Block Grants or Economic Block Heads

It’s block grant time in Indiana. Representatives at the state level are encouraging localities to get “their fare share” and apply for funds from the federal government.

The Indiana Office of Community and Rural Affairs (IOCRA) finds federal funds to “help rural communities improve their quality of of life and ensure the health and safety of their citizens” through the use of block grants. Apparently rural communities are not capable of improving their own lives.

There are six categories of grants that rural communities can apply for assistance to help with: Blight Clearance Program, Planning Grants, Public Facilities Program, Main Street Revitalization Program, Stormwater Improvement Programs and Wastewater Drinking Water.

In 2017, $37 million in grants were given to communities through IOCRA. As Lt. Governor Suzanne Crouch (R – Evansville) stated, “We must continue to provide support for our rural communities if we want to keep Indiana’s economy thriving…..and encourage more growth opportunities.”

Voluntary Exchange Keeps Economies Thriving

Does “supporting our rural communities” help “keep Indiana’s economy thriving”? No. What keeps Indiana’s economy thriving? Individuals working each day to produce goods and services and exchanging what they produce with those who produce something different. The free market keeps economies thriving, not government interference.

Economies grow, regardless of physical location – rural or urban – as individuals meet the needs of others. I don’t know much about pigs, but I do know about finance. The market allows one individual’s specialty to meet the needs of others. Ultimately, the pig farmer exchanged his product for mine. I eat bacon and he has a loan to produce pigs.

Block grants do not meet a logical economic standard

I have a proposition for you. Give me a dollar and I will give you back $0.85, at most. Would you do it? Before the federal government gives block grants to the state, it must first take the funds from the citizens of that state and other states. Before the funds return to the state, the federal government pays itself (politicians, administrators) for their labor. They don’t work for free after all. At a minimum, $0.15 of every dollar goes to pay for the federal administration.

Secondly, there is not a $1.00 to $0.85 correspondence between money taken via taxation and returned through block grants. Not only is it possible that some states get less than $.85 for every dollar Washington takes, but it actually happens. Likewise, some states get more than $0.85 for every dollar sent. Some states are more equal than others. If you live in New Mexico, you love it. Minnesotans, not so much.

How is it possible for local economies to experience “more growth opportunities” when the federal block grant program reduces the wealth of the community thereby reducing opportunities? They don’t. Reality is that block grants only work for the select few who receive more in grants than tax dollars taken.

The illogic of intervention

The justification for economic illogical is the grants go to programs necessary for economic growth that the private market will not fund. Main Street Revitalization Program demonstrates the folly.

Main Street dies because the goods and services offered by its businesses are not what the consumer wants. Main Street was replaced by a new paradigm and that paradigm will be replaced by the next wave of entrepreneurship that meets the consumers needs.

In 20 years, will there be block grants for Big Box Retailer Revitalization or Strip Center Revitalization as they are being replaced by a newer wave of entrepreneurship and consumerism?

Nonetheless, politicians and individuals are ready to profit from illogic continue to promote a morally superior idea of the 1950’s Main Street. “1950’s Soda Shop good, WalMart bad”. In the future it will change, “WalMart good, Amazon bad”. Main Street Revitalization will happen when an entrepreneur senses any opportunity and takes a risk.

Politicians profit by convincing the electorate that they have done the community good by securing the grants thus “jump starting business” activity. Individual businesses profit by securing funding for a “road to nowhere” that would be a non-starter in the free market. Somewhere, somebody else is paying for the risk taken and being deprived of the opportunity to use their wealth in a way that meets their individual needs.

Economic Growth: Organic of Manufactured

Organic growth is the product of the free market. Individuals pursuing their ends by exchange. Acquiring what they value more by giving up what they value less under the auspices of government that protects the property they use for exchange. The simplicity is lost in the age when “experts” know best.

All the economic theory and it’s associated mathematical equations and use of statistics will never manufacture economic growth and wealth as efficiently and equitably as the “invisible hand” of the market. The problem is the “experts” who “know how” to live your life better than you do think they can. And we let them.

Securing Property

I take something, anything that is yours; is that good for you? There might be something that I can forcibly take from you and you would not care. More than likely though, if I were to take your wealth, you would not consider it “good”.

After I take your wealth, I tell you that it is for the good of “the public”. You can either agree or disagree. If you agree, then you probably do not consider it a problem that I took your wealth. If you disagree, then you would consider it a bad thing that I took your wealth. Therefore, it may or may not be good. As a member of the public, for whom I took your wealth, it is possible that the loss of wealth is “bad”.

How can I say it is for the public good, if indeed it may not be? In fact it can not. The oft used argument “It’s for the public good” is a misnomer. The forcible taking of another’s wealth may in fact be good or bad, depending on the perspective of the one who losses their wealth, but it can not be “good” all the time, in all situations to all people.

Then how does society do the least amount of damage by taking individuals wealth, while doing the most “public good”? What is the most “public good”?

Genesis 9:5 “And surely your blood of your lives will I require; at the hand of every beast will I require it, and at the hand of man; at the hand of every man’s brother will I require the life of man. (6). Whoso sheddeth man’s blood, by man shall his blood be shed: for the in image of God made he man.”

God gives life to each one of us. Included in “life” are physical and non-physical attributes that yield “stuff”. The fullness of this idea may be better understood as “property” as it expounded upon in Deuteronomy and Leviticus. Consider: your body is your property. So is your mind, conscious, soul and their respective products; thoughts, beliefs, attitudes, sin, guilt. We own these things. Additional, we own the physical products that these non-physical properties produce. What I write is mine. The wealth I generate from the exchange of my labor (labor is property) is also my property. Relating back to the original statement in Genesis, property that is violently taking shall meet with violence itself as it is judicially meted out by mankind.

What can we conclude from God’s directive to man? First, shedding another man’s blood shall result in the shedding the perpetrator’s blood, by man. The collective, mankind, is to take the life of those who shed another man’s blood. In subsequent books, the Lord would expand upon this principle. Elaborating on the circumstances surrounding the takin go life and explaining that there are various forms of violence being done to another person’s property each requiring a different from of retribution. The highest expression of human government then is the judicial taking of life, followed in lesser degree retribution for the taking of lesser forms of property.

Mankind is to organize itself under a civil authority (king, elected official, board etc.) with the singular purpose: Secure property.

The “most public good” then is the securing the property of individuals. The “least damage to the public good” is the appropriation for funding of the means to secure property.

Should West Lafayette Build an Aquatic Center

West Lafayette is a diverse community.  We don’t look, talk, think or act the same.  There is no template of behavior that can explain why each of us does what we do.  Nor is there one single source of information that can account for all action that we take; to claim there is such a source is a claim to deity.

How are the diverse needs, wants and beliefs of a community met and expressed?  Through voluntary association and exchange we each act in a way to bring satisfaction to our own lives.  We may disagree with our neighbors on the value they place on their desires, but we grant them the liberty to pursue the ends they want.  My closest friends shake their heads at the things I value.

How do we, as a community, place value on the ends we desire?  We don’t.  What we value is the freedom (freedom, not anarchy, save the hyperbolic agreements for another day) to pursue the ends we desire.  We do not value the ends, we value the means to the ends.  As a community we do not value Chinese food, we value the freedom of the suppliers and consumers to pursue Kung Pao Chicken.  It is freedom that allows individuals to use what belongs to them to pursue the things they want without infringing on others.

But what happens when we are coerced into giving our means to another, who dictates for us what our desired ends should be?    There is a knock at your door, “Hello, I am here to take your money.  Here is your veggie burger”.  Nothing against veggie-burgers, if you like them fine, but not for me, thanks.  I would rather keep my money and buy my own dinner.

Am I not free to decide my own actions?  Thankfully for the most part, I am, as are you. But what happens when our individual wealth is taken and directed to an end dictated by another party?  Why should the city of West Lafayette build a recreation/aquatic center?

Is there a need?  If there was, wouldn’t it be met by another means?  Recreation is not like police or fire protection, or streets and sewers.  Recreation is a highly personalized activity.  Golf is fine, I guess, but chess is better.  Swimming is good, but walking is better.  Hard to believe, but others would disagree.  They value other activities more and would pursue them, or some other activity, that meets their desires.

How can government possibly know what all of its citizens want for recreation?

Is there a questionnaire that yields such information?  Or, are city leaders myopic in their vision and focused on their own special interest (noble service in the public interest)? And if there is such a questionnaire, was the question posed as, “Would you like a recreation/aquatic facility if you knew it would cost each of your neighbors thousands of dollars”?  Some how, I think the moral acumen of our community would be, “No thanks.”

Slaves and Tyrants

“What’s mine is mine, and what’s your’s is….well negotiable.” Freedom dies by a slow torturous process of compromise.

You may own the building, but the renown artist’s spray paint graffiti is more important than your ownership of private property. Knock down your building, it will cost you $6.7 million. Your private property is important, but not as important as interest New York City has in the graffiti.

You may own the building, but economic development is more important. The fact the property was never used for economic development is of no consequence. As Clarence Thomas opined, “Though citizens are safe from the government in their homes, the homes themselves are not.” Which begs the question, how safe can we be in our homes?

It may seem absurd that knocking down your property results in a fine. Or that condemning your property for the sake of economic development, that never happens, is sanctioned. But it is not absurd to those that feel they should control their fellow citizens in order to establish a more just society.

Tyrants come in all shapes, sizes and political affiliation. Whether they are “pointy headed academics” on the left, or “flag waving rednecks” on the right, it does not matter. Their movements are synchronized to take away others freedoms because, well, they just do not like how that freedom is being used. They simply know better, whether that knowledge is masquerading as “academics” or “common sense” is irrelevant.

You can not change use your property, I like it the way it is.” So the superfluous arguments begin as private property ownership shifts from the individual to the collective. Principles do not matter. Political bullying is in method of vice.

It’s a local matter, so it should be controlled locally”. Control being the hinge on which the door of freedom swings and they want that hinge to swing one way; we can use our property, but you can not build a quarry on your’s. Control, whether it emanates from the federal or local level does not matter. Power is power and limiting is the goal of freedom; expanding it is the goal of the tyrants. Seriously, someone spray paints your building and you can not clean it up?

But the environment will suffer” are code words for your science is wrong, ours is right. The world is flat until is was proven otherwise. How was it proven? By science, over the course of hundreds of years. There are reasons we have traditions and institutions built on centuries of trial and error. But, appealing to “pop science” is in vogue. The freedom deniers are sponsoring “Americus Rallies Against Global Warming” next week.

The ultimate insult to freedom and private property ownership? “Our property values will decrease.” In a market economy the door swings both ways. If your property value decreases because of your neighbors utility, then their value must suffer if you prohibit their use. “What’s mine is mine, and what’s yours is mine to control” is the tyrant’s chant. Christopher Lasch was right, we are a culture of narcissists.

Once the personality cult catches hold it is hard to shake. C.S. Lewis’s character Wormwood said it best, “Liberalism (classical) is the boogeyman as men are hastening to become slaves and tyrants”. The question we must ask ourselves is, “Do we want a free society or not?”.  Some people want to be slaves and some want to be tyrants.

PayDay Lenders

Marie Morse, executive director HomesteadSC makes good points about PayDay lenders, but she is wrong for deny others the use of their services.

Her concern for the financial well being of individuals is laudable. The mistake she makes is assuming that all individuals need or want the help she and the organization she represents offer. In a free society, individuals make decisions and accept the consequences of the decision. Limiting the free market, voluntary interaction of private parties, is in fact limiting freedom.

HomesteadSC offers financial counseling to help people achieve a certain end. The means that HomesteadSC uses are paternalistic in nature. Concern and empathy for one another is a good thing, but limiting their freedom is not. The problem arises when she assume that all people want what HomesteadSC offers.

Ms. Morse goal is for people to make decisions that are financial sound. Good goal, but it ignores the reality that some people could care less about their credit worthiness. They value other things more highly and act accordingly.

Secondly, her opposition to PayDay lending is based on the assumption that she knows all the values, needs and desires for people that use PayDay lending. This is not possible. Contrary to her believe, PayDay lending does make sense to some and the service provided is valuable, but not to everyone. Just as her service makes sense to some people and not to others.

The goal of a free society is to allow individuals to make decisions, accept the consequences (be they good or bad) and not shift the responsibility for those decisions and consequences to other members of society.

Real Estate Development and Market Obstruction

The city of Lafayette Indiana has just made $161,000 investment in a local neighborhood .

It’s good to be a property owner, if you are on the correct side of the street.

Markets synthesize information about goods, services, locations, impediments and a multiplicity of other factors. The information is calculated and fed back in the form of a price. For example, consider how much information is conveyed in the price of one pound of coffee sold at your favorite coffeehouse.

First, you may ask, what type of coffee? Decaf? Whole bean? Organic? Fair trade (don’t take that misnomer literally). South American? Central American? You get the idea. All of this information and more (transportation, handling, roasting, marketing etc) is all incorporated into the price. With this information in hand, you the consumer can make decisions about what product to buy, where to buy it and when to buy it.

So what?

The same process is true for real estate. The market communicates information about a specific piece of property via price. A 1200 square foot home priced $120,000 and one priced at $240,000 tells the consumer that there exists a material difference between the two. That difference can be anything from property condition, to location, or maybe amenities that come along with it, or maybe the fact that George Washington once owned the home. Nonetheless, the market has taken into consideration these factors.

But what happens when an arbitrary line is drawn around a specific group of properties by local, state or federal authorities, and designated for improvement?

Hmm, I never thought about.

First, a study is commissioned, sometimes by elected officials, their appointees or “development corporations”, paid for by taxpayers, who feel the need to act for the good of the community. The study arbitrarily determines that a specific area should be targeted for redevelopment. Once the study is released to the public, the market begins to process the information. Because real estate is illiquid the process is slow. Announce that South American coffee beans will get special treatment and watch what happens to the price of coffee. The response is immediately seen on the futures market.

What is the new information? Market intervention communicates a willingness by the authorities to support activity that may not of occurred otherwise. It also expresses a willingness to further intervene to support the stated goals. As a consequence, the market becomes distorted. The new calculus of price now will incorporate another factor; signaling.

Two identical properties, selling for the same price, literally separated by a street now have two different values. Why? Because one property, on the south side, is included in the designated area for improvement and the other property on the north side of the street, is not.

If you were interested in either building or rehabbing a property, which would you pick? Either the property in the zone designated for improvement, or the property outside the zone? Fortunately, the market will work and reflect the information in terms of price. But therein lies the problem. Why should one property value benefit from the intervention and another value diminish based upon the arbitrary drawing of lines?

Another problem with such planning is the inoculation affect of the study. The plan will become de facto policy. Future rezoning requests, site plan submissions and the litany of other administrative matters associated with real estate development will be looked at through the prism of the study.

Kinda like a self-fulfilling prophecy. Got any proof?

As much as local officials would vigorously deny favoritism for plans that conform to their vision and indifference, or outright hostility, to plans that do not meet the study objectives, it is hard to believe otherwise. Especially after spending $161,000 for the study.

The case of Herman & Kittle Properties (HKP) illustrates the problem. HKP submitted plans for the development of a tract of land in Lafayette which is outside the designated zone. Although the public reveal of the study did not occur until after HKP began the process, local officials were well aware of the scope and designated area the study encompassed. Inoculation had taken affect.

The requirements for development of the HKP land had long been established prior to the submission and prior to the study. Based on fixed rules, HKP proceeded. The plans met all the zoning requirements, site plan requirements and use requirements (all three are distinct hurdles to overcome). What should have been pro forma approval became a nightmare for the petitioner.

What kind of nightmare?

The mayor of Lafayette, Tony Roswarski, was first to express displeasure by stating “It’s just not right – it’s not how we do things here”. Apparently following the rules, regulations and requirements promulgated by local authorities is not “how things get done”. Aside from submitting oneself to the arbitrary nature of an authority, what other way was HKP to proceed?

Next, the local state representative, Sally Siegrist, sought a way to “remedy” the situation by proposing legislation to give more authority to local governments to control land use; affectively changing the rules. Outside of complete arbitrary authority, what else could they want? Thankfully this misguided plan to expand control was stopped before it got started. Wiser minds prevailed.

After that failure, Todd Rokita, U.S. House Representative for the 4th district of Indiana, which includes the Lafayette area, brought his federal weight to the petition; sending a letter to the Indiana Housing and Development Board registering his displeasure with the project calling upon the state to stop the project. Thankfully his efforts failed and the rule of law prevailed. The project was approved.

What does this example have to do with the redevelopment study?

First, regardless of well established rules, as in the case with HKP, it shows how far authorities will go to thwart a plan that does not conform to their whimsical desires. As mayor Roswarki said, “I had met with potential developers early on, and they had described the project to me. I had told them at that time I was not interested”, as if the rules meant nothing. Later the Mayor would state that plan was not right for that area of Lafayette. Maybe the petitioner should have picked land within the study zone.

Likewise, the impetuous to support efforts within the designated zone will increase. It is reasonable to assume that the same elected officials will work as diligently to get a project approved as they did to deny HKP, simply because they want it. What if two competitive projects are introduced, which one gets approved? One conforms to the standards, but projects less tax revenue than an non-conforming project promising more tax revenue? My crystal ball is broken, but I would say the non-conforming project will manage to get approved.

Second, what is the purpose of these regulations if they are arbitrarily challenged or even changed with the latest political whim? Why would a private enterprise risk capital? Land use rules are established to bring about an expected outcome if they are followed; approval of the project. Consider the costs HKP incurred simply to ask permission to use the land. Lawyers, surveyors and site plan developers, soft costs, generally add 6% to 10% to the cost of the project. Without fixed rules, the process of securing administrative approval to developing land becomes increasingly impractical, resulting in higher costs and or housing shortages.

Third, how does a market account for arbitrary intervention? In regards to the study designating a redevelopment zone, the property within the designated zone now becomes more valuable. The study immediately conveys (signaling theory) to the market a specific intent of local authorities to support projects inside the zone. Which would you develop/redevelop? In the zone, or out of the zone property? You may pay more for a property in the zone because you have a reasonable expectation of governmental support, or you may pay less for a property outside the zone because there is a lack of support.

Which begs the question that free market advocates always wonder: Why should some benefit and others lose because of an arbitrary decision made by governing authorities? Whether it is real estate or coffee does not matter. Free markets and free people depend on the simple axiom of equal treatment before the law. In Lafayette, it is pretty evident that some are more equal than others and they will be treated as such. You just have to be on the correct side of the street.

A Market Solution to Change in Property Values Due to Re-Zoning

The most common argument against rezoning property is the proposed change will decrease property value of the surrounding property.

I have often wondered, how earnest are the individuals making the argument. Do they sincerely believe it? Are the willing to invest in that belief?

Consider the following scenario: developer desires to rezone 100 acres of land to allow for the construction of 75 homes. The subject property adjoins 25 established homes. You, as one of the 25 home owners, are concerned that the proposed development will decrease your property value.

What if there was an agreement that protected both you and the developer? If your property value goes down, they pay you. If your property value goes up, you pay them. Would you enter into such an agreement?