You Don’t Count the Cost

Posted on by Eric D. Dixon

David Stokes has been doing a fine job covering the potential legalization of ticket scalping. There’s no question legalization is a good idea here, both for sellers and consumers. There are also some other economic points to consider.

The price of an item isn’t just what you pay for it in cash. The true price, to you, of a bag of groceries includes things like driving to the store, time spent browsing the shelves, waiting in line, effort expended pushing the cart, etc. The more difficult it is to get the thing you’re buying, the higher the real cost — regardless of what it says on the price tag.

Ticket-scalping policies are usually adopted out of a desire to keep prices down. If scalpers buy all the tickets for an event at face value, then turn around and sell them at a high markup, consumers are worse-off, right?

Not quite.

The real price of a consumer good is just a measurement — an intersection of supply and demand. If a baseball team sets the price of its tickets much lower than the real price that the market will bear, it hasn’t made the extra cost vanish. The team has simply shifted the cost in some way, perhaps by giving people an incentive to camp out all night in the rain so they can be first in line. The time and effort spent waiting in line is all part of the price of the ticket.

There was an excellent example of this sort of cost (which I linked to earlier this month) when a county in Virginia tried to sell several iBooks at $300 below market price. The result? "Mothers clutched their children for protection, people screamed as they were knocked to the ground, a stroller was demolished, cars inched through the crowd…" Economist Alex Tabarrok noted:

You can get rid of the market but you can never get rid of competition.  Goods not allocated by market prices have to be allocated somehow and so long as goods are scarce there will be competition to obtain them, if not by outbidding competing buyers with money then by outbidding them in time spent waiting in line, doing political favors or some other method.

What happened in Henrico county is the same type of thing that happens when there is a price control.

Controlled prices rise above the nominal price tag, despite all efforts to keep them low. Tabarrok goes on to point out:

It’s very important to notice that that the shop owner gets your money but does not get your time. Thus, money expenditures are a transfer but time expenditures are a waste.

The best way for our hypothetical baseball team to keep real prices low is to sell tickets for what they think the market will bear. And the best way for politicians to keep real prices low is to get out of the way — let people trade, sell, give away, or destroy the tickets they’ve legally purchased.

Continue reading “You Don’t Count the Cost”

New Bridge Might Not Ease Rush Hour Congestion

Posted on by Rik W. Hafer

Have you ever tried to get through downtown Saint Louis during rush hour? How about before or after a Cards game? If you have, you know it can take quite some time to get from one side of the Mississippi to the other. A stalled car or accident snarls traffic for miles. This type of experience may have you agreeing with proposals to spend hundreds of millions of taxpayer dollars on a new bridge connecting Missouri and Illinois. Before committing taxpayer funds, however, we should rethink the situation. Do we really need that new bridge?

A basic idea in economics is that individuals respond to incentives. If the price of strawberries rises, people buy fewer of them. This same insight applies to commuters. Right now, some people avoid commuting in congested areas because of the time and hassle. If we reduce congestion by building a new bridge, that might just cause more people to take to the roadways.

Reducing the time it takes to commute in and out of Saint Louis could induce those currently using mass transit or ride-share programs to start driving again. Solving the current mess could have the unintended consequence of inducing more traffic entering and leaving St. Louis. And this might just further jam up the connecting roadways. Would building the bridge create a need to further widen I-55 and I-70?

It wouldn’t be the first time. Current traffic flows on the Poplar Street Bridge are significantly greater than engineers estimated when the bridge was constructed. We know that because if they had gotten it right, we wouldn’t need the new bridge. Do we know that their projections this time are any more accurate?

It might be worthwhile to turn the current bridge debate on its head: Instead of finding ways to increase capacity, what if we looked for ways to decrease congestion by reducing the number of cars on the road? Rising gasoline prices are significantly increasing commuting costs. Add to that the cost of sitting in a traffic jam and commuters might begin to alter their behavior. Just think: If rush hour commuters simply doubled the average number of passengers in a car—from one to two—the number of vehicles crossing the bridge would be sliced in half. Commuters create congestion for other drivers on the bridge because they do not bear the full costs of their commuting decisions. The bottom line is that rush hour drivers use up too much scarce bridge space because they don’t pay the real cost.

One way to bring supply in line with demand is to charge commuters for the valuable rush-hour capacity they use. Charging a user fee (a toll) on commuters who use the bridge during rush hour is one way to efficiently price the use of limited space on roads and bridges. And a toll system is fair: Heavy users pay the higher price. To those who argue that toll booths would create more traffic problems, available easy-pass systems can significantly reduce the hassles associated with paying tolls.

Increasing commuting costs by charging congestion fees might lead cost-conscious drivers to take other, less congested routes or travel at non-peak times. Think of it. Carpooling might become more popular.

Establishing a system of user fees is the best means available to efficiently price commuting. If a price system works for movie tickets, electricity, and seats at Busch Stadium, why not for space on the bridge during rush hour?

R.W. Hafer is the chairman of the Department of Economics and Finance at Southern Illinois University Edwardsville.

 

All Eminent Domain at the Post Today…

Posted on by David Stokes

Today’s Post-Dispatch gives extensive coverage to various eminent domain issues in St. Charles, Jefferson and St. Louis Counties.  The St. Charles’ story is a good example of what can happen when voters take this issue to heart.  A proposed project using eminent domain has been stalled because voters voted out the city councilman who was supporting the project.  That’s called democracy.  People should trust it just a little bit more. 

The Jefferson County case is a victory for the good Doctor Tourkakis.  We have been following his case closely here at the Show-Me Institute and are delighted that his decidedly-not-blighted dental practice will still be serving the people of Arnold.  Reading this story made me wonder if the elected judges in the far-suburban and rural areas of Missouri might be just a little more sensitive to the public’s anger over eminent domain abuse than the appointed (usually for life) judges in St. Louis and Kansas City?  That is not to say that the ruling in favor of Dr. T was not entirely based on the law, but it is an interesting question.

The St. Louis County case is, of course, about the Centene Project dispute, which is being heard today by the State Supreme Court.  With my luck, the court will announce its decision exactly one second after my editor reviews and posts this – making this post irrelevent, but so it goes.  I wish I knew enough about the Supreme Court to offer a prediction, but I don’t.  I know that I want the Centene Project to move forward – but I don’t want other businesses in a wonderful area such as Clayton to be closed (or at least forcibly moved) just so another company can expand. It is too bad it had to come to this point, perhaps more negotiating and less threats of eminent domain by Centene in the early stages of the project could have prevented this.  Now it is a matter of principle for the opponents to stand and fight and all costs, which is their right.  Hopefully they will win their case, prove their point, make solid case law for the rights of property owners throughout Missouri, Centene will up its offer, the opponents will accept the new offer, the project will move forward, and everyone can declare victory and go home.       

Bureaucracy for the Uninsured

Posted on by Sarah Brodsky

Rep. Jo Ann Emerson says she wants her plan for government-run health care to be "driven by the private sector":

"I don’t want a government health care system. What I want is a system to insure all Americans through the private sector. People can’t afford health care today, so we’ve got to make it affordable," said Emerson, a Cape Girardeau Republican.

From this very simple premise came Emerson’s fascination with a universal health care proposal by Sen. Ron Wyden, D-Ore., an unlikely ally for the typically conservative-minded Emerson.

The article continues with the gory details of Wyden’s plan–mandatory insurance, even more extensive regulation of insurance companies, taxes to subsidize insurance for large segments of the population.

There are two main problems with this idea. First, if you overwhelm an industry with regulations and rules, the private sector might just disappear. When I started writing a blog post about Amtrak a few weeks ago, I was under the impression that private companies were not allowed to compete with Amtrak. My coworkers set me straight: private passenger trains are permitted, but there are so many requirements about where they run and how they operate that no private company would want to be in the business. Emerson says she wants to involve the private sector and competition, but her plan would probably narrow the choices down to one easily derailed AmHealth.

Second, there’s no free lunch. Some people are expensive to insure because of preexisting medical conditions. A complicated system of taxes and subsidies won’t change that. But for those people, paying for health care directly might be a better idea than going through an insurance company. The purpose of insurance is to protect your property in case of unforseen expenses–not to cover expenses you already know about.

The Drawbacks of Country Living

Posted on by Eric D. Dixon

The Southeast Missourian has an article today on broadband access in rural areas. The piece reports, "Since 2002, USDA Rural Development has administered a program that gives loans to broadband Internet service providers to install service in unserved or underserved rural areas," but that misuse of these funds in non-rural communities has led some in Congress to question the program.

Broadband Internet has become an indispensable part of life for me — essential to work, recreation, shopping, staying informed, paying bills, playing games, staying in touch with friends — so I can understand wanting to spread the technology to underserved areas. High-speed Internet access is simply useful, in a wide variety of ways. But it’s not a problem that requires a government solution.

The economist David D. Friedman briefly described the concept of "opportunity sets" in his book Price Theory: An Intermediate Text:

Your problem as a consumer is to choose among the various bundles of goods and services you could purchase or produce with your limited resources of time and money. There are two elements to the problem–your preferences and your opportunity set. Your preferences could be represented by a gigantic table showing all possible bundles–collections of goods and services that you could conceivably consume–and showing for every pair of bundles which one you prefer. We assume that your preferences are consistent; if you prefer A to B and B to C, you also prefer A to C. Your opportunity set can be thought of as a list containing every bundle that you have enough money to buy. Your problem as a consumer is to decide which of the bundles in your opportunity set you prefer.

When people decide where they’re going to live, they choose between a variety of opportunity sets, each of which contains some combination of positive and negative factors. A house’s low price may be seen as a positive factor, while its low quality of construction, or risky surrounding neighborhood, may be seen as a negative. A group of friendly neighbors may be mitigated by their unkempt yards or loud music at night. And the pastoral beauty, seclusion and relative safety of rural life might have other drawbacks — distance from the nearest hospital, perhaps, or a limited selection of stores and restaurants. It may also have fewer (or no) options for broadband Internet access.

It’s not clear that any of this is a problem for government to solve. I may have hundreds of great reasons to live in the country, but there are always going to be drawbacks. There’s no reason limited Internet access should be treated as more of a government concern than, say, the lack of good Thai food or multiplex movie theaters. Similarly, the fact that I choose to live in an urban area, with access to a wide range of things to do, doesn’t mean the government should try make my life a little better by tearing down a few buildings to install an artificial lake next to my apartment. Lack of immediate access to nature is one of the drawbacks of my otherwise favorable opportunity set, and it’s simply not government’s job to fix it.

I have a friend in rural Idaho who depends on broadband Internet access for his telecommuting job. None of his options were entirely reliable, so his solution was to pay multiple providers for different kinds of high-speed service — and he can always revert to dial-up in a pinch. It’s more expensive that way, but he’s taken responsibility for his choice of where to live, enjoying the many benefits of rural life and improving his technological opportunity set at his own expense.

A Fair Compromise on Transit

Posted on by David Stokes

Metro needs a lot of things, and one thing it is getting is a tax cut. Legislation has been sent to Governor Blunt to remove the diesal tax paid by transit agencies in Missouri, pretty much just Metro in St. Louis and ATA in Kansas City.  This is a long-overdue move.  It astounds me that Metro and ATA were ever forced to pay fuel taxes in the first place.  While the savings for Metro are small compared to what they say their overall needs are, this is a good move by the legislature. 

Now we apparently will be moving onto a debate over putting a tax increase for Metro on the ballot in St. Louis County and then passing or defeating that tax increase.  I think it should go on the ballot, where it will likely fail.  I will probably vote for it, but I live close to MetroLink and my wife and I use it with some regularity.  If I lived in an area not well served by MetroLink, which is most of the county, I don’t know how I would vote.          

Ticket Scalping Legalization: Boom, Bust, Dud or Thud?

Posted on by David Stokes

It appears that the citizens of Missouri are about to recapture the right to sell their own investments for whatever price the market will bear. No matter what the monetary effects of this change will be, this is good news, as we have discussed before on this blog. Tickets are a commodity that the owner should be able to sell (or re-sell) for any price they wish to. In researching this issue, I found a great article on scalping published by the Cato Institute. The article gives a history of the issue and discusses the practical effects of the restrictions.

I promised earlier this week to give my prediction on the pricing effect of ticket scalping legalization, leaving the theory out of it, although the economic freedom theory is why I support legalization no matter what the pricing effects will be. I should warn you that I am not a trained economist, just an enthusiastic amateur who took one college course in it. So here goes…

The legalization of an illegal item will normally lead to price reductions; that is the conventional view and is backed up by economic theory. The most talked about subject in the issue is illegal drugs, though alcohol during prohibition would apply equally as well. During prohibition, demand remained more or less constant while supply decreased, or at least became harder to provide. Prices increased, as any fool could have predicted. What are the differences between scalping tickets and selling illegal drugs?

First, selling tickets is not illegal every time, as selling cocaine is. (We’ll leave aside the de facto legalization of small amounts of marijuana in many large cities.) I can sell my Cardinals ticket to you for face value, or less, just not for more. Second, buying tickets for more than face value is not illegal, only selling them is. Buying illegal drugs is also illegal, though in some cases the penalties are less severe. If the market gave a going price of $26 for a $25 face-value ticket, there has to be some downward pressure to lower the price slightly in order to avoid breaking the law.

As for the law, I will reference it here repeatedly but in reality, the penalties for scalping are so minor, and the social stigma for doing it so minor, that most people will not be affected by whether it is legal or not. Compare this to prostitution, which some have argued should be legalized. Even though the criminal penalties for prostitution are also minor, the social stigma, and threat of violence, are enough to keep most women out of it. Insert your own joke about your ex-wife here.

So where are we? If scalping is legalized, more people will probably participate in it, not because they were afraid of the criminal costs but because corporations, such as the sports teams themselves, will now be able to offer quick and convenient ways in which to scalp your tickets. So the supply of scalped tickets for sale (or re-sale) will go up. This supply increase and competition will exert downward pressure on the price of scalped tickets — Economics 101. However, because the number of scalped tickets does have a ceiling (total number of tickets available) and the price for most scalpers has a floor (if many would-be scalpers can’t get above face value; they will just go to the game themselves), that will exert counter pressure to keep the price of scalped tickets high.

My prediction is that legalization of scalping will have no effect on prices for the vast majority of sporting events or concerts. Only the most sought-after tickets will be influenced, such as Cardinal playoff games (apparently not going to be an issue this year) or the Led Zeppelin 2008 reunion concert at the TWA Dome, or whatever the hell it is called now. For major events, I predict a slight increase in the median price for tickets, as more scalpers will sell more tickets above face value to events with tremendous demand. However, the increased supply and competition will lead to a decrease in the mean price of those same tickets. So when you go the 2009 Baseball All-Star game downtown, the average cost of scalped tickets will be lower thanks to legalization, although more people will be paying above face value for their tickets.

Eric Mink

Posted on by David Stokes

I like Eric Mink’s columns in the Post-Dispatch.  I have praised them in the past and I am sure I will do so again.  The Post gives him plenty of column space to flesh out his ideas and his columns are usually very well researched, which forces you to give his ideas strong consideration even if you are rarely inclined to agree with him.  Today’s column is not ones of his better ones, though.  Instead of a thoroughly researched piece we have an article full of poor logic and begged questions.  It is deserving of a Fisking, or at least a partial one, as it’s a long column.

Mink starts out by misquoting a legislator.  He takes the unnamed legislator’s quote,

"that they have no responsibility to take care of themselves or their neighbors and that it’s the government’s responsibility to care for them."

and restates it, "How much nerve does it take for an elected official to accuse his poor constituents of not caring whether they or their loved ones get sick?"  There is nothing in the one sentence Mink gives us where they legislator says what Mink says he said.  I agree that people need to take more responsibility for themselves and their families, it does not logically follow that I don’t care if people get sick.  I’ll move on, and skip over the part where Mink complains about the State now acting as a bill collector for hospitals, which serves as the MacGuffin of his article and on which I share his concerns.

I will further skip over his comments on education, which I again agree with him on.  See, I told you I liked his columns!  Education is indeed its own reward and every child deserves an opportunity to receive the best education possible.  It is at this point that the heart of the article kicks in, and really gets bad at the same time.  Mink writes:

Government obligation? That seems to be a foreign concept in an age that regards government either as a treasury to be plundered for the benefit of special interests or as an inherent evil to be undermined, dismantled and laid to rest. Yet the obligation of government to serve its people is the most American of values, a concept embedded in the founding documents of the nation.

Aside from being a little hackneyed in its phrasing, nothing too bad there.  He follows with some quotes from the Constitution and then opines:

But no reasonable person could contend that we promote "the general Welfare" of American society by allowing working families to be crushed by global economic shifts well beyond their control. The pursuit of Happiness is a cruel joke to a child living in poverty who has no opportunity to learn about the forces that shape her society and the creative impulses that elevate human experience.

We can trumpet Life and Liberty as unalienable Rights, but there is no meaningful freedom and no quality of life for people suffering from physical and mental illnesses who lack access to care that can restore their health, whose families founder in the absence of income and whose inflated medical bills become oppressive debts subject to preemptive collection by the state.

Where should I begin?  "No reasonable person could contend" is a very weak form of argument.  It assumes everyone agrees with you (the writer) except for extremists, and he follows up that logical error / lazy writing with a very general line about global economic shifts and the government ‘allowing’ people to be hurt.  There are many good arguments about how globalization is good for economies and, more importantly, the people who make up economies – Mink needs to address those arguments and not assume he is on the side of everything good and nice.

Mink continues with a litany of social welfare requests stated as self-evident:

(more…)

The Midwife Legislation Strikes Back

Posted on by Sarah Brodsky

Legislation allowing midwives to practice might become law after all:

Just one day after being chastised for sneaking a midwife measure through the Legislature, Sen. John Loudon secured a peculiar victory in the Senate on Tuesday, winning Senate support for yet another midwife provision.

Through an odd turn of events, the Senate voted 23-13 to adopt a measure that would give midwives with no formal medical training the right to practice if they met certain standards.

Regulations of midwives aren’t the only licensing requirements that are too restrictive:

The latest midwife measure is now contained in a massive 214-page bill dealing with the licensing standards for a host of professions.

I hope licensed geologists and interior decorators will have their onerous licensing requirements reformed next.

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