A Silver Lining!

Posted on by Dave Roland

Yesterday the Missouri Supreme Court issued an opinion that offers a glimmer of hope for the thousands of property owners across the state whose properties have been labeled "blighted" by local authorities.  The unanimous decision held that property owners have a right, under both the state and federal constitutions, to recover damages resulting from blight designations placed on their homes and businesses, even if the authorities have not proceeded with the condemnation. The court did say that it would be difficult for the owners to prove that the damages were the result of the blight designation, because it will (incorrectly) presume that cities only place blight designations on areas that are already in decline, but held that where a property owner can demonstrate that economic losses have resulted from the city’s action, both constitutions demand that property owners be compensated.

This decision is a welcome development. As we have noted before, Missouri has become the worst state in the nation in terms of abusing eminent domain, and thousands of property owners have suffered immensely because one government agency or another determined that their home or business was in a "blighted" area. Previously, the Missouri Supreme Court had suggested that those affected had no hope of recovering their losses unless the General Assembly passed laws requiring cities to compensate those whose property values were damaged by a blight designation, so it is extremely heartening to see that, when directly faced with the question, the Court recognized the constitutional imperative that cities must put property owners "in as good a position" as if the blight designation had never happened.

I regard this case as a strong step in a positive direction for folks in this state, as well as a sign that the Missouri Supreme Court may be warming up to the protection of citizens’ property rights, despite their decision earlier this year in the Tourkakis case.

Senators Stumble

Posted on by Patrick Eckelkamp

Just to follow up on Justin’s commentary …

Yesterday morning, after a heated struggle in the Senate, a bill that would have implemented a windfall tax on major oil companies was defeated. In typical fashion, oil companies were singled out for their "excess profit" by senators who are simply pandering to their constituents. In this time of economic trouble, it is not surprising that politicians are trying to deflect the spotlight from themselves and their failed policies onto the big oil companies by insinuating that they are doing something wrong by acting in a completely legal, free-market way. In no other profession is there such scrutiny for making a profit ?— in fact, we are generally encouraged to work hard and succeed. Isn’t that part of the American dream?

Also, our economy thrives when profits are up and people are working. However, it appears this is not encouraged when companies become increasingly wealthy. Rather than trying to stifle the profits of oil companies, as though it were some sort of deserved punishment, politicians (from both sides) should be focused on lowering gas prices and promoting energy alternatives. Even if a windfall tax were to be enacted, it likely would be counterproductive, with oil companies only increasing the price for consumers, to make up for the lost profits (Justin’s post is much more thorough on this economics aspect).

It really befuddles me that some members of Congress think that limiting profits for certain corporations is a good thing. If Congress wants a windfall tax for the oil industry, who’s next? My bet is on you, Warren Buffet. Perhaps some some comments by our neighbor to the east, Sen. Richard Durbin, are what really have me interested in this topic:

The oil companies need to know that there is a limit on how much profit they can take in this economy.

I didn’t realize that it was up to Senator Durbin to determine how much profit is too much. In a free-market economy, market forces will dictate when a consumer is no longer willing to spend. Can you imagine if Sen. Durbin were to say this to an average American family? There would be complete anarchy. If Durbin were to take this approach with the citizens in his state, I have a feeling he wouldn’t be reelected anytime soon. Thankfully, the bill didn’t pass and no one is going to be punished for doing something every American strives for: success.

To link this story back to Missouri (after all, we are Missouri-focused), as Justin pointed out, one of our state’s senators voted in favor of the windfall tax, but at least wasn’t quoted saying such outlandish things.

Populist Pontificating

Posted on by Justin Hauke

Claire McCaskill wants Congress to pass a windfall profits tax on oil companies.

What would be the effects?

Well, first of all, gas prices would be higher, not lower. Demand for gasoline is inelastic, at least in the short run. Gas station owners are already squeezing out a mere two cents in profit per gallon of gasoline sold. Therefore, with no real retail markup, the higher wholesale gasoline costs incurred by distributors would have to fall on consumers at the pump in order for the retailers to break even. So we’re worse off here. If you like paying $4.00 per gallon, how about if we add another 20 cents or so to that?

And which investors will pay for the tax — the rich or the broad middle class? Robert Shapiro, President Clinton’s former undersecretary of commerce, argues that ownership of industry shares is "broadly middle-class," with the majority represented by institutional investments in mutual funds, pension funds, and individual retirement accounts that are held on behalf of millions of ordinary Americans. This coincides with my previous post about energy investors and who benefits from oil profits.

And, lastly, the early 1980s experiment with a windfall profits tax suggests that tax revenues would be significantly lower than expected. When Congress passed the windfall profit tax in 1980, the Congressional Budget Office projected that it would raise $393 billion in tax revenues. According to Congressional Research Services, it only raised $80 billion. That would be enough revenue to run the government for about 10 days, based on the 2008 fiscal budget.

Remember, gas prices are about three times as high in Germany and other European countries, where combined excise taxes, fuel taxes, windfall profits taxes, and VAT taxes are passed on by oil companies to the consumers. Oh, and if you factor in the exchange rate, they’re about 4.5 times higher.

So why are we debating this, again?

You Can’t Sue Us … We Had No Right to Do What We Did!

Posted on by Dave Roland

Tomorrow morning, the Eighth Circuit Court of Appeals will hear arguments in a rather unusual case. Jim Roos graduated from Concordia Seminary in 1970 and eventually founded Sanctuary in the Ordinary, a unique sort of ministry that provides ultra-low-income housing for those who would otherwise have nowhere to go, and tries to teach tenants some of the basics about living as part of a neighborhood. Roos renovated a number of properties in the McRee Town neighborhood, which later came to be targeted for redevelopment by the city of St. Louis. When it became clear that the city intended to use eminent domain to tear down the buildings that Roos’ ministry was trying to use for good, he painted a huge sign on one of them calling for an end to eminent domain abuse.

As it turns out, the city — and especially the Land Clearance Redevelopment Authority (LCRA) — didn’t much care for the criticism. The government cited Roos for illegally displaying a sign without a permit. Even though his right to free speech means that the city had no proper authority to require Roos to seek their permission to express his opinion about eminent domain, Roos complied with the city’s directive and applied for a permit. The LCRA persuaded the city’s Building and Inspection (B&I) Division to deny the permit, because Roos had not first gotten the LCRA’s permission to file the application. When Roos then sought the LCRA’s permission to pursue a sign permit, the LCRA denied his request. With the help of the Institute for Justice, Roos sued to enforce his constitutional rights to free speech.

When the city saw that the lawsuit sought to hold the LCRA accountable for its role in denying Roos’ constitutional freedoms, officials argued that the court should not hold the LCRA accountable because it had no authority to deny the permit in the first place. In other words, the city argued (and, remarkably, the trial court agreed!) that Roos was not entitled to a judgment that the LCRA had acted unlawfully because … well … the LCRA had acted unlawfully.

It is important for all of us that the Eighth Circuit reverses the lower court’s decision. If judges refuse to punish (or even recognize) constitutional violations resulting from improper assertions of governmental authority, agencies such as the LCRA will be able to continue intimidating people without fear of reprisal. These agencies already bully too many people just by using the powers already given them under the law — they surely should not be allowed to get away with making up new rules in order to exercise even more control over our lives.

Misguided

Posted on by Justin Hauke

Last summer, Ethan Cory, a six-year-old boy from the Joplin area, drowned at a small private water park called “The Swimmin’ Hole.”

His devastated parents petitioned the General Assembly to regulate the state’s water parks to make them safer, in order to help prevent future tragedies like the one that led to their son’s death. On Friday, the governor signed HB 1341 (popularly known as “Ethan’s Law”), which requires private, for-profit water parks to maintain liability insurance of at least $1 million in the event of an injury or the death of a patron. The sponsor of this legislation, during the governor’s prepared remarks, declared that “hopefully [this bill] will prevent other such tragedies around Missouri.”

Will it? Water parks have existed for more than 100 years in Missouri, so why wait until 2008 to pass this legislation if it’s so integral to their patrons’ safety? I certainly sympathize with the Cory family, but the state’s reaction is once again inappropriate. If the water park was negligent, the Cory family is entitled to a huge settlement. But bringing in the government to punish every other water park is not the answer.

Which is the greater incentive to carry liability insurance: a government mandate, or the risk of losing your entire business in a lawsuit in the event that negligence or faulty equipment results in an accident? Legislators forget the law of unintended consequences. Why set the liability level at $1 million? Why not $10 million? Or why not let the individual businesses decide what level of insurance they need? If we set it too high, do we needlessly destroy small businesses and neighborhood pools, and put people out of work?

This type of legislation is well-intentioned, but ultimately irresponsible. It justifies more government intrusion in our lives without doing anything to protect customers or to make them any safer. And now we have two more people (the owners of the Swimmin’ Hole) eligible for welfare.

Missouri Gas Makes the Slate

Posted on by David Stokes

Slate magazine’s popular "Explainer" series discusses why gas is cheaper in Missouri than in the rest of the nation. Before we go further, sit back and appreciate that fact. OK, now we can continue. It’s a great article, which is generally true for "Explainer," and it touches all the important issues. I was a little perplexed when the headline indicated ethanol was going to get the credit, but the explanation was spot-on. Ethanol may well be cheaper than oil right now. It has other factors that likely change that in the big picture (subsidies, slightly reduced gas mileage, etc.) but that is not the point of this article, which is simply what we pay  when we fill up today at the pump.

My favorite part of the article is the section on how the retailers that sell gas in Missouri often sell other products (left unsaid is that the main product is beer) that allow them to keep gas prices low and make nice profits on those other sales. We often forget in Missouri how much stricter other states can be about who, when, and what can sell alchohol. Here, we just buy it at gas stations, grocery stores, liquor stores, blood donation centers, anywhere. And we can buy it just about anytime except early Sunday mornings. My friends and I made innumerable late-night beer runs from Fairfield, Conn., to Portchester, N.Y. (one-hour round trip if you drove really fast), in college because of Connecticut’s stupid 8 p.m. alchohol sales cut-off law. Dear God, do I love Anheuser-Busch and its lobbying efforts!

Ethanol Mandates: A Total Clusterharvest

Posted on by Justin Hauke

The Show-Me Institute will soon release a counter-response to a Missouri Corn Merchandising Council study that claims Missouri consumers will save nearly $2 billion during the next 10 years as a result of the state’s recent E-10 fuel mandate, which requires all unleaded fuel sold within the state to contain a 10-percent ethanol blend.

While I’ll leave the details of our case study to the release, suffice it to say that the MCMC study ignores important E-10 cost factors, such as the EPA-documented decrease in fuel efficiency and the cost of taxpayer subsidies. When David Stokes and I recomputed the numbers with these costs in mind, we found that the E-10 mandate will actually cost Missourians nearly $1 billion during the next decade instead of saving them $2 billion.

But today’s agricultural news highlights an even more important point about ethanol usage. Today, corn futures prices surpassed their all-time high in trading on the Chicago Board of Trade. Bloomberg lists the causes for this increase in food prices (emphasis added):

[Agricultural prices] have gained 60 percent in a year, fueled by [demand], market speculation and the push to grow corn for ethanol.

Indeed. It’s not just higher grocery store prices that Missourians can look forward to, though, but a higher tax bill as well. The governor recently released his 2008 fiscal year budget summary, which — despite the governor’s conviction to implement “a balanced budget that does not rely on excessive, job-killing revenues” — contains the following important line item:

$6.4 million increased funding to support an expected seven ethanol plants and $28.5 million to support an estimated nine biodiesel plants. Total funding for Missouri ethanol producers will be $15 million and total funding for Missouri biodiesel producers will be $33.8 million.

Well, right there is an easy $50 million we could save each year in order to sustain the governor’s commitment to a budget that "does not rely on excessive, job-killing revenues.” Oh, and this doesn’t include the $0.51-per-gallon federal ethanol subsidy, either.

Take a look at the personal income figures reported in the governor’s own budget summary, comparing Missouri income growth to that of the United States as a whole during the past three years:

Personal Income Growth 2006 2007 2008
United States 6.40% 5.60% 5.50%
Missouri 5.80% 4.50% 4.40%

Why is Missouri income growth below the national average? Could it be that excessive taxes and wasteful spending are hurting Missourians more than the government admits? Is the E-10 mandate really going to “save” Missourians money? Or is this just another example of corporate welfare, redistributing wealth from one taxpayer to another?

My bet’s on the latter.

Textbook Legislation Update

Posted on by Dan Grana

Special thanks to the St. Joseph News-Press for reporting on an op-ed I wrote a few weeks ago. I hope that this coverage opens some debate about a relatively obscure bill that is in danger of being signed.

From the report:

The bill’s sponsor, Rep. Jake Zimmerman, D-Olivette, Mo., has a degree in economics and law degree from Harvard. He refers to the Show-Me Institute analysis as “over simplistic and flawed.”

“If you’ll pardon the expression,” Mr. Zimmerman said, “he’s taking a freshman year economics textbook approach to the problem, which does not accurately reflect the real world circumstances that we’re talking about.”

I urge readers to critically read my op-ed to search for the deficiencies Mr. Zimmerman is referring to. I agree that the interaction between supply and demand is essential to any freshman economics course, but I don’t agree that it is inappropriately considered in my commentary. His criticism would be more satisfying if it was specific.

Mr. Zimmerman correctly points out that my take on the bill hasn’t "drummed up any public outcry." I hope that the small publicity it recently received engages Missourians outside of academia and the legislature to give this bill a hard look as it sits on the governor’s desk. After all, you can’t oppose poor legislation if you don’t know it exists.

A Great Development

Posted on by Justin Hauke

Dave Roland beat me to it, but I was going to talk about the "Call to Oneness" article for addressing crime in north St. Louis.

I think this is a great idea, and one that worked very well in the Los Angeles area during the height of gang violence in the early 1990s (when my burgeoning love of rap music was beginning).

Of course, I take issue with the arguments in his other post. There is a difference between protectionism (like occupational licensing laws) and laws that lower information costs and help ensure that a market system can exist (such as, for one specific example, accounting regulations). This doesn’t mean we can’t challenge these regulations or strive to constantly find better solutions to the way in which we organize society. I certainly would support that.

But here’s my objection to the Village Law (and to Dave’s argument in general). A very wealthy and politically connected individual wants to incorporate his own village to get around zoning laws and build a casino. In Dave’s world, his poor and politically naïve neighbors can simply take him court to reclaim the damage to their property from this new development because I’m sure everyone has the resources and time to fight a long, drawn-out legal battle against a team of high-priced lawyers working for the casino development during the next 10 to 15 years.

Sorry Dave, but I don’t see that happening. Not even in libertarian paradise.

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