Sunday, March 23, 2014

On the road to Baltimore

Baltimore went all in for crony capitalism.... and lost its _____ on special projects.  Steve Hanke and Stephen Walters posit that for every government-chosen winner exists a loser in the Wall Street Journal:

Progressives endlessly caricature free-market policies as "trickle-down" economics—giveaways to the undeserving rich with few benefits reaching the poor. In truth, trickle-down best characterizes the economic development policies pursued in deep-blue states like Maryland, where taxpayer dollars flow to the politically connected amid grandiose claims of "stimulative" effects.

A small but telling example is in Towson, a thriving suburb of Baltimore, where the proprietors of a sports-themed chain restaurant called the Greene Turtle recently built a rooftop bar so patrons could imbibe at altitude. Just good old American enterprise at work, except for the fact that, according to the Baltimore Sun, $505,000 of the $890,000 cost came out of taxpayers' hides as low-interest government loans, much of which will be forgiven if the enterprise meets modest "employees added" targets and stays open five years.

While local officials said the handouts were necessary to stimulate the Towson economy, the district's state senator, James Brochin, correctly called it "corporate welfare," and Maryland Comptroller Peter Franchot (alone among the members of the state's Board of Public Works) voted against the appropriation.

But the checks were cut, and at the grand opening on Jan. 2. Maryland's First Lady, Katie O'Malley, presented a governor's citation to the bar's proprietors, who happened to be childhood friends. It's remarkable how often development dollars trickle first to cronies or political donors.

When it comes to Keynesian-style stimulus at the state or local level, however, the juice is rarely worth the squeeze. The alleged magic of the multiplier—by which extra dollars of government spending supposedly ripple through the economy and raise incomes by several times that amount—depends on spending that is financed by deficits. But Maryland and most other state and local governments must balance their budgets, and the higher taxes required to finance these development programs crowd out private spending and offset some or all of the hoped-for stimulus.

These schemes also damage growth by misallocating capital. In markets, only projects that promise a return in excess of the cost of borrowing get built. Government allocation of capital, by contrast, exalts the judgments of politicians and bureaucrats over those of consumers and investors, and substitutes political pull for economic merit in the competition for capital. In combination, this is a prescription for inefficiency, inequity and corruption.

Maryland supplies examples of all three. In 2006, Martin O'Malley —then Baltimore's mayor, now the state's governor and a presidential aspirant—decided that the Baltimore Convention Center needed an adjoining hotel. Private investors disagreed, so City Hall "invested" $300 million to enter the hospitality industry. Since opening its doors in August 2008, the Hilton Baltimore—city-owned but managed by the global hotelier—has recorded more than $50 million in operating losses.

Baltimore's relentless and much-applauded campaign of subsidized development along its waterfront provides another example. Tax breaks of more than $200 million for a $1 billion project on a former industrial site called Harbor Point—justified with the usual claims that this will create thousands of jobs—have provoked demonstrations by citizens who now realize that these promises are empty. Since 2001, the city has bled 49,000 jobs.

Last summer, attired in "Tax Dodgers" baseball uniforms, members of the United Workers and Unite Here, community activist groups, staged a public protest against Harbor Point, a mixed-use business and residence project. "Time and again," the United Workers complained on its website, "the city has awarded our resources to wealthy developers at the taxpayers' expense in the hope that money will trickle down. This model has failed."

Then there is the $1.5 billion "partnership" among the state, city and developers of Baltimore's State Center district, which will build new "eco-friendly" government offices to replace acres of Soviet-style buildings from the 1950s, '60s and '70s. Though not yet: Baltimore Circuit Judge Althea M. Handy ruled last year that the deals negotiated in 2007-09 with several connected firms—which did not involve competitive bidding and guaranteed that tenants would pay above-market rents—violated state procurement laws. He voided the contracts, and an appeal is pending.

Officials hail every such project as a "game-changer," but each poaches business from older areas. For every subsidized "partner" of government, there is an unsubsidized loser. Thus, Baltimore's trickle-down policies increasingly meet opposition not just from populist community organizers, but from out-of-favor investors. The "Coalition to Save Downtown Baltimore," made up of landlords, small retailers and the Little Italy Restaurant Association, argues that two-million square feet of vacant space is available downtown and that "It makes no sense to squander over $1.5 billion taxpayer dollars on this ill-advised project." (Remember Old Capitol Green? Best argument against the project was the 38% vacancy rate downtown.)

In this policy regime, connections are everything, and politicians can demand tribute from all directions—though not without risk. In separate scandals involving allegations of influence-buying by developers (one of whom was initially involved in State Center), Sheila Dixon, Mr. O'Malley's successor as mayor, resigned in disgrace and councilwoman Helen Holton was censured and fined.

So how are Maryland's adventures in capital misallocation working out? To fund spending on everything from offshore wind farms to roof bars, Gov. O'Malley has raised taxes and fees more than two-dozen times, on personal and corporate incomes and on retail sales, gas, tobacco, alcohol and much else. Yet the state still faces "structural" deficits estimated at $166 million for the next two fiscal years.

Meanwhile, the nonpartisan Tax Foundation reports that a net of 66,000 residents and $5.5 billion in taxable income fled Maryland in 2000-10—a "Free State" trend that shows no signs of abating.

Mr. Hanke is a professor of applied economics at the Johns Hopkins University. Mr. Walters is a fellow at the university's Institute for Applied Economics, Global Health, and the Study of American Business.


Anonymous said...

Stimulus spending explained:

Not exactly GAAP [Generally Accepted Accounting Principles]

It's a slow day in a little east Texas town. The sun is beating down, and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich tourist from back east is driving through town. He stops at the hotel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night.

As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher.

The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.

The pig farmer takes the $100 and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmer's Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her "services" on credit.

The hooker rushes to the hotel and pays off her room bill with the hotel owner.

The hotel proprietor then places the $100 back on the counter so the rich traveler will not suspect anything.

At that moment the traveler comes down the stairs, picks up the $100 bill, states the rooms are not satisfactory, pockets the money, and leaves town.

No one produced anything. No one earned anything. However, the whole town is now out of debt and now looks to the future with a lot more optimism.

And that, ladies and gentlemen, is how the United States Government is conducting business today.

Johnny Weir said...

Fantastic Post 7:34. I'm sending that post to all my Congressmen & Senators. Thanks for sharing. This post beats all the grammar police post. And, no I'm not Mr. Kingfish.

Anonymous said...

The 'number of jobs' test is implicit in Barbour's deal with the Port of Gulfport. The Port authorities got the housing re-build money now the port jobs are wanting and so is local housing. Hanke and the populist community organizers(Lumumba) are on the same page. Subsidize the grassroots and infrastructure not likely new tenants of likely new towers.

Anonymous said...

That article is hard to read, but needed. Thanks for posting KF.

excellent post, 7:34.

Anonymous said...

Good article.
I don't see how this is " Blue State " related.
It seems to me we have plenty of examples of our own Red State engaging in the same shenanigans.
This is Political Spoils economics where political graft gets legalized and becomes " tickle down economics" or " venture capital" or " government economic stimulation".
And, poor old Keynes! All he did was suggest demand played a more important role in economics when the focus was on getting the most widgets on the market so widgets would improve. He thought you needed a lot of folks to be interested in buying widgets for widgets to be successful and could stimulate the economy that way as well.
That's somewhat an oversimplification but needed given the bastardizations of economic theory out there these days.
Seems anyone who has a good idea or observation will attract those over time who bastardize a notion beyond all recognition. You start with Saint Peter and get to the Borgia Pope, Calixtus III before you know it.

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Trollfest '09

Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).

Meet KIM Waaaaaade at the Entergy Tent. For five pesos, Kim will sell you a chance to win a deed to a crack house on Ridgeway Street stuffed in the Howard Industries pinata. Don't worry if the pinata is beaten to shreds, as Mr. Wade has Jose, Emmanuel, and Carlos, all illegal immigrants, available as replacements for the it. Upon leaving the Entergy tent, fig leaves will be available in case Entergy literally takes everything you have as part of its Trollfest ticket price adjustment charge.

Donna Ladd of The Jackson Free Press will give several classes on learning how to write. Smearing, writing without factchecking, and reporting only one side of a story will be covered. A donation to pay their taxes will be accepted and she will be signing copies of their former federal tax liens. Ms. Ladd will give a dramatic reading of her two award-winning essays (They received The Jackson Free Press "Best Of" awards.) "Why everything is always about me" and "Why I cover murders better than anyone else in Jackson".

In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.

In order to help clean up the legal profession, Adam Kilgore of the Mississippi Bar will be giving away free, round-trip plane tickets to the North Pole where they keep their bar complaint forms (which are NOT available online). If you don't want to go to the North Pole, you can enjoy Brant Brantley's (of the Mississippi Commission on Judicial Performance) free guided tours of the quicksand field over by High Street where all complaints against judges disappear. If for some reason you are unable to control yourself, never fear; Judge Houston Patton will operate his jail where no lawyers are needed or allowed as you just sit there for minutes... hours.... months...years until he decides he is tired of you sitting in his jail. Do not think Judge Patton is a bad judge however as he plans to serve free Mad Dog 20/20 to all inmates.

Trollfest '09 is a pet-friendly event as well. Feel free to bring your dog with you and do not worry if your pet gets hungry, as employees of the Jackson Zoo will be on hand to provide some of their animals as food when it gets to be feeding time for your little loved one.

Relax at the Fox News Tent. Since there are only three blonde reporters in Jackson (being blonde is a requirement for working at Fox News), Megan and Kathryn from WAPT and Wendy from WLBT will be on loan to Fox. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both and a torn-up Obama yard sign will entitle you to free drinks served by Megan, Wendy, and Kathryn. Get your tickets now. Since this is an event for trolls, no ID is required. Just bring the hate. Bring the family, Trollfest '09 is for EVERYONE!!!

This is definitely a Beaver production.

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Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

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