Author: Bob Weeks

  • Political Decision Making Increases Conflict

    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.

    When decisions are made through free markets, Dr. Williams says, both parties win, because in a free market, parties voluntarily enter into only those transactions that benefit them.

    When decisions are made for us by the government, however, it is almost always the case that one party’s gain is someone else’s loss. Therefore, there is conflict. The more decisions made through politics, the more potential for conflict. Coalitions arise in order to try to get more from the government, and the most effective coalitions “are those with a proven record of being the most divisive — those based on race, ethnicity, religion and region.”

    The final paragraph of the column is this: “The best thing the president and Congress can do to heal our country is to reduce the impact of government on our lives. Doing so will not only produce a less divided country and greater economic efficiency but bear greater faith and allegiance to the vision of America held by our founders — a country of limited government.”

    In an earlier post, I mentioned some columns by Dr. Williams that I thought were important. This column is certainly one of his best, as it very simply, in one short page, shows us a major fault in our current political landscape.

  • John Bogle on Investing: The First 50 Years

    John Bogle on Investing: The First 50 Years
    John C. Bogle
    McGraw-Hill, 2001

    “The one great secret of investing is that there is no secret.”

    “Investment success, it turns out, lies in simplicity as basic as the virtues of thrift, independence of thought, financial discipline, realistic expectations, and common sense.”

    John C. Bogle, whom I greatly admire, founded Vanguard investment management company, a mutual fund company owned by its shareholders. He pioneered the no-load mutual fund and the index fund. These two ideas have made it possible for the average person to be in charge of their investments and do better than any of the Wall Street professionals that make up the financial establishment.

    A no-load mutual fund is one that charges no sales fee or commission, either to buy or sell the funds.

    An index fund is one that is managed to match the performance of a broad market index, such as the S&P 500 Index or the Wilshire 5000 Index for stocks. There are bond indexes, too. Investing in an index mutual fund is like buying everything (“the haystack”) instead of searching for needle.

    Actively managed funds employ high-powered investment professionals who use many different techniques to select securities that they believe will perform better than other funds. It would seem that these funds should do much better than the passive index fund strategy. But the results don’t show this to be true. That’s what Mr. Bogle means when he says there is no secret.

    For the period 1987 through 1997 (this is from a speech given in 1999), Morningstar selected what they term the equity fund “Manager of the Year.” For these managers, not even one of them beat the S&P 500 Index in the following year. Not even one was able to turn in an above average result.

    From 1993 through 1998 the New York Times asked five investment managers to manage a hypothetical portfolio. The portfolios started with $50,000. At the end the average advisor portfolio grew to $103,500. Does that seem like a lot of growth? Most people would probably be happy with that. But the market average, as represented by the S&P 500 Index, grew to $156,100 over the same period.

    Any comparison of index funds to actively managed funds will show that, over time, the index funds do better. For short periods, some actively managed funds will do better than the index funds. The problem is that we don’t know which funds will do better.

    Why do index funds outperform actively managed funds over time? The answer, according to Mr. Bogle, is costs. Investors pay costs in the form of sales charges or loads when they buy (and sometimes when they sell) funds, actively managed funds often have some portion of their assets held as cash reserves, actively managed funds incur high transaction costs as they buy and sell securities, and actively managed funds usually charge higher management fees. Plus, actively managed funds can generate tax bills for their holders, too. These costs substantially reduce the return to investors in actively managed funds. The tyranny of compounding tells us that even small differences in returns can make huge differences in the amount of money one can have as they start retirement. An investment in the S&P Index would be worth about twice as much as an investment in the average equity fund over the period 1949 to 1998.

    The innovations that Mr. Bogle has been responsible for are invaluable. The collections of speeches in this book are fascinating to read, and following the advice in them will lead to a lifetime of success in investing. It is not, however, the same advice you’ll get from a stockbroker or from most financial advisors.

  • John Todd on Eminent Domain in Kansas

    To: The Kansas House/Senate Joint Committee on Economic Development.

    Subject: Testimony Regarding Eminent Domain at the October 11, 2005 hearing.

    My name is John Todd. I am a real estate broker and land developer from Wichita.

    I support the proposition to amend article 15 of the constitution of the state of Kansas by adding a new section thereto, concerning eminent domain as follows:

    “Private property shall not be taken except for public use, and private property shall not be taken without just compensation. The taking of private property with the intent to or in anticipation of selling, leasing or otherwise transferring any interest in the property to any private entity is not a valid public use and is prohibited.”

    I also support the immediate passage of legislation that would codify into law the exact meaning of the above amendment language. This would replace existing statutes.

    I do not support any additional language in the amendment or in any immediately passed legislation that would in any way mitigate the private property rights protection contained therein.

    The keys to the economic freedoms we enjoy in this country are “individual liberty”, “private property rights” and the “free market system”. Examples of failed economic systems like the former Soviet Union emphasized the “collective good”, “state owned property” and “state controlled markets”. Allowing governments the power to take privately owned homes and businesses from individuals and turn them over to private developers for potentially more profitable, higher-tax uses, is a good example of eminent domain abuse done for the “collective” benefit of a community. Using eminent domain to seize property for private/public partnerships projects is the rage today, privatizing profits for the inside group, and reserving losses for public taxpayers. The governments participation in the process of taking private property from one private group for the benefit of another private group, and placing governments in a position to choose which business groups wins and which fails, flies in the face of private property rights, freedom, and free market economics.

    A quote by Nobel Prize winning economists Milton Friedman, and Gary Becker as well as economics history Professor Douglass North in Tom Bethell’s book “The Noblest Triumph, Property and Prosperity Through The Ages” is appropriate here. “In an economically free society, the fundamental function of government is the protection of private property and the provision of a stable infrastructure for a voluntary exchange system. When a government fails to protect private property, takes property itself without full compensation, or establishes restrictions (and follows policies) that limit voluntary exchange, it violates the economic freedom of its citizens.”

    Please support the eminent domain reforms I have suggested.

  • Public Access, or lack there of

    Dear Bob’s Blog, I recently moved to wichita from chicago… a while b4 i decided to move I had completed my Comcast public access certification. Comcast is basicaly the equivalence to Cox here. Un / Fortunately I was unable to put it to any good use while in Chicago due to some circumstances…. however I was searchin around the web and came across your blog entry on the lack of public acess for the public here in wichita. I wondered if you had any luck with your letter and/or knew any sources of information on the subject. I would be willing to put forth some effort in helping our voice be heard…

  • The decline In Kansas continues

    The Decline In Kansas Continues
    By Karl Peterjohn, Executive Director Kansas Taxpayers Network
    January 17, 2006

    The relative decline of Kansas continues. This decline is vividly demonstrated when state and federal revenue growth is examined.

    Total federal revenues grew 13.9 percent last year to total $2.142 trillion dollars. This was an increase in federal revenues of $262 billion. This increase was almost twice the percentage rate of growth of Kansas state revenues that grew only 7.1 percent or $322 million in fiscal year 2005 that ended June 30, 2005. The federal revenue figures are for the fiscal year that ended September 30, 2005.

    The variance in this growth between Kansas and the other 49 states is important. This data is another confirmation of two recent reports that compared Kansas economic trends and reported distressing results. K.U. economics professor Art Hall and Wichita State University’s Center for Economic Development and Business Research’s (CEDBR) Janet Harrah have issued separate reports indicating that Kansas is lagging in a number of key economic indicators.

    Harrah’s 2005 report showed that income, population, and job growth were lagging in Kansas. This CEDBR study looked at all 50 states using six measurements for population growth, income, and jobs (see: www.wichita.edu/cedbr/). Kansas lags nationally and, even more distressing, was at or near the bottom in almost every category used in this 10 year survey from 1994-2003. Harrah’s study used the most recent 10 year period of federal data that was available.

    Professor Hall’s “Local Government and the Kansas Productivity Puzzle,” focused upon weak productivity in Kansas as well as the sizable growth in government that appears to be a factor in the poor level of productivity growth. Hall’s work was particularly distressing due to the fact that Kansas scored poorly among all plains regional states in most of the measurements he examined. So not only was Kansas lagging nationally, it was also lagging regionally (see: www.cae.business.ku.edu).

    Kansas is a laggard being pulled by the faster growing parts of the United States. This state has an economic growth problem that must be addressed due to the high taxes and resulting high level of government spending in this state. This is a reality that can certainly be ignored by state policy makers in Topeka. However, this is a reality that cannot be denied. Kansas is in economic trouble.

  • Attacking lobbyists wrong battle

    The economist Walter E. Williams has a column dated January 18, 2006, that places the current lobbying scandal in proper perspective.

    (We should caution Democrats against overindulging in schadenfreude [enjoyment obtained from the troubles of others] at this time. Democrats took money from Jack Abramoff too, and if there were more Democrats in positions of power, you can be sure there would be more money given to Democrats.)

    Professor Williams explains to us that given the “awesome growth of government control over business, property, employment and other areas of our lives” Washington politicians (and I would add state and local politicians too) are in the position to grant valuable favors. “The greater their power to grant favors, the greater the value of being able to influence Congress, and there’s no better influence than money.”

    Continuing: “The generic favor sought is to get Congress, under one ruse or another, to grant a privilege or right to one group of Americans that will be denied another group of Americans. A variant of this privilege is to get Congress to do something that would be criminal if done privately.”

    “Here’s just one among possibly thousands of examples. If Archer Daniels Midland (ADM) used goons and violence to stop people from buying sugar from Caribbean producers so that sugar prices would rise, making it easier for ADM to sell more of its corn syrup sweetener, they’d wind up in jail. If they line the coffers of congressmen, they can buy the same result without risking imprisonment. Congress simply does the dirty work for them by enacting sugar import quotas and tariffs. The two most powerful committees of Congress are the House Ways and Means and the Senate Finance committees. These committees are in charge of granting tax favors. Their members are besieged with campaign contributions. Why? A tweak here and a tweak there in the tax code can mean millions of dollars.”

    What is the solution? I believe, and I know Dr. Williams does too, that we should reduce the power that government has over our lives. I believe we should rely more on free markets for solutions to problems, as these markets are composed of people voluntarily entering into transactions, rather than a coercive government forcing decisions on us based on who lobbied the hardest. Dr. Williams also relates this story and solution: “Nearly two decades ago, during dinner with the late Nobel Laureate Friedrich Hayek, I asked him if he had the power to write one law that would get government out of our lives, what would that law be? Professor Hayek replied he’d write a law that read: Whatever Congress does for one American it must do for all Americans.”

    Hayek also wrote in his book The Road to Serfdom: “As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power.” We are well down this road, where government becomes more important than liberty and individuality. This is the battle we need to fight. Lobbying scandals are just a symptom and manifestation of the larger problem.

  • Who is more compassionate?

    Arthur C. Brooks, writing in the January 16, 2006 Wall Street Journal, debunks a stereotype about conservatives (those in favor of smaller government) being less compassionate and caring than those who are in favor of more government spending on social programs.

    Professor Brooks tells us that according to the General Social Survey in 2002, “the proponents of government spending are six percentage points less likely to give money to charity each year than the opponents, and a third less likely to give money away each month.” But that’s money. What about something else, like donating blood? “Once again, it is those opposed to government aid. These supposedly uncompassionate folks are 25% of the population, but donate more than 30% of the blood each year. Meanwhile, supporters of government spending to the poor are 28% of the population, but donate just 20% of the blood. If the whole population gave blood like opponents of social spending do, the blood supply would increase by more than a quarter. But if everyone in the population gave like government aid advocates, the supply would drop by about 30%.”

    Is this an example of “do as I say, not as I do?” Or are advocates of big government really more comfortable with government-run social program than private programs?

  • Book Review: Separating School & State: How to Liberate America’s Families

    Separating School & State: How to Liberate America’s Families

    Sheldon Richman
    The Future of Freedom Foundation, 1994

    Public schools are a great intrusion on liberty. Attendance is compulsory, as is paying for the public schools. Could the government devise a better way to expand its influence? “Despite the claim of moral neutrality, public education is linked to a particular set of values, namely, the values of the modern welfare, or social-service state. Those values include moral agnosticism (erroneously called tolerance), government activism, egalitarianism, ‘welfare rights’ to taxpayer largess, collectivism, and a watered-down version of socialism that looks much like the economic theory of the 1930s known as fascism.

    “Liberty is more precious than education,” said the Voluntaryist Richard Hamilton. “We love education, but there are things which we love better.” This is an important theme of this book, and one that seems lost on most members of the public, and most politicians too, for that matter. Because a person is opposed to the near-monopoly that government has on schools, it does not follow that the person doesn’t value education.

    Many people propose vouchers as a way to let parents send their children to private schools. But Richman warns against relying on vouchers as a solution to the problem of government control of education. It is likely, he says, that private schools will have to meet many of the standards that public schools do, thereby regulating private schools like public schools. Further, vouchers don’t change the fundamental problem in education, which is government financing of it.

    What should be done, Richman says, is to end all government involvement in education. End all taxes that pay for education. Repeal all compulsory attendance laws. Open education to the creativity of the market and entrepreneurs. We do not know what would happen if this were to take place. But that’s part of the magic of markets and competition: new ideas and products are invented that are beyond the imagination of the present.

  • Book Review: Education Myths: What Special-Interest Groups Want You to Believe About Our Schools and Why it Isn’t So

    Education Myths: What Special-Interest Groups Want You to Believe About Our Schools and Why it Isn’t So

    Jay P. Greene
    Rowman & Littlefield Publishers, Inc., 2005

    Education policy, says Jay P. Greene, is dominated by myths. Myths aren’t lies. They’re intuitive, they seem to be true, and we want them to be true. There is probably some evidence supporting the myth. But if the myth isn’t true, if it isn’t accurate, and we make policy decisions based on the myth, we create disastrous results. As important and expensive as public education is, this means we need to examine myths and discard those that don’t truthfully describe the world.

    Subscribing to many of these myths benefits groups other than schoolchildren. These special interests that benefit from sustaining these myths are politically powerful. Those with the least power — the schoolchildren — don’t count for much at all.

    The myths:

    1. The Money Myth. “Schools perform poorly because they need more money.” The reality is that spending on education has been increasing, and increasing rapidly. In 1945 spending per student was $1,214. In 2001, it was $8,745. These figures are adjusted for inflation. In spite of this we are told every year that schools are dangerously underfunded, and if we don’t spend more and more, our children will not even be able to make change from the cash register at McDonald’s when the power goes out.

    2. The Special Ed Myth. “Special education programs burden public schools, hindering their academic performance.” This myth says that we must spend so much on education because more students are being classified as needing special education, and this education is very expensive. What really has happened, though, is that “the standard for what counts as a disability has been lowered.” There is also an incentive to classify students as learning disabled, as schools get more money for these students.

    3. The Myth of Helplessness. “Social problems like poverty cause students to fail; schools are helpless to prevent it.” But some schools are able to succeed despite disadvantaged students, so success is possible. School choice can help here, as it lets poor students escape schools that would otherwise take them for granted.

    4. The Class Size Myth. “Schools should reduce class sizes; small classes would produce bit improvements.” It seems intuitive that smaller classes are better for students. Educators rely on the Tennessee STAR project for proof. But there are many doubts about this project’s findings. It is interesting to note that the participants in this project knew they were being studied, and that if the project were a failure, the small class sizes would not continue. This introduced an element of competition. Also, reducing class size even by small steps is very expensive.

    5. The Certification Myth. “Certified or more experienced teachers are substantially more effective.” Good teachers are very important to learning, but there is a lot of research that fails to find that more education leads to teacher success. Curiously, most teachers are paid based on how much education they have, and the way to earn more is to get more education.

    6. The Teacher Pay Myth. “Teachers are badly underpaid.” But when considered in light of the number of hours worked, teachers are in fact paid quite well, more than accountants.

    7. The Myth of Decline. “Schools are performing much worse than they used to.” But most measures, such as NAEP tests and graduation rates, have remained constant over the years.

    8. The Graduation Myth. “Nearly all students graduate from high school.” Most states employ methods of counting that let them claim high graduation rates. Greene, however, uses different methods that are more reliable. With these methods, he estimates a nationwide graduation rate of 69 percent for the class of 2000. The National Center for Education Statistics figure is 86.5 percent.

    9. The College Access Myth. “Nonacademic barriers prevent a lot of minority students from attending college.” The evidence is that minority students are less likely to meet the qualifications to apply to college.

    10. The High Stakes Myth. “The results of high-stakes tests are not credible because they’re distorted by cheating and teaching to the test.” When properly implemented these tests are accurate measures of student performance.

    11. The Push-Out Myth. “Exit exams cause more students to drop out of high school.” Evidence says otherwise.

    12. The Accountably Buren Myth. “Accountability systems impose large financial burdens on schools.” Schools often exaggerate the costs of administering tests and record keeping. The costs are quite small compared to other reforms.

    13. The Inconclusive Research Myth. “The evidence on the effectiveness of vouchers is mixed and inconclusive.” “The highest quality research consistently shows that vouchers have a positive effect for students who receive them. The results are only mixed with regard to the scope and magnitude of vouchers’ benefits. The evidence for these benefits justifies a high level of confidence, especially when compared to the much weaker evidence supporting most major education policies.” “Every one of the eight random-assignment studies finds at least some positive academic effect for students using a voucher to attend a private school.”

    14. The Exeter Myth. “Private schools have higher test scores because they have more money and recruit high-performing students while expelling low-performing students. But the facts are that private schools spend much less per student than public schools, and private schools accept almost all students and expel few, compared to the public schools.

    15. The Draining Myth. “School choice harms public schools.” Evidence shows, however, that school choice improves the performance of public schools.

    16. The Disabled Need Not Apply Myth. “Private schools won’t serve disabled students.” But when vouchers give private schools the same resources as public schools, the private schools provide the needed services, along with better education.

    17. The Democratic Values Myth. “Private schools are less effective at promoting tolerance and civic participation.” Again, evidence shows otherwise.

    18. The Segregation Myth. “Private schools are more racially segregated than public schools.” “The bulk of those studies find that parental choice in education contributes to racial integration rather than promoting segregation.”

    When considering these myths, the author sees a pattern called the “meta-myth.” This myth says that education is different from almost everything else in that in education, behavior doesn’t respond to the same types of incentives that almost everything else in life responds to. We want to believe that the education of children is special, and that usual rules don’t apply. But that is false.

    This is a very well researched book that will help anyone interested in education policy understand schools and what works to increase positive outcomes for students. I think that members of the education establishment, that is the teachers unions, schools administrators, school board members, and politicians interested in the status quo, will not enjoy reading this book.