Gaming Imitates Life

Posted on by John Payne

If you are close to my age — and something of a nerd — you probably played a lot of SimCity growing up. The game simulated running a city with the goal of maximizing its population, and it was fun up until you hit a population plateau — after which it became even more fun, because you could destroy the city that so frustrated your dreams with tornadoes, earthquakes, and Godzilla attacks. Well, a young gamer in the Philippines named Vincent Ocasla “beat” SimCity 3000 (i.e., no city design could ever reach a higher population) with a city he calls Magnasanti. For Ocasla, though, Magnasanti has implications far beyond the game:

I could probably have done something similar – depicting the awesome regimentation and brutality of our society – with a series of paintings on a canvas, or through hideous architectural models. But it wouldn’t be the same as doing it in the game, for the reason that I wanted to magnify the unbelievably sick ambitions of egotistical political dictators, ruling elites and downright insane architects, urban planners and social engineers.
[…]
Technically, no one is leaving or coming into the city. Population growth is stagnant. Sims don’t need to travel long distances, because their workplace is just within walking distance. In fact they do not even need to leave their own block. Wherever they go it’s like going to the same place.

The game, of course, is not exactly like real life. Even if we turned over our lives completely to some all-powerful — even benevolent — central planner, he would have insufficient information to properly run a city. The Sims are pure algorithms that operate by observable, static rules, but actual people’s preferences are constantly in flux and often ineffable until the actual moment of choice.

Nevertheless, it’s a stark reminder that city planners often forget that cities do not have overarching goals like maximizing population or density. The goals of a city are as diverse as the individuals that people it, and to the extent that city planning is necessary, it should facilitate people’s individual goals, not impose a preconceived notion of how urban life should be structured.

If you are interested to see the inner workings of Magnasanti, see the video here.

Creativity: Not Just for Artists

Posted on by Mary Chism

Most people think of creativity as a quality associated with art, allowing certain talented individuals to make beautiful things, unfettered by competitiveness or a need for efficiency. In his recent Show-Me Daily post, David Stokes points out that allowing private utility companies to make bids for the opportunity to serve an area tends to save the community money, as well as spurring new, less expensive, and more original methods for delivering services.

Stokes links to several insightful articles demonstrating that “the way it has always been done” is not always the best way. Not only does competition among companies help develop less expensive technology and more efficient methods, but it also allows for creating different solutions to serve different people’s diverse needs. In this Reason Foundation article (which was linked by Stokes), Geoffrey Segal discusses some of the benefits and goals of using competition to encourage creative solutions:

But cost savings aren’t the only benefit. A review of state practices around the country found that a need for greater flexibility, access to skills not available in-house, and private sector innovation are all important factors in a state government’s decision to outsource or institute competitive sourcing of services. […]

Regardless, competition is about finding new ways of doing business and buying something different from what you already have.

When a number of parties compete for people’s business, a variety of services become available, better satisfying the many different consumers who are looking for different products. A competitive market allows smaller companies to cater to the specific preferences of consumers who are in the minority, without forcing these less-popular solutions on the majority.

Not only that, but when one company does invent a new product, other companies compete by imitating the new product, creating less-expensive knockoffs and making products more affordable. In his 1991 article “Innovation, Imitation, and Economic Growth,” published in the Journal of Political Economy, economist Paul S. Segerstrom pointed out that “the benefits to society from an innovation last forever,” while the benefit to the developer of the new product only lasts until a competitor can produce a cheaper imitation. In order for producers to keep making money in a competitive atmosphere, they must constantly develop newer and better products, or else make someone else’s ideas more affordable. Either way, the general public benefits from better, less expensive products.

Film Tax Credit Programs Should Remain Capped (If Not Eliminated Entirely!)

Posted on by Christine Harbin

According to the Business Journal of Milwaukee, the state government in Wisconsin spent $40,000 to attract a film project that features the actor who played the cab driver from Wings, and now he is lobbying for the state to spend more.

It’s notable that this $40,000 figure is much lower than the cap on film tax credits in Wisconsin, my home state, which is currently $500,000 a year. That’s only 8 percent of the maximum allowed! Furthermore, the existence of the cap obviously didn’t prevent the project from being made — since it was made.

Wisconsin has had difficulty with its film tax credit program in the recent past, and that’s why the state scaled back its program. From an earlier article on the subject that appeared in the Business Journal of Milwaukee (emphasis mine):

Producers [of the film Public Enemies] spent more than $18 million, but the [D]epartment [of Commerce] said most of that money went to out-of-state workers and for out-of-state services. Wisconsin’s real economic impact — money spent here, wages to Wisconsin employees and tax revenue from those wages — equated to $5 million. At that level of spending, the $4.6 million in tax credits nearly wipe out the fiscal benefits of the tax incentives program.

Similar to Wisconsin, the state government in Missouri should consider instituting limits and sunset clauses to control the cost of tax credit programs, given that the fiscal notes have had poor predictive power. This was proposed in the April 2010 report from the state auditor’s office, which pointed out that, of the 53 programs redeemed in 2009, 23 did not have annual or cumulative limits. The report also observed that it is difficult to predict the long-term effects of specific tax credits; with a sunset provision, the effects are reviewed and evaluated before a program is continued. Annual and cumulative limits would hold tax credits to the amount specified by the bill, which would discourage underestimates as well as control tax credit expenditures.

Furthermore, cutting the film incentive program in Wisconsin doesn’t not mean that major motion pictures will not be filmed in the state. On the contrary, the film industry is thriving in Wisconsin without it. Parts of Transformers 3 were filmed in Milwaukee this past summer, and the project didn’t receive a cent of subsidy from the state government. Transformers 3 is a blockbuster movie — much larger than the PSA project described in the article — and its producers decided to film in Wisconsin based on the merits of the region.

Missourians and Wisconsonites would both be better off if they attracted companies that were profitable because they engaged in activities in the unrestricted market — not those that are profitable because they exploited the political and economic environment through programs like targeted tax credits.

New White Paper: The Negative Effects of Targeted Development Tax Credits in Missouri

Posted on by Christine Harbin

I realize that I may sound like a broken record on the subject, but I’d like to alert our readers that the white paper that I recently submitted to the 2010 Missouri Strategic Initiative for Economic Growth about the negative effects of tax credit programs in Missouri is now available online.

Paging David Ricardo

Posted on by Abhi Sivasailam

A few weeks ago, I testified at the Missouri Tax Credit Review Commission’s meeting in Columbia. I’d like to highlight one specific point from this speech.

One particular member of the commission (I do not remember which one) attacked a previous speaker who had recommended that all tax credits be abolished. The commission member suggested that since every other state uses tax credits, Missouri’s exit from the business of providing tax credits would put us at such a disadvantage that could result in Missouri no longer producing anything. There are many possible responses to this complaint that tax credit opponents can employ; for brevity, I will note just one.

Comparative Advantage:

Consider two states: Missouri and California. Suppose that these two states have firms that can produce two goods: wine and computers. Now, suppose that firms in Missouri can produce six bottles of wine or three computers per hour, whereas firms in California can produce 12 bottles of wine and four computers per hour. In this case, California firms have a higher productivity and we would say that California has an absolute advantage in the production of both wine and computers. This does not, however, imply that California will, or should, produce both goods.

One of the key insights from introductory economics courses is that comparative advantage matters. Instead of evaluating productivity in terms of outputs, we can evaluate productivity in terms of opportunity cost. Note that, in this example, when a Missouri firm produces one bottle of wine, it misses an opportunity to produce half of a computer. Similarly, when a Missouri firm produces one computer, it misses an opportunity to produce two bottles of wine. We can think of these missed opportunities as costs. For California firms, the cost of producing one bottle of wine is a third of a computer, and the cost of producing one computer is three bottles of wine. So, our example shows that even when California has an absolute advantage in the production of both goods, Missouri still retains a comparative advantage in the production of computers because its opportunity cost (two bottles of wine) is lower than the opportunity cost for California firms (three bottles of wine). Thus, in this limited illustration, it would be more efficient for Missouri to produce computers and trade with California for wine.

We can apply this insight to tax credits. Suppose that California aggressively courts winemakers and computer manufacturers with tax incentives and Missouri does not. One way to think about these incentives is that they work to lower the marginal costs that firms face, which allows a firm to produce more. This makes it appear as though California firms are more productive in translating inputs (in dollars) into outputs (in product volume). As our example illustrates, even if these apparent increases in productivity give Californian firms an absolute advantage in the production of certain goods, it is likely that Missouri will still retain comparative advantage and will continue to produce many of the goods that California chooses to subsidize.

Shooting at a Seat-Belt Checkpoint … I Repeat, a Seat-Belt Checkpoint

Posted on by David Stokes

It’s over. The nanny state is through the looking glass in St. Louis County. To take a cue from Neil Young:

Politicians and policemen coming. The nanny state has its official new dawn. This August I saw the traffic stops. Seat-belt checkpoints in Pine Lawn.

Gotta just face and accept it. Red-light tickets being sent in the mail. Should have used cameras long ago.

Speed cameras placed on the Inner Belt. Seat-belt traffic stops in the towns. You’re under surveillance, didn’t you know?

In most of Missouri, the police are not authorized to use a seat-belt violation as the primary reason for pulling you over. The Missouri Department of Transportation (MoDOT), should stick to doing what they do well — and it does a number of things well. That doesn’t include using tax dollars as part of an argument to limit our freedom. However, St. Louis County has had the audacity wisdom to enact its own primary seat-belt law, along with bike helmet laws and any other excuse they can find to protect us from ourselves.

So, that is the state of liberty in St. Louis County. We can get stuck in a seat-belt checkpoint any time the police in some tiny municipality feel the need.

(Just to be clear, attempting to run over a policeman is not an appropriate form of civil disobedience, and the shooting itself appears to be entirely justified.)

Graphic in the St. Louis Business Journal Raises More Questions

Posted on by Christine Harbin

In a St. Louis Business Journal editorial, the chief operating officer of a development company praises low-income housing tax credits and historic preservation tax credits. It reminds me of an editorial that ran in the Post-Dispatch last June, in which an architect argued in support of historic preservation tax credits, and which I discussed on Show-Me Daily.

The following passage from Economics In One Lesson, by Henry Hazlitt, seems particularly relevant:

The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buy-able minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

The editorial includes the following pie chart:

Source: St. Louis Business Journal
Source: St. Louis Business Journal

According to the explanation in the text:

The chart above shows where the money went in the $34 million Crown Village Redevelopment project using LIHTC and historic preservation tax credits.

The chart raises more questions than it provides answers. Does it indicate the actual amount or the projected amount of economic activity resulting from the specified project? Does it include direct expenditure by the state, or does it account for an economic multiplier? (And, if so, at what assumed rate?) How is it similar to or different from the breakdown of other projects, and of other tax credit programs? What was the duration of the project? Where did these jobs go when the project was completed and the subsidy ended?

Furthermore, were the workers in question unemployed before they were hired to work on the Crown Village Redevelopment project? If not, then the subsidy displaces economic activity that already existed in the private sector. If so, then the subsidy is another form of unemployment. Economist Russ Roberts discussed this in a recent post on Cafe Hayek:

Having them do nothing–either because the task is unproductive or because you simply give them a check with no strings attached–does not in and of itself create prosperity for anyone other than the people who get the check.

I have argued repeatedly that targeted development tax credits are a poor strategy for economic development, and that they have negative consequences in Missouri. For evidence, I encourage our readers to read an editorial, which recently ran in the St. Louis Beacon, in which I argued that targeted tax credit programs create an uneven playing field in Missouri.

Blighting and Taking Private Property Not the Right Fix for Vacancies

Posted on by Audrey Spalding

The Kansas City Star’s editorial board wrote recently that the city should deal with vacant houses and buildings more aggressively, by putting vacant properties that are deemed a nuisance into new hands (“To protect neighborhoods, KC must enforce law on vacant properties,” Sept. 22). By turning to such extreme measures, the city runs the risk of implementing a policy that will push people out of their homes or deprive them of their property so that others of the government’s choosing can take over. In Montgomery, Ala., a city with a similar policy, property owners found their homes bulldozed. In one instance, a construction site was razed.

The Kansas City ordinance in question is designed to deal with a large number of vacant properties in the city, and it leaves a great deal of discretion in the hands of city’s Neighborhood and Community Services Department. Under this law, the department is responsible for recommending properties to take over, and can even suggest a new city-appointed caretaker. The department effectively has the power to take property from one person and give it to someone else.

Awarding this power to the department will enable special interests to mold the process in their favor. The law could be manipulated in a number of ways, starting with the definition of vacancy. This “vacant” property law specifically notes, for example, that apartment buildings with five or more units can be considered vacant if a majority of the units are unoccupied — meaning that a building may be deemed vacant despite having residents. This strange definition of vacancy means that apartment residents can be caught up in the process and find themselves without a home.

Furthermore, the structure of the ordinance lends itself to selective enforcement. It is inconceivable that the department has the time to file the necessary paperwork to transfer ownership of all vacant properties in Kansas City. Instead, it is likely that the department will start to enforce this ordinance against properties that are particularly desirable to well-connected developers. Despite the requirement that the city notify property owners at least 60 days before beginning the taking process, property owners may not receive notice of the impending confiscation — a common oversight in Montgomery.

Finally, it’s not guaranteed that that the city will be successful in transferring property to owners that are more responsible. The ordinance only guarantees that someone will attempt to match properties with “better” owners. No person is so omniscient that she can predict accurately who will be a better, more successful property owner. Similar attempts to predict future success have resulted in both a vacant property logjam and unused luxury office space in the city of Saint Louis.

There are good ways to fight vacancy. Taking on additional power to seize land from private owners isn’t one of them.

Audrey Spalding is the public information specialist for the Show-Me Institute, a Missouri-based think tank.

 

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