Errors of Enchantment

It looks like the endgame may finally be near for Albuquerque-based Eclipse Aviation. According to KOB TV, Eclipse employees found out that they won't be receiving paychecks from their past two weeks of work. With no money to pay employees, it would seem doubtful that the company can go on much longer -- how long would you keep showing up for work if you weren't being paid?

As Jim Scarantino has pointed out, if/when Eclipse goes under, taxpayers will be out $20 million. Nonetheless, I sincerely hope that Governor Richardson and our "economic development" gurus don't decide to double-down on this taxpayer loss by bailing out the failing company.

While it is sad that so many people will likely lose their jobs and New Mexico's economy will take another body blow, the lesson learned must be that government's role in economic development should be to create an economically-viable and equitable tax structure rather than attempting to pick and choose "winners" of government largesse. Those "winners," like Eclipse, often are engaged in risky businesses that would otherwise not attract private investment and when times are tough, they are unable to survive.

Perhaps Eclipse will pull through on its own. It would be great if it does. Unfortunately, it is not looking good right now.

Posted by Paul Gessing at 09:54 AM | Permalink | Comments (0) | TrackBacks (0)

Regardless of what happens on Election Day, New Mexico is facing a tougher economic climate than it has faced in quite some time. We will be front and center with solutions to reduce the budget and ensure that economically-devastating tax hikes are not foisted on already reeling New Mexico taxpayers.

To this end, we have been critical of the state's giveaways to the film industry. More articles and analysis are available on our website and blog. Recently, I found an analysis from the Arrowhead Center which is the economic research arm of New Mexico State University. Unlike so many other economic "analyses" done in this state, the Arrowhead Center takes a clear and unbiased look at the New Mexico film industry.

Some of its findings are not pretty and, not surprisingly went unreported in the media. Regarding the state's 25% film production rebate (filmmakers receive 25% of their taxable expenses back as a rebate from taxpayers), meaning if you take your film crew out to dinner after a shoot and spend $1,000, New Mexico taxpayers pick up 25% of the tab. According to the study:

During fiscal year 2008 the NM government granted $38.195 million in rebates. The resulting increase in economic activity generated $5.518 million in revenues. The implied return is 14.44 cents on the dollar. This means that for every one dollar in rebate, the state only received 14.44 cents in return.

14 cents on the dollar? Even if you are not good at math, it is clear that the film industry tax credit is nowhere close to paying. Rather than wasting money on film subsidies, we should have been cutting taxes on all New Mexicans. With a fiscal crisis in the making, the least the Legislature can do is cut this program back significantly.

Posted by Paul Gessing at 08:23 AM | Permalink | Comments (0) | TrackBacks (0)

Check out this excellent article (by a self-described liberal) which explains how Fannie and Freddie are at the heart of the current economic crisis and explains how the media is all too eager to blame "free markets" for government failure.

On a related note, the National Taxpayers Union and Competitive Enterprise Institute have set up a website called Beyond Bailouts. You can sign the petition in support of the following steps to make sure a similar government-caused financial crisis never happens again.

* Privatize Fannie and Freddie
* Prosecute Corrupt Officials
* Suspend Destructive Accounting Rules
* Repeal the Community Reinvestment Act
* Clean Up the Tax Code

Posted by Paul Gessing at 02:23 PM | Permalink | Comments (0) | TrackBacks (0)

The Washington, DC-based Cato Institute is a libertarian think tank. While not always in alignment with them on policy, we at the Rio Grande Foundation have a great deal of respect for Cato and work with them on a regular basis.

Recently, Cato published its ranking of governors. The study which is in pdf format can be found here. According to the study's findings which analyzed tax and budget policies of America's governors gave Florida's Charlie Christ the highest marks and gave Maryland's Martin O’Malley the worst rankings. Our own Governor Richardson fared relatively well in the rankings scoring a "B" on the A through F scale. Richardson was ranked 10th with high marks given for his tax cuts and poor marks for out-of-control spending.

Unfortunately, the study did not include VP candidate Sarah Palin because Alaska's very unique budgetary practices and access to tremendous oil and gas revenues make direct comparisons with other states quite difficult.

Posted by Paul Gessing at 03:56 PM | Permalink | Comments (0) | TrackBacks (0)

It seems like only yesterday that Congress and all manner of people who are ignorant of basic economics were bashing oil and gas companies for their supposed efforts to manipulate prices and keep them high. Now, with the global economy on the skids, crude prices are plummeting right along with the stock market and are likely to keep dropping.

So, the question must be asked: where are the speculators and manipulators? If Exxon has an iron lock grip on the prices it charges for its product, why aren't they keeping them high or at least stabilizing them? The simple fact in is that they don't control prices; they are "price takers."

While the information above is simple economics, the more interesting issue is how the collapse in oil and gas prices will impact New Mexico's budget and economy. Months ago I wrote about the impact lower oil and gas revenues could have on New Mexico. It would appear that the chickens are coming home to roost.

Posted by Paul Gessing at 08:25 AM | Permalink | Comments (0) | TrackBacks (0)

According to the new U.S. Economic Freedom Index 2008 Report which was co-published by the California-based Public Research Institute and Forbes, New Mexico is less economically-free than most states (as indicated on the chart on page 11, it is ranked 41).

There is no question that New Mexico lags in economic freedom and that it relies heavily on the federal government for its daily bread, but this information is particularly interesting considering that Forbes is one of the sources. After all, the magazine has written glowingly of Albuquerque as a place for doing business. Albuquerque is certainly not dramatically freer than the rest of the state, so what is the disconnect?

Does Forbes not believe that economic freedom is integral to business? If they believe that, then I'd urge them to take a look at this international index of economic freedom. More likely, it just seems that the writers of those puff-pieces on Albuquerque simply don't understand economics and they are basing their recommendations on the amount of handouts our local governments give to those who know how to lobby properly or have the right connections.

Posted by Paul Gessing at 02:56 PM | Permalink | Comments (0) | TrackBacks (0)

Rarely will you ever see a more fact-base and easy to understand analysis of everyday economic issues than RGF Board member and Director of Research Ken Brown's opinion piece on the pages of the Albuquerque Journal today.

Brown explains the "broken window fallacy" and why so-called "economic development" simply does not work. Copies of this piece should be mandatory reading for all elected officials in New Mexico and beyond. The Rio Grande Foundation will distribute this piece to all New Mexico legislators before the 2009 session.

Posted by Paul Gessing at 01:05 PM | Permalink | Comments (0) | TrackBacks (0)

We at the Rio Grande Foundation spend a vast majority of our time analyzing and discussing New Mexico-specific issues and policies. But, I was given a chance recently by a national syndicate to write an opinion piece on Barack Obama's tax plan.

With wall-to-wall coverage of the conventions and the campaigns, I humbly submit my $.02. Check the article out here.

Posted by Paul Gessing at 09:17 PM | Permalink | Comments (0) | TrackBacks (0)

City Councilor Michael Cadigan has an op-ed in today's ABQ Journal that defends the City's practice of charging http://www.cabq.gov/council/impact-fees">"impact fees" on development. The opinion piece was in response to Councilor Sanchez who recently questioned the economic impact of these fees when he said, "fees for the west end of Central Avenue are nine times higher than on the east end," and that he's "concerned that we are not getting commercial development ... because of the way the impact fees work."

Certainly, I understand why builders don't like impact fees. We as citizens are paying taxes on a wide variety of items and yet, those who construct new buildings and developments must pay and then pass along these fees to those who purchase or lease that space. Whether or not there is any direct benefit to these people is unclear. Where the money goes that would have otherwise been allocated to this newly developed area is also unclear.

Ultimately, the problem with impact fees is that it is hard to tell who exactly benefits from them. What needs to happen is for builders to band together to construct their own internal infrastructure. Perhaps they could strike a deal with the government along the lines of a Business Improvement District that would handle such infrastructure needs privately? The problem is, once the government gets involved, there is no accountability or ability to separate "impact fees" from other taxes and spending and those who pay the fees wind up just paying another tax.

City Council is not going to solve this problem because they like taxes. Only the local development community can push Council to get rid of or limit these fees while also taking care of infrastructure needs.

Posted by Paul Gessing at 04:09 PM | Permalink | Comments (0) | TrackBacks (0)

We at the Rio Grande Foundation took the position earlier a few weeks ago on this blog that the Belgian company InBev should have the right to purchase Anheuser-Busch. Unfortunately, the purchase of InBev was not simply an example of the free market at work. Instead, the takeover was at least partially the result of America's high corporate taxes.

As Stephen Moore and Tyler Grimm pointed out recently in the Wall Street Journal:

According to the Tax Foundation, Belgium 's corporate tax rate is 33%, but the effective tax rate can be half the nominal rate thanks to adjustments for something the OECD calls a "notional allowance for corporate equity." Bottom line: InBev was paying around 20% of its profits in corporate taxes, compared to Anheuser-Busch's rate of 38.4%.

Things have gotten pretty bad when U.S. companies relocate to Europe to cut their tax payments. But a research analysis by Morgan Stanley finds the combined company's corporate tax bill will be lower than in the U.S. and that the tax differential indeed figured into the economics of the sale...

New data from the OECD for 2008 indicate that the international average for corporate tax rates fell by another percentage point last year, meaning the U.S. is pricing itself out of the market as a corporate headquarters. " America 's 35% corporate tax rate is not just bad economics, it's downright unpatriotic," says tax expert Kevin Hassett of the American Enterprise Institute.

High taxes have an impact not only when American companies leave for lower taxes, but when New Mexico businesses move out of state or to other nations for lower taxes. This is a real issue and we need to address it both in Santa Fe and Washington.

Posted by Paul Gessing at 11:08 AM | Permalink | Comments (0) | TrackBacks (0)

If you missed today's episode of "Eye on New Mexico," I discussed the proposed arena/convention center expansion with UNM professor Kate Krause this morning. Video of the show is available here. Considering that she was supposed to be a supporter of the project, Krause certainly comes off as sharing my healthy skepticism of the proposed project.

Posted by Paul Gessing at 12:51 PM | Permalink | Comments (0) | TrackBacks (0)

As mentioned in previous postings, I spoke at the New Mexico First town hall on the proposed taxpayer-financed arena and hotel in downtown Albuquerque. The event was covered in both the Albuquerque Journal and on KOB TV (article and video available).

Posted by Paul Gessing at 09:59 AM | Permalink | Comments (0) | TrackBacks (0)

Bad ideas never die. Thus, Albuquerque taxpayers were greeted with the headline "Downtown Arena Revisited," this morning. While the article explains much of the story, you can only read it if you subscribe to the Journal. Thankfully, the story was covered elsewhere including KOB TV.

Certainly I knew that even though I'd debunked the need for a taxpayer-financed arena in Albuquerque a year and a half ago, Council will tonight vote on whether to spend $700,000 taxpayer dollars to study the issue. Obviously, since the arena and hotel complex are projected to cost at least $330,000, an expenditure of "only" $700,000 is a relative bargain. But we need to nip this rip-off in the bud.

The existing arena in Rio Rancho is struggling and, while that is far away from downtown, it certainly does not bode well for a competing arena in Albuquerque. Tingley Coliseum is also experiencing problems. Another arena is simply not necessary. Worse, the plan is to "double-down" a possible arena mistake by forcing taxpayer to subsidize hotel construction downtown. Why should taxpayers subsidize another hotel downtown when a vast majority of the hotels in this city (if not all) receive no such support?

Downtown is not just surviving; it is thriving. If a private entity wishes to build an arena or hotel anywhere in the city, Council should work with them, but demanding taxpayer support for this project is simply wrong and a waste of money.

Posted by Paul Gessing at 09:57 AM | Permalink | Comments (0) | TrackBacks (0)

Recently, I discussed our new study on eliminating New Mexico's personal income tax with Alan Riehl on Las Cruces radio station KSNM 570AM. You can listen to the show here.

If you'd rather read a short, 700 or so word article about eliminating the personal income tax, you can read that here.

Posted by Paul Gessing at 03:10 PM | Permalink | Comments (0) | TrackBacks (0)

In case you missed it -- or you were not at our luncheon event with John Stossel yesterday -- the Rio Grande Foundation's Ken Brown appeared on the front page of yesterday's USA Today discussing the propensity of the federal government to continue to hire and grow even as private employers cut back in a tough economy. While some "economists" view this as a good way to mitigate tough economic times, Brown more accurately points out that the problem is that governments are much slower to react to economic conditions than other actors in the economy.

Posted by Paul Gessing at 09:27 AM | Permalink | Comments (0) | TrackBacks (0)

John Stossel, who will be speaking tomorrow in Albuquerque at an RGF-sponsored event, questioned in a recent article the chicken little perspective being foisted on the American people by the media and their political leaders.

It is easy to see that the media benefits from hyperventilating about supposed crises we're now facing -- after all, a crisis is interesting and draws viewers. Who else benefits from a crisis? Politicians and big government, of course! Government is often looked to as the solution to supposed crisis (the Great Depression would be a great example) and bigger government means more power for government officials. Thank you Mr. Stossel, for giving us all a chill-pill.

Posted by Paul Gessing at 05:37 PM | Permalink | Comments (1) | TrackBacks (0)

You may have read my blog posting yesterday which discussed Governor Richardson's campaign debt and drew a connection between the fiscal irresponsibility of our politicians and the citizenry as a whole. It turns out that I was being a bit hard on the spending and borrowing habits of my fellow Americans. As Harry Messenheimer pointed out in a few emails, the fact is that American consumers are not in nearly as bad of shape as the mainstream media would like us to believe.

Debt as an aggregate figure is irrelevant. What really matters is real net wealth -- and it is way up and continues to climb. Indebtedness is simply a number and it can simply mean that more people are buying houses. So, there you have it. Government debt is relevant and rising dramatically. Debt as a simple number is not a good measure of the average Americans' real economic picture.

Posted by Paul Gessing at 04:42 PM | Permalink | Comments (0) | TrackBacks (0)

I've long believed that personal financial management and government fiscal policy are closely related. In other words, it is no coincidence that American families owe $14 trillion in debt and that the US government is $9.4 trillion (not to mention $40 trillion in un-funded government liabilities).

This overlap is also apparent among specific politicians. Take Bill Richardson for example. His Presidential campaign was unsuccessful, but because he spent more money than his campaign actually raised, he is now sending out desperate fundraising messages to his supporters asking him to pay off his $380,000 debt. At the same time, he's only contributed $2,300 to his own bid for the White House. I didn't give Bill any of my money, but even if I had done so, I'd be taken aback at his plea for more when he's already dropped out. Does this tendency to stick others with the bill sound familiar, like perhaps New Mexico's economy after Richardson leaves office and the Rail Runner starts sucking up tax dollars?

Winding up in debt and desperate for help does not bode well for Richardson's political future or New Mexico's economic outlook.

-Hat tip, Harry Messenheimer

Posted by Paul Gessing at 05:10 PM | Permalink | Comments (0) | TrackBacks (0)

"A lot of you are going to have to make decisions above your level," was Scott's message to his people. "Make the best decision that you can with the information that's available to you at the time, and above all, do the right thing." This quote from Lee Scott, the chief executive officer of Wal-Mart, was made to his employees shortly before Hurricane Katrina made landfall illustrates the mind set the company took prior to the greatest natural disaster in American history which allowed the company to succeed where the Federal Emergency Management Agency failed.

According to a new study by Steven Horwitz, an Austrian-school economist at St. Lawrence University in New York, the entrepreneurial mentality of Wal Mart's employees allowed them to excel while indecision paralyzed their highly-paid, "expert" colleagues in the federal government. A few of the specific acts of "heroism" or at least tremendous individual initiative on the part of certain Wal Mart employees:

In Kenner, La., an employee crashed a forklift through a warehouse door to get water for a nursing home. A Marrero, La., store served as a barracks for cops whose homes had been submerged. In Waveland, Miss., an assistant manager who could not reach her superiors had a bulldozer driven through the store to retrieve disaster necessities for community use, and broke into a locked pharmacy closet to obtain medicine for the local hospital.

Among the recommendations of Horwitz's study designed to improve the response to future natural disasters:

1. Give the private sector as much freedom as possible to provide resources for relief and recovery efforts and ensure that its role is officially recognized as part of disaster protocols.

2. Decentralize government relief to local governments and non-governmental organizations and provide that relief in the form of cash or broadly defined vouchers.

3. Move the Coast Guard and Federal Emergency Management Agency (FEMA) out of the Department of Homeland Security (DHS).

4. Reform "Good Samaritan" laws so that private-sector actors are clearly protected when they make good faith efforts to help.

Posted by Paul Gessing at 01:00 PM | Permalink | Comments (0) | TrackBacks (0)

A recent article in the Las Cruces Sun-News outlining a new $1.9 million award by the U.S. Department of Labor to Doña Ana Community College's nursing program caught my attention. As the article points out in its opening paragraph, nurses are in high demand and have been for some time. In fact, some would say there is a shortage of nurses.

Much later in the Sun-News piece, however, David Pearse, dean of health and public services at DACC, tells us that "there are typically 200 applicants each semester for 24 slots in the nursing program. That means we are turning away 176 students each semester." That is where the $1.9 million from the feds comes in.

So, is there some kind of market failure here? Not likely, especially in two heavily-socialized areas of our economy like health care and education.

The reality is that in a "free" market in health care and education, nurses would likely be paid enough that no shortage would exist. Places of learning would spring up to fulfill the demand to educate nurses who would be happy to pay for the education necessary in order to get into the field just as they do for other fields.

Unfortunately, in the absence of anything resembling a "free" market in health care and medicine, nurse's salaries are apparently too low, thus creating a shortage and the need for federal subsidies to educate them. Clearly, this is not ideal.

Posted by Paul Gessing at 03:02 PM | Permalink | Comments (0) | TrackBacks (0)

New Mexico has come to be known for its extremely generous subsidies for the film industry. In fact, the New Mexico Film Office recently publicized the "fact" that the state's film industry has generated $1.5 billion for the state economy.

While there is no proof that New Mexico's generous subsidies are good for the economy, other states like Michigan are hoping to lure films with even more generous subsidies. Of course, neither Michigan nor New Mexico are paragons of economic achievement. In fact, while Michigan's economy and personal incomes continue to lose ground to states like Alabama, it has a long way to go before it falls to New Mexico's low level.

While Michigan's auto industry is likely to continue that State's economic decline, attracting a relatively small film industry with generous subsidies is not likely to turn things around. After all, it is oil and gas revenues that have given New Mexico a bump in recent years, not the film industry. Hopefully these two economically-struggling states are smart enough not to get involved in a bidding war.

Posted by Paul Gessing at 03:01 PM | Permalink | Comments (0) | TrackBacks (0)

Harold Meyerson is the resident left-wing "economist" at the Washington Post. Since the Post's columnists often run in the Albuquerque Journal, New Mexico readers often have the pleasure -- or displeasure -- of reading columns from writers including Meyerson, E.J. Dionne, Robert Samuelson, and George Will to name just a few.

Meyerson's most recent piece which appeared in our papers on Monday of this week discusses the "fact" that the American economy no longer produces anything, rather, Americans simply consume goods produced in other countries. He blames both Wal Mart and our nation's lack of a labor-driven "industrial policy" for these supposed problems.

The fact is, contrary to Meyerson's assertions, that industrial production in the United States does continue to grow. Employment in the sector has shrunk over the years, but largely as a result of productivity gains. Can Meyerson really show that it is economically unhealthy for Americans to consume more of their domestic production than other nations? It would seem that our low unemployment and high personal incomes would be good things, not bad.

Of course, with some people, regardless of the problem, the solution must be bigger government. So it is with Meyerson who believes it is time to institute a National Industrial Policy. He seems to think that Obama and Hillary will do this, but I doubt these savvy politicians will fall prey to that siren song. National Industrial Policy didn't work for the Soviet Union and it won't work here.

Perhaps the Journal should more carefully screen what it accepts from the Washington Post?

Posted by Paul Gessing at 01:13 PM | Permalink | Comments (1) | TrackBacks (0)

To those who don't take a great deal of interest in economics, the concept of the Laffer Curve may make their eyes glaze over. That said, the concept is really quite simple and has a huge impact on our daily lives. A group called the Center for Freedom and Prosperity Foundation is working to educate Americans on the Laffer Curve and other important concepts by producing short videos to educate Americans on basic economic concepts.

Laffer's Curve is essentially a theory of how individuals acting in a free market react to the incentives created by tax policies provides the basic underpinnings of today's tax system. It provides a partial explanation as to why certain Eastern European nations are adopting flat taxes and becoming economically prosperous almost overnight.

Check out the two short videos on the Laffer curve Part I here and Part II here.

Posted by Paul Gessing at 01:37 PM | Permalink | Comments (0) | TrackBacks (0)

Regular readers of this know that while economists support business and economic growth, there are right ways and wrong ways to go about it. The right way is low, equitable taxes for all while the wrong way is largesse for a few which often results in higher taxes for others. Over the weekend, the New Mexico Film Office released figures stating that the industry generated $1.5 billion for the state. I'm not going to question that number. It would be impossible to state definitively that it is wrong.

On the other hand, I can also state unequivocally that bribing the film industry to come to the state was not the most efficient use of our tax dollars. That point was proven more than 150 years ago (by a Frenchman no less) Frederic Basiat. Speaking to the primary difference between a good economist and a bad one, Bastiat said, "The bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, - at the risk of a small present evil."

I'm not calling the film industry "evil," but I do think it is both immoral and bad policy to take money from low and middle income (not to mention wealthy) taxpayers in order to give it to wealthy filmmakers on the possibility that bringing them to the state will generate a few jobs and tax revenue. Across the board cuts in the gross receipts or income tax would have been far more economically efficient (no waste, no special office to distribute the money), not to mention being more just.

I don't wish the New Mexico film industry any ill will, just that they'd stop taking my money.

Posted by Paul Gessing at 02:08 PM | Permalink | Comments (0) | TrackBacks (0)

Gil Heredia is running for District 7 in Alamogordo. Unlike so many politicians who feel that the only way to improve city services is to raise taxes, Heredia is advocating private sector solutions that are likely to reduce Alamogordo's tax burden (which is heavier than other Southeast New Mexico cities) while improving service delivery at the same time. He outlined some of his ideas including privatizing municipal golf courses and the city-owned airport -- most of which are applicable in cities large and small -- in an article in the Alamogordo Daily-News.

Candidates for local office across New Mexico should be encouraged to borrow Heredia's ideas on limited government. Heredia should be commended for his efforts and innovative approach to governance.

Posted by Paul Gessing at 06:56 PM | Permalink | Comments (0) | TrackBacks (0)

A story in this morning's Albuquerque Journal (subscription required) provides a case study that perfectly illustrates some of the biggest pitfalls of state-managed "economic development."

First and foremost, having lured the Malaysia-based Green Rubber Global to the state with $2.9 million in subsidies, the plant's opening had been delayed for technological issues. This is the first major problem with state-managed development -- government bureaucrats and politicians don't know what the next "big thing" will be and, since they are not risking their own money, have fewer incentives to find out. So, we have a state poised to spend millions of dollars to fund a company with technology that may not be commercially viable. Sound a bit like another New Mexico investment in Tesla?

Today's article is really about the fact that the city of Gallup -- where the Green Rubber plant was supposed to be built -- and Governor Richardson, who decided singlehandedly to de-fund the project after a disagreement developed over which governing body was supposed to manage Red Rock Park. Sound a bit immature to you? The state is supposedly going to have a new company creating hundreds of jobs for people in a relatively impoverished area and the Governor pulls the funding over management of a state park?

Of course, that is another major problem with state-managed development -- they are inherently political and nature and policies can be changed on a whim. Businesses are more likely to demand higher subsidies in order to come to New Mexico because policies may change anytime.

Regardless of the ultimate success or failure of Green Rubber and Tesla, New Mexico must abandon state socialism and instead develop the state economy by means of lowering taxes and adopting fair and equitable regulatory policies. Only then will New Mexico achieve its potential.

Posted by Paul Gessing at 12:34 PM | Permalink | Comments (0) | TrackBacks (0)

The economy is on the front pages of newspapers and at the top of most newscasts nowadays (at least it has replaced Britney Spears' misadventures). President Bush and Congress agree that a so-called "stimulus package" is necessary, but each have their own ideas on what the package should contain.

Unfortunately, election time is known in Washington as the silly season and from an economic standpoint (as opposed to a political one) a stimulus is at best economically unnecessary and at worst harmful. Robert Samuelson writing in the Washington Post and argues, quite correctly in my opinion, that much of what passes for economic commentary these days is simply hysteria.

Steve Stanek of the free market Heartland Institute also criticized the idea of a stimulus, writing "lawmakers should rein in federal spending and approve long-term tax reductions that apply to everyone, not just to people in certain income brackets."

I agree 100% with Stanek. Temporary stimuli are not what the economy needs. Rather, making President Bush's tax cuts which are set to expire in a few years permanent would be a good first step. Slowing government spending growth would also be better than what this stimulus amounts to which is the economic equivalent of simply dropping money from the skies.

Posted by Paul Gessing at 03:36 PM | Permalink | Comments (1) | TrackBacks (0)

Dan Mayfield, a columnist in the Albuquerque Journal, writes in today's paper about New Mexico's growing film industry and argues that policymakers should keep the spigot open by not limiting the amount of money the state dishes out.

You see, the current rebate program pays up to 25 percent on all direct production expenses that are subject to taxation by the state. So, if your film company spent $20 million here, you could get a $5 million rebate. This is a refund, not a credit, on the full amount of the expenditure, not just the tax portion. When you think about it, that is an amazing subsidy and it is coming out of taxpayers' pockets whether the film makes any money or not.

Sure, the film office estimates that the industry has spent $496 million here since January 2003, but what industry would not grow and spend more money if taxpayers reimbursed it for 25 percent of their expenses? No one knows, but I can say with relative certainty that New Mexico would have been better off, instead of spending $70 million over the last five years and offering generous tax breaks to the film industry, if that money had been returned to the economy through a broad-based gross receipts or income tax cut.

Unfortunately, when taxes are cut across the board and equally for everyone, it is more difficult for politicians to take credit for the creation of a new industry out of whole cloth. Thus, while Richardson ran for President on his targeted tax credits, he left out the positive impact of his income and capital gains tax cuts (even though some hikes offset those cuts, they were still more economically beneficial than any tax credit).

Politically, it looks like generous film subsidies are here to stay. The industry has these policies in place and is going to be a powerful force. It will be interesting to see what the state's cost-benefit analysis looks like.

Posted by Paul Gessing at 08:23 AM | Permalink | Comments (1) | TrackBacks (0)

The unfolding drama over TIDD's and the subsidization of so-called "green field" development got even more interesting yesterday as Albuquerque Mayor Marty Chavez released his veto of Councilor Cadigan's bill that would limit TIDD to use in existing areas of the City. The text of the veto can be found here.

While the Foundation is skeptical of TIDD, especially for new development, an interesting story caught my attention in yesterday's Albuquerque Journal (subscription required). It turns out that Councilor Cadigan would like to see the Albuquerque-Bernalillo Water Authority -- an organization that is almost completely unaccountable to the public -- play a bigger role in putting the brakes on local development. This is obviously a bad idea as the Journal pointed out in a subsequent editorial. According to the Journal, the water board should stick to providing water for area residents and not get into development questions. We wholeheartedly agree.

Unfortunately, while TIDD would seem to be unnecessary, it looks like both the pro and con sides of the argument have their proverbial hands in the coercion cookie jar. The pro-TIDD side wants development (preferably so-called "smart growth") and is willing to force the rest of us to subsidize their wishes. Some on the anti-TIDD side including Cadigan seem to want to stop all growth and have latched onto the TIDD issue as a means of throwing a wrench into things.

It would seem obvious that Mesa del Sol and Suncal could would thrive on their own merits if they were allowed to develop in ways demanded by the market, but contrary to environmentalist claims, most Americans don't want to live in new urbanist "paradise." Thus, the companies engaged in developing these areas appear to want subsidies in order to hedge their bets against failure.

What a mess! I wish we could all get back to the free market!

Posted by Paul Gessing at 10:20 AM | Permalink | Comments (0) | TrackBacks (0)

Although we don't always agree with the left-leaning 1000 Friends of New Mexico, this article on the hidden costs of TIDD is a must-read. TIDD for urban redevelopment is of questionable benefit because it would be so much more efficient to eliminate harmful government policies. Subsidizing politically-correct "new urbanist" developments in greenfields is nothing more than corporate welfare.

Posted by Paul Gessing at 01:55 PM | Permalink | Comments (0) | TrackBacks (0)

It wasn't the most prominent story in this morning's newspaper, in fact, if you didn't read the Business Outlook section closely, you probably missed it. The story is that the taxpayer-financed Santa Ana Star Center in Rio Rancho is losing money. (subscription required) Of course, I just noticed that the Tribune reported this story a week ago...

Anyway, while backers expected the arena to earn $1.6 million in its first year, the arena actually lost $47 million. Poor attendance at minor league hockey games and the "newness of the arena" were blamed, but new facilities usually result in more fans and profits, not less, so I don't see the situation turning around anytime soon.

it is no surprise to anyone who follows public financing of arenas or railroads and streetcars that the cost estimates and profits are low-balled early to get the public to commit and then the costs are jacked up once it is too late to turn back. We're seeing it right now with the Rail Runner. Thankfully, it looks like Albuquerque Mayor Marty Chavez will be too distracted (subscription required) with other activities to spend his time wasting taxpayer money on arenas and streetcars.

Posted by Paul Gessing at 11:03 AM | Permalink | Comments (0) | TrackBacks (0)

New Mexico has a statewide smoking ban and both cities and states around the nation have adopted similar bans (Albuquerque banned indoor smoking in 2003, while New Mexico was the 17th state to do so). But what are the economics of these bans? In 2004, two economists, Benjamin Alamar and Stanton Glantz produced a paper which argued that legislated smoking bans are actually beneficial to the bars and restaurants that must ban smoking.

Although we at the Rio Grande Foundation have not done extensive research on smoking bans, the findings seemed to be counterintuitive. After all, if banning smoking was really good for business, you'd think more restaurants and bars would be doing so in order to attract customers in a very competitive industry.

Well, an economist named David Henderson, writing in Econjournalwatch, has poked holes in the argument that smoking bans are good for business. It turns out that Alamar and Glantz based their research on faulty assumptions like comparing the sale price of restaurants both in and outside banned areas to sales and assuming that the ratio had some bearing on the impact of a smoking ban. The authors also failed to account for bars and restaurants that closed their doors after bans took effect, thus lessening competition.

Alamar and Glantz respond, but their arguments just don't hold. It only makes sense that legislated smoking bans would hurt bars and restaurants -- after all, owners of those establishments, not politicians should know best what customers want.

Posted by Paul Gessing at 08:56 AM | Permalink | Comments (0) | TrackBacks (0)

Surprise, surprise....actually, not surprising at all. The Federal Trade Commission has studied the issue and determined that oil companies did not manipulate oil prices last summer. For those who care to read the entire study, it is available here. Of course, we at the Rio Grande Foundation were saying this more than a year ago and, as both the FTC and Foundation writers pointed out, government policies, specifically the ethanol mandate, played a major role in driving prices up.

Posted by Paul Gessing at 08:36 AM | Permalink | Comments (0) | TrackBacks (0)

It is widely known and understood that Governor Richardson is running for the presidency on his experience as an executive. After all, his leading opponents, Clinton, Edwards, and Obama are Senators with limited experience even in that role. Good strategy for Bill.

Something that makes quite a bit less sense is his emphasis on the various tax credits he has pushed as an economic development tool in his recent television advertisements. Richardson has received ample praise from conservatives and free market advocates, but not because of his economically-dubious narrowly-targeted tax credits. Indeed, Richardson has made waves by cutting New Mexico's top income tax rate from 8.2 percent to 4.9 percent and dropping the state's capital gains tax from 8.2 percent to 2.45 percent. Despite having raised other taxes in ways that have offset the net effect of these tax cuts, it is this record that Richardson should be running on.

So, what does this mean? Why is Richardson talking about meaningless, targeted tax policies when the key to New Mexico's recent economic success -- aside from oil and gas prices -- has been pro-growth tax cuts? One strong possibility is that running in a primary and attempting to please the Democratic Party base, he doesn't want to talk about being a tax-cutter. This may be indirectly a result of Bush's lack of popularity. I'd be interested in others' thoughts on why Richardson's campaign is missing the forest for the trees....is it economic ignorance or sheer strategy to attract a left-wing Democratic Party base?

Posted by Paul Gessing at 02:28 PM | Permalink | Comments (0) | TrackBacks (0)

This story is really not a surprise. Private charity has always been more effective at improving peoples' lives than government handouts and examples of this in reaction to Hurricane Katrina have already been widely reported.

What is surprising is that people are so easily fooled, so often, by government officials who say "we're going to help." Things weren't always this way. In fact, after every disaster, natural or otherwise, we should mandate the reading of "Not Yours to Give," an excellent Illustration of the way government has usurped and corrupted private charity.

Posted by Paul Gessing at 09:25 AM | Permalink | Comments (0) | TrackBacks (0)

Many credit Byron Dorgan (D-ND) with killing the much hated Senate immigration bill. In his quite animated speeches opposing the bill, he notes his distaste for the guest worker program, which ostensibly takes jobs away from Americans and depresses American wages.

Our own Jeff Bingaman sponsored an amendment to the bill that lowered the guest worker cap from 400,000 to 200,000, proclaiming that the former number as untested and irresponsible. His claims have no basis in reality. Prior to the bill, the government authorized an ulimited number of H-2A guest worker visas, along with numerous other guest worker visas such as H-1B. But for a moment, let us give Mr. Bingaman the benefit of the doubt. What can we expect by lowering the number of guest worker visas offered each year?

The Southwest benefits tremendously from expansive guest worker programs. Texan fa