Voice For Liberty

Tag: Interventionism

  • Wichita flight count continues decline

    In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.
    — Frederic Bastiat

    A program designed to bring low air fares to Wichita appears to meet that goal, but the unintended and inevitable consequences of the program are not being recognized. In particular, the number of flights available at the Wichita airport continues to decline.

    Of particular note is that over the past two or three years, the trend of flights nationally is level, while the trend of flights available in Wichita is declining. The gap between Wichita and the nation is increasing.

    According to Regional Economic Area Partnership, the goal of the Kansas Affordable Airfares Program (KAAP) is “to provide more air flight options, more competition for air travel, and affordable airfares for Kansas.”

    Is the Affordable Airfares program meeting its goals? If we look at “air flight options,” and if we consider the number of monthly departing flights as a measurement, Wichita isn’t doing well compared to the nation. The chart at the end of this article illustrates.

    In its Kansas Affordable Airfares Program Fiscal Year 2011 Report, REAP addresses the goal of “more air flight options” and reports:

    “Air service through Wichita Mid-Continent Airport addresses the statutory objective of more flight options, as follows: A total of 11 airlines provide service from Wichita to seven nonstop destinations with connecting service and four nonstop destinations with no connecting service. Overall, there are on average 38 daily (with 40 on weekdays) nonstop or one-stop flights by commercial air carriers, providing access to 4,989 U.S. and international destinations.”

    This statement simply addresses the current situation. But the goal is more flight options. Which is better evidence of meeting the statutory goal: A simple recitation of what’s available today, or looking at the trend, especially comparing Wichita to the nation? REAP’s statement provides very little information as to whether the program is meeting its stated goals, or whether the program is desirable. We should ask that REAP recognize the data and its implications.

    This trend is an example of unintended consequences of government intervention and regulation. The Affordable Airfares program imposes a rough form of price control on airfares in Wichita. If the program didn’t do that — and it appears it succeeds at this goal — then there would be no point in having the program.

    The inevitable effect of price controls is that less is supplied, compared to what would have been supplied. This economic phenomenon is reliable and predictable.

    While travelers prefer low air fares to high, this is not the only consideration. For those who need to travel on short notice, the availability of flights is very important, and on this measure, Wichita is doing much worse than the nation.

    Data is through March 2013, from Bureau of Transportation Statistics. Since this data is highly seasonal, I present a 12-month moving average, so that each point plotted is the average of the previous 12 months data. Also, I index January 2000 to 100.

    Monthly flights, Wichita Airport and nationally.

  • The candlemakers’ petition

    candleThe arguments presented in the following essay by Frederic Bastiat, written in 1845, are still in use in city halls, county courthouses, school district boardrooms, state capitals, and probably most prominently and with the greatest harm, Washington.

    A PETITION

    From the Manufacturers of Candles, Tapers, Lanterns, Sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.

    To the Honourable Members of the Chamber of Deputies.
    Open letter to the French Parliament, originally published in 1845

    Gentlemen:

    You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is to reserve the domestic market for domestic industry.

    We come to offer you a wonderful opportunity for your — what shall we call it? Your theory? No, nothing is more deceptive than theory. Your doctrine? Your system? Your principle? But you dislike doctrines, you have a horror of systems, as for principles, you deny that there are any in political economy; therefore we shall call it your practice — your practice without theory and without principle.

    We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation.

    This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us

    We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.

    Be good enough, honourable deputies, to take our request seriously, and do not reject it without at least hearing the reasons that we have to advance in its support.

    First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged?

    If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth.

    If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land.

    Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion.

    The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honour of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc.

    But what shall we say of the specialities of Parisian manufacture?Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls.

    There is no needy resin-collector on the heights of his sand dunes, no poor miner in the depths of his black pit, who will not receive higher wages and enjoy increased prosperity.

    It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman, from the wealthy stockholder of the Anzin Company to the humblest vendor of matches, whose condition would not be improved by the success of our petition.

    We anticipate your objections, gentlemen; but there is not a single one of them that you have not picked up from the musty old books of the advocates of free trade. We defy you to utter a word against us that will not instantly rebound against yourselves and
    the principle behind all your policy.

    Will you tell us that, though we may gain by this protection, France will not gain at all, because the consumer will bear the expense?

    We have our answer ready:

    You no longer have the right to invoke the interests of the consumer. You have sacrificed him whenever you have found his interests opposed to those of the producer. You have done so in order to encourage industry and to increase employment. For the same reason you ought to do so this time too.

    Indeed, you yourselves have anticipated this objection. When told that the consumer has a stake in the free entry of iron, coal, sesame, wheat, and textiles, “Yes,” you reply, “but the producer has a stake in their exclusion.” Very well, surely if consumers have a stake in the admission of natural light, producers have a stake in its interdiction.

    “But,” you may still say, “the producer and the consumer are one and the same person. If the manufacturer profits by protection, he will make the farmer prosperous. Contrariwise, if agriculture is prosperous, it will open markets for manufactured goods.” Very well, If you grant us a monopoly over the production of lighting during the day, first of all we shall buy large amounts of tallow, charcoal, oil, resin, wax, alcohol, silver, iron, bronze, and crystal, to supply our industry; and, moreover, we and our numerous suppliers, having become rich, will consume a great deal and spread prosperity into all areas of domestic industry.

    Will you say that the light of the sun is a gratuitous gift of Nature, and that to reject such gifts would be to reject wealth itself under the pretext of encouraging the means of acquiring it?

    But if you take this position, you strike a mortal blow at your own policy; remember that up to now you have always excluded foreign goods because and in proportion as they approximate gratuitous gifts. You have only half as good a reason for complying with the demands of other monopolists as you have for granting our petition, which is in complete accord with your established policy; and to reject our demands precisely because they are better founded than anyone else’s would be tantamount to accepting the equation: + x + = -; in other words, it would be to heap absurdity upon absurdity.

    Labour and Nature collaborate in varying proportions, depending upon the country and the climate, in the production of a commodity. The part that Nature contributes is always free of charge; it is the part contributed by human labour that constitutes value and is paid for.

    If an orange from Lisbon sells for half the price of an orange from Paris, it is because the natural heat of the sun, which is, of course, free of charge, does for the former what the latter owes to artificial heating, which necessarily has to be paid for in the market.

    Thus, when an orange reaches us from Portugal, one can say that it is given to us half free of charge, or, in other words, at half price as compared with those from Paris.

    Now, it is precisely on the basis of its being semigratuitous (pardon the word) that you maintain it should be barred. You ask: “How can French labour withstand the competition of foreign labour when the former has to do all the work, whereas the latter has to do only half, the sun taking care of the rest?” But if the fact that a product is half free of charge leads you to exclude it from competition, how can its being totally free of charge induce you to admit it into competition? Either you are not consistent, or you should, after excluding what is half free of charge as harmful to our domestic industry, exclude what is totally gratuitous with all the more reason and with twice the zeal.

    To take another example: When a product — coal, iron, wheat, or textiles — comes to us from abroad, and when we can acquire it for less labour than if we produced it ourselves, the difference is a gratuitous gift that is conferred up on us. The size of this gift is proportionate to the extent of this difference. It is a quarter, a half, or three-quarters of the value of the product if the foreigner asks of us only three-quarters, one-half, or one-quarter as high a price. It is as complete as it can be when the donor, like the sun in providing us with light, asks nothing from us. The question, and we pose it formally, is whether what you desire for France is the benefit of consumption free of charge or the alleged advantages of onerous production. Make your choice, but be logical; for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!

    Frédéric Bastiat (1801-1850), Sophismes économiques, 1845

  • How to grow the Kansas economy

    In this 14 minute video from April, Art Hall, who is Director of Center for Applied Economics at Kansas University, talks about how to grow the Kansas economy.

    An important takeaway is that our targeted economic development strategies can’t handle the volume needed to create a lot of jobs in Kansas. We need policies that apply uniformly, so that we can generate as many business start-ups as possible. Of these start-ups, some will grow rapidly, but we don’t know the identities of these companies in advance.

    For more about these ideas, see Hall’s paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy.

  • Westar rate increase contains business welfare

    electric-metersThe rate increase that Westar Energy has applied for contains a large dose of discretionary business welfare spending. Westar, in conjunction with out current economic development machinery, will be allowed to grant discounts on electricity to new businesses. A current program exists, but Westar says it doesn’t offer the flexibility Westar needs.

    Following is an excerpt from testimony Westar submitted to the Kansas Corporation Commission. I’ve added emphasis:

    Q. HOW WILL THE FIRST COMPONENT OF PROMOTE KANSAS WORK?
    A. The economic development portion of the proposal would permit Westar, at its option, to provide economic development assistance in the form of discounted electric service to new customers and existing customers with planned expansions if three conditions are met: (1) the customer adds new jobs to its work force, (2) the customer brings new capital equipment and plant to a new or expanded facility and (3) the economic development effort is supported and backed by a state organization such as the Kansas Department of Commerce or a local economic development organization.

    Q. HOW WILL PROMOTE KANSAS PROVIDE WESTAR WITH FLEXIBILITY TO ADDRESS ECONOMIC DEVELOPMENT NEEDS ON A CASE-BY-CASE BASIS?
    A. If approved, Promote Kansas will allow Westar to adjust the economic incentive — in the form of reduced electric rates — provided to a customer based on the circumstances involved. This is a change from Westar’s existing EDR, which provides for a fixed percentage discount of 25 percent to the customer’s electric bill in the first year. The incentive credit declines by five percent per year over a mandatory five year period. After the fifth year of service, the customer pays the full cost of their electric service. Westar has no flexibility to adjust the amount of the incentive credit level or duration under the current EDA.

    We believe that the fixed percentage under the existing EDA is too rigid. In some situations, the customer may not require the entire 25 percent reduction in its electric bill, or a full five years of reduced electric rates, in order to move forward with an expansion or relocation to Kansas. In these cases, the rigidity of the existing EDA tariff results in either contributing more than needed to attract the new customer or encourage the expansion, or not offering the incentive at all. The current EDA tariff was developed over a quarter century ago, tailored to specific circumstances that no longer exist. It was based on past exigencies, and it is time to revise it to meet today’s priorities and business environment.

    Promote Kansas would contain a variable incentive credit. If Westar decides to provide the incentive credit to a customer, it would range from five percent to 25 percent the first year and would then decline over no more than a five-year period. This will allow Westar flexibility to determine how much incentive is necessary to attract the new customer or the expansion. Westar will be able to actively participate in negotiations with potential new businesses along with other economic development organizations in order to develop the best package of benefits for the customer’s specific situation.

    We need to be concerned with this part of Westar’s application. This language — at its option … based on the circumstances involved … variable incentive credit … this will allow Westar flexibility — gives huge discretion to Westar to decide how much customers will pay for electricity.

    Westar is not a government agency, but as a tightly regulated entity, it’s almost like government. It exercises the type of monopoly power that few outside of government do: It holds a near-monopoly on the delivery of a product that almost everyone wants and needs. With few exceptions, households and business firms can’t negotiate with Westar on their electric rates.

    Therefore, when Westar offers — at its discretion — lower electric rates to some customers, others must necessarily pay more. Testimony to this effect was offered by Westar.

    If we could be certain that the goals of this program would be realized, that would be one thing. But as a quasi-governmental entity, Westar suffers from the same knowledge problem as does government, especially regarding targeted investment programs like that proposed in this new rate structure. These actors believe that they have the ability to select which companies are worthy of public investment, and which are not. Really, it’s even a larger decision, as all other Westar customers have to pay for the investment decisions that will be made.

    This rate plan implements a form of centralized planning by the state that shapes the future direction of the Kansas economy. We have to decide who is in the best position to make these decisions: Regulators and utility company executives, or the diverse market where thousands of business firms freely compete for voluntary investments to be made.

    Arnold Kling has written about the ability of government experts to decide what investments should be made with public funds. There’s a problem with knowledge and power:

    As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.

    When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.

    Despite this knowledge problem, the Kansas Corporation Commission is considering giving Westar the very type of power that ought to be left to markets. For this reason, KCC should reject Westar’s rate increase application until this program, and the program it is intended to replace, are eliminated.

    The full rate application is available at Docket 13-WSEE-629-RTS: Application of Westar Energy and Kansas Gas and Electric Company Charges for Electric Service. A public hearing is scheduled tonight in Wichita; see Westar electricity rate hikes.

  • Visioneering asks for money. Let’s ask these questions.

    Sedgwick County Kansas sealWhen Visioneering Wichita asks the Sedgwick County Commission for funds this week, commissioners may want to ask a few questions about how well the Wichita-area economy has performed, compared to the peers that Visioneering has selected.

    Here’s some data that merits consideration and begs a few questions: Compensation paid. In the nearby chart (click on it for a larger version) I present this data divided into four data series: Wichita vs. its peers as selected by Visioneering, and private sector vs. government. (Data is from U.S. Bureau of Economic Analysis. Visualization created by myself using Tableau Public.)

    Compensation, Wichita and Visioneering Peers

    What conclusions should we draw from this data? First, compensation paid to government employees (left chart) has risen faster than that paid to private sector employees. Much faster.

    Second, when looking at government employment compensation, Wichita tracks almost exactly the same path as the average of our Visioneering peers.

    Third, and this is what is most important: Wichita lags far behind our Visioneering peers in private sector compensation.

    There’s other data that tells a similar story. In the article Wichita job growth and Visioneering peers, we can see that Wichita has set ambitious goals in job growth, but it doesn’t seem that the Visioneering program has produced results. But apparently Wichita government officials are satisfied. (For coverage of council members’ reactions, see Wichita city council reacts to Visioneering presentation.)

    In Wichita and peer GDP growth: we find that compared to its peers, the government sector in Wichita is growing fairly quickly, but the private sector is growing slowly.

    In Wichita personal income growth benchmark we see more of the same. Private sector growth in Wichita is slow, compared to our peers.

    When Visioneering asks the Sedgwick County Commission for funds, commissioners might want to take a moment and inquire about these issues:

    Is Visioneering satisfied with the performance of Wichita, as measured by these benchmarks?

    Is Wichita’s trend in these benchmarks moving in the right direction, or is Wichita falling farther behind?

    Are these the correct benchmarks we should be using?

    Is it possible that Visioneering is making the Wichita economy better than it would be without Visioneering? Or is it making it worse, or is there no difference?

    Does Visioneering need additional resources to fulfill its mission?

    Visioneering News, captured June 5, 2013

    On the Visioneering website, why are no future events listed? Are none planned?

    On the Visioneering website, under the “News” section, is it true that there has been no news to post since August 2011 or September 2012 (there are two streams of news)?

  • Wichitans taxed into a lower standard of living

    Every decent man is ashamed of the government he lives under.
    — H.L. Mencken

    Toilet plunger, animatedThis week the Wichita City Council voted to force Wichitans to spend $1 million to help their fellow citizens reduce their standard of living.

    I’m not kidding. $100 rebates will be paid to the purchasers of up to 10,000 low-flush toilets. To the extent that these toilets replace fully-functional toilets, civilization takes a step backwards.

    (The rebate program covers other appliances besides toilets, so we don’t know how many low-flush toilets will be purchased. But it could be up to 10,000.)

    Whatever the number is, Wichita is spending a lot of other peoples’ money to accomplish a vanishingly small goal, and at the cost of convenience. In net, it is a huge loss.

    One of the most interesting books I’ve almost read is a collection of essays by Jeffrey A. Tucker titled Bourbon for Breakfast: Living Outside the Statist Quo. Chapter 4 is titled “The Relentless Misery of 1.6 Gallons,” which refers to the amount of water modern toilets are allowed to use per flush. They used to use 3.5 to 5 gallons per flush. Here’s Tucker’s take on this “advancement” and what more Wichitans can look forward to:

    We have all gotten used to a reduced standard of living — just as the people living in the Soviet Union became accustomed to cold apartments, long bread lines, and poor dental care. There is nothing about our standard of living that is intrinsic to our sense of how things ought to be. Let enough time pass and people forget things.

    So let us remember way back when:

    Toilets did not need plungers next to them, and thank goodness. Used plungers are nasty, disease carrying, and filthy. It doesn’t matter how cute the manufacturer tries to make them or in how many colors you can buy them. In the old days, you would never have one exposed for guests. It was kept out in the garage for the rare occasion when someone threw a ham or something stranger down the toilet. …

    You never had any doubt about the capacity of the toilet to flush completely, with only one pull of the handle. The toilet stayed clean thanks to five gallons of rushing water pouring through it after each flush.

    Then, Congress passed the 1.6 gallons per flush law. The result?

    The result is an entire society of poorly working toilets and a life of adjustment to the omnipresence of human feces, all in a short 15 years. Thanks so much, Congress!

    Of course the environmentalists are in on the whole project. They started telling us back in the 1970s that our large tanks were sheer waste. We should put bricks in them to save and conserve. If you didn’t have a brick in your toilet, you were considered irresponsible and a social misfit. Eventually of course the brick became, in effect, a mandate, and finally toilet tanks were reduced to one third of their previous size.

    Back then, it was just assumed that toilet manufacturers cared nothing at all about wasting water. Surely there was no rationale at all for why they consumed five gallons per flush as opposed to 1.6 gallons. This is just capitalist excess and down with it!

    Well, think again: there was wisdom in those old designs. The environmentalists didn’t account for the present reality in which people typically flush twice, three times, or even four times during a single toilet event. Whether this ends up using more or less in the long run is entirely an empirical question, but let us just suppose that the new microtanks do indeed save water. In the same way, letting people die of infections conserves antibiotics, not brushing teeth conserves toothpaste, and not using anesthesia during surgery conserves needles and syringes.

    Here is the truth that environmentalists do not face: Sometimes conserving is not a good idea. There are some life activities that cry out for the expenditure of resources, even in the most generous possible way. I would count waste disposal as one of those.

    It is also possible that some people just like to get their kicks out of spreading misery and making it impossible for us to enjoy a clean and prosperous life. Like Puritans of old, they see virtue in suffering and would like to see ever more of it. It sounds perverse, but such an ethos does exist. And clearly, government doesn’t care in the slightest.

    Wichtans need to remember this: That instead of working to increase water supply, the mayor and all city council members voted to force people to pay taxes so that others can buy lower-performing appliances. This is the government we live under.

  • Wichita begins rebates and regulation

    Instead of relying on market forces, Wichita imposes a new tax and prepares a new regulatory regime.

    Equus BedsAt today’s meeting of the Wichita City Council, the city decided to spend up to $1 million this year on rebates to encourage people to buy water-efficient appliances. This will save a vanishingly small amount of water at tremendous cost.

    The worst realization from today’s city council meeting is how readily citizens, politicians, and bureaucrats will toss aside economic thinking. The antimarket bias that Bryan Caplan explains in The Myth of the Rational Voter: Why Democracies Choose Bad Policies was in full display — even by the conservative members of the council.

    It’s also clear that some council members want to go down the road of austerity rather than abundance.

    What did we learn today? Many speakers used the terms “conservation” and “judicious.” Conservation is good. Judicious use is good. But each person applies different meanings to these concepts. A great thing about living in a (relatively) free economy is that each person gets to choose to spend their time and money on the things that are important to them, and in the amounts they want. We make these choices many times each day. Sometimes we’re aware of making them, and sometimes we’re not.

    For example: If you’re watching television alone in your home, and you go to the kitchen to get a snack, do you turn off the television for the moment that you’re not watching it? No? Well, isn’t it wasting electricity and contributing to global warming to have a switched-on television that no one is watching, even for just a moment?

    Some people may turn off the television in this scenario. But most people probably decide that the effort required to save a minute’s worth of electricity consumption by a television isn’t worth the effort required.

    (By the way, the type of television programs you watch each evening: Is it worth burning dirty coal (or running precious water through dams, or splitting our finite supply of uranium atoms, or spoiling landscapes and killing birds with wind turbines) just so you can watch Bill O’Reilly or Rachel Maddow rant? Or prison documentaries? Or celebrity gossip? Reruns of shows you’re already seen? And I’ve seen you fall asleep while watching television! What a monumental waste. We should require sleep sensors on all new televisions and rebates to retrofit old sets.)

    But when people leave their homes empty to go to work, almost everyone turns off the television, lights, and other appliances. Many may adjust their thermostats to save energy. People make the choice to do this based on the costs of leaving the lights on all day versus the cost of turning them on and off. No one needs to tell them to do this. The relative prices of things do this.

    (You may be noting that children have to be told to turn off televisions and lights. That’s true. It’s true because they generally aren’t aware of the prices of things, as they don’t pay utility bills. But adults do.)

    In most areas of life, people use the relative prices of things to make decisions about how to allocate their efforts and consume scarce resources. Wichita could be doing that with water, but it isn’t.

    The conservation measures recommended by speakers today all have a cost. Sometimes the cost is money. In some cases the cost is time and convenience. In others the cost is a less attractive city without green lawns and working fountains. In many cases, the cost is shifted to someone else who is unwilling to voluntarily bear the cost, as in the rebate program.

    At least we’ll be able to measure the cost of the rebate program. For most of the other costs, we’re pretending they don’t exist.

    Instead of relying on economics and markets, Wichita is turning to a regulatory regime. Instead of pricing water rationally and letting each person and family decide how much water to use, politicians and bureaucrats will decide for us.

    All city council members and the mayor approved this expansion of regulation and taxation.

    (Yes, it’s true that the rebates will be funded from the water department, but that’s a distinction without meaningful difference.)

    The motion made by Mayor Carl Brewer contained some provisions that are probably good ideas. But it also contained the appliance rebate measure. Someone on the council could have made a substitute motion that omitted the rebates, and there could have been a vote.

    But not a single council member would do this.

    It’s strange that we turn over such important functions as our water supply to politicians and bureaucrats, isn’t it?

  • Do economic development incentives work?

    Economic development

    Judging the effectiveness of economic development incentives requires looking for the unseen effects as well as what is easily seen. It’s easy to see the groundbreaking and ribbon cutting ceremonies that commemorate government intervention — politicians and bureaucrats are drawn to them, and will spend taxpayer funds to make sure you’re aware. It’s more difficult to see that the harm that government intervention causes.

    That’s assuming that the incentives even work as advertised in the first place. Alan Peters and Peter Fisher, in their paper titled The Failures of Economic Development Incentives published in Journal of the American Planning Association, wrote on the effects of incentives. A few quotes from the study, with emphasis added:

    Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

    On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

    The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.

    Following is the full paper, or click here.

  • Without government, there would be no change: Wichita Mayor

    It’s worse than President Obama saying “You didn’t build that.” Wichita Mayor Carl Brewer tells us you can’t build that — not without government guidance and intervention, anyway.

    City of Wichita logoWhen President Barack Obama told business owners “You didn’t build that,” it set off a bit of a revolt. Those who worked hard to build businesses didn’t like to hear the president dismiss their efforts.

    Underlying this episode is a serious question: What should be the role of government in the economy? Should government’s role be strictly limited, according to the Constitution? Or should government take an activist role in managing, regulating, subsidizing, and penalizing in order to get the results politicians and bureaucrats desire?

    Historian Burton W. Folsom has concluded that it is the private sector — free people, not government — that drives innovation: “Time and again, experience has shown that while private enterprise, carried on in an environment of open competition, delivers the best products and services at the best price, government intervention stifles initiative, subsidizes inefficiency, and raises costs.”

    But some don’t agree. They promote government management and intervention into the economy. Whatever their motivation might be, however it was they formed their belief, they believe that without government oversight of the economy, things won’t happen.

    But in Wichita, it’s even worse. Without government, it is claimed that not only would we stop growing, economic progress would revert to a previous century.

    Mayor Carl Brewer made these claims in a 2008 meeting of the Wichita City Council.

    In his remarks (transcript and video below), Brewer said “if government had not played some kind of role in guiding and identifying how the city was going to grow, how any city was going to grow, I’d be afraid of what that would be. Because we would still be in covered wagons and horses. There would be no change.”

    When I heard him say that, I thought he’s just using rhetorical flair to emphasize a point. But later on he said this about those who advocate for economic freedom instead of government planning and control: “… then tomorrow we’ll be saying we don’t want more technology, and then the following day we’ll be saying we don’t want public safety, and it won’t take us very long to get back to where we were at back when the city first settled.”

    Brewer’s remarks are worse than “You didn’t build that.” The mayor of Wichita is telling us you can’t build that — not without government guidance and intervention, anyway.

    Many people in Wichita, including the mayor and most on the city council and county commission, believe that the public-private partnership is the way to drive innovation and get things done. It’s really a shame that this attitude is taking hold in Wichita, a city which has such a proud tradition of entrepreneurship. The names that Wichitans are rightly proud of — Lloyd Stearman, Walter Beech, Clyde Cessna, W.C. Coleman, Albert Alexander Hyde, Dan and Frank Carney, and Fred C. Koch — these people worked and built businesses without the benefit of public-private partnerships and government subsidy.

    This tradition of entrepreneurship is disappearing, replaced by the public-private partnership and programs like Visioneering Wichita, sustainable communities, Greater Wichita Economic Development Coalition, Regional Economic Area Partnership (REAP), and rampant cronyism. Although when given a chance, voters are rejecting cronyism.

    We don’t have long before the entrepreneurial spirit in Wichita is totally subservient to government. What can we do to return power to the people instead of surrendering it to government?

    Wichita Mayor Carl Brewer, August 12, 2008:

    “You know, I think that a lot of individuals have a lot of views and opinions about philosophy as to, whether or not, what role the city government should play inside of a community or city. But it’s always interesting to hear various different individuals’ philosophy or their view as to what that role is, and whether or not government or policy makers should have any type of input whatsoever.

    “I would be afraid, because I’ve had an opportunity to hear some of the views, and under the models of what individuals’ logic and thinking is, if government had not played some kind of role in guiding and identifying how the city was going to grow, how any city was going to grow, I’d be afraid of what that would be. Because we would still be in covered wagons and horses. There would be no change.

    “Because the stance is let’s not do anything. Just don’t do anything. Hands off. Just let it happen. So if society, if technology, and everything just goes off and leaves you behind, that’s okay. Just don’t do anything. I just thank God we have individuals that have enough gumption to step forward and say I’m willing to make a change, I’m willing to make a difference, I’m willing to improve the community. Because they don’t want to acknowledge the fact that improving the quality of life, improving the various different things, improving bringing in businesses, cleaning up street, cleaning up neighborhoods, doing those things, helping individuals feel good about themselves: they don’t want to acknowledge that those types of things are important, and those types of things, there’s no way you can assess or put a a dollar amount to it.

    “Not everyone has the luxury to live around a lake, or be able to walk out in their backyard or have someone come over and manicure their yard for them, not everyone has that opportunity. Most have to do that themselves.

    “But they want an environment, sometimes you have to have individuals to come in and to help you, and I think that this is one of those things that going to provide that.

    “This community was a healthy thriving community when I was a kid in high school. I used to go in and eat pizza after football games, and all the high school students would go and celebrate.

    “But, just like anything else, things become old, individuals move on, they’re forgotten in time, maybe the city didn’t make the investments that they should have back then, and they walk off and leave it.

    “But new we have someone whose interested in trying to revive it. In trying to do something a little different. In trying to instill pride in the neighborhood, trying to create an environment where it’s enticing for individuals to want to come back there, or enticing for individuals to want to live there.

    “So I must commend those individuals for doing that. But if we say we start today and say that we don’t want to start taking care of communities, then tomorrow we’ll be saying we don’t want more technology, and then the following day we’ll be saying we don’t want public safety, and it won’t take us very long to get back to where we were at back when the city first settled.

    “So I think this is something that’s a good venture, it’s a good thing for the community, we’ve heard from the community, we’ve seen the actions of the community, we saw it on the news what these communities are doing because they know there’s that light at the end of the tunnel. We’ve seen it on the news. They’ve been reporting it in the media, what this particular community has been doing, and what others around it.

    “And you know what? The city partnered with them, to help them generate this kind of energy and this type of excitement and this type of pride.

    “So I think this is something that’s good. And I know that there’s always going to be people who are naysayers, that they’re just not going to be happy. And I don’t want you to let let this to discourage you, and I don’t want the comments that have been heard today to discourage the citizens of those neighborhoods. And to continue to doing the great work that they’re doing, and to continue to have faith, and to continue that there is light at the end of the tunnel, and that there is a value that just can’t be measured of having pride in your community and pride in your neighborhood, and yes we do have a role to be able to help those individuals trying to help themselves.”