Voice For Liberty

Author: Bob Weeks

  • Political decision-making increases conflict

    A recent 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.

  • Columnist Confuses Government and Individual, Again

    In the November 7, 2004 Wichita Eagle, columnist Mark McCormick again confuses the proper role of government and individual.

    He starts by talking about the spirit of the people in Wichita, how they will help you push your car, how they will hold open the door for you, etc. He refers to this as “neighborliness.” He labels Karl Peterjohn, Executive Director of the Kansas Taxpayers Network, as not belonging to this group, because of his opposition to tax increases.

    Because Peterjohn opposed the arena and a school bond issue a few years ago, McCormick thinks he also opposed the wheel and fire. This type of ridicule does not advance Mr. McCormick’s argument.

    I would ask Mr. McCormick if it is neighborly to vote for something that if passed, would require that your neighbor pay to subsidize your pleasure. That’s what the downtown arena tax does. It requires everyone to pay for something that benefits only a few.

    The things that Mr. McCormick labels as being neighborly are things we do because we want to. Many people want to give of themselves to make things better for others. When we do that, either by holding open a door for someone or by giving substantially of our time and money, we are directly engaged in the noble act of charity. The givers of charity directly receive the benefits of having donated, and because it is our own resources we are giving, we make sure that our effort is not wasted.

    When the government, however, taxes us and gives the money to those it does not belong to, it is not an act of charity. It is not neighborly, as we don’t even know those who received the benefit. The givers do not receive the benefit of having donated, because the taxes were taken from them by force.

    The arguments Mr. McCormick makes, much like in his column from earlier in the week, refer to someone being “creative” and “taking a risk” and how Wichita might become “place where dreams and ideas usually die.”

    How is it being “creative” for Sedgwick County to tax its citizens and build the same type of arena that all the other cities — the cities we are supposed to compete with — have already built?

    How is it “taking a risk” for government officials to tax citizens to build an arena? If the arena fails to generate revenue sufficient to cover its costs, will the politicians be responsible? Of course they won’t. They will simply ask the citizens for more taxes, as is happening right now with Wichita’s Old Town special tax district.

    Furthermore, I contend that the more government there is, the less “dreams and ideas” there will be, whether they live or die. For example, downtown arena supporters claim that the arena will attract bars and restaurants to its vicinity. What, then, should entrepreneurs do right now, if they are interested in opening bars or restaurants? Should they wait several years to see if the arena is built, and if it does in fact attract customers? Or should they build elsewhere, and then hope that the arena doesn’t detract too much from its business? This is not the type of climate that encourages individual risk-taking.

    The same week that this column appeared Walter E. Williams wrote in a column titled “Why We’re a Divided Nation” these words: “The prime feature of political decision-making is that it’s a zero-sum game. One person or group’s gain is of necessity another person or group’s loss. As such, political allocation of resources is conflict enhancing while market allocation is conflict reducing. The greater the number of decisions made in the political arena, the greater is the potential for conflict.”

    When we say “yes” to the things Mr. McCormick advocates, we rely on politicians and government to make our decisions, thereby increasing conflict. We should say “no” more often to government and let individuals and free markets make more decisions. We will have less conflict.

  • Columnist Confuses Government and Individual

    Writing in the November 3, 2004 Wichita Eagle, columnist Mark McCormick labels the vote in favor of a taxpayer-funded, government-owned arena a “rebirth of city’s pioneering spirit.” In this column, Mr. McCormick mentions our famous entrepreneurs and aerospace industry pioneers. Although he explicitly denies comparing the building of a downtown arena to the genius of Beech and Cessna, this article claims that the downtown arena will somehow lead to a rebirth of Wichita.

    What I think Mr. McCormick has overlooked is that the people who in the past made Wichita great were people working as individuals, not as governments. Now, when we look to get something done, we look first to the government, and we seem to think that’s a good thing. The entrepreneurs and risk-takers of the past were investing their own money, their own sweat and toil. Our government leaders invest none of this.

    The effect of the downtown arena vote is that instead of trusting the individual, or on organizations that individuals freely enter in to, we invest our hope and future in politicians and government bureaucrats. Instead of letting free competitive markets work, we rely on increasing government interference in the market. Is this the pioneering spirit that made Wichita great that Mr. McCormick refers to?

  • Downtown Wichita arena as a public good

    The streets and highways, and certainly the public parks, are examples of public goods. Public goods are characterized by two things: nonexcludability, meaning that non-payers can’t be excluded from enjoying and using the good, and nonrivalrous consumption, meaning that consumption of the good by one person doesn’t reduce the availability of the good to others. Neither applies to an arena.

    Roads and highways, to a large extent, are paid for by those who use them. As far as I know, I paid for the entire cost of street in front of my house through special tax assessments. It is reasonable that I pay for that street, as I use it extensively. In the broader case, a large source of funding for roads and highways is the gasoline tax, which is an attempt to ask those who use and benefit from the resource to pay for it.

    Some roads, such as toll roads, require their users, and potentially only their users, to pay for them.

    The proposed downtown Wichita arena or Kansas Coliseum benefits only those who actually attend events. This is especially so in the case of the Coliseum, as downtown arena supporters readily point out that there has been no development surrounding it. We can easily identify those who benefit from an arena or stadium because they rent the facility or buy tickets to attend events. So it is very easy to ask them, and no one else, to pay.

  • Arenas’ Financial Statements Not Complete

    The WSU Center for Economic Development and Business Research study (reported by Fred Mann in the September 5 Wichita Eagle), showing a small loss for the proposed downtown arena, does not account for the cost of building the arena. Neither do the Qwest Center in Omaha nor the Alltel Arena in Arkansas when they report their profits. How do I know? I wrote to each of these facilities and asked. None include any expense for depreciation, debt service, lease payments, or anything that recognizes the tremendous amount of capital consumed by building these arenas. Yet, these facilities report a profit, or perhaps a negligibly small loss.

    I have found that the arenas I have looked at (Qwest, Alltel, and the proposed Wichita) don’t account for the cost of the capital consumed in building them. For example, the projected profit (actually a small loss) for the proposed Wichita downtown arena includes no expense taken for depreciation. Now it is true, that being a government entity, the downtown arena wouldn’t pay taxes, and therefore depreciation expense doesn’t help it reduce its income taxes. But an allowance for depreciation helps us to recognize that a large amount of money was spent to build this arena, and that money has a correspondingly large opportunity cost. Indeed, GASB 34 requires governments to start depreciating their assets, and Mr. Chris Chronis, the Chief Financial Officer of Sedgwick County, has told me that the county will take depreciation expense for the downtown arena, or for a remodeled Kansas Coliseum, for that matter.

    My investigation and a series of email messages with Mr. Ed Wolverton revealed that the WSU center that prepared the estimate of profitability for the proposed downtown arena wasn’t aware that the county would be required to calculate depreciation expense.

  • WSU Study on Downtown Wichita Arena Not Complete

    Government Accounting Standards Board Statement 34 requires governments to account for the cost of their assets, usually by stating depreciation expense each year. Through a series of email exchanges with Mr. Ed Wolverton, President of the Wichita Downtown Development Corporation, I have learned that the WSU Center for Economic Development and Business Research was not aware of this requirement when they prepared their forecast. Mr. Wolverton admitted this after checking with the study authors.

    Mr. Chris Chronis, Chief Financial Officer of Sedgwick County, in an email conversation told me that the county will take depreciation expense for the downtown arena, or for a renovated Kansas Coliseum, for that matter.

    I appeared in a story on a local television station where I presented research I had read showing that if new development occurs around a downtown arena, it would likely be economic activity that formerly took place somewhere else in town. This is the “substitution effect.” Mr. Wolverton appeared in the same story and state that due to time constraints, the WSU study did not study these effects.

  • The leadership of our local government officials regarding the downtown Wichita arena

    It is clear that our local government leaders want a downtown arena in Wichita. Just read their remarks in the Wichita Eaglenewspaper. Since the Sedgwick County Commission has promised that they will proceed with renovation of the Kansas Coliseum if the downtown arena vote fails, it is in their interest to make the Coliseum renovation option look as bad as possible. In my opinion, they’ve done a pretty good job of this.

    If you do the math on what it costs to borrow $55 million, paying it back at $6.1 million a year for 20 years, the interest rate is 9.17%, which is a terribly high interest rate for a government to pay. Yet, if we believe the county commissioners, they are ready to pay this much if we don’t agree to the arena.

    Arena supporters cite economic benefit to the community as a reason to build the downtown arena, and they concede no such benefit is likely near a renovated Coliseum. Yet they are willing to spend millions there if we don’t give them a downtown arena.

    Arena supporters cast the Coliseum renovation in the worst possible light. Consider a homebuyer who just bought a $100,000 home, financing it at 5% for 30 years. The total payments would be about $193,000. Do these people, having just bought the $100,000 home, go about saying they just moved into a $193,000 home? Of course they don’t. The total financed cost, to be sure, is an important fact, and a bad financing decision is a handy fact for arena supporters to use as they portray the Coliseum renovations in the worst possible light.

    Arena supporters claim that there are only two decisions, the new downtown arena or the renovation of the Coliseum. Framing the debate this way, especially when one decision outcome is so distasteful, is a good strategy for downtown arena supporters to use, but not good public policy.

    The Sedgwick County Commission has said that if the downtown arena fails, Coliseum renovation will start. We, as the citizens of Sedgwick County, should not allow this coercion to affect our decision on the downtown arena. We do not have to stand for this type of bad government.

  • Economic justification of arenas and the downtown Wichita arena

    It seems that the best argument that arena supporters have for asking the entire community to pay for the Downtown Wichita arena is that it will somehow pay for itself through spillover economic benefit. That is, through increased economic development around a downtown arena, the citizens of Sedgwick County will somehow be repaid for their investment in the arena through the taxes they paid.

    Current economic research indicates otherwise, as follows.

    A review of the book “Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums” by Roger G. Noll and Andrew Zimbalist, available at this url at the Brookings Institution: https://www.brookings.edu/press/books/sports.htm states in part: “The primary conclusions are: first, sports teams and facilities are not a source of local economic growth and employment; second, the magnitude of the net subsidy exceeds the financial benefit of a new stadium to a team; and, third, the most plausible reasons that cities are willing to subsidize sports teams are the intense popularity of sports among a substantial proportion of voters and businesses and the leverage that teams enjoy from the monopoly position of professional sports leagues.”

    Another important paper, “Identifying the Real Costs and Benefits of Sports Facilities” is available at this url: http://www.lincolninst.edu/pubs/dl/671_chapin-web.pdf. This is from the conclusion: “A pro-facility argument that rests solely on the magnitude of the economic benefits conferred by a new facility is unsustainable. The economic impact literature has ended once and for all the argument that the economic impact of these projects justifies public subsidies for new sports facilities.”

    From a paper titled “Professional Sports Facilities, Franchises and Urban Economic Development (UMBC Economics Department Working Paper 03-103)” available at http://www.umbc.edu/economics/wpapers/wp_03_103.pdf we can read this about the impact of sports facilities:

    Siegfried and Zimbalist (2000) recently surveyed the growing literature on retrospective studies of the economic impact of sports facilities and franchises on local economies. The literature published in peer-reviewed academic journals differs strikingly from the predictions in “economic impact studies.” No retrospective econometric study found any evidence of positive economic impact from professional sports facilities or franchises on urban economies. While evidence exists suggesting that narrowly defined occupational groups, like workers employed in the sports industry (SIC Code industry 79 — Recreation and Amusements), benefit from the construction of new sports facilities, building new sports facilities and attracting new professional sports teams did not raise income per capita or total employment in any US city. In fact, some research has found a negative economic impact of professional sports on urban economies.

    Later, from the same paper:

    Coates and Humphreys (2003) extended this research to examine the earnings and employment in narrowly-defined occupational groups in US cities with professional sports teams. In this study, the earnings and employment in the SIC-code industry containing sports facilities and teams — SIC-code 79, Amusements and Recreation — were higher but the earnings and employment in other important sectors like Retail Trade, Hotels, and Eating and Drinking Establishments were lower. The economic benefit from sports facilities and franchises appears to be concentrated in a small sector of the economy and comes at the expense of other sectors of urban economies.

    If, then, it appears that the community-wide economic benefit that arena supports claim will not materialize, the people who benefit from the arena are quite easy to identify. They buy tickets to events, or they rent the arena. These are the people who should pay its cost.

  • The value of economic impact studies

    One of the factors that usually plays a part in an economic impact study like that used to promote the Downtown Wichita arena is the “multiplier,” which accounts for the fact that money spent once is spent again, and maybe yet again.

    To quote from “Economic Impact Multipliers for Kansas” published in “Kansas Business Review” Vol 12, No. 3, Spring 1989, and available at http://www.ku.edu/pri/publicat/multipliers/multipliers.htm:

    It sometimes seems that the bigger a multiplier is, the more often it is quoted. (1) In any case, some distinctly one-sided political and economic motives encourage the propagation of exaggerated multipliers.

    In particular, economic multipliers are used to justify public concessions to private industry. Such assistance for business may include land acquisition, new roads and sewers, job training programs, subsidized loans, and tax incentives.(2) The extent of public concessions is determined through bargaining between government and industry, and in the course of the bargaining those who stand to gain most from the new enterprise have a natural tendency to inflate the relevant multipliers.(3)

    The inflation of multipliers may stem less from venality than from an innate optimism, which seems to be necessary in the risky business of development. Since multipliers are costly to measure, of uncertain accuracy, varied in their meanings, and multifarious in their origins, a convenient range of multiplier values is always available; discriminating users are free to choose the best values for their purposes.