What Could Have Been

It only took a week to drain the cash-for-clunkers $1 billion program budget. Seeing how many cars have been sold in the last seven days, congress has just approved another $2 billion for the initiative. I’ve seen billion so many times this summer, the word has lost its value.

It seems the initial clause that the CARS program would run until Nov. 1 or when money ran out was just rhetoric. The government is just having too much fun selling cars and taking the credit for saving the economy.

Michigan has to be loving this too. There is no doubt that the government intervention is moving cars, the Great Lakes State’s boon industry.

Yet, we don’t know what damage we have done. There are untold billions of goods that were not created, were not stocked, were not purchased because money flooded the car market. The government is not invigorating the economy, it is setting it off balance, pronouncing one sector over the others.

Those industries hurt by a loss of sales will be unable to point directly to the government and blame them when they go under. There will be no smoking gun. Yet what goes unseen still exists. It is just that the voices rejoicing over what is seen (thousands of car sales) are too loudly jubilant at their good fortune for the rejected parties to be heard.

It sounds like a sorry plea to lament what could have been. But oh, what could have been!

Adam Rule – MCPP Intern

Give Them Roots and Give Them Wings

Mike Cox, Michigan’s current Attorney General, is running for the Governorship in our State’s 2010 elections. Today, the Detroit News printed a letter of his addressing the mass exodus of college graduates out of Michigan, and hinted at legislation he may be looking to pass if voted into office. While Cox laments Michigan graduates leaving the state as a great injustice and proposes tax incentives to retain them, such action would be a detrimental solution to a nonexistent problem.

Cox opens his argument stating:

In a few weeks, about 40,000 students will begin their college careers at a Michigan university. Unfortunately, when these students are ready to graduate, less than half will choose to stay in Michigan if recent trends hold. Families will see one another less, students educated with billions of our tax dollars will use their talents to build other states’ economies, and employers will continue to leave Michigan. Our economy will never turn around if this brain drain continues.

To remedy this problem he says:

…we should give our college graduates a three-year income tax exemption, putting money directly into their pockets. This tax credit would be an investment in Michigan’s talented graduates and our economy. The funds could help pay down college debt, go toward a home and, most of all, serve as an incentive to use their education in Michigan.

The movement of college grads is not a problem, as Kenneth Darga, a state demographer pointed out in a presentation to the Michigan Revenue Estimating Conference last year. Young adults have a lot of mobility and while Michiganders may be moving elsewhere for work, remember the other half of the ledger, those from the other 49 states, and even other countries moving into Michigan to work.

As to the horrible side effects of this ubiquitous phenomenon, lets take them one at a time.

“Families will see one another less…” Lament globalization then Mr. Cox. Besides, remember you are talking about young adults here, so stop saying “Michigan must compete for our children” These “children” have the right to vote for or against you in a few years. We also have the right to chose if being close to family is a reason to stay in Michigan.

“…students educated with billions of our tax dollars will use their talents to build other states’ economies…” Yes, we know the government makes bad decisions with taxpayer money. The government is taking a risk investing so much in college education; another reason to privatize.

“…employers will continue to leave Michigan” This is a bit of circular logic. Graduates go outside of Michigan because employers are outside of Michigan. The company must be there first to attract the employees, not the other way around.

By offering a three year tax break, the state would also be barring qualified graduates from other states from entering Michigan’s workforce as Michigan students would be flooding local businesses. This is not desirable as innovative businesses practices could stagnate if diverse schools of thought were not allowed in from out-of-state universities.

While lower taxes would be wonderful, such an uneven regulation is not advisable, and is merely a haphazard remedy to a perceived problem.

Adam Rule – MCPP Intern

Valuing Life

Adam Rule – MCPP Intern

Today MI Health Facts put up a great post about increasing medical costs and how government control of health care is likely to affect what treatments are used and what research is pursued.

It seems government control will make health care, a very inelastic product, more elastic. Treatments that are pursued at any cost because they regard one’s own life and death will be made with less passion by the government who will no doubt be much more reserved in dropping thousands on remedies that are less than guaranteed to work. What value will the government place on life?

Here is the post:

Proponents of Obamacare believe that reforms to the health care system can bring down or eliminate unnecessary costs in health care and that by facilitating these changes the government can bring overall health spending under control and create economic stimulus and universal insurance coverage in the process.

No one is foolish enough to deny that there are unnecessary costs in health care, as there are in any sector of the economy, nor does anyone argue that it wouldn’t be better if these costs, which come from corruption and fraud, could be brought under control.

But that isn’t what causes health care spending to increase much faster than the rate of inflation each year. Rather, progress in medical technology, procedures and pharmaceuticals, which are expensive – but effective – account for most of the cost increases America sees each year. The Washington Post has an excellent article using treatment for heart attacks as an example.

While some medical discoveries are high yield and cheap – such as the discovery that taking aspirin increases the chance of survival of a health attack – most of these “low-hanging fruit” discoveries have been made already and instead health care improvements are happening at a slower and more expensive rate.

… the fight against heart disease has been slow and incremental. It’s also been extremely expensive and wildly successful.

In the 1960s, the chance of dying in the days immediately after a heart attack was 30 to 40 percent. In 1975, it was 27 percent. In 1984, it was 19 percent. In 1994, it was about 10 percent. Today, it’s about 6 percent.

Over the same period, the charges for treating a heart attack marched steadily upward, from about $5,700 in 1977 to $54,400 in 2007 (without adjusting for inflation).

So although health care has become significantly more expensive, the cost has produced significant improvements in patient well-being.

Government bureaucrats deciding on which treatments qualify as “efficient” use of health care dollars would never question an expense such as administering aspirin after a heart attack. Something as simple as taking a three-cent pill to decrease mortality from heart attacks by six per cent is a no-brainer. Less clear, though, is what bureuacrats will decide when the discussion surrounds a treatment that quadruples costs while only lowering mortality by, say, one per cent.

Soon another clot-dissolving drug, called TPA, came on the market. It cost $1,200 compared with $300 for streptokinase. The new question was: Is TPA worth it? By 1994, the conclusion was: Yes.

Several studies showed that TPA shaved mortality by 1 percent (to 6.3 percent) compared with streptokinase. The cost of treating a heart attack went up another notch.

Doctors and patients have overwhelmingly shown that they believe that these large investments are worth making for even marginal improvements in health. For doctors it’s a matter of protecting their patients and for patients it can be a matter of life and death.  But once government middlemen get in the way, it’s realistic to expect them to act with a degree of detachment from individual patients and cases. (Or, rather, it’s unrealistic to presume that they would be attached to each individual case.)

On the contrary, some legislators, such as Paul Kucinich, seem to believe that rationing is actually necessary and desirable – that everyone needs to make significant sacrifices in their health care consumption to insure that the government’s noble goals can be met. To them, these medical advances might not seem worth the extra cost imposed on the system since spending could have instead been used to buy cheaper treatments for these patients and others. The problem with this is that this diverted spending is at the expense of those whose lives could have been saved if they had their choice of medical treatment.

It’s no secret what happens once rationing takes hold of a health care system. Horror stories abound from countries where they are already in place. Costs can and should be cut by doing all that can be done to root out corruption in the health care system, but cutting care to cut costs isn’t worth it.

Lay Your Weapons Down

Last Friday Governor Granholm focused her weekly radio address on the Michigan Economic Development Authority (MEGA), and called for help in keeping the program running. MEGA, which offers tax breaks as an incentive to draw employment to Michigan, has already reached its legal limit, and cannot offer additional tax breaks for the remainder of the year. Speaking of MEGA Granholm said:

Their efforts have been so fruitful that they’ve used up almost all the MEGA tax credits available this year under present law.  If Michigan can’t award more credits until next year, we could miss out on tens of thousands of new jobs and even lose existing jobs.

How much one can give away is not a good measure of economic effectiveness. I could walk outside right now and hand out money from my own wallet to people walking by on the street, but I have not made the economy more ‘fruitful’. I have not gained any goods or services from this transaction. I could have used that money to commission a new piece of furniture, and not only would I have given money away, one more chair would have come into the world.

MEGA has proven to be unfruitful and inefficient. A 2007 report by the Mackinac Center found that for every $123,000 in MEGA tax incentives, only one construction job was produced – jobs that lasted only two years.

Gov. Granholm also stated:

MEGA tax credits are performance-based. That means that a business can use the credit only if it creates or retains a certain number of jobs.

Again, the Governor has fallen for a fallacy. Creating jobs is not economic performance. It is the creation of goods and services that increases wealth. Simply creating, or retaining jobs does not increase wealth.  MEGA has not been creating very many jobs either. The Mackinac Center found that over a ten year period of operation, only 13,541 jobs could be attributed to MEGA; very different from the 62,000 Governor Granholm is claiming it created or retained in just this past year.

The Governor concluded:

Expanding the number of MEGA tax credits will enable us to bring thousands of new jobs to Michigan, which we need right now obviously.  I urge the state Senate to quickly pass House Bill 4922.  Virtually every other state is out there competing for these companies with incentives.  With the competition for jobs so fierce, Michigan can’t afford to be without one of its key economic development tools for very long.

This gets at the heart of the issue. States across the nation are taking taxpayer money and using it to entice businesses to shuffle around the country. State governments need to stop wasting our money by building bigger and bigger programs to fight with each other. Its time to disarm.

Adam Rule – MCPP Intern

Precautionary or Reactionary Law?

The Michigan Economic Growth Authority (MEGA) was created in 1995 to promote economic growth, private investment, and job creation in Michigan. To do so it established a government committee with the power to offer tax incentives to businesses already in or moving to Michigan. While reading through the law that established MEGA I found the below amendment. (Eligible businesses are those applying for tax breaks, while authorized businesses are those who have been approved for such incentives)

207.808a Fee or donation.Sec. 8a.

Beginning on the effective date of the amendatory act that added this section, the authority shall not require an eligible business, as a condition of becoming an authorized business, to pay an unreasonable fee to or make a donation to the Michigan economic development corporation or a foundation or fund associated with the Michigan economic development corporation.

For more information on MEGA, and why it has largely failed to promote growth, check out the Mackinac Center’s evaluation of the program on its 10th anniversary.

Adam Rule – MCPP Intern

To Raise a City

This past week I had the opportunity to attend the lecture of a man who is part time university professor, part time mayor of a small town in Utah. He recounted a meeting in which he and city board members were presented with a development proposal that had fulfilled all zoning requirements. One disgruntled board member, however, asked the mayor if he could deny the proposal anyway. His reason: the project did not meet his tastes. City planning, though not always this corrupt, is still greatly hindering both our economy and society.

A few months ago I stumbled across New Urbanism, a city planning movement seeking to develop self sustaining clusters of homes, businesses, and municipalities connected to each other by extensive public transport. New urbanites decry suburbia and claim their methods will revitalize failing city centers, improve safety, and develop stronger communities.

First, urban sprawl is a charged phrase carrying all sorts of negative connotations that are largely unfounded. Secondly, while tighter communities might result from New Urbanism, planning is still not the answer. Artificially developed communities will never be as strong as ones allowed to grow naturally through free real estate markets.

It is deregulation and accountability that will revitalize downtowns, and possibly satisfy the New Urbanists as well. Take for example charter schools. Being leniently regulated and held more accountable for results than traditional schools, charters provide a unique experiment in community development. Charters have taken a number of steps that have fostered social and professional partnerships including contracting with local shops for food services, providing dorms on site for employees, providing educational programs for area adults, and sharing facilities with churches and other nearby schools. The result has been safer schools, more involved parents and neighbors, better education, and stronger communities.

Rather than focusing on urban sprawl, the result of citizens seeking safer streets and better schools, cities need to focus on those factors that drove people away. By seeking first deregulation, cities can foster communities that attract people, rather than forcing them inward by increased measures against subburbs.

Adam Rule – MCPP Intern

Carry a Big (Pile of) Stick(s)

I recently attended an Institute for Humane Studies seminar that delved into how liberty should affect society (oddly similar to our purpose here at Trying Liberty). One of the presenters laid forth an interesting idea that has helped me better understand property and the notion of rights.

The professor argued that rights, and especially property rights are akin to a pile of sticks. When one owns property, it comes with a vast array of rights; the right to farm the land, the right to pasture animals on in, the right to charge admission to it, the right to build a gazebo on its premises. This is the pile of sticks, each one representing an individual right. The owner then has the ability to parcel out individual rights as they see fit, to distribute their sticks. They might see a possibility for profit and sell to another man the right the graze sheep on the land. The buyer though does not obtain all rights to that property. They cannot hunt on it, or mine its earth, they have simply bought one stick: the ability to graze sheep.

Government intervention however gets messy. It would seem o so intrusive to pass legislation saying that only this or that land right may be used. Some of the founding fathers objected to the bill of rights because they could not see how all the rights of man could be listed; it is a rather big pile of sticks.

Consequently, government entities take away from the pile of rights (sticks) slowly and individually. Thus zoning and city ordinances are filled with regulations about how close ones house can be to the curb, how high buildings can be, and how the land can be used for profit among a gross of other stipulations. They are pulling out sticks one by one, hoping citizens will not notice their pile is getting steadily smaller.

This summer Michigan has removed another significant log from the pile. The Michigan Court of appeals ruled on 2000 Baum Family Trust v. Babel that property located on plat-dedicated public roads parallel to Michigan lake shores would not have riparian rights. In laymens’ terms, if you own property on a lake shore and a public road runs between your land and the lake, even if you are the closest property to the water, you no longer have docking rights in the lake. This goes against long held and defended rights of lakefront property owners and could have a significant impact on property values.

The government decreases wealth when it takes individual rights and gives them to the state. Hopefully the Baum case will be significant enough to get taxpayers to look through their city and state code books to see just how much larger their pile could and should be.

Adam Rule – MCPP