Voice For Liberty

Tag: Government spending

  • Kansas and Wichita quick takes: Monday August 22, 2011

    How not to grow an economy. Wall Street Journal Review & Outlook How Not to Grow an Economy: A week in the life of the Obama recovery. from today: “Financial markets are in turmoil, investors are fleeing to safe havens, and the chances of another recession are rising. This would seem to be a moment when government should be especially careful to do no harm, to talk and walk softly, and to reassure business that Washington wants more private investment and hiring. But this is not how our current government behaves. Day after day brings headlines of another legislative, regulatory or enforcement action that gives CEOs and investors reason to hunker down, retain as much cash as possible and ride out whatever storms are ahead.” … After listing a number of headline events of the type mentioned, the Journal concludes: “None of these stories by themselves — or even a week of them — is enough to undermine a recovery. But the cascade of such stories day after day — about new regulations, new prosecutions or fines against business, new obstacles to investment, more spending and higher taxes — contributes to the larger lack of business and consumer confidence. It’s impossible to quantify the impact of such policies on lost GDP or lost job creation, but everyone in the real economy understands how such signals work. The great tragedy of the Obama nonrecovery is that this Administration still doesn’t realize the damage it is doing.” … Me, if wonder why if President Obama knows how to create jobs and has a plan to do so, why not introduce it today — or two and a half years ago, right after he became president? Are we to believe the he and his advisers know something now that they didn’t know then? We might hold some faint hope that Obama will reveal a plan that relies less on government and more on free markets and capitalism, but that doesn’t seem likely.

    Son of TARP. Also in the Wall Street Journal, Holman W. Jenkins, Jr. explains that the housing crisis isn’t over, thanks to government policies: “Under bailout theory, housing was supposed to hit bottom, but the bottom would be higher than if the economy had lapsed into depression. But housing hasn’t been allowed to hit bottom, thanks to policies designed to foil foreclosures and keep people in houses they can’t afford and have stopped paying for. As a result, the housing and construction industries remain paralyzed.” Bank of America, having bet on the success of the bailout, and now creatures of a government safety net: “They wouldn’t exist without it.” Holman contends the bailout isn’t working, and that raises a possibility for the future: “Our warning of two years ago — ‘bank nationalization will soon be back on the agenda unless the economy picks up’ — threatens to come true. If the tea party crowd didn’t like the debt-ceiling hike, think how they’d react to Son of Tarp.” The full article is The Bailout Isn’t Working: Bank of America is the canary in the coal mine.

    Wichita City Council. The Wichita City Council in its Tuesday meeting will consider consent items only as it is the fourth Tuesday of the month. Consent agendas are usually reserved for items thought to be of non-controversial nature, and items on them will not be discussed by the council unless a member asks to “pull” an item for discussion and a possible vote separate from the other consent agenda items. One item that may be of interest to citizens is a decision on purchasing four new city buses. This item is notable, according to Wichita Eagle reporting, because “The four buses the city is poised to purchase might be the last diesel buses it ever buys.” … Also on the consent agenda is a proposal to rezone large swaths of downtown property from various classifications to “CBD” Central Business District zoning. City document say this will allow existing land uses to continue while permitting new. The Metropolitan Area Planning Commission approved this proposal unanimously. … The council will also decide whether to accept petitions regarding the formation of a community improvement district and authorization of a facade improvement project at 104 South Broadway. That’s the Douglas Place Project being developed by David Burk and partners. There’s not much basis for refusing to accept the petitions, and all the agenda item does is accept the petition and set September 13 as the date for the public hearing on these matters. The council has already issued of letter of intent stating that it desires to go forward with these programs. … Earlier this year Jeff Longwell (district 5, west and northwest Wichita) voted against accepting CID petitions for the Eastgate shopping center. … As always, the agenda packet is available at Wichita city council agendas.

    Critique of Keynesian policies. Sheldon Richman in The Freeman: “The Keynesian pundits, then, are wrong on all counts. The government need not be the spender of last resort because 1) producers and consumers would spend just fine if it would get out of their way, and 2) the government can’t be relied on to create, rather than destroy, value in its use of scarce resources.” Richman also notes the intolerance, and also the “attitude that is at once arrogant and ignorant” of those who question “Keynesianism as the only truly scientific economics.” He explains that “The pundits can’t even acknowledge good faith in their opponents. This explains the intolerance shown those who refuse to agree that in a recession government spending is indispensable to raising aggregate demand and restoring economic growth.” … Boosters of government spending as stimulus often explain that the ARRA stimulus passed in 2009 was too small at only around $800 billion. But all government deficit spending counts as stimulus — and there’s been a lot of deficit spending the past few years.

    Junior Kansas legislators to speak. This Friday’s meeting (August 26th) of the Wichita Pachyderm Club features Kansas State Representatives Jim Howell and Joseph Scapa speaking on “Our freshmen year in the Kansas Legislature.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club … Upcoming speakers: On September 2 the Petroleum Club is closed for the holiday, so there will be no meeting. … On September 9, Mark Masterson, Director, Sedgwick County Department of Corrections, on the topic “Juvenile Justice System in Sedgwick County.” Following, from 2:00 pm to 3:00 pm, Pachyderm Club members and guests are invited to tour the Sedgwick County Juvenile Detention Center located at 700 South Hydraulic, Wichita, Kansas. … On September 16, Merrill Eisenhower Atwater, great grandson of President Dwight D. Eisenhower, will present a program with the topic to be determined. … On September 23, Dave Trabert, President of Kansas Policy Institute, speaking on the topic “Why Not Kansas: Getting every student an effective education.” … On September 30, U.S. Representative Mike Pompeo of Wichita on “An update from Washington.” … On October 7, John Locke — reincarnated through the miracle of modern technology — speaking on “Life, Liberty, and Property.” … On October 14, Sedgwick County Commission Members Richard Ranzau and James Skelton, speaking on “What its like to be a new member of the Sedgwick County Board of County commissioners?” … On October 21, N. Trip Shawver, Attorney/Mediator, on “The magic of mediation, its uses and benefits.”

  • Contrary to Buffet, government spending is not good

    Recently wealthy investor Warren Buffet has been in the news for his advocacy of higher taxes. But is government — politics, in other words — the best way to allocate resources?

    In a statement on the KochFacts website, Charles Koch disagrees with Buffet:

    As part of the public discourse on government overspending and fiscal irresponsibility, Charles Koch offered the following public response to media queries on the topic: “Much of what the government spends money on does more harm than good; this is particularly true over the past several years with the massive uncontrolled increase in government spending. I believe my business and non-profit investments are much more beneficial to societal well-being than sending more money to Washington.”

    We have to wonder if Buffet is really sincere about the wisdom of sending money to government. As I noted a few years ago, Buffet is giving most of his fortune to charity. In this way, he avoids the estate, or inheritance, tax. If Buffet really thinks inheritance taxes are good, he should keep his wealth and let the government tax it when he dies, like others have to.

    Or, as many have noted, Buffet is free to give as much as he wants — right now — to the federal government.

    But as it turns out, even the super wealthy don’t have much money when compared to the needs of government. Buffet’s fortune, the third largest in the world, would pay for just 12 days of federal government borrowing. Not total spending — just the new debt the U.S. government accumulates in less than two weeks.

  • Intrust Bank Arena depreciation expense ignored

    Reports that income earned by the Intrust Bank Arena is down sharply has brought the arena’s finances back into the news. The arena, located in downtown Wichita and owned by Sedgwick County, is deemed to be a success by the county and arena boosters based on “profit” figures generated during its first year of operations. But these numbers are not an honest assessment of the arena’s financial performance.

    When the numbers were presented to Sedgwick County commissioners this week, commission chair Dave Unruh said that he is “pleased that we we still are showing black ink.”

    He then made remarks that show the severe misunderstanding that he and almost everyone labor under regarding the nature of the spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”

    The contention of Unruh and other arena boosters is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) on the arena is merely a historical artifact, something that happened in the past and that has no bearing today. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds.

    Since it is only one year old, presumably the arena could be sold for something near its building cost, less an allowance for wear and tear. If not, then the county has a lot of explaining to do as to why it built an asset that has no market value.

    But even if the arena has no market value — and I suspect that in reality it has very little value — it still has an economic cost that must be recognized, that cost being the sales tax collected to pay for it. While arena boosters dismiss this as past history, the county recognizes this cost each year, and will continue to do so for many years.

    The county, however, doesn’t go out of its way to present the complete and accurate accounting of the arena’s cost. Instead, the county and arena boosters trumpet the “profit” earned by the arena for the county according to an operating and management agreement between the county and SMG, a company that operates the arena.

    This agreement specifies a revenue sharing mechanism between the county and SMG. Based on the terms of the agreement, Sedgwick County received payment of $1,116,442 for the 2010 year. While described as profit by many — and there was much crowing over the seemingly large amount — this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.”

    That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid.

    Commissioner Karl Peterjohn has warned that these figures — and the monthly “profit” figures presented to commissioners — do not include depreciation expense. That expense is a method of recognizing and accounting for the large capital cost of the arena — the cost that arena boosters dismiss.

    In April Sedgwick County released that depreciation number in its 2010 Comprehensive Annual Report. The number is pretty big: $4.4 million, some four times the purported “earnings” of the arena.

    Any honest accounting or reckoning of the performance of Intrust Bank Arena must take this number into account. Unruh is correct in that this depreciation expense is not a cash expense that affects cash flow. That cash was spent during the construction phase of the arena.

    But depreciation expense provides a way to recognize and account for the cost of long-lived assets like buildings over their lifespan. It recognizes and respects the investment of those who paid the sales tax. When we follow standard practices like recognizing the cost of capital assets through depreciation expense, we’re forced to recognize that there’s a $4.4 million gorilla in the room that arena boosters don’t want to talk about.

    Using information about arena operations contained in the operations report, we can construct what an actual income statement for the arena would look like, following generally accepted business principles. According to the statement, total operating income for 2010 was $7,005,224. Operating expenses were $4,994,488. Subtracting gives a figure of $2,010,736. This number, however, is not labeled a profit in the report. Instead, the report calls it “Increase in Net Assets Arising from Operating Activities Managed by SMG.”

    An accounting of profit would have to subtract the $4.4 million in depreciation expense. Doing that results in a loss of $2,389,264. This — or something like it — is the number we should be discussing when assessing the financial performance of Intrust Bank Arena.

    Fiscal conservatives — and sometimes even liberals — often speak of “running government like a business.” As an example, Unruh’s campaign website from last year states “… as a business owner he works hard to apply good business principles to County government …”

    But here’s an example of conservative government leaders ignoring a basic business principle in order to paint a rosy picture of a government spending project. Unruh is not alone in doing this.

    Without honest discussion of numbers like these, we make decisions based on incomplete and false information. This is especially important as civic leaders agitate for another sales tax or other taxes to pay for more public investment. The sales pitch is that once the tax is collected and the assets paid for, we don’t need to consider the cost. They contend, as is the attitude of Unruh and arena boosters, that we can just sweep it under the rug and pretend it doesn’t exist. This is a false line of reasoning, and citizens ought not to be fooled.

  • Kansas and Wichita quick takes: Wednesday August 17, 2011

    George Soros: Media Mogul. Dan Gainor and Iris Somberg of the Business and Media Institute, a division of the Media Research Center, have produced a report on the media-related activities of liberal financier George Soros. In the executive summary, Gainor and Somberg report: “George Soros is arguably the most influential liberal financier in the United States, donating more than $8 billion just to his Open Society Foundations. In 2004, he spent more than $27 million to defeat President George W. Bush and has given away millions more since to promote the left-wing agenda. But what goes almost without notice is Soros’ extensive influence on and involvement with the media. … His media funding has helped create a liberal ‘echo chamber,’ in the words of one group he backs, ‘in which a message pushes the larger public or the mainstream media to acknowledge, respond, and give airtime to progressive ideas because it is repeated many times.’” … As a person with an interest in news media, I can attest that the liberal echo chamber is quite effective, with stories spreading rapidly across a network of media outlets. Liberal politicians — even President Obama — pick up on and repeat the echoes. The executive summary of the report is at George Soros: Media Mogul — Lefty Businessman Spends Millions Funding Journalism. That page contains a link to the full report and additional material.

    ‘Nullify Now’ tour in Kansas City. The idea that states can nullify unconstitutional laws passed by Congress is gaining traction as a way to reign in the federal government. This week an event in Kansas City will help citizens learn more about this possibility. Write the event’s organizers: “Crushing debt, health care mandates, ‘super’ congress, and more. The list of constitutional violations from DC never seems to end. The good news is that we don’t have to wait for DC to fix itself. As Thomas Jefferson told us, state nullification is “THE RIGHTFUL REMEDY” to unconstitutional actions by the federal government. … At Nullify Now! Kansas City, you’ll hear nationally-renowned speaker Thomas Woods (and nine others) present the constitutional case for nullification. You’ll learn: the constitutional basis for nullification, how nullification has been used in history, how nullification is being called upon right now vs Obamacare, to protect gun rights, against the TSA, and more, and what YOU CAN DO RIGHT NOW to get your state to put a stop to the Feds.” The event is Saturday August 20, and tickets, ranging in cost from free to $75, are required. For more information click on Nullify Now! Kansas City.

    Krugman: government spending and inflation will save us. On a Sunday television show economist and New York Times columnist Paul Krugman revealed a plan to restore our economy: Pretend that an enemy is about to attack us — an imaginary enemy is best — and put concerns of inflation and budget deficits aside in favor of a massive defense buildup. Yes, he actually said that. He also repeated the myth that World War II ended the Great Depression. In the past, Krugman wrote that the terrorist attacks of September 11, 2001 “could even do some economic good” as rebuilding will increase spending. Video is at Paul Krugman: Massive Defense Buildup to Stimulate Economy. A very good analysis of Krugman’s ideas by Michael Pento is at Krugman’s War Won’t Avert Depression: “After all, the Keynesian economist’s favorite pastime is seeing people waste their lives digging holes in the ground or sacrifice their lives in war. Both acts create economic growth according to the topsy-turvy logic of men like Krugman. The truth is that wars are a miserable misallocation of capital and usually leave financial ruin in their wake. … The logical implication of Krugman’s arguments remains that working in productive employment is not at all necessary. If this is true, why not have people just save gas and stay home? The government could simply borrow and/or print money and send it to foreign countries that are dumb enough to produce goods and services for US consumption.”

    Stossel on history. In a recent episode of the John Stossel television program, now available on the free hulu service by clicking on Stossel: Politically Incorrect History, we learn of the falsehoods of labor union mythology, how unions limited the ability of minority workers to get jobs, how workplace safety was increasing before the Occupational Safety and Health Administration, how the New Deal didn’t fix the Great Depression despite what is taught in public school, and how President Hoover doubled government spending in spite of his reputation. This is all in just the first segment.

    Midwest economic model in decline. Michael Barone in the Wall Street Journal The Fall of the Midwest Economic Model: “Michigan is an extreme example of what has afflicted the industrial Midwest. Big corporations were replaced by big government as the leading employer, and public-employee unions replaced industrial unions as the chief financiers of the Democratic Party. In effect, public-employee unions have been a mechanism by which taxpayer money, in the form of union dues, permanently finances a lobby with a vested interest in higher spending and less accountability. It’s a lobby that’s benefited from the Democratic Party loyalties of black voters, of Latinos in Chicago (the only large Hispanic presence in the Midwest) and of culturally liberal suburbanites. This Midwestern model is unraveling before our eyes. The Midwest has not been hit as hard by foreclosures or unemployment as some other places, with Michigan an exception on both counts, but you have to look hard for green shoots of growth. They may be most evident in North Dakota, where low costs and light regulation have produced booms in energy and high tech. … So what does the president have to offer the Midwest? The idea that the wave of the future is an ever-larger public sector financed by a more or less stagnant private sector looks increasingly absurd. The Midwest’s public sector has, as Margaret Thatcher put it, run on ‘other people’s money.’”

    Optimal level of government spending. In a video by the Center for Freedom and Prosperity, Dan Mitchell explains that while some government is necessary, too much is harmful, and it’s certain that we have too much. In the video, Mitchell explains that government is useful when it provides core goods like rule of law and property rights, which gives people confidence to own property and produce goods and services. But once government gets too large, economic performance suffers, and prosperity is reduced. Mitchell cites a variety of studies that estimate that the economy works best when government spending is from 15 to 25 percent of gross domestic product (GDP). Today, Mitchell says government spending in the U.S. consumes 40 percent of GDP, which is far above the growth-maximizing level — perhaps twice as much. The trend is upwards, too. At least we’re not France, where the figure is over 50 percent. Concluding, Mitchell said “Government today is far too big and this is hurting growth, undermining prosperity, and reducing competitiveness. It doesn’t matter whether Republicans are spending too much money, or Democrats are spending too much money. … If we want a strong economy, the Rahn curve tells use we need to dramatically reduce the burden of government spending.”

  • Kansas and Wichita quick takes: Friday August 5, 2011

    More jobs, but … Today’s jobs reports shows more jobs created than the small number many feared would be reported. Commenting on this is Americans for Limited Government President Bill Wilson: “Today the Labor Department’s announcement of the unemployment report showing 117,000 new jobs created is a testimony to America’s job creators who are fighting hard against the economic headwinds created by Obama’s bullheaded adherence to a failed 1930s economic philosophy. … The drop in the unemployment rate to 9.1 percent though is a false signal as the drop is largely attributable to even more Americans giving up hope of getting a job and dropping out of the workforce. Since Obama has become president, Americans have been leaving the workforce in droves. For them, and the almost 14 million unemployed, Obama’s change has robbed them of hope.”

    Sedgwick County budget. Wednesday’s meeting of the Sedgwick County Commission featured some actual legislative action as two fiscally conservative commissioners sought to reign in some county spending as the commissioners considered the 2012 budget. Commissioner Karl Peterjohn offered an amendment that would have reduced county spending by almost $500,000 in net spending reduction by eliminating one county center in health data, eliminating the new county lobbyist position, cutting $125,000 in airline subsidies as well as other business incentive spending, and several smaller categories of county spending. This amendment failed with only Commissioner Richard Ranzau voting with Peterjohn. A second amendment by Peterjohn deleted the new county lobbyist position to save $83,546. This amendment failed by the same vote as the first.

    There are emergencies, and then there aren’t. KAKE Television reports that during Wednesday evening’s storm, about 65 percent of the calls handled by the 911 system operators were for non-emergency reasons. “A majority of the calls from the storm were people requesting to be transferred to the electric company,” the station reports. Story and video at Majority Of Emergency Calls Were Non-Emergencies .

    Debt ceiling bill seen as feckless. The Cato Institute’s Jagadeesh Gokhale sums it up quite colorfully: “It’s been a frustrating two months watching politicians alternately squirm and spin only to achieve a damp squib of a deal.” He also writes that “The President and leaders in Congress have basically thrown in the towel.” The problems, he writes are “far too little by way of spending cuts, keeps open the possibility of new taxes, and hikes the debt ceiling substantially.” The major problems of Medicare, Medicaid and Social Security were not addressed, he adds. More from Gokhale at The Debt Deal: Failures of Leadership and Resolve. … His colleague Daniel J. Mitchell notes the path American is taking: “America is on a path to becoming a Greek-style welfare state. Thanks to the Bush-Obama spending binge, the burden of federal spending has climbed to about 25% of national economic output, up from only 18.2% of GDP when Bill Clinton left office.” Of the spending cuts, he writes “federal spending will actually be higher every year and that the cuts were based on Washington math (a spending increase becomes a spending cut if outlays don’t climb as fast as some artificial benchmark).” It is thought that spending cuts amount to only $22 billion next year. Out of likely $3.6 trillion budget, that’s 0.6 percent. Mitchell concludes: “One group of people, however, unambiguously got the short end of the stick in this budget deal. Ordinary Americans are caught in the middle. They’re not poor enough to benefit from the federal government’s plethora of income-redistribution programs. But they’re not rich enough to have the clever lobbyists and insider connections needed to benefit from the high-dollar handouts like ethanol subsidies and bank bailouts. Instead, middle-class Americans play by the rules, pay ever-higher taxes, and struggle to make ends meet while the establishment of both parties engages in posturing as America slowly drifts toward a Greek-style fiscal meltdown.” More from Mitchell at Debt Deal: Politicians Win, Middle Class Loses.

    Higher fuel standards mean higher death toll. It’s simple physics, writes the Washington Examiner. Weight is the main enemy of fuel economy, so higher fuel economy standards from the government mean lighter cars. This lighter weight translates directly into highway deaths: “In 2003, for example, a National Highway Traffic Safety Administration study estimated that for every 100 pounds of weight taken out of a car weighing under 3,000 pounds, the death rate goes up more than 5 percent; the increase is slightly less than 5 percent for those weighing more than 3,000 pounds. Two years before that, a National Academy of Sciences study estimated that the lighter vehicles required to satisfy CAFE were responsible for as many as 2,600 highway deaths in one year alone. And in 1999, a comprehensive multiple regression analysis by USA Today of the government’s Fatality Analysis Reporting System data concluded that 7,700 people died for every one additional mpg attributable to CAFE regulation.” … Thomas Sowell warned us of this in 2005 when he wrote “Many of the same people who cry ‘No blood for oil!’ also want higher gas mileage standards for cars. But higher mileage standards have meant lighter and more flimsy cars, leading to more injuries and deaths in accidents — in other words, trading blood for oil.” … This is another example of the unintended consequences of regulation, although many times the consequences are intended.

    Myths about markets. Tom G. Palmer has a wonderful paper that tackles the criticisms of free markets that have evolved into myths. For example, the first myth is that markets are immoral or amoral. Palmer states the myth: Markets make people think only about the calculation of advantage, pure and simple. There’s no morality in market exchange, no commitment to what makes us distinct as humans: our ability to think not only about what’s advantageous to us, but about what is right and what is wrong, what is moral and what is immoral. His destruction of the myth: “A more false claim would be hard to imagine. For there to be exchange there has to be respect for justice. People who exchange differ from people who merely take; exchangers show respect for the rightful claims of other people. The reason that people engage in exchange in the first place is that they want what others have but are constrained by morality and law from simply taking it. An exchange is a change from one allocation of resources to another; that means that any exchange is measured against a baseline, such that if no exchange takes place, the parties keep what they already have. The framework for exchange requires a sound foundation in justice. Without such moral and legal foundations, there can be no exchange. Markets are not merely founded on respect for justice, however. They are also founded on the ability of humans to take into account, not only their own desires, but the desires of others, to put themselves in the places of others. A restaurateur who didn’t care what his diners wanted would not be in business long. If the guests are made sick by the food, they won’t come back. If the food fails to please them, they won’t come back. He will be out of business. Markets provide incentives for participants to put themselves in the position of others, to consider what their desires are, and to try to see things as they see them. Markets are the alternative to violence. Markets make us social. Markets remind us that other people matter, too.” … The entire paper is at Twenty Myths about Markets.

    What are rights? “Individuals have rights. But are they natural? And how do they compare and contrast with legal or constitutional rights? Are legal or constitutional rights similar to those inalienable rights mentioned in the Declaration of Independence? Professor Aeon Skoble distinguishes such constitutional rights, such as the right to vote, from the rights protected by governments and constitutions — natural rights not actually granted by governments themselves. He concludes that legal systems should create rights that are compatible with natural rights.” This video is from LearnLiberty.org, a project of Institute for Humane Studies, and many other informative videos are available.

  • Balanced budget amendment is needed

    Despite claims made in a Wichita Eagle op-ed by its former editor Davis Merritt, we desperately need a balanced budget amendment to the United States Constitution. (Balanced-budget amendment is unworkable, August 2, 2001)

    Merritt calls the promise of a balanced budget amendment a “cruel deception” that “limits imagination and progress.” He gives three reasons as to why we should not adopt such an amendment:

    First: “It would need to define exactly and in detail what constitutes a balanced budget, and that’s unwieldy and impossible.” He cites the gimmickry that is often used to hide the reality of what’s in a budget. This, no doubt, would be a difficult problem to solve — but it’s not a reason to fail to try. Some things we could do would be to reduce the complexity of the budget so that we actually understand how much and on what we’re spending. Requiring a high hurdle for the treasury to borrow funds would also be a signal that spending is being hidden in the budget.

    Second: “It would destroy the constitutional tripartite balance of powers, the core of our system, and would strip citizens of their only leverage, their votes.” Here Davis raises problems with enforcement of such an amendment, noting the delay in bringing court cases and giving judges too much power to decide how to balance the budget. But cases can be fast-tracked to the Supreme Court, and a judicial remedy could be to simply refuse to let the government spend any money until Congress and the president produce a balanced budget.

    Third: “It would leave the most crucial fiscal decisions in the hands of congressional minorities, a profoundly undemocratic idea.” Davis mentions the need to spend for national emergencies like Hurricane Katrina. Also: “… less than 15 percent of the House of Representatives paralyzed that body while the nation hurtled toward default and collapse.” I would counter that our nation is hurtling towards collapse precisely because of spending and resultant debt that politicians of both parties have approved for decades. Without the opposition of this small group, it would have likely been business as usual, and that business has been harmful.

    (At least Davis didn’t mention war as justification for deficit spending. Forcing politicians to pay for wars now rather than later might help keep peace.)

    As for national emergencies, a few thoughts: First, people might decide to take care of themselves through advance planning and the purchase of insurance. Second, along with a balanced budget the government could establish “rainy day” or contingency funds for these types of disasters, should the federal government decide to still have a role in these matters. Or, the federal government might buy insurance to cover its costs for handling these disasters. Then, that expense becomes an annual budget item that is known in advance.

    Davis also mentioned a recession cutting into revenues. Again, a rainy day fund can help. While not Davis’ argument, many opponents of a balanced budget amendment cite the need for the federal government to engage in counter-cyclical spending to manage the economy. This, of course, is the Keynesian formula that has been proven many times to be a failure. A policy that prevents our government from engaging in Keynesianism is a plus, not a minus.

    Unless restrained by constitutional rules, legislators will run budget deficits and spend excessively

    One of the best arguments for a balanced budget amendment is found in the book Common Sense Economics: What Everyone Should Know About Wealth and Prosperity by James D. Gwartney, Richard L. Stroup, Dwight R. Lee, and Tawni H. Ferrarini, in a section titled “Unless restrained by constitutional rules, legislators will run budget deficits and spend excessively.” That title says it all, and it is exactly what has been happening. Despite the debt ceiling deal reached this week — a deal denounced by liberals as one that will ruin the country and its economy — huge deficits will still happen, and debt will increase.

    Before 1960, the authors tell us, there was “widespread implicit agreement” that the budget should be balanced, except in times of war. And, the deficits and surpluses that did occur were small relative to the economy. But enter Keynes:

    The Keynesian revolution changed all of this. Keynesians — those accepting the views of English economist John Maynard Keynes — believed that changes in government spending and budget deficits could help promote a more stable economy. They argued that, rather than balancing the budget, the government should run a budget deficit during periods of recession and shift toward a budget surplus when there was concern about inflation. In short, the Keynesian revolution released political decision makers from the discipline imposed by a balanced budget. Freed from this constraint, politicians consistently spent more than they were willing to tax.

    Imagine if Lord Keynes had called upon politicians to fix the economy by doing something other than what they like to do: He would be merely a curiosity of economic history. But Keynes calls for government deficit spending to fix the economy, and spending is what nearly all politicians and bureaucrats like to do. They just don’t like to pay for it, as Common Sense Economics explains:

    The political attractiveness of spending financed by borrowing rather than taxation is not surprising. It reflects what economists call the short-sightedness effect: the tendency of elected political officials to favor projects that generate immediate, highly visible benefits at the expense of costs that can be cast into the future and are difficult to identify. Legislators have a strong incentive to spend money on programs that benefit the voters in their district and special-interest groups that will help them win reelection. They do not like to tax, since taxes impose a visible cost on voters. Debt is an alternative to current taxes; it pushes the visible cost of government into the future. Budget deficits and borrowing allow politicians to supply voters with immediate benefits without having to impose a parallel visible cost in the form of higher taxes. Thus, deficits are a natural outgrowth of unrestrained democratic politics.

    Then, the realities of public choice economics are cited: the well-known problem of concentrated benefits and dispersed costs:

    The unconstrained political process plays into the hands of well-organized interest groups and encourages government spending to gain rich patronage benefits for a few at the expense of many. Each representative has a strong incentive to fight hard for expenditures beneficial to his or her constituents and has little incentive to oppose spending by others. In contrast, there is little incentive for a legislator to be a spending “watchdog.” A legislative watchdog would incur the wrath of colleagues who find it more difficult to deliver special programs for their districts and retaliate by providing little support for spending in the watchdog’s district. More important, the benefits of spending cuts and deficit reductions that the watchdog is trying to attain (for example, lower taxes and lower interest rates) will be spread so thinly among all voters that the legislator’s constituents will reap only a small part of these benefits.

    This is another reason why earmark spending, while a small part of the total federal budget, is harmful. We need to watch to make sure the promised earmark reform is meaningful and lasts.

    A numerical example helps illustrate what happens when there’s a disconnect between receiving something and paying for it in a collective manner:

    Perhaps the following illustration will help explain why it is so difficult for the 415 representatives and 100 senators to bring federal spending and the budget deficit under control. Suppose these 535 individuals go out to dinner knowing that after the meal each will receive a bill for l/535th of the cost. No one feels compelled to order less because his or her restraint will exert little impact on the total bill. Why not order shrimp for an appetizer, entrees of steak and lobster, and a large piece of cheesecake for dessert? After all, the extra spending will add only a few pennies to each person’s share of the total bill. For example, if one member of the dinner party orders expensive items that push up the total bill by $10, his share of the cost will be less than 2 cents. What a bargain! Of course, he will have to pay extra for the extravagant orders of the other 534 diners. But that’s true no matter what he orders. The result is that everyone ends up ordering extravagantly and paying more for extras that provide little value relative to cost.

    The section goes on to explain how large debt leads to higher borrowing costs, which make it even more difficult to control spending. Eventually the result is a financial crisis.

    The authors conclude that spending must be controlled, and that rule changes are needed: “It is vitally important for the federal government to control its spending and borrowing in the years ahead. This is unlikely to happen without a change in the political rules. The rules need to be changed so it will be more difficult for politicians to spend more than they are willing to tax.”

    As for rule changes that would work, the authors mention a balanced budget amendment or requirement for supermajorities for spending proposals and increases in the debt ceiling.

    While I’m encouraged about some of the new members elected to Congress last year, there are still many members — and their constituents — who believe more spending and more debt is the way to go. Relying on people to do the right thing is different from relying on systems to be correct. This is why we must have a balanced budget amendment to the U.S. Consitution.

  • Kansas and Wichita quick takes: Wednesday August 3, 2011

    Debt ceiling. What is the real value of the debt ceiling? Has it ever constrained the growth of government debt, until now? Thomas Sowell in Debt-Ceiling Chicken: “Some people may have been shocked when the credit-rating firm Moody’s recently suggested that the debt-ceiling law be repealed, in order to avoid fiscal crises which can throw world financial markets into turmoil that can injure countries around the world. Anyone who wants to show that Moody’s is wrong should be prepared to show the actual benefits of the debt-ceiling, not its goals or hopes. That will not be easy, if possible at all. … The national debt-ceiling law should be judged by what it actually does, not by how good an idea it seems to be. The one thing that the national debt-ceiling has never done is to put a ceiling on the rising national debt. Time and time again, for years on end, the national debt-ceiling has been raised whenever the national debt gets near whatever the current ceiling might be. Regardless of what it is supposed to do, what the national debt-ceiling actually does is enable any administration to get all the political benefits of runaway spending for the benefit of their favorite constituencies — and then invite the opposition party to share the blame, by either raising the national debt ceiling, or by voting for unpopular cutbacks in spending or increases in taxes.”

    Was August 2nd a deadline? All through the debate over raising the federal debt ceiling it was taken as granted that the deadline — the day the U.S. Treasury would run out of money — was August second. U.S. Representative Tim Huelskamp, who is in his first term representing the Kansas first district, has released data that shows otherwise. A chart on his website shows a declining balance in the treasury, but projections show a positive balance far past August second.

    Despite drag of government health care, Canada thrives. The unemployment rate in Canada has fallen, GDP growth is healthy, and there were no bank bailouts. It has been able to reduce the size of its government relative to its economy, writes Jason Clemens in Why Canada Is Beating America: It shrank government, and now unemployment and debt are declining: “Total government spending as a share of the economy peaked at a little over 53% in 1993. Through a combination of spending cuts in the 1990s and spending restraint during the 2000s, it declined to a little under 40% of GDP by 2008.” … For 2010, government spending at all levels in the U.S. amounted to 36.22 percent of GDP, according to the Bureau of Economic Analysis. While that compares favorably with Canada’s level, the trend in the U.S. is for spending to increase, having risen from 30.82 percent in 2004. … According to Clemens, the success of Canada’s economy is in spite of its government health care, not because of it: “The unavoidable challenge is the country’s health-care system. … Canada devotes a relatively high share of its economy to health care without enjoying commensurate outcomes. Of the 28 countries in the Organization for Economic Cooperation and Development (OECD) that have universal access, Canada has the sixth-highest rate of health spending as a share of its economy.” It would be one matter if Canadians enjoyed good results from all this health care spending. “But Canadians’ access to care is poor, despite high spending. The country ranks 20th of 22 OECD countries for access to physicians. … Waiting times for treatment continue to worsen.” … Liberals in the U.S. point to Canada as a model for government health care, but the actual situation is not one that we should aspire to.

    Kansas government website revamped. Kansas has remodeled its main website, kansas.gov. Besides a new look, I think a useful feature will be the use of a Google site-specific search feature. These generally work very well, applying the power of the popular and effective search engine to a specific website. Time will tell as to whether the design is useful. The state does not have a good record in recent times of website redesigns, as the effort to replace the legislature’s website right as the session started was a disaster. The press release with other details is at New State Web Portal Provides Better Experience, Mobility.

    Demand is not the problem. A recent letter to the Wichita Eagle started with “The only thing that creates jobs is demand for product.” This idea of economic wealth deriving from consumer demand is a Keynesian concept, and we’ve seen over and over the wreckage that Keynesian economics leaves on countries — starting with our own efforts to cure the Great Depression to the failing economic policies of President Barack Obama. It’s also curious to blame economic stagnation on the absence of desire of people for more stuff. People want more stuff — that’s human nature. It is by producing more that we create the wealth necessary to satisfy our demands. Production benefits from capital formation, and the policies of the United States are not favorable for this. … The author also promotes increasing exports while at the same time urging Americans to buy only U.S.-made products. This ignores the fact that trade — no matter who the trading partner — is a source of wealth. Both parties are made better-off through trade; otherwise the transaction would not take place.

    Debt ceiling bill. A budget cut only by Washington standards. “Throwing in the towel.” All the angst over the past month seems to have produced very little in the way of meaningful reform. Here several Cato Institute policy experts comment on this week’s lawmaking. “This week’s bipartisan deal to raise the debt limit and achieve some spending reductions will do little in the way of actual spending cuts, defers all the tough decisions on spending and debt to a “SuperCongress” committee and will do little to protect the United States credit rating. Cato Institute Senior Fellows Dan Mitchell and Jagadeesh Gokhale and Director of Tax Policy Studies Chris Edwards comment on the debt deal.”

  • Kansas budget director on budget, fiscal reform

    By Paul Soutar, Kansas Watchdog.

    WICHITA — Budget Director Steven J. Anderson outlined how he and his boss, Gov. Sam Brownback, would like to improve the fiscal affairs and economic recovery in Kansas. But Anderson admitted the effort isn’t likely to win him many friends.

    His presentation to the Wichita Pachyderm Club Friday included much for fiscal conservatives to like, including efforts to reduced state spending, lower income tax rates and make state government more efficient. But some planned initiatives probably won’t sit too well with a portion of the Republican base.

    Anderson said he thinks the Fair Tax, a proposal that relies on a sales or consumption tax and eliminates virtually all other taxes and exemptions, would not work politically. “From a strictly numbers perspective it’s very viable,” he said.

    “When you talk about the Fair Tax you gore about everybody. Twenty percent of the GDP in this country is non-profits. Do we really want to take the charitable deduction away from your churches?” One audience member said yes as Anderson continued. “I think the hue and cry becomes really high and pitchfork and torch sales go up all over town when you talk fair or flat tax.”

    Anderson also said he prefers to keep the 19 percent sales tax increase, from 5.3 to 6.3 cents on the dollar) enacted by the 2010 Legislature. “That isn’t wildly popular among some members of my party,” Anderson said. Repealing the tax increase was high on the priority list for many freshmen legislators.

    Anderson would use the extra sales tax revenue to offset reductions in income tax rates. “I believe income tax is an economic inhibitor and sales tax is a measure of economic activity.”

    Senate Bill 1, which would cap state spending and use sales tax revenue to reduce income tax rates, passed the House and is likely to get another shot in the Senate next year. Opponents of SB1 argue that sales taxes place a greater burden on the poor who spend a higher percentage of their income on necessities.

    Recent experience shows that improving the state’s fiscal health and competitiveness will not be as simple as cutting one tax and increasing another.

    In August 2009 QuikTrip demolished a store in Kansas then built a new one on the same property just a few feet to the east so the store, cash registers, and gasoline tanks are on the other side of the state line in Kansas City, Mo. The company said it pays lower taxes, has a better regulatory environment and has more customers who save money on gasoline taxes, sales taxes and cigarette taxes. Kansas loses an estimated $1.4 million in tax revenue each year because of the move.

    Anderson said by keeping the state’s income tax rates where they are and cutting the state sales tax back to 5.3 percent the state would get more gas stations, but if the state has no income tax it would be more likely to lure businesses just as Texas and other states with no income tax have done. “I’d rather have the corporate headquarters.”

    Anderson said he advised Brownback to focus on the state’s customers in addressing fiscal reform. “We all know that a business doesn’t survive if it can’t keep its customers. What has happened in Kansas in the last decade? If you’ve seen the latest census you know. Our customers, our citizens, have voted with their feet and left the state. I am probably an example of that. I had greater opportunity moving to Oklahoma.”

    Anderson, a Kansas native and graduate of Fort Hays State University, has an accounting practice in Edmond and worked for Oklahoma Gov. Frank Keating from 1999 to 2002 in the Office of State Finance. He moved back to Kansas to work with Brownback.

    “When the state thinks they can raise taxes and outwit business they make a bad mistake,” Anderson said. “Business knows how to deal with that. They either leave the state or they adjust their operations.”

    Brownback wrote the foreword to “Rich States, Poor States,” an annual evaluation of economic competitiveness among the states published by the American Legislative Exchange Council (ALEC). “When you read it you will understand where we are going to go. He is very plain that we intend to cut income taxes and we intend to cut them a lot.”

    One of Brownback’s early initiatives was creation of Rural Opportunity Zones (ROZ). The program offers individuals income tax exemptions for up to five years and up to $15,000 in student loan forgiveness for moving into one of 50 rural counties.

    “Part of the reason why we did that was to show those that were on the fence that if you will move to what they consider the hinterlands — of course, being from Western Kansas, I don’t consider it that — for zero income tax, they certainly will jump across the Missouri border into Kansas. It’s been a real success so far and we aren’t a month into it yet.”

    Anderson’s presentation addressed complaints that Brownback’s team is doing too much or too little.

    Newly elected fiscal conservatives and their supporters have said Brownback didn’t move fast enough on reforms during the 2011 Legislative session. Anderson said Brownback’s team is continuing to explore data that was not available during the transition and is finding additional opportunities for reforms he expects to be unveiled soon.

    Anderson also said reforms must not be stalled by projections of economic improvement based on improving income tax revenue. He said about $100 million in recent income tax revenue is from capital gains tax paid by filers who chose to sell investments now rather than after a feared federal capital gains tax increase.

    As of publication time, the Kansas Department of Revenue has not replied to a KansasWatchdog request that they verify or deny Anderson’s claim.

    “We actually are running behind on every revenue source,” Anderson said. “I think that should trouble us when we look down to Oklahoma who just cut taxes again. They just put $219 million in their rainy day fund. I think the proof is in the pudding. Cutting taxes works.”

    Video of Anderson’s presentation is available on Kansas Watchdog TV at Kansas Budget Director Steve Anderson Part 1, part 2, and questions and answers.

  • U.S. receipts and expenditures

    A recent op-ed by Sen. Bernie Sanders of Vermont in the Wall Street Journal (Why Americans Are So Angry: Republicans want the entire burden of deficit reduction to be carried by the elderly, the sick, children and working families), besides holding faulty reasoning in every paragraph, hold a few factual errors that deserve discussion.

    Raise tax rates to raise revenue

    For example, Sanders writes regarding the rich: “Their effective tax rate, in recent years, has been reduced to the lowest in modern history.” He’s arguing for tax increases on the rich as a way of balancing the budget. (Really, he just wants more money to spend. He’s not serious about closing the deficit.)

    There are many like Sanders and President Barack Obama who call for raising taxes, especially on the rich, as a way to generate more revenue and balance the budget. But try as we might, raising tax rates won’t generate higher revenues (as a percentage of gross domestic product), due to Hauser’s law. W. Kurt Hauser explained in The Wall Street Journal: “Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration’s budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues. Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this ‘Hauser’s Law.’”

    So tax rates may be low, or they may be high, but tax revenue, as a percent of GDP, remains nearly constant.

    Hauser's LawHauser’s Law illustrated. No matter what the top marginal tax rate, taxes collected remain an almost constant percentage of GDP.

    Tax revenue is down

    Sanders also wrote “The sum of all the revenue collected by the Treasury today totals just 14.8% of our gross domestic product, the lowest in about 50 years.” Sanders is incorrect here. In 2010 receipts to the federal government as a percent of GDP was 16.73 percent, according to the Bureau of Economic Analysis. For the first quarter of 2011, the figure is 16.97 percent. These numbers are much higher than what Sanders claims. He didn’t mention where he got his figures.

    From 1960 to 2010 — the 50 year period Sanders mentions — the average revenue collected was 18.32 percent of GDP. The current figure is lower than that, so Sanders is correct that current revenue collections are lower than recent history, and that may be what has Sanders worried.

    A look back at the history of federal receipts and expenditures is useful. A chart is below.

    While President Ronald Reagan was able to cut tax rates, he couldn’t control spending as easily, and that led to large deficits. As a percent of the economy, spending rose during his term, although by the time he left office it was at the same level of GDP as when he took office. The message of Reagan’s presidency is that it’s easier to cut taxes than to cut spending. But we must always be in favor of cutting taxes, and hope that politicians have the fortitude to cut spending to match.

    It’s doctrinaire among liberals today to cite President Bill Clinton and his tax increase as the cause of the prosperity of the late 1990s and the accompanying budget surpluses for several years. But his tax increase was not the only thing going on in those years that contributed to a budget surplus. The peace dividend, as defense spending fell during his term, helped. Clinton had nothing to do with the end of Cold War; he was just lucky to be in place to benefit from its end.

    If cutting spending relative to the size of the economy was Clinton’s goal — and I don’t think it really was — he was lucky to have a Republican Congress starting in 1995 to help him accomplish this goal. With a Democratically-controlled Congress, it’s unlikely that spending would have been restrained, and with that, no budget surplus. While many bemoan gridlock in Washington because nothing gets done, the gridlock of the Clinton years led to less spending — and that’s good.

    We should also remember that in 1997 the capital gains tax rate fell from 28 percent to 20 percent. Capital gains taxes collected soared. That was a Republican initiative, and it contributed to increased tax revenue during the Clinton surplus years.

    The Clinton years were good for controlling spending, starting in 1993 with spending at 22.56 percent of GDP, and exiting in 2000 with spending at 18.81 percent. As to the prosperity of the Clinton years, many seem to forget that much of it was based on a bubble that couldn’t be sustained — the dot-com bubble. While not as large as the housing bubble, it was prosperity that very suddenly evaporated.

    Then President George W. Bush took office. In 2001 spending as a percent of GDP was 19.25 percent, and it rose slowly during his term, reaching 21.80 percent in 2008. Then it exploded to 24.75 percent in 2009 and slightly less in 2010. For the second quarter of 2011, the trend is upwards, as spending reached 25.50 percent of GDP.

    From the end of World War II to the start of Reagan’s presidency, spending steadily rose, relative to the size of the economy. From Reagan to Clinton we did a good job reversing this trend. But starting with the second Bush, and rapidly accelerating with Obama, spending is rising off the chart. It will be difficult to reverse this trend, but we must. Even though tax revenue has declined, we must remember what Milton Friedman taught us: the true measure of the size of government is spending, as spending not paid for today is taxation put off to the future.

    Federal receipts and expenditures as percentage of gross domestic productFederal receipts and expenditures as percentage of gross domestic product.