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January 25, 2016

The Education of a Young Progressive

By Cecil Bohanon, Ph.D.

This year will likely be remembered as the year of the populist revolt. Populism is a political philosophy that calls for the government to represent the interests of the ordinary person. Populist candidates typically argue that the current crop of political leaders are beholden to narrow elites at the expense of the common man. 
The populists of 2016 are Bernie Sanders and Donald Trump. Sander's bête noire are billionaires who are corrupting politics and ought to pay more in taxes, while Trump rails against illegal immigrants and stupid politicians bullied by rapacious foreigners who take advantage of ordinary Americans.
When I was 18 years old, I was a George McGovern progressive. I decked my 1962 Studebaker Lark with dozens of McGovern stickers, much to the chagrin of my father who was a Goldwater Republican. Readers old enough will recall that McGovern's 1972 perspective was similar to that of Sander's: He wanted to radically expand the federal government programs especially for the poor and finance this expansion by taxing the "rich." 
I stopped being a progressive many years ago, but it didn't happen all at once. Let me share an epiphany from that 1972 campaign that nudged me back to the Goldwater camp.
One day I was rifling through the daily household mail, I saw a letterhead for "Engineers for McGovern" addressed to my father who was a mechanical engineer. Knowing he would have no use for it, I absconded with it. I opened the letter fully expecting to be filled with redistributionist rhetoric -- appealing to the well-educated well-paid engineer's sense of social conscience and collective beneficence, urging them to support McGovern to help the poor and dispossessed. Instead, it was all about expanding federal government grants for engineering research under a McGovern Administration.
"Well, of course," I thought, "engineers, even my dad, were people too; they are worthy of federal redistribution." But somewhere back in brain cell No. 477, a thought was planted: If every conceivable group is to be the beneficiary of federal largesse, who pays for it? I was stumbling onto that great insight the French economist-journalist Fredrich Bastiat had outlined in the 1840s -- the fools' gold fallacy of populism that says, "The State is the great fiction through which everyone endeavors to live at the expense of everyone else."
Over the years, I have come to believe that the legislative-bureaucratic process unhampered by constitutional constraints leads to a bloated public sector. Programs putatively designed to help the poor are often thinly veiled guises for narrow special interests. The sincerest efforts to redistribute income to the poor are inevitable inflicted by a tendency for the benefits to "trickle-up." Government programs meant to help the poor are at best mildly redistributive; more problematically they set up all kinds of malicentives that trap the poor. Indeed, in 1972 around 15 percent of the population was in poverty. Despite 44 years and trillions of dollars of federal spending later the poverty rate is still at around 15 percent of the population in 2016.  
It seems absurd that the progressive McGovern-Sanders income redistribution mantra is an answer to the economic or political problems of 1972 or 2016. I hope we have the collective wisdom to reject it in 2016 as we did in 1972. 
But what of Mr. Trump's populism? In my humble opinion, it is even worse. Stay tuned: more later.

Cecil Bohanon, Ph.D., a founding scholar of the Indiana Policy Review Foundation, is a professor of economics and Ball State University. This is the first in a group of articles he is writing on issues of the 2016 election.

January 7, 2016

Not all are applauding Regional Cities plan

By Jason Arp

"This is how Liberty dies . . . with thunderous applause." -- Padmé Amidala (Natalie Portman), "Revenge of the Sith"

The excitement over Indiana's recently announced Regional Cities awards reminds me of the scene in the 2005 Star Wars in which the Galactic Republic is dissolved and is replaced with an emperor. All in attendance responded in a joyous ovation.

The public is being asked to put its faith in an elaborate multi-year plan to create a Regional Development Authority (RDA) much like the one that has been in place in northwest Indiana since 2005. The RDA will be run by an appointed board that cannot be removed by local officials or the public. It has borrowing authority and will have taxing authority to repay what it borrows.

The RDA in northwest Indiana has spent nearly $700 million in 10 years in Gary, Hammond and other lake communities. We have not seen any evidence that it has been successful at anything but commandeering private businesses and public funds and institutions to do centrally planned projects.

Even so, there has been no real discussion. The public has been told that we have some sort of $42-million jackpot to spend on wonderful things. What hasn't been made clear is that with the award comes an obligation not only to match that $42 million with taxpayer and private money but a separate eight-year commitment to a portfolio of $1.4 billion in projects to be authorized, financed and managed by the RDA.

In other words, we have agreed to have an appointed, bureaucratic, authoritarian regime take over a good portion of the Indiana economy in exchange for a 3 percent downpayment-assistance grant from the state. And this bureaucracy will be fully armed with taxation and eminent domain capability.

Let's take a closer look at the "private investment" involved in all of this. What we are likely to see is that many of the projects will be owned by or leased to private companies that have made no more than a 60 percent investment in a particular project. So, in return for what is a relatively risk-free investment, the investor will receive nearly all the returns (remember that so many of our eco-devo contracts guarantee profits to private investors, such as the hotel at a famous ballpark in Fort Wayne).

Another example can be found in the financials of the much-applauded City-Scape Flats project. There, the city of Fort Wayne puts up $7 million for a 173-car garage attached to a $20-million, 163-unit apartment complex. The only difference will be the scale: We're now talking about a billion dollars more of this sort of "investment."

Not only will developers that are not members of the in-crowd be unable to participate in the official projects but they may be crowded out of the market entirely; prime land will be earmarked by the RDA, bank funds will be tied up in RDA projects, land prices may make other development by truly private ventures cost-prohibitive.

In the end, the RDA will have discouraged actual entrepreneurship, innovation and free enterprise and replaced it with some sort of unaccountable directorate.

Jason Arp is a Fort Wayne City Councilman.