Economics Forum 1: Public Goods

Posted on by Josh Smith

Todays blog post from me will be the first in what I hope to make a series of open dialogues with the readers of Show-Me Daily on economic topics. Today’s topic is public goods.

There are many misconceptions about what constitutes a public good. It seems like state parks, public schools, roads, and many other things currently provided by the government are public goods. In a sense, they are. They are what economists call “goods”: people would pay to use them if they weren’t free(as opposed to “bads,” which people pay to get rid of; garbage is an example). And they are publicly owned — that is, owned by the state — which ostensibly means that every person has an equal claim to them, and that no one can forbid anyone else from using them.

Economists, however, are very specific when they speak of public goods. A public good is any good which is non-rival and non-excludable. Don’t get scared by the terms. A rival good is one where my using or consuming it prevents you from using or consuming it, like a bike, an apple, or a particular seat at a concert. So a non-rival good is something that, if consumed or used by one doesn’t diminish anyone else’s ability to use or consume it, like listening to a concert (on the radio, or a recording, or from your own house if you live next to the Verizon Wireless Amphitheater (formerly Riverport).

Another example of something non-rival is … this blog. When you read it, this doesn’t diminish anyone else’s ability to read it (the bandwidth of our server is rival, of course, but thankfully Google creates backup locations where websites can be found when their bandwidth is exceeded). The air is often cited as an example of something non-rival, but some economists dispute this. National Defense is also a commonly cited non-rival good. No matter who pays to defend our borders, everyone inside gets protected.

Excludability is a bit tougher to pin down. Simply put, a good is excludable if it is possible to prevent someone who didn’t pay for it from consuming it. So, it seems that the air is non-excludable, and big screen TVs are excludable. The tricky part comes in realizing that excludability is actually a range of values, not just yes or no. Anything can be excludable, depending on how much you are willing to pay to stop particular people, or people in general, from consuming it. And anything can be non-excludable: you could consume anything you want, as long as no one were to stop you.

There is a modicum of security in place at most businesses designed to prevent people from treating their goods as non-excludable, but these systems are not perfect. Excludability for any item exists on a continuum from cheap to exclude (bus riders who don’t want to pay) to expensive to exclude (people who live next to Riverport; the amphitheater’s owners could build a soundproof dome around the place, but why would they?).

I’ve gone on long enough. A public good is that which is non-rival and non-excludable. Think about it and comment away! What surprising results does this lead to? Is fire protection service a public good? Which public goods do you think the government should or should not provide? I am eager to hear what everyone thinks. Expect my next Econ Forum post soon.

The Possible Diminishing Returns of Government Transparency

Posted on by Ryan Davisson

When looking at the changes to the Sunshine Laws (link via Combest) that have been proposed in Missouri House Bill 316, it brings to mind Harry S. Truman, who once jested about his desire for a one-armed economist.

I’m referring to the trade-off that one must face when looking at an expanded transparency in government, and how far it can go before excessive red tape leads to a decreased efficiency of government officials that outweighs the value of another marginal increase in transparency. Don’t get me wrong, I am an avid supporter of government transparency and accountability.  At the same time, I think that there is a very fine balance between the level of transparency within a government agency and its ability to operate efficiently.

One alternative to the proposed public meeting rules that could satisfy both worlds could be the use of web broadcasts, which would allow municipalities more freedom when scheduling meetings, while still making the content of these meetings available to the public eye.

I don’t think that this particular bill is pushing government transparency too far — in fact, I think the bill is a step in the right direction — but efficiency is definitely a factor to consider in our new age of government transparency. While everyone can agree that increased transparency has positive returns, one has to keep in mind that it is possible — if not likely — that at some point, these returns diminish marginally. It’s just difficult to tell where that point may lie.

No Pain, No Gain

Posted on by Sarah Brodsky

It’s not a happy time for the St. Louis Public Schools. Enrollment is way down. Parents are enrolling their children in charter schools, paying private school tuition, homeschooling, leaving for the suburbs — anything to avoid the unaccredited district. SLPS is faced with the need to close and consolidate sparsely attended schools that used to be full of students.

To observers of the district’s history, closing empty buildings may appear to be an admission of defeat. I view it as an acknowledgment of reality, an outlook that SLPS has long lacked. It could even be a prelude to better things.

After all, businesses do this all the time in response to changing conditions. They scale back operations. They hire consultants. They close departments and discontinue products that customers didn’t want. When they make the cuts, it’s not a pretty sight. But that kind of discipline is what allows a business to thrive later on. If you stop offering products that your customers don’t want, you’ll be in a better position to notice what they do want and to meet that demand. You won’t pour all your resources into producing something people don’t need. You won’t be tied down by what failed in the past. You’ll be in a better position to seize new opportunities.

At last, SLPS is acting like a business. I’m sure everyone working there would prefer to emulate a thriving business in an expansion. And they may soon be able to. The prudent choices SLPS makes now could lay the groundwork for future success.

Mileage Tax vs. Gasoline Tax

Posted on by Ryan Davisson

In Oregon, discussions regarding movement from the gasoline tax to a mileage tax are gaining national attention. Previously, the gasoline tax has been the predominant method of taxing the distance (road usage) that an individual travels (consumes).  An ideal tax usually charges individuals with fees based (as accurately as possible) on the goods and/or services that they consume.

As technology advances, drivers are getting more mileage out of less gasoline. This increase in fuel efficiency is likely to cause a decrease in the efficacy of the gasoline tax. In other words, hybrid cars/SUVs and smart cars (fully electric cars are completely exempt from the tax) would be driving the same distance but providing less tax revenue, even though they necessitate the same — and possibly increasing — amount of upkeep and expansion to be provided by each state’s department of transportation.

The mileage tax is one possible answer for those voicing concern about financial sustainability within the transportation sector. Oregon’s tax alteration is intended to offset the increasing unfairness of the gasoline tax, as “green” technology causes revenue collections to decrease. Those using electric cars should not be exempt from paying a tax that funds road maintenance while they are still receiving the benefits associated with using public roadways (strictly looking at infrastructure upkeep, disregarding environmental externalities).

Opposition to the mileage tax stems largely from concerns about reduced privacy, because the GPS technology used to track mileage could, theoretically, track vehicle movements. Yet, to reassure those wary of having GPS tracking devices installed in their vehicles, the Oregon Department of Transportation stated that “[ODOT] would have no involvement in developing the on-vehicle devices, installing them in vehicles, maintaining them or having any other access to them except, perhaps, in situations involving tampering or similar fee evasion activities.” This, in turn, raises questions as to the security of the “on-vehicle device.”

If implemented correctly, the mileage tax has the potential to more accurately tax those who use roads on the basis of frequency, and to spread the burden of the tax more equally. However, potential drawbacks to this system should also be carefully weighed. Some of these issues are addressed in the Show-Me Institute’s two transportation-focused policy studies, “Private Provision of Highways: Economic Issues” and “Missouri’s Changing Transportation Paradigm.”

“Taxes Go Up Incrementally; Why Shouldn’t They Come Down Incrementally?”

Posted on by David Stokes

That is what my former boss, now judge, Kurt Odenwald used to say when people told him the property tax rate cut he successfully championed for St. Louis County during 2005 was not worthwhile because it would only result in a savings of $20 or so per family. Now, St. Louis County Executive Charlie Dooley — who initially opposed the 2005 cut, but ultimately signed it into law — is proposing a similar rate cut for 2009. The Post-Dispatch has the story here. I applaud Mr. Dooley for this, and I hope that the county council passes it, which I am pretty sure it will.

I don’t care if it is just a small tax rate cut, it’s still a cut. During prior years, like 2005, the cuts were needed to offset tax increases in part that were brought about by reassessment. This year, when that rate cut is combined with an assessment decrease (even if that decrease is smaller than expected), the actual money total could be higher than the press is predicting. If it saves my family $25, then my response is to be glad it saves me $25. I am certainly not of the opinion that the government is able to make better use of that money by pooling it for the public good better than individuals are, via private decisions — rather, that is the belief of statists everywhere.

What about the idea that the cut should be greater? Well, I agree with Councilman Quinn that there should have been a rate cut back during 2007, too, but I think the one for 2009 is terrific. The fact is, there is only so much that St. Louis County can do. Its current tax rate is far lower than those of most other taxing entities. For real tax relief to come to the people of St. Louis County, that has to come at the state and county level via reforming the assessment process.

For the actual money you pay based on those assessments, the rates set by schools and cities and fire districts generally dwarf the county rate. If your school district increases its rate by 5 percent to make up for the assessment decrease, that will eat up any savings (and more) you’ll see from the county tax cut, and there is nothing Charlie Dooley or the county council can do about that. St. Louis–area residents have chosen to have a large number of fragmented governments, and both good and bad comes with that. If the county cuts taxes, but everyone else were to raise them, that would be an example of the bad — and that is not Charlie Dooley’s fault.

I commend the county executive for removing the bond issue from the ballot and seeking to lower the tax rate.

Midwives in Wyoming

Posted on by Sarah Brodsky

Just as Missouri leads other states with its Second Life presence, it’s ahead of the game in midwifery policy. The latest state to try to catch up is Wyoming — a state in which home birth with a midwife is almost impossible:

Currently, it is illegal for certified professional midwives to perform births at home. Only nurse midwives […] can, but only about two of the 11 nurse midwives in Wyoming actually oversee home births.

Legislators in Wyoming want to create a state board to certify midwives, thereby legalizing the practice for those who are not nurses but who have completed a course of training.

That would be better than doing nothing, but if Wyoming wants to get as far as Missouri, it should allow midwifery and leave the certification to a private board.

Double Taxation at Its Most Obvious

Posted on by David Stokes

I am right now experiencing a confluence of two things that puts the improper double-taxation that Missouri’s personal property tax entails right before my eyes. Last month, we bought a new car, and today I am going to run to the Clayton DMV to pay the sales tax and register the car. Just Saturday, we, like millions of people in Missouri, received the annual personal property tax declaration form from the state. So, as I leave to pay a hefty sales tax on the car, I am also going to file the declaration that will allow me to pay an ongoing annual fee for the right to own the car.

I think Missouri’s personal property tax should be repealed and replaced with either (in order of my hopes): 1) nothing; B) toll roads; thirdly) online fantasy currency earned in computer games; 4) a return to the ability to pay your taxes in chickens; or, Finally) (and only as a last necessity) an annual surcharge on kegs purchased by college students — exempting those purchased for in-home kegorators owned by people older than 30.

Is Having a Big Family Reason to Call in Social Services?

Posted on by Sarah Brodsky

Aisha Sultan at Parents Talk Back writes about the recent birth of octuplets to a woman who already had six children:

This is the height of selfishness and abdication of parental responsibility.[..] Instead of showering this woman with free diapers and formula, social services should keep a close eye on the health and welfare of a these 14 children.

Of course, I don’t personally know this woman, so I can’t vouch for her responsibility. But going by the information provided in the AP story, it sounds like she had six children and wanted seven. She had a fertility treatment that can result in multiple births (or single births, or none at all if it doesn’t work). Now she has 14 children.

There are other families in the U.S. that have 15, 16, 17, or even 18 children, with or without fertility treatments. Teachers in public schools are in charge of that many children at a time. So I don’t think a relatively low “parent-child ratio” is reason by itself for state surveillance.

Someone Needs a Hug

Posted on by Sarah Brodsky

This is funny to watch: A state senator explaining her vote in favor of a pay increase for legislators and judges. Although the state senators who voted against the increase may have been motivated more by political pressure and PR considerations, it’s amusing to hear her call for raises so the legislators will “value” themselves. I thought your self-esteem was supposed to be based on your inherent specialness and character, and not on how much money you make.

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