We are often told that government acts with the best of intentions. Personally, I believe it, but also realize that the road to hell is indeed paved with the those very same good intentions. This scenario is about to play itself out when it comes to toys. In the wake of the scandal over the toys from China that contained lead and other harmful substances, Congress passed a law called the Consumer Product Safety Improvement Act which was supposed to rectify the problem through a whole host of regulations. Unfortunately, the government solution may be as bad as the problem of unsafe toys itself.
As abundant materials on the Handmade Toy Alliance point out, these laws, by adding a $300 – $4,000 fee per toy in the form of testing and licensing costs, this law will actually make it tougher for domestic, small-scale toy producers to stay in business. There were a few excellent letters to the editor in the Wall Street Journal on the topic as well.
The fact is that the large toy companies that import toys from China can easily fold testing and licensing costs into the cost of their mass-produced toys, small, domestic producers will go out of business. Congress is now considering amending the legislation which is set to take effect in a few weeks, but this really is an excellent example of what well-intentioned government policies can do when they are actually implemented.

Perhaps you missed it in all the hoopla over President Obama’s Inauguration on Tuesday, but Governor Bill Richardson delivered his State of the State address on Tuesday as well. You can read the text of that address here.
While admitting that the state faces hard times financially and laying out a few ways to resolve those problems, Richardson laid out an extremely ambitious agenda which, if adopted, would result in massive tax increases and higher energy prices for New Mexicans.
I discussed the Governor’s address on Artesia’s KSVP 990AM. Listen here.

A few days ago I discussed the generous incentives that have been used to attract filmmakers to New Mexico. I’ve had several questions about which study I believe to be more accurate and unequivocally I say the Arrowhead Center Study which was done at the request of the Legislative Finance Committee, not the Ernst and Young study, is closer to the truth. But, we have been talking about these subsidies for the film industry for a long time (see this entry from 2004) saying that they are bad public policy and should be eliminated.
But what about an objective, outside opinion on the studies’ relative merits. Here is an interesting analysis from “The Contrarian.” A couple of choice quotes from the posting indicate the reasons to be skeptical of the Ernst & Young study:

It’s hard to explain the discrepancy without culling through footnotes and looking at the methodology and data used. But the study commissioned by the governor’s office might be slightly more suspect, given the political and economic capital Richardson has invested in the issue. Even the pro-subsidy report concedes that the direct economic benefits don’t make up for the foregone tax revenue, dollar for dollar. But it manages to find a net benefit by estimating the present and future impact of “film tourism.”
Does anyone really choose New Mexico as a vacation destination because some scene in an Indiana Jones movie was shot there? Possibly. But this seems a slender thread on which to hang a program that has handed out an estimated $67 million in tax breaks since 2003. And does Steven Spielberg really need the handout? I think not.

Recently, the Rio Grande Foundation took a close look at the investment practices of New Mexico’s State Investment Council (SIC). This work turned in to an opinion piece that was subsequently published in the Las Cruces Sun-News.
Not surprisingly, when called to the carpet, the bureaucrats in charge of the SIC responded not with contrition or explanation of their practices, but instead by lashing out at those who criticize their practices. You can read Gary Bland’s response here. In his response, Bland makes a number of personal attacks, but fails to adequately respond to the arguments in our original discussion of the SIC’s shortcomings.
I’ve posted a brief response to Bland’s attack below:

Gary Bland’s defense of the State Investment Council (1/15/09) shows even more why the Legislature and the public need to pay attention to what is being done with their money.
In a January 8, article in the Sun-News, the Rio Grande Foundation exposed an investment of over half a million dollars in an Arabian owned chain of scandal-plagued low income dental clinics. That business, Small Smiles, had been touted by the State Investment Council as a New Mexico company when in fact it is owned by a bank in the oil-rich nation of Bahrain. We also reported on the allegations of child abuse, Medicaid fraud and unethical medical practices that have been leveled against this company into which the State Investment Council has allowed the public’s money to be invested. Since we issued our report we have learned that of the 19 states where Small Smiles has clinics, it is being investigated by 16 State Attorneys General.
Mr. Bland, who is the state’s investment officer, had no response whatsoever to these revelations. The chance that taxpayers will ever seen any positive return on this investment are about zero, as has been the case with many of the other investments made under Mr. Bland’s leadership. Mr. Bland is a defendant is a whistleblower lawsuit as the result of that imprudent investment of our money.
Mr. Bland misleads in his effort to shine a positive light on the State Investment Council’s venture capital risk-taking. He touts a 7.2% five-year return for the Land Grant Fund investment. Problem is, the Small Smiles investment, and the other high-risk New Mexico venture capital investments have been made our of the Severance Tax Permanent Fund, not the Land Grant Fund. The Severance Tax Permanent Fund—based on the same report from which Mr. Bland obtained his figures—has a lower rate of return over the past five years. It comes in at 6.9% as of September 2008, well behind other indexes such as the S&P 400 returned (8.7%), the Russell 1000 (7.1%) and the Russell 2000 (9.4%). This underperformance raises the question whether New Mexico would be better off scrapping its expensive investment advisor relationships and simply investing its money in low cost and very low risk indexes. This would virtually eliminate the potential for kickbacks and pay-to-play that has corrupted the world of New Mexico’s money management.
The investment returns cited by Mr. Bland are entirely worthless in judging the performance of the New Mexico venture capital program. Mr. Bland focuses only on claims of job creation. Giving away money to favored businesses will, until those businesses collapse, certainly create some jobs. In terms of investment returns like capital gains and dividends, however, the program continues to run in the red to the tune of tens of millions of dollars.
Lastly, Mr. Bland failed to mention that the 7.2% five year return he brags about comes from reports issued before the market collapse of 2009. Failing to mention this rather significant fact falls short of the candor New Mexicans deserve from the man responsible for managing their money.

A decade ago, if the board game Monopoly were created, there is no doubt that Microsoft, a company that the government deemed to be “too competitive” and successful would have been the central focus of the game’s creators.
As bad as it is for a company’s competitors to use government power to fleece one company and their customers, if “Monopoly” were created today, the theme would have been even more depressing. For a humorous look at the way the game might have looked today, check out this link. For a taste of what we’re talking about, check out the following “Chance” card.

Ya gotta love Governor Richardson. A few months ago, as we have discussed here in the past, the Arrowhead Center at New Mexico State University studied the economic impact New Mexico’s film industry incentives were having on New Mexico’s economy. The study is available here. Advocates for spending taxpayer money on the film industry were not amused when the Arrowhead Center analyst found that the program returned only 14 cents for every dollar spent.
So, what was the Governor to do? After all, he has been one of the primary supporters of the film industry? Simple…just pay for a new study and make sure the results come out the way you want. That seems to be the case with the latest study by the consulting firm Ernst & Young which was just released and has been discussed in the media.
The study which is available here found that the film program returns $1.50 to the state for every dollar spent by taxpayers. This study was just released, so I can’t verify that the numbers are inflated, but the claims seem quite inflated. Check back soon for a deeper analysis and comparison of the studies, but, as we saw with recently published arena studies the data can easily be manipulated to make such projects appear economically viable even when they clearly aren’t.

As bloggers Mario Burgos and Steve Terrell have pointed out in recent blog postings, the leadership of the New Mexico Senate has decided to disregard a majority of its members by refusing to provide webcasts of Senate floor action. Last year, the Senate passed Senate Memorial 45 which provided for filming and broadcasting of floor actions.
Unfortunately, it seems that a bi-partisan group of senators simply don’t think New Mexicans should know what their elected officials. Of course, the House refuses to show what they are doing by filming their floor actions as well. According to this chart from the National Conference of State Legislatures, New Mexico is one of only three states that do not provide any webcast or telecast of legislative floor proceedings.
Isn’t it time that we shined some light on Santa Fe?

Depressing as it may seem, at least for those who are familiar with the book, as Stephen Moore of the Wall Street Journal points out in this interesting article, we seem to be living in the world of “Atlas Shrugged.” After all, government is standing the way of success and subsidizing failure like never before and if Obama lives up (or down) to expectations, things will get a whole lot worse in the years ahead.
Fortunately, I think the American people are beginning to realize what is happening and what has happened under the Bush Administration, but we will be in for some tough battles ahead.

I say that Richardson’s return to New Mexico is a blessing for fiscal conservatives….
While most conservatives and libertarians seem to have nothing but scorn for Governor Richardson and his failed bid for Commerce Secretary (and subsequent return to New Mexico), I am optimistic. Why is that? First and foremost, as discussed on the front page of today’s Albuquerque Journal, Governor Richardson says he’ll balance New Mexico’s budget (subscription required) without raising taxes. He’ll rely on reductions in funds allocated through the Capital Outlay process as the main source of cuts, but says he will also target education spending.
While the ultimate results of Richardson’s new-found fiscal restraint and where it is coming from are up for debate, I believe that Richardson has far greater incentives than Diane Denish would to rely on spending cuts rather than tax increases in order to close the budget deficit. After all, Richardson has fashioned himself as a tax-cutter and thus has the incentive to preserve those cuts rather than raising taxes. Is there any debate that Diane Denish, were she to take office while inheriting Richardson’s budget mess and in need of support from a variety of liberal constituencies, would have every incentive to raise taxes and blame it on Richardson?
Of course, no one knows how the legislative session will pan out, but I can say that Republicans should unify around efforts to close the budget gap by cutting spending and not raising taxes.

As I have written previously, James Taylor will be in Albuquerque on Tuesday the 13th and in Santa Fe on Wednesday the 14th to discuss the economics of global warming. John Fleck, the Journal’s environment and energy writer discussed these issues with Mr. Taylor in a blog posted today.

The Rio Grande Foundation has been doing a good deal of work on New Mexico’s State Investment Council. The problem is, as I point out in a new column in the Las Cruces Sun-News is that the Council really doesn’t know what is going on with taxpayers’ money and has invested in some truly corrupt out-of-state businesses.
One of these businesses is known as Small Smiles which was investigated by a Washington, DC television station. The SIC’s 2007 annual report showed an investment of an unstated sum in this New Mexico company. By directly contacting the venture capital firm that handled this investment, the Rio Grande Foundation learned that about $500,000 New Mexico taxpayer dollars have been invested in Small Smiles.
Contrary to the SIC’s annual report, Small Smiles, is not a New Mexico company. It is a national chain of low-income dental clinics owned by a bank in Bahrain. Furthermore, at the time half a million taxpayers dollars were going to help Arab investors.
There is scant oversight of the SIC’s investment practices and decisions. Only when a big investment like Eclipse craters does the public learn of losses. It’s time the Legislature revisit the discretion it has given the SIC, and provide for greater transparency and more informed decision making. It should also ensure inescapable accountability for those who make the wrong calls in handling the public’s money.

I am no fan of President Bush and by extension i have not been a fan of his closest adviser, Karl Rove. After all, despite his “conservative” rhetoric, Bush has been a big-spending liberal who has stolen plays from LBJ’s playbook throughout his presidency.
That said, Rove makes some excellent points in his article in today’s Wall Street Journal on the current economic crisis. As Rove points out:

The housing meltdown is largely a story of greed and irresponsibility made possible by government privilege. If Democrats had granted the Bush administration the regulatory powers it sought, the housing crisis wouldn’t be nearly as severe and the economy as a whole would be better off.

The whole article is worth a read. While I’ll certainly complain about No Child Left Behind, a massive Medicare expansion, lost privacy, and massive government spending growth, Bush is largely not to blame for the housing crisis which precipitated the current economic crisis.

With the Rail Runner in its free-trip-fueled honeymoon period and politicians talking about running the gravy train to Taos and Espanola, it might seem that the Rail Runner is a huge success. Instead, as nationally syndicated writer Paul Jacob points out in his “Common Sense” alert, taxpayers’ money shouldn’t be used (or abused) in order to gin up support for higher taxes. The article can be found here and a link to the audio file is here.
The fact is that all we know about the RailRunner is that it is costing taxpayers gobs of money and that if you offer free trips, people will ride the train during the Holidays. Now that people are paying $8 to ride the train and that the Holidays are over, we’ll have a better idea of its popularity…so don’t get those tracks moving to Taos just yet.
Lastly, as I mentioned in a previous posting we are having an event in Santa Fe near the terminus of the Rail Runner on the 14th of January. Unfortunately, as illustrated in the Rail Runner’s online schedule, I can’t ride the train to a 5pm event because I’d have to leave Albuquerque by 10:45am and cool my heals in Santa Fe for 5 hours waiting for the event. Then, because the event ends at 7pm I’d have to wait around until 8:15pm and wouldn’t arrive home until close to 10pm.
With my car I can leave Albuquerque at 3:45pm and will get back by 8pm.

The Rio Grande Foundation and CARE are co-sponsoring a discussion of the economics of global warming with James Taylor of the Heartland Institute. The weather this winter may be frightful, with record lows and massive snowfall throughout the northern hemisphere, but no matter what the thermometer says, the issue of Global Warming is going to be heating up in the coming year. After all, global warming true-believers now control the White House and Congress not to mention the Governor’s Mansion and New Mexico’s Legislature.
What does this mean for New Mexicans and the reeling US economy? How will “cap-and-trade,” carbon taxes, or increased renewable portfolio standards impact consumers and businesses as they fight to keep their heads above water? Will global warming legislation create “green” jobs?
On January 13, we will be at the Albuquerque Museum in the Auditorium
2000 Mountain Road, NW Albuquerque
On January 14, we will be at the State Land Office, Morgan Hall
310 Old Santa Fe Trail, Santa Fe
(NOTE: Attendees cannot park in the State Land Office parking lot, but must park at the PERA lot, one block east and a few blocks south of the Land Office.)
Both events will last from approximately 5:00 to 7:00PM with the first 30 minutes reserved for a meet-and-greet including beverages and light snacks.
More information is available and RSVP’s can be made by calling 505-264-6090 or emailing us at: info@riograndefoundation.org
These events are free and open to the public. Listen to a podcast from this past weekend’s episode (dated January 3) of the Foundation’s radio show “Speaking Freely.”

Something I blogged about at the start of November and included in our “2008 Piglet Book” has finally been picked up by the Associated Press.
The story, which was reported in the Albuquerque Journal on Sunday is that New Mexico’s film Incentives hurt our economy rather than helping it. While the fact that that New Mexico’s generous film incentives are economically dubious has been known for some time, I say “better late than never.” And the story includes some good reporting including the following:

More than 40 states have film incentives and they have been scrambling to out-do one another, said Frank Hamsher, a public policy consultant from St. Louis. Michigan offers a production rebate of a whopping 42 percent.
“It’s like poker. They see the last bid and they up it a bit,” said Hamsher, who spoke on the subject at a recent meeting in San Diego sponsored by the Western States Arts Federation.
Fickle filmmakers, meanwhile, are chasing the next best deal, he added.
Most states haven’t taken a hard look at what’s being spent, what taxpayers are getting in return, and how sustainable it is, Hamsher said.

We’ll see if the Legislature decides that overly generous film incentives will face reductions in tougher economic times with the state facing a massive budget deficit.

Just when we thought Richardson was going to leave us, NBC News is reporting that he’s withdrawn his name from consideration for Commerce Secretary. As I wrote previously, his nomination was a mixed bag. I believe the withdrawal of his nomination is also a mixed bag although for Diane Denish I’m sure it is just outright annoying.

As John Stossel points out, Ms. Kennedy fulfills the qualifications. Of course, Stossel being Stossel, his qualifications for Senator are a bit less lofty and unrealistic than those ascribed to senators by many Americans and the media.

Now that the education establishment is lobbying for higher taxes, the pleas for “adequate” education funding are pouring forth. Recently, Sharon Morgan of the National Education Association New Mexico argued that point on the pages of the Albuquerque Journal.
The problem is that among the platitudes and discussion of schools as “community hubs,” Morgan makes absolutely no arguments to support more education spending. After all, what exactly is “adequate?” How much spending do proponents believe will ensure that our children receive an excellent education? The fact is that our current education is a bottomless pit in need of unlimited taxpayer money because there few incentives for schools to improve and compete to serve children.

Now that gas prices are back down it looks like the tax hikers will be out in force demanding a higher gas tax on filling up at the pump. A federal commission just recommended a 50% increase in the federal tax. Of course, with Obama’s infrastructure “stimulus” expected to cost nearly $800 billion, debt won’t pay for it all. Of course, raising taxes to expand government won’t exactly generate economic growth.
Personally, I’d be okay with some kind of increase in the gas tax to improve fuel efficiency and provide for relatively consistent pricing as long as taxes were reduced elsewhere, but tax hikers rarely wish to give taxpayers’ their money back at all.
Rather than raising gas taxes (ostensibly to fund infrastructure), it makes the most sense to get the feds and Congress out of the infrastructure business entirely. This was actually a Republican initiative in Congress a few years ago and by putting the states in control it would at least force them to pay for “Bridge’s to Nowhere” on their own without bilking federal taxpayers.

You may already be aware that the Rio Grande Foundation has a weekly radio show on AM 1550 on Saturdays from 9am til 10am. If you get the chance, listen to the show. You will get information not available anywhere else on the radio. If you can’t listen to the show live, listen to a podcast of the show here. Check back weekly to listen to each new podcast.

Despite much criticism (mostly from the left), the Electoral College by which the United States chooses its presidents is one of the greatest innovations of the Founding Fathers. Better still (at least for New Mexicans), the effect of the Electoral College is that it increases the influence of rural and sparsely-populated states (like New Mexico) relative to larger, more densely populated states.
So, why does New Mexico Rep. Mimi Stewart want to abolish the Electoral College? After all, if you paid even the slightest attention to the recent election, you would have seen that both McCain and Obama spent an inordinate amount of time in New Mexico given the fact that the state’s 5 electoral votes (out of a possible 538) account for just less than one percent of the overall vote.
Of course, those 5 votes can make the difference between victory and defeat in a closely-contested presidential race. Does Stewart really believe that candidates would concentrate such attention on NM in order to woo our 2 million residents, accounting for .066 percent of the popular vote?
The fact is that New Mexico receives far more attention from candidates under the current system than it would under a popular vote system under which candidates would campaign only in densely-populated states and “flyover country” would become, well “flyover country” for presidential candidates.
Perhaps Stewart will further advance her “anti-New Mexico” agenda by attempting to return some of our outsized federal largesse to the Treasury?

With stories of packed trains and huge demand, the average person (subscription required) might be led to believe that the Rail Runner can now be called a success. But is it true? Is New Mexico’s commuter train really a success?
Not by a long shot.
First and foremost, like we saw when the train originally opened, there are plenty of joy-riders taking to the rails in droves right now to see what a free trip to Santa Fe on the train is like. Once commuters and other regular customers become the bulk of the train’s customers, we’ll have a better idea on ridership. But if high ridership continues, doesn’t that make the train a success? Not by a long shot.
Let’s put this in perspective. This train cost taxpayers $400 million to build. It will cost $20 million annually to operate, $19 million of which will be again financed by taxpayers. Only $1 million will come from fares. So, what we have is a massive subsidy. Imagine if the Waltons and other shareholders didn’t care about turning a profit and Wal Mart charged $50 for a new HD television and $25 for a Nintendo Wii. If they did that, there is no doubt that customers would flock to their stores. Of course, if they sold these items for such low prices, Wal Mart would likely go out of business (or at least stop making money) before long, so they instead charge market prices for their goods.
Transportation should be no different from Wal Mart. I as a New Mexico taxpayer should not be forced to subsidize your trip to Santa Fe or Belen any more than I should be paying for your HD TV. Unfortunately, this is not conventional wisdom in this, the age of bailouts.
Nonetheless, those who call the Rail Runner a success are ignorant of economics and simply aren’t weighing the projects’ full cost.

Merry Christmas. For a touching and informative story on the real meaning of Christmas, check out Jim Scarantino’s column in today’s Albuquerque Journal. Unfortunately, I have no link because I couldn’t find it on their site. Anyway, it is fantastic.
Also, be sure to tune in to AM 1550 from 9am until 10am in and around Albuquerque for a discussion of Christmas and whether or not capitalism and free markets are compatible with Christianity. It’s sure to be an interesting discussion.

In case this is your first time to our blog, the Rio Grande Foundation recently released its 2008 Piglet Book on wasteful government spending. Read more about it here. As you might imagine, there was a good deal of discussion on various New Mexico blogs relating to the report.
Mario Burgos did a nice write up over at his blog marioburgos.com.
Another space-focused blog wondered why we’d focus on “small potatoes” in our report in this age of bailouts.
The blog New Mexico Central also covered the story.
Lastly, I appeared on KOB’s show “Eye on New Mexico” last Sunday to discuss wasteful spending in New Mexico and around the country. You can watch the video here.