David R. Henderson  

The Two Davids Converge

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Regular readers of this blog know that I was pretty harsh on David Cay Johnston recently (here and here). But David is persistent. He posted an excellent comment on my first post. If I don't mention it here, it will be lost to virtually all Econlog readers. Here's his comment:

Interesting take on Avatar. In Free Lunch you can read how GWBush's fortune derives almost entirely from a subsidy that began with eminent domain for private benefit, involved a tax increase for private benefit -- and that more than $34 million of the $202 million stealth subsidy was left on the table, raising its own questions about the managerial competence of the general partner (Mr. Bush). The data in my book were all confirmed by the key lawyer in the deal, Ray Hutchison, husband (now late husband) of now former Senator Kay Bailey Hutchison.

The Jeep deal is worse because of efforts to prevent any litigation over the underlying legal issues.

Private use of eminent domain for private gain is increasing, but hardly anyone is paying attention.

I'm guessing that this was about the Texas Rangers. I was surprised that this got underplayed at the time, given that Bush, when he made the deal (assuming I'm right abut the incident), was the son of the President of the United States. It appears to be cronyism.

I do want to add one thought, though, re David's last sentence. Included in "hardly anyone" are the people who fought so valiantly all the way to the U.S. Supreme Court in Kelo v. City of New London. Among them are the Institute for Justice, my favorite charity. Others include, according to Wikipedia, "the NAACP, AARP, the late Martin Luther King's Southern Christian Leadership Conference and South Jersey Legal Services."

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CATEGORIES: Property Rights

COMMENTS (5 to date)
Kevin Erdmann writes:

It was interesting how much of his own work that DCJ cited in the comments was very libertarian. I suspect Arnold Kling's 3 axis model is at work here. DCJ sees his work as being against the powerful. He sees libertarians as frequently working in defense of the powerful. Our reaction to his original column would have seemed that way to him. Our umbrage at the inequality meme looks like apologetics for the wealthy.

Yet, libertarians would approve of most of his activism, seeing it as a fight against coercion.

To DCJ, framing his battles in broad terms so that fighting all power is roughly similar to fighting coercive power, seems more or less true. For libertarians, this is an important distinction.

It's a shame that these paradigm issues are such a powerful force in the way that we affiliate with each other, because it looks pretty clear to me that the vast majority of DCJ's most important work would have strong libertarian support.

David Cay Johnston writes:

To be clear, my last line was in terms of today. Kelo was decided almost a decade ago.

There always specific interest groups opposing this or that policy, but the continuing expansion of eminent domain for private gain is simply not part of the broader public debate in America. Neither are the techniques local governments and their economic development agencies employ On behalf of large businesses – notably companies like Walmart, Home Depot and other retailers and distributors – to acquire valuable land at deeply discounted values rather than market prices.

And, yes, it was the Rangers deal I was referencing.

Kevin, thank you for the kind words. I don't have any issue with anyone being rich or powerful, it is the abuses I focus on.

David R. Henderson writes:

Thanks, Kevin and David.
David, you’re right about Kelo being decided almost a decade ago. But there are ongoing fights against eminent domain. Check out the Institute for Justice’s exemplary record here.

mike davis writes:

Interesting exchange. Thanks to both Davids for keeping it going.

A small quibble/question for David J. I don’t think I’d describe the shameful handout given to the owners of the Texas Rangers as a “stealth subsidy”. The sales tax increase was approved by a 2-to-1 vote in Arlington and I recall that the other goodies--tax exemptions, land, etc.—were well known.

In my mind this makes the whole thing even more depressing. Since the Ranger’s deal, local voters have supported the construction of two other sport’s venues. The basketball arena in Dallas enriched Mavericks then owner Ross Perot Jr. and his partners. (Don’t accuse Cuban of being a crony capitalist, at least on this deal. He paid full price for the team—in effect, he just helped Perot capitalize on the public investment.) The football stadium benefited billionaire Jerry Jones and family.

Again, maybe this is a small point but if these kinds of things were just a matter of a few greedy rich guys doing back room deals with corrupt politicians, sunlight (in the form of stuff like David J’s articles) would probably fix the problem. But for whatever reason the voters and politicians actually believe the fanciful stories about the positive public good that comes from these kinds of investments. Sadly, the sports media have a vested interest in pushing these kinds of projects and the rest of the media do a really sorry job of analysis. (Here in Dallas, at least, most of the stories on economic impact just said “So here’s one group of economists who say the project will produce $xxx million in positive economic impact. And here’s another guy we interviewed who said that was silly.”) We could probably say the same thing about lots of other boondoogles—my current favorites are all the special favors doled out to movie makers who agree to film in particular city or state.

David Cay Johnston writes:

Mike Davis,

The Rangers vote was held on an odd day in January. Very few people turned out. Bush and partners hired a Democratic strategy firm to get voters it wanted to the polls.

One of the Bush arguments was that a lot of the tax would be paid by people who did not live in Arlington, which is between Dallas and Ft. Worth and that they would not know they were providing much of the subsidy. In addition the Bush 2000 campaign made wildly misleading statements to the political reporters covering the campaign, most of whom know little of how government works and very little about taxes and accounting so they are easily mislead on policy. When I spent several weeks in Texas working on this I was surprised at how many people in Arlington did not understand the financial issues, including some who voted for the tax increase.

As I put it in Free Lunch -- GWBush, whose whole 2000 campaign was built on championing tax rate cuts, owes most of his fortune to a tax rate increase which he arranged to funnel into his and his partners pockets (while wasting about 20% of it). Talk about contradictions.

The Founders, especially Madison, wrote about their worries that what would destroy America would be inequality and the rise of a "business aristocracy" which would persuade people who worked for wages or a share of crops to vote for policies that favored the business aristocrats at the expense of the people.

On the Hollywood giveaways, which cost states money and provide at best a handful of temporary jobs, this from the chapter about them in the third book of my trilogy, The Fine Print:


The subsidy for Public Enemies, which earned $210 million worldwide at the box office, also shows how big businesses have arranged the laws to favor them at the expense of the family-owned businesses that dominate in numbers, but are pipsqueaks in profits.

Keep in mind that 80 percent of American companies have less than $5 million in assets and two-thirds have less than $500,000 in assets. After taxes these 4.7 million small businesses keep not quite three cents on each dollar they ring up at the cash register, my analysis of IRS data reveals.

Official state data show that 8,010 small Wisconsin companies eked out a profit of less than $25,000 each in 2006. Their average profit came to less than $7,000 each, on which they paid an average tax of $545. Together these small businesses paid Wisconsin nearly $4.4 million in corporate income taxes, almost exactly the amount of money that flowed out of state coffers to the makers of Public Enemies.

In effect, Wisconsin politicians forced the owners of these 8,000 small, family-owned and taxpaying businesses to turn over a month’s profits so the money could be given to one of the biggest companies in the world, General Electric, and its partners in making a film glamorizing violent theft. This transfer illustrates how small businesses, as well as individuals, are forced via the fine print to give some of their substance to giant companies.

The question Wisconsin taxpayers should be asking is how much better off those 8,000 small businesses would be if they had been able to hold onto that $4.6 million, instead of being forced to subsidize General Electric’s Universal Studios.


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