichita forgivable loan action raises and illustrates issues

    Today the Wichita City Council decided to grant a forgivable loan of $48,000 to The Golf Warehouse. This subsidy was promoted by the city as necessary to properly incentivize the applicant company to expand its operations in Wichita rather than Indiana, where the company has other operations and had also received an offer of subsidy. For more information, see Forgivable loan a test for new Wichita City Council members.

    In presenting the item to the council, Allen Bell, Wichita’s Director of Urban Development said the forgivable loan was a “deal-closing” device intended to “win a competition with other locations.”

    Further discussion brought out the fact that companies often “test the waters,” asking for incentives from cities like Wichita as a location they might consider moving to, only to us that as leverage for getting more incentives back home. (Wichita has suffered at the hands of this ruse, most recently granting a large forgivable loan to a company when the city used as leverage says they did not have discussions with the company.)

    Council Member Michael O’Donnell asked if there was another form of economic development that The Golf Warehouse could have received. Bell said that in this case there wasn’t, that IRB financing with accompanying tax abatements wasn’t available for this project. As he has in the past, Bell pointed to the lack of tools in the toolbox, or “arrows in our quiver” he said today.

    When the CEO of the applicant company spoke to the council, it was easy to get the impression that this company — like the many other companies that plead for incentives and subsidy — feel that because of their past and pending investment in Wichita, they are entitled some form of incentive. When the company’s outside site selection consultant spoke, this sense of entitlement became explicit. She told how the company has made “significant investment and has employed a lot of people and kept a lot of families employed.” She said that instead of forgivable loan, this should be called an “act of goodwill.” She said the company has made a huge investment, never asking for incentives, and that the loan allows the company to continue making investment into the community.

    She also said that the offer made by Indiana amounted to twice Wichita’s offer, on a per-job basis.

    Citizens spoke against the forgivable loan. John Todd asked if this is the economic formula that has blessed our city and county with the wealth and prosperity we enjoy today.

    Clinton Coen told the council that these incentives are a bargaining tool, allowing cities to blackmail each other.

    Susan Estes asked a question that built on O’Donnell’s earlier remarks: Why would we see this forgivable loan as egregious? On the surface, we see jobs, which is good, she said. But the money to pay for this loan comes from other taxpayers, she said, and there are many companies that need help, citing the number of companies filing for bankruptcy and having tax liens filed against them. “Why I find it egregious is that we’re doing something that helps one company at a time. We really need to take an overall look at our tax policy and address the tax issue. We have one of the highest tax rates on the Plains, and that’s why we get in these situations where we have to compete. If we had a better competitive tax rate we could spare all of this.”

    Of interest for the political theater was the vote of three new council members, based on statements they made regarding forgivable loans on the campaign trail (see Forgivable loan a test for new Wichita City Council members). In making the motion to accept staff recommendation of the forgivable loan, council member Pete Meitzner said of the loan: “It is an investment, incentive, whatever you want to call it. It is not a give-away.”

    Meitzner and James Clendenin voted with all the veteran council members to approve the forgivable loan. Only O’Donnell voted consistent with how he campaigned.

    Analysis

    This item before the Wichita City Council today requires analysis from two levels.

    First, the economics and public policy aspects of granting the forgivable loan are this: It is impossible to tell whether The Golf Warehouse would not expand in Wichita if the forgivable loan was not granted. The companies that apply for these subsidies and that cite competitive offers from other states and cities have, in some cases, multi-million dollar motives to make Wichita think they will move away, or not invest any more in Wichita. Most politicians are scared to death of being labeled “anti-job,” and therefore will vote for any measure that has the appearance of creating or saving jobs.

    Particularly inappropriate is the attitude of many of these companies in that they deserve some sort of reward for investing in Wichita and creating jobs. First, companies that make investments do, in fact, deserve a reward. That reward is called profit, but it has to be earned in the marketplace, not granted by government fiat. When a company earns profits in free markets, we have convincing evidence that wealth is being created and capital has been wisely invested. Everyone — the investors certainly but also the customers and employees — is better off when companies profit through competition in free markets.

    But when government steps in with free capital, as was the case today, markets are no longer free. The benefits of capitalism are no longer available and working for us. The distortion that government introduces interferes with market processes, and we can’t be sure if the profit and loss system that is so important is working. Companies, as we saw today, increasingly revert to what economists call rent seeking — profiting through government rather than by pleasing customers in market competition.

    Entrepreneurship, of which Wichita has a proud tradition, is replaced by a check from city hall.

    Wichita’s own Charles Koch explained the harm of government interventionism in his recent recent Wall Street Journal op-ed: “Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay. Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.”

    A forgivable loan — despite Council Member Meitzner’s claim to the contrary — is a cash payment to business, which Mr. Koch warns against.

    The focus on job creation is also a confounding factor that obscures the path to true wealth and prosperity for Wichita. When companies ask the city, county, and state for subsidy and incentive, they tout the number of jobs and the payroll that will be created. But jobs are a cost, not a benefit, to business and most firms do all they can to minimize their labor costs just as they seek to minimize all costs. For Wichita to prosper, we need to focus on productivity and wealth creation, not merely employment.

    The actions of the city council today keep Wichita on its path of piecemeal economic development and growth. Movement to a system that embraces economic dynamism, as advocated by Dr. Art Hall and as part of Governor Sam Brownback’s economic development plan for Kansas, is delayed. Economic development in Wichita keeps its present status as a sort of public utility, subject to policy review from time to time, as was mentioned today by the city manager.

    Politically, Wichitans learned today the value of promises or statements made by most candidates while campaigning. Most candidates’ promises along with $3.75 will get you a small cappuccino at Starbucks — if you don’t ask for whipped cream.

    Particularly interesting is the inability of politicians to admit they were wrong, or that they made a mistake, or that they were simply uninformed or misinformed when they made a campaign promise or statement. It was refreshing to hear Republican presidential candidate Tim Pawlenty, when he was in Wichita a few weeks ago, forthrightly admit that he was wrong about his initial position on cap-and-trade energy policies. City council members Clendenin and Meitzner could not bring themselves to admit that their votes today were at odds with their statements made while campaigning. This lack of honesty is one of the reasons that citizens tune out politics, why they have such a cynical attitude towards politicians, and perhaps why voter turnout in city elections is so low.

    As one young Wichitan said on her Facebook page after sharing video of the three new council members today, obviously referring to city council district 2’s Pete Meitzner: “How to use your mouth: 1. Campaign under the guise that you are a fiscal conservative. 2. Insert foot.”

  • Kansas and Wichita quick takes: Monday May 9, 2011

    Airfares down in Wichita. A city press release announces: “Wichita Mid-Continent Airport had the country’s 11th largest airline fare decrease since 2000 and now ranks 43rd in average fare of the 100 busiest airports, according to research by the federal Bureau of Transportation Statistics (BTS).” The program’s major source of funding is $5 million per year from the state. Currently, it is not known whether this funding will be in the budget the legislature is working on. … The program is controversial for claims of economic benefit that appear overstated. There is a way to pay for the program that shouldn’t be controversial. When government provides services that benefit everyone, such as police protection, most people agree that taxes to pay for these services should be broad-based. But we can precisely identify the people who benefit from cheap airfares: the people who buy tickets. Wichita could easily add a charge to tickets for this purpose. The mechanism is already in place.

    Wichita City Council this week. A speaker on the public agenda will speak about restoring Joyland. Undoubtedly, the goal of the speaker will be to obtain public funds for this project. … City staff is recommending that the council deny a request for Industrial Revenue Bond financing by Pixius Communications LLC. As always, the benefit of the IRB financing to the applicant is the property tax and possible sales tax abatements that accompany the program. The city does not lend money, and does not guarantee that the applicant will repay the bonds. The reason staff is recommending not to approve the application is that Pixius is a service business, and under current policy, a service business must generate a majority of its revenues from outside the Wichita area. Pixius does not, and is asking the city to waive this policy for their benefit. … Separately, Pixius is applying for low-cost financing of renovations to the same building though the facade improvement program. The city has performed its “gap” analysis and has “determined a financial need for incentives based on the current market rates for economic rents.” This is another example of government investing in money-losing businesses. … Then The Golf Warehouse in northeast Wichita asks for a forgivable loan from the city as part of a larger package of incentives and subsidy. This item will prove to be a test for several council members who campaigned against these loans. … Council members will receive a quarterly financial report and view an “artistic concept” for WaterWalk.

    Joyland topic of British tabloid. The British tabloid newspaper Daily Mail, in its online version, has a story and video about Wichita’s closed Joyland amusement park. For those who remember the park in its heyday, this is a fascinating — if not bittersweet — look at the park’s current condition. The headline of the article (“New images of an abandoned theme park reveal desolation in America’s heartland”) makes a connection between the deterioration of Joyland and the economic condition of America, a false impression which several comment writers corrected. … I don’t think the closing of Joyland has anything to do with public policy. Businesses come and go all the time as tastes and generations change.

    Educational freedom to be discussed in Wichita. This week Kansas Policy Institute and The Friedman Foundation for Educational Choice will be discussing what other states have done to increase student achievement through reforms based on educational freedom and creating a student-centric focus. KPI and FFEC recently launched the “Why Not Kansas” initiative to educate Kansans on the need to reform the state’s K-12 educational system to allow Kansas schools to continue to improve. Speakers at the event will be Dave Trabert, president of Kansas Policy Institute, and Leslie Hiner, vice president of programs and state relations at The Foundation for Educational Choice. The event is Thursday, May 12 at 10:30 am, at the Central Wichita Public Library Auditorium. RSVP is requested by email to James Franko or by calling 316-634-0218.

    Do you want to live in the world of Atlas Shrugged? From LearnLiberty.org, a project of Institute for Humane Studies: “In her masterpiece of fiction, Atlas Shrugged, Ayn Rand emphasizes three key classical liberal themes: individualism, suspicion of centralized power, and the importance of free markets. In this video, Prof. Jennifer Burns shows how Rand’s plot and characters demonstrate these themes, principally through innovative entrepreneurs who are stifled by laws and regulations instituted by their competitors. In the world of Atlas Shrugged, free markets and individual liberty have been traded away for equality and security enforced by the government. Burns ends by reviving Rand’s critical question: do you want to live in this kind of world?” … The video is six minutes in length.

    Who are the real robber barons? In summarizing a chapter from his book How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present, Thomas J. DiLorenzo explains the false lessons of capitalism and government that we have been taught:

    “The lesson here is that most historians are hopelessly confused about the rise of capitalism in America. They usually fail to adequately appreciate the entrepreneurial genius of men like James J. Hill, John D. Rockefeller, and Cornelius Vanderbilt, and more often than not they lump these men (and other market entrepreneurs) in with genuine “robber barons” or political entrepreneurs.

    Most historians also uncritically repeat the claim that government subsidies were necessary to building America’s transcontinental railroad industry, steamship industry, steel industry, and other industries. But while clinging to this “market failure” argument, they ignore (or at least are unaware of) the fact that market entrepreneurs performed quite well without government subsidies. They also ignore the fact that the subsidies themselves were a great source of inefficiency and business failure, even though they enriched the direct recipients of the subsidies and advanced the political careers of those who dished them out.

    Political entrepreneurs and their governmental patrons are the real villains of American business history and should be portrayed as such. They are the real robber barons.

    At the same time, the market entrepreneurs who practiced genuine capitalism, whose genius and energy fueled extraordinary economic achievement and also brought tremendous benefits to Americans, should be recognized for their achievements rather than demonized, as they so often are. Men like James J. Hill, John D. Rockefeller, and Cornelius Vanderbilt were heroes who improved the lives of millions of consumers; employed thousands and enabled them to support their families and educate their children; created entire cities because of the success of their enterprises (for example, Scranton, Pennsylvania); pioneered efficient management techniques that are still employed today; and donated hundreds of millions of dollars to charities and nonprofit organizations of all kinds, from libraries to hospitals to symphonies, public parks, and zoos. It is absolutely perverse that historians usually look at these men as crooks or cheaters while praising and advocating “business/government partnerships,” which can only lead to corruption and economic decline.