Voice For Liberty

Tag: Free markets

  • A public or private downtown Wichita arena, which is desirable?

    (From October, 2004)

    Image what our town could be like if the Wichita downtown arena vote fails and Sedgwick County Commissioners put aside for a moment their plans for the renovation of the Kansas Coliseum.

    Suppose, instead, that arena supporters, along with those who would vote yes for the sales tax and anyone else who wants to, formed a corporation to build and own an arena.

    Instead of having paid taxes to government, arena supporters would be investors. They would own something: their shares in the arena. They would have the pride and responsibility that comes with ownership. They would have a financial stake in its success. Even taxpayer-funded arena opponents might see merit in investing in a local business rather than paying taxes.

    Instead of politicians and bureaucrats deciding what the people of our town want and need, a privately owned arena would be subject to the guidance and discipline of markets. It would either provide a valuable service to its customers and stay in business, or it would fail to do that and it would go out of business. Governments do not have such a powerful incentive to meet the needs of their constituents.

    Instead of the bitter feelings dividing this town over the issue of a taxpayer-funded arena and other perceived governmental missteps, the arena corporation would act in the best interests of its shareholders and customers. Even if it didn’t, it wouldn’t be the public’s business, because after all, the corporation is formed of private individuals investing their own money.

    When individuals invest in an arena they are nurturing the virtues of investment, thrift, industry, risk-taking, and entrepreneurship, Wichita having an especially proud tradition of the last. There is nothing noble about politicians spending someone else’s money on projects like a downtown arena, or a renovated Kansas Coliseum for that matter.

    At this time in our town we have a chance to let private initiative and free markets work, or we can allow government to continue to provide for us in ways that few seem truly satisfied with. Writing about a public utility in England that was transferred to private enterprise, economist John Blundell observed:

    When it was “public” it was very private. Indeed, it was totally captured by a small band of bureaucrats. Even members of Parliament struggled to find out what was going on. No proper accounts were produced, and with a complete lack of market signals, managers were clueless as to the correct course to take. The greatest casualty was a lack of long-term capital investment.

    Now it is “private” and very public. Not just public in the sense of open, but also in the sense of accountable directly to its shareholders and customers. Copious reports and accounts are available and questioning citizens will find their concerns taken very seriously indeed.

    If we allow the government instead of private enterprise to build a new arena or to renovate the Kansas Coliseum, this is the opportunity we lose.

  • Remarks to Wichita City Council Regarding the AirTran Subsidy on July 11, 2006

    Mr. Mayor, Members of the City Council:

    You may recall that I have spoken to this body in years past expressing my opposition to the AirTran subsidy. At that time we were told that the subsidy was intended to be a short-tem measure. Today, four years after the start of the subsidy, with state funding planned for the next five years, it looks as though it is a permanent fixture.

    Supporters of the subsidy have made a variety of claims in its support: that the subsidy and the accompanying Fair Fares program are responsible for $4.8 billion in economic impact, that being a pioneer in subsidizing airlines is equivalent to the role that Kansas played in the years immediately prior to the Civil War, and that we would have a mass exodus of companies leaving Wichita if the subsidy were to end.

    I believe there is no doubt that fares are lower than what they would be if not for the subsidy. That points to the subsidy’s true achievement: government-imposed price controls. Its effect is to force many airlines to price their Wichita fares lower than they would otherwise. If it didn’t do that, there would be no reason to continue the subsidy.

    Economists tell us — and human behavior confirms — that when the price of any good is held lower than it would be in a free market, the result is a reduction in the quantity supplied.

    We see this happening. Earlier this year the Wichita Eagle reported that there are fewer daily flights supplied to and from Wichita, from 56 last year to 42 at the time of the article. It has been explained that the financial woes of Delta and NWA are to blame for this reduction. This is demonstrably false, as NWA recently added a daily flight to Wichita, and both airlines have added (and dropped) flights on many routes while in bankruptcy. Furthermore, even though in bankruptcy, theses airlines still desire to operate as profitably as possible.

    Now we learn that the legacy airlines — those established, older airlines that take pride in their comprehensive nationwide networks of routes — are revising their strategies. A Wall Street Journal article from earlier this year (“Major Airlines Fuel a Recovery By Grounding Unprofitable Flights” published on June 5, 2006) tells us that the legacy airlines are beginning to look at the profitability of each route and flight. They are not as interested as they have been in providing flights just for the sake of having a complete nationwide network.

    When we couple this change in airline strategy with our local price controls, I believe that we in Wichita are in danger of losing more service from the legacy airlines. If AirTran — a new-generation airline with low labor costs — can’t earn a profit on its Wichita route at the fares it charges, how can the legacy airlines be expected to do so? And if they can’t earn a profit on a flight to or from Wichita, and if they are beginning to scrutinize the profitability of each flight, can we expect them to continue providing service in Wichita?

    No government has ever been able to successfully impose price controls without the people suffering harmful consequences. As economist Thomas Sowell wrote in a 2005 column:

    Prices are perhaps the most misunderstood thing in economics. Whenever prices are “too high” — whether these are prices of medicines or of gasoline or all sorts of other things — many people think the answer is for the government to force those prices down.

    It so happens there is a history of price controls and their consequences in countries around the world, going back literally thousands of years. But most people who advocate price controls are as unaware of, and uninterested in, that history as I was in the law of gravity.

    Prices are not just arbitrary numbers plucked out of the air or numbers dependent on whether sellers are “greedy” or not. In the competition of the marketplace, prices are signals that convey underlying realities about relative scarcities and relative costs of production.

    Those underlying realities are not changed in the slightest by price controls. You might as well try to deal with someone’s fever by putting the thermometer in cold water to lower the reading.

    This is my fear, that someday I will open the newspaper and learn that American, United, Delta, Northwest, or Continental has reduced or even ceased service to and from Wichita. That day, when it becomes difficult to travel to or from Wichita at any price, that is the day we will feel the harm the subsidy causes.

    On a personal level, my job as software engineer requires me to make from ten to twenty airline trips each year. Some of the places I travel to — Jackson, Mississippi and Lexington, Kentucky, for example — are not served by AirTran. If I am not able to travel there, no matter what the price, I will either have to find a different job or move from Wichita.

    Mr. Mayor and Council Members, I urge you to reconsider your support of the AirTran subsidy. Even though the legislature and governor have agreed to pay for most of the subsidy, I believe the subsidy is not in our long-term interest. We need to let the price system, operating in a free market, do its job in guiding the allocation of scarce resources for both producers and consumers. The result may be more expensive fares. The alternative, which is the very real possibility of greatly reduced service to and from Wichita, is much more harmful.

    Other Voice For Liberty in Wichita articles on this topic:

    The AirTran Subsidy and its Unseen Effects
    As Expected, Price Controls Harm Wichita Travelers
    AirTran Subsidy Is Harmful
    Wichita City Council Meeting, April 19, 2005
    Wichita Eagle Says “AirTran Subsidies Foster Competition”
    AirTran Subsidy Remarks
    The Downside of Being the Air Cap by Harry R. Clements. This article makes a striking conclusion as to why airfares in Wichita were so high.
    Letter to County Commissioners Regarding AirTran Subsidy
    Open Letter to Wichita City Council Regarding AirTran Subsidy
    Stretching Figures Strains Credibility

  • What’s Good for Gander Not Good For Goose

    The July, 2006 issue of Budget & Tax News reports that Gander Mountain is opposing the giving of tax breaks to its competitors. A quote from the article:

    Fairness Is Questioned

    However, Gander Mountain and its developer, Oppidan Investment Co., argue granting special favors to any one retailer leads down a slippery slope. “If you give [a tax break] to a Wal-Mart, should you give it to Target? If you give it to Home Depot, then should you give it to Lowe’s? And if you give it to Bass Pro, shouldn’t you give it to Cabela’s and Gander Mountain? How about we just don’t give it to anybody?” Oppidan CEO Mike Ayers said to the Toledo Blade for a March 22 article.

    When the CEO of Gander Mountain was asked why the company doesn’t take subsidies he replied:

    We believe in the American system of free enterprise and consider these demands to be anti-competitive and fundamentally inappropriate. We cannot in good conscience go down that road and maintain our integrity as a good corporate citizen. We think it’s wrong. So we are unwilling to accept the “everyone is doing it” argument and become part of the problem./blockquote>

    More from the Gander Mountain CEO:

    Resources that could be used for education or true economic development are being wasted on private retail developments. Communities have been paying big money to bring in low-paying retail jobs. Buda, Texas, for instance, gave Cabela’s subsidies worth $61 million, or about $271,000 for every full-time job, according to our estimates. Reno, Nevada spent $54 million, or $208,000 for every job. It also should be noted that incentives to lure retail into a community often do harm to businesses already located in the area. Local stores and other national firms like Gander Mountain, who don’t seek subsidies, are placed at a competitive disadvantage by this practice. Studies have also demonstrated that the promises of increased revenue, jobs, and economic growth are seldom fulfilled.

    I was quite astonished to read these articles, as Gander Mountain certainly received a lot of aid from Wichita. To be precise, I believe the aid that Wichita gave to Gander Mountain was not in the form of a tax break. Nor was it a subsidy, if by subsidy we mean an ongoing series of payments.

    Instead, Gander Mountain received an outright gift from our city and a sweetheart lease. Now that this company has apparently changed its mind about receiving government handouts, should Wichita ask for its money back?

    Update, July 8, 2006

    I received a communication from a representative of Gander Mountain seeking to correct a mistake I made in this article. It was the developers of WaterWalk, not Gander Mountain directly, that received the subsidy from the City of Wichita. That subsidy undoubtedly let the developers offer Gander Mountain an “attractive lease rate,” as the Gander Mountain representative wrote.

    I apologize for this mistake. It is, in my opinion, a distinction without a difference. Giving money to one party so that they can give it to another is still a subsidy, and the introduction of a middleman probably added to what the city had to pay.

    Also, the City of Wichita built a parking garage for the use of Gander Mountain customers, as well as customers of other businesses, should any appear. This was reported to cost $2.1 million.

  • No more smoking laws, please

    There is no doubt in my mind that smoking cigarettes and breathing secondhand smoke are harmful to health. If a young person asked my advice as to whether to smoke cigarettes, I would strongly urge them to avoid smoking.

    But it doesn’t follow that we should have laws against smoking, or laws that govern how businesses such as bars and restaurants must accommodate smokers and non-smokers.

    Smoking is (and should continue to be) a legal activity. It seems unlikely to me that there are adults who are not familiar with the data about the risks of smoking, and they are entitled to make up their own minds as to whether to smoke.

    In a similar fashion, business owners should be able to allow smoking or not, as they judge best serves the interests of their customers. Already many restaurants have judged that their customers prefer no smoking at all. That decision may drive off smoking customers, but that’s the business owner’s decision to make.

    Some businesses allow smoking, presumably because the owners decide it is in their best interests to allow smoking. If their customers tell them otherwise or if customers stay away, the business owner has a powerful incentive to change the smoking policy, either to ban it entirely, or to create a more effective barrier between smokers and non-smokers.

    People, through their free selection of where they choose to spend their dollars, will let bar and restaurant owners know their preferences. After some time we will have the optimal mix of smoking and non-smoking establishments based on what people actually do, not what politicians think they should do. Isn’t that better than using the heavy hand of government to force change?

    I believe that markets, if left to their own mechanism, would serve to reduce smoking. Already smokers pay more for life insurance. If it is true that smokers have more costly health problems than non-smokers, why not let health insurance be priced separately for smokers and non-smokers?

    Or, when renting an apartment, a landlord could charge smokers more to compensate for the higher risk of fire and the extra cleanup costs when the renters leave.

  • I have nothing to offer

    Writing from Charlotte, North Carolina

    One of the appeals of big government is that is has so much to offer everyone. Those, myself included, who want government to radically reduce its size, intrusiveness, and power have nothing to offer except freedom and liberty. Sadly, those things don’t seem to matter to many people today. Or perhaps people have forgotten what these words mean and how much government infringes on both.

    How has government become so big, and why are calls for smaller government so unpopular? In an article titled Handing Out The Goodies, Gene Callahan quotes Jim Henley as follows:

    At bottom the problem is this: limited-government types, conservative or otherwise, don’t much like politics. We think politics should retreat from broad areas of economic and social life rather than advance into new ones.

    We’re exactly the sort of people who are going to suck at political activity.

    And we haven’t got a lot of goodies to offer. The State-Capitalist GOP can offer businesses all sorts of subventions. All we can offer them is “a chance to compete on a level playing field.” The Christian Right can offer busybodies a country in which the police enforce their morals on the unrighteous. All we can offer them is the right to try to hector the unrighteous into agreeing with them. The national-greatness right can offer the chance to kill foreigners and Do Good and feel part of a grand enterprise. All we can offer is boring old peace. The welfare state left can offer people oodles of other people’s money. We got squadoosh.

    Political success comes from energizing defined constituencies and we ain’t got any.

    Mr. Callahan’s article continues to explain how coercing people to spend more than they freely want to on government makes them worse off. It reduces their wealth and well-being. This is because when the government takes from one and gives to another, there is no improvement in peoples’ lives. One person’s gain exactly equals one person’s loss.

    In market transactions, however, both parties are improved, as people enter into only those transactions they believe will benefit them.

    The coerced transactions that the government forces upon us benefit one person or group at the expense of another. Now as government becomes larger and more intrusive (and it has under administrations in a long time, including that of President Bush) it has more methods at its disposal to benefit one person at the expense of another. There arises a powerful incentive to lobby the government for favors. As Mr. Callahan explains:

    Once this process is set in motion in some society, an ever greater part of its members’ efforts to improve their lives will tend to be directed towards manipulating the political system into sending as many of the goodies it hands out in their direction as possible. Of course, that activity, unlike the voluntary exchange of goods and services characterizing a free market, is a zero-sum game, where every gain of mine is offset by a loss of yours. But the losers in one “round” of the game are thereby inspired to devote even greater effort towards ensuring the next round goes their way. And the existence in every society of power-hungry individuals, who will come to realize that they can exploit this struggle over cuts of the distributive pie for their own ends, ensures that there will be no lack of “leaders” intent on organizing these competing interest groups and assuring them that their demand for more goodies is an expression of justice itself.

    All this effort spent getting the government to grant favors, be they subsidies for arts, culture, or museums in Wichita; or businesses seeking tax abatements, industrial revenue bonds, subsidy, preferred treatment, or set-asides; or the outright asking of government for money, all this is economically unproductive and diverts time and effort from value-producing activities. We would all be wealthier and better off if government would stop coercing us into making transactions that don’t benefit both parties.

    The problem is that with government spending there is a third party involved, that being the politicians that gain favor with groups and individuals by sending them someone else’s money, and with that, taking away a big chunk of freedom and liberty.

    This is the system that is so entrenched and growing so fast that calls to end it and return to a limited government are brushed away as laughable and untenable. That is a sad realization.

  • What to do with others’ money

    Writing from Pittsburgh, Pennsylvania

    In a June 20, 2006 Wichita Eagle editorial, Rhonda Holman writes about the WaterWalk project in Wichita.

    Evidently there is controversy over the public not knowing the name of the “destination restaurant” that is being courted and favored with a gift of $1 million. To me, the controversy is not the identify of the restaurant or when and how the city should conduct its negotiations, but that we are paying for a restaurant to be built.

    We are not lacking for fine restaurants in Wichita. On both the east and west sides of town (and other parts, too), many excellent restaurants have been opened recently, and more are being built as I write. The Eagle has even reported on their astonishment at how many there are.

    The problem is, I believe, that these restaurants were not built where Ms. Holman and our local government leaders feel they should have been built. But that’s not a problem, except to her and them.

    The people who built these restaurants did so by investing their own money, or the money that others entrusted to them. These people did so voluntarily. They presumably built their restaurants where they thought they could earn the best return on their investment. And having invested several million dollars of their own money in the restaurant, they have a strong incentive to make the restaurant a success.

    But that’s not good enough for Ms. Holman. Evidently she does not appreciate the sacrifice that people have made in order to accumulate the funds needed to make these spectacular investments. She may not be aware of — or maybe she does not respect or value — the tremendous effort and work it takes to run a successful restaurant.

    Just because these people did not build their restaurants where she (and our local government leaders) thought they should have been built, she wants to tax them — and the rest of us, too — and give the proceeds of that tax to a new competitor.

    Is this the type of behavior by our local government and our town’s leading newspaper that is likely to lead to other new private investment?

    Ms. Holman’s editorial stance, along with the actions of our local government leaders, constitute a slap in the fact for those who have been foolish enough (we can now conclude this) to invest money in any industry in which the government is likely to set up their competitor.

    This harmful attitude is summarized in this plea to get the WaterWalk project moving faster, “… so that citizens not only can see where their money is going but also soon start enjoying more of their investment.”

    Making an investment, I might remind Ms. Holman, is something that people do voluntarily because they believe it is in their interest.

    The WaterWalk project and the new downtown restaurant are being paid for by taxes. The expenditure is being made to serve the interests of politicians, subsidized developers, and people like Ms. Holman who believe they know best what to do with others’ money. There is a tremendous difference between the two.

  • Arts funding in Wichita produces controversy

    As local government tries to decide which arts and cultural institutions are to receive government funds, controversy arises. A June 8, 2006 Wichita Eagle article titled “Arts panel biases alleged” tells how some funding applicants are upset that some of the members of the funding committee have ties to organizations that also applied for funds. In an editorial titled “Let Arts Funding Work” published in the June 10, 2006 Wichita Eagle, Rhonda Holman writes “The process may not be perfect, but it’s a precious opportunity for public dollars to be invested in the arts and attractions in a merit-based way that’s fair, open and accountable.”

    Later Ms. Holman makes the case that it is desirable to have experts decide how to allocate taxpayer funds amongst the various organizations that have applied. The old method, she writes, had no “scrutiny or oversight.” She pleads for the public not to lose faith in this new system of deciding who gets what.

    As I wrote in the past (Let Markets Fund Arts and Culture, How to Decide Arts Funding) there is a very simple way to decide which arts and cultural organizations are worthy of receiving funds: simply stop government funding. Let the people freely decide, though the mechanism of markets rather than government decree, which organizations they prefer.

    When people spend their own money on arts and culture there is no controversy. There can be no allegations of bias. But government spending always creates controversy. Someone is upset that they didn’t get as much as someone else. People who don’t or can’t use what the government-supported organizations provide are upset they have to pay for it. Much misguided effort goes into making the funding decisions. Instead of working to create and refine their product, arts organizations have to lobby politicians and commissions for funds.

    In the end, the public gets what the commission decrees, instead of what they really want.

    If arts and cultural organizations forgo government funding, they will learn very quickly if they are producing a product the public really wants. If they aren’t, they will have a powerful motivating factor to change.

    It may turn out that what people really want for arts and culture, as expressed by their selections made in a free market, might be different from what a commission decides we should have. That freedom to choose, it seems to me, is something that our Wichita City Council, Arts Council, and Wichita Eagle editorial writers believe the public isn’t informed or responsible enough to enjoy.

  • As expected, price controls harm Wichita travelers

    Writing from Tallahassee, Florida

    As reported in the Wichita Business Journal on May 12, 2005: “The average number of daily departures dropped to 45 in March 2006 from 54 in March 2005.”

    The effect of the AirTran subsidy is to reduce the price of airfare to and from Wichita. That is its stated goal. If the subsidy did not work to reduce prices, we would be wasting our money. The fact is that the subsidy does work to reduce airfares to and from Wichita. It also does what any economist could predict: it reduces the supply of air transport to and from Wichita. I think that’s why economics is called the “dismal science.” There really is no free lunch.

    The same article also reports this:

    Sam Williams, chairman of the Wichita Fair Fares campaign, believes that the airlines will see there is enough passenger growth to justify reinstating the lost destinations.

    “The numbers always showed that we had the ability in our catchment area to, over time, make this airport very successful,” Williams says. “Nothing has dampened my enthusiasm that that’s still going to happen.”

    I have a picture in my mind of a group of planners for, say, American or United or Northwest, planning whether to increase capacity to and from Wichita, or even if to stay in the Wichita market at all. If AirTran — a “new” airline with low labor costs — can’t earn a profit on its Wichita route at the fares it charges, how can the “legacy” airlines be expected to do so? And if they can’t earn a profit, how can we expect them to continue providing service in Wichita?

    The answer is this: we can’t expect the legacy airlines to continue their present levels of service in Wichita as long as we continue to apply price controls.

    For all the gushing over AirTran, try using it to get to some of the destinations I regularly fly to: Lexington, Jackson, Cincinnati, and Tallahassee. But I can get to these cities on most of the legacy airlines — the very airlines that we are punishing. If we lose the service of the legacy airlines, we will be in deep trouble.

    If we want to allow Mr. Williams’s dream of a successful Wichita airport to come true, we need to let market forces set fares. Any other solution will cause — and has already caused — our city harm.

  • Let markets fund arts and culture

    Writing from Miami, Florida

    Former Wichita City Council member and present Arts Council chairwoman Joan Cole wrote an article titled “City needs dedicated arts funding” that appeared in the March 16, 2006 Wichita Eagle. This article advocates continued and increased government funding for arts in Wichita.

    In her article Mrs. Cole mentions a policy that she seems to approve of: “Moreover, for the first time, performance measures and desired outcomes will be used to assess the progress that these organizations demonstrate.” The organizations are the various groups that will receive funding from the City of Wichita.

    I do not know how these performance measures are counted, and I don’t know what outcomes are desired. But I do know this: if the government would stop funding arts, there would be no need for government-mandated performance measures, and the outcomes that occur would be precisely what people really want.

    Without government funding, organizations that provide culture and art will have to satisfy their customers by providing products that people really want. That is, products that people are willing to pay for themselves, not what people say they want when someone else is paying the bill. With government funding, these organizations don’t have to face the discipline of the market. They can largely ignore what their customers really want. They can provide what they think their customers want, or, as I suspect is the case, what they believe the people of Wichita should want, if only we were as enlightened as we should be.

    Without the discipline of the market, these organizations will never know how their customers truly value their product. The safety net of government funding allows them to escape this reality. We have seen this many times in Wichita and Sedgwick County recently, as organizations fail to generate enough revenue to cover their costs, only to be bailed out by the government. Other businesses learn very quickly what their customers really want — that is, what their customers are willing to pay for — or they go out of business. That’s the profit and loss system. It provides all the feedback we need to determine whether an organization is meeting its customers’ desires.

    Some say that without government support there wouldn’t be any arts or museums, and that art shouldn’t be subject to the harsh discipline of markets. Personally, I believe there is little doubt that art improves our lives. If we had more art and music, I feel we would have a better city. But asking government commissions to judge what art we should have is not the way to provide it. Instead, let the people tell us, through the mechanism of markets, what art and culture they really want.

    It might turn out that what people want is different than from what Arts Council members believe the people should want. Would that be a surprise? Not to me. Then we could disband the Arts Council and let people decide on their own, without government intervention, how to spend their personal arts budgets on what they really value.