Voice For Liberty

Tag: Subsidy

  • Brinkmanship with jobs

    By H. Edward Flentje.

    Most Wichita-area residents breathed a sigh of relief last December when former Governor Mark Parkinson, along with city and county officials, inked a $45 million deal for aviation manufacturer Hawker Beechcraft to maintain 4,000 jobs in Wichita.

    The deal was cut after months of community drama in which company officials threatened to uproot the 75-year-old Wichita company and move it, lock, stock, and barrel, to Louisiana. The company had also demanded that union contracts be set aside and vowed to send pieces of the company to Mexico. These threats came after Hawker Beechcraft had cut its Kansas workforce by one-third over the prior two years in response to the economic downturn.

    Welcome to the new world of economic development — playing brinkmanship with jobs. This tactic is led by a new breed of hired guns, mostly outsiders and consultants who have little or no attachment to the targeted community. On behalf of corporate clients, they specialize in playing states and communities off against each other — threatening state and local officials with plant closures or moves to another state. In the process taxpayers, employees, and anyone else available are squeezed for all they are worth.

    The work of economic development used to be simpler: applying a limited set of incentives to attract new businesses and new jobs or encourage existing businesses to add jobs. In my short stint as Wichita’s interim city manager in 2008 I had no difficulty recommending to the city council and state officials a substantial package of incentives for Cessna to build a complete new airplane in Wichita and create 1,000 new jobs. The joint initiative of the State of Kansas, Hutchinson, Reno County, and South Hutchinson to land global giant Siemens in Hutchinson with 400 new jobs in a completely new industry of wind energy applied this approach.

    But the Hawker Beechcraft deal is different, focused on saving existing jobs, not creating new jobs, and the result diverts millions in limited taxpayer funds, primarily state income tax revenues, from state coffers to a company’s benefit, simply to have an existing business stay put.

    State lawmakers first opened the door for applying income tax revenues to “job retention” in 2000 under a program called IMPACT (an acronym for “investment in major projects and comprehensive training” act), set a high threshold for eligibility, and placed strict limitations on the use of funds.

    Since then, lawmakers have repeatedly loosened requirements and given more encouragement to this game of brinkmanship. Originally, the law required an eligible company to make a capital investment of at least $250 million and maintain 1,000 jobs in the state. Today, no capital investment is required, and the job bar has been slashed to 250 jobs in metropolitan areas and 100 in nonmetropolitan areas.

    The Kansas Secretary of Commerce has to sign off on these deals, and to date has approved only nine according to Commerce officials. The winners are large corporate organizations with familiar names—Learjet, Sprint, Applebee’s Services, Boeing, Goodyear, and Black & Veatch, in addition to Hawker Beechcraft—all located in one of three Kansas counties, Johnson, Sedgwick, and Shawnee.

    But word gets around in the world of economic development, and demands will escalate. The barn door has been flung open as well over 500 Kansas businesses are now eligible for state assistance, a tenfold increase over the year 2000, thanks to lawmakers. The expanding game of brinkmanship with jobs leaves state and local officials more vulnerable and can be expected to divert millions more in state tax revenues from state government’s primary obligations in response to the demands of companies that choose to play.

    Flentje is a professor at Wichita State University and co-author of the new book on Kansas politics Kansas Politics and Government: The Clash of Political Cultures.

  • Kansas and Wichita quick takes: Thursday February 10, 2011

    Politicians’ Top 10 Promises Gone Wrong. This Monday (February 14) Americans for Prosperity will show the 2010 John Stossel documentary “Politicians’ Top 10 Promises Gone Wrong.” For a preview and interview with Stossel, click here. For my reporting and review of the show, click on Stossel on politicians’ promises. … This event, sponsored by Americans for Prosperity, will be held on Monday, February 14 from 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Cabela’s to seek community improvement district tax. It should come as no surprise that when a major retailer comes to Wichita, they will take advantage of the state’s community improvement district law. If approved, formation of the CID would allow Cabela’s to charge an extra tax on its sales. In this case, according to Wichita Eagle reporting, the tax will be 1.2 cents per dollar. … Sources tell me that this is likely not the only special tax treatment Cabela’s will seek. Look for an application for tax abatements through IRBs or the EDX program. This would fit right in with Cabela’s notoriety for squeezing all it can from government. … As these CIDs spread across Wichita, we are, in effect, experiencing a sales tax increase, drip by drip.

    Kansas legislature website. The Kansas legislature’s website is improving. A huge irritation remains, however: when pdf documents are presented, they’re in a “fancy” non-standard window that reduces the usability of the site. On an Iphone, the documents can’t be read, as the fancy window wants to do its own scrolling. … Sometimes clicking on a link produces the wrong document, as just now on the house of Representatives page, I clicked on “Session 20 – Wed Feb 09 2011 PDF” and was presented with the Senate’s journal for January 31. … Judging by the log of completed features added each day and by the list of things promised, it’s clear that this site is still in development. Doing this during the session was a terrible lapse of judgment. … Listed are “Special reports for members” such as “House and Senate Subject Index with bill status.” Why, I wonder, should this be available only for members?

  • Wichita again to bet on corporate welfare as economic development

    This week the Wichita City Council will consider three measures that, if adopted, will further establish corporate welfare and rent-seeking as Wichita’s economic development strategy.

    When people are living on welfare, we usually see that as a sad state of affairs. We view it as a failure, both for the individual and for the country. We seek ways to help people get off welfare so that they become self-sufficient. We want to help them contribute to society rather than being a drain on its resources.

    But Wichita’s leaders don’t see corporate welfare as a bad thing. Instead, as these three measures — all of which will likely pass unanimously — illustrate, welfare is good when you’re a business in Wichita. Especially if you can raise speculation that your company might move out of Wichita.

    The term rent, or more precisely, economic rent is somewhat unfortunate, as the common usage of the term — paying someone money for the use of an asset for a period of time — contains no sinister connotation. But economic rent does carry baggage.

    What is rent seeking? Wikipedia defines it like this: “In economics, rent seeking occurs when an individual, organization or firm seeks to earn income by capturing economic rent through manipulation or exploitation of the economic environment, rather than by earning profits through economic transactions and the production of added wealth.”

    This explanation doesn’t do full justice to the term, because it doesn’t mention the role that government and politics usually play. The Concise Encyclopedia of Economics adds this: “The idea is simple but powerful. People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors.”

    The three deals the Wichita City Council will consider tomorrow are both corporate welfare and rent-seeking. All three are harmful to our city.

    The three deals

    The first item to be considered Tuesday concerns MoJack Distributors, LLC, a company that makes an accessory for riding lawn mowers. It is proposed that the City of Wichita and Sedgwick County each make a forgivable loan of $35,000 to this company. If the company maintains a certain level of employment, the loans do not need to be repaid.

    But this is not the only welfare being given to this company. The city also proposes a 100% Economic Development Exemption (EDX) property tax exemption. The term would be five years, with renewal for another five years if conditions are met. The city’s material on this matter may be read at Approval of Forgivable Loan Agreement, MoJack.

    The company will also receive tax credits and grants under programs offered by the State of Kansas.

    Another company, Apex Engineering International LLC, is proposed to receive forgivable loans of $220,000 each from Wichita and Sedgwick County. The company will also receive grants and tax credits totaling $1,272,000 from the state. Surprisingly, no property tax exemption is mentioned for this company. The city’s material on this matter may be read at Approval of Forgivable Loan Agreement (Apex Engineering International).

    For both companies, there was the threat of moving operations elsewhere, and the incentives offered made the difference.

    The final action of corporate welfare to be considered is a community improvement district (CID) for the Eastgate shopping center at Kellogg and Rock Road. The CID, if approved, would require merchants to add an additional tax of one cent per dollar on all sales. That money, less a five percent fee, would then be given to the shopping center’s owners for their exclusive use. This could be worth as much as $18,528,596 over 22 years, according to city documents.

    The Eastgate item is on the agenda for a second time after being withdrawn in January. At the time, Rhonda Holman of The Wichita Eagle wrote: “As it was, insufficient time had been allowed for staff vetting of the proposals and thorough consideration by the council and public.”

    The action the council is asked to take at tomorrow’s meeting is to accept petitions asking for formation of the CID, and to set March 1st as the date of a public hearing.

    Targeted investment, or welfare

    Government bureaucrats and politicians promote programs like these as targeted investment in our region’s economic future. They believe that they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by city hall that shapes the future direction of Wichita’s economy.

    Arnold King has written about the ability of government experts to decide what investments should be made with public funds. There’s a problem with knowledge and power:

    As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.

    When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.

    I emphasized the last sentence to highlight the problem of the dispersed nature of knowledge.

    Yet this week, our Wichita city bureaucrats feel they have the necessary knowledge to recommend to the city council that the citizens of Wichita make investments of public funds in these three instances. Our city council members are gullible enough to believe it.

    One thing is for sure: the city has the power to make these investments. They just don’t have — they can’t have — the knowledge as to whether these are wise.

    We need a dynamic job creation engine

    Furthermore, we have to question the wisdom of investing in these established companies, especially a company involved in aviation, as Wichita always is seeking to diversify its economy away from dependence on aviation.

    Through research conducted by Dr. Art Hall and others, we now know that it is dynamic young companies that are the main drivers of job creation in Kansas. Hall wrote: “Embracing dynamism starts with a change in vision. Simply stated, the state government of Kansas should abandon its prevailing policy vision of the State as an active investor in businesses or industries and instead adopt the policy vision of the State as a caretaker of a competitive “platform” — a platform that seeks to induce as much commercial experimentation as possible.” (While Hall wrote about the State of Kansas, the City of Wichita is playing the same role at a local level.)

    The “active investor” role that the city of Wichita is about to take with regard to these three companies is precisely the wrong role to take. These actions increase the cost of government for the dynamic small companies we need to nurture. Instead these efforts concentrate and focus our economic development efforts in an unproductive way.

    Sales tax increase spreading across Wichita

    These proposed Eastgate shopping center CID, and one still likely to be proposed for Westway shopping center, break new ground in that these shopping centers are not tourist destinations or trendy shops. They’re run-of-the mill shopping centers that have stores that Wichitans visit every day. Some council members like Vice Mayor Jeff Longwell have justified past CIDs on the basis that since they are tourist destinations, much of the tax will be paid by visitors to Wichita. This is not a wise policy, but even it it was, it does not apply to these two shopping centers.

    Instead, these two applications are more indications that soon Wichita — its major retail centers and destinations, at least — is likely to be blanketed with community improvement districts charging up to an extra two cents per dollar sales tax. Currently, merchants in a CID are running the very real risk that once their customers become aware of the extra sales tax, they will shop somewhere else. But as CIDs become more prevalent in Wichita, this competitive disadvantage will disappear.

    Step by step, a sales tax increase is engulfing Wichita, and our city council and mayor are fine with that happening. This is on top of the statewide sales tax increase from last year, which, despite claims of its supporters and opposition by conservatives, is likely a permanent fixture.

  • Wichita city manager Robert Layton on the air

    Yesterday Wichita city manager Robert Layton appeared as a guest on the Gene Countryman Show on KNSS Radio in Wichita and spoke on a number of topics brought up by the host and callers.

    Several times host Gene Countryman referred to Wichita theater owner Bill Warren and his assessment of Layton as “best city manager the city’s ever had,” calling Warren’s assessment “high praise.” Warren has good reason to heap praise on Layton. He and his partners have benefited handsomely from actions the Wichita City Council has taken at Layton’s recommendation. Most recently Warren escaped paying property taxes on a new movie theater, and negotiated a deal in where the property tax on an existing property will increase at an agreed-upon rate that is likely lower than what would happen otherwise. Before Layton’s arrival in Wichita, the council heaped subsidy on Warren too, once bailing out the failing Warren Old Town Theater with an interest-free loan.

    Layton also said criticism causes him to “bristle a little bit,” but dismissed his critics as a small minority, although he said he doesn’t discount it.

    On the possible arrival of Southwest Airlines to Wichita, Layton said he feels “pretty good” about Wichita’s chances in receiving service from the popular discount airline. He said that we need to keep the Affordable Airfares Program to keep Southwest interested in Wichita. But later he said “The Southwest business model doesn’t require subsidies over a long period of time.”

    But as I wrote in 2006, we’ve been told before that the airfare subsidies were meant to be temporary: “From the beginning, we in the Wichita area have been told each year that the AirTran subsidy was intended as a temporary measure, that soon AirTran would be able to stand on its own, and there will be no need to continue the subsidy.” History has shown, however, that the subsidy has grown to the point where the entire state funds the subsidy for Wichita. It appears to be a permanent part of the state’s economic program, with Governor Brownback expressing support for continued funding for the program.

    On downtown, Layton said that the city doesn’t want to place businesses in downtown who will be on tax breaks or tax exempt for ten years. If the city is to achieve this goal, it will take a 180 degree change in the mindset in city hall where the mayor and vice-mayor Jeff Longwell complain that we don’t have enough “tools in the toolbox” to incentive businesses. In his State of the City address last week, one of the achievements Mayor Carl Brewer was proud of was the decision by Cargill to locate a facility in downtown Wichita. According to city documents, “The City has also offered a 100% five-plus-five year tax abatement on the new facility.” This is precisely the type of tax break Layton spoke against. Cargill, by the way, received many other forms of subsidy — let’s be clear — corporate welfare — for its decision.

    On the plan for how to handle Wichita’s trash, Layton said his intent was to start a community dialog on the subject, and that has happened. Layton praised Iowa’s bottle bill, which adds five cents to the price of items sold in bottles. He said it makes it easier for people to recycle.

  • Kansas: business-friendly or capitalism-friendly?

    Plans for the Kansas Republican Party to make Kansas government more friendly to business run the risk of creating false, or crony capitalism instead of an environment of genuine growth opportunity for all business.

    An example is the almost universally-praised deal to keep Hawker Beechcraft in Kansas. This deal follows the template of several other deals Kansas struck over the past few years, and outgoing Governor Mark Parkinson is proud of them. Incoming Governor Sam Brownback approved of the Hawker deal, and probably would have approved of the others.

    Locally, the City of Wichita uses heavy-handed intervention in the economy as its primary economic development tool, with several leaders complaining that we don’t have enough “tools in the toolbox” to intervene in even stronger ways.

    The problem is that these deals, along with many of the economic development initiatives at the state and local level in Kansas, create an environment where the benefits of free market capitalism, as well as the discipline of a market-based profit-and-loss system, no longer apply as strongly as they have. John Stossel explains:

    The word “capitalism” is used in two contradictory ways. Sometimes it’s used to mean the free market, or laissez faire. Other times it’s used to mean today’s government-guided economy. Logically, “capitalism” can’t be both things. Either markets are free or government controls them. We can’t have it both ways.

    The truth is that we don’t have a free market — government regulation and management are pervasive — so it’s misleading to say that “capitalism” caused today’s problems. The free market is innocent.

    But it’s fair to say that crony capitalism created the economic mess.

    But wait, you may say: Isn’t business and free-market capitalism the same thing? Here’s what Milton Friedman had to say: “There’s a widespread belief and common conception that somehow or other business and economics are the same, that those people who are in favor of a free market are also in favor of everything that big business does. And those of us who have defended a free market have, over a long period of time, become accustomed to being called apologists for big business. But nothing could be farther from the truth. There’s a real distinction between being in favor of free markets and being in favor of whatever business does.” (emphasis added.)

    Friedman also knew very well of the discipline of free markets and how business will try to avoid it: “The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system. Naturally, existing businesses generally prefer to keep out competitors in other ways. That is why the business community, despite its rhetoric, has so often been a major enemy of truly free enterprise.”

    The danger of Kansas government having a friendly relationship with Kansas business leaders is that these relationships will be used to circumvent free markets and promote crony, or false, capitalism in Kansas. It’s something that we need to be on the watch for, as the relationship between business and government is often not healthy. Appearing on an episode of Stossel Denis Calabrese, who served as Chief of Staff for Majority Leader of the U.S. House of Representatives Congressman Richard Armey, spoke about crony capitalism and its dangers:

    “The American public, I guess, thinks that Congress goes and deliberates serious issues all day and works on major philosophical problems. Really a typical day in Congress is people from the private sector coming and pleading their cases for help. It may be help for a specific company like the [window manufacturing company] example, it may be help for an entire industry, it may be help for United States companies vs. overseas companies.”

    He went on to explain that it is wrong — corrupt, he said — for Congress to pick winners and losers in the free enterprise system. Congress wants us to believe that free enterprise will be more successful when government gets involved, but the reverse is true. Then, the failures are used as a basis for criticism of capitalism. “This is an unholy alliance,” he said, and the losers are taxpayers, voters, and stockholders of companies.

    Later in the show Tim Carney said that “A good connection to government is the best asset a company can have, increasingly as government plays a larger role in the economy.”

    Host John Stossel challenged Calabrese, wondering if he was part of the problem — the revolving door between government, lobbyists, and business. Calabrese said that “Every time you see a victim of crony capitalism you’re looking at a potential client of mine, because there’s somebody on the other side of all these abuses. When Congress tries to pick a winner, there are losers, and losers need representation to go tell their story.” He added that he lobbies the American people by telling them the truth, hoping that they apply pressure on Congress to do the right thing.

    He also added that it is nearly impossible to find a single area of the free enterprise system that Congress is not involved in picking winners and losers.

    While the speakers were referring to the U.S. federal government, the same thing happens in statehouses, county courthouses, and city halls across the country — wherever there are politicians and bureaucrats chasing economic development with government as the tool.

    It is difficult to blame businessmen for seeking subsidy and other forms of government largesse. They see their competitors do it. They have a responsibility to shareholders. As Stossel noted in the show, many companies have to hire lobbyists to protect them from harm by the government — defensive lobbying. But as Carney noted, once started, they see how lobbying can be used to their advantage by gaining favors from government.

    The danger that Kansas faces is that under the cover of a conservative governor and legislature, crony capitalism will continue to thrive — even expand — and the people will not notice. The benefits of a dynamic Kansas economy as shown by Dr. Art Hall in his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy may never be achieved unless Kansas government — at all levels — commits to the principles of free market capitalism.

  • Kansas and Wichita quick takes: Friday December 31, 2010

    This Week in Kansas. On This Week in Kansas guests Rebecca Zepick of State of the State KS, Kansas Public Radio Statehouse Bureau Chief Stephen Koranda, and myself discuss the upcoming session of the Kansas Legislature. Tim Brown is the host. This Week in Kansas airs on KAKE TV channel 10, Sunday morning at 9:00 am.

    Tax increment financing. “Largely because it promises something for nothing — an economic stimulus in exchange for tax revenue that otherwise would not materialize — this tool [tax increment financing] is becoming increasingly popular across the country. … ‘TIFs are being pushed out there right now based upon the but for test,’ says Greg LeRoy. ‘What cities are saying is that no development would take place but for the TIF. … The average public official says this is free money, because it wouldn’t happen otherwise. But when you see how it plays out, the whole premise of TIFs begins to crumble.’ Rather than spurring development, LeRoy argues, TIFs ‘move some economic development from one part of a city to another.’ … In Wichita, those who invest in TIF districts and receive other forms of subsidy through relief from taxes are praised as courageous investors who are taking a huge risk by believing in the future of Wichita. Instead, we should be asking why we have to bribe people to invest in Wichita. Much more on tax increment financing at Giving Away the Store to Get a Store: Tax increment financing is no bargain for taxpayers from Reason Magazine.

    Lessons for the Young Economist. The Ludwig von Mises Institute has published a book by Robert_P._Murphy titled Lessons for the Young Economist. Of the book, the Mises Institute says “It is easily the best introduction to economics for the young reader — because it covers both pure economic theory and also how markets work (the domain of most introductory books).” From my reading of samples of the book, I would agree, and also add that readers of all ages can enjoy and learn from this book. The book is available for purchase, or as is the case with many of the works the Institute publishes, it is also available to download in pdf form at no charge. Click on Lessons for the Young Economist.

    The worst Congress. While liberals praise the 111th Congress as one of the most productive ever, not all agree. The Washington Examiner reprises some of the worst moments of this Congress, and concludes: “Our Founding Fathers were always wary of those who wanted government to do lots of big things. That’s why they created a system that separated powers among three more or less equal branches and provided each of them with powerful checks and balances. When professional politicians become frustrated with Congress, it is a sign that our system is working as intended. Columbia University historian Alan Brinkley told Bloomberg News recently that ‘this is probably the most productive session of Congress since at least the ’60s.’ When Congress votes on bills that no one reads or understands, it can be quite ‘productive.’ Americans have already rendered a verdict on such productivity and elected a new Congress with orders to clean up the mess in Washington.”

    China has seen the future, and it is coal. George Will in The Washington Post: “Cowlitz County in Washington state is across the Columbia River from Portland, Ore., which promotes mass transit and urban density and is a green reproach to the rest of us. Recently, Cowlitz did something that might make Portland wonder whether shrinking its carbon footprint matters. Cowlitz approved construction of a coal export terminal from which millions of tons of U.S. coal could be shipped to Asia annually. Both Oregon and Washington are curtailing the coal-fired generation of electricity, but the future looks to greens as black as coal. The future looks a lot like the past.” Will goes on to explain how it is less expensive for coastal Chinese cities to import American and Australian coal rather than to transport it from its inland region. China uses a lot of coal, and that is expected to increase rapidly. The growth of greenhouse gas emissions in China trumps — by far — anything we can do in American do reduce them, even if we were to destroy our economy in doing so.

  • Government is not business, and can’t be

    As Wichita begins its implementation of the plan for the revitalization of downtown Wichita, stakeholders like to delude themselves that the plan is “market-driven,” that the city will make prudent use of public “investment,” and that the plan’s supporters really do believe in free markets after all. It’s a business-like approach, they say.

    But government is not business. The two institutions are entirely different. Government cannot act as a business does — the incentives and motivations are wrong. But some refuse to accept the distinction between the two, insisting that just because an organization — say the Wichita Downtown Development Corporation — is entirely supported (except for a little private fundraising one year) by taxpayer funds, it’s not the same as a government institution.

    The City of Wichita suffers from all the problems cited in this excerpt from Central Planning Comes to Main Street by Steven Greenhut, which appeared in the August 2006 issue of The Freeman: Ideas on Liberty. As our city moves away from development based on markets to development based on government planning, and away from a dynamic free market approach to economic development towards political and bureaucratic management of our destiny, we can expect these problems to become more ingrained.

    Problems with Incentives

    By Steven Greenhut

    Most city managers and economic-development officials that I’ve talked to fancy themselves as CEOs of companies, and they argue that what they are doing is no different from what private companies do: maximizing revenues. “Why wouldn’t a libertarian support what we’re doing given that you value private business and understand the importance of profit?” I’ve often been asked.

    The answer is simple. Cities are not businesses. They take the tax dollars of residents and make decisions about land use that are backed by police powers. They do not operate in a market; they do not have voluntary stockholders. Despite the delusions of city managers, the city staff usually is not as sophisticated or as skilled as corporate staff, which means cities often get a poor deal when negotiating with rent-seeking corporations.

    When cities insert themselves into the economic development game, either with carrots or sticks, they:

    • Shift decision-making from individuals to governments;
    • Take money from taxpayers and redistribute it to individuals and companies;
    • Undermine property rights and other freedoms;
    • Encourage a class of rent-seekers, who learn to lobby city officials for favors and special financial benefits;
    • Put unfavored businesses at a competitive disadvantage with those who are favored; and
    • Stifle political dissent, as companies that are dependent on the city for lucrative work become reluctant to speak their minds about any number of city issues.

    Despite what city managers will tell you, the choice is not between economic development and letting a city rot. The choice is between central planning, empowering officials to decide which businesses are worthy of their help, and the good old free market, which lets free people decide which business should succeed or fail.

    City officials like to be “proactive,” as they say, and help with economic development. There is something they can do. They can get out of the way, by lowering tax rates, deregulating, ending zoning restrictions, and eliminating exclusive contracts with utilities and developers. It’s not out of the question. The city of Anaheim is doing just that, with remarkable results.

    Mackinac’s LaFaive puts it well in a 2003 article: “The best business climate is one in which government ‘sticks to its knitting’ and does its particular assignments well, at the lowest possible cost while creating a ‘fair field with no favors’ environment for private enterprise.”

    Not a bad template. Sure beats a world of central planning, where city officials can choose who gets handouts and even who gets driven out of town.

  • Wind power again reaps subsidy

    The editorial page of the Wall Street Journal is at the forefront of letting Americans know just how bad an investment our country is making in wind power, as well as other forms of renewable energy. A recent Review and Outlook piece titled The Wind Subsidy Bubble: Green pork should be a GOP budget target holds these facts:

    • The recent tax bill has a $3 billion grant for wind projects.
    • The 2009 stimulus bill had $30 billion for wind.
    • Wind power installations are way down from recent years.
    • The 2008 stimulus bill forces taxpayers to pay 30% of a renewable energy project’s costs. Wind energy also get a tax credit for each unit of power produced.
    • “Subsidies for renewable energy cost taxpayers about $475,000 for every job generated.”
    • “The wind industry claims to employ 85,000 Americans. That’s almost certainly an exaggeration, but if it is true it compares with roughly 140,000 miners and others directly employed by the coal industry. Wind accounts for a little more than 1% of electricity generation and coal almost 50%. So it takes at least 25 times more workers to produce a kilowatt of electricity from wind as from coal.”

    This information is timely as Kansas Governor Mark Parkinson recently released a list of his “achievements,” three of which involve increasing wind power in Kansas.

    Incoming Kansas governor Sam Brownback is in favor of wind energy too, and he also supports federal subsidies and mandates for ethanol production and use. In endorsing Brownback the Kansas Association of Ethanol Producers said “… no other public official has done more to promote the merits of ethanol than Sam Brownback. Whereas ethanol is the future of America’s fuel supply, Sam Brownback is the future of Kansas.”

    The Wall Street Journal has also long been opposed to this intervention in the market for ethanol, recently quoting a report by a group of U.S. Senators: “Historically our government has helped a product compete in one of three ways: subsidize it, protect it from competition, or require its use. We understand that ethanol may be the only product receiving all three forms of support from the U.S. government at this time.”

  • Kansas Governor Parkinson says “thank you”

    This week outgoing Kansas Governor Mark Parkinson released a “thank you” to Kansans that has been commented on — favorably — in many Kansas newspapers and media outlets. The entire piece may be read at the governor’s site at Thanks So Much.

    The governor’s list of “achievements” — his language, not mine — is a reminder that under Parkinson and his predecessor Kathleen Sebelius Kansans have lost economic and personal freedom. It’s nothing that we should thank Parkinson for, and nothing he should be proud of.

    Under achievement number one (“Steering the state budget through a very challenging time”) Parkinson wrote “Suffice it to say that I cut state spending more than any governor in Kansas history.” He doesn’t mention that he was forced to make these cuts, as Kansas can’t run deficits like the federal government.

    Achievements two, three, and four have to do with his promotion of wind power in Kansas. It’s almost impossible to overstate how unwise these policies are. See Wind power: a wise investment for Wichita and Kansas? for a recent discussion of why wind power is a bad investment. Relying on the manufacturing of wind power equipment as an economic development strategy is an even worse idea. The governor praises legislation that requires utilities to increase their usage of renewable power such as wind. But I’d ask the governor this: If electricity from wind is so desirable, why do utilities have to be forced — and heavily subsidized — to produce it?

    Achievement seven highlights “Economic development wins,” mentioning Black and Veatch, Cerner, Bombardier LearJet, and Hawker Beechcraft in particular. Each of these “wins” required large subsidy from the state. Worse, these taxpayer giveaways cement our practice of bureaucratic management of economic development instead of creating a vibrant Kansas business climate where innovation and entrepreneurship thrive. This state policy filters down to counties and cities, to the point where the first consideration for businesses and entrepreneurs is not is this something that will create value for customers and profit for me and my investors but rather what type of government help can I get?

    Achievement eight is the statewide smoking ban. Parkinson’s championing of it means that he doesn’t believe that adult Kansans can decide for themselves whether they want to be around smokey places, and that he has little respect for private property rights.

    Achievement nine is the new transportation plan. The governor claims it will create or keep 175,000 jobs. Most of these must be highway construction jobs, as it is that industry that heavily supported the plan. As usual, the governor and other advocates of government spending fail to see the jobs that are lost due to the government spending and the taxes necessary to pay for it. Veronique de Rugy explains: “Taxes simply transfer resources from consumers to government, displacing private spending and investment. Families whose taxes have increased will have less money to spend on themselves. They are poorer and will consume less. They also save less money, which in turn reduces the resources available for lending.” In addition, Kansas roads rate very well, even number one among the states in one highly-publicized study. Why the need to so much new investment?

    Finally, achievement number ten is “Keeping Kansas a great place to do business.” If this is true, I wonder why do we have to spend so much on subsidies to keep Kansas companies from expanding elsewhere or packing up and leaving entirely, as with Hawker Beechcraft?