Page 851 – Show-Me Institute

It’s the Economy, Stupid

Posted on June 19, 2008May 5, 2026 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 June 19, 2008May 5, 2026 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 June 19, 2008May 5, 2026 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 June 19, 2008May 5, 2026 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.

Rigging the Odds

Posted on June 18, 2008May 5, 2026 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.

Getting a Grip on the Cost of Public Transit

Posted on June 18, 2008May 5, 2026 by Dave Roland

Ballooning gas prices have encouraged more people to utilize St. Louis’ public transportation options, according to a story published in the Post-Dispatch. The dollar figures discussed in the article got me to thinking about how much public transit costs the average taxpayer in the St. Louis metropolitan area.

Last month saw the highest utilization of public transit in decades, at 5.5 million passenger trips during the course of the month, or an average of 177,500 passenger trips a day. We can safely assume that the number of unique passengers is no more than half that number, because most people would be using the bus or train for a round trip of at least two boardings. So, on average and at the absolute height of ridership, roughly 90,000 (about 3 percent) of the St. Louis metropolitan area’s 2.8 million residents are using public transit on any given day.

Metro required $230 million to operate its buses and trains this year. Twenty percent of that amount (about $46 million) was collected from ticket sales. The remaining $184 million came from area taxpayers, no more than 3 percent of whom were likely to use public transportation on any regular basis. That means that every man, woman, and child in the area faced an average of $65 in additional taxes to subsidize the operation of Metro’s buses and trains — services that 97 percent of those taxpayers are rarely (if ever) using.

Additionally, St. Louis County is asking its taxpayers to approve a ballot measure this November that would raise the local sales tax rate to generate an extra $80 million annually for bus transit and Metrorail. Assuming that most county residents do their shopping in the county, each of the county’s 1,000,000 residents will be shouldering an average of an additional $80 per year to subsidize public transit.

To be perfectly clear where I stand, I take Metrorail between my house and the office about twice in any given week. I would likely chip in an extra two or three dollars per trip in exchange for reducing my and my neighbors’ tax burdens by $60 or so, and knowing that we would only have to pay for the service when we chose to use it. I do understand, however, that many people are perfectly willing to pony up tax dollars for a service they think will be of use to those who can’t afford their own vehicles. I was just kind of stunned by the realization of just how much each St. Louis–area resident must currently be forced to pay in order to keep these services going, and I felt like it was important for someone to offer some perspective on how much public transit is costing the average taxpayer.

Removing the Beer Goggles

Posted on June 18, 2008May 5, 2026 by Matt Simpson

InBev’s attempt to purchase Anheuser-Busch has caused a big stir in the news and politics lately. Justin and Patrick have already substantively commented on the issue.

Referring to Anheuser-Busch, the News Tribune quotes Missouri Sen. Claire McCaskill:

"[…] This is a company that’s been profitable year in and year out and has provided good middle-class jobs in America. It feels like to too many people in our country right now that these are the kinds of jobs that are going away."

This seems a bit confused. It assumes that if InBev does successfully purchase Anheuser-Busch, it will move the production facilities overseas. This isn’t necessarily the case. In fact, in the same article, InBev CEO Carlos Brito is contends:

"What we’re proposing basically is really to take an American brand, so successful as Budweiser, and unleashing that to the world via our distribution system," Brito said.

Taken at face value, this quote suggests that there is no reason to assume that InBev wants to move the production of Anheuser-Busch beer overseas. Even if this were right, the idea that the move would cause job losses to the U.S. is still misguided. A certain Frenchman is always relevant. The problem lies in focusing only on what can be easily seen — the jobs lost overseas. A careful analysis will also reveal what is unseen.

If InBev were to move Anheuser-Busch’s production facilities overseas, suddenly a large amount of consumption goods in the U.S. would be imported rather than produced domestically. If this occurs, the importer (in this case, InBev) can do one of two things with the U.S. dollars it receives: invest in U.S. assets or purchase export goods. To the degree that the former occurs, domestic industries are able to expand and create new jobs with the increased investment. In the latter case, export industries see increased demand and respond by ramping up production, creating new jobs.

The net impact of the move overseas on job creation is ambiguous without empirical data, but it isn’t obviously negative (or positive, for that matter) because there are effects running in both directions. The likely long run effect would be minor, if there is one at all. This is assuming that all else is held equal, of course. Without any evidence to suggest that the net effect would be negative, inferring that it would be negative is a bit rash.

One might argue that this is all well and good for an entire country, but what is at stake in this case are the jobs of Missourians — or, more accurately, St. Louisians. This argument is also misguided. The above analysis applies no matter where the border of the domestic region is defined, whether it be St. Louis or your own backyard.

This Bud’s for Them

Posted on June 18, 2008May 5, 2026 by Justin Hauke

We’ve praised Sen. Claire McCaskill repeatedly on this blog, but her comments about the InBev deal deserve some response:

“I was very upfront,” McCaskill said of her discussion with [InBev’s CEO Carlos] Brito. After offering him a Budweiser and sipping one herself, she told him she would “do everything I could to stop this sale from going through … It’s a bad idea. I don’t want you to buy it. The people of Missouri don’t want you to buy it.”

Politicians never seem to understand how capitalism works. The InBev deal is not the government’s decision or the people of Missouri’s decision. It is the decision of the shareholders of Anheuser-Busch. If shareholders reject the InBev deal, AB stock will plummet. But that is the shareholders’ decision, not ours.

A Post About Foreign Ownership That Has Nothing to Do With InBev!

Posted on June 18, 2008May 5, 2026 by David Stokes

Attorney General (and gubanatorial candidate) Jay Nixon was asked at a recent forum about his transportation plans. KY3’s Political Notebook has the clips and coverage. The best thing I heard was when the he stated that toll roads and truck-only lanes are "on the table." I was less pleased to read this (it’s not in the clip, so I’m trusting KY3’s account, here):

Signals that public-private partnerships to manage Missouri roads give him "deep concerns," because of the potential for foreign ownership . . . Still, Jay Nixon leaves "everything on the table."

Having co-written an entire study of this subject, let me repeat that there is no "ownership" in a public-private partnership. The private partner leases an existing asset, or obtains the right to build and operate a future asset, but does not own it. The people of Missouri, through state government, would always own any infrastructure built or operated under PPPs.

As for the "foreign" part, I can’t fathom why this bothers so many people so much in these cases. It’s just a frickin’ road. (As an aside, I can understand why potential foreign ownership of Anheuser-Busch bothers people.) There are plenty of American campanies that can bid on these projects, and the leading international companies that do this type of transportation PPP are based in Australia and Spain. If we were to decide that we needed to really finish what we started in 1898 and return to war against Spain, like Rome v. Carthage, it’s not as if a Spanish company that built and operated a Missouri bridge could take the bridge and move it back to the Iberian Peninsula. This is foreign investment in America, that could potentially provide new transportation infrastructure only at a cost to people who choose to use the asset, and unlike the AB/InBev situation, no current jobs would be at stake. Why this upsets so many people is beyond me. …

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