In the Wall Street Journal  Steve H. Hanke and  Stephen J.K. Walters write How Property Taxes and the ‘Curley Effect’ Are Killing Baltimore-  As affluent residents leave town, the political playing field tips further and further in favor of pro-tax Democrats.

Excerpt:

But tax revolts are hard to win at the local level. The problem is what Harvard economists Edward Glaeser and Andrei Shleifer have called the “Curley effect.” In Boston during the first half of the 20th century, Mayor James Michael Curley built a political machine by strategically shaping the electorate—taxing well-heeled “Brahmins” heavily and redistributing the proceeds to poor Irish immigrants. This not only bought Irish votes but chased the old Yankees out to the suburbs, further tilting the political playing field in Curley’s favor.

In modern Baltimore, the machine has exploited class divisions, not ethnic ones. Officials raised property taxes 21 times between 1950 and 1985, channeling the proceeds to favored voting blocs and causing many homeowners and entrepreneurs—disproportionately Republicans—to flee. It was brilliant politics, as Democrats now enjoy an eight-to-one voter registration advantage and no Republican has been elected mayor in 48 years.

But Baltimore’s high property taxes have repelled investment in physical capital for decades. As that capital decayed and became scarce, labor became less productive and less prosperous. In 1950, the city’s median family income was 7% above the national average. Today it is 22% below it. And it won’t be easy to undo this damage as long as City Hall remains in the hands of politicos who are committed to a fatally flawed business plan.

HKO comments:

States, cities and often nations with high taxes consistently lose jobs and voters to competitive entities with less friction costs.  The Curley Effect is a spiral. Progressives raise taxes on the wealth generators who would normally vote against such confiscation. The wealth generators leave, giving the progressives greater political power.  Too ignorant or blind to see what causes the trend, they raise taxes again to make up the lost revenue, creating another wave of departures.  Taxpayers vote with their feet and their capital as well as their ballot.

The departure of wealth creates more corrupt, not less corrupt government.  Bribery and favoritism replaces choice.  The departure of wealth is followed by higher crime and infrastructure decay.

Once the expulsion of the wealth generators tips past a point that the city becomes a one party town, the decay accelerates to a point that is difficult to turn around.  When there is no ability to mount an opposition to confiscatory tax policies the outcome is too often hard to reverse. Kudos to Boston for their success in the change.

Once a business or factory relocates somewhere else they do not easily just return when the town leaders see the light.  They must have faith that a new appreciation of their capital will be long lasting and consistent.

Hopefully, a new breed on younger political leaders will understand that urban development and an appreciation for the capital needed is not inconsistent.  When you rob Peter to pay Paul there are two certainties: Paul’s approval and Peter’s departure.

One of the joys of the internet is that you are no longer limited to the tastes and bias of a media elite.  One can focus on the stories, issues and perspectives that interest you and not what a selected few decides YOU should know or be exposed to.

As bloggers post and read other bloggers we create an exchange or a market of stories often neglected by any mainstream source.  Sometimes these stories get so much traction that the MSM can no longer neglect them and they become widely disseminated.

But our postings certainly reflect our own (my own) biases.  I am biased against unions- I think they are largely lying thugs concerned with their own power and self interest.  They increasingly unable to sell their value in the private market, and thus they resort to political power to force the public to support their  bloated benefits. Their violent protests to restricting their political  power is the  last gasp of a dying institution.

I am also biased against crony capitalism- businesses and industry that rely more on political favoritism than market effectiveness and creative energy.

I believe that government solutions tend to create additional problems that end up dwarfing the problem they tried to solve. The relationship we often call public private partnerships is similar to the relationship between a pimp and a prostitute although it depends on the situation to determine which party is the pimp.

I find that most thinkers do not fit neatly into a simplistic binary political labeling system.  Partisan hacks defy thinking because they place greater emphasis on who said what than the content itself.

I am a main street capitalist and a global realist.  There is evil that must be confronted.  In politics and particularly in foreign affairs, the perfect is the enemy of the good. We reject good solutions because of their short comings and end up with problems perpetuated by inactions and short term pragmatism.

Yes I have my biases. I believe my biases are justified by extensive reading, thought, perspective and personal experience. I am sure others who disagree with me believe their biases are justified in the same way.

I just think they are wrong.

Gibson Guitars has been raided  for allegedly using woods from endangered sources.

From the Wall Street Journal  Guitar Frets: Environmental Enforcement Leaves Musicians in Fear by Eric Felten  8/26/11:

Federal agents swooped in on Gibson Guitar Wednesday, raiding factories and offices in Memphis and Nashville, seizing several pallets of wood, electronic files and guitars. The Feds are keeping mum, but in a statement yesterday Gibson’s chairman and CEO, Henry Juszkiewicz, defended his company’s manufacturing policies, accusing the Justice Department of bullying the company. “The wood the government seized Wednesday is from a Forest Stewardship Council certified supplier,” he said, suggesting the Feds are using the aggressive enforcement of overly broad laws to make the company cry uncle.

It’s not enough to know that the body of your old guitar is made of spruce and maple: What’s the bridge made of? If it’s ebony, do you have the paperwork to show when and where that wood was harvested and when and where it was made into a bridge? Is the nut holding the strings at the guitar’s headstock bone, or could it be ivory? “Even if you have no knowledge—despite Herculean efforts to obtain it—that some piece of your guitar, no matter how small, was obtained illegally, you lose your guitar forever,” Prof. Thomas has written. “Oh, and you’ll be fined $250 for that false (or missing) information in your Lacey Act Import Declaration.”

Consider the recent experience of Pascal Vieillard, whose Atlanta-area company, A-440 Pianos, imported several antique Bösendorfers. Mr. Vieillard asked officials at the Convention on International Trade in Endangered Species how to fill out the correct paperwork—which simply encouraged them to alert U.S. Customs to give his shipment added scrutiny.

There was never any question that the instruments were old enough to have grandfathered ivory keys. But Mr. Vieillard didn’t have his paperwork straight when two-dozen federal agents came calling.

Facing criminal charges that might have put him in prison for years, Mr. Vieillard pleaded guilty to a misdemeanor count of violating the Lacey Act, and was handed a $17,500 fine and three years probation.

HKO comment:

Is this another ridiculous regulation that will have more of our manufacturing move overseas?  It is fascinating  how some of the tree huggers who have strongly supported onerous regulations will pitch a fit if they cannot use ebony on their fret boards.  This excess regulatory zeal will start an outrage among musicians who will start writing songs about how stupid this is.

First they came for the light bulbs and I was silent. Then they came for my toilets that could accomplish their assigned task in a single flush, and I said nothing.  Now they have come for my guitars, and I am really,  really pissed.

It’s on.

PS.  Read Kimberly Strassel’s update and further depth on this insanity in the Wall Street Journal, 11/25/11  Stringing Up Gibson Guitar. *(may require paid subscription)

Some of the major technological marvel of today’s world are not doing much to create new jobs.  They’ll bring big gains but without putting too many people back to work,  IT specialists of the right kind excluded.

The internet is wonderful, but it’s not saving the revenue-generating sector of the economy.

The forward march of technology has indeed continued, but it’s giving us Twitter and better painkillers and some life extension when we are old and sick.  And I love Twitter and I’ll probably value those painkillers, too, once I need them.  We’re living the age-old wish of getting away from money, money, money and finding some of our biggest innovative successes in sectors that are good for us but not revenue intensive.  We’re getting away from materialism, at least in some critical regards.  We may still lust after the fancy car, but I see a lot of people looking inward.  They are taking lower-paying but more interesting jobs, which offer a greater sense of challenge and control.  I see a lot of well-off people cruising the Web, and cherishing their Twitter feed, rather than shopping for diamonds.

The funny thing is, getting away from materialism on such a large scale- whatever the virtues of that switch- really, really hurts.  It is the hurt that we in America are living right now.

From The Great Stagnation-  How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better by Tyler Cowen.

HKO Comments:

I have often wondered what happens when all those people at the malls of America realize that they do not need most of the expensive stuff they have been buying.  (Of course MY stuff is another thing altogether.)  Our economy is not just about realizing that we built too many houses we do not need; our credit contraction is about realizing we do not need a bunch of other stuff.  As Tyler Cowen writes, the core of the financial collapse is that we were not as rich as we thought we were.

As the consumer faces that reality he cuts back and changes his habits.  The government would be wise to do the same.

Whether the means is to increase government spending or to cut taxes, if the objective is to stimulate a demand that was false to begin with then it will fail.  We are trying to return to a normal that was never normal at all.

An economy and a government that is built on revenue growth is extremely threatened by a reduction in materialism.

Warren Buffet’s most recent call to tax the wealthy more has been bantered about in the press and has received several good responses.  I could sum them up as follows:

1. The problem is the spending . Sending them more money will only increase the spending and let them avoid the  cuts we need.
2. Higher tax rates do not necessarily generate more revenue.  Statutory rates are different from actual rates. Marginal rates are what impact potential investment.
3. By focusing on millionaires and billionaires you allow the administration to use extreme examples to raise taxes on the upper middle class.  As unfair as it may seem there just are not enough super wealthy to impact the deficit  Obama and his administration have created.

Read They Already Have Their Money published here a few days ago, and Is There Any Case for Revenue Enhancements recently published in American Thinker.

But the best response came from Mark Skousen in my Forecast and Strategies September newsletter. (Paid subscription www.markskousen.com ).   The reason we should not give more to the government is because it would be far more productive in the private sector. The observation is both simple and profound.

If anybody should know this it is Warren Buffet.  He has built enormous wealth by carefully deploying capital into businesses  that use it to innovate and create jobs:  jobs that support health insurance and retirement accounts for thousands of employees.  The employees and Buffet’s businesses  pay generous taxes to all levels of government. In fact we could say that Mr. Buffet has generated enormous revenues to the government and reduced the expenses of those needing government assistance by NOT paying more taxes.

Mr. Buffet found a better use of his money.  So can the rest of us.