A 50 Basis Point Cut? Try 50,000 …

Yesterday, Attorney General Jay Nixon and several legislators called for reform to Missouri’s payday loan industry, arguing that it engages in predatory lending practices targeted at uniformed consumers. As evidence, Nixon cites the fact that Missouri lenders charge an average APR of 422 percent on payday loans, with some companies charging as high as 1,950 percent.

Nixon would enact legislation to cap payday loan interest rates at 36 percent and eliminate the practice of renewing outstanding loans, a practice that consumer groups argue traps borrowers in a vicious cycle of spiraling debt.

I have no doubt that some payday lenders engage in morally questionable lending behavior, but capping the rate of interest is not going to solve this problem. Consumer interest rates are primarily determined by credit risk, and if the Legislature caps the rate at which lenders can charge interest on their loans, lenders will be forced to issue fewer of them. And since payday loan consumers have the highest risk of default, they are the people most likely to be priced out of the market.

Moreover, it is likely the case that if borrowers are in such desperate financial straits as to borrow money at a rate of 1,950 percent, they will find a lender — whether legally with a payday lender, or illegally in the black market. And at least with a payday lender, default is settled by foreclosure on some kind of collateral. In the black market, it usually involves a crowbar.

In short, payday loan reform is one of those “feel good” legislative issues that does little to fix the problem it is targeted to address. If legislators are concerned with predatory lending practices, they should work to increase consumer education, rather than pricing consumers out of the market entirely, forcing them to obtain funds under much worse conditions. Capping the rate of interest is simply bad policy.

Saint George: Symptom of a Larger Problem? Or Is It a Smaller Problem?

Traffic ticket hotspot St. George, Missouri, is still on people’s minds after that ugly incident with the police officer last week. Charlie Brennan has been talking about it a lot on KMOX, and today the Post-Dispatch ran an interesting article on the problems small police departments can have. Here’s a key statement of interest to me in the article:

St. Louis County alone has 64 departments among its 91 municipalities. Only Cook County, Ill. has more departments in one county.

Cook County has five times the population of St. Louis County, by the way, and not too many more municipalities (about 130 to 91). By my nature, I am inclined to strongly prefer small government, but at some point it just gets ridiculous — and 91 municipalities and 64 police departments in one county is more than ridiculous. The amount of unnecessary tax money we spend on redundant positions, the amount of bull$&!t tickets written by small police departments to finance city services, the ability of tiny cities to throw a wrench into major transportation projects for the entire area, like Westwood almost did with Conway Road and I-64 … at some point, small government becomes too small.

I admire Jackson County, with its 18 municipalities — including Kansas City. I also like the parts of unincorportated St. Louis County, where over 300,000 people live without a city government and the county does a fine job of providing services at lower tax rates than most nearby municipalities do. I don’t want state mandates to force consolidation, although that would not be terrible. What I want for is the residents of these tiny cities, with their own police forces, to just disincorporate on their own.

Let’s keep the largest 40 or so towns in the county, and even allow them to grow via mergers. At some point, though, we need to have fewer St. Georges and Velda Villages in St. Louis County.

I Was Honored To Meet Wendell Cox Last Night

I had the great honor of meeting Mr. Wendell Cox yesterday evening. Mr. Cox is an international expert on issues of land use, transportation and mobility, property rights, and the housing market. We spoke for about an hour and he was just terrifically interesting, fun and friendly. He is affiliated with dozens of think tanks around the country, and, since he lives in the St. Louis area, we here at the Show-Me Institute look forward to having an opportunity to work with him on issues of mutual interest. I encourage everyone to check out the websites he operates, which have voluminous information on all sorts of issues.

Gasp! People Actually Move to Low-Tax States!

File this article under "Like we said …" The Kansas City Star had an article last week about the fact that people really do move from high-tax states to low-tax states. The point of the article is more "How to do it and avoid an audit," but here at the Show-Me Institute we have already pointed out the benefits of repealing Missouri’s income tax. In fact, this story uses the same expert we did:

It isn’t clear how many people move exclusively or mainly for tax reasons. But from April 2000 through June 2006, there was a net migration of 2.3 million people moving from states with income taxes to states with no income taxes, an average of more than 1,000 people moving per day, says Richard Vedder, an economics professor at Ohio University in Athens, Ohio, based on an analysis of census data.

If Missouri were to enact some combination of long-term spending restraint and sales-tax increases, we could eliminate the income tax in our state without major cuts to government services. Combine the absence of a state income tax with our very affordable housing markets (see p. 31), and Missouri could truly become a magnet for Americans looking to move.

But why would we want that? We wouldn’t even know where all these new people went to high school …

Clay County Tax Decision Awaits …

As best I can tell, Clay County will decide tonight as to their tax rate for 2007. At least, it is on the agenda, although it could of course be tabled to be acted on at a regular meeting rather than a work session. Every local council runs slightly differently, so I don’t know exactly how they run things there. That aside, the Kansas City Star published a good editorial last week calling on Clay County to let the voters decide whether they want to choose between continuing the sales-tax-only system via increasing sales taxes to meet the new road demands, or reinstituting a property tax. If the road and bridge demands on the county, coming out of the recent lawsuit, can be met by a moderate increase in the sales tax, than I agree that should be given very strong consideration — as opposed to reinstituting the property tax.

The citizens of Clay County have elected to try something very interesting in choosing to rely only on sales taxes to fund county services. The county should do all it can to continue that decision.

It will be interesting to see whether any other counties elect to go that route. The county in the Saint Louis-area for which this plan might make the most sense would be St. Charles County. They have plenty of retail outlets in St. Charles to, perhaps, make it work. Somebody in St. Charles government should run those numbers. Perhaps I will — should I get just stupendously bored one day.

Great Moments in Film-Related Think Tank History, Part 1 (Probably of 1)

So, my wife and I are watching the all-time classic Say Anything this weekend when I heard something I never realized before, probably because I didn’t work at a think tank when I saw the movie before. Anyway, as this is one of my favorite movies, and one which I sometimes reference (will not waste time searching for a past reference — we unfortunately don’t catalogue our posts by "pop culture allusions"), it was cool to hear that the fellowship that school valedictorian Diane Court was going to London for was, to quote her dad, "an international think tank." Pretty neat, huh?

The other highlight of seeing the movie again was catching a very young Ari Gold as one of the characters hanging out at the Gas ‘N Sip trying to get Lloyd to go to a kegger with them. "Bitches, man!"

‘Hot Fuel’ Regulations Would Harm Consumers

Nobody likes high fuel prices. In recent years, as gasoline costs have soared, consumers have looked for solutions — ranging from attempts to increase efficiency, like carpooling and converting to biodiesel, to ineffective gestures, like those perennial calls for single-day gas station boycotts. The recent movement to regulate “hot fuel” at the pump belongs to the latter, ineffective, category — only worse. Hot fuel regulations would increase gasoline prices across the board.

There’s no disputing the physics of hot fuel. Heat expands gasoline and cold contracts it, so that if you were to buy a single gallon of gas in, say, Florida, you’d actually be buying a somewhat lower amount of energy output than if you were to buy a gallon of gas in Alaska. This temperature dichotomy is particularly relevant for a state like Missouri, with both infamously hot summers and cold winters. Consumer groups claim that people are being overcharged for the gas they buy as thermometers climb.

There’s no reason to think, though, that this variation in purchased energy output actually results in overcharging. Price is a function of both demand and supply. So, in a competitive market, when temperatures rise and the contents of fuel storage tanks simultaneously expand, gas stations have a slightly increased supply of fuel to sell. The competitive drive to outsell the station down the street gives each gas station an incentive to lower its prices slightly — precisely because they have that temperature-increased supply of fuel.

Overcharging for gasoline is only taking place if we assume gas stations aren’t competitive, which is obviously false. Individual gas stations wouldn’t stay in business long if they didn’t lower their prices to compete with other nearby stations. This sort of fierce competition is one of the reasons gas in Missouri now costs well below $3 per gallon. When overall market price drops, so do individual station prices.

Proponents of hot fuel regulation call for temperature-adjusting technology to be required for U.S. gasoline pumps, of the sort now used in Canada. This equipment would ensure that a pump dispenses a higher amount of fuel when the weather is hot, so that each “gallon” would have the same energy output as a non-adjusted gallon at 65 degrees Fahrenheit — the standard industry temperature for fuel delivery in other market sectors.

If equipment like this is installed, though, the price charged for each one of those larger “gallons” would also naturally rise. Just as prices would fall slightly when hot temperatures bump up the gas supply available in storage-tank reserves, the prices would increase accordingly if that extra supply were, instead, parceled out to motorists a little at a time with each gallon purchased. This is an obvious drawback — if gas stations are required to dispense more fuel per unit than before, each unit will cost more. There would be no consumer savings as a result of such regulation.

Temperature-adjusting equipment might at least provide a greater degree of information at the pump, though. It might initially seem like a good idea to make sure that consumers know exactly what they’re getting in terms of energy output when they buy a gallon of gas. As useful as this information might be, though, it’s necessary to weigh its value against the cost of obtaining it.

Temperature-managed pumps would require a huge investment, which would be reflected in even higher gas prices — or higher taxes, depending on how the upgrades are financed. The fact that this investment would be required by law means that economic valuation would become less relevant. It wouldn’t matter much whether consumers actually think the information is worth the cost — those who need to fill their tanks would be getting the information, and paying the cost, regardless.

In a competitive market, prices will already reflect the seasonal variation in energy output per gallon that changing temperatures bring. So what really matters when buying a gallon of gas isn’t knowing its energy output in relation to other temperatures, but in relation to other nearby stations. If you can be sure that the gallon of gas you’re buying at one station is the same size as the gallon of gas you might buy down the street, you can make an informed decision about which relative price is worth your hard-earned money.

Legislation mandating pump adjustments for hot fuel would increase the already steep price of gasoline, all in the service of providing consumers with information that’s not relevant to comparative fuel shopping. Hot fuel regulations would harm consumers — not help them.

Eric D. Dixon is the editor for the Show-Me Institute, a Missouri-based think tank.

 

Exciting News For Mobility and Safety On I-70 In Missouri

Via Combest, there are numerous articles today about the grant from the US Dept. of Transportation to MoDOT, funding an study of new truck-only lanes on I-70. This is a terrific idea. I hope they give strong consideration to tolling those truck-only lanes, and allowing additional trailer rigs within them, in order to make tolls fair to the truck companies. Here is the original press release. The recent plan to hire a company to repair and maintain 802 bridges was a great initial step in realistically dealing with our transportation and infrastructure needs in Missouri. How we go about improving I-70 and I-44 is the next big question.  The use of tolls (through public-private partnerships, which are constitutional) MUST be strongly considered as the best way to pay for these improvements.

Eminent Domain Victim Victimized By Rock Hill Again

Many people paying attention to eminent domain issues, disputes, and outrages are aware of how Rock Hill took the home (via court action) of Drs. Rob and Judy Hanson in order to facilitate a development by Novus. Apparently, it was not enough for Rock Hill to forcibly take the Hansons’ home, against their will, in order to build a strip mall to meet the desperate retail needs of mid-county.

Now, because the Hanson family allowed neighbors and friends to remove some fixtures (wood, doors, etc.) from the home before they were forced to vacate it, Rock Hill is suing the Hanson family for a half-million dollars in damages!!! The important thing to note here is that the house was scheduled to be torn down by Novus!!! Novus had plans to demolish the entire house, and indeed did demolish it in January, before which the Hansons sold some of the home’s fixtures, donating the money to Habitat for Humanity. In the interest of clarity, Rock Hill did own the home at the time the Hansons sold the fixtures. Nobody denies that, but to sue for a half-million dollars is unjustifiable, in my opinion, for a house that was set to be demolished.

In my opinion, this is truly one of the most abusive lawsuits I have ever heard of. Here is the petition for the lawsuit, which may be nothing more than a bullying attempt by Novus and Rock Hill to get the Hansons to drop their ongoing request for a jury trial to determine the fair value of their seized home. No matter what, it is an outrageous example of the serious problems with eminent domain laws in our state.

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging