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Excitement for the Wrong Direction for I-195 Land?

Rhode Island’s informderati is all atwitter (pun intended) with the news of a “life-sciences complex” proposed for the land formerly occupied by I-195:

A real-estate investment and development company that partners with universities and hospitals across the country to build research parks has submitted a joint proposal to build a multimillion-dollar facility on 5 acres of former highway land in Providence — drawing praise from Governor Raimondo, House Speaker Nicholas Mattiello, Senate President M. Teresa Paiva Weed, Providence Mayor Jorge O. Elorza and others. 

Wexford Science & Technology of Baltimore, a subsidiary of BioMed Realty Trust Inc. in San Diego, and CV Properties LLC, the Boston firm leading development of South Street Landing on Eddy Street in Providence, hope to build a life-sciences complex with lab space, academic research space, a hotel, and retail and residential space. Richard Galvin, founder of CV Properties, said it’s too early to pin down exact costs, but “it will be several hundred million dollars” to build.

The details are sparse, so far, and one question that will need to be made explicit is whether “partnership” with a bunch of non-profit organizations means tax exemption for the development once it’s done.  One can imagine a bunch of tax deals to get the thing built and then payments in lieu of taxes (PILOTs) once it’s operational.

Off the top of my head, the scorecard for that supposedly game-changing property is:

  • Student housing
  • A minor-league baseball stadium
  • A facility with no prospective clients, thus far, other than non-profit universities

These strike me as things that a state should seek when its people are thriving, not when they’re tapped out for taxes and leaving the state in despair.  But whaddayagonnado, I guess.

So far, developers that have submitted proposals are seeking tax-stabilization agreements with the city because Providence’s commercial property taxes are far higher than in other communities. Yet the city has not granted any such tax treaties yet.

It all comes back to an institutional mandate to maintain the power of government insiders.  Unless that changes, Rhode Island’s done.

Why Not Set the People Free?

J.D. Tuccille highlights some murmurs in Europe that remind one of the Rhode Island attitude:

The shadow economy—off-the-books business and labor that would be perfectly legal if people felt like subjecting themselves to taxes and regulations—ebbs and flows with the years. Right now, it’s down a bit in many countries from the days of the recession, but shadow economic activity is still huge. Across the European Union, it’s estimated to amount to 18.4 percent of GDP. Why people work off the books is no secret—high taxes and burdensome regulations are constantly cited by economists as primary drivers for people to hide what they’re doing. So, current policies are like kryptonite to people who want to keep the fruits of their labor. Got it. The obvious solution then is to…harangue and coerce people back into the official economy?

Even though regulations are pushing people out of the taxed-and-regulated economy, leaving them with effectively no taxes or regulations, government officials aren’t simply going to reevaluate their approach.  In their view, it isn’t government’s job to accommodate the people.  The diktat has been issued, and the people must be made to comply.

Even if it means banning cash so every transaction can be traced.

At least in Rhode Island, government officials make periodic noises about easing regulations.  Still, the plan appears to be to try every power-centralizing solution they can imagine for a hundred years before simply doing the obvious and leaving people alone.

(Via Instapundit.)

Robbing productive class Peter to pay college graduates Paul

Is the departure of recent college graduates keeping Rhode Island at the back of the pack economically? Progressives in the state’s legislature apparently think it would be beneficial to have taxpayers subsidize student loans. A look at student debt data suggests that would be a major burden on a population that’s already heavily taxed–and that the idea may, in fact, backfire.

The debate has been raging almost since the turn of the millennium: With Rhode Island’s population waning, who’s leaving?  The first assumption was that the rich were fleeing the high taxes, which inspired policies meant to keep them — like an alternative flat tax and a phase-out of the capital gains tax.

Progressives objected that the evidence did not show flight of the rich, and as it turned out, they were right.  The departing demographic was the “productive class” — families in that highly motivated period of their lives when they’re exchanging their time, sweat, and talents for a trip up the rungs to the middle class.

To make that group stay, though, politicians can’t cut taxes in exchange for the campaign support like do for the wealthy.  And the productive class doesn’t use direct government handouts, so the government can’t make them stay by handing out entitlements.  They need less regulations so they can work and innovate, and they need to be able to keep the money that they’ve earned, rather than having it taxed away.

If we look at who is sponsoring two relevant pieces of legislation on the subject, it becomes clear that Rhode Island progressives have decided to try and bribe recent college graduates into staying in the state. Based on the rationale described in the bills, they hope a younger crowd will be like their older brothers and sisters in helping the economy to grow.

Continue reading on WatchDog.org.

Keeping the Productive Class, Not in Government’s Interest

Roger Williams University Professor Thomas Lonardo has picked up a thread of the apocalyptic Rhode Island tapestry that I noted about a decade ago:

However, a major part of the Rhode Island population typically associated with middle- and upper-middle-class taxpayers seems to be ignored, the 35-to-54-year-olds. This group makes up 26.8 percent of the population. Although income class distinctions are a moving target, it is assumed that the middle- and upper-middle-class income range is $75,000-149,999, with 27.4 percent of the households in Rhode Island in this range.

‘The modest overall decline of the Rhode Island population of 1,365 from 2010 to 2013 may not raise concerns. What should be of concern is the decline in the 35-54-year-old population by an astounding 16,567!

This is another way of getting around to describing what I’ve called the productive class.  If I could pick any age range, I’d probably go with something closer to 28-50, but that’s a minor and largely arbitrary distinction.  The point is that this is the age range during which people make something of themselves.  They go from being on the lower rungs to getting near their full potential.  It’s a lot of human initiative, sweat, time, and investment, and as people climb those rungs in large numbers, they bring the economy up with them.

Lonardo sticks to thinking of people in their groups, so I don’t think he quite gets to the heart of why the productive class is important.  It’s not about employers versus employees and everybody fitting in their groups.  As in physics, the real action happens with acceleration.  I think, therefore, there’s a simpler answer to this question:

Why doesn’t retention of this taxpayer class seem to be a primary focus of our elected officials? Maybe because the solutions that make a public opinion impact beyond an election cycle are not worthy of consideration. Possibly because solutions include difficult decisions and bold comprehensive strategies addressing the myriad of troubles facing the state such as: high taxes (including fees and surcharges), substandard roads and bridges, underperforming public schools, etc. 

Fundamentally, the problem is that the government can only help the productive class by relinquishing control and taking care of the basics.  The government would have to get out of the business of telling people what they can do in every minute aspect of their economic lives and start taking care of boring stuff like infrastructure.  

People accomplishing things create a competing source of power and authority to that of government in a way that people who already have a lot of money or who have almost no money at all cannot match.  Indeed, the already-wealthy have incentive to work with government to keep the upstarts out, while the poor represent a client-and-voter base for the government.

The History of Rhode Island Crony Deals

Steven Frias had another excellent essay in the Providence Journal, yesterday:

Using funds raised through a refinancing of state debt, Raimondo proposes spending about $35 million, in total, for a First Wave Closing Fund, a Small Business Assistance Program and a I-195 Redevelopment Fund. The Rhode Island Commerce Corporation and the I-195 Redevelopment District Commission would have broad discretion over how these funds are be spent and over which businesses benefit. 

Supporters of Raimondo called these programs “bold” and “game-changing.” However, Rhode Island politicians have used various government financing programs to benefit select businesses for more than a half-century, with little success at reversing Rhode Island’s decline. History shows that the state’s efforts to select businesses for help have been, at best, ineffectual at improving the economy in the long-term, and at worst, disastrous for taxpayers.

I’ve been thinking that it would be useful to have an online museum exhibit, of sorts, that presents timelines of various controversies, themes, and trends, in Rhode Island.  Unfortunately, most of the people I know who would undertake such a project are busy trying to support their families while doing some work to try to save the state for itself.  Meanwhile, it’s hard to see an academic taking it on, because it would inevitably make big government look bad, which academics aren’t allowed to do.

Churn Can Be Good, If That’s What It Is

If this is an indication of economic creative destruction, then it might be positive in the long run, but that might not be what’s going on:

The long feared “retail apocalypse” may be hitting with little or no fanfare if a growing list of store-closing plans by major chains is any indication.

Major U.S. retailers have announced the closing of more than 6,000 stores from coast to coast. The list includes only those retailers that have announced plans to close more than 10 outlets this year and next.

I fear that it’s actually an indication that the supposed economic recovery has really been a masterwork of smoke and mirrors.  Government policy nationally (and more so in Rhode Island) is not letting the economy really heal.

A Streetcar Named Big Government

Referring to Art Norwalk’s essay from last week, Ian Donnis quotes Providence Mayor Jorge Elorza:

“I think it’s smart for the city because it’s not just about transportation, it’s about economic development. Take New York City, for example. Look at property values right by a subway line as opposed to property values in a building that’s maybe 10 or 12 blocks away. Everyone wants to be right by the subway, and in just the same way, in cities that have done a streetcar, people want to be right by and develop by the streetcar, so it’s good for economic development.”

Here’s the thing:  Lots and lots of people have wanted to live in New York City for a long, long time.  If they bid up the properties near the subway, that may indicate the value such residents place on transportation (in a city that’s famously challenging for car ownership), but it doesn’t mean they moved to the city because of the subway.  As the still-vacant I-195 land illustrates, Providence isn’t quite as active as the Big Apple.

State, city, and town governments in Rhode Island need to get back to basics:  fixing roads and lowering taxes.  Leave the economic development to the people whose livelihoods depends on it and who are willing to risk their own money for that purpose.

No Superhero to Save Businesses Killed by Minimum Wages

If you harbor any support for minimum wage laws — or, especially, “living wage” laws — Ian Tuttle’s profile of a San Francisco comic book shop is must reading:

“I’m hearing from a lot of customers, ‘I voted for that, and I didn’t realize it would affect you.’” So says Brian Hibbs, owner and operator of Comix Experience, an iconic comic-book and graphic-novel shop on San Francisco’s Divisadero Street, of the city’s new minimum-wage law….

… Hibbs says that the $15-an-hour minimum wage will require a staggering $80,000 in extra revenue annually. “I was appalled!” he says. “My jaw dropped. Eighty-thousand a year! I didn’t know that. I thought we were talking a small amount of money, something I could absorb.”

I don’t know how a small-business owner could have not done the quick math of what a $15 minimum wage would cost him.  Whatever the case, now Hibbs is in the position of trying to think of new add-ons to his business model that will bridge the gap.  A small local bookstore that was going to have to close down was saved, temporarily, by crowd-funding — essentially charitable gifts to cover the additional expenses.

Hibbs notes that only so many businesses can get away with charging a “keep us open” fee before customers are tapped out.  His solution has been to put together a graphic novel club that provides at least some semblance of additional service for the money given, but if it’s enough to bring in another $80,000 in revenue per year, it’s difficult to understand why the store and its customers hadn’t figured that out already.  In other words, it looks like a pretense for charity.

The comic-store owner says he’s a progressive, but even so, he’s inclined to wonder:

“Why,” he asks, “can’t two consenting people make arrangements for less than x dollars per hour?”

One suspects that he’s missing the key aspect of progressivism.  Promising minimum wages allows politicians to buy votes, selling a pledge to make people’s bosses pay them more.  Supporting minimum wages allows voters to capture charitable endorphins on the cheap, by forcing others to pay the bill.

There’s no rational compromise, because the point is for people facing no or minimal consequences to tell other people what to do, and the consequences require some understanding of logic and economics.  Consider: If Hibbs’s new innovation turns out to be a profit center, he might credit the minimum wage law with forcing him to innovate, but the next business down the block might not have the advantages of an artistic and cliquey industry.  One hopes Hibbs and his customers would still be realizing the damage they’ve done to real people’s lives with their votes, but it’s unlikely.

Race Riots Aren’t the Only Evidence that Big-Government Progressivism Doesn’t Work

With race riots in Baltimore shocking the nation, streamed in full color and graphic video across the Internet and social media, discussion has turned to the causes.

Speaking two days after the riots began, President Obama blamed the failure of a Republican Congress to pass his agenda.  Writing on National Review, Kevin Williamson focuses on the progressive Democrats who’ve tended to dominate cities that are wracked with such uprisings.  “They are incompetent, they are corrupt, and they are breathtakingly arrogant.”

Boiled down to core beliefs, there are two mutually exclusive political hypotheses on the table.  Either a centralized government can implement programs to raise up struggling communities, or centralizing government creates a font of money and power that will attract the sorts of people who use — prey on — those communities.  Both cannot be true.

My article on WatchDog Arena, this week, looks at Rhode Island’s rank of 42nd among states when it comes to return on taxpayer investment in government, according to WalletHub.

Put in Williamson’s terms, poor infrastructure maintenance shows incompetence, green energy boondoggles (not to mention regular arrests of legislators, including the last speaker of the Rhode Island House) show corruption, and the regulatory overreach shows a “breathtaking arrogance” about insiders’ ability to control an entire society.

If only because it shares New England’s typical lack of racial diversity, Rhode Island is not likely to face race riots anytime soon.  (Rhode Island is 7.5% black, to Maryland’s 30.1%; Providence is 16% black, to Baltimore’s 63.7%.)  That may only mean that the consequences of one-party rule dominated by a big-government progressive philosophy will come in another form.

When people are being pushed into difficult situations by a government that doesn’t serve their needs, and over which they feel they have no control, they can respond in different ways.  In Baltimore, large protests of people with few options are turning into riots.  In Rhode Island, people with more options are leaving.

The difference may only be a matter of time, though, as the state attracts people who think they need government services, even as those who pay for them exit.  Americans from all states should work to ensure that the experiments performed on collapsing and riotous cities don’t have to be tested across the country.

A Fishy, Misnamed State Bank

The more I read about this “Rhode Island Infrastructure Bank” being proposed by Governor Gina Raimondo and General Treasurer Seth Magaziner, the worse the idea sounds:

As they envision it, $22 million or so in state tax dollars, left-over federal stimulus dollars and bond proceeds would be funneled to the cities and towns for energy-cutting projects, such as these, through the renamed Rhode Island Clean Water Finance Agency, created in 1990 to provide loans for improvements to sewage and drinking water systems.

So, this will be new municipal debt without, it seems, voter approval.

… the legislation would also salt away an unspecified amount of state money away in “one or more” loan-loss reserve funds to encourage private banks to lend money to private homeowners and businesses for similar kinds of energy-saving building upgrades. The legislation does not say how much.

So, the public would absorb the risk for projects financed by private companies for private entities and individuals.

When asked why National Grid was among those backing legislation that could cut into its revenues by reducing energy use, company vice president Michael Ryan said the answer lies in an earlier “decoupling” law guaranteeing National Grid a “bump” in its rates if usage drops, as a result of energy-efficiency efforts.

So, it won’t actually save Rhode Island money on energy; it’ll simply shift the burden from government agencies and private entities that are able to get the loans onto those who are not.

The answer from treasury staff to many of those questions [about limits to the funds and processes for claiming losses] was this: the “operational details” are not spelled out in the latest, 80-page version of the bill. According to Rogers, details such as these — along with the mechanism for repayment of the loans — would be spelled out, at a future date in “rules and regulations.”

So, the make-or-break details will be out of legislators’ hands.

Robert Boisselle, the lobbyist for the Associated Builders and Contractors of Rhode Island, was among those raising red flags about references in the legislation to “Project Labor Agreements.” Boisselle said such agreements (“illegal in 22 states”) effectively bar non-union shops — with 80 percent of the state’s laborers — from bidding.

So, the prices will be driven up in order to make sure that the money goes directly to union members (and thus filtered back into advocacy and donations for Democrats).

If the whole thing seems risky and even fishy, keep looking, a reader tells me via email.  In an op-ed supporting the bank, Magaziner cites the Connecticut Green Bank as a model.  Look into the Connecticut Green Bank, and you find this:

[Coalition for Green Capital (CGC)] leaders Reed Hundt, and Ken Berlin were involved with the establishment of Connecticut’s green bank from start to finish and remain closely involved with the banks operations.

Internet searches for former FCC Chairman Hundt, now an investment advisor, turn up a lot of overlap with Magaziner’s father, Ira.  More notably, his name turns up in campaign finance reports, with $2,000 in donations to the RI Democratic State Committee in October and $1,000 to Gina Raimondo, last June.

On the other hand, some of us might not need to do that level of digging.  It’s enough to know that we have the worst roads and bridges in the country and the people in charge of the state government want a state “infrastructure” bank that helps governments pay to replace their windows.

Academic Hypotheses Versus Religion & Easily Dismissed Conclusions

The National Bureau of Economic Research set out to determine whether religiosity corresponds with a lack of innovation, as measured by the issuance of patents.  As the economists surely expected when they set out to publish such a paper, the answer at which they arrive is: “yes.”

Even the summary published in the Wall Street Journal gives hints of where argument with the methodology could begin, and purchasing the study itself would no doubt allow for a fleshing out of objections.  But it doesn’t seem necessary to go to such lengths.  Just a look at the headline chart gives reason to think the study’s conclusions aren’t worth exploring in detail.

Reporter Jeffrey Sparshott writes that the negative “relationship is apparent when plotting the percent of the population that describes itself as religious against a population-controlled measure of patent applications filed by a country’s residents.”  The distribution actually shows something more like the opposite.

Sure, the most patent-heavy countries, Japan and South Korea, are not religious, but they’re also from a certain culture.  Another East Asian country, the most unreligious, is China, and its innovation is in the middle of the spread.  Vietnam is nearly as unreligious as South Korea, and it’s the fourth-least-innovate country on the chart.  (North Korea isn’t included, by the way.)

Moving out of the orient continues the point.  The chart is broken into a five-by-five grid, and of the five non-oriental countries in the top quintile for innovation, three are more than 50% religious.  Expand the view to the top two quintiles for innovation, and it isn’t even close.  Only seven of nearly 30 countries in this space have less than 50% religiosity.  Moving the threshold to 60% of residents self-describing as “religious” only picks up two more countries.

From the chart, it’s pretty clear that the reasons there appears to be a correlation between the two variables is that (1) the great majority of countries are substantially religious, (2) Japan and South Korea are innovative outliers, and (3) a number of relatively poor countries (heavily weighted toward Islam) are very religious.

“We’re not making strong claims as to what is causing what,” says one of the study’s authors, but that’s obviously not true.  Even the abstract makes much of a presumption of religious opposition to science.

Rhode Island needs to learn how entrepreneurship really works

Everybody around the table gave me that friendly look that says, “You speak eloquently and seem to care, but we don’t think you really get what we’re talking about, here.” At the “Make It Happen RI” conference, I was seated at one of about a half-dozen round tables with eight to ten people at each, assembled to talk about entrepreneurship in Rhode Island.

In a half-dozen other conference rooms in the Rhode Island Convention Center, similar tables were filled with similar people, discussing related topics focused on how Rhode Island could “make it happen.”  That is, how leaders in the public and private sectors could get the state off the wrong end of every list, and change the state’s motto — “Hope” — from a bitter joke to a reality.

The statement that had drawn “the look” was that we were too focused on entrepreneurship as this exciting process of birthing cutting-edge businesses to make investors rich.  The plumber who identifies flaws in his boss’s business model, applied to the local market, and who strikes out on his own to test the theory is also an entrepreneur; it isn’t just the Mark Zuckerbergs of the world.

A recent study out of Pepperdine University specifies that entrepreneurs aren’t just “self-employed” people, but “the starter[s] and owner[s] of new businesses,” with an emphasis on “intense and continuous competition between new products and ideas.”  According to the authors, “The entrepreneur as gap-filler and risk-bearer is especially important to economic growth in developing nations.”

Continue reading on WatchDog.org.

Figuring Out Who the Sucker Is

As Rhode Islanders hear about the latest ideas for economic development percolating among their elected and appointed officials, whether minor-league baseball parks or big bucks for a Commerce Czar, Kevin Williamson looks to Maine for an important reminder:

When some lobbyists for a business interest—any interest group, really—come to the state capitol and tell you that they have a tremendous new idea that will create jobs-jobs-jobs-jobs-jobs, grow the tax base and get voters off the backs of citizen-legislators, listen carefully to see if the next sentence is: “All you have to do is to give us a tremendous amount of money.”

As the poker players say: If you don’t know who the sucker at the table is . . .

Perhaps Maine’s legislators were thinking to themselves: “Financiers and their lobbyists are well-known for their selflessness and their sense of public duty—surely they would not lead us astray!”

If so, they should stop thinking that.

In Maine, as Williamson says, “legislators put millions of dollars into a deal that they did not understand.”  Rhode Island is a leading example of legislators attempting to micromanage an economy that they don’t understand — that it is actually impossible for anybody to understand well enough to direct.

Income Inequality and the Middle Class in RI Cities and Towns

Stephen Beale has a story on GoLocalProv, this morning, on “The RI Communities with the Biggest Wealth Gaps.”  The progressives whom Beale quotes all handle the question as one of “income inequality,” but the subject really has more to do with a certain way of looking at the middle class, as on the interactive map from Pew that I’ve mentioned here and on WatchDog.org.

That’s the thrust of the comments that I gave Beale for the article.  Progressive policies create this gap between rich and poor, because they dismantle the structure that families can use to bridge the gap.  As I put it in the article, they “make it difficult to improvise economically.”  Then, they explicitly attempt to redistribute money based on the political demands of government, rather than leave it in the economy, where people can redistribute it themselves through commerce.  The first method benefits political interests, which helps insiders; the second method benefits the economy, which helps everybody.

An example of a progressive policy suggested by Kate Brewster of the Economic Progress Institute (formerly the Poverty Institute) is a fine illustration:

… “Cities may be able to provide some opportunities for residents to improve their economic circumstances through policies that require businesses that receive benefits from the city to hire city residents,” Brewster said.

The most prominent example of such a policy in Rhode Island is the First Source ordinance in Providence, which mandates that businesses receiving any form of aid from the city first attempt to hire local residents before going outside of the city to recruit. However, a GoLocalProv report last year found that the city had largely failed to enforce the ordinance, prompting a lawsuit from the activist group, Direct Action for Rights and Equality.

As Rhode Islanders are learning with every new high-profile development that’s proposed, our state has structured itself such that businesses find it difficult to operate without seeking some sort of benefit from the cities, towns, and state, whether tax deals, grants, or some other relief.  That puts them at the mercy of such policies as Brewster suggests.  Then, those policies place additional burdens.  To the extent that a business can’t simply hire the best candidate for a job, it represents an implicit drag on its operations.

The end result is that entrepreneurs (and less highfalutin small-business owners) can’t or don’t bother to enter the economic game.  That leaves more space for the established players who are able to work the system.  They get richer than they otherwise would be, while the folks at the bottom of the ladder have no rungs to climb up.

No Jobs for College Grads & No Jobs for Anybody

At first look, a study mentioned on MarketWatch appears to provide support for the mantra from Rhode Island’s governing elite that we need “the right kind of well-paying jobs.”  From the color-coded map that Quentin Fottrell includes with his article, the takeaway appears to be that Rhode Island is one of the four states with the lowest numbers of jobs for college graduates.

Comparing that map with my regular employment-versus-peak chart shows that there’s more to the story.  On the map, RI is in company with North Dakota, but in employment, North Dakota is up there with Texas as two states that have put the recession well in their rear-view mirrors.

If you consider the second chart of the study that Fottrell cites, you’ll note that adjustment for population doesn’t help Rhode Island at all, but it does move North Dakota up to the middle of the pack, albeit below the national average.  The key point is that Rhode Island lacks both college-grad jobs and non-college-grad jobs.  In short, Rhode Island doesn’t have much by way of opportunity for anybody (except political insiders and opportunists).

As a college grad who spent much of the last decade working as a carpenter, I’d suggest for the average Rhode Islander having a job comes first.  Benefiting from a college degree comes second.  Judging by the way our governors and legislators set policy, it’s pretty clear that they believe it’s worth slowing down job growth generally in order to make sure that those that are available meet their approval.

Making matters worse is that there’s no guarantee (or evidence, that I’ve seen) that the “well-paying jobs” that elected officials promise will actually go to the Rhode Islanders who are suffering from the state’s moribund economy.  As I keep repeating: the only plausible, or even humane, solution is to back the government off so that Rhode Islanders can develop the kind of economy that serves their needs.

This may just be my undying optimism, but I have a feeling that letting Rhode Islanders do that will improve prospects across the job spectrum.  After all, a good portion of your neighbors do, in fact, have college degrees that they’d like to put to work.  Left free to work and to experiment, they’ll make their own opportunities.