Stumbling in the Dark

Posted on by Matt Simpson

The Kirksville Daily Express reports that there are two main reasons why Missouri’s gubernatorial candidates are reluctant to make any transportation proposals:

First, any plan will require money.

This is dead wrong. If we assume that MoDOT has to build and maintain the roads, sure, any plan requires money. But why should we assume that? Another option would be to sell off some of Missouri’s roads to private developers who would be more responsive to market demand. Note that this would generate revenue rather than cost the state money. Although there are state constitutional issues that would need to be resolved before this could happen, it would generate some competition in the road market — which, if I recall correctly, has served the computer industry rather well in recent times.

Second, as even the Missouri Department of Transportation notes, there is no consensus on which transportation projects have both the greatest need and public desire — much less how to pay for them.

More of the perils of operating without a market system. Someone should read their Hayek. Nobody knows what the public wants because everyone in the road market — both state and local governments — can fail to meet consumer demand and get away with it. There is no incentive to find out what consumers want, so no one has the relevant information. Real live markets, on the other hand, have handy mechanisms for solving this problem — what Hayek called the knowledge problem. Prices convey all of this information in one neat aggregate number … in the absence of government intervention, anyway.

Perhaps reform is needed to get some of the government out of the transportation system so that prices are set free.

High Costs, Low Turnout

Posted on by Cynthia Juedemann

How available is public information? I have been putting this to the test by requesting voting records from Missouri’s 114 counties and the city of St. Louis. Under Missouri’s Sunshine Law, this information should be available to anyone who asks.

Specifically, I’m asking for school district election results from the past nine years — school board elections, special school elections, bond issues, and tax levies — in the hope of creating a publicly available database detailing turnout in those elections. While some county clerks have been forthcoming, others have come up with creative ways to avoid giving me the information.

A Jasper County employee, after covering the receiver, said something along the lines of "they’ll just use it for political reasons," before refusing my request for any and all election results.

Continue reading “High Costs, Low Turnout”

More Lunacy Regarding Anheuser-Busch

Posted on by Justin Hauke

Criticism of the Anheuser-Busch deal has grown increasingly ridiculous. In a particularly glaring example of one-sided electioneering, the Post-Dispatch reveals (as if this were a shock) that Cindy McCain holds more than $1 million in Anheuser-Busch stock and stands to reap a significant windfall if the InBev deal goes through.

Shocking. You know who else stands to benefit? Me, probably you, and just about everyone else.

Who actually owns AB? The Busch family? Its employees? The city of St. Louis?

Let’s take a quick look at AB’s latest financial statements. The largest individual shareholder of Anheuser-Busch (owning about 5 percent of total shares) is Warren Buffet. Well, he’s from Nebraska, so obviously he’s an outsider. But what about institutional investors? Well, a British conglomerate owns about 6 percent. And Mr. August Busch? A whopping 0.2 percent (though I believe he has about 4 percent of the voting power)!

And you know who else owns AB? Me, along with several hundred thousand of my closest friends at Vanguard. And probably Barack Obama, Francis Slay, and Matt Blunt, too.

Saint Louis has no “right” to AB when only one percent of the entire company is owned by AB insiders. And more than that, how do Missouri governmental officials have a right to have any say in a shareholder decision whatsoever?

One comment in the Post-Dispatch article is particularly misguided:

[H]ow ridiculous to say that Barack Obama wants the brewery to remain American while Republicans want it to go. Hello!?! Republican (Ex Chief of Staff to Matt Blunt) Ed Martin is behind the “SaveAB.com” along with SEVERAL other Republican operatives.

I don’t see all of these Democrats in the city doing much to stop the deal.

As well they shouldn’t, because it’s none of their business. This is a decision for the 99 percent of the company owned by outside investors. That’s how a free-market economy works. As voting shareholders, we can each choose to vote however we please. But what we cannot do is ask our government to step in and force a decision on our behalf. There is nothing less American than that.

How Do They Do It?

Posted on by Audrey Spalding

When it comes to K–12 issues, we tend to neglect small school districts. For journalists and researchers, it’s just easier to follow the St. Louis Public School District and its 32,000 students, or, say, Kansas City, with about 24,000.

Those districts are fundamentally structured to get information to you: Missouri school districts with several thousand students have "Custodians of Record" on staff and post school board minutes and budgets online.

Smaller districts are an entirely different frontier.

Continue reading “How Do They Do It?”

It’s the Economy, Stupid

Posted on by Justin Hauke

The Wall Street Journal ran an interesting article today about the new “urban renaissance," which has been fueled by baby boomers and “millennials” fleeing the suburbs for chic urban living and lower gas bills.

This is good news for Missouri’s urban areas, which have made important strides in improving livability over the past several years.

But the article fails to address a third demographic noticeably left out of the equation. What about the 30- and 40-somethings raising young families? Why aren’t they moving into the cities?

We all know why. It’s the schools. And this is still the big elephant in the room regarding why cities remain less desirable than suburbs for many parents.

The article also attributes much of the recent urban growth to "New Urbanism" and the trend toward light-rail commuter trains. While I love commuter trains (particularly in cities where they work), research suggests that they do little to spur urban growth. Most cities (unless they have an extremely dense urban center) would be better off expanding existing bus lines (which we discussed in our review of Kansas City’s light-rail proposal) — but I guess buses aren’t as “sexy” as trains. 

It’s a shame that the Journal fails to understand this.

But at least one thing is true. Economic incentives always correct market imbalances. Think about it. Is it government fiat that is changing Americans’ attitudes toward public transportation and energy policy, or is it the market’s forces at work?

It’s a shame that environmentalists fail to understand this.

Monopoly Redux

Posted on by Matt Simpson

Apropos my last post, the Ste. Genevieve Herald reports:

Under Missouri law, customers must purchase electric power from the utility that owns the service territory in which the customer is located. The Holcim cement plant site lies in CEC’s [Citizens Electric Corporation] certificated service territory. However, Holcim wants to buy its power from nearby AmerenUE (a portion of the plant site lies in Ameren’s territorial boundary) because the cement company says there would be very significant cost savings due to Ameren’s considerably lower rates.

This is an example of one of the many ways in which the regulation of natural monopolies can create undesirable outcomes. Allowing Holcim to purchase its power from AmerenUE would increase competition in the energy market and thus put pressure on CEC to find ways to cut costs. In a normal functioning market, this is exactly what would occur. However, the state government has granted CEC an exclusive right to sell electricity within it’s geographic area — exactly the opposite of what would be beneficial for consumers. Do you smell perverse incentives? I do.

CEC defends itself, claiming that:

[…] the electric cooperative has the exclusive right to sell power to customers in its certificated service territory, adding that the contract signed by Holcim in 2002 binds the cement manufacturing firm, and that allowing Holcim to purchase power from someone else will jeopardize the utility and raise costs for other customers.

Part of the problem is that CEC is never jeopardized. In a market, firms must be efficient and innovate or cease to exist. CEC doesn’t have that problem, and thus can get away with inefficient operations and high prices. A consequence of the exclusive territorial right granted to CEC (and other utility companies in Missouri) is that the loss of one customer raises prices for other customers — but this is the symptom, not the disease. Treating the disease will almost always do a better job of solving the problem than treating the symptoms. In this context curing the disease entails removing state-enforced territorial monopolies and allowing competition at least the chance to break down natural barriers to entry.

Junior Monopoly

Posted on by Matt Simpson

According to the Springfield News-Leader:

The Public Service Commission is allowing Laclede Gas Company to charge customers an estimated additional $127 over the November through March winter heating season. Regulators have already approved similarly sized purchase gas adjustments for the Empire District Gas Co., AmerenUE, Atmos Energy and Missouri Gas Energy.

The natural gas industry is an example of a natural monopoly. A natural monopoly faces a unique cost structure, in which high fixed costs that present a significant barrier to entry for competitors combine with low marginal costs that allow the monopolist to set its price significantly higher than it would under competition. The textbook argument for regulating natural monopolies is that if regulators can force the monopoly to set its price equal to the marginal cost of the last unit produced (in this case, of natural gas), society benefits from higher levels of production and lower prices.

The problem is, that is one huge "if." In order for regulators to force natural monopolies to set their prices correctly, they have to know both what the correct price is and be motivated to enact the regulation necessary to correctly set the price. In real life politics, neither assumption seems likely. Only the monopolist has any real idea of what industry costs look like, and regulators almost assuredly have less information — especially given the incentive for the monopolist to inflate and misrepresent costs. In addition, regulators face perverse incentives to collude with the monopolist, as well as to prevent any changes — technological or otherwise — that threaten the need for the regulatory commission to operate, and thus for the regulator’s job to remain intact.

Deregulation is not without faults, but the primary benefit to be taken into account is the innovation it spurs. If any industry has abnormally high profits, such as under a natural monopoly, there is an extremely large incentive for outsiders to break down the high cost barriers to entry and compete with the natural monopolist. Under regulation, the natural monopolist is less likely to face this sort of competition and more likely to entrench itself with a static state of technology. In the long run, Missouri would probably benefit from deregulating various natural monopolies in order to let competition and innovation break them down.

Engineering a Failure

Posted on by Matt Simpson

The St. Louis Post-Dispatch reports:

So far, rebuilding Highway 40 has involved ripping out roadway and demolishing and rebuilding bridges.

This morning, the paving begins.

[…]

Paving should continue through October. Although reconstruction of the first phase is on target to finish by Dec. 31, a wet spring kept paving from starting sooner.

It’s nice to hear that the reconstruction of highway 40 is on schedule despite early setbacks because of the weather. However, I don’t think that the addition of a new lane in either direction will solve the congestion problem. Policymakers have framed the problem in a fundamentally flawed way: They see the congestion as an engineering problem only requiring a good design with enough money thrown into execution for a solution.

This is all wrong. Congestion is an economic problem at its very core. It surely is possible to completely solve the congestion problem with enough tax dollars and a decent design, but the question that must be asked is, is it worth it? The problem with Missouri’s current system of funding transportation projects — road construction in particular — is that there is no metric to determine whether a new road or an extra lane is actually worth the costs of construction and maintenance. Ideally, consumers would pay a premium for driving on highly congested roads and receive a discount for driving on relatively uncongested roads. This would help determine whether a new road is worthwhile and cut down congestion at the same time.

A very practical method of approaching this ideal is to use tolls as the primary method of financing road construction and maintenance. With a toll road, the metric for determining whether road construction is worthwhile is simple — if the road turns a profit, it is worthwhile. In addition, reducing congestion (or, more accurately, setting the optimal level of congestion) is simply a matter of adjusting tolls to maximize each respective road’s profit. No public sector necessary, here.

See also David Stokes on toll roads.

Rigging the Odds

Posted on by Dan Grana

Early this week, the Missouri Gaming Commission mandated a restriction on the number of casinos allowable in the state. The move was justified as a prohibition on any sudden actions by would-be casino owners in anticipation of a possible referendum that might permanently prohibit entrants to the gaming business.

The Jefferson City News Tribune correctly discredited the moratorium as naked protectionism of the industry supposedly being regulated. Faced with the prospects of increased competition and a larger tax base, consumers and policymakers alike would benefit from the lack of restrictive policies like this. The only parties that benefit financially from the moratorium (or the referendum it’s behaving like) are the currently established casinos, which are now partially exempt from the required efficiencies of market competition.

Arguments in favor of the moratorium are founded on strange conceptions of the state’s relationship with the market. Speculation that the gambling industry needs special treatment because its revenues are highly taxed is ludicrous. For the most part, artificial barriers to entry will only consolidate gambling revenues to fewer casinos while limiting potential long-run growth. Any decrease in revenue that might result from free competition would probably come from a reduction of monopolistic pricing. Although proponents of the moratorium might possibly defend such monopolistic power because of its implications for state income, I hold that any such intervention is extremely inappropriate. Why would the government be permitted to promote monopolies for one industry while breaking them up for the majority of others?

The suggestion that new casino projects shouldn’t currently be allowed because of a potential referendum also rejects market mechanisms. If developers are bold enough to begin a project in the face of possibly imminent legal prohibition, why should the state stop them? To my knowledge, no other industry is so simplistically regulated against basic market risk.

The current moratorium and the potential ballot issue provide nothing but damaging regulation that arbitrarily selects winners and losers. Regardless of their personal opinions about casinos, Missourians should identify poor policies and consider their universally negative consequences.

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