Apropos of Paul’s January series on needed regulatory reforms (examples here and here), John Stossel’s blog has a nice summary of how counterproductive regulations emerge in political process.

Even when regulators mean well – when they worry about safety or whether customers get basic services – regulations are based on the old, familiar ways of doing things, simply because regulators don’t know anything else. That’s great for old, familiar firms – but bad for the innovative startup that wants to try something different. And bad for consumers who might have benefitted.

The late Mancur Olson explained how privilege-seeking interest groups successfully obtain government favors. His path breaking book may be found online here.

Assuming that government exists to maximize prosperity within its jurisdiction, the problem is how to change the incentives of legislators, bureaucrats and regulators so that they are more resistant to privilege seeking. That is a steep hill to climb. Their human capital is invested in the status quo.

Go here to read my explanation of how government overreach reduces prosperity along New Mexico’s border.

One Dan Metzger and I have had a bit of an ongoing debate on the pages of the Albuquerque Journal business section recently (another installment from Metzger appeared today). My initial response is available here.

I don’t really think that Metzger brought up any new points in today’s letter and that the discussion has largely played itself out, I figure that an online response is worthwhile. Obviously, Metzger and I view the economy very differently.

His approach is very Keynesian. Government needs to spend more money in order to stimulate the economy. Nothing is said about the relative efficiency of government spending as opposed to private sector spending, nor are the inefficiencies inherent in the millions of government regulations foisted upon the economy that serve to create “wedges” between willing buyers and willing sellers in an otherwise free market.

Metzger mysteriously blames “private sector” for the economic crisis (omitting Fannie Mae/Freddie Mac, the Federal Reserve, and regulatory incompetence) and concludes by stating that the US will “always make its interest payments” because it can print the money.

Because hyperinflation is exactly what we need:

The US Senate, with the support of New Mexico’s Martin Heinrich and Tom Udall, recently passed legislation called the “Marketplace Fairness Act.” The idea behind the legislation is to set up a new taxation regime that would allow states to collect sales taxes on ALL online sales.

Currently, due to the US Supreme Court’s Quill decision of the early 1990s, online merchants must collect all sales taxes due if they have a physical presence in a particular state, but “mom and pop” merchants are not forced to act as tax collectors for the 9,600+ taxing jurisdictions throughout the United States. According to tables available online from New Mexico’s Tax and Revenue Department, there are 24 taxing districts in Bernalillo County alone and easily more than 100 statewide.

The complexity point is key because it is not that consumers do not owe taxes on online purchases, rather, the Court decided that the burden of forcing a small business to collect taxes at so many different rates with products defined differently, and with documentation required on a variety of schedules and in different formats, was unreasonable.

The Marketplace Fairness Act would require the creation of a complicated and expensive system for tracking where consumers live, what they buy and how much it costs. After all, as Overstock.com CEO Patrick Byrne notes, “In one jurisdiction, cotton candy is food; in another it’s entertainment or candy.”

Thankfully, Gov. Martinez has taken a firm stance against a convoluted system of Internet taxation, but the same cannot be said for many governors and legislators of both parties who, hungry for more revenue, are supporting a policy change that would undermine the small businesses that have sprung up to do business online, thus cushioning the blow of the current slow-growth US economy.

One Albuquerque-based business owner that I have spoken to has stated that he would no longer sell his product online under an Internet taxation regime as set up under the Marketplace Fairness Act. The issue is not an unwillingness to have his consumers “pay their fair share,” but the compliance costs that involve submitting documentation, often on a monthly basis even if his company has no sales in that particular jurisdiction.

He is by no means the only small business owner with an online presence to face negative repercussions from Congressional overreach on Internet sales. It is one big reason why Ebay, Etsy, and their small, but numerous sellers oppose the Marketplace Fairness Act while the online behemoth Amazon has become one of the primary advocates for the Act.

Of course, many governments are hungry for the revenues that Internet taxes would bring in. Many of them argue that these taxes will force online retailers to “pay their fair share” for all of the services they use. The reality is that Internet merchants don’t burden local infrastructure like traditional retailers and “big box” stores. These companies, not the online retailers, are using the roads, sewers and schools.

Rather than burdening small businesses with additional compliance costs, states should consider shifting to an “origin-based” sourcing rule for sales taxes.

A destination-based sourcing rule requires businesses to collect sales tax defined by the physical location of the buyer, whereas an origin-based sourcing rule would require sales tax collection defined by the physical location of the seller. After all, if the seller is burdened with collecting taxes on behalf of the government, the revenues generated should at least be used in part for the benefit of that seller.

Better still; unlike the Marketplace Fairness Act which relies on collusion among the states and thus requires the blessing of Congress, the origination-based approach encourages federalism and competition among the states to be as attractive as possible for potential Internet vendors.

Taxing Internet sales is a complicated issue. The trick is to balance genuine fairness and reasonable regulations while respecting federalism and encouraging interstate competition. We can do better on each of these fronts without the Marketplace Fairness Act.

Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility

I ran across this column from the Investors Business Daily which outlines some of the positive economic data coming from Texas and juxtaposing that data against the struggles of the national economy.

It’s a good article so far as it goes, but it doesn’t explain what makes Texas so darn attractive to entrepreneurs and businesses.

For starters, it has no personal income tax (New Mexico’s rate is 4.9% which is down from 8.2% a few years back thanks in part to Bill Richardson);

Texas is a Right to Work state meaning that workers cannot be compelled to join a union as a condition of employment (New Mexico has no such law);

Texas has a corporate income tax rate of zero while New Mexico’s will be 5.9% even after the recent corporate income tax cuts are phased in five years from now;

The aforementioned issues are all under the control of Texas’ elected officials, but Texas is also blessed to have less of its land mass owned by the federal government which allows the state to utilize and benefit from a far greater percentage of its land:

HT: Roger Mickelson

It has been a busy week, so I am just getting around to responding to an article by Winthrop Quigley that appeared in the Albuquerque Journal earlier in the week. The headline was “Health Exchanges Faces Challenges.” Well, of course, I thought, the “exchange” concept is unproven, the software needed is extremely complex, and requires input from disparate parties from several different parties. View the exchange flow chart that appeared at the Washington Post’s blog site from Xerox below:

But no. Rather than outlining the very real difficulties with setting up these exchanges (and why that presents problems for the law itself), Quigley simply attacks the views on ObamaCare expressed by Dr. Deane Waldman and HSD Secretary Sidonie Squier, both of whom are on the exchange board (implying that they are the aforementioned “obstacles”). Sure, it is a challenging position to be in to assist in the implementation of a law that you have serious misgivings about (and Quigley could also have done a piece exploring those realities), but apparently he’d prefer to disparage those who have expressed concerns about the law.

For the record, RGF has serious concerns about exchanges (which indeed have received support of organizations like the Heritage Foundation). I wish Waldman and Squirer the best as they work to implement this law (I could not do what they are doing).

The Japanese delegation came to town to talk about importing New Mexico’s liquefied natural gas (LNG) to their country. As I’ve noted before, this could be a real boon for New Mexico.

Rob Nikolewski at Capitol Report New Mexico has a great in-depth column about the visit and some of the issues standing in the way of this windfall for our state’s economy.

KRQE Channel 13 has a report here as well.

For a broader discussion of the political issues holding us back, check out this great column from libertarian syndicated columnist Steve Chapman.

Lastly, I visited Farmington recently (the Four Corners Region’s economy has been greatly harmed by depressed natural gas prices) and sat down with the folks at the Daily-Times which translated into this editorial on the issue (and other economic issues of interest to the Four Corners).

If you or I kill an eagle, we likely go to jail. If the wind industry kills multiple bald eagles with their turbines, they get a pass from the Obama Administration and their friends at the Sierra Club.

Kind of brings to mind Stalin’s quote “One death is a tragedy; one million is a statistic.”

But the issue is a serious one. Southeastern New Mexico is now facing yet another “endangered species” issue with the “Lesser Prairie Chicken.” Addition to the list could put a real damper on industry in Southeastern New Mexico.

I’m not saying that any wind farm that kills an eagle should be torn down; rather, I would say that the Endangered Species Act should be interpreted in ways that offer similar leeway to other industries and other uses of the land.

If you have been out of the country or living under a rock the last few days, you may not have heard that the Internal Revenue Service has admitted to harassing and generally making life difficult (by blatantly breaking the law) for conservative groups including the Albuquerque Tea Party. It seems hard to believe that directives were coming from anywhere but the highest echelons of the Administration, but proving that will be another matter.

If you think that’s bad (and it is), wait until the IRS gets its grimy paws on American health care. As CNBC noted prior to the IRS scandal:

Get ready for the Internal Revenue Service to play a dominant role in health care. When Obamacare takes full effect next year, the agency will enforce most of the laws involved in the reform—even deciding who gets included in the health-care mandate.

“The impact of the IRS on health-care reform is huge,” said Paul Hamburger, a partner and employee benefits lawyer at Proskauer.

“Other agencies like Social Security will be checking for mistakes, but the IRS is the key enforcer,” Hamburger said. “It’s also going to help manage who might get health care.”

If that doesn’t send chills up your spine, I don’t know what will.

Check out the following chart illustrating the IRS’s dramatically-expanded role in US health care:

The big point made by advocates for Mora’s policy of banning oil and gas drilling (as I discussed recently) is that water is more important than oil or natural gas. That may sound like a valid point, but this is a very interesting article which notes that fracking uses far less water in the United States than golf courses. See the following chart on water usage by fuel source:

Of course, water IS a precious resource and the free market HATES the loss of a valuable resources. So, naturally, there are companies out there that are working to recycle frack water. And, according to the article, 20% of frack water is already recycled.

Rather than banning a particular process (Mora County hasn’t just banned fracking, but ALL oil and gas drilling), it might be worth pushing for procedures like water recycling that will make fracking and oil and gas drilling more environmentally-friendly than they already are.

Then, why is the Obama Administration reaching out to industry groups to help sell the law? We’ve heard so much from ObamaCare supporters and the Administration about how the law is going to hold those evil drug and insurance companies accountable. If that is the case, it sure has a funny way of doing so.

The reality is (as libertarians and some conservatives have repeatedly pointed out), the reality is that some of the biggest players in health care (especially those that already garner significant government support) have put up a great deal of money lobbying for the law. Now that the law is being implemented and the American people refuse to be “educated” in support of the law, the Administration is reaching out to those very same businesses they say the law is meant to hold accountable…got it?

The idea of putting solar panels on the Roundhouse parking garage is being pushed by an environmental group. The group managed to convince legislators to set aside $185,000 of taxpayers’ money aside for solar panels during the last legislative session, but alas (for them) Gov. Martinez vetoed it.

Readers in this space will know that we are not big fans of subsidies for ANY energy source (see chart below):

But that is not even the point when it comes to questioning the merits of this particular project:

1) The Roundhouse sits largely empty for 10 months out of the year (yes, there are interim committee hearings), will the electricity generated by sold on the grid?

2) Top electricity usage in the Roundhouse would be during the legislative session which takes place during January-February (or March) when the sun shines the least. How is this cost-effective?

3) While the group claims a repayment schedule that clearly seems to benefit taxpayers, can we get a full accounting of the costs and benefits of this project (including all subsidies) from a third-party auditor?

In this case, it is to look at the potential for them to purchase our clean, affordable natural gas to power their economy. See this brief write-up in the Albuquerque Business First.

What is not touched on in the article is that the Obama Administration needs to approve exports of LNG in order for some of the infrastructure to be developed for such exports. According to the Washington Post, it does appear that the Administration is leaning towards support of exports, but such support is not guaranteed.

As I write here, the benefits of exports far outweigh the potential negatives (if there even are any).

So, welcome to the Japanese delegation and kudos in particular to Michi Takahashi and the folks at New Mexico Solar Station for organizing this delegation. Hopefully Washington can get its act together to allow nations eager to purchase our natural gas bounty to do so.

In today’s Albuquerque Journal, Winthrop Quigley writes (with a local angle) about a recent report in the Washington Post which “uncovers” the “shocking” information that hospital prices have no basis in reality.

I suppose that having the actual pricing data is somewhat interesting, but having welcomed two babies into the world in the last five years, the lack of correlation between hospital prices and reality was well-known and expected even prior to walking into the hospital for the first birth. After all, hospitals don’t operate in anything even remotely resembling a competitive free market.

With third-party payers (be they insurance companies or the government, not to mention charity care), hospital pricing has almost no bearing on reality.

A few good quotes from Quigley’s piece, “The charges vary a great deal among hospitals, but what they are actually paid is either set by Medicare or negotiated with insurance companies, said Stephen Forney, Lovelace Health System chief financial officer. Medicare payments vary by where a hospital is located, and hospitals like UNMH get higher payments because that’s how the federal government helps fund graduate medical education.

“Payments don’t vary a lot, just the charges.”

Transparency in hospital pricing is a nice idea, but ObamaCare is only further removing patients from having to pay the costs of their care, so I don’t see this data as being very relevant to the health care discussion until and unless patients have some “skin in the game” and are treated like adults who can shop for the best “deals” in health care.

Welfare reform in the mid-1990s was highly-successful both in getting people off of welfare, but also in pushing them to enter the workforce. While the primary tangible benefit of work is in the actual economic output of the activity that thus benefits society, there is no doubt that having a job leads to societal involvement, self-esteem, and pride that simply cannot be achieved by getting a monthly check from the government.

Is it any coincidence or surprise that the Tsarnaev family (Boston Marathon bombers) received $100,000 in welfare benefits over a ten-year span? It’s not that welfare creates terrorism (thank goodness), but that idle hands are indeed the “devil’s workshop.” After all, if you aren’t working, gaining new skills, and developing some kind of a relationship to the society around you, alienation and a lack of respect are more likely to follow, plus you’ll have plenty of time on your hands for mischief.

And, as if the Tsarnaev’s aren’t enough of a reason to reconsider our welfare policies, check out this story on Denmark where the population and government officials are re-thinking their nation’s hyper-generous welfare benefits. Increasing the number of “makers” relative to the number of “takers” may be the single greatest problem of our age, especially in light of the aging population and depressed work-force participation rates.

Interesting information from The Economist Magazine.

My letter to the editor responding to a letter that appeared a few weeks before ran in today’s Albuquerque Journal business section. Full text below:

Deficit “deniers” like letter-writer Dan Metzger seem to believe that government, especially the US federal government, has magical powers. To them, federal debt and deficits are not a problem and in fact are good. How ridiculous!

For starters, Metzger seems to assume that research and development forms a large proportion of total federal spending. This is simply not the case. Total federal R&D spending is less than 5 percent of the overall budget. Far higher percentages go to transfer payments and other spending priorities that have no positive impact on economic growth.

Metzger is correct that the federal deficit has no “due date,” however interest payments on the ever-growing debt will kill economic growth if/when interest rates rise above their historically-low levels.

More importantly, the federal government simply wastes money on boondoggles costing millions or even billions of dollars including farm and ethanol subsidies (to name just two).

The economic problem we face today is not one of too little federal spending which has doubled since the end of the Clinton Administration; rather, it is too much spending which crowds out more efficient private sector investment and sustainable economic growth.

(Albuquerque) If the Obama Administration approves liquefied natural gas (LNG) exports to non-free trade nations (those that do not have separate trade agreements with the United States), New Mexico could see an immediate increase in economic output of $200 million and the addition of 2,000 jobs according to a new Rio Grande Foundation report.

The issue of whether or not to export a portion of America’s bounty of clean natural gas has generated heated debate pitting some environmentalists and manufacturers who oppose exports against producers and free trade supporters who wish to allow exports.

The Rio Grande Foundation has come down firmly on the side of free trade and those who wish to sell natural gas around the world.

Said Foundation President Paul Gessing, “Philosophically, this view flows directly from our support for free markets, but it also is a product of our desire to strengthen New Mexico’s economy by providing new markets for natural gas produced within our borders.”

To come to its conclusions regarding the jobs and economic input of natural gas exports, the Foundation relied on data available from IHS Global Insight which stated that “exports would create over 100,000 direct, indirect, and economy wide jobs and have an immediate impact resulting in between $3.6 and $5.2 billion in potential revenues.”

According to the US Energy Information Administration, New Mexico produces 5.3 percent of total US natural gas, thus making it likely that New Mexico would experience a similar ratio of economic benefits.

Continued Gessing, “The economic impact numbers outlined above are just a starting point in terms of economic impact, but 2,000 new jobs would be enough to qualify these new jobs as the 5th-largest private employer in New Mexico were they all at one company.”

In addition to New Mexico jobs, benefits of LNG exports include increasing tax revenues, reduced carbon emissions over other energy sources, reduced trade deficits, a display of principled support of free trade, and closer relations with foreign people and governments.

Concluded Gessing, “LNG exports are a true win-win-win policy, President Obama should act now.”

Gessing recently sat down with KNAT TV to discuss the issue of LNG exports. See that interview below:

Rio Grande Foundation president Paul Gessing discusses the potential for Liquefied Natural Gas Exports on Joy in Our Town from Paul Gessing on Vimeo.

Check out the following chart:

It shows that New Mexico is among the slowest states in the nation when it comes to releasing financial reports. This chart comes to us from our friends at the Institute for Truth in Accounting which advocates for clear, honest, and transparent governmental accounting. Once aspect of their mission is to encourage states to release their reports in a timely fashion, on which account New Mexico is not faring too well.

While corporations have to file their 10-K’s within 90 days or less of their fiscal year end, in 2011 New Mexico took 356 days. This year is looking little better as it has been 298 days since the end of the fiscal year, and the state has yet to issue the report.

Additionally, on January 10, Governor Martinez issued her Executive Budget Recommendations. This means that she was making budgetary recommendations for 2014 without knowing for sure what took place in 2012—and she still doesn’t know!

Recently, the Institute highlighted the state which took the longest to release their financial reports in 2011. That is the chart shown above.

It has been well-publicized that I am on the board of a new, completely virtual charter school called New Mexico Connections Academy. Well, the proverbial “rubber is hitting the road” and enrollment is happening now as is a series of information sessions on the school itself.

Information sessions, both online and in-person (throughout the state) are going on over the next few weeks. If you think digital learning might be right for your child, grandchild, or the child of a friend (grades 4-12), now is the time to find out more and reserve a spot for that child (enrollment is limited by law). Again, click here for additional information.

Contrary to New Mexico law which authorizes the Oil Conservation Division with the power to approve or deny drilling, the Mora County Commission has voted 2-1 to ban all drilling for oil and gas within its borders. Not ‘fracking’ which, while safe, has generated a great deal of concern among liberals and NIMBY types, but plain old oil and gas drilling.

This in a County where 23.8 percent of residents live in poverty and 15 percent of the County is unemployed. No jobs here!!!

Now, I honestly don’t have a moral problem with being against oil and gas drilling. It is illegal under New Mexico law and unfair even for, say 90% of the citizens of a given locality to tell the other 10% they can’t have a job, but it’s not inherently immoral. What is immoral is the fact that the folks in Mora County send their kids to schools that are funded largely by oil and gas, heat their homes and watch TV by the power of gas and/or some other nasty fossil fuel, drive on roads that have a petroleum base, and generally benefit from the fact that society around them embraces fossil fuels and oil and gas exploitation.

So, what can be done? First, it is time for our leaders to do everything possible to cut off severance tax dollars to the County. Secondly, I think Gov. Martinez and her Administration should do whatever they can to deny funding and services to the County. Need a pothole fixed or a road paved? Sorry, that requires petroleum…local welfare office or senior center not staffed appropriately…sorry, we just don’t have the money and you aren’t pulling your weight.

Freedom means responsibility. If Mora is free to deny basic economic activity on its hallowed land, then the leaders of the County should bear responsibility for those decisions and voters bear responsibility for allowing “Mora-ons” to represent them.

Like it or not, New Mexico is heading down the expensive path of Medicaid expansion under ObamaCare. One of the concerns we expressed in opposing the expansion was related to some preliminary data from Oregon which seemed to show that Medicaid doesn’t really do much to improve the health of its recipients.

Well, the data are no longer preliminary, rather they are confirmed. According to a new report from the New England Journal of Medicine, indeed, having Medicaid newly available “did not lead to big health gains” in Oregon.”

In other words, Medicaid expansion will likely result in a lot of additional spending for very little in the way of results.

On a related note, I found this story very interesting. There is a pilot program in Medicare that, if replicated nationwide, would save an estimated $122 billion a year and improve patient lives through reduced hospitalizations (a 33% reduction). Rather than expanding this program, the Obama Administration is going to kill it.

“Film Loans Fizzle.” That’s the headline of the front page story in today’s Albuquerque Journal. The rest of the story treats us to whining from the “usual suspects” on the difficulty of obtaining interest-free loans for film projects and their desire to alter the terms of such loans. It all sounds so sad…another government program that just isn’t being adequately funded.

The reality is much more optimistic, at least for taxpayers. After all, right there in the story is the explanation that the state made $1.4 million on loans totaling $240 million under the original, generous program, for a return of about 0.6 percent. Not exactly a stellar return on investment even in these low interest rate times. According to the story, the same $240 million invested in government treasuries instead of film productions would have generated more than $31 million over the same period. In other words, the changes to the program arguably saved taxpayers $30 million. This is GOOD NEWS!

Unfortunately, the author of the piece talked to film advocates, not taxpayer advocates, so the piece is gloomy in tone when it should be singing the praises of Gov. Martinez and the folks (like the Rio Grande Foundation) who advocated for these reforms.

John Fund is National Affairs Columnist for National Review magazine and an on-air analyst on the Fox News Channel. He is considered a notable expert on American politics and the nexus between politics and economics. He spoke at the Albuquerque Museum in Albuquerque on Monday, April 29, 2013. His presentation is below:

4-30-13 John Fund from Paul Gessing on Vimeo.