Newspaper column: Courts should put a stop to governor’s corporate welfare program

The attorney for the legal arm of a libertarian-leaning Nevada think tank this past week asked the state district court in Carson City to issue a summary judgment that would essentially put the Governor’s Office of Economic Development (GOED) out of business.

The GOED was created as a way to dispense public tax money from a $10 million Catalyst Fund to companies in hopes of creating new jobs and jumpstarting the recession-retarded economy.

The request for summary judgment grows out of a lawsuit filed earlier this year by the Nevada Policy Research Institute’s Center for Justice and Constitutional Litigation (CJCL) on behalf of Michael Little, a Nevada alternative-energy entrepreneur and a taxpayer, because the GOED planned to give $1.2 million to one of his competitors, SolarCity, a company owned by a billionaire that installs solar panels.

Little owns Landfill Alternative, a company that converts recycled landscape trimmings into biomass.

Michael Little at his biomass business.

The suit claims the gift to SolarCity violates the Gift Clause of the state Constitution, which prohibits the state donating or loaning money to any company.

In a deposition given in the court case, GOED’s Executive Director Steven Hill admitted that the state giving money directly to a company would violate the Constitution, so instead the money is funneled through the various county governments.

Sounds like the very definition of a money laundering scheme — a third-party is used to obscure the transfer of illicit funds from the source to its destination.

In the recent court filing, Joseph Becker, chief legal officer and director of the CJCL, points out the state has three times asked the voters of Nevada to amend the Constitution to allow handing out public funds to private companies and each time the amendments soundly defeated.

“This scheme … runs afoul of the plain language of the Nevada State Constitution, the will of the people of Nevada as evidenced by three consecutive four-year elections,” writes Becker, “and, if not held unconstitutional, sets a very dangerous precedent whereby the State, when constitutionally prohibited from acting in certain ways, firsts creates a political subdivision and then subcontracts with that political subdivision to act as an intermediary to do the very thing the Nevada Constitution explicitly prohibits. What next?! Hiring private security companies to conduct warrantless searches in instances where the state would otherwise be constitutionally prohibited?!”

Becker asserts that the case presents no genuine issue of material fact and his client is entitled to judgment as a matter of law because the state “is not entitled to build a case on the gossamer threads of whimsy, speculation, and conjecture” — a reference to case law.

The CJCL motion also quotes at length from an opinion by the Nebraska Supreme Court discussing the constitutional and practical ramifications of that state’s almost identical Gift Clause. The opinion concedes that just about any new factory or retail store might be deemed to benefit a community’s progress and prosperity, but under state law public money cannot be appropriated for private purposes and doing so is self-destructive as well.

“It does not matter what such undertakings may be called or how worthwhile they may appear to be at the passing moment,” the court opines. “The financing of private enterprise by means of public funds is entirely foreign to a proper concept of our constitutional system. Experience has shown that such encroachments will lead inevitably to the ultimate destruction of the private enterprise system.”

In fact, Gift Clauses were enacted in many state constitutions precisely because of the experiences of a number of states during the mid-19th century that loaned public money to private firms for the construction of railroads, canals and other infrastructure only to see the companies go broke and leave the taxpayers holding the debt with no assets to show for it.

“It is an illusion — one that seems to have the persistence of original sin — that prosperity can be attained by taking money from taxpayers and handing it to favored businesses. …” the motion for summary judgment concludes. “The idea of government intervention to influence the composition of a country’s output has long been derided by economists for breeding inefficiency, reducing competition, encouraging lobbying and saddling countries with factories producing products nobody wants.”

As Adam Smith wrote in 1776: “It is the highest impertinence and presumption, therefore, in kings and ministers to pretend to watch over the economy of private people … They are themselves always, and without any exception, the greatest spendthrifts in the society.”

The state should not take from some taxpayers and give to others no matter its motives or methods.

This column ran this week in The Ely Times, the Mesquite Local News and the Elko Daily Free Press.

Newspaper column: Let water seek its price level in free market

The West has been parched by drought for 15 years. Lake Mead stands at 39 percent of its capacity. Thousands of acres of agricultural land lie fallow. Fruit and nut trees are dying. Cities are banning lawn watering.

The dwindling waters of the Colorado River Basin alone currently bathe and slake the thirst of more than 40 million people and irrigate 4 million acres of agriculture in an area that accounts for more than a quarter of the United States’ gross domestic product. Groundwater tables across the region are being drawn down to such a degree that it will take millennia to recover.

The powers that be are tossing out various ideas to increase supply and/or decrease demand for that increasingly scarce water, as recounted in this week’s newspaper column, available online at The Ely Times, the Mesquite Local News and the Elko Daily Free Press.

But some thinkers at the Brookings Institution think-tank have thought of something so old that it is new.

Lake Mead at 39 percent capacity.

Currently water in the West is allocated on a first-in-use, first-in-rights basis. Stop the use and the rights stop, too. A water right is not a property right that can be bought, sold or bartered.

But the authors of “Shopping for Water: How the Market Can Mitigate Water Shortages in the American West” suggest water bought and sold in an open market would find its level, so to speak, balancing the supply with demand through pricing.

It is a concept spelled out by Adam Smith in “The Wealth of Nations” in 1776 as “an invisible hand” and advocated by free-market economists ever since, though the reasoning has largely fallen on the deaf ears of the central planners who think they know best and free markets are somehow unfair to the poor — a fallacy Smith long ago debunked.

Many wags have observed over the years that “nobody washes a rented car,” meaning that ownership of a thing results in better care being taken of it.

“As impressive as our water infrastructure may be, over the decades, water management in the West has also created perverse economic and legal incentives that have led to the overdraft of critical groundwater reserves and depleted reservoirs, and that have promoted the overallocation of Western rivers and streams,” write the Brookings authors.

Central Valley of California sign.

The communal ownership of water offers little incentive to invest in equipment or technology that might conserve water for profitable sale to another user.

“Market pricing for water can encourage conservation and wise use of water in our cities and industry,” the study suggests. “Farmers who have an opportunity to sell or lease a portion of their water have an incentive to conserve, invest in more efficient irrigation systems, and/or adjust existing cropping patterns in order to free up water for trade.”

For example, California and Nevada farmers are growing water thirsty alfalfa for export to Japan, China and the Middle East. That is tantamount to exporting water overseas during a prolonged drought that has no end in sight.

One of the study’s three authors, University of Arizona professor Robert Glennon, calculated the irrational rationing and pricing of water across three different current uses.

It takes about 135,000 gallons of water to produce a ton of alfalfa, which would sell for about $340. The same volume of water could produce approximately 11,000 pounds of lettuce in Yuma and sell for $2,000. Meanwhile, the Intel Corporation uses about 10 gallons of water to produce a microprocessor. “In other words, an acre-foot of water used to grow alfalfa generates approximately $920; if used to grow lettuce in Yuma, it would generate approximately $6,000; if used by Intel, it would generate $13 million.”

If water were traded on the open market, it could flow to the highest and best uses. It would become practical to enhance the treatment of sewage to near potable levels and to build desalinization plants along the ocean, allowing inland communities to trade for river water by paying for the power to operate downstream water purification systems.

This is nothing new. Former UNLV professor of economics Murray Rothbard wrote in 1995 in “Making Economic Sense”:

“All it (government) has to do is clear the market, and let people conserve each in his own way and at his own pace.

“In the longer run, what the government should do is privatize the water supply, and let water be supplied, like oil or Pepsi-Cola, by private firms trying to make a profit and to satisfy and court consumers, and not to gain power by making them suffer.”

When will we ever learn?

Play the game: Name that central planner

Now, who in our modern era might this gentleman be talking about?

Adam Smith

“The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”

— Adam Smith, “An Inquiry into the Nature and Causes of the Wealth of Nations”

 

 

 

Adam Smith explains quantitative easing

So you want to know how QE1, 2 and 3 work?

You could start with the definition of quantitative easing:

A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital, in an effort to promote increased lending and liquidity.

Then eyeball the Investopedia explanation of what it could lead to:

Central banks tend to use quantitative easing when interest rates have already been lowered to near 0% levels and have failed to produce the desired effect. The major risk of quantitative easing is that, although more money is floating around, there is still a fixed amount of goods for sale. This will eventually lead to higher prices or inflation.

Or you could look to the words of Adam Smith, written in 1776 in “Wealth of Nations“:

When it becomes necessary for a state to declare itself bankrupt, in the same manner as when it becomes necessary for an individual to do so, a fair, open, and avowed bankruptcy, is always the measure which is both least dishonourable to the debtor, and least hurtful to the creditor. The honour of a state is surely very poorly provided

Adam Smith

for, when, in order to cover the disgrace of a real bankruptcy, it has recourse to a juggling trick of this kind, so easily seen through, and at the same time so extremely pernicious.

Almost all states, however, ancient as well as modern, when reduced to this necessity, have, upon some occasions, played this very juggling trick. The Romans, at the end of the first Punic war, reduced the As, the coin or denomination by which they computed the value of all their other coins, from containing twelve ounces of copper, to contain only two ounces; that is, they raised two ounces of copper to a denomination which had always before expressed the value of twelve ounces. The republic was, in this manner, enabled to pay the great debts which it had contracted with the sixth part of what it really owed. So sudden and so great a bankruptcy, we should in the present times be apt to imagine, must have occasioned a very violent popular clamour. It does not appear to have occasioned any. The law which enacted it was, like all other laws relating to the coin, introduced and carried through the assembly of the people by a tribune, and was probably a very popular law. In Rome, as in all other ancient republics, the poor people were constantly in debt to the rich and the great, who, in order to secure their votes at the annual elections, used to lend them money at exorbitant interest, which, being never paid, soon accumulated into a sum too great either for the debtor to pay, or for any body else to pay for him. The debtor, for fear of a very severe execution, was obliged, without any further gratuity, to vote for the candidate whom the creditor recommended. In spite of all the laws against bribery and corruption, the bounty of the candidates, together with the occasional distributions of coin which were ordered by the senate, were the principal funds from which, during the latter times of the Roman republic, the poorer citizens derived their subsistence.

That sounds hauntingly familiar. Perhaps they called them QE I, QE II and QE III.

The Roman Empire eventually fell, for a variety of reasons.

John Stossel has a piece on this topic in the newspaper today.

Here is a trailer for the documentary Stossel mentions:

You may watch the entire movie online. Listen for the explanation from a Washington Post columnist: The way a healthy economy grows is that people earn money and go out and spend it. The way an unhealthy economy grows is people borrow money and then go out and spend it.