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Free markets

Tea party leaders analysis released

by Bob Weeks on March 15, 2010

The Sam Adams Alliance, an organization that supports free market principles, has released a study that examines tea party leaders, their thoughts, and their motivations. It found that many tea party leaders are new to political activism, and having experienced empowerment, are ready to move to the next step of activism. “This is their time to act,” the report concludes.

While it is often thought that the tea party movement might blossom into a third party, that wasn’t the sentiment of those surveyed: “A striking 85.7 percent said ‘No’ when asked if they were in favor of moving in the direction of a Third Party.” Eric O’Keefe, Chairman of the Sam Adams Alliance, wrote in his letter introducing the analysis: “We found a deep distrust of current political leaders and both political parties, but strong understanding that practical considerations argue against a third party.”

Political party affiliation was largely Republican: “61.7 percent Republican, 27.7 percent Independent, and 10.6 percent Tea Party.”

Social issues were not important to the respondents. Instead, fiscal and economic issues are the focus: “91.7 percent said ‘budget’ is “very important, followed by the ‘economy’ at 85.4 percent, and ‘defense’ at 79.6 percent.”

The tea party leaders are relatively new to politics: “46.9% were uninvolved or rarely involved with politics prior to 2009.” Also: “Tea Party activists are for the most part new to this role. They are neither practiced nor polished in activism; but having experienced a taste of the empowerment that comes with action, they feel more than ever that this is their time to act.”

But tea party leaders are self-aware and want to advance the movement: “They are also motivated to take this to the next level — and are actively preparing for a phase two.”

Read the report and learn more about the Sam Adams Alliance at Activist Insights. A direct link to the report is The Early Adopters.

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Kansas historic preservation tax credits should not be expanded

by Bob Weeks on March 3, 2010

in Kansas state government

Testimony to be delivered to the Kansas House Taxation Committee.

The Kansas historic preservation tax credit system should not be expanded beyond its current limit.

We must recognize that a tax credit is an appropriation of Kansans’ money made through the tax system. If the legislature is not comfortable with writing a developer a check for over $1,000,000 — as in the case with one Wichita developer — it should not make a roundabout contribution through the tax system that has the same economic impact on the state’s finances.

While I would not recommend writing checks to developers, this practice would be more efficient than the current system of subsidy through the tax system. Last month the Legislative Division of Post Audit (audit 10PA03.1) found that the system is not efficient: “Our review showed that, on average, when Historic Preservation Credits were transferred to generate money for a project, they only generated 85 cents for the project for every dollar of potential tax revenue the State gave up.”

Furthermore, the Department of Revenue has not been tracking the tax credits accurately, significantly under-reporting the cost of the program to the legislature. The audit found that “Finding problems like these in a relatively small sample raises questions about the integrity of the Department’s tax credit information.”

The confusing nature of tax credits leads citizens to believe that they have no cost to the state. A leader of an economic development group in Wichita recently asked questions of me that lead me to conclude that he did not understand the economic effect of tax credits.

The program often ends up being welfare for the wealthy. In Wichita the tax credits have been used to renovate a building with condos selling for $300,000 to $950,000. A current case would have a developer in Wichita receive over $1,000,000 for rehabbing apartments that will rent for $1,000 to $2,000. Perhaps $3 million to $4 million will go to the developer of a hotel in downtown Wichita.

We should recognize that living or working in a historic building is a premium amenity that one chooses, just like one might choose granite countertops in their kitchen. We shouldn’t expect others to pay for these voluntary choices.

In Wichita, many of the projects where historic preservation tax credits are sought are already receiving other forms of subsidy, such as TIF financing and property tax abatements.

Some have said that the tax credits put people to work on projects. I would suggest that when Kansans keep their own money — instead of subsidizing wealthy developers — they spend or invest it in ways that they feel best advances their position in life. This too is economic activity that creates jobs.

I have more material about this issue at my website “Voice For Liberty in Wichita” at WichitaLiberty.org. Along the top, click on “Search” and search for historic tax credits for more information. Or, please contact me by email or telephone and I will send you articles.

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Detroit, corporate welfare and Wichita’s future

by Bob Weeks on February 28, 2010

in Wichita city government

The following op-ed from Americans for Prosperity Foundation’s Alan Cobb appeared in today’s Wichita Eagle (the unedited version is below).

I agree with Cobb. Wichita definitely has a problem with its economic development strategies. Instead of low taxes that will benefit everyone, the Wichita city council and Wichita city hall bureaucrats insist on dishing out subsidies to companies nearly every week. I’ve shared my ideas with the council in testimony like Wichita universal tax exemption could propel growth and articles like Wichita’s economic development strategy: rent seeking.

Still, there are some council members who, along with Mayor Carl Brewer and some city staff, feel city the doesn’t have enough “tools in the toolbox” for shoveling incentives on companies for economic development purposes.

Recently The Eagle printed an article by Molly McMillin, a well-respected aviation and business reporter.

The question asked throughout the article is one that Wichita leaders and citizens have been asking for some time: What can we do to prevent Wichita from falling into the hole that is Detroit?

A simple answer is to continue throwing money and other goodies to keep the aviation companies. A better answer is we need to get rid of the notion that our elected officials and others have so much forethought to know what will or won’t be successful in 20 or 50 years. They don’t.

Detroit became the modern tragedy it is, not just because of global competition, poor products or poor management at the Big Three. Other sectors of the Michigan economy weren’t there to pick up the slack, when the auto industry floundered. Michigan put too much focus on the auto industry, to the detriment of the overall business and economic climate.

While state and local government poured incentives into the Big Three’s trough, the marginal costs of doing business for everyone else crept up.

It‘s the classic example of the seen vs. the unseen. We see the new factory Pontiac builds. We don’t see the businesses that reduce their size, close or just move. The irony is we will still see the Pontiac factory after it is closed and boarded up.

For each tax dollar given to the auto industry, one is taken one away from entrepreneurs trying to create the next GM, Ford, Google or Apple. This may not be too bad the first time or the second time, but over years and decades, the results can be significant. The “next big thing” will be created in a state with a better tax and regulatory climate.

Cessna, Spirit, Boeing, Learjet and Beechcraft are all great companies that produce great products known throughout the world. Kansans and Wichitans are rightly proud.

Who can predict with any certainty they’ll be in Wichita or even in business in 10 or 30 years? I hope so, and I think they will, but I am not willing to bet Wichita’s future on it.

We shouldn’t give other individual companies state or local funded goodies, either.

Lower the tax rates for everyone. After all, the tax breaks and other prizes handed out are recognition that the cost of doing business in a particular are is too high.

The Kansas Division of Legislative Post Audit last year reported we spent billions of dollars in “economic development” with literally nothing to show for it. Our lawmakers aren’t very good at picking winners and losers.

When Wichita’s aircraft leaders were asked about Detroit, there was a golden opportunity to ask other business leaders in Kansas and Wichita that same question.

It is just as likely and maybe more so, that they will determine if Wichita goes the way of Detroit — or does not.

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Importance of economic freedom explained in Wichita

by Bob Weeks on February 26, 2010

in Economics

Yesterday Robert Lawson appeared in Wichita to deliver a lecture titled “Economic Freedom and the Wealth and Health of Nations.” The lecture explained how Lawson and his colleagues calculate the annual “Economic Freedom of the World” index, which ranks most of the countries of the world in how the “policies and institutions of countries are supportive of economic freedom.” The conclusion is that economic freedom is a vital component of well-being, income, health, and both personal and political freedom.

Robert Lawson

The Economic Freedom of the World annual report is available in its entirety at FreeTheWorld.com.

Lawson started his lecture by noting two methods of organizing an economy. There’s the way of Adam Smith, in which liberty, private property, and free trade are paramount, and government is to have a limited role. The other way is that of Karl Marx, where society would be planned and controlled by a central authority according to a national strategy.

Lawson said he became interested in measuring freedom as a way to investigate the truth of the claims of Smith and Marx. By collecting data about economic freedom, we could learn more about which system — economic freedom or planned economies — works best.

Lawson defined economic freedom as consisting of free markets, private property and personal choice; freedom to trade both within a country and foreign trade; freedom to enter markets; and security of property and the rule of law. He said that there is a role for government in this system to protect property rights and provide basic infrastructure, but the role of government is limited.

Measuring economic freedom is complex and multidimensional. Data comes from 141 countries using 42 components that are grouped into five broad areas: size of government, including expenditures, taxes, and enterprises; legal structure and security of property rights; access to sound money; freedom to trade internationally; and regulation of credit, labor, and business. Ratings are on a scale from zero to ten, with ten representing the most freedom.

Some of the components of the ranking are based on objective data, while some are subjective, perhaps from a survey. Lawson said that the report and book detail the methodology used in creating the index.

The result is that Hong Kong ranks as most economically free country. Singapore is second, which Lawson said poses a problem. Singapore is economically free, but it is not politically liberal in terms of civil liberties. There is a strong positive relationship between political freedom and economic freedom, but there are exceptions like Singapore.

The United States ranks sixth. Sweden is ranked fortieth, which is still in the upper quartile of countries. Lawson said that while Sweden has a reputation as a welfare state, the U.S. and Sweden are not all that different. Taxes in Sweden are about 50 perfect higher than ours, and Sweden has many more labor regulations, but otherwise the countries are similar.

The big differences in the world, Lawson said, are between countries like the U.S. and countries like Venezuela and Zimbabwe.

China is ranked eighty-second, below the midpoint. Lawson said that China is a problem to rank, having Shanghai which is relatively free, and then outer provinces which are still tightly controlled and repressive.

Russia ranks eighty-third, right below China. Some of the former Soviet republics like Estonia are doing well, but the Ukraine has made little progress towards freedom.

India ranks eighty-sixth. It is not an economically free county, but is more free now than in the past, Lawson said.

To show how economic freedom impacts the lives of people, Lawson used a series of charts that showed the impact of economic freedom on various measures.

Economic freedom is very important in determining the incomes of people. The countries in the highest-ranking quartile of the economic freedom index have a per-capita income of $32,443. For countries in the lowest quartile the income is only $3,802. Economic growth rates are higher in the freer countries, too, although the difference is not as great as with income.

Lawson said that a frequent criticism of free economies is income inequality. He showed a chart presenting the share of income earned by the poorest ten percent in each country, grouped by quartile. There is very little difference between the groups. “It doesn’t really matter what kind of economic system you have — free market or not — it does not correlate in any way with income inequality. It’s simply not true that market economies, in general, are more unequal.”

A follow-up, Lawson said, is that if you are poor, where do you want to be? The answer is in the economically free countries. The per-capita income of the poorest ten percent in the least economically free countries is $896, while in the most economically free it is $9,105.

Life expectancy is also positively correlated with economic freedom, ranging from 59.40 years in the least-free countries to 79.12 in the most-free countries.

Is there a relationship between economic systems and the environment? Lawson showed a chart showing that the free countries do better in a measure of environmental performance.

Lawson said that political rights and civil liberties are also strongly associated with economic freedom, the example of Singapore notwithstanding. India is another exception, being a fairly liberal democracy but ranking low in economic freedom.

Speaking about the United States, Lawson said that the numbers are likely to go down in the future. While the U.S. ranks above the world average, its measurement of freedom has been declining since 2000. At the same time, the rest of the world is on an upward trend. “It’s no longer accurate to say the United States is among the very top tier in the economic freedom index,” Lawson said, adding that he blames George Bush for this. The decline is partly due to the increasing size of government, but the largest cause of the decline is in the area of property rights. This area is measured largely by surveys asking people how they feel about property rights in America. The perception, Lawson, said, is that the security of property rights are on the decline.

A question from the audience asked about reliance on foreign aid. Lawson replied that the economic freedom index methodology doesn’t include foreign aid. But there has been research done using the index and foreign aid, which concluded that countries get more foreign aid when they do worse on the index. Furthermore, after receiving more foreign aid, countries do worse in the index.

A question about the cost of living in countries was answered by the use of purchasing power parity.

Responding to a question about deficits, Lawson said that the size of government deficits doesn’t enter into the index calculations. The amount of government spending is part of the index, however. Lawson said that Milton Friedman argued that it wasn’t very important to freedom whether the government runs deficits. The size of government spending is important, Friedman said, with the method of financing the spending much less important.

A question revealed that health care doesn’t play a part in the index calculations, as the composition of spending is not a factor. If the U.S. government decides to spend more on health care, its rating will probably decline, as government spending is in the index.

A question asked how it can be that China and India are growing very rapidly, but still rank low in the index. Lawson answered that it’s the change or increase in the index that has been important for these two countries. There has been great change in both countries. “It takes only a tiny bit of relaxation to see a flourishing of growth in both China and India.” He added that both countries need to continue their reforms in order to maintain their rates of economic growth.

Lawson added that regulation, not taxation, is the biggest threat to prosperity and economic freedom in America.

Lawson’s lecture was sponsored by the Gilder Lehrman Institute of American History and underwritten by The Fred C. and Mary R. Koch Foundation.

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United States Government customer service: think twice

by Bob Weeks on February 22, 2010

in United States government

United States Postal Service: We Care

For those who argue that we should turn over more activity — such as health care — to the federal government, take a close look at a government monopoly that’s been around for a long time.

The United States Postal Service has a monopoly on the delivery of first class mail. As an example of its level of service, consider my bank statement. When it hadn’t arrived by its usual time, I called the bank. The bank assured me it had been mailed.

Today the statement arrived in a plastic bag explaining that it had been damaged during processing. I can understand that happening once in a while. Machines are not perfect, and sometimes improving their reliability can be very expensive when compared to the benefit received.

So what was the delay caused by the malfunctioning machine? One day? Two or three days?

The piece was postmarked February 2. It arrived on February 22. The delay — realizing that mail delivery is not guaranteed — is around 18 days.

How does a piece of mail being damaged in a machine cause it to be delivered nearly three weeks late? And it’s not bulk or junk mail — my bank statement is first class mail.

It’s lack of competition. What motivation does the United States Postal Service have to do a better job?

Think about this as we consider moving activity from the private sector to government.

A related story from a friend of mine is Postal service?

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Regulation has not lessened, instead it has harmed us

by Bob Weeks on February 16, 2010

in Regulation

Last week’s Wichita Eagle featured an op-ed by Brad Beachy, who is co-chairman of Wichita Democracy for America. Several of the claims made by Beachy deserve examination. In particular, Beachy blames free markets as the cause of our current economic problems: “The Great Recession we’re in now started in late 2007, after several years of deep tax cuts and major repeals of government regulation in the financial market.”

Let’s look at regulation. Not everyone agrees with Beachy’s claim of major repeals of regulation in recent years. The liberal Time Magazine wrote this assessment of George W. Bush’s regulatory legacy about a year ago:

The only major piece of regulatory legislation enacted during the Bush years was the Sarbanes-Oxley Act, which dramatically increased regulation of corporate financial disclosures. The really big regulatory changes being pointed to now as possible culprits for the crisis date back to Bush’s predecessors: Bill Clinton, Ronald Reagan, even Jimmy Carter and Gerald Ford. So the popular Democratic refrain that “Bush-era deregulation” is to blame for our troubles is a little hard to square with the evidence. What is true is that most Bush-era financial regulators were less than enthusiastic about the very act of regulating, and that Bush’s “ownership society” push glossed over a lot of potential dangers. Bush didn’t cause the financial regulatory breakdown, but he didn’t jump in to fix it either.

The housing crisis played a large, perhaps dominant role in the current recession. So let’s look at what were the causes of that to see if deregulation played a role.

Last October John A. Allison, chairman and former CEO of BB&T Corporation, the nation’s 10th largest financial-holding company, presented a lecture at the 30th annual Economic Outlook Conference at Century II, produced by the Center for Economic Development and Business Research (CEDBR) at Wichita State University. His lecture, titled “The Financial Crisis: Causes and Possible Cures” provided valuable insight into the causes of the problem we’re in.

Allison said “Only government can make a mistake of this magnitude possible.” Government and its regulators, in this case the Federal Reserve System, the Federal Deposit Insurance Corporation, the housing policymakers Freddie Mac and Fannie Mae, and the Securities and Exchange Commission, were the proximate cause of the problem, and prevented natural market corrective forces to work.

At the Federal Reserve, management of our nations’ money supply is a problem. “The huge level of federal debt we have today would not be practical if the government did not own the monetary system,” Allison said.

FDIC insurance of bank deposits leads people to invest in banks without regard to the risk the banks take. It also made the “pick-a-payment” mortgage possible, where each month a homeowner may owe more than the month before.

Freddie Mac and Fannie Mae exist to promote housing ownership, and they promoted it far above the natural rate of home ownership. Their actions also made the subprime mortgage possible.

The credit rating agencies sanctioned by the SEC — S&P, Moody’s, and Fitch — are given a monopoly over the issuance of ratings, and they failed in their duty.

Before the innovations of Freddie Mac and Fannie Mae, savings and loan banks would originate mortgages locally and then hold them locally. Now, the model is “originate and sell,” Allison said. These government regulations made the mortgage broker origination model viable, and led to huge profits, until the bubble burst.

So when Beachy asks “Why does the unseen hand of the marketplace, in its infinite wisdom, give million-dollar bonuses to the CEOs of mortgage institutions who drive their companies into bankruptcy” we have to answer it’s not the marketplace that did this. It was government policy and regulation, developed over the last few decades, that led to this situation. Our financial system operates in nothing resembling a free market environment.

By the way, Beachy starts his op-ed questioning the motives of those he criticizes, in this case the Americans For Prosperity Foundation: “Billionaire David H. Koch presides on the foundation’s board of directors and has funded the organization with millions of dollars.” If motives are reason for criticism, we ought to note that Beachy — an employee at a government-owned and run institution — has a self-interest in keeping the government spending gravy train flowing.

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An inept Kansas smoking analogy

by Bob Weeks on February 14, 2010

in Regulation

From last March.

In today’s Wichita Eagle, Wichita busybody Charlie Claycomb makes another inept analogy in an attempt to press his anti-smoking agenda statewide.

A while back he tried to compare a smoking section in a restaurant with a urinating section in a swimming pool. This is ridiculous to the extreme, as I show in the post It’s not the same as pee in the swimming pool.

Now in today’s letter in the Eagle, Claycomb says that although the United States Constitution gives us the right to bear arms, since that right is heavily regulated, government has license to regulate smoking, as smoking isn’t mentioned at all in the Constitution.

Here’s why this is another ridiculous analogy (without conceding whether the regulations on arms are justified or effective): A person in, say, a bar that’s carrying a gun can’t be detected as you enter the bar. You just can’t tell upon entering an establishment whether someone has a concealed gun and intends to cause harm to patrons. This is the case even if there’s a law prohibiting carrying guns into bars, and even if the bar has a “no guns” sign.

But you sure can tell if people are smoking.

Smoking ban supporters might argue that since there may be smoking in some establishments, my rights are being infringed since I can’t patronize those places without exposing myself to harmful smoke.

That’s true, except about rights being violated. There’s definitely no right in the Constitution to be able to go everywhere you want on your own terms.

“Mankind are greater gainers by suffering each other to live as seems good to themselves, than by compelling each to live as seems good to the rest.” — John Stuart Mill

“Whenever we depart from voluntary cooperation and try to do good by using force, the bad moral value of force triumphs over good intentions.” — Milton Friedman

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It’s not the same as pee in the swimming pool

by Bob Weeks on February 13, 2010

in Regulation

A repeat of a column from 2008. Mark McCormick no longer writes for the Wichita Eagle. Recently that newspaper concluded that because Wichita’s smoking ban caused no economic harm, it was a good thing to do. Let’s hope this regulatory zeal doesn’t spread to other areas.

In a column in the February 27, 2008 Wichita Eagle (“Smoking ban issue not one to negotiate”), columnist Mark McCormick quotes Charlie Claycomb, co-chair of Tobacco Free Wichita, equating a smoking section in a restaurant with “a urinating section in a swimming pool.”

This is a ridiculous comparison. A person can’t tell upon entering a swimming pool if someone has urinated in it. But people can easily tell upon entering a restaurant or bar if people are smoking.

Besides this, Mr. McCormick’s article seeks to explain how markets aren’t able to solve the smoking problem, and that there is no negotiating room, no middle ground. There must be a smoking ban, he concludes.

As way of argument, McCormick claims, I think, that restaurants prepare food in sanitary kitchens only because of government regulation, not because of markets. We see, however, that food is still being prepared in unsanitary kitchens, and food recalls, even in meat processing plants where government inspectors are present every day, still manage to happen. So government regulation itself is not a failsafe measure.

Despite the doubts of nanny-state regulators, markets — that is, consumers — exert powerful forces on businesses. If a restaurant serves food that makes people ill, which do you think the restaurant management fears most: a government fine, or the negative publicity? Restaurants live and die by their reputation. Those that serve poor quality food or food that makes people ill will suffer losses, not as much from government regulation as from the workings of markets.

But I will grant that McCormick does have a small point here. Just by looking at food, you probably can’t tell if it’s going to make you ill. Someone’s probably going to need to get sick before the word gets out.

But you easily can tell if someone’s smoking in the bar or restaurant you just entered.

The problem with a smoking ban written into law — rather than reliance on markets and individual choice — is that everyone has to live by the same rules. Living by the same rules is good when the purpose is to keep people and their property safe from harm, as is the case with laws against theft and murder. But it’s different when we pass laws intended to keep people safe from harms that they themselves can easily avoid, just by staying out of those places where people are smoking.

For the people who value being in the smoky place more than they dislike the negative effects of the smoke, they can make that decision. McCormick and Claycomb want to deny people that choice.

This is not a middle-ground position. It is a position that respects the individual. It lets each person have what they individually prefer, rather than having a majority — no matter how lop-sided — make the same decision for everyone. Especially when that decision, as Claycomb stated in another Wichita Eagle article, will “tick off everybody.” Who benefits from a law that does that?

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‘Economic Freedom and the Wealth and Health of Nations’ lecture to be in Wichita

by Bob Weeks on February 10, 2010

in Economics

Do you know where the United States ranks on the global index of economic freedom? (Hint: It wouldn’t get a medal.) The answer is in the latest edition of the Economic Freedom of the World report.

Dr. Robert Lawson of Auburn University is co-author of this popular and widely cited report. It evaluates 141 nations and jurisdictions using a combination of economic factors and then creates a ranking from most- to least-economically free. (For an executive summary of the most recent report, visit Economic Freedom of the World 2009 Annual Report.)

Dr. Lawson will be the guest lecturer at a public forum in Wichita on February 25 at 6:00 pm at the Hyatt Regency Hotel. His presentation, “Economic Freedom and the Wealth and Health of Nations,” is sponsored by the Gilder Lehrman Institute of American History and underwritten by The Fred C. and Mary R. Koch Foundation.

Because meeting space at the Hyatt is limited, the lecture sponsors ask that those interested in attending please RSVP by email to RSVP@kochind.com.

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Government spending does not create prosperity

by Bob Weeks on February 8, 2010

in Free markets

In his op-ed Don’t buy canard about spending, Alan Cobb of Americans for Prosperity writes about the illusion that government spending creates economic growth.

It’s an important topic, as we’ve just been through nearly a year of Obama stimulus spending, and people are wondering if the effort has paid off. Locally in Kansas, spending advocates argue that reducing Kansas state spending will cause economic growth to suffer. Even more locally in Wichita, city council members and city hall bureaucrats argue that government is responsible for managing economic development in Wichita, some going so far to proclaim that free people and free markets have failed and can’t be trusted.

In yesterday’s Wichita Eagle, Wichita businessman Fred Berry takes issue with Cobb, and this disagreement provides a useful illustration of the difference between government and private action.

Cobb wrote this: “If I take $20,000 from my neighbor and hire a gardener, the economy certainly hasn’t grown by $20,000. It’s simply been a shift of money.” Cobb is illustrating the effect of government spending.

Berry wrote: “But let me use Cobb’s example in a different way. Suppose he and his neighbor decided to share a gardener, because neither needed one full time. Because Cobb’s garden was twice as large as his neighbor’s, he agreed to pay two-thirds of the cost.”

What’s the difference between the two examples? It’s simple: Cobb is illustrating a government-coerced transaction, while Berry uses a voluntary transaction.

There’s a world of difference between the two. Voluntary transactions are the way that wealth and prosperity are generated. These transactions happen because both parties believe they will be better off if the transaction takes place.

This leads to what John Stossel has termed the “weird double thank you moment” when people engage in voluntary trade: One party says “thank you,” and so does the other. This happens at the grocery store and nearly everywhere people are making voluntary exchanges that benefit both parties.

But when you pay your taxes, do you say “thank you?”

Milton Friedman has written and lectured extensively on the topic of free markets. Here’s an example from his monumental work Capitalism and Freedom:

Fundamentally, there are only two ways of co-ordinating the economic activities of millions. One is central direction involving the use of coercion — the technique of the army and of the modern totalitarian state. The other is voluntary co-operation of individuals — the technique of the market place.

The possibility of co-ordination through voluntary co-operation rests on the elementary — yet frequently denied — proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed.

Exchange can therefore bring about co-ordination without coercion. A working model of a society organized through voluntary exchange is a free private enterprise exchange economy — what we have been calling competitive capitalism.

It’s surprising to me that a businessman — here I specifically do not use the word “capitalist” — like Fred Berry would fail to recognize the distinction between free markets and government coercion. I guess I should not be surprised, as Berry made large campaign contributions to the Wichita school bond campaign in 2008, and the public schools are definitely unfriendly to capitalism. In addition, he has made contributions to enemies of capitalism like Wichita Mayor Carl Brewer and city council member Janet Miller.

For more explanation of how free markets work from Milton Friedman, view the video below.

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Don’t buy canard about spending

by Bob Weeks on February 8, 2010

in Free markets

By Alan Cobb

“Canard” is a funny word.

It keeps popping into my head anytime I read another self-anointed do-gooder who claims that government spending leads to economic growth.

“Canard” means a false report — and we’ve got lots and lots of them about these claims.

If I take $20,000 from my neighbor and hire a gardener, the economy certainly hasn’t grown by $20,000. It’s simply been a shift of money. Rearranging the furniture in your living room doesn’t increase the number of easy chairs or TVs.

That’s what happens when your taxes pay for someone else’s salary, build a government building or pave a road.

We value good roads and good government. But that doesn’t mean those things cause economic growth. Arguments otherwise are either deceitful or horribly misinformed.

Many say that we don’t need to do anything but spend more government money and — voila — a land of milk and honey.

Given the Kansas highway lobby’s assertions, Kansas should do nothing but build roads and the Sunflower State will become the promised land.

Oh, if it were so.

As Margaret Thatcher said, big government doesn’t work because eventually you run out of other people’s money.

There’s also something never discussed by those wanting to line their pockets with what used to be in your pocket. The money doesn’t drop from the sky and it isn’t in your grandmother’s basement. It’s our money, and we taxpayers might do something more productive with it — though that is never measured. The citizens of Kansas might spend the billions the road lobby wants to spend on more roads (in a slow-growing state with great roads already) on something else, like starting new businesses, which would lead to growth.

The multipliers used by those pushing the canard, cooked up in a fantasy lab, make it look even better. Multiply the $20,000 gardener salary by three — sprinkled with fairy dust — and all of the sudden the transfer of $20,000 magically becomes $60,000. So anything is justified. Want $3 million in economic growth? Just raise taxes by $1 million. You don’t need Billy Mays to sell this stuff.

Add up all the multiplier studies and poof! Kansas’ economy is the size of Texas’.

In a recent Wall Street Journal commentary, a Stanford University economics professor dismissed this notion and said the government-spending multipliers are actually negative. Outlays by the government crowd out private spending and require future taxes.

Measuring the economic value of shorter commutes and fewer car repairs, accidents and fatalities is doable, but never done. Similarly measurable are the benefits of an educated populace, but the benefit is not the sum of teachers’ salaries plus the cost of the bricks in a school addition. Taking the input (tax dollars) and applying a castle-in-the-sky multiplier is not magical; it’s wrong.

Saying the Pizza Hut that moved from downtown to the new bypass outside town is “growth” is equally wrong — and dishonest. But that’s what we hear from those pushing the canard that government spending is growth.

There’s that word again.

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At Wichita city council, does the field tilt?

by Bob Weeks on January 25, 2010

in Wichita city government

At the January 12 meeting of the Wichita City Council, several citizens and one council member addressed the “unlevel playing field” and its implications for development in downtown Wichita.

Speaking about the unlevel playing field, council member Janet Miller said: “My own philosophy on that would say that really, incentives are often used to actually level the paying field.” Referring to downtown Wichita, she said that there may be conditions that make development more costly, or there may be other conditions that make development more difficult.

Miller didn’t name specific factors, but often land assembly issues are mentioned as an impediment to developing in downtown Wichita. A parcel may be owned by many parties, the story goes, and it can be difficult and expensive to contact all parties and come to agreement with them.

But land assembly is not an issue with the proposed hotel in WaterWalk. There is no doubt as to land ownership. It’s just one party, and one who is willing to lease it for $1 per year.

Later in the meeting, Miller addressed the issue of unfair advantage that several citizen speakers brought up. Miller said that any developer could build downtown, if they wanted to: “Nothing in the free market prohibits them from doing that. They could take advantage of tax incentives, or not. Nothing prohibits anybody from developing downtown. That said, where are they?”

I can think of several reasons why developers might not want to accept subsidies to develop in downtown Wichita: Some might have an ethical, political, or other objection to accepting taxpayer money as an incentive. Some might not like having the city and its bureaucracy as a business partner. Some may not have supported the right candidates for mayor and city council. Some may not like the scrutiny — such as it is — that comes with accepting taxpayer money.

Some may not want to endure the scorn and contempt that many citizens justifiably feel towards those who accept taxpayer subsidy.

Miller went on to say why there’s not much development downtown: “It’s more difficult, it’s more expensive, and it’s less profitable.”

Regarding these reasons: What about developing this hotel is more difficult than developing other hotels? Why is it more expensive?

Finally, is downtown development really less profitable? Evidence of this comes from people who have multi-million dollar motives to make it appear so. That’s not good enough evidence for me, and it ought not to be good enough for the city council and Wichita city management.

If it is in fact true that downtown development is less profitable, that’s a signal that we ought not to spend any more money — at least public money — downtown. Instead, we should let developers invest their money where they believe it’s most profitable to do so. Profit is the best measure we have as to whether capital is being invested wisely. Profit is the most reliable signal that consumer wants and needs are being met in an efficient manner.

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In Wichita, Free Market Economics 101 to be held

by Bob Weeks on November 26, 2009

in Free markets

On Monday, the Wichita Chapter of Americans For Prosperity is holding an informative meeting to learn more about free market economics and its application.

The program is:

A trade exercise
A private property exercise
Group discussions of
“I, Pencil” by Leonard Reed
“The Law” by Frederic Bastiat
The Platinum Triangle Redevelopment Project
“Seven Principles of Sound Public Policy” By Lawrence Reed

A group discussion and question answering period will follow.

This event is on Monday, November 30, 2009, from 7:00 pm to 9:30 pm. The location is:

Belford Electric Inc. Meeting Room
800 East Third Street
Wichita, Kansas

This is at the corner of Mead St. and Third St. North in Old Town. Click here for a Google map.

The meeting room is limited to 24 participants. Please RSVP to John Todd at john@johntodd.net, 316-312-7335 or Susan Estes at sestes@afphq.org, 316-269-4170.

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Wichita MAPC meeting mix of policy, politically correct

by Bob Weeks on November 20, 2009

in Wichita city government

At yesterday’s meeting of the Wichita Metropolitan Area Planning Commission, a mix of politics and policy resulted in protection of a Wichita non-profit’s market, but at the loss of convenience to Wichitans.

The issue is about 65 red clothing recycling bins operated by American Recyclers of Tulsa. These bins are in violation of Wichita city code, which states that bins like these — called curbside recycling — can’t be used for the recycling of clothing. They may be used for the recycling of other items.

The firm’s attorney, Bob Kaplan, had asked that the Wichita ordinance be revised to remove the prohibition on accepting clothing. Overland Park allows curbside collection of clothing under certain conditions, and after approval of a site plan.

In his testimony, Kaplan said that there are two reasons why there is opposition to the recycling bins. One is the proliferation of the bins. There are about 65 in Wichita. The second — and perhaps the primary reason — is that sometimes the bins become full and items are left outside the bins. Other people dump all sorts of trash and junk near the bins. But about one million pounds of clothing is picked up in the course of a year.

Kaplan said that every box is visited by the recycling company once a day, seven days a week. All items left at the bins are picked up, even if they are not items that should have been left there. Also, the company quickly responds to calls if a problem is reported.

The operator of a Wichita recycling center spoke to answer questions about his operation. The relevance of his testimony was not clear, but several members of the MAPC were interested in details of the operation of the recycling center, such as its hours of operation, and has it considered opening other locations in Wichita.

Representatives of Goodwill Industries spoke, and it was at this time that the crux of this issue became clear: Since the introduction of the red bins, Goodwill has seen a drop in the volume of clothing items coming to its stores. He said that the prohibition on curbside recycling of clothing protects the standard of living in our community by preventing blight. He welcomed American Recyclers to come to Wichita and open a business in a building, as does Goodwill.

MAPC member David Dennis asked questions regarding the number and locations of the Goodwill stores, the amount of investment, jobs, and wages. But the most important question Dennis asked was this: Where do the proceeds go — charity, or profit?

John Todd, citizen, said that the applicant’s proposal offer choice to the consumer. Competition is good for business, and the consumer wins where there is choice and competition.

Kaplan agreed, saying “competition is not a relevant factor” in the decision the MAPC has to make.

A question by MAPC board member Mitch Mitchell highlighted the point that it is not the boxes themselves that are illegal. It is that they are used for the recycling of clothing that makes them in violation of Wichita city code.

A motion was made and seconded that would have left the Wichita ordinance as it presently exists, meaning that the red bins would still be illegal. A substitute motion offered by Mitchell would have accepted Kaplan’s offer to work with city staff to include the provisions of the Overland Park ordinance so that there could be curbside recycling of clothing.

City legal staff interjected that what was being asked — directing staff to initiate an amendment to the zoning code — was beyond the authority of individual applicants, but the commission could, still, ask for this.

But no second to Mitchell’s was forthcoming, so the motion died. The original motion passed with only Mitchell voting against it.

After the meeting, Kaplan would not comment of the future plans of his client. The red bins are likely to be removed, he said, to comply with the decision.

Analysis

The prohibition of curbside recycling of clothing is a curious anomaly in the city code. The type of bins in question are allowed for the recycling of other goods. I spoke with MAPC member Mitchell, and he said that no one in the city’s planning department can tell him why the prohibition on clothing was placed in the ordinance.

The most troubling aspect of the MAPC’s consideration of this item is the nature of the questions asked by several board members. These questions were obviously designed to show that a non-profit organization like Goodwill Industries is superior to a profit-making business. This presumption that non-profits are more virtuous and desirable because of the absence of the profit motive is common, but unfounded. It’s an example of the bias — considered to be the politically correct stance in some quarters — against profit and business.

This is especially troubling in the case of David Dennis, who, according to his biography, has worked for non-profit government institutions (primarily the military and Wichita public schools) for most of his career.

The ability to earn a profit means that an organization is providing goods or services that are valued by people, and if the organization is able to stay in business, it means it is doing this efficiently. Profit is evidence that capital is being used effectively.

Additionally, profit is the source of the ability to pay taxes. That allows institutions like the military and public schools to operate and institutions like Goodwill to exist without paying many of the taxes that businesses must pay.

Would the members of the MAPC have been willing to ask for a change of city code if the red bins were operated by a charity? We don’t know, but making the type of policy decisions that were made today is not within the scope of the MAPC’s responsibility. Mitchell said it is difficult to work on these types of issues without considering and making policy.

As it stands, Wichitans are about to be deprived of a convenient way to recycle clothing. The Wichita city council should consider revising city code to allow curbside recycling of clothing.

An earlier report from KWCH is Red Bins Violate City Code. Its reporting on yesterday’s meeting is at Red Bins Illegal and Must Go.

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‘Political capitalism’ explained in Wichita

by Bob Weeks on October 29, 2009

in Free markets

In Wichita this Monday, Robert L. Bradley, Jr. explained the state of capitalism in America today, using his experience working in a high-level position at the failed energy conglomerate Enron as a backdrop.

Bradley asked: What happened to business prudence? What has happened to capitalism? The answer is that what we have today is not free market capitalism. Rather, it’s a very different type of capitalism: political capitalism.

A common question today is has capitalism failed? Problems are automatically blamed on greed, self-interest, and profit maximization — in other words capitalism.

Historically, robber barons have been condemned as examples of capitalism out of control. But many “robber barons” such as Rockefeller made money through voluntary transactions with their customers, Some, however, lived off special government favor such as tariffs. That’s political capitalism.

Then during the Great Depression capitalism was blamed again. At that time, however, the Federal Reserve Bank was already in control, and this era saw the rise of other forms of government interventionism.

Today our problems are commonly blamed on self-interest and capitalism rather than government.

What is real capitalism vs. American-style political capitalism — the mixed economy where government intervenes heavily in business and the economy?

Enron is still the premier example of political capitalism. But not many knew the full extent of Enron’s activities, or they though it was okay: “Enron was everyone’s favorite company.”

But the company that everyone thought was the best turned out to be the worst.

Bradley said the moral of Enron is deeper. There was a systemic failure surrounding Enron. All the gatekeepers — regulators, auditors, legal counsel, the business press, credit rating agencies, business professors — all failed at the same time.

Many critics said that Enron refutes all that is good about free markets. Bradley quoted one business ethics professor: “The Enron value set was an extreme laissez faire ideology of absolutely free unregulated markets.”

Bradley disagrees with this assessment, however. Enron was all about Ken Lay, “a master political capitalist.” Lay was a PhD. economist with a lot of Washington experience. His business model for Enron was regulatory change. If Enron could direct the change, it could gain the “first mover” advantage.

Bradlet quoted a definition of political capitalism as “The utilization of political outlets to obtain conditions of stability, predictability, and security to allow corporations to make reasonable profits over the long run.”

Socialists, he said, believe that when there is private property, its owners will be in bed with politicians in order to gain special favors.

Enron’s profit centers had to do with regulatory change. Enron was the first major United States company to proclaim that the climate was in crisis and that government intervention was needed to reduce greenhouse gases.

But it was a self-interested position. Enron rescued the domestic wind power industry by purchasing a company in that industry, and getting a mandate from the Texas legislature for renewable power mandate.

Today, the Obama energy plan has a lot to do with Enron’s public policy thrust.

Enron also gamed regulatory systems. By manipulating accounting rules, Enron could show accounting profits where there were no true economic profits.

In the tax department, Enron used boutique accounting and legal firms to find niches in the tax code that could be exploited.

The lesson is that these regulations may not be providing investors useful information and protection, although there may be an illusion created. A corporate report from the 1930s of just three pages gave investors more useful information, and held the firm more accountable, than did Enron’s last corporate report of 56 pages. The lesson, Bradley said, is “simple rules for a complex world.”

So how did someone like Ken Lay get to the top of the business world? How did he fool everyone and bring down all the gatekeepers with him? Bradley said the government side of the mixed economy was the factor that created an environment that could be exploited.

The lesson is that the rise and fall of Enron discredits the mixed economy and political capitalism.

A question was asked: What should we do? Bradley said we should support public policies that are market-oriented, instead of supporting government intervention. But given the mixed economy, we need to watch out for artificial incentives.

Afterwards, I asked Bradley about government intervention at a local level, such as in Wichita. Specifically, what about TIF districts and tax abatements? Are these examples of political capitalism? Bradley said yes, these are. A side effect is that a tax abatement does leave money in the private sector instead of the government public sector. But a special favor means an artificial stimulus that encourages malinvestment.

I asked if we need more regulation to protect us, or is our current regulatory regime sufficient? Bradley mentioned that in the Bernie Madoff scandal, the defrauded investors are as mad, or more mad at the Securities and Exchange Commission, that they are at Madoff himself. Many figured that the SEC, with its thousands of regulators, had done their homework for them, and that Madoff’s company was safe. This represents a major unintended consequence of regulation.

Much more information about this topic can be found at Bradley’s website Political Capitalism. His recent book is Capitalism at Work: Business, Government and Energy.

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Defending insider trading

October 26, 2009

Insider trading is almost universally judged to be bad. Company insiders, using information not available to the public, making stock trades and usually very high profits: Is that fair? How could allowing abuse like this be beneficial?

But if you value the importance of prices as conduits of information, allowing insider trading makes a lot more information available.

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City council members on downtown Wichita revitalization

October 19, 2009

At the meeting of the Wichita City Council last week, several city council members gave their resons for supporting the planning for the revitalization of downtown Wichita. It’s worthwhile to take a look at two members and their remarks.

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John Stossel urges reliance on freedom, not government, in Wichita

October 14, 2009

Speaking at Wichita State University on Monday, former ABC News Journalist John Stossel told a large crowd that free markets and limited government, not government, are the best way to increase our wealth and prosperity.

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AFP Defending the American Dream summit draws thousands to Washington

October 8, 2009

Last Friday and Saturday over two thousand defenders of free markets and capitalism traveled to the Washington area to meet at the Americans for Prosperity Foundation’s Defending the American Dream summit. It was an action-packed two days, so I’ll report on just a few personal highlights.

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Star Parker delivers message in Wichita

October 8, 2009

In an energetic message delivered to an audience at Wichita State University this Monday, author and columnist Star Parker spoke about breaking the cycle of poverty and other issues facing our country.

Early in her talk, Parker noted the irony of the welfare office in Washington (the Department of Health and Human Services) being located on Independence Avenue. The approaches that have been tried over the last 45 years to conquer poverty haven’t worked and have lead to two generations of government dependence with disastrous consequences, she said.

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John A. Allison: The current problem, and what to do

October 6, 2009

Last Thursday, John A. Allison visited Wichita to address the annual economic outlook conference produced by the Center for Economic Development and Business Research (CEDBR) at Wichita State University.

Allison is chairman and former CEO of BB&T Corporation, the nation’s 10th largest financial-holding company. Its headquarters are in Winston-Salem, North Carolina. His talk first diagnosed the cause of the crisis. You can read my coverage of it at Causes of global finance crisis explained in Wichita

Having described the cause, Allison told what we need to do to fix the mess we’re in, and to avoid future crises like the present.

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Causes of global finance crisis explained in Wichita

October 1, 2009

Today, an audience of 600 business and civic leaders attended the 30th annual Economic Outlook Conference at Century II, sponsored by the Center for Economic Development and Business Research (CEDBR) at Wichita State University.

The featured speaker was John A. Allison, chairman and former CEO of BB&T Corporation, the nation’s 10th largest financial-holding company. Its headquarters are in Winston-Salem, North Carolina.

The primary cause of the recent financial crisis is our federal government’s policies and actions, Allison said.

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Obama’s tax increase on tires

September 14, 2009

There’s a reason why some news is released on Friday night. Those making the news hope it won’t be noticed.

That’s probably why the Obama Administration waited until then to inform the country that it was imposing a tariff on tires imported from China. This tariff will probably protect some American jobs, but it will increase the cost of tires.

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Health Czar, interrupted

September 11, 2009

The Sam Adams Alliance presents another humorous look at health care reform in American. The first, Health rations and you, was very popular on YouTube. Now: “After months of Americans happily sacrificing for the Health Administration Bureau, Health Czar O’Brien holds his first press conference, ready to answer the tough questions.”

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Health care video fails to make case for universal, “socialized” medicine

September 8, 2009

A video that’s getting some viewers on Youtube (235,000 as of this moment) serves as an illustration of how wrong the left is in its prescription for health care reform.

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Government institutions not role model for health care

September 6, 2009

One of the arguments used to promote more government involvement in the provision of health care is this: government already provides so many services, and government does it so well, that we ought to turn over medicine to it too.

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John Stossel to speak in Wichita

August 27, 2009

ABC television journalist and author John Stossel will be in Wichita on October 12 to deliver a lecture as part of Wichita State University’s Elliott School of Communications 20th anniversary celebration.

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Health care talk gives alternative to big-government reform

August 26, 2009

At a recent forum sponsored by the South Central Kansas 9.12 Group, Dr. George Watson of Park City, Kansas laid out a conservative case for health care reform. His messages was different than that of most reformers: instead of more government involvement, we need less government.

“Yes, we need change,” he said. He also said that a public option will result in government takeover of medicine.

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Privatization of Wichita city parks

August 6, 2009

In a post concerning the possible privatization of City of Wichita parks maintenance, I called for, in a rather oblique way, privatization of city parks. A commenter picked up on this and wrote “I’m wondering how the parks would be decided by the market. Wouldn’t the parks have to charge an entry fee in that case?”

It’s a good question. Broadly, what would happen if the City of Wichita decided not to provide public parks? Would there then be any privately owned parks? What would these parks be like, if there were any?

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Wichita budget hearing reveals fundamental problem with government

August 5, 2009

At yesterday’s public hearing regarding the City of Wichita budget, the attitude of Wichita’s public employee union became clear: more tax revenue is needed.

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Flint Hills Center adds more staff

July 21, 2009

Grace Harris has been named Government Transparency / Operations Manager at the Flint Hills Center for Public Policy. Harris will lead government transparency projects which will make government data more available to Kansans. Along with government transparency, Harris will organize day-to-day operations for Flint Hills.

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AFP “Defending the American Dream” summit announced

July 21, 2009

Americans For Prosperity has announced its third annual national summit. It’s on Friday and Saturday, October 1, and 2, in Arlington, Virginia. On Friday there’s a rally and news conference at Capitol Hill.

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Ballotpedia and Judgepedia move to new home

July 1, 2009

The Lucy Burns Institute is delighted to announce that effective July 1, 2009, it became the official sponsor of Ballotpedia and Judgepedia.

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Decisions made through politics leads to conflict

June 30, 2009

A column by economist Walter E. Williams (Why we’re a divided nation) strongly makes the case for more decision-making by free markets rather than by the government through the political process.

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Wichita facade improvement program bad for Wichitans

June 16, 2009

As this city council decides whether to give a grant of $20,000 to a private business, we need to consider the effect of programs like this on all the people of Wichita. And people are telling me that they don’t like it. They wonder why, at a time when the city is struggling with its budget, and when many are struggling with their personal budgets, there’s money available for programs like this.

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Wichita facade improvement plan updated

June 15, 2009

Programs like this are government planning. It’s our city government saying that investment in certain areas of town are more desired than investment in other parts of town. Since people aren’t investing enough to fulfill the city’s plan, the city must correct this alleged market failure by giving gifts of taxpayer money.

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John Stossel: The Reason.tv interview

June 13, 2009

As the co-anchor of the long-running and immensely popular ABC News program 20/20, auteur of a continuing series of specials on topics ranging from corporate welfare to educational waste to laws criminalizing consensual adult behavior, and author of best-selling books such as Myths, Lies, and Downright Stupidity, Stossel brings a consistent message of liberty to millions of viewers on a weekly basis.

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Markets could guide Wichita school district

June 5, 2009

Reduce either the number of administrators or their salaries, and that would make more money available for other things, such as teachers. Currently the district needs to cut its budget, however, so the savings would more likely be used to meet that demand.

This brings up the broader question of staffing in the Wichita public schools. How does the district know how much management it needs? For that matter, how many teachers, custodians, etc. does it need?

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Seven principles of sound public policy

June 4, 2009

Lawrence W. Reed, now the president of the Foundation for Economic Education, has a short booklet available that can help citizens analyze whether a government policy is sound.

Titled Seven Principles of Sound Public Policy, it’s a comfortably short pamphlet of just 11 pages. But it’s full of a lot of wisdom.

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Kansas historic tax credits should end

June 3, 2009

The Wichita Business Journal reports that without historic tax credits, some redevelopment projects might stop.

In other words — the Business Journal isn’t quite so blunt — if taxpayers don’t give developers money, some of their projects might not be economically feasible. Or so the developers say.

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Sedgwick County land development will harm private sector

May 20, 2009

As Sedgwick County considers whether to enter the industrial land development business, there are many considerations that must be weighed before proceeding. My greatest concern is the impact that government land development will have on the private sector in Wichita. … Government has advantages that the private sector doesn’t. It has access to free capital. It can give away land to companies. It can forgive future taxes. It can offer free infrastructure.

The effect of this will be to drive the private sector out of the new industrial real estate market.

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