Voice For Liberty

Tag: Economic freedom

Economic freedom means property rights are protected under an impartial rule of law, people are free to trade with others, both within and outside the country, there is a sound national currency, so that peoples’ money keeps its value, and government stays small, relative to the size of the economy.

  • Kansas and Wichita quick takes: Thursday August 11, 2011

    Kensinger, Brownback chief of staff, profiled. Kansas City Star reporter Dave Helling has written a lengthy profile of Kansas Governor Sam Brownback’s chief of staff David Kensinger. I do not know him well on a personal level, but I have attended several training session that he led, and they were very informative. I’ve also watched him preside over a contentious debate at Kansas Days, and it was remarkable to see him keep track of all the motions, substitute motions, etc. and keep the parliamentary process on track. … The article notes disagreements between Kensinger and Kansas Senators Tim Owens and John Vratil, two of the Senate’s most influential members, especially Vratil, who is Senate vice-president and vice-chair of two important committees. Both of these Republican members consistently vote contrary to economic freedom, and it is thought that Vratil, in his role of vice-chair of the Ways and Means Committee, exercises great influence over big-spending Senate budgets. So when Kensinger tangles with these two — and these two are no intellectual slouches in their own right — I’m glad the conservative cause is represented by someone as accomplished as he. … The piece in the Star is Brownback’s chief of staff is shaking up the Kansas Capitol.

    New York charter schools seen as success. The Wall Street Journal calls attention to the success of a series of charter schools in New York City, where minority students from Harlem are closing the achievement gap and far outperforming white students from across the state. The schools are Eva Moskowitz’s Harlem Success academies, which the Journal describes as “the most relentlessly attacked charter schools” — because of their success with students while operating outside the control of education bureaucrats and — importantly — the teachers unions. Concludes the piece: “Meanwhile, the battle to stop the movement continues. Ms. Moskowitz’s effort to open another school on Manhattan’s Upper West Side has met massive resistance. Actor Matt Damon is now throwing his celebrity against charters. Their students, meanwhile, continue upward.” Click on Arguing With Success: Eva Moskowitz’s aptly named Harlem charter schools to read. … The government school education establishment vigorously resists any expansion of charter schools in Kansas. As it is, charter schools are virtually nonexistant in Kansas. The Center for Education Reform gives Kansas the grade of “F” for its restrictive charter school law, calling a “law in name only.”

    Morality of capitalism. Tom G. Palmer, Senior Fellow at the Cato Institute, speaks about capitalism and a new book — The Morality of Capitalism — that he edited. “One of the things that’s quite striking is when you look at criticisms of the market, in many cases what they’re complaining about is interventionism and cronyism, not really capitalism. That’s a very important distinction to make. … The financial crisis in particular is just quite evidently a failure of interventionism — trying to steer the market, and it ended up going off the rails. Now markets are trying to correct themselves and governments are struggling to not allow that to happen, with more stimulus and trying to pump up property prices, and so on.” … Palmer said now it’s time to go on the offensive for free market capitalism. That has not been responsible for the failed policies of government. … On the morality of capitalism, Palmer said that capitalism has been identified exclusively with self-interest, as though that was its defining feature. But people in other economic systems pursue self-interest, too. Capitalism is distinguished, he said, by a legal and moral relationship among persons: “People have the right to pursue their dream, they have the right to do what they want, with what is legitimately theirs under a system of the rule of law and equality before the law — for everybody. Not privileges for some with special powers as planners and dictators and so one, but all of us meet in society as moral and legal equals. And we trade and we exchange. The outcome of that is morally just.” … It’s not just the greater productivity of market exchange, Palmer said. People have a right to exchange and transact freely, and the state and planners don’t have the right to tell them otherwise. … The podcast also addresses the nature of economic competition in capitalism, which Palmer described as “constructive, peaceful cooperation.” … On the rich, who are often criticized for exploiting others under capitalism, Palmer said that in the past and in legally under-developed countries today, rich people almost always became rich by taking or through cronyism. But under capitalism, people become rich by creating and producing, satisfying the needs and desires of others. … Click below to listen to Palmer in this 11 minute podcast.

  • Kansas jobs creation numbers in perspective

    This week the administration of Kansas Governor Sam Brownback announced job creation figures that, on the surface, sound like good news. But before we celebrate too much, we need to place the job numbers in context and look at the larger picture, specifically whether these economic development wins are good for the Kansas economy.

    The governor’s office announced that since January 10th, almost exactly one-half year ago, the Brownback administration is taking credit for creating 3,163 jobs. These jobs, according to the governor’s office, are in companies that are moving to Kansas or expanding their current operations. Some of the jobs, like those in the recently-announced Mars Chocolate plant to be built in Topeka, won’t start for perhaps two years.

    To place this number on an annual basis, extrapolating to a full year, we get 6,326 jobs created during the first year of Brownback’s term.

    That sound like a lot of jobs. But we need to place that number in context. To do so, I gathered some figures from the Bureau of Labor Statistics, in particular figures for the gross number of jobs created in the private sector. According to BLS, “Gross job gains are the sum of increases in employment from expansions at existing units and the addition of new jobs at opening units.” In other words, jobs created — just like the governor’s definition.

    Looking at the numbers, we find that for the years 2000 to 2009, the Kansas economy created gross jobs in the private sector at the average rate of 293,335 per year. Of course, jobs are lost, too. In Kansas, again for 2000 to 2009, there was a net loss of 61,394 jobs in the private sector. Not a good number.

    Each year, then, many jobs are created and lost, nearly 300,000 per year in Kansas. This illustrates the dynamic nature of the economy. Each year many jobs are created, and many are lost. Even in 2009 — a recession year — the Kansas economy created 232,717 jobs in the private sector. That same year 294,111 jobs were lost. But in most years, the number of jobs created is pretty close to the number of jobs lost.

    Kansas job gains and lossesKansas job gains and losses

    Now we have context. If we compare the 6,326 jobs (the extrapolated annual rate) the state created through its economic development efforts to the average number of private sector jobs created each year, we find that number to be 2.2 percent.

    If we use a recession year (2009) figure for private sector job creation, the state’s efforts amount to 2.7 percent of the jobs created by the private sector economy.

    These numbers, I would say, are small. About one of 40 jobs created in Kansas is created through the efforts of the state’s economic development machinery. This assumes that these jobs would not have been created without government intervention, and I think that’s something we can’t assume one hundred percent.

    These jobs that Brownback takes credit for come at great cost. In the case of Mars, the incentive package is reported to be worth $9 million, or $45,000 for each of the 200 people to be initially hired. I haven’t asked the Department of Commerce for a full rundown of the incentives offered, but in my experience the press releases and news stories based on them understate the full cost of the incentives.

    But in any case, the incentives used by the state’s economic development efforts have costs. Some require the direct expenditure of state funds.

    Some incentives require that the state spend money through the tax system in the form of tax credits. These expenditures made through the tax system have the same fiscal impact on the state’s budget as if the legislature appropriated funds and wrote a check for the amount of the tax credit.

    Other incentives require that the state give up a claim to tax revenue that it would otherwise collect. This means that other taxpayers must make up the difference, unless the state were to reduce spending.

    The cost of these incentives is born by the taxpayers of the state of Kansas. This cost is a negative drag on jobs that would have been created or retained in companies that don’t receive incentives. The Brownback administration knows this, although it doesn’t recognize this job loss when it trumpets its accomplishments in creating new jobs through targeted economic development incentives. One of the major initiatives of Brownback is to reduce Kansas taxes, particularly the personal and corporate income tax, in order to grow the Kansas economy. The governor — correctly — recognizes that low taxes are good for economic growth.

    The governor also needs to recognize that targeted economic development incentives have a cost. That cost is paid in the form of taxes that someone else pays. That cost leads to foregone economic activity, and that leads to lost jobs.

    While the state’s wins in job creation are easy to see — there are government employees paid to make sure we’re aware of them — the lost jobs, however, are spread throughout the state. These job losses don’t often take the form of a large — or even small — business closing or moving to another state, although sometimes it does.

    Instead, the job loss occurs in dribs and drabs across the state. A restaurant manager finds his store is not as busy as last month, so he lets a server go. A small retail outlet finds it can’t quite keep up with its overhead, so it shuts down. These events don’t often make news. The jobs lost are difficult to detect — nearly invisible — although the cumulative impact is very real.

    Instead of relying on traditional, targeted economic development efforts, Kansas needs to follow the advice of Dr. Art Hall. He recommends policies to encourage as much business experimentation as possible. These policies, basically, call for low taxes for all business firms. Then, it is through markets, not the government’s economic development officials, that successful and productive firms are identified.

    Portions of Dr. Hall’s advice was incorporated in Governor Brownback’s economic development plan. Specifically, page 10 of the plan contains this language: “Over the decades, Kansas has enacted a variety of tax policies intended to advance economic development. Many of them provide a meaningful economic incentive to make new investments and create new jobs. Almost all of the policies provide a meaningful incentive to a small number of worthy businesses to the exclusion of tens of thousands of other worthy businesses. The initiatives in this plan seek to end the exclusion. They begin the process of fulfilling the vision that every business matters; they seek to replace the old vision of ‘targeting’ with a new vision of ‘dynamism.’”

    It’s time that the governor and his administration apply this advice. That’s going to be hard to do. The crowing over the Mars deal — the very type of targeted economic development “win” that the plan criticizes — shows that politicians love to be seen as actively pursuing and creating jobs. A dynamic, free market-based job-creating economy requires that politicians and bureaucrats keep their hands off — something that goes against their very nature.

  • Economic freedom leads to better lives for all, says video

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

    This is the message presented in a short video based on the work of the Economic Freedom of the World report, which is a project of Canada’s Fraser Institute. Last year Robert Lawson, one of the authors of the Economic Freedom of the World report, lectured in Wichita on this topic. The current video is made possible by the Charles G. Koch Charitable Foundation.

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

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

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

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

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

    Economic freedom is not necessarily the platform of any single political party. It should be noted that for about seven of the past ten years — a period in which our economic freedom has been falling — there was a Republican president, sometimes with a Republican Congress. The size of government rose. In 2005 the Cato Institute studied the numbers and found that “All presidents presided over net increases in spending overall, though some were bigger spenders than others. As it turns out, George W. Bush is one of the biggest spenders of them all. In fact, he is an even bigger spender than Lyndon B. Johnson in terms of discretionary spending.” This was before the spending on the prescription drug program had started.

    Critics of economic freedom

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

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

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

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

  • Greenwald and Sanders try to defend Social Security, slam Charles and David Koch

    Are the free market critics of Social Security a shadowy “echo chamber” seeking to end the system for the benefit of the rich, or sounding a fact-based alarm that government and its supporters dispute and don’t want you to hear?

    According to a short video by Robert Greenwald, it’s the first choice. But examination of the claims made will lead us to the opposite conclusion, and you’ll wonder why Greenwald has any credibility.

    The video features U.S. Senator from Vermont Bernie Sanders, who describes himself as a democratic socialist. He describes Social Security as a federal program that has been “enormously successful,” so right away we need to take issue with Sanders. Social Security a success? If creating a system where millions of people are dependent on government for their retirement income is a successful program, the government has done just that. What has been the result? As George Reisman recently wrote: “Not surprisingly, in the conviction that the government was now providing for people’s old age, the rate of saving in the United States has declined precipitously over the years, falling all the way to zero in some years.”

    We’ve transitioned from savers to government dependents. For a socialist like Sanders, that may very well have been his goal. He certainly can’t be unhappy with the results.

    Right after this, the video shows images and names of think tank organizations that are funded in part by Charles Koch and/or David Koch, with Sanders claiming these organizations spread “disinformation” about Social Security. The information generated by these think tanks is truthful, however, and an important antidote to a huge whopper of a lie Sanders will spread later on.

    (At this point one might be tempted to ask: What is the interest of the Charles and David Koch in reforming Social Security? John Hinderaker in his Powerline article A Less Than Magnificent Obsession answers this question when he writes: “… does it make any difference to the Kochs’ company, Koch Industries, whether the retirement age is 65 or 68? I can’t imagine why it would. Likewise, the brothers themselves are both billionaires. Whether Social Security is or is not reformed makes zero difference to them personally.” I would say, however, that Charles and David Koch have long advocated for liberty and economic freedom for everyone, and since Social Security is contrary to that, this could explain their interest.)

    A huge focus of the video is raising the retirement age. It’s repeated over and over — so as to scare viewers. As John Hinderaker notes at Powerline, it’s been done before: “proposals to raise the age of Social Security eligibility have been a bipartisan staple of reform proposals for decades. … The bipartisan Bowles-Simpson Commission, which was appointed by President Obama, recommended increasing the age of eligibility.”

    It’s important to note that the Social Security retirement age is simply the age at which one can begin receiving benefits. Contrary to the claims of Sanders in this video, it doesn’t mean that everyone has to keep working until that age. Over the course of a working career, isn’t it possible for someone to save enough to cover the several years between when they decide to quit working and when they’re eligible for Social Security? Or will we let the government — people like Sanders — tell us how long we must work?

    Sanders also says that older people need to retire and get out of the workforce to make way for younger workers to take their jobs. This is an example of the fallacy — followed by nearly all on the political Left, it seems — of believing that the economy is a fixed size, and that one person can have income only if someone else gives up theirs.

    Perhaps the most dangerous lie of Sanders is his claim that Social Security has a $2.6 trillion surplus available to pay future benefits. He’s referring to the Social Security trust fund. Here, Sanders is correct one on level: The system has collected that much more than it has needed to pay benefits, forming the balance referred to in the trust fund. That money has been lent to other federal government agencies, and they spent it all. So while Federal Agency X may owe the trust fund $50 billion, the only way that agency can repay the trust fund is by borrowing or increasing taxes. (Less spending might be another way, but that’s a difficult goal, and we’d be taxed the same for a lower level of services — a tax increase by another name.) See Social Security trust fund: a problem in disguise.

    Sanders dismisses private retirement accounts as risky and dangerous: “You may lose all your retirement savings when you get old.” While true, any reasonable investment strategy designed for the long term has little chance of that happening. Unless, of course, one gets greedy and invests everything in a company like Enron — greed of that type being something Sanders rails against.

    Saving on one’s own, however, isn’t what leftists like Bernie Sanders have in mind. Far better for him, Democrats, and big-government Republicans that people remain dependent on government for their retirement security. Once people save and gain some wealth of their own, they find that they can thrive very nicely without a nanny state government. They find themselves wishing they could have saved more throughout their working lives, rather than making forced contributions to a government retirement plan that’s now broke. Even if not broke, most people would be in a much better position if they could have kept their own and their employers’ payroll tax contributions for their own investment.

    Finally, Sanders makes a major point of “huge campaign contributions” made to advance the interests of Charles and David Koch. Hinderaker chases down some of the actual numbers, and finds that contributions from Koch Industries PAC are sometimes less than what a single labor union has contributed.

    In the end, I’m sure that Sanders said something that’s true in this video. But I can’t bear to watch it again to try and spot it.

    Here’s my video response:

  • Rich States, Poor States released for 2011

    For the most recent version of “Rich States, Poor States” see Rich States, Poor States 2012 edition released.

    This week the American Legislative Exchange Council released the fourth edition of Rich States, Poor States: The ALEC-Laffer Economic Competitiveness Index. This is an important study by authors Arthur B. Laffer, Stephen Moore, and Jonathan Williams that identifies states that use “best practices to enable states to drive economic growth, create jobs, and improve the standard of living for their citizens.”

    Kansas Governor Sam Brownback provided the forward for this year’s edition. In it, he wrote: “It is true that lowering taxes can be politically difficult: even fiscal conservatives start losing their enthusiasm for cutting taxes when special interest groups that consume a state’s tax dollars warn them that tax cuts will have dire consequences. But the consequences of being caught in a spiral of increased taxes and a decreasing rate of return on the tax base are much more dangerous.”

    On the state of states’ finances, the authors write: “it is clear a vast majority of states set themselves up to fail by spending beyond their means and hoping the market will keep up with their spending sprees.” This has been the case in Kansas, as illustrated in Why the Kansas budget is in trouble. In years of rapidly rising tax revenue, the legislature also increased spending just as fast. Instead, Kansas should have saved some tax revenue in a rainy day fund, lowered tax rates, or rebated excess tax revenue back to citizens.

    “Rich States, Poor States” evaluates states on two scales. The first, the Economic Performance Rank, is a “backward looking measure based on a state’s income per capita, absolute domestic migration, and nonfarm payroll employment — each of which is highly influenced by state policy. This ranking details states’ individual performances over the past 10 years based on the economic data.”

    The second measure, the Economic Outlook Rank, is a “forecast based on a state’s current standing in 15 policy variables, each of which is influenced directly by state lawmakers through the legislative process. Generally, states that spend less, especially on income transfer programs, and states that tax less, particularly on productive activities, such as working or investing, experience higher growth rates than states that tax and spend more.”

    For this year, in the “Overall Economic Outlook Rank,” Kansas comes in at number 27. The year before Kansas was number 25, and before that 24 and 29.

    For the “Economic Performance” rank over the years 1999 to 2009, Kansas is number 34. That’s up from number 40 the year before, which covered 1998 to 2008.

    What is it that hurts states? According to the report: “The policy blunders that hurt growth prospects the most are high income tax rates, forced union work rules, heavy regulation, an excessive state workforce, unfunded public pensions and health plans, poorly performing schools, and a litigation system that invites expensive and frivolous lawsuits.” Kansas ranks particularly poorly on two of these factors. We have a very large number of government employees compared to our population, and KPERS, the Kansas Public Employees Retirement System is grossly underfunded.

    Additionally, Kansas needs to fear the rush towards the false promise of “green energy” as economic growth. Some states are implementing new policies in this area that will harm their rankings. One, state based cap-and-trade taxes to address climate change, is not on the radar in Kansas. The other, renewable energy standards (RES) which force utilities to generate a certain level of power from “green energy” methods such as wind, is. As a U.S. Senator, Sam Brownback was in favor of RES, and said so during his campaign for governor. It seems that he has de-emphasized this talk since taking office, however.

    The report mentions several southern states that may soon phase out or eliminate their income tax, and Missouri, too, which would be a severe competitive blow to Kansas.

    Of interest to Kansans, the report notes the passage in one chamber of important tax-related legislation: “Hoping to keep pace with their neighbors to the south, legislators in Kansas recently passed important pro-growth legislation that would automatically phase down personal and corporate income tax rates. Under the proposal — the March to Economic Growth Act — which passed the House but stalled in the Senate, taxpayers would enjoy reduced income tax rates on personal and corporate taxes when state revenue grows.” This is another reminder that there was an election last year for House members and the governor, but not for senators.

  • For Wichita, Save-A-Lot teaches a lesson

    The announcement that a Save-A-Lot grocery store will proceed — contrary to the claims of developers and city staff who rely on their information — should provide a lesson that yes, economic development in Wichita can and will happen without public assistance. Additionally, examination of the public hearing for this matter before the Wichita City Council last September should teach us to be very cautious in relying on the claims of people who have a huge economic stake in obtaining public assistance.

    At a city council public hearing on both the Community Improvement District and Tax Increment financing district last September, developer Rob Snyder sought public assistance in the form of a tax increment financing district (TIF) and a Community Improvement District (CID). Over a period of years, the two forms of subsidy were estimated to be worth $900,000 to the developer. The project’s total cost was presented as slightly over $2 million.

    (By the way, in its recent coverage of this matter, the Wichita Eagle has an incorrect recording of events. The Eagle reported, referring to the Wichita City Council and Sedgwick County Commission: “The boards ultimately rejected the financing, despite support from some officials.” Actually, the city council unanimously approved both the CID and TIF. Then, the county commission exercised its statutory prerogative to veto the formation of a TIF district. The commission has no authority to intervene in the formation of CIDs.)

    As part of his presentation to the council Allen Bell, Wichita’s Director of Urban Development explained that to be eligible for TIF, developers must demonstrate a “gap,” that is, an analytical finding that conventional financing is not sufficient for the project, and public assistance is required: “We’ve done that. We know, for example, from the developer’s perspective in terms of how much they will make in lease payments from the Save-A-Lot operator, how much that is, and how much debt that will support, and how much funds the developer can raise personally for this project. That has, in fact, left a gap, and these numbers that you’ve seen today reflect what that gap is.”

    Snyder told the council that without the public assistance, there will be no grocery store: “We have researched every possible way, how do we make this project work with the existing funding that’s available to us. … We might as well say if for some reason we can’t figure out how to get this funding to go through, there won’t be a shopping center over there.”

    Greg Ferris, a former city council member who lobbies local government on behalf of clients, was adamant in his insistence that the grocery store could not be built without public financing: “There will not be a building on that corner if this is not passed today. … That new building would not be built. I absolutely can tell you that because we have spent months … trying to figure out a way to finance a project in that area. A grocery store is not going to move into the Planeview area to service those people just like they didn’t move into the area at 13th and Grove until the city subsidized that with several hundred thousand dollars of city money. … What you’ve heard is misinformation. … This project just won’t happen and the people of Planeview will suffer.”

    Now, we see that the financing gap has been closed, and without government assistance. The claims that a grocery store can’t be built in that neighborhood without welfare for developers have been demonstrated to be false.

    Wichita Mayor Carl Brewer has referred to those who oppose government intervention like TIF and CID as “naysayers.” Here’s an example where free markets, capitalism, and economic freedom have overcome Wichita’s true naysayers: those who say it can’t happen without government intervention.

    A message from John Todd: “This Wednesday (June 8th) at 2:00 pm there will be a groundbreaking ceremony for the new Planeview Save-A-Lot grocery store located on the southeast corner of George Washington Boulevard and Pawnee. This project was initially proposed with $900,000 in CID and TIF public subsidies for the developer that were approved by the Wichita City Council last fall. When the Sedgwick County Commission rejected giving the county’s portion of the TIF generated real estate taxes to the developer and away from the public treasury, the project appeared to be dead. The Wichita Eagle recently reported that the Save-A-Lot grocery store owner has now decided to develop the project on his own with his own financing. Perhaps it is appropriate for those citizens who appreciate businesses who develop market-driven projects in Wichita and Sedgwick County on their own nickel to show their appreciation to the grocery store owner/developer by attending the groundbreaking ceremony and personally thanking him.”

  • Pickens criticism illustrates divide between free markets and intervention

    Last week’s criticism by energy investor T. Boone Pickens of U.S. Representative Mike Pompeo, a Wichita Republican serving his first term, continues to illustrate the difference between those who believe in economic freedom and free markets, and those — like Pickens — who invest in politicians, bureaucrats, and the hope of a government subsidy.

    Pickens is pushing H.R. 1380: New Alternative Transportation to Give Americans Solutions Act of 2011, or NAT GAS act. The bill provides a variety of subsidies, implemented through tax credits, to producers and users of natural gas. The goal is to promote the use of natural gas as the fuel the nation uses for transportation.

    In his op-ed in the Wichita Eagle, Pickens was critical of Pompeo for his stance in favor of free markets and in opposition to subsidies. His criticism, however, was inconsistent and contradictory. Further, Pompeo’s position on this issue is clear, as part of a resolution he introduced reads: eliminate existing energy subsidies.

    There was another target of Pickens’ criticism. He didn’t mention the company by name, but there were several thinly-veiled references to Wichita-based Koch Industries. Charles Koch and his brother David Koch have emerged as prominent defenders of economic freedom and the freedom and prosperity it generates. Charles Koch, in particular, has been outspoken in his criticism of the type of subsidies that Pickens seeks. Koch’s op-ed, also in the Wichita Eagle and on Koch Industries website at Advancing economic freedom, was pointed in its criticism of corporate welfare: “Our government made a point of reforming its welfare policies for individuals but not for corporations. … Unfair programs that favor certain companies — such as the current well-intentioned but misguided suggestion that the natural-gas industry should receive enormous new subsidies — don’t just happen. They are promoted, in large part, by those seeking to profit politically, rather than by competing in a market where consumers vote with their wallets.”

    In a statement on the company’s Viewpoint website, Dr. Richard Fink, Executive Vice President of Koch Industries, continued to explain the harm of government intervention, saying “Koch has consistently opposed subsidies that distort markets. We maintain that the marketplace, while not perfect, is the best mechanism for allocating resources to consumers. People deciding what fuels to purchase, instead of the government, is best for consumers and our country. Likewise, if natural gas vehicles are truly advantageous and economically efficient, then consumers will demand that they be developed without political mandates that exhaust more taxpayer dollars.”

    Fink continues, “We do not question T. Boone Pickens’ intentions or integrity in this debate. We recognize his experience in the energy markets and take him at his word that he thinks this is a good idea. However, we believe history has demonstrated over and over that these subsidies end up undermining the long term prosperity of the country. For these principled reasons, we oppose this bill to give tax incentives to buyers and makers of natural gas-powered vehicles and related infrastructure. We also consistently oppose subsidies for all other fuels whether or not we benefit from them.”

    Pickens would probably object to the use of the term “subsidy,” as the legislation he pushes grants “credits,” a term that sounds fairly benign. Timothy P. Carney, writing in the Washington Examiner, provides an explanation of the difference: “Pickens draws two dividing lines in the piece: tax credit vs. grant, and permanent versus temporary. A temporary subsidy is certainly better than an indefinite or permanent one. The tax credit question is trickier. Many free-market champions support every tax break ever proposed (Ron Paul, for instance). Other free market types (like me, probably) think that tax credits act as subsidies which distort the market, and ultimately lead to tax hikes on others. One of the bad things about tax credits is that they reward businesses for following political signals rather than market signals, but they do it in a way that allow the beneficiaries, like Pickens, to act as if they’re not on the public dole. Sure, a tax credit (most of the time) isn’t a handout, but the favored product (like ethanol or natural gas) only succeeds because its competition is taxed at high rates. So tax credits are the socially acceptable form of corporate welfare.” (emphasis added)

    While Carney usually gets things just right, I’ll disagree with him that the question of tax credits is tricky: They have the same economic effect as a grant or subsidy. They engineer the behavior the government wants. But Carney is right about the confusing appearance of tax credits, allowing them to be “the socially acceptable form of corporate welfare.” Unless we really think about it, that is.

    In any discussion of Pickens and natural gas, we must recognize that he is an investor in gas and another energy technology related to gas: wind power. In 2008 Pickens ordered 667 wind turbines worth $2 billion from General Electric with plans to build a large wind power plant in Texas. Wind power is highly dependent on government subsidy, with supporters claiming the industry will be devastated unless Congress continues to renew the subsidies.

    At one time Pickens wanted to use wind power to generate electricity, and the natural gas saved would be used to power transportation. But there’s another relationship between wind power and gas, and it stems from the unreliability and variability of wind power. It’s difficult to quickly adjust the output of most power plants. But natural gas turbine plants are an exception. Kansas recently saw one of its major electric utilities complete a new natural gas power plant. The need for the plant was at least partly created by its investment in wind: A document produced by Westar titled The Greenhouse Gas Challenge noted the “Construction of the 665 MW natural gas-fired Emporia Energy Center, providing the ability to efficiently follow the variability of wind generation.” In another document announcing a request for a rate increase it stated “Our Emporia Energy Center is excellent for following the variability of wind production.”

    At the time of these investments by Pickens and Westar, the price of natural gas was high. Now it is low — so low, and the prospects for future low prices certain enough that Pickens has abandoned his wind farm projects. Even with all the subsidy granted to wind power, it’s cheaper to generate electricity with gas.

    (Pickens has been left with many wind turbines he can’t use. According to the Wall Street Journal: “He’s hoping to foist them on ratepayers in Canada, because that country has mandates that require consumers to buy more expensive renewable electricity.” In other words, relying on some other country’s government intervention to relieve him of his mistake.)

    So we see Pickens moving from one government-subsidized industry — wind power — to another: the subsidized market for natural gas-powered vehicles he hopes to create. The distinction between political entrepreneurs and market entrepreneurs couldn’t be clearer.

  • Charles Koch: Advancing economic freedom

    In recent years Charles Koch and his brother David Koch have emerged as prominent defenders of economic freedom and the freedom and prosperity it promises. In today’s Wichita Eagle, Charles Koch explains the importance of economic freedom and warns of the threats to freedom and prosperity that our country faces.

    A key component of economic freedom is property rights. In his 2007 book The Science of Success: How Market-Based Management Built the World’s Largest Private Company, Mr. Koch explained the importance of property rights: “Countries that clearly define and protect individual private property rights stimulate investment and grow. Those that threaten and confiscate private property lose capital and decline. They also lose the capability and efforts of the individuals who would be the greatest contributors to economic growth.”

    In the Economic Freedom of the World report, there are five broad areas that are measured to determine the relative economic freedom of countries:

    • Size of Government: 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.

    We can see the importance of property rights to economic freedom. When government taxes, it takes our property and gives it to someone else — often to business firms in the form of corporate welfare. Without a developed legal system, property rights are not secure. Without sound money, government takes our property by devaluing our savings through inflationary monetary policies.

    It is the advancement of policies that promote economic freedom that, as Koch writes, “help societies prosper.” We see this in the rankings of countries on the economic freedom index. Countries with high levels of economic freedom, like Hong Kong, are prosperous even through they often have little in the way of natural resources. And countries that are rich in resources but not in economic freedom: Their people suffer, although corrupt leaders usually live richly.

    Economic freedom is not just for rich people. Everyone — especially those on the lowest rungs of the economic ladder — benefits.

    Charles Koch: Economic freedom key to improving society

    By Charles G. Koch

    My brother David and I have long supported the principles that help societies prosper. I have actively done so for nearly 50 years, as has my brother for more than 40.

    In recent years, we have stepped up our efforts to deal with the enormous threats to the future well-being of the people of this country. This has prompted some extreme criticism. From the White House to fringe bloggers, we are now being vilified, mischaracterized and threatened.

    In a perverse way, these attacks indicate that we are having a positive effect on public awareness and policymaking. That is why we are working even harder to advance economic freedom and prosperity.

    We do so because we believe economic freedom is essential for improving the well-being of society as a whole, especially those who work hard to provide for their families, as well as our most vulnerable. History and sound theory are clear on this point. If we allow our government to waste scarce resources and become the ultimate decision maker, almost everyone will suffer a lower standard of living.

    Continue reading at The Wichita Eagle. A slightly different version of Mr. Koch’s editorial is available on the Koch Industries website at Advancing economic freedom.

  • Stossel: Follow-up to ‘Freeloaders’

    Earlier this year John Stossel had an hour-long special show that focused on freeloaders. The show is now available on the free hulu service by clicking on Stossel: Freeloaders. This week Stossel’s show had some of the people he criticized on the show making appearances to defend themselves.

    One of the most notable segments was about Al Pires, an attorney who helped black farmers (and other minorities) receive payments for alleged discrimination at the hands of government loan programs. Stossel and others uncovered evidence that thousands of people who simply said they were farmers got payments, too. Having flowers in pots or fertilizing one’s lawn was enough to count as a farmer. When Stossel brought on Andrew Breitbart to talk about the abuse of the program by Pires, the attorney became agitated, telling Stossel and Bretibart they didn’t know what they were talking about. He attacked Breitbart savagely, calling him a “sad, sad person” and repeatedly advising him to get a job. Video of this segment is available here.

    Through his books, columns, lectures (see John Stossel urges reliance on freedom, not government, in Wichita), and television shows, Stossel is the popular voice of limited government and economic freedom in America. Here’s how he closed this week’s show:

    “And most unfair is that now government is so big and generous with your money, it’s killing the innovation that makes America great. If you run a company, you can say to yourself ‘How am I going to make money?’ I could invest in researching a new product, or I could hire lobbyists to manipulate Congress and get money from government. Investing in research: That’s tricky and we might not discover anything. And if we do, we’ll be regulated and taxed so much. Lobbyists — they have a high rate of return. And sure enough, this week the Wall Street Journal ran two interesting stories. Look at this one: ‘GM revs up its lobbying.’ Since we bailed GM out, GM doubled spending on lobbying. And then here, on the same page: a story on the company that makes Lipitor. Sadly, it’s going to cut its research spending — cut it from $8.1 billion to $6.5 billion. This is a terrible thing. Lipitor may be what’s keeping me alive. I want drug companies to do more drug research, not less. But I can’t blame Pfizer. If they did discover something, today big government might prevent them from selling. I can’t even blame GM for its freeloading. When government’s very big and investing lots of your money on politically-favored industries, then it’s prudent for companies to invest in lobbying. I blame big government. $3.8 trillion in spending rewards freeloading. Let’s cut government in half. And then, let’s cut it again. Then, there would be much less freeloading, and much more prosperity.”