The real free lunch: Markets and private property

As we approach another birthday of Milton Friedman, here’s his article where he clears up the authorship of a famous aphorism, and explains how to really get a free lunch. Based on remarks at the banquet celebrating the opening of the Cato Institute’s new building, Washington, May 1993.

I am delighted to be here on the occasion of the opening of the Cato headquarters. It is a beautiful building and a real tribute to the intellectual influence of Ed Crane and his associates.

I have sometimes been associated with the aphorism “There’s no such thing as a free lunch,” which I did not invent. I wish more attention were paid to one that I did invent, and that I think is particularly appropriate in this city, “Nobody spends somebody else’s money as carefully as he spends his own.” But all aphorisms are half-truths. One of our favorite family pursuits on long drives is to try to find the opposites of aphorisms. For example, “History never repeats itself,” but “There’s nothing new under the sun.” Or “Look before you leap,” but “He who hesitates is lost.” The opposite of “There’s no such thing as a free lunch” is clearly “The best things in life are free.”

And in the real economic world, there is a free lunch, an extraordinary free lunch, and that free lunch is free markets and private property. Why is it that on one side of an arbitrary line there was East Germany and on the other side there was West Germany with such a different level of prosperity? It was because West Germany had a system of largely free, private markets — a free lunch. The same free lunch explains the difference between Hong Kong and mainland China, and the prosperity of the United States and Great Britain. These free lunches have been the product of a set of invisible institutions that, as F. A. Hayek emphasized, are a product of human action but not of human intention.

At the moment, we in the United States have available to us, if we will take it, something that is about as close to a free lunch as you can have. After the fall of communism, everybody in the world agreed that socialism was a failure. Everybody in the world, more or less, agreed that capitalism was a success. The funny thing is that every capitalist country in the world apparently concluded that therefore what the West needed was more socialism. That’s obviously absurd, so let’s look at the opportunity we now have to get a nearly free lunch. President Clinton has said that what we need is widespread sacrifice and concentrated benefits. What we really need is exactly the opposite. What we need and what we can have — what is the nearest thing to a free lunch — is widespread benefits and concentrated sacrifice. It’s not a wholly free lunch, but it’s close.

Let me give a few examples. The Rural Electrification Administration was established to bring electricity to farms in the 1930s, when about 80 percent of the farms did not have electricity. When 100 percent of the farms had electricity, the REA shifted to telephone service. Now 100 percent of the farms have telephone service, but the REA goes merrily along. Suppose we abolish the REA, which is just making low-interest loans to concentrated interests, mostly electric and telephone companies. The people of the United States would be better off; they’d save a lot of money that could be used for tax reductions. Who would be hurt? A handful of people who have been getting government subsidies at the expense of the rest of the population. I call that pretty nearly a free lunch.

Another example illustrates Parkinson’s law in agriculture. In 1945 there were 10 million people, either family or hired workers, employed on farms, and the Department of Agriculture had 80,000 employees. In 1992 there were 3 million people employed on farms, and the Department of Agriculture had 122,000 employees.

Nearly every item in the federal budget offers a similar opportunity. The Clinton people will tell you that all of those things are in the budget because people want the goodies but are just too stingy to pay for them. That’s utter nonsense. The people don’t want those goodies. Suppose you put to the American people a simple proposition about sugar: We can set things up so that the sugar you buy is produced primarily from beets and cane grown on American farms or so the sugar in addition comes without limit from El Salvador or the Philippines or somewhere else. If we restrict you to home-grown sugar, it will be two or three times as expensive as if we include sugar from abroad. Which do you really think voters would choose? The people don’t want to pay higher prices. A small group of special interests, which reaps concentrated benefits, wants them to, and that is why sugar in the United States costs several times the world price. The people were never consulted. We are not governed by the people; that’s a myth carried over from Abraham Lincoln’s day. We don’t have government of the people, by the people, for the people. We have government of the people, by the bureaucrats, for the bureaucrats.

Consider another myth. President Clinton says he’s the agent of change. That is false. He gets away with saying that because of the tendency to refer to the 12 Reagan-Bush years as if they were one period. They weren’t. We had Reaganomics, then Bushonomics, and now we have Clintonomics. Reaganomics had four simple principles: lower marginal tax rates, less regulation, restrained government spending, noninflationary monetary policy. Though Reagan did not achieve all of his goals, he made good progress. Bush’s policy was exactly the reverse of Reaganomics: higher tax rates, more regulation, more government spending. What is Clinton’s policy? Higher tax rates, more regulation, more government spending. Clintonomics is a continuation of Bushonomics, and we know what the results of reversing Reaganomics were.

On a more fundamental level, our present problems, both economic and noneconomic, arise mainly from the drastic change that has occurred during the past six decades in the relative importance of two different markets for determining who gets what, when, where, and how. Those markets are the economic market operating under the incentive of profit and the political market operating under the incentive of power. In my lifetime the relative importance of the economic market has declined in terms of the fraction of the country’s resources that it is able to use. And the importance of the political, or government, market has greatly expanded. We have been starving the market that has been working and feeding the market that has been failing. That’s essentially the story of the past 60 years.

We Americans are far wealthier today than we were 60 years ago. But we are less free. And we are less secure. When I graduated from high school in 1928, total government spending at all levels in the United States was a little over 10 percent of the national income. Two-thirds of that spending was state and local. Federal government spending was about 3 percent of the national income, or roughly what it had been since the Constitution was adopted a century and a half earlier, except for periods of major war. Half of federal spending was for the army and the navy. State and local government spending was something like 7 to 9 percent, and half of that was for schools and roads. Today, total government spending at all levels is 43 percent of the national income, and two-thirds of that is federal, one-third state and local. The federal portion is 30 percent of national income, or about 10 times what it was in 1928.

That figure understates the fraction of resources being absorbed by the political market. In addition to its own spending, the government mandates that all of us make a great many expenditures, something it never used to do. Mandated spending ranges from the requirement that you pay for antipollution devices on your automobiles, to the Clean Air Bill, to the Aid for Disability Act; you can go down the line. Essentially, the private economy has become an agent of the federal government. Everybody in this room was working for the federal government about a month ago filling out income tax returns. Why shouldn’t you have been paid for being tax collectors for the federal government? So I would estimate that at least 50 percent of the total productive resources of our nation are now being organized through the political market. In that very important sense, we are more than half socialist.

So much for input, what about output? Consider the private market first. There has been an absolutely tremendous increase in our living standards, due almost entirely to the private market. In 1928 radio was in its early stages, television was a futuristic dream, airplanes were all propeller driven, a trip to New York from where my family lived 20 miles away in New Jersey was a great event. Truly, a revolution has occurred in our material standard of living. And that revolution has occurred almost entirely through the private economic market. Government’s contribution was essential but not costly. Its contribution, which it’s not making nearly as well as it did at an earlier time, was to protect private property rights and to provide a mechanism for adjudicating disputes. But the overwhelming bulk of the revolution in our standard of living came through the private market.

Whereas the private market has produced a higher standard of living, the expanded government market has produced mainly problems. The contrast is sharp. Both Rose and I came from families with incomes that by today’s standards would be well below the so-called poverty line. We both went to government schools, and we both thought we got a good education. Today the children of families that have incomes corresponding to what we had then have a much harder time getting a decent education. As children, we were able to walk to school; in fact, we could walk in the streets without fear almost everywhere. In the depth of the Depression, when the number of truly disadvantaged people in great trouble was far larger than it is today, there was nothing like the current concern over personal safety, and there were few panhandlers littering the streets. What you had on the street were people trying to sell apples. There was a sense of self-reliance that, if it hasn’t disappeared, is much less prevalent.

In 1938 you could even find an apartment to rent in New York City. After we got married and moved to New York, we looked in the apartments-available column in the newspaper, chose half a dozen we wanted to look at, did so, and rented one. People used to give up their apartments in the spring, go away for the summer, and come back in the autumn to find new apartments. It was called the moving season. In New York today, the best way to find an apartment is probably to keep track of the obituary columns. What’s produced that difference? Why is New York housing a disaster today? Why does the South Bronx look like parts of Bosnia that have been bombed? Not because of the private market, obviously, but because of rent control.

Despite the current rhetoric, our real problems are not economic. I am inclined to say that our real problems are not economic despite the best efforts of government to make them so. I want to cite one figure. In 1946 government assumed responsibility for producing full employment with the Full Employment Act. In the years since then, unemployment has averaged 5.7 percent. In the years from 1900 to 1929 when government made no pretense of being responsible for employment, unemployment averaged 4.6 percent. So, our unemployment problem too is largely government created. Nonetheless, the economic problems are not the real ones.

Our major problems are social — deteriorating education, lawlessness and crime, homelessness, the collapse of family values, the crisis in medical care, teenage pregnancies. Every one of these problems has been either produced or exacerbated by the well-intentioned efforts of government. It’s easy to document two things: that we’ve been transferring resources from the private market to the government market and that the private market works and the government market doesn’t.

It’s far harder to understand why supposedly intelligent, well-intentioned people have produced these results. One reason, as we all know, that is certainly part of the answer is the power of special interests. But I believe that a more fundamental answer has to do with the difference between the self-interest of individuals when they are engaged in the private market and the self-interest of individuals when they are engaged in the political market. If you’re engaged in a venture in the private market and it begins to fail, the only way you can keep it going is to dig into your own pocket. So you have a strong incentive to shut it down. On the other hand, if you start exactly the same enterprise in the government sector, with exactly the same prospects for failure, and it begins to fail, you have a much better alternative. You can say that your project or program should really have been undertaken on a bigger scale; and you don’t have to dig into your own pocket, you have a much deeper pocket into which to dig, that of the taxpayer. In perfectly good conscience you can try to persuade, and typically succeed in persuading, not the taxpayer, but the congressmen, that yours is really a good project and that all it needs is a little more money. And so, to coin another aphorism, if a private venture fails, it’s closed down. If a government venture fails, it’s expanded.

We sometimes think the solution to our problems is to elect the right people to Congress. I believe that’s false, that if a random sample of the people in this room were to replace the 435 people in the House and the 100 people in the Senate, the results would be much the same. With few exceptions, the people in Congress are decent people who want to do good. They’re not deliberately engaging in activities that they know will do harm. They are simply immersed in an environment in which all the pressures are in one direction, to spend more money.

Recent studies demonstrate that most of the pressure for more spending comes from the government itself. It’s a self-generating monstrosity. In my opinion, the only way we can change it is by changing the incentives under which the people in government operate. If you want people to act differently, you have to make it in their own self-interest to do so. As Armen Alchan always says, there’s one thing you can count on everybody in the world to do, and that’s to put his self-interest above yours.

I have no magic formula for changing the self-interest of bureaucrats and members of Congress. Constitutional amendments to limit taxes and spending, to rule out monetary manipulation, and to inhibit market distortions would be fine, but we’re not going to get them. The only viable thing on the national horizon is the term-limits movement. A six-year term limit for representatives would not change their basic nature, but it would change drastically the kinds of people who would seek election to Congress and the incentives under which they would operate. I believe that those of us who are interested in trying to reverse the allocation of our resources, to shift more and more to the private market and less and less to the government market, must disabuse ourselves of the notion that all we need to do is elect the right people. At one point we thought electing the right president would do it. We did and it didn’t. We have to turn our attention to changing the incentives under which people operate. The movement for term limits is one way of doing that; it’s an excellent idea, and it’s making real progress. There have to be other movements as well.

Some changes are being made on the state level. Wherever you have initiative, that is, popular referendum, there is an opportunity to change. I don’t believe in pure democracy; nobody believes in pure democracy. Nobody believes that it’s appropriate to kill 49 percent of the population even if 51 percent of the people vote to do so. But we do believe in giving everybody the opportunity to use his own resources as effectively as he can to promote his own values as long as he doesn’t interfere with anybody else. And on the whole, experience has shown that the public at large, through the initiative process, is much more attuned to that objective than are the people they elect to the legislature. So I believe that the referendum process has to be exploited. In California we have been working very hard on an initiative to allow parental choice of schools. Effective parental choice will be on the ballot this fall. Maybe we won’t win it, but we’ve got to keep trying.

We’ve got to keeping trying to change the way Americans think about the role of government. Cato does that by, among other things, documenting in detail the harmful effects of government policies that I’ve swept over in broad generalities. The American public is being taken to the cleaners. As the people come to understand what is going on, the intellectual climate will change, and we may be able to initiate institutional changes that will establish appropriate incentives for the people who control the government purse strings and so large a part of our lives.

Sedgwick County Zoo funding

The Sedgwick County Commission has been generous with zoo funding, spending far more than agreed upon and granting a moratorium on loan payments and interest.

Funding agreement from 2013.
Funding agreement from 2013.
In September 2013 the Sedgwick County Commission agreed on a new funding plan with the Sedgwick County Zoo for years 2014 through 2018. For 2016 the recommended budget calls for keeping funding the same as the 2015 level instead of a 6.9 percent increase as indicated by the 2013 plan.

That’s the plan. What actually happened is quite different.

In September 2014 the commission voted to give the zoo $5.3 million to help pay for a new elephant exhibit. This contribution was not in any funding agreement, and the money was paid in January 2015. This extra funding is almost as large as the planned funding for 2015, which was about $5.6 million.

Sedgwick County Zoo funding, planned and actual.
Sedgwick County Zoo funding, planned and actual.
For next year the commission proposes drawing back just a little, proposing that 2016 funding be the same as 2015 planned and actual funding.

But instead of being grateful for the contribution of $5.3 million for the elephant exhibit, zoo boosters are bitter because the commission is proposing to keep zoo funding level from 2015 to 2016. Level, that is, if one ignores an extra $5.3 million from the county in 2015.

When considering zoo funding we also need to factor in the zoo’s failure to keep its commitment to the county. The zoo has borrowed money from the county so it could build a restaurant. Now the zoo is enjoying a deferral of loan payments and a break from accumulating interest charges. See For Sedgwick County Zoo, a moratorium on its commitment.

By the way, the 2013 funding plan holds that “either party may terminate this agreement by giving written notice.” The parties contemplated that one may not be able or willing to meet the plan.

For Sedgwick County Zoo, a moratorium on its commitment

As the Sedgwick County Zoo and its supporters criticize commissioners for failing to honor commitments, the Zoo is enjoying a deferral of loan payments and a break from accumulating interest charges.

In 2007 the Sedgwick County commission authorized a loan of up to $2.4 million to the zoo to build a restaurant. The idea for this is credited to just-retired County Manager Bill Buchanan. According to meeting minutes from February 21, 2007, the Manager told the commissioners “A new restaurant in the zoo will make some money for the zoo, it is a feature that zoos around the country use as a way to attract people and as an additional revenue source.” As for the county’s role in the venture, the manager said “I’ve viewed this as a way to invest our money, rather than with a Treasury note[,] with a partner.”

Buchanan pitched the loan as a way for the county to earn a little bit more interest than a Treasury note, and as a way for the Zoo to save over $100,000 in interest. If the Zoo was not able to repay the loan, the manager said the county’s annual contribution to the Zoo could be a repayment source. “No one is anticipating that,” said Buchanan.

Immediately after the manager spoke Chris Chronis, the county’s Chief Financial Officer, told the commissioners that “despite what you may have concluded from what the Manager just said, we do not consider this an investment. In fact, it would not be a permitted investment under State law.” Instead, he told the commissioners it should be considered “a loan for economic development purposes.”

Mark Reed, the Zoo Director, told the commissioners “it is my desire and hope to have this paid off in five to seven years.”

What has been the result of this loan?

The zoo borrowed a total of $2,251,100 in two draws in 2007 and 2008. Payments were made through 2013. As of the end of 2014 the zoo owed $936,044 on this loan, according to the county’s annual financial report and other documents.

In 2013 the commission authorized a five-year moratorium on loan payments, to start in 2014. Besides deferring loan payments, the commission decided that interest will not accrue during the moratorium. The deferred payments are in the amount of $234,011.11 for each year.

Sedgwick County budget outlook

The Sedgwick County recommended budget for 2016 reduces projected deficits.

Sedgwick County budget outlook as presented to commissioners in February.
Sedgwick County budget outlook as presented to commissioners in February.
In February Sedgwick County Commissioners were presented with a forecast of budget deficits through 2020, as can be seen in the nearby illustration provided by the county. (Click charts for larger versions.)

Sedgwick County budget outlook as contemplated by recommended budget in July.
Sedgwick County budget outlook as contemplated by recommended budget in July.
The recommended budget reduces the deficits in each year, as can be seen in the second chart provided by the county. The bar chart provides a different view of the same figures.

During a meeting with commissioners, the county’s financial officer said “In each year this budget provides for a reduction in the anticipated deficit.” He also added that it improves the county’s financial picture.

The recommended budget cuts spending in some areas. An alternative that could be proposed by commissioners is to raise taxes, either property or sales.

An alternate presentation of the projected deficits based on the recommended budget.
An alternate presentation of the projected deficits based on the recommended budget.

Sedgwick County commissioners oppose Westar rate increase

The following resolution was voted on during the July 22, 2015 meeting. All five Sedgwick County commissioners voted in favor. More about the proposed rate increase may be found from Westar, from the Citizens’ Utility Ratepayer Board, and also the Kansas Corporation Commission.

A RESOLUTION OPPOSING $152 MILLION ELECTRIC RATE HIKE

WHEREAS, electricity is a key utility needed for life and a strong, functioning economy in the 21st century; and

WHEREAS, the Consumer Price Index (CPI) as measured by the federal government’s measurement is well under two percent a year; and

WHEREAS, the $152 million dollar rate hike proposed by Westar would average an increase of almost 8 percent for rate payers; and

WHEREAS, between 2009 and 2014 Westar has received 22 electric rate hikes that have totaled $536.9 million (this is the net that also includes two rate reductions that totaled $6 million during that same period of time) at a time when the Sedgwick County economy was struggling and with almost no growth in the assessed value of the taxable property base; and

WHEREAS, residential rates would see another dramatic increase of 12.1 percent if this request is approved as requested according to the Citizens Utility Rate Board (CURB); and

WHEREAS, further electric rate hikes of $24 million are either pending or projected within the next year according to CURB; and

WHEREAS, the competitiveness of this region is dependent upon having competitive rates for basic utility functions, with electricity production a vital key; and

WHEREAS, we are aware that the federal government is opposing carbon based energy production and intent on raising costs, while limiting low cost energy production.

NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF COUNTY COMMISSIONERS OF SEDGWICK COUNTY, KANSAS, that:

1. Sedgwick County opposes this proposed $152 million rate hike by Westar. This opposition also extends to any other rate hikes sought by Westar this year.

2. Sedgwick County opposes unfunded federal mandates onto energy production that would raise costs, inhibit production, and make Kansas and the rest of the U.S. less energy competitive with foreign competition and does so without significant environmental benefits.

‘Roast of Trump’ best left unserved

A celebrity roast of Donald Trump provides insight into the honoree’s character.

Anyone who is thinking of supporting Donald Trump for president might want to view the Comedy Central Roast of Trump. This was recorded in 2011, and several roasters referred to Trump’s possible presidential candidacy. You can find it on YouTube.

In these roasts the humor is raunchy and vulgar. The language is foul. I’m not sure I understand all the jokes, and I’m a little ashamed to admit that I do understand many. The roasters — a collection of has-beens like Larry King and celebrities who seem to do nothing but appear on roasts — poke fun at the roastee, in this case Donald Trump.

Well, it’s much more than poking fun. The roasters skewer Trump. No aspect of his life seems off limits. Multiple jokes refer to his several young wives and his sex life. These jokes are often funny. They’re funny because they exaggerate some aspect of Trump. They have to have a whiff of plausibility, some grounding in reality, in order to be funny.

If, for example, a roaster were to poke fun at Trump for being poor or short, that wouldn’t be funny. Trump is not poor; he’s extremely wealthy, and he’s tall. There’s no platform from which to exaggerate for humorous effect.

But when a roaster crudely jests at how Trump’s ego intrudes on his sex life (it has to do with Trump being more interested in himself than in his partner), that’s pretty funny. It references things that are true about Trump — his massive ego and his several beautiful young wives — and exaggerates a little.

Jokes like this could not have been a surprise to Trump. He (or his people) must have known the nature of the humor employed at these roasts. So the question is: Why did he appear in such a forum? Is this a way to appear presidential?

Wichita Eagle editorial board on county budget

When someone invokes “ideology” in their criticism of you, you know that they’ve either run short of actual arguments based on fact, or they don’t know what ideological means.

In its op-ed this Sunday, the Wichita Eagle editorial board blasts the Sedgwick County Commission for cuts to various programs, mentioning “Sedgwick County Zoo, Exploration Place, the Arts Council and Greater Wichita Economic Development Coalition” specifically.

I might invite the Eagle editorialists to revisit the county’s recommended budget for 2013, prepared under the leadership of then-chairman Tim Norton, the body’s sole Democrat, both then and now. According to county documents, Norton’s recommended budget made these cuts:

Zoo: $255,889
Exploration Place: $112,405
Arts Council: $0
GWEDC: $0

So this is not the first time the zoo and Exploration Place have been cut.

Additionally, Norton’s recommended budget cut 113.80 employees from the county payroll. Of these, 60.75 were from the closure of the Judge Riddel Boys Ranch Juvenile Detention Program, leaving 53.05 in cuts from other county programs. The 2016 recommended budget calls for cuts of 10.00 employees.

I wonder: Did the Eagle editorial writers rail against commissioners Norton, Unruh, and Skelton for the cuts in the 2013 recommended budget? Yes, there was criticism of budget cuts then, but no ideological bashing.

This year the Eagle editorial board also criticizes the commission majority for its plan to eliminate routing borrowing for county roads and bridges. Last year the Eagle recommended Wichitans vote in favor of a sales tax. One of its components, viewed favorably by the city and the Eagle, was the avoidance of borrowing for a large public works project.

But now that conservatives on the county commission propose avoiding debt — some debt, not all debt — the Eagle is opposed.

The shifting sands underlying the Eagle editorial board’s criticism is evidence of an ideology, and a rather shallow one. Cuts made by conservatives? Bad. There will be damage, says the headline.

Much larger cuts made by progressives? The editorial board acknowledges “the county needs to tighten its belt and prioritize its services.”

That’s quite a contrast.

Here are excerpts from the 2013 and 2016 Sedgwick County recommended budgets showing recommended cuts.

Kansas senators vote to advance Ex-Im Bank

In a procedural motion, Kansas Senators Pat Roberts and Jerry Moran voted to advance the revival of the Export-Import Bank. The vote was a procedural motion on an amendment to allow a floor vote (invoking cloture). The amendment passed by a vote of 67 to 26.

Among Republicans the vote was 24 to 26 against the measure. All Democrats voted in favor.

The Export-Import Bank failed to be reauthorized by a June 30 deadline. It has not been making new loans since. The current legislation that passed the senate would reauthorize the bank.

Free market groups have long opposed the Ex-Im Bank, while many business interest groups call it vital.

WichitaLiberty.TV: Sedgwick County Commissioners Karl Peterjohn and Richard Ranzau

In this episode of WichitaLiberty.TV: It’s budget season for local governments. Sedgwick County Commissioners Karl Peterjohn and Richard Ranzau visit the WichitaLiberty.TV studios to explain the county budget for 2016. View below, or click here to view at YouTube. Episode 89, broadcast July 26, 2015.

Sedgwick County’s page for the 2016 budget is here.

Government creates obstacles to progress

“Overcoming obstacles can be a difficult challenge even on a level playing field. We need to change the rigged system that favors the politically connected over the hardworking, honest citizen,” writes Charles Koch in a recent edition of Perspectives.

Overcoming Obstacles

By Charles Koch
July 13, 2015

America’s founding fathers had a unique vision for the United States. As the Declaration of Independence famously put it, this country was conceived as a place where people could enjoy “unalienable Rights,” including “Life, Liberty and the pursuit of Happiness.”

These concepts are much more than just words to me. I believe the greatest gift we can receive or pass on is the opportunity to find and pursue our passion, and, in doing so, make a difference by helping others improve their lives.

It seems to me we’re now losing much of the vision our founders fought so hard to establish. Time and time again, government policies have made it tougher for people to realize their potential.

This change creates some serious consequences, especially for the least-advantaged Americans, who now face more obstacles than ever in their struggle to develop and apply their unique talents and abilities.

To remove these obstacles, we need to revise poverty-creating regulations and abolish corporate welfare, reform our approach to education and enact criminal justice reform.

OVERCOMING OBSTACLES

Consider the challenges of starting a small business. Most would be entrepreneurs have very little capital. To raise money, many will pledge or mortgage whatever assets they have; others will ask for a small business loan.

In the past, community banks usually made such loans. But the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010, put a particular burden on local lenders.

Community banks now face higher compliance costs, more complicated regulations and some strong disincentives to make traditional loans. As Forbes bluntly put it: “Dodd-Frank is killing community banks.”

When small borrowers have no local options, they are forced to turn to bigger banks for help, where they have even less of a chance of getting a loan.

Regressive and anti-competitive regulations are also stalling progress. In particular, licensure requirements (especially at the state and local level) have become a huge obstacle.

Millions are now denied jobs in more than 100 lower-income occupations because of unnecessary licensing requirements, months of mandated training and unaffordable fees.

At the corporate level, excessive permitting requirements (such as a decade-long approval process for a new facility) are very anticompetitive. Such requirements not only prevent the creation of jobs, they protect existing businesses from competition and keep out new entrants, which is a form of corporate welfare.

CORPORATE WELFARE

Even as the little guy is getting stiff-armed, the government has opened its arms to corporate cronyism by subsidizing big banks and corporations through the tax code, mandates, protective tariffs and so on.

I believe this corporate welfare has created a two-tier system with far more “have-nots” than “haves.”

Too many CEOs owe their profits to government “gimmes” rather than the creation of real value by helping others improve their lives. This is the major cause of so much profit being bad rather than good (the subject of my upcoming book).

Speaking of books, another troubling area is education, which should be a path for overcoming obstacles.

Having an effective education that imparts the skills and values needed to make a contribution in society is essential for success.

But that doesn’t mean we should try to push almost all high school graduates into a four-year liberal arts program where they may collect a lot of debt without getting any usable skills.

Educational choices should reflect aptitude. Many kids with mechanical aptitudes will be much more successful by learning a skilled trade or craft.

RENEWED VISION

America should be a place that encourages and enables people to find opportunities to contribute and succeed, and have meaning and fulfillment in their lives.

Instead, it appears that America has become a two-tiered system, in which those with political connections get favors while obstacles are placed in front of those who are left behind.

A great nation does not treat people according to some group classification, whether it be race, religion, gender or age, instead of on their individual merits.

We need to reform our legal and regulatory system so that it treats everyone equally and doesn’t discriminate against the least-advantaged in our society.

Overcoming obstacles can be a difficult challenge even on a level playing field. We need to change the rigged system that favors the politically connected over the hardworking, honest citizen.

Friedman: Laws that do harm

As we approach another birthday of Milton Friedman, here’s his column from Newsweek in 1982 that explains that despite good intentions, the result of government intervention often harms those it is intended to help.

There is a sure-fire way to predict the consequences of a government social program adopted to achieve worthy ends. Find out what the well-meaning, public-interested persons who advocated its adoption expected it to accomplish. Then reverse those expectations. You will have an accurate prediction of actual results.

To illustrate on the broadest level, idealists from Marx to Lenin and the subsequent fellow travelers claimed that communism would enhance both freedom and prosperity and lead to the “withering away of the state.” We all know the results in the Soviet Union and the People’s Republic of China: misery, slavery and a more powerful and all-encompassing government than the world had ever seen.

Idealists, from Harold Laski to Jawaharlal Nehru, promised the suffering Indian masses that “democratic economic planning” would abolish famines, bring material prosperity, resolve age-old conflicts between the castes and eliminate inequality. The result has been continued deprivation for the masses, continued violence between the castes and widened inequality.

To come down to less sweeping cases rent control has been promoted for millenniums as a way to hold down rents and ensure more housing for the disadvantaged. Wherever it has been adopted, the actual result has been precisely the opposite for all but a few favored tenants. Rent control has encouraged the wasteful use of housing space and has discouraged the building of more housing units. As a result, rents actually paid — whether legally or under the table — by all tenants except those who do not move have skyrocketed. And even the tenants who do not move complain about not being able to.

Over two years ago, when the San Francisco supervisors were contemplating a form of rent control, I republished in a local paper a NEWSWEEK column of mine on rent control, prefacing it with the comment that only a “fool or a knave” could support rent control after examining the massive evidence on its effects. Needless to say, that did not prevent the majority of a board of supervisors, consisting of neither fools nor knaves, from enacting the ordinance I objected to. And the lessons of experience have not prevented the adoption of rent control in other cities — or the repetition of that same experience.

Urban renewal programs were urged to cure “urban blight” and improve the housing available to the poor. The result was a “Federal Bulldozer,” as Martin Anderson titled his searching examination of urban renewal. More dwelling units were torn down than were constructed. The new units constructed were mostly for middle- and upper-income classes. Urban blight was simply shifted and made worse by the still higher density created elsewhere by removing the poor from the “renewed” area.

In education, professionalization, integration, bilingualism, massive doses of federal assistance — all have been promoted to improve the quality of schooling and reduce racial tension and discrimination. The result was predictable: a drastic lowering of educational performance and an increase in actual segregation of races, at least in the North.

President Nixon introduced price controls on Aug. 15, 1971, to eliminate inflation, which at the time was running at about 4 to 5 percent per year. When controls ended in 1974, inflation soared into double digits.

The Interstate Commerce Commission was promoted in the 1880s and 1890s by the Ralph Naders of the day to discipline monopolistic railroads and benefit their customers. One group in today’s Nader conglomerate has published a devastating study of the ICC demonstrating that it strengthened the monopoly power of the railroads, and later of trucking. The users of transportation have had the dubious privilege of paying higher prices for poorer service.

Need I go on? I challenge my readers to name a government social program that has achieved the results promised by its well-meaning and public-interested proponents. I keep repeating “well-meaning and public-interested proponents” because they have generally been the dupes of others who had very clear self-interested motives and often did achieve the results that they intended — the railroads in the 1890s for example.

The amazing thing to me is the continued gullibility of intellectuals and the public. I wish someone would explain that to me. Is it simply because no one has given this widely documented generalization a catchy name — like … (suggestions welcome)?

Pompeo: Disclose complete Iran nuclear deal

U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district and Arkansas Senator Tom Cotton recently traveled to Vienna to meet with officials of the International Atomic Energy Agency (IAEA). They have revealed the existence of two side deals between Iran and IDEA that are important and relevant to the deal negotiated by Secretary of State John Kerry and promoted by President Barack Obama. According to a Pompeo spokesperson, the existence of these side deals was not a secret, having been mentioned in an IDEA press release from July 14. But the content of the agreements is secret, and their significance unknown.

Following, two press releases from July 21 and 22 from Pompeo’s office.

July 21, 2015

Pompeo, Cotton Urge Disclosure of Complete Iran Nuclear Deal

IAEA tells the lawmakers that two inspections arrangements regarding Iran’s past military work will remain secret

WASHINGTON, D.C. — Congressman Mike Pompeo (KS-04) and Senator Tom Cotton (R-Arkansas) on Friday had a meeting in Vienna with the International Atomic Energy Agency (IAEA), during which the agency conveyed to the lawmakers that two side deals made between the Islamic Republic of Iran and the IAEA as part of the Joint Comprehensive Plan of Action (JCPOA) will remain secret and will not be shared with other nations, with Congress, or with the public. One agreement covers the inspection of the Parchin military complex, and the second details how the IAEA and Iran will resolve outstanding issues on possible military dimensions of Iran’s nuclear program.

According to the IAEA, the Iran agreement negotiators, including the Obama administration, agreed that the IAEA and Iran would forge separate arrangements to govern the inspection of the Parchin military complex — one of the most secretive military facilities in Iran — and how Iran would satisfy the IAEA’s outstanding questions regarding past weaponization work. Both arrangements will not be vetted by any organization other than Iran and the IAEA, and will not be released even to the nations that negotiated the JCPOA. This means that the secret arrangements have not been released for public scrutiny and have not been submitted to Congress as part of its legislatively mandated review of the Iran deal.

IAEA Director General Yukiya Amano and Vice President of the Islamic Republic of Iran Ali Akhbar Salehi signing a roadmap for the clarification of past and present issues regarding Iran’s nuclear program in Vienna.
IAEA Director General Yukiya Amano and Vice President of the Islamic Republic of Iran Ali Akhbar Salehi signing a roadmap for the clarification of past and present issues regarding Iran’s nuclear program in Vienna.
Parchin is a critical linchpin in the Iranian nuclear program that has long-been suspected of both long-range ballistic missile and nuclear weapons development. In 2011, the IAEA suspected that the facility was used to conduct high-explosive experiments as part of an effort to build nuclear weapons.

Even under the woefully inadequate Iran Nuclear Agreement Review Act, the Obama administration is required to provide the U.S. Congress with all nuclear agreement documents, including all “annexes, appendices, codicils, side agreements, implementing materials, documents, and guidance, technical or other understandings and any related agreements, whether entered into or implemented prior to the agreement or to be entered into or implemented in the future.”

Pompeo said: “This agreement is the worst of backroom deals. In addition to allowing Iran to keep its nuclear program, missile program, American hostages, and terrorist network, the Obama administration has failed to make public separate side deals that have been struck for the ‘inspection’ of one of the most important nuclear sites—the Parchin military complex. Not only does this violate the Iran Nuclear Agreement Review Act, it is asking Congress to agree to a deal that it cannot review.

“The failure to disclose the content of these side agreements begs the question, ‘What is the Obama administration hiding?’ Even members of Congress who are sympathetic to this deal cannot and must not accept a deal we aren’t even aware of. I urge my colleagues on both sides of the aisle to stand up and demand to see the complete deal.”

Cotton said: “In failing to secure the disclosure of these secret side deals, the Obama administration is asking Congress and the American people to trust, but not verify. What we cannot do is trust the terror-sponsoring, anti-American, outlaw regime that governs Iran and that has been deceiving the world on its nuclear weapons work for years. Congress’s evaluation of this deal must be based on hard facts and full information. That we are only now discovering that parts of this dangerous agreement are being kept secret begs the question of what other elements may also be secret and entirely free from public scrutiny.”

July 22, 2015

Pompeo, Cotton, Boehner and McConnell Request President Obama Disclose Secret Side Agreements to Iran Nuclear Deal

Washington, D.C. — Congressman Mike Pompeo (R-KS) and Senator Tom Cotton (R-AR) today joined House Speaker John Boehner and Senate Majority Leader Mitch McConnell in sending a letter to President Obama requesting two side agreements between the IAEA and Iran be provided to Congress.

The letter reads, in part:

The purpose of the Iran Nuclear Agreement review Act is to ensure Congress has a fully informed understanding of the JCPOA.  Failure to produce these two side agreements leaves Congress blind on critical information regarding Iran’s potential path to being a nuclear power and will have detrimental consequences for the ability of members to assess the JCPOA.  We request you transmit these two side agreements to Congress immediately so we may perform our duty to assess the many important questions related to the JCPOA. 

The Iran Nuclear Agreement Review Act was passed before the end of negotiations and the Obama Administration was well aware of its responsibility to submit all related agreements and documents to Congress.  It is therefore incumbent on the Administration to secure those side agreements and submit them to Congress for review.

The letter comes after a recent meeting between Congressman Mike Pompeo and Senator Tom Cotton and the International Atomic Energy Agency (IAEA) in Vienna, during which the agency conveyed that two side deals made between the Islamic Republic of Iran and the IAEA as part of the Joint Comprehensive Plan of Action (JCPOA) will remain secret and will not be shared with other nations, with Congress, or with the public. The first agreement covers the inspection of the Parchin military complex, and the second details how the IAEA and Iran will resolve outstanding issues on possible military dimensions of Iran’s nuclear program.

The full text of the letter can be found here.

Westar: First, control blatant waste

As our electric utility asks for a rate increase, let’s first ask that it stop blatant waste.

Westar, our state-regulated electric utility, is asking for a rate increase. As part of any increase, we ought to insist that the utility do a better job of controlling blatant waste.

Downtown Wichita, July 17, 2015, 11:18 am.
Downtown Wichita, July 17, 2015, 11:18 am.
Streetlights burning unnecessarily in the middle day in downtown Wichita is an ongoing problem. See In Wichita, wasting electricity a chronic problem and Waste in Wichita, the seen and probably unseen for examples.

The problem may not be solved soon. No one has much motivation to solve the problem. The city pays Westar a fixed fee for each streetlight. The use of electricity is not metered, at least as far as the city’s bill is concerned. So if the city notices the lights wasting electricity during the middle of the day, well, it’s of no cost to the city. The city is concerned that working with Westar to turn off street lights during the day may not be cost-effective, according to Ken Evans, the city’s director of strategic communications. That’s the attitude he expressed in a recent City of Wichita Facebook dialog with citizens. But the city has run a campaign asking people to turn off appliances like microwave ovens and alarm clocks when not in use. This saves a vanishingly small amount of electricity, and at a large cost in convenience.

Downtown Wichita, July 17, 2015, 11:18 am. At least five burning street lights can be seen.
Downtown Wichita, July 17, 2015, 11:18 am. At least five burning street lights can be seen.
Westar, on the other hand, is a highly-regulated utility that operates much like a governmental agency. How strong is the profit motive to Westar? Not strong, it seems. Most individuals or private business firms would seek to reduce the waste that Westar seems unconcerned about.

But before granting Westar a rate increase, its regulators ought to insist that the utility work to control blatant waste. This may be the only way to get attention to this problem.

Friedman: The fallacy of the welfare state

As we approach another birthday of Milton Friedman, here’s an insightful passage from the book he wrote with his wife Rose: Free to Choose: A Personal Statement. It explains why government spending is wasteful, how it leads to corruption, how it often does not benefit the people it was intended, and how the pressure for more spending is always present.

A simple classification of spending shows why that process leads to undesirable results. When you spend, you may spend your own money or someone else’s; and you may spend for the benefit of yourself or someone else. Combining these two pairs of alternatives gives four possibilities summarized in the following simple table:

friedman-spending-categories-2013-07

Category I in the table refers to your spending your own money on yourself. You shop in a supermarket, for example. You clearly have a strong incentive both to economize and to get as much value as you can for each dollar you do spend.

Category II refers to your spending your own money on someone else. You shop for Christmas or birthday presents. You have the same incentive to economize as in Category I but not the same incentive to get full value for your money, at least as judged by the tastes of the recipient. You will, of course, want to get something the recipient will like — provided that it also makes the right impression and does not take too much time and effort. (If, indeed, your main objective were to enable the recipient to get as much value as possible per dollar, you would give him cash, converting your Category II spending to Category I spending by him.)

Category III refers to your spending someone else’s money on yourself — lunching on an expense account, for instance. You have no strong incentive to keep down the cost of the lunch, but you do have a strong incentive to get your money’s worth.

Category IV refers to your spending someone else’s money on still another person. You are paying for someone else’s lunch out of an expense account. You have little incentive either to economize or to try to get your guest the lunch that he will value most highly. However, if you are having lunch with him, so that the lunch is a mixture of Category III and Category IV, you do have a strong incentive to satisfy your own tastes at the sacrifice of his, if necessary.

All welfare programs fall into either Category III — for example, Social Security which involves cash payments that the recipient is free to spend as he may wish; or Category IV — for example, public housing; except that even Category IV programs share one feature of Category III, namely, that the bureaucrats administering the program partake of the lunch; and all Category III programs have bureaucrats among their recipients.

In our opinion these characteristics of welfare spending are the main source of their defects.

Legislators vote to spend someone else’s money. The voters who elect the legislators are in one sense voting to spend their own money on themselves, but not in the direct sense of Category I spending. The connection between the taxes any individual pays and the spending he votes for is exceedingly loose. In practice, voters, like legislators, are inclined to regard someone else as paying for the programs the legislator votes for directly and the voter votes for indirectly. Bureaucrats who administer the programs are also spending someone else’s money. Little wonder that the amount spent explodes.

The bureaucrats spend someone else’s money on someone else. Only human kindness, not the much stronger and more dependable spur of self-interest, assures that they will spend the money in the way most beneficial to the recipients. Hence the wastefulness and ineffectiveness of the spending.

But that is not all. The lure of getting someone else’s money is strong. Many, including the bureaucrats administering the programs, will try to get it for themselves rather than have it go to someone else. The temptation to engage in corruption, to cheat, is strong and will not always be resisted or frustrated. People who resist the temptation to cheat will use legitimate means to direct the money to themselves. They will lobby for legislation favorable to themselves, for rules from which they can benefit. The bureaucrats administering the programs will press for better pay and perquisites for themselves — an outcome that larger programs will facilitate.

The attempt by people to divert government expenditures to themselves has two consequences that may not be obvious. First, it explains why so many programs tend to benefit middle- and upper-income groups rather than the poor for whom they are supposedly intended. The poor tend to lack not only the skills valued in the market, but also the skills required to be successful in the political scramble for funds. Indeed, their disadvantage in the political market is likely to be greater than in the economic. Once well-meaning reformers who may have helped to get a welfare measure enacted have gone on to their next reform, the poor are left to fend for themselves and they will almost always he overpowered by the groups that have already demonstrated a greater capacity to take advantage of available opportunities.

The second consequence is that the net gain to the recipients of the transfer will be less than the total amount transferred. If $100 of somebody else’s money is up for grabs, it pays to spend up to $100 of your own money to get it. The costs incurred to lobby legislators and regulatory authorities, for contributions to political campaigns, and for myriad other items are a pure waste — harming the taxpayer who pays and benefiting no one. They must be subtracted from the gross transfer to get the net gain — and may, of course, at times exceed the gross transfer, leaving a net loss, not gain.

These consequences of subsidy seeking also help to explain the pressure for more and more spending, more and more programs. The initial measures fail to achieve the objectives of the well-meaning reformers who sponsored them. They conclude that not enough has been done and seek additional programs. They gain as allies both people who envision careers as bureaucrats administering the programs and people who believe that they can tap the money to be spent.

Category IV spending tends also to corrupt the people involved. All such programs put some people in a position to decide what is good for other people. The effect is to instill in the one group a feeling of almost God-like power; in the other, a feeling of childlike dependence. The capacity of the beneficiaries for independence, for making their own decisions, atrophies through disuse. In addition to the waste of money, in addition to the failure to achieve the intended objectives, the end result is to rot the moral fabric that holds a decent society together.

Another by-product of Category III or IV spending has the same effect. Voluntary gifts aside, you can spend someone else’s money only by taking it away as government does. The use of force is therefore at the very heart of the welfare state — a bad means that tends to corrupt the good ends. That is also the reason why the welfare state threatens our freedom so seriously.

Wichita airport spends $180K on ads

The Wichita airport spends to produce and broadcast a television advertisement, and taxpayers didn’t have to pay. Sort of.

Shortly after the opening of the new terminal at Wichita Dwight D. Eisenhower National Airport, television ads began appearing. Citizens viewing the ads might wonder why a government-owned facility that has a monopoly on service needs to advertise, especially when the purpose of the ad is to generate an emotional response. (Curiously, the ad can’t be found on the airport’s website, but it is available on the Wichita City Channel 7 site, where it’s labeled as a public service announcement.)

Inquiry to the city about the cost of the ads resulted in these figures:

Production costs for TV: $83,308.73 (includes talent fees)
Media buy: $97,522
Total: $180,830.73

Apart from the necessity or wisdom of this advertisement, there is another consideration that has important implications for public policy. When I was supplied these figures, I was admonished that these are not tax dollars being spent. Instead, it’s airport revenue. The city also says the same about the cost of the new terminal — no tax dollars were spent. How is this possible?

The airport has a monopoly on regularly scheduled commercial air service in Wichita. If you want to travel on a major airline, you must use the Wichita airport or drive several hours to another airport. The airport functions as a branch of government. The fees it collects — the so-called “airport revenue” or “airport funds” — are mandatory. The rates are set by government. They fees are collected by government and spent by government.

Officials say the user fees the airport collects are not taxes because they are voluntary. You don’t pay the Wichita airport passenger fee (it’s included in ticket prices) unless you actually use the airport. Arguments like these are used by government officials to distinguish user fees from taxes. They say that the airport is operating like a business, charging only those who use its service.

There’s a small grain of truth in that. But when the airport has a monopoly on commercial air service in a large area, are the fees really voluntary? Of course not.

This principle of user fees being preferred to taxes is quickly abandoned when it suits the need of government spenders. For example, the state, county, and city tax everyone to pay Southwest Airlines to provide service in Wichita. Why not collect the subsidy funds only from airport users? It would be just another user fee.

The justification used by the city leads citizens to believe that government can spend money at no one’s cost. That’s false, but politicians believe it. Or so they say.

Wichita schools could increase engagement at no cost

The Wichita public school district could boost its engagement with citizens with a simple step that would add no cost.

If you’d like to watch a meeting of the board of USD 259, the Wichita public school district, your options are few. You can attend the meetings in person. Of, if you subscribe to certain cable television systems, you can view delayed repeats of the meetings. But that’s it.

Live and archived video of governmental meetings is commonplace, except for the Wichita public schools. Citizens must either attend the meetings, or view delayed broadcasts on cable TV.

There’s a simple way to fix this. It’s called YouTube.

When the Sedgwick County Commission was faced with an aging web infrastructure for its archived broadcasts, it did the sensible thing. It created a YouTube channel and uploads video of its meetings. Now citizens can view commission meetings at any time on desktop PCs, tablets, and smartphones. This was an improvement over the old system, which was difficult to use and required special browser plug-ins. I could never get the video to play on my Iphone.

The Wichita school district could do the same. In fact, the district already has a YouTube channel. Yes, it takes a long time to upload two or three hours of video to YouTube, but once started the process runs in the background without intervention. No one has to sit and watch the process.

Earlier this year I asked why the district does not make video of its meetings available archived online. The district responded that it “has a long-standing commitment to the USD 259 community of showing unabridged recordings of regular Board of Education meetings on Cox Cable Channel 20 and more recently AT&T U-verse Channel 99.” The meetings are broadcast seven times starting the day after each meeting. Two of the broadcasts start at 1:00 am.

I was also told “The district does not archive complete Board meetings on the Web site because of file size and bandwidth.” YouTube takes care of that problem at no cost. As it turns out, the district does have some material from board meetings available on its website. This is welcome. But not complete meetings, and what’s there is supplied in a non-streaming format.

Showing meetings delayed on cable TV is good. It was innovative at one time. But why aren’t meetings live? What if you can’t watch the meeting before it disappears from the schedule after a week? What if you don’t have Cox or AT&T U-verse? What if you want to watch meetings on your computer, tablet, or smartphone? I don’t think the fact that meetings are on cable TV means they can’t also be on YouTube.

It’s just an idea.

A big-picture look at the EDA

While praising the U.S. Economic Development Administration for a small grant to a local institution, the Wichita Eagle editorial board overlooks the big picture.

While praising a grant to Wichita State University from the U.S. Economic Development Administration, the Wichita Eagle editorial board doesn’t waste an opportunity remind us of its big-government, anti-taxpayer ideology. (Pompeo would eliminate source of WSU grants, July 11, 2015)

The op-ed also criticizes U.S. Representative Mike Pompeo, who has sponsored legislation and offered amendments to end the EDA.

While the Eagle op-ed is designed to make us feel happy for Wichita State University (and bad about Rep. Pompeo, especially given the photo the newspaper used to illustrate the story online), the short-sighted and naive reasoning behind it is harmful. The op-ed promotes the impression that federal money is free, a gift from a magical fairy godmother that falls out of the sky in abundance. Anyone who opposes this free stuff must be evil.

But in exchange for the grant to WSU, we have to tolerate grants like these made by the EDA:

    Harry Reid Research Park
  • In 2008, the EDA provided $2,000,000 to begin construction of the UNLV Harry Reid Research & Technology Park in Las Vegas, NV. For many years the UNLV Harry Reid Research & Technology Park featured a paved road and a website claiming the first anticipated tenant would move in in 2010. But there are signs of life now in 2015, according to the article Signs of life emerge at UNLV’s long-dormant technology park.)
  • In 2010, $25,000,000 was spent by the EDA for a Global Climate Mitigation Incentive Fund and $2,000,000 for a “culinary amphitheater,” wine tasting room and gift shop in Washington State.
  • In 2011, the EDA gave a New Mexico town $1,500,000 to renovate a theater.
  • In 2013, the EDA also gave Massachusetts $1.4 million to promote new video games.
  • Back in the 1980s, the EDA used taxpayer dollars to build replicas of the Great Wall of China and the Egyptian Pyramids in the middle of Indiana. They were never completed — it is now a dumping ground for tires.

So in exchange for WSU receiving a million dollars this year and $1.9 million last year, we have to put up with the above. We have to wonder if Harry Reid being the number one Senate Democrat had anything to do with a grant for a facility named in his honor. We have yet another government agency staffed with a fleet of bureaucrats, including a chief who will travel to Wichita to promote and defend his agency. We have another government agency that believes it can better decide how to invest capital than the owners of the capital. We have another example of shipping tax dollars to Washington, seeing a large fraction skimmed off the top, then cities and states begging for scraps from the leftovers.

Often when the Eagle editorial board criticizes conservatives, it does so by using terms like “driven by ideology” or “blind adherence to right-wing ideology.”

But anyone parachuting down from Mars and observing this system for making investment decisions would wonder: Why do they do this? What kind of ideology would result in this nonsense?

You’ll have to ask the Wichita Eagle editorial board.

Rep. Pompeo on the EDA

In January 2012 Pompeo wrote an op-ed which explains the harm of the EDA. Here is an excerpt:

Last week, Secretary Fernandez invited himself to Wichita at taxpayer expense and met with the Wichita Eagle’s editorial board. Afterwards, the paper accurately noted I am advocating eliminating the EDA even though that agency occasionally awards grant money to projects in South Central Kansas. They just don’t get it. Thanks to decades of this flawed “You take yours, I’ll take mine” Washington logic, our nation now faces a crippling $16 trillion national debt.

I first learned about the EDA when Secretary Fernandez testified in front of my subcommittee that the benefits of EDA projects exceed the costs and cited the absurd example of a $1.4 million award for “infrastructure” that allegedly helped a Minnesota town secure a new $1.6 billion steel mill. As a former CEO, I knew there is no way that a taxpayer subsidy equal to less than one-tenth of one percent (0.1%) of the total capital needed made a difference in launching the project. That mill was getting built whether EDA’s grant came through or not. So, I decided to dig further.

I discovered that the EDA is a federal agency we can do without. Similar to earmarks that gave us the infamous “Bridge to Nowhere” or the Department of Energy loan guarantee scandal that produced Solyndra, the EDA advances local projects that narrowly benefit a particular company or community. To be sure, the EDA occasionally supports a local project here in Kansas. But it takes our tax money every year for projects in 400-plus other congressional districts, many if not most of which are boondoggles. For example: EDA gave $2 million to help construct UNLV’s Harry Reid Research and Technology Park; $2 million for a “culinary amphitheater,” tasting room, and gift shop at a Washington state winery; and $500,000 to construct (never-completed) replicas of the Great Pyramids in rural Indiana.

Several times in recent decades, the Government Accountability Office has questioned the value and efficacy of the EDA. Good-government groups like Citizens Against Government Waste have called for dismantling the agency. In addition, eliminating the EDA was listed among the recommendations of President Obama’s own bipartisan Simpson-Bowles Deficit Reduction Commission.

So why hasn’t it been shut down already? Politics. The EDA spreads taxpayer-funded project money far and wide and attacks congressmen who fail to support EDA grants. Soon after that initial hearing, Secretary Fernandez flew in his regional director — again at taxpayer expense — to show me “all the great things we are doing in your home district” and handed me a list of recent and pending local grants. Hint, hint. You can’t say I wasn’t warned to back off. Indeed, Eagle editors missed the real story here: Secretary Fernandez flew to Wichita because he is a bureaucrat trying to save his high-paying gig. The bureaucracy strikes back when conservatives take on bloated, out-of-control, public spending, so I guess I’m making progress.

Please don’t misunderstand. I am not faulting cities, universities, or companies for having sought “free” federal money from the EDA. The fault lies squarely with a Washington culture that insists every program is sacred and there is no spending left to cut.

A federal agency run at the Assistant Secretary level has not been eliminated in decades. Now is the time. My bill to eliminate the EDA (HR 3090) would take one small step toward restoring fiscal sanity and constitutional government.

Last year Pompeo offered an amendment to H.R. 4660, the Commerce, Justice, Science, and Related Agencies Appropriations Act for Fiscal Year 2015, to eliminate the Economic Development Administration (or the “Earmark Distribution Agency”). The amendment would send EDA’s total funding — $247 million in FY 2015 — to the Deficit Reduction Account, saving up to $2.5 billion over 10 years based on current levels.

“We need to solve America’s debt crisis before it is too late, and that means reducing wasteful spending, no matter the agency or branch of government,” said Rep. Pompeo. “The EDA should be called the ‘Earmark Distribution Agency,’ as it continues to spend taxpayer dollars on local pet projects in a way similar to congressional earmarks — which have already been banned by the House.”

Following, his remarks on the floor.

WichitaLiberty.TV: Bad news from Topeka on taxes and schools, and also in Wichita. Also, a series of videos that reveal the nature of government.

In this episode of WichitaLiberty.TV: The sales tax increase is harmful and not necessary. Kansas school standards are again found to be weak. The ASR water project is not meeting expectations. Then, the Independent Institute has produced a series of videos that illustrate the nature of government. View below, or click here to view at YouTube. Episode 88, broadcast July 19, 2015.

The “Love Gov” series of videos from the Independent Institute can be found here: Love Gov: From first date to mandate.

Discussion of open government in Wichita and Kansas

Perspectives may differ, but the point is the same — more government transparency leads to more citizen engagement and better outcomes in communities, states, and nations.

In this podcast, Kansas Policy Institute Vice President James Franko discusses government transparency with Seth Etter and Bob Weeks. Etter is the organizer of Open Wichita, an initiative to bring the benefits of open data and civic hacking to Wichita. Weeks blogs at Voice for Liberty in Wichita where he advocates for government transparency and accountability and uses open records requests to access, analyze and publish state and local government data. KPI maintains KansasOpenGov.org, an online data portal for state and local government data.

Listen below, or click here for this and other Kansas Policy Institute podcasts.

‘Love Gov’ humorous and revealing of government’s nature

A series of short videos from the Independent Institute entertains and teaches lessons at the same time.

Lov Gov trailer exampleThe Independent Institute has produced a series of humorous and satirical videos to present lessons about the nature of government. The Institute describes the series here:

Love Gov depicts an overbearing boyfriend — Scott “Gov” Govinsky — who foists his good intentions on a hapless, idealistic college student, Alexis. Each episode follows Alexis’s relationship with Gov as his intrusions wreak (comic) havoc on her life, professionally, financially, and socially. Alexis’s loyal friend Libby tries to help her see Gov for what he really is — a menace. But will Alexis come to her senses in time?

There are five episode (plus a trailer). Each episode is around five minutes long and presents a lesson on a topic like jobs, healthcare, and privacy. The episodes are satirical and funny. They’d be really funny if the topic wasn’t so serious. I recommend you spend a half-hour or so to view the series.

The link to view the video series is here.

Kansas school standards evaluated

A new edition of an ongoing study shows that Kansas school standards are weak, compared to other states. This is a continuation of a trend.

Last week the National Center for Education Statistics (NCES) published a new version of its ongoing study Mapping State Proficiency Standards Onto NAEP Scales: Results From the 2013 NAEP Reading and Mathematics Assessments. As was also found in past years, the standards that the state of Kansas uses to evaluate students are low.

This study is important because states set their own standards for evaluating students, as the report explains: “Because each state set its own standards, there was no assurance that students who met the standards of one state would be able to meet the standards of another state, and one could not compare the effectiveness of schools across states in terms of the percentages of students reported to meet the standards.”

There is a national test that is the same in all states, the National Assessment of Educational Progress (NAEP). Again, from the report: “NAEP provided a common scale on which the stringency of the various state criteria for proficiency could be compared.” The purpose of the study is to map each state’s standards to a common standard. By doing this, we can determine whether a state uses a stringent or weak standard to evaluate students. This study does not evaluate the performance — good or bad — of a state’s students. Rather, the study evaluates the state and its standards.

The two-page summary for Kansas is here.

The summary is this:

For reading in grades four and eight, the answer to the question “How do Kansas’ reading standards for proficient performance at grades 4 and 8 in 2013 map onto the NAEP scale?” is “below basic.”

For math in grades four and eight the answer to the same question is “basic.”

This means that the state of Kansas says students are “proficient” when by NAEP standards the students are “basic” or “below basic.”

Especially in reading, Kansas standards are low. For grade four reading, 26 states (including Kansas) are in the “below basic” category. For grade eight reading, only nine other states besides Kansas fall into the “below basic” category.

Following, charts excerpted from the study showing how Kansas measures against the other states. In some cases, there are few states with lower standards than Kansas. In no case is Kansas above the middle. Click charts for larger versions.

NAEP scale equivalents of state grade 4 reading standards for proficient, 2013, Kansas emphasized 2015-07

NAEP scale equivalents of state grade 8 reading standards for proficient, 2013, Kansas emphasized 2015-07

NAEP scale equivalents of state grade 4 math standards for proficient, 2013, Kansas emphasized 2015-07

NAEP scale equivalents of state grade 8 math standards for proficient, 2013, Kansas emphasized 2015-07

In Wichita, wasting electricity a chronic problem

The chronic waste of electricity in downtown Wichita is a problem that probably won’t be solved soon, given the city’s attitude.

Some lights like these have been left on so long that the bulbs have burnt out. But the city hasn't replaced them.
Some lights like these have been left on so long that the bulbs have burnt out. But the city hasn’t replaced them.
Street lights in downtown Wichita burning during the middle of the day. It’s a continuing problem.

What can citizens do to solve this problem? The attitude of the city is “don’t bother us with this problem.” The city advises citizens to call Westar when they see street lights wasting electricity. That’s the city’s attitude, even though this is a chronic problem.

Wichita city government Facebook page public service advice regarding "vampire" power waste.
Wichita city government Facebook page public service advice regarding “vampire” power waste.
The city is concerned that working with Westar to turn off street lights during the day may not be cost-effective, according to Ken Evans, the city’s director of strategic communications. That’s the attitude he expressed in a recent City of Wichita Facebook dialog with citizens. But the city has run a campaign asking people to turn off appliances like microwave ovens and alarm clocks when not in use. This saves a vanishingly small amount of electricity, and at a large cost in convenience.

At least five tall street lights can be seen wasting electricity.
At least five tall street lights can be seen wasting electricity at 2:30 in the afternoon.
But the city feels it is not cost-effective for them to ensure that dozens of street lights are switched off during the day, even though this is a chronic problem. Even though the city is concerned about the use of electricity contributing to ozone pollution.

Part of the problem may lie in that the city pays Westar a fixed amount per street light, without regard to the amount of electricity used or wasted. Westar, while a privately-owned company that should be responsive to the profit motive, is instead a highly-regulated utility that functions almost as an arm of government.

None of this mitigates the fact that waste is waste, especially waste that could be fixed easily — if the city wanted to.

Wichita water statistics update

The Wichita ASR water project had a relatively good month in June, but has not been producing water at the projected rate or design capacity.

An important part of Wichita’s water supply infrastructure is the Aquifer Storage and Recovery program, or ASR. This is a program whereby water is taken from the Little Arkansas River, treated, and injected in the Equus Beds aquifer. That water is then available in the future as is other Equus Beds water.

With a cost so far of $247 million, the city believes that ASR is a proven technology that will provide water and drought protection for many years. Last year the city recommended that voters approve $250 million for its expansion, to be paid for by a sales tax. Voters rejected the tax.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative.
According to city documents, the original capacity of the ASR phase II project to process water and pump it into the ground (the “recharge” process) was given as “Expected volume: 30 MGD for 120 days.” That translates to 3,600,000,000 (3.6 billion or 3,600 million) gallons per year. ASR phase II was completed in 2011.

At a city council workshop in April 2014, Director of Public Works and Utilities Alan King briefed the council on the history of ASR, mentioning the original belief that ASR would recharge 11,000 acre feet of water per year. But he gave a new estimate for production, telling the council that “What we’re finding is, we’re thinking we’re going to actually get 5,800 acre feet. Somewhere close to half of the original estimates.” The new estimate translates to 1,889,935,800 (1.9 billion) gallons per year.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
Based on experience, the city has produced a revised estimate of ASR production capability. What has been the actual experience of ASR? The U.S. Geological Survey has ASR figures available here. I’ve gathered the data and performed an analysis. (Click charts for larger versions.)

I’ve produced a chart of the cumulative production of the Wichita ASR project compared with the original projections and the lower revised projections. The lines for projections rise smoothly, although it is expected that actual production is not smooth. The second phase of ASR was completed sometime in 2011, but no water was produced and recharged that year. So I started this chart with January 2012.

2013 was a drought year, so to present ASR in the best possible light, I’ve prepared a chart starting in July 2013. That was when it started raining heavily, and data from USGS shows that the flow in the Little Arkansas River was much greater. Still, the ASR project is not keeping up with projections, even after goals were lowered.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II.
On the chart of monthly production, the horizontal line represents the revised annual production projection expressed as a constant amount each month. This even rate of production is not likely, as rainfall and river flow varies. In the three years that ASR phase II has been in production, that monthly target been exceeded in two months.

In June 2015, the ASR project recharged 205 million gallons of water. Its design capacity is 30 million gallons per day, so the work done in June represents seven days of design capacity. The ASR project is able to draw from the Little Arkansas River when the flow is above 30 cfs. As can be seen in the chart of the flow of the river, the flow was above this level for the entire month.

Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station.
Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.

Wichita property taxes still high, but comparatively better

An ongoing study reveals that generally, property taxes on commercial and industrial property in Wichita are high. In particular, taxes on commercial property in Wichita are among the highest in the nation, although Wichita has improved comparatively.

50 State Property Tax Comparison Study, Selected Wichita Data. Click for larger version, or see text for pdf version.
50 State Property Tax Comparison Study, Selected Wichita Data. Click for larger version, or see text for pdf version.
The study is produced by Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence. It’s titled “50 State Property Tax Comparison Study, April 2015″ and may be read here. It uses a variety of residential, apartment, commercial, and industrial property scenarios to analyze the nature of property taxation across the country. I’ve gathered data from selected tables for Wichita. (A pdf version is available here.)

In Kansas, residential property is assessed at 11.5 percent of its appraised value. (Appraised value is the market value as determined by the assessor. Assessed value is multiplied by the mill levy rates of taxing jurisdictions in order to compute tax.) Commercial property is assessed at 25 percent of appraised value, and public utility property at 33 percent.

This means that commercial property faces 2.18 times the property tax rate as residential property. (The study reports a value of 2.173 for Wichita. The difference is likely due from deriving the value from observations rather than statute.) The U.S. average is 1.710.

Whether higher assessment ratios on commercial property as compared to residential property is desirable public policy is a subject for debate. But because Wichita’s ratio is high, it leads to high property taxes on commercial property.

For residential property taxes, Wichita ranks below the national average. For a property valued at $150,000, the effective property tax rate in Wichita is 1.253 percent, while the national average is 1.490 percent. The results for a $300,000 property were similar.

Commercial property taxes in Wichita compared to nation.
Commercial property taxes in Wichita compared to nation.
Looking at commercial property, the study uses several scenarios with different total values and different values for fixtures. For example, for a $100,000 valued property with $20,000 fixtures (table 25), the study found that the national average for property tax is $2,519 or 2.099 percent of the property value. For Wichita the corresponding values are $3,289 or 2.741 percent, ranking fourteenth from the top. Wichita property taxes for this scenario are 30.6 percent higher than the national average.

In other scenarios, as the proportion of property value that is machinery and equipment increases, Wichita taxes are lower, compared to other states and cities. This is because Kansas no longer taxes this type of property.

Wichita Transit snapshot

Here is a financial snapshot of the Wichita Transit System. Data is from the National Transit Database for 2013. These are operating costs only, and do not include the costs of acquiring buses and other capital equipment.

Of note is the low fraction of expenses paid for through fares. Considering operating expenses only, the number is 20.3 percent. The remainder is provided by taxpayers. Operating expenses per passenger mile were $0.69.

Wichita transit system snapshot 2013

The candlemakers’ petition

The 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.

Candle and book candle-681342_1280We 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

Frederic Bastiat
Frederic Bastiat
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

In Wichita, open records relief may be on the way

A new law in Kansas may provide opportunities for better enforcement of the Kansas Open Records Act.

This year the Kansas Legislature passed HB 2256, captioned as “An act concerning public bodies or agencies; relating to the state of Kansas and local units of government; providing certain powers to the attorney general for investigation of violations of the open records act and the open meetings act; attorney general’s open government fund …”

The good part of this law is that it provides additional enforcement options when citizens feel that government agencies are not complying with the Kansas Open Records Law. Before this law, citizens and news organizations had — effectively — two paths for seeking enforcement of KORA. One is private legal action at their own expense. The other is asking the local district attorney for an opinion.

Now the Kansas Attorney General may intervene, as noted in the summary of the new law: “The bill allows the Attorney General to determine, by a preponderance of the evidence after investigation, that a public agency has violated KORA or KOMA, and allows the Attorney General to enter into a consent order with the public agency or issue a finding of violation to the public agency prior to filing an action in district court.”

Not all aspects of this bill are positive, as it also confirms many exceptions to the records act and adds to them. It also adds to the authority of the Attorney General, as have other bills this year.

The City of Wichita has been obstinate in its insistence that the Kansas Open Records Act does not require it to fulfill certain requests for records of spending by its subordinate tax-funded agencies. The city believes that certain exceptions apply and allow the city to keep secret records of the spending of tax funds. The city may be correct in its interpretation of this law.

But the law — even if the city’s interpretation is correct — does not prohibit the city from releasing the records. The city could release the records, if it wanted to.

Fulfilling the legitimate records requests made by myself and others would go a long way towards keeping promises the city and its officials make, even recent promises.

The city’s official page for the mayor holds this: “Mayor Longwell has championed many issues related to improving the community including government accountability, accessibility and transparency …”

During the recent mayoral campaign, Longwell told the Wichita Eagle that he wants taxpayers to know where their money goes: “The city needs to continue to improve providing information online and use other sources that will enable the taxpayers to understand where their money is going.”

In a column in the Wichita Business Journal, Wichita Mayor Jeff Longwell wrote: “First off, we want City Hall to be open and transparent to everyone in the community.”

Following, from 2012, discussion of problems with the City of Wichita and open government.

Wichita, again, fails at open government

The Wichita City Council, when presented with an opportunity to increase the ability of citizens to observe the workings of the government they pay for, decided against the cause of open government, preferring to keep the spending of taxpayer money a secret.

The occasion was consideration of renewing its contract with Go Wichita Convention and Visitors Bureau. I asked, as I have in the past for this agency and also for Wichita Downtown Development Corporation and Greater Wichita Economic Development Coalition, that they consider themselves to be what they are: public agencies as defined in the Kansas Open Records Act.

In the past I’ve argued that Go Wichita is a public agency as defined in the Kansas Open Records Act. But the city disagreed. And astonishingly, the Sedgwick County District Attorney agrees with the city’s interpretation of the law.

So I asked that we put aside the law for now, and instead talk about good public policy. Let’s recognize that even if the law does not require Go Wichita, WDDC, and GWEDC to disclose records, the law does not prohibit them from fulfilling records requests.

Once we understand this, we’re left with these questions:

Why does Go Wichita, an agency funded almost totally by tax revenue, want to keep secret how it spends that money, over $2 million per year?

Why is this city council satisfied with this lack of disclosure of how taxpayer funds are spent?

Why isn’t Go Wichita’s check register readily available online, as it is for Sedgwick County?

For that matter, why isn’t Wichita’s check register online?

It would be a simple matter for the council to declare that the city and its taxpayer-funded partner agencies believe in open government. All the city has to have is the will to do this. It takes nothing more.

Only Wichita City Council Member Michael O’Donnell (district 4, south and southwest Wichita) gets it, and yesterday was his last meeting as a member of the council. No other council members would speak up in favor of citizens’ right to open government.

But it’s much worse than a simple failure to recognize the importance of open government. Now we have additional confirmation of what we already suspected: Many members of the Wichita City Council are openly hostile towards citizens’ right to know.

In his remarks, Wichita City Council Member Pete Meitzner (district 2, east Wichita) apologized to the Go Wichita President that she had become “a pawn in the policy game.” He said it was “incredibly unfair that you get drawn into something like this.”

He added that this is a matter for the Attorney General and the District Attorney, and that not being a lawyer, she shouldn’t be expected to understand these issues. He repeated the pawn theme, saying “Unfortunately there are occasions where some people want to use great people like yourself and [Wichita Downtown Development Corporation President] Jeff Fluhr as pawns in a very tumultuous environment. Please don’t be deterred by that.”

Mayor Brewer added “I would have to say Pete pretty much said it all.”

We’ve learned that city council members rely on — as Randy Brown told the council last year — facile legal reasoning to avoid oversight: “It may not be the obligation of the City of Wichita to enforce the Kansas Open Records Act legally, but certainly morally you guys have that obligation. To keep something cloudy when it should be transparent I think is foolishness on the part of any public body, and a slap in the face of the citizens of Kansas. By every definition that we’ve discovered, organizations such as Go Wichita are subject to the Kansas Open Records Act.”

But by framing open government as a legal issue — one that only lawyers can understand and decide — Wichita city government attempts to avoid criticism for their attitude towards citizens.

It’s especially absurd for this reason: Even if we accept the city’s legal position that the city and its quasi-governmental taxpayer-funded are not required to fulfill records request, there’s nothing preventing from doing that — if they wanted to.

In some ways, I understand the mayor, council members, and bureaucrats. Who wants to operate under increased oversight?

What I don’t understand is the Wichita news media’s lack of interest in this matter. Representatives of all major outlets were present at the meeting.

I also don’t understand what Council Member Lavonta Williams (district 1, northeast Wichita) suggested I do: “schmooze” with staff before asking for records. (That’s not my word, but a characterization of Williams’ suggestion made by another observer.)

I and others who have made records requests of these quasi-governmental taxpayer-funded organizations have alleged no wrongdoing by them. But at some point, citizens will be justified in wondering whether there is something that needs to be kept secret.

The actions of this city have been noticed by the Kansas Legislature. The city’s refusal to ask its tax-funded partners to recognize they are public agencies as defined in the Kansas Open Records Act is the impetus for corrective legislation that may be considered this year.

Don’t let this new law be known as the “Wichita law.” Let’s not make Wichita an example for government secrecy over citizens’ right to know.

Unfortunately, that bad example has already been set, led by the city’s mayor and city council.

National Transit Database, an interactive visualization

An interactive visualization of data over time from the National Transit Database.

The National Transit Database holds data for transit systems in the U.S. I’ve gathered some key statistics and presented them in an interactive visualization.

Some definitions used in the database:

UZA: The name of the urbanized area served primarily by a transit agency.
UPT: Unlinked passenger trips.
PMT: Passenger miles traveled.
OpExp Total: Total operating expense.

There is also a set of cities named “Wichita peers.” These are cities that Wichita has been compared to in a variety of situations. Some I selected because they were of similar size to Wichita.

The visualization holds three tabs or sheets. One is a table of figures. The other two illustrate data for a single year, or a single transit system.

Click here to access the visualization.

Kansas sales tax has disproportionate harmful effects

Kansas legislative and executive leaders must realize that a shift to consumption taxes must be accompanied by relief from its disproportionate harm to low-income households.

While Kansas legislative leaders and the governor praise the shift from income taxes to sales taxes, they ignore the severely regressive effect of sales taxes in Kansas. That is, a sales or consumption tax affects low-income families in greatest proportion relative to their incomes. The primary reason for the harshness of the Kansas sales tax is its application to food purchased in grocery stores. Few states tax food, and many of those that do apply a lower tax rate to food.

During the debate over a proposed sales tax increase in Wichita last year, I gathered data from the U.S. Census Bureau regarding expenditures on various categories for five different levels of household income. My findings were that if the city raised sales tax by one cent per dollar, the lowest income class of families would experience an increase nearly four times the magnitude as would the highest income families, measured as a percentage of after-tax income. Others produced similar results. This is the regressive nature of sales taxes.

At the national level the Fair Tax is a program whereby income taxes are replaced by consumption taxes. Proponents believe it would be a positive factor for economic growth. In recognition of the regressive nature of sales taxes, the Fair Tax plan includes a “prebate” to compensate households for the sales tax paid on necessities like food. In effect, there would be no tax on food and other necessities, up to the poverty level.

During the legislative session this year, Kansas Legislative Research told legislators that increasing the sales tax from 6.15 percent to 6.50 percent would generate $164,200,000 in additional revenue to the state. This implies that a one percent increase in the sales tax rate would generate about $469 million in revenue. (This is based on static analysis, and therefore does not account for the changes in behavior that the higher sales tax would induce, however large or small the effect.)

Effect of sales tax on consumers of different income levels. Click for larger version.
Effect of sales tax on consumers of different income levels. Click for larger version.
It’s thought that the present sales tax on food results in about $390 million in tax collections. While these two values — 469 and 390 — are not equal to each other, the $469 million figure is close to the gap between revenues and expenses. (The tax bill the legislature passed will raise about $400 million, but it is widely believed the governor will have to make an additional $50 million in cuts.)

So what would have happened if the legislature had raised the sales tax by one cent per dollar and eliminated the sales tax on food? The answer is the sales tax in Kansas would be less regressive.

I modified my worksheet to allow for adjustment of the sales tax rate for general purchases, and for food separately. I gathered the results for three scenarios and present the results in a chart. I use the sales tax rates that Sedgwick County residents would experience. This includes a one cent per dollar county-wide tax in addition to the statewide rate. (Most counties and cities add to the statewide rate. The unweighted average sales tax rate for Kansas cities is 7.835 percent, based on Kansas Department of Revenue figures.)

Kansas sales tax effects by income quintile, three scenarios. The vertical distance between the lines is a measure of the degree of regressivity. It is larger for lower income households. Click for larger version.
Kansas sales tax effects by income quintile, three scenarios. The vertical distance between the lines is a measure of the degree of regressivity. It is larger for lower income households. Click for larger version.
The blue line, labeled “Sales tax at 7.15% on all purchases” is the current tax in effect in Sedgwick County. Note that the lowest quintile of households pay nearly seven percent of their after tax income in sales taxes. For the highest quintile the value is less than two percent.

The gold line (“Sales tax at 7.50% on all purchases”) represents the rates that will be in effect after July 1. Note that the vertical distance between the blue and gold lines is larger for low-income households than for high-income households, again illustrating the regressive nature of sales taxes.

The red line (“Sales tax at 8.15%, food at 0%”) illustrates the situation had the legislature raised the sales tax by one cent per dollar and eliminated the sales tax on food. Notice that the vertical distance between the red and gold lines is greatest for lower-income households, and becomes less as income increases. This means that under this policy, the sales tax is less regressive. But the Kansas Legislature did not do this. Instead, it implemented a sales tax changes that increases its regressive nature.

Kansas has a food sales tax refund program. It has been altered several times in recent years. Even if households can — and do — claim it, it doesn’t cover their likely cost of sales tax on food. At a rate of 7.50 percent, the lowest quintile of households pay an estimated $263 in sales tax, which is far above the maximum refund.

Kansas legislative leaders have said that food sales tax could be an issue to tackle next year. One proposal this year had the tax on food falling to 4.90 percent. That is welcome, and would reduce the harsh regressive nature of Kansas taxation. But Kansas would still have a high tax rate on food. Kansas legislative and executive leaders must realize that a shift to consumption taxes must be accompanied by relief from its disproportionate harm to low-income households.

How to turn $399,000 into $65,000 in downtown Wichita

Once embraced by Wichita officials as heroes, real estate listings for two floors of a downtown Wichita office building illustrate the carnage left behind by two developers.

Broadway Plaza Building, Wichita, KSA decade ago the “Minnesota Guys” were the darlings of downtown Wichita. With a controversial form of real estate ownership — tenancy in common — they promised to revive downtown Wichita. City officials and civic leaders praised them. The city council found them so endearing that it awarded the Minnesota Guys over $10 million in tax increment financing — later increased at their request — although the developers were never able to tap into those funds. Now the two developers are facing numerous felony charges relating to securities violations.

This week the Wichita Business Journal reports that two floors of a prominent downtown office building are for sale at very low prices. The building is Broadway Plaza at 105 S. Broadway.

In 2007 the fourth floor of this building had an appraised value of $388,000, according to Sedgwick County records. The value fell to $210,900 the next year and stayed at that value for five years. Now the appraised value is $98,000.

The value of the eleventh floor followed a similar trajectory, being valued at $399,000 in 2007, falling to $160,100 for four years, and now appraised at $82,300.

Now the asking price for each floor is $65,000. At attempt at sale at auction earlier this year failed to produce any bids. The asking price represents a cost of about $13 per square foot. That’s less than the annual rent for class A office space in Wichita, downtown and suburban.

In 2011 I reported on how some downtown Wichita properties are plummeting in value:

A strategy of Real Development — the “Minnesota Guys” — in Wichita has been to develop and sell floors of downtown office buildings as condominiums. Some of these floors have been foreclosed upon and have come back on the market. Some once carried mortgages of $400,000 or more, meaning that at one point a bank thought they were worth at least that much. But now four floors in the Broadway Plaza Building, three floors of the Petroleum Building, two floors of Sutton Place, and one floor of the Orpheum Office Center are available for sale at prices not much over $100,000, ranging from $14 to $25 per square foot. Other downtown office buildings — very plain properties — are listed at much higher prices. For example, one downtown property is listed at $82 per square foot. … Some of these floors have had declining appraisals. According to the Sedgwick County Treasurer, the fifth floor of Sutton Place, which is listed for sale at $135,000, was appraised in 2008 for $530,900. In 2009 the appraised value dropped to $215,000.

Tax rates and taxes paid

Those who call for a return to 90 percent tax rates should be aware that few people actually paid tax at those rates.

Progressives are calling for higher income tax rates on the rich. The top marginal tax rate — that’s the rate that applies to high income earners on most of their income — was above 90 percent during most of the 1950s. From 2003 to 2012 it was 35 percent, and is now 39.6 percent. Some see that as a lost opportunity. If we could return to the tax rates of the 1950s, they say, we could generate much more revenue for government.

The top marginal tax rate is the rate that applies to income. It’s not the same as what is actually paid. This fact is unknown or ignored by those who clamor for higher taxes on the rich.

The mistake the progressives make is equating tax rates with the tax actually paid. For many people, there is a direct relationship. For workers who earn a paycheck, there’s not much they can do to change the timing of their income, find tax shelters, or shift income to capital gains. When income tax rates rise, they have to pay more. But people with high incomes can use these and other strategies to reduce the taxes they pay. In fact, there is an entire industry of accountants and lawyers to help people reduce their tax. Often — particularly in the past — investments and transactions were made solely for the purpose of avoiding taxes, not for any other economic benefit.

But: High tax rates make the middle class feel better about paying their own taxes. With top tax rates of 90 percent, they may believe that the rich are paying a lot of tax. The middle class may take comfort in the fact that someone else is worse off. But that is based on the misconception that high tax rates mean rich people actually pay correspondingly higher tax.

Top tax rates and taxes actually paid

Figure 1. The top marginal income tax rate has varied widely, but since World War II, tax revenue collected as a percent of GDP is remarkably constant.
Figure 1. The top marginal income tax rate has varied widely, but since World War II, tax revenue collected as a percent of GDP is remarkably constant.
A series of charts illustrate the lack of a relationship between the top marginal income tax rate and the income taxes actually paid. (Click charts for larger versions.)

Figure 1 shows that that top marginal tax rate has varied widely. But since World War II, the taxes actually collected, expressed as a percentage of gross domestic product, has been fairly constant. In 1952 the top tax rate was 92.0 percent, and income taxes paid as a percent of GDP was 13.5 percent. In 2012 the top rate was 35.0 percent, and income taxes paid as a percent of GDP was 11.2 percent.

Figure 2. The top marginal income tax rate has varied widely, but the average federal tax rates paid by top earners has varied less.
Figure 2. The top marginal income tax rate has varied widely, but the average federal tax rates paid by top earners has varied less.
Figure 2 shows how the top marginal income tax rate has varied widely, but the average federal tax rates paid by top earners has varied less. Data for this series is available only back to 1979.

Figure 3. The top marginal income tax rate has varied widely and has mostly fallen, and the share of federal taxes paid by top income earners has risen.
Figure 3. The top marginal income tax rate has varied widely and has mostly fallen, and the share of federal taxes paid by top income earners has risen.
Figure 3 shows how the top marginal income tax rate has varied widely and has mostly fallen, and the share of federal taxes paid by top income earners has risen.

Sources of data for these charts are the Internal Revenue Service, Bureau of Economic Analysis, and Congressional Budget Office.

Hauser’s Law

In 2010 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.'”

Incentives matter, economists tell us. People react to changes in tax law. As tax rates rise, people seek to reduce their taxable income. A common strategy is to make investments in economically unproductive tax shelters. There is less incentive to work, to save and build up capital stocks, and invest. These are some of the reasons why tax rate hikes usually don’t generate the promised revenue.

The subtitle to Hauser’s article is “Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.” Figure 1 illustrates. The top line, the top marginal tax rate in effect for each year, varies widely. The other two lines show total taxes and federal income taxes as a percent of gross domestic product. Since World War II, these lines are fairly constant, even as the top marginal tax rate varies.

WichitaLiberty.TV: Radio show host Joseph Ashby

In this episode of WichitaLiberty.TV: Radio talk show host Joseph Ashby joins host Bob Weeks to discuss his interview with Kansas Governor Sam Brownback, the end of the legislative session, and Republican presidential candidates. Episode 87, broadcast June 21, 2015. View below, or click here to view at YouTube.

Economic freedom leads to better lives for all

Economic freedom, in countries where it is allowed to thrive, leads to better lives for people as measured in a variety of ways. This is true for everyone, especially for poor people.

This is the message presented in a short video based on the work of the Economic Freedom of the World report, which is a project of Canada’s Fraser Institute. This video is made possible by the Charles G. Koch Charitable Foundation.

One of the findings highlighted in the presentation is that while the average income in free countries is much higher than that in the least-free countries, the ratio is even higher for the poorest people in these countries. This is consistent with the findings that economic freedom is good for everyone, and even more so for those with low incomes.

Civil rights, a clean environment, long life expectancy, low levels of corruption, less infant mortality, less child labor, and lower unemployment are all associated with greater levels of economic freedom.

What are the components or properties of economic freedom? The presentation lists these:

  • Property rights are protected under an impartial rule of law.
  • People are free to trade with others, both within and outside the country.
  • There is a sound national currency, so that peoples’ money keeps its value.
  • Government stays small, relative to the size of the economy.

Over the last ten years, the United States’ ranking has fallen relative to other countries, and the presentation says our position is expected to keep falling. The question is asked: “Will our quality of life fall with it?”

Economic freedom is not necessarily the platform of any single political party. Even with a Republican president and Republican congress, the size of government rose. In 2005 the Cato Institute studied the numbers and found this: “All presidents presided over net increases in spending overall, though some were bigger spenders than others. As it turns out, George W. Bush is one of the biggest spenders of them all. In fact, he is an even bigger spender than Lyndon B. Johnson in terms of discretionary spending.” This was before the spending on the prescription drug program had started.

Critics of economic freedom

The defining of what economic freedom means is important. Sometimes you’ll see people write things like “Bernie Madoff was only exercising his personal economic freedom while he ran his investment firm.” Madoff, we now know, was a thief. He stole his clients’ money. That’s contrary to property rights, and therefore contrary to economic freedom.

Or, you’ll see people say if you don’t like government, go to Somalia. That country, one of the poorest in the world — but not the poorest — is used as an example of how bad a form of government is anarchy. The evidence is, however, that Somalia’s former government was so bad that things improved after the fall of that government. See Peter T. Leeson, Better Off Stateless: Somalia Before and After Government Collapse and History of Somalia (1991–2006).

You’ll also encounter people who argue that some countries are poor because they have no natural resources. But there are many countries with few natural resources that have economic freedom and a high standard of living. Most countries that are poor are that way because they are run by corrupt governments that have no respect for economic freedom.

Some will argue that economic freedom means the freedom to pollute the environment. But it is in wealthy countries that the environment is respected. Poor countries, where people are struggling just to find food for each day, don’t have the time or wealth to be concerned about the environment.

Corporate income tax rates in U.S. and other countries

Over the past two decades most large industrial countries have reduced their corporate income tax rates. Two countries, however, stand out from this trend: France and The United States.

In Abolish the Corporate Income Tax economist Laurence J. Kotlikoff writes “I, like many economists, suspect that our corporate income tax is economically self-defeating — hurting workers, not capitalists, and collecting precious little revenue to boot.”

Top Marginal Corporate Income Tax Rate in G7 CountriesHigh taxes in America cause companies to invest overseas in order to escape these high American taxes. For example, Apple takes steps to minimize the income tax it pays, as do most companies. In Calculating Apple’s True U.S. Tax Rate law professor Victor Fleischer explains and estimates what rate Apple pays:

The whole point of the Senate hearing was to show how Apple shifts substantial amounts of its economic profits from the United States to Ireland, where they are taxed at a rate close to zero. Those profits are then sheltered in Ireland and untaxed unless Apple decides to bring the cash back to the United States.

These overseas profits create deferred tax liabilities that will not be taxed until the cash is repatriated. But Apple is reluctant to repatriate its overseas cash; it would rather lobby for another tax holiday and bring the cash back tax-free. An added benefit of a tax holiday for Apple is that it would provide a quick jump in reported earnings when the accounting entry for the deferred tax liability is reversed. …

Thus, Apple’s “true U.S. tax rate,” according to my own calculation, was 8.2 percent.

The corporate income tax rate in the United States is 35 percent. So how does Apple pay such a lower rate to the U.S? It locates operations overseas. It earns profits overseas, and pays taxes there.

Using the visualization.
Using the visualization.
If corporate tax rates were lowered, we’d see more economic activity here rather than overseas. That would help workers in America, as they can’t easily move their capital and investments overseas to take advantage of lower tax rates. But the wealthy — like Apple’s shareholders — can do that, and they have.

Using data gathered by Tax Policy Center at Brookings Institution, I’ve prepared an interactive visualization of corporate income tax rate trends over time. Click here to open the visualization in a new window.

Wichita schools may ask for higher taxes

The Wichita Eagle reports that the Wichita public school district may ask for more property tax revenue. Following are some charts for this district.

The chart of spending is per student, inflation adjusted. On the enrollment and employment chart, note that the ratio of employees — including teachers — to students has been on a mostly downward trend for many years. Click charts for larger versions.

History of spending in the Wichita school district. Figures are per student, adjusted for inflation.
History of spending in the Wichita school district. Figures are per student, adjusted for inflation.
Enrollment and employment statistics for the Wichita school district.
Enrollment and employment statistics for the Wichita school district.

Cash incentives in Wichita still in use

Wichita is moving away from the use of cash incentives for economic development, except for this.

We’ve been told that the city is not going to use cash incentives for economic development. But an item the Wichita City Council will consider this week includes a cash grant of $30,000. It follows a similar project the council considered two weeks ago that included a grant of $10,000.

The building at 100 S. Market as it appeared in 2009. This building is slated to receive a grant of $30,000 to improve its exterior.
The building at 100 S. Market as it appeared in 2009. This building is slated to receive a grant of $30,000 to improve its exterior.
These grants are part of the city’s facade improvement program. Under it, properties in certain parts of the city can apply to use special assessment financing to pay for the improvement of their outside appearance. The city borrows the funds and advances them to the property owner. The bonds are repaid through special assessment taxes that are added to the property’s tax bill.

This process is similar to the way the city finances improvements such as street, water, and sewer infrastructure in new neighborhoods or commercial developments. Except: The infrastructure in new development becomes the property of the city. For a facade improvement project, the improvements remain private property.

Are facade improvement cash grants an exception to the new era of economic development in Wichita? Or when will we start implementing these new policies? Some might say that the grants are not for the purposes of economic development. If not, then how does the city justify these grants?

With tax exemptions, what message does Wichita send to existing landlords?

As the City of Wichita prepares to grant special tax status to another new industrial building, existing landlords must be wondering why they struggle to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage. From June 2014.

Tomorrow the Wichita City Council considers whether to grant property and sales tax exemptions to a proposed speculative industrial building in north central Wichita. If approved, this will be the second project undertaken under new economic development policies that allow for this type of tax exemption.

Those with tax abatementsCity documents estimate that the property tax savings for the first year will be $312,055. This exemption will be granted for five years, with a second five year period possible if performance goals are met.

The city documents also state that the project will also apply for a sales tax exemption, but no estimate of these tax savings are given. It’s common for a project of this type to have about half its cost in purchases subject to sales tax. With “site work and building” at $10,350,000, sales tax in Wichita on half that amount is $370,012. Undoubtedly a rough estimate, it nonetheless gives an idea of how much sales tax the developers will avoid paying.

(If city hall has its way, the sales tax in Wichita will soon increase by one cent per dollar, meaning the developers of this project would save $421,762 in sales tax. While others will hurry to make purchases before the higher sales tax rate takes effect — if it does — these developers will be in no hurry. Their sales tax is locked in at zero percent. In fact, once having a sales tax or property tax exemption, these developers are now in a position to root for higher sales and property tax rates, as that increases costs for their competitors, thereby giving these tax-exempt developers a competitive advantage.)

City documents give the benefit-cost ratios for the city and overlapping jurisdictions:

City of Wichita General Fund 1.30 to one
Sedgwick County 1.18 to one
USD 259 1.00 to one
State of Kansas 12.11 to one

It’s not known whether these ratios include the sales tax forgiveness.

Wichita City Budget Cover, 1992While the City of Wichita insists that projects show a benefit-cost ratio of 1.3 to one or better (although there are many exceptions), it doesn’t apply that standard for overlapping jurisdictions. Here, Sedgwick County experiences a benefit-cost ratio of 1.18 to one, and the Wichita school district (USD 259) 1.00 to one. These two governmental bodies have no input on the decision the city is making on their behalf. The school district’s share of the forgiven taxes is 47.4 percent.

When the city granted a similar tax exemption to a speculative warehouse in southwest Wichita, my estimates were that its landlord has a cost advantage of about 20 percent over other property owners. Existing industrial landlords in Wichita — especially those with available space to rent and those who may lose tenants to this new building — must be wondering why they struggle to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage.

Wichita property taxes

Property taxes in Wichita are high for industrial buildings, and even higher for commercial buildings. See Wichita property taxes compared. So it’s difficult to blame developers for seeking relief. But instead of offering tax relief to those who ask and to those city hall approves of, it would be better to have lower taxes for everyone.

Targeted economic development incentives

The targeted economic development efforts of governments like Wichita fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. In the case of the Wichita, do we really know which industries should be targeted? Is 1.3 to one really the benchmark we should seek, or would we be better off by insisting on 1.4 to one? Or should we relax the requirement to 1.2 to one so that more projects might qualify?

This assumes that these benefit-costs ratios have validity. This is far from certain, as follows:

1. The benefits that government claims are not really benefits. Instead, they’re in the form of higher tax revenue. This is very different from the profits companies earn in voluntary market transactions.

2. Government claims that in order to get these “benefits,” the incentives must be paid. But often the new economic activity (expansion, etc.) would have happened anyway without the incentives.

3. Why is it that most companies are able to grow without incentives, but only a few companies require incentives? What is special about these companies?

4. If the relatively small investment the city makes in incentives is solely responsible for such wonderful outcomes in terms of jobs, why doesn’t the city do this more often? If the city has such power to create economic growth, why is anyone unemployed?

Do incentives work?

The uncontroverted peer-reviewed research tells us that targeted economic development incentives don’t work, if we consider the entire economy. See: Research on economic development incentives. Some of the conclusions of the studies listed there include:

No evidence of incentive impact on manufacturing value-added or unemployment”

Small reduction in employment by businesses which received Ohio’s tax incentives”

No evidence of large firm impacts on local economy”

No permanent employment increase across a quasi-experimental panel of all Cabela’s stores”

“Employment impact of large firms is less than gross job creation (by about 70%)”

These research programs illustrate the fallacy of the seen and the unseen. It is easy to see the jobs being created by economic development incentives. It’s undeniable that jobs are created at firms that receive incentives, at least most of the time. But these jobs are easy to see. It’s easy for news reporters to find the newly-hired and grateful workers, or to show video footage of a new manufacturing plant.

But it’s very difficult to find specific instances of the harm that government intervention produces. It is, generally, dispersed. People who lose their jobs usually don’t know the root cause of why they are now unemployed. Businesses whose sales decline often can’t figure out why.

But evidence tells us this is true: These incentives, along with other forms of government interventionism, do more harm than good.

Individual liberty, limited government, economic freedom, and free markets in Wichita and Kansas