In this excerpt from WichitaLiberty.TV: How does Tax Increment Financing (TIF) work in Kansas? Is is a good thing, or not? View below, or click here to view at YouTube. Originally broadcast June 7, 2015.
There are useful lessons we can learn from the criticism of Kansas Governor Sam Brownback, including how easy it is to ignore inconvenient lessons of history.
It’s been three years since the tax cuts in Kansas took effect; tax cuts said by Governor Brownback to be a “shot in the arm” for the Kansas economy. Opponents of the governor and the tax cuts take great delight in reporting the generally anemic growth of the Kansas economy since then. Month after month, the tax cuts are condemned by Kansas newspaper editorial writers and the governor’s detractors.
I don’t think it’s a particularly strong form of argument to defend someone by showing how someone else is equally as bad — or worse. Similarly, criticizing someone for their fixation on A while they ignore the equally bad B: We need to know why they ignore B. Have they forgotten B? Do they not have time to write about B? Or do they ignore B because the fact of B is inconvenient to their ideology or their criticism of A? But I see that not everyone shares these ideals, and even so, perhaps we can learn something.
Many people remember that President Barack Obama promised that the unemployment rate would not top eight percent if the stimulus was passed. In January 2009 two Obama administration officials, including Christina Romer (who would become chair of the Council of Economic Advisers) wrote a paper estimating what the national unemployment rate would be with, and without, the American Recovery and Reinvestment Plan, commonly known as the stimulus. That plan passed.
The Romer paper included a graph of projected unemployment rates. The nearby chart from e21 took the Romer chart and added
actual unemployment rates. (The accompanying article is Revisiting unemployment projections. That chart and article were created in 2011. I’ve updated the chart to show the actual unemployment rate since then, as black dots. The data shows that the actual unemployment rate was above the Obama administration projections — with or without the stimulus plan — for the entire period of projections.
The purpose of this is not to defend Brownback by showing how Obama is even worse. (Disclosure: Although I am a Republican, I didn’t vote for Brownback for governor.) Instead, we ought to take away two lessons: First, let’s learn to place an appropriately low value on the promises and boasts made by politicians. Then, let’s recognize the weak power government has to manage the economy for positive effect. Indeed, the lesson of the Obama stimulus is that it made the unemployment rate worse than if there had been no stimulus — at least according to the administration projections.
And, there is one more lesson to learn about our state’s newspaper reporters and editorial writers, but I think you’ve discovered that already.
How does the population in Kansas compare to the nation and other states?
One of the most-often repeated themes in Kansas is that we are a rural state. Therefore, comparisons of Kansas to other states must be tempered and adjusted by this. It seems to be common knowledge.
There may be several ways to measure the “ruralness” of a state. One way is the percent of the state’s people that live in rural areas. The U.S. Census Bureau has these statistics. In the chart made from these statistics, Kansas is right in the middle of the states. 25.80 percent of Kansans live in rural areas.
That’s not too far from the country as a whole. For the entire United States, 80.7 percent of the population lives in an urban setting, according to the 2010 census. For Kansas, the figure is 74.2 percent.
Over time, Kansas is becoming more of an urban state, just as are most states and the country as a whole.
Do these numbers mean anything? It’s common for Kansas politicians to emphasize — even exaggerate — whatever connections they may have to a family farm. It’s part of a nostalgic and romanticized view of Kansas, the Kansas of Home on the Range. We are the “Wheat State” and “Breadbasket of the World,” and “One Kansas farmer feeds 128 people (plus you).”
So while Kansas is in the middle in the ranking of percent of population living in rural areas, our state’s politicians continue to play the “rural card.”
Voters and policymakers should keep this in mind, although politicians may not.
Click here to view and use an interactive visualization of states and urban population.
An interactive visualization of employment in the states.
I’ve gathered employment data from the Bureau of Economic Analysis is an agency of the United States Department of Commerce, for the states and present it in an interactive visualization using Tableau Public. In the visualization you may use several different presentations of the data and filter for specific industries. The series are presented as the percentage change since the first values, so that relative growth, rather than magnitude, of employment is shown.
The nearby example from the visualization shows growth in private nonfarm employment, with Kansas emphasized against the other states.
Click here to access the visualization.
An interactive visualization of employment in metropolitan areas.
I’ve gathered employment data from the Bureau of Economic Analysis is an agency of the United States Department of Commerce, for all available metropolitan areas and present it in an interactive visualization using Tableau Public. In the visualization you may use several different presentations of the data and filter for specific areas and industries. The series are presented as the percentage change since the first values, so that relative growth, rather than magnitude, of employment is shown.
In the nearby example we can see that Wichita –- the bottom line — has performed poorly compared to some peers of interest.
Click here to access the visualization.
An interactive visualization of a new data series from the Bureau of Economic Analysis.
The Bureau of Economic Analysis is an agency of the United States Department of Commerce. BEA describes its role as “Along with the Census Bureau, BEA is part of the Department’s Economics and Statistics Administration. BEA produces economic accounts statistics that enable government and business decision-makers, researchers, and the American public to follow and understand the performance of the Nation’s economy. To do this, BEA collects source data, conducts research and analysis, develops and implements estimation methodologies, and disseminates statistics to the public.”
This week BEA issued a release of a new series of data: gross domestic product (GDP) by state for 21 industry sectors on a quarterly basis. BEA defines GDP as “the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production.” It is the value of the final goods and services produced.
In describing this data, BEA says “These new data provide timely information on how specific industries contribute to accelerations, decelerations, and turning points in economic growth at the state level, including key information about the impact of differences in industry composition across states.” This data series starts in 2005. The announcement of the release of this data from BEA is here.
I’ve gathered the data for this series for all states and present it in an interactive visualization using Tableau Public. I present the series in real dollars, meaning that BEA adjusted the numbers to account for changes in the price level, or inflation.
In the visualization you may use several different presentations of the data and filter for specific states or industries. The series are presented as percentage change over time since the first values, so that growth, rather than magnitude, of GDP is shown.
Click here to open the visualization.
For about 50 years we’ve been fighting a war on poverty. Initially, the poverty rate declined, before the start of the war on poverty. But over the last four decades the poverty rate has gone up and down, but is largely unchanged over this period. Spending on welfare programs, however, has continually risen, and rapidly in the past few years. The accompanying chart shows the poverty rate and welfare spending. The spending is per person in the U.S., adjusted for inflation, and doesn’t include spending on health care.
For more on this topic, see:
The American Welfare State: How We Spend Nearly $1 Trillion a Year Fighting Poverty — and Fail (Cato Institute)
Examining the Means-tested Welfare State: 79 Programs and $927 Billion in Annual Spending (Heritage Foundation)
The Failure Of The War On Poverty (FreedomWorks)
Does Welfare Diminish Poverty? (Foundation for Economic Education)
A company that has a taxpayer-guaranteed loan may be entering bankruptcy. Will taxpayers have to pay?
(Updated November 30) Spanish energy giant Abengoa has taken preliminary steps that could lead to bankruptcy filing.
Of relevance to Kansas — and the country at large — is the Abengoa cellulosic ethanol plant near Hugoton. That plant received a $132.4 million loan guarantee from the United States government under the same program that benefited Solyndra. That company cost taxpayers over $500 million when it defaulted on its taxpayer-guaranteed loan.
Does a bankruptcy filing by Abengoa place U.S. taxpayers on the hook for the company’s guaranteed loan? If so, are taxpayers liable for the entire $132.4 million or some smaller portion?
The answer is this: We don’t know. I’ve asked for, and have received the loan guarantee agreement. It’s unclear to me what would happen if Abengoa entered bankruptcy.
Following, reporting from the Wall Street Journal. It mentions “debt-fueled expansion,” some of which is a liability of the U.S. taxpayer.
Spain’s Abengoa Files for Creditor Protection
The company’s debt-fueled expansion in the boom years is handicapping growth today
MADRID — Spanish renewable energy and engineering firm Abengoa SA said on Wednesday that it is filing for preliminary creditor protection, an initial step that could lead to the largest bankruptcy case in the country’s history.
The potential demise of Abengoa is an extreme example of a Spanish company whose debt-fueled expansion during the country’s boom years has handicapped its ambitions for growth today.
The company is one of the world’s top builders of power lines transporting energy across Latin America and a top engineering and construction business, making massive renewable-energy power plants in places from Kansas to the U.K.
Continue reading at Wall Street Journal.
An interactive visualization holding per-capita spending in several categories for each state.
In the visualization you may select one of more spending categories, select any combination of states and regions, select years, and view data as a table or chart. By hovering near column titles and clicking on a sort icon, you may sort in ascending or descending order.
Of note: Some of the spending categories should not be selected at the same time, as the stacked bar chart adds them. For example, you would not want to select anything else if “Total Spending” is selected, as the other items are already included in “Total Spending.” Similarly, you would not want to select “Population” along with any items that are money amounts.
Data is from State & Local Government Finance Data Query System. slfdqs.taxpolicycenter.org/pages.cfm. The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances, Government Finances, Volume 4, and Census of Governments (2012). Date of Access: (07-Jan-2015). Visualization created using Tableau Public.
Click here to use the visualization.
It was Dr. Williams that first got me to think about libertarian ideas and principles. For that I shall forever be grateful.
In 2011 Williams visited Wichita and I had the privilege of interviewing him for a moment. Coverage of the visit, including my interview, is at Walter Williams: Government must stick to its limited and legitimate role.
Those evaluating the Kansas fiscal “experiment” should consider what is the relevant input variable.
An experiment implies changing inputs (one or more independent variables) and examining outputs (dependent variables). If we are to consider the Kansas budget an experiment — and I’m not sure that analogy is apt — what is the independent variable? Is it tax revenue collected, or government spending?
If we believe the purpose of taxation is to pay for spending, then the independent variable is the level of spending. As can be seen in the nearby table and chart, Kansas spending has risen in recent years. Perhaps it has not risen as fast as some people want. Also, these numbers are not adjusted for inflation (which has been low).
But to conclude the “experiment” is a failure because tax revenue is lower is not looking at the right input variable. We should be looking at spending, which keeps going up.
Wichita’s establishment prefers cronyism over capitalism.
It’s not surprising that companies that benefit from Export-Import Bank loans support its renewal. We can understand groups like the Wichita Metro Chamber of Commerce campaigning for the bank, as the Chamber is a special interest group that advocates for its members to the detriment of capitalism.
But we ought to expect more from the editorial board of the Wichita Eagle and Wichita city government officials. But the shiny object before them keeps them from seeing the harm of government programs like the Ex-Im Bank.
Ex-Im Bank by the Numbers
- In 2013, 93% of Ex-Im loan guarantees went to just five major corporations.
- From 2009-2013, the bank supported less than two percent of total U.S. exports
- Based on CBO estimates, Ex-Im will cost taxpayers $2 billion over the next ten years
- Between 2007-2014, there were 792 reported claims of fraud and 124 investigations launched into Ex-Im Bank
- From 2010 to 2014, 66 years of prison sentences were handed down to corrupt employees of Ex-Im and its beneficiaries.
The unfortunate news of the cancellation of a new aircraft program can be a learning opportunity for Wichita.
As Wichita seeks to grow its economy, the loss of a new aircraft program at one of the city’s major employers is unwelcome news. Now it is important that our leaders and officials seek to learn lessons from this loss. But first, we must acknowledge the loss. Wichita economic development officials are quick to trumpet successes, but so far there is no mention of this loss from the city or its economic development agencies.
The project received state, local and federal incentives. Lots of incentives. These incentives took the form of cash grants, forgiveness of taxes that would otherwise be due, and the ability to reroute its employee withholding taxes for the company’s exclusive benefit. So one lesson is that when local officials complain of the lack of money available for incentives, they are not being truthful.
A second lesson is the limited ability of incentives to overcome obstacles. In this case, the company said the incentives were necessary to make the project economically feasible. Incentives were awarded, but the project failed.
There are some important public policy issues that should be discussed:
Did the incentives induce Bombardier to take risks that it would not have taken had it been investing its own funds, or funds it had to raise from stockholders and debtholders?
Will the politicians that took credit for landing the Model 85 and its jobs now recognize the futility of their efforts?
Will the government agencies that took credit for creating jobs adjust their records?
Incentives like these are often justified using a benefit-cost ratio. This incident reminds us that these calculations are valid only if the investment works as planned. Will local governments recalculate the benefit-cost ratios based on the new information we now have?
Perhaps most important: Who has to pay the costs of these incentives? Part of the cost of this company’s investment, along with the accompanying risk, is spread to a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. This action — the award of incentives to an established company — is harmful to the Wichita economy for its strangling effect on entrepreneurship and young companies. As this company and others receive incentives and escape paying taxes, others have to pay.
There’s plenty of evidence that entrepreneurship, in particular young business firms, are the key to economic growth. But Wichita’s economic development policies, as evidenced by this action, are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive. Wichita relies on targeted investment in our future. Our elected officials and bureaucrats believe they have the ability to select which companies are worthy of public investment, and which are not. But as we see in the unfortunate news from Bombardier, this is not the case. (See Kansas economic growth policy should embrace dynamism and How to grow the Kansas economy.)
An interactive visualization of gross domestic product for metropolitan areas.
Gross domestic product is the sum of the value of all goods and services produced for a period of time. The Bureau of Economic Analysis makes this statistic available for metropolitan areas. GDP is not the only way to measure the economic health of a region, but it is one way. I’ve gathered the data and made it available in an interactive visualization.
When using the visualization you may select total GDP, or GDP for private industry or government alone. You may select any number of metropolitan areas to appear on the chart. By clicking metro names in the legend, you can highlight or emphasize the series for one metro area. Use Ctrl+click to select more than one at a time.
Of note, recently James Chung delivered a lecture in Wichita. As part of the presentation, he mentioned three areas that he thought were doing things well: Cedar Rapids, Des Moines, and Omaha. A nearby illustration shows the visualization of the growth of GDP for these metro areas and Wichita. You can see that GDP for these areas have grown faster than has GDP for Wichita. (This visualization shows GDP change since the start of the chart, so that the growth of metro areas of different sizes can be compared.)
Another illustration compares Wichita to several cities that were part of the Wichita Metro Chamber of Commerce’s city-to-city visits. While in some years the visit has been to cities like Austin that have grown rapidly, that is not always the case.
Click here to open the visualization in a new window.
Jeffrey A. Tucker, Director of Digital Development at the Foundation for Economic Education, talks about his new book, “Bit by Bit: How P2P Is Freeing the World.” The book is an explanation of how Bitcoin type cryptocurrencies work as a “peer to peer” innovative payment network and an alternative exchange system. Tucker gave the presentation October 2, 2015, at the Wichita Pachyderm Club. View below, or click here to view in high definition at YouTube. Videography by Paul Soutar.
A national survey finds that small business leaders overwhelmingly believe that state economic development incentives favor big businesses, that states are overspending on large individual deals, and that state incentive programs are not effectively meeting the needs of small businesses seeking to grow. From Good Jobs First.
Survey: Small Business Group Leaders Say States Favor Big Businesses at the Expense of Small Firms Seeking to Grow
Washington, DC, September 29, 2015 — A national survey of 41 leaders of small business organizations representing 24,000 member businesses in 25 states reveals that they overwhelmingly believe that state economic development incentives favor big businesses, that states are overspending on large individual deals, and that state incentive programs are not effectively meeting the needs of small businesses seeking to grow.
A large majority also say small businesses interests in economic development are not well represented in their state capitols. The credit crunch is a critical problem, and many also emphasize that public goods that benefit all employers-such as job training, education, and transportation-deserve to be a higher priority.
The study was funded by the Ewing Marion Kauffman Foundation. It is available on the Good Jobs First website here.
“Our findings are absolutely consistent with what we have heard for years from small business leaders,” said Good Jobs First executive director Greg LeRoy. “Despite their pro-small business rhetoric, state officials’ programs are perceived as biased in favor of large companies that receive big tax-break packages.”
- 92 percent believe that the spending balance on incentives between small and large businesses in their state is biased toward big businesses (69 percent strongly believe).
- 79 percent believe that their state is overspending on big incentive deals, hurting state finances (56 percent strongly).
- 87 percent say that small business interests in economic development issues are not effectively represented in their state’s capital (36 percent strongly).
- 85 percent believe that economic development incentives in their state are not effectively addressing the current needs of small businesses that are seeking to grow (36 percent strongly).
- 72 percent do not believe their state’s current incentive policies are effective in promoting economic growth (23 percent strongly).
The respondents lead groups from 25 states, including all but one of the 15 most-populous. They belong to networks formed in the past 15 years, many with economic development missions. None is contracted by state or local governments to perform economic development functions such as outside-firm recruitment.
“Our next study will examine in great detail how well or poorly state incentive programs treat small, local and/or entrepreneurial businesses versus large, multistate companies” added LeRoy.
Good Jobs First is a non-profit, non-partisan resource center on economic development. Founded in 1998, it is based in Washington DC.
James Chung in Wichita, September 23, 2015.
Here is an interactive visualization of private nonfarm employment in Kansas, for each county. Data is from Bureau of Economic Analysis, part of the U.S. Department of Commerce. Click here to open the visualization.
The sample below shows job growth for the state as a whole, along with the five largest counties. Click it for a larger version.
“For Austrians, on the other hand, man is a purposeful being. … He has spirit and will.” The author of these remarks, Dr. Richard Ebeling, delivered a lecture on Austrian Economics to an audience in Wichita.
Austrian Economics focuses on man as a human actor, rather than as a cog in a system of equations. Dr. Richard Ebeling delivered an introductory lecture on Austrian Economics to an audience in Wichita on September 10, 2015.
A companion article to the lecture is Austrian Economics and the Political Economy of Freedom, in which Dr. Ebeling explains: “The Austrian view of man refutes the positivist, historicist, and neoclassical conceptions of man as a mere physical, quantitative object, or as a passive subject controlled by the dark forces of history, or as a ‘dependent variable’ in a system of mathematical equations. … For Austrians, on the other hand, man is a purposeful being. He thinks, plans, and acts. Man may be made up of matter, but he possesses consciousness. He has the capacity to imagine, create, and initiate. His mind is not simply reducible to lifeless matter. He has spirit and will.”
View video of the lecture below, or click here to view at YouTube in high definition (recommended). Videography by Paul Soutar.
Voice for Liberty presents Richard M. Ebeling, Ph.D. for an informative breakfast event. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. His topic will be “An Introduction to Austrian Economics.”
This meeting is Thursday September 10, 2015, from 7:30 am to 9:00 am. It will be at the Petroleum Club, 9th floor of the Ruffin Building at 100 N. Broadway in Wichita.
The cost is $15, which includes a delicious breakfast. RSVP is not required, but if you plan to attend, would you please let me know by email at email@example.com? This will help with planning. But please attend even if you can’t RSVP.
About the speaker
Dr. Richard M. Ebeling is the recently appointed BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He will be conducting courses such as “Leadership, Entrepreneurship, and Capitalist Ethics” as well as “The Morality and Economics of Capitalist Society.” Dr. Ebeling is recognized as one of the leading members of the Austrian School of Economics and the author of Political Economy, Public Policy, and Monetary Economics: Ludwig von Mises and the Austrian Tradition (Routledge 2010). He is currently editing a forthcoming volume in the Collected Works of F.A. Hayek (Univ. of Chicago Press), the noted Austrian economist and Nobel Laureate. Prior to his appointment at The Citadel, Dr. Ebeling was professor of Economics at Northwood University in Midland, Michigan (2009-2014). He served as president of the Foundation for Economic Education (2003-2008), was the Ludwig von Mises Professor of Economics at Hillside College in Hillsdale, Michigan (1988-2003), and Assistant Professor of Economics at the University of Dallas in Texas (1984-1988). He lives with his wife Anna and their dog “Fritzie” in Mt. Pleasant, South Carolina.
From Austrian Economics and the Political Economy of Freedom by Richard Ebeling:
The Austrian view of man refutes the positivist, historicist, and neoclassical conceptions of man as a mere physical, quantitative object, or as a passive subject controlled by the dark forces of history, or as a “dependent variable” in a system of mathematical equations. Positivism tried to reduce man and his mind to mere magnitudes to be studied and manipulated like the inanimate matter experimented on in the natural sciences. Historicism claimed that man is determined and molded by external laws of history that shape his thoughts, actions, and destiny, with little latitude for the individual to design and guide his own future. Neoclassical economics treats man like a mathematical function possessing given tastes and preferences, which are themselves induced by his surroundings and on the basis of which he responds in predictable ways when confronted with various constraining and objective tradeoffs in the form of market prices.
For Austrians, on the other hand, man is a purposeful being. He thinks, plans, and acts. Man may be made up of matter, but he possesses consciousness. He has the capacity to imagine, create, and initiate. His mind is not simply reducible to lifeless matter. He has spirit and will. Man reflects on the circumstances in which he finds himself. He judges aspects of his physical and social surroundings less than satisfactory. He imagines states of affairs that would be more to his liking. He creates in his mind plans of action that would bring those preferred states of affairs into existence. He discovers that the things he can use as means to achieve some of his ends are insufficient to achieve all of his ends. He has to weigh the alternatives and decide which he prefers more, since some of them, in the face of scarcity, will have be forgone today or forever. He therefore has to decide the tradeoffs he is willing to make, and as a result he determines the costs of his own choices in the form of goals he is willing to give up in order to pursue others that he considers more important.