For more than a decade, Kansas City leaders treated Sun Fresh at 31st and Prospect as both a grocery store and a public policy tool to address food access and economic development. According to KCUR, the city has invested  $17 to $21 million since 2015, plus a $750,000 operating and security appropriation in May 2025. Yet customer traffic reportedly fell from about 14,000 a week to roughly 2,000–4,000 by mid-2025 (sources differ by date and estimate). According to The Washington Post, the store’s insurance costs rose 45% year-over-year, thefts mounted, and by this summer the store’s shelves were bare. Less than three months after the latest infusion of taxpayer money, the store closed.

This should not have been a surprise. I wrote as early as 2015 that the effort would fail. I saw this not because I’m imbued with a mystical power of prediction, but because I’m roughly familiar with some basic economic principles.

Friedrich Hayek described the price system as “a mechanism for communicating information” that enables millions of separate decisions to coordinate without central control. Prices, sales, and profit margins signal what customers want and whether a business can supply it sustainably. Subsidies blur those signals. Falling sales normally push owners to change their product mix, improve service, or close. If government funds fill the gap, a business may avoid—or delay—those choices until the underlying problems are too great to fix. This is exactly what happened with Sun Fresh.

Ludwig von Mises argued that without real market prices, decision-makers cannot allocate resources rationally. A subsidized store like Sun Fresh is insulated from these tests. Are prices too high? Is the product selection wrong? Are operating costs out of line? In a subsidy environment, these questions may go unanswered because survival depends more on political approval than on customer satisfaction.

And what do politicians want?  Ribbon cuttings and pretty pictures. Sound economics doesn’t photograph so well.

Adam Smith, in The Wealth of Nations, warned that the interests of producers and the public often diverge. A subsidized grocery may fulfill a political need to “do something” about food access, but it may not deliver what shoppers actually want at prices they will pay. If a store cannot sustain itself even with taxpayer support, the model—not the market—is the likely problem.

Supporters of the subsidies might argue that they were necessary to correct a market failure, and that the store’s closure proves even more support was needed. But the record suggests the opposite: prolonged subsidies masked underlying weaknesses, delayed inevitable closure, and diverted resources from other food-access efforts such as mobile markets, independent co-ops, or smaller-scale grants. Subsidies likely harmed other grocery stores as well, such as an ALDI on Prospect within about 1.5 miles.

Markets provide important information that no city hall central plan can replicate. Public funds cannot replace this information; they can only distort it. It’s true of sports stadia, entertainment districts, and the hotel industry. When those signals are ignored, the cost falls not only on taxpayers but also on the communities policymakers aim to help.

Lastly, and perhaps more importantly, this debacle is an example not only of the city doing what it shouldn’t, but also failing to do what it should. Many of the challenges the shopping center endured—theft, prostitution, open drug use, and violence—were the result of the city failing to do something we (should) all agree is a basic function of government: public safety.

Even if one believes subsidized stores could work, nothing can succeed amid the bedlam surrounding this store.

I wrote of this project in 2015: “When [the grocery store] fails, the city and its residents will be no better off than before, just poorer. And the infrastructure, crime, and education issues that really need to be addressed will be that much worse.” This is exactly where we are now.

The post Sun Fresh Failed Because of Subsidies, not Despite Them appeared first on Show-Me Institute.

• Attempts to license certain occupations are almost always initiated by the current practitioners of that field. Whether framed as a safety measure or a benefit to consumers, don’t be fooled. Practitioners personally benefit from limited competition and higher prices brought about by licensing. It is the classic case of concentrated benefits versus dispersed costs.
• Promises about what occupational licensing will achieve often fall short. Instead of improving service quality, we often see unintended consequences like do-it-yourself accidents and stifled innovation. Much of this can be explained by the fact that licensing increases costs. For example, higher costs lead to more do-it-yourself work, and that leads to more accidents.
• In the absence of licensing, people are not regularly subject to fraud and abuse as proponents of licensing would have you believe. Many Missourians hire from particular professions via recommendation from a trusted third party, like a friend or review website. If the worker does a poor job, he will stop being recommended and will receive poor reviews. As my colleague David Stokes said in his testimony (who was himself paraphrasing economist Adam Smith), in a competitive market, job performance and reputation put bread on a worker’s table, not a state license.

Ultimately, occupational licensing increases costs to consumers, limits competition, and hinders Missouri’s economy. Missouri has lost thousands of jobs and millions of dollars in output due to licensing requirements. During pandemic-related shutdowns, it is especially important to encourage entrepreneurship and remove regulatory barriers to work. Last year, Missouri took a huge step forward by allowing occupational licensing reciprocity and temporarily waiving some occupational licensing requirements. Let’s make sure that policymakers continue to move Missouri in the right direction.

The post Don’t Forget the Basics of Occupational Licensing appeared first on Show-Me Institute.

Real estate developers are indeed fraught characters in city life. . . . And the history of American development certainly includes shady land speculation schemes, racist intentions and bloated egos. . . . But at its best, development has also meant progress in America. And that possibility has been banished from recent debate.

The worry is that “developer” has become a dirty word, and that our mostly negative perception of developers and development is off-base. While urban politics demonizes developers, we ought to be grateful there are people who work to develop and build our cities, the thinking goes.

This assessment is both right and wrong.

It’s right inasmuch as developers shouldn’t be demonized for providing what consumers demand through market forces. People need housing and space for their businesses, and developers provide just that. Just as we shouldn’t lambast farmers and grocers for “profiting off” our hunger, we shouldn’t bemoan developers for profiting off of our need for homes and office towers. (Indeed, we all profit off of someone else’s needs through the exchange of goods and services for money.) As Adam Smith remarked in his Wealth of Nations, it is incredible that, without any sort of orchestration, the market is full of goods and services we need and want. What Smith said about butchers, bakers, and brewers is equally true of developers.

But the Times article also misses the mark in some ways. While there is nothing wrong with providing housing by chasing profits, there is something wrong with advocating that the public subsidize projects for private gain. Developers don’t invest just their own money; they often invest taxpayer money as well. Through subsidy programs like tax-increment financing, abatements, and special taxing districts, developers reduce their private risk. And since policymakers are often generous with these subsidies, for some developers it pays—and pays very well—to chase down subsidies and ensure they continue to flow for years to come.

The economist William Baumol, in his famous paper “Entrepreneurship: Productive, Unproductive, and Destructive,” argues that market agents are after profit, and they will try to get it through productive means or unproductive means. He thought that when governments have the power to pick winners and losers in the economy, entrepreneurs will chase government favor instead of working to meet consumer demand competitively. Many developers, like many market agents, have become infatuated with government handouts, and that is deserving of criticism.    

The post Why “Developer” Is and Is Not a Dirty Word appeared first on Show-Me Institute.

Though I never met the man, I feel a debt of gratitude to Ronald Coase, the Nobel Prize-winning economist who died on Labor Day at age 102. Reading his “Nature of the Firm” – one of the most cited essays in all of economic literature – encouraged me to start my own business.

Two decades ago, I persuaded John McDonnell, the CEO of McDonnell Douglas, then the nation’s 23nd largest industrial company, to outsource the biggest part of my job (writing his speeches) back to me as an independent writer. I left the company with an annual contract that paid me no less money than I was making before and that allowed me to pursue other clients. But as I told John McDonnell, I also knew that I had to perform at a high level – being painfully aware of the fact that the company could cancel my contract at any time if I did less well as an independent contractor than I had as a “salary-man” (to use the Japanese expression) or employee.

Anyone familiar with Ronald Coase’s work will recognize that I had struck a classic “Coasian” bargain – finding an efficient free-market solution to a particular problem (my unhappiness with the corporate environment and desire for independence) that worked for both parties: The CEO accepted the notion that I would be a hyper-motivated non-employee, and I became my own boss.

Coase was the first to ask – and provide a plausible answer to – the question of why companies exist . . . and why a critical part of their success comes from getting large numbers of people to submit to a form of voluntary servitude – punching a time clock and giving employers the right to direct their performance in exchange for predetermined wages or salaries and protection from sudden or arbitrary dismissal.

His answer was that companies exist for the purpose of reducing “transactions costs” – meaning all the costs of trying to order economic activity through voluntary exchange. That includes the costs of searching out and evaluating other parties; negotiating contracts; maintaining communication; and policing and enforcing the terms of those contracts.

Imagine the extraordinary difficulty that a Henry Ford or a William Boeing would have faced in trying to contract out for every part and every task going into the assembly of a car or airplane. Hence the need for the visible hand of management in coordinating the allocation of resources.

At the same time, Coase fully appreciated the disciplines and rewards of free enterprise, and he was acutely aware of the tendency of corporate (or government) bureaucracies to stifle individual initiative and kill any sense of real ownership that people have over the quality of their own work. Within a large, publicly owned corporation, no one, including the CEO, is spending his own money.

Citing the picturesque words of another economist (D. H. Robertson), the British-born Coase, who spent most of his working life in the United States, described companies as “islands of conscious power” – or central planning – in an “ocean of unconscious (i.e., spontaneous free-market) cooperation . . . like lumps of butter in a pail of coagulating buttermilk.”

The “lump of butter” of which I was a part in the early 1990s was a shrinking rather than a growing mass: In just three years, the company shed more than 50,000 jobs, or 42 percent of the workforce. In the midst of all the downsizing, people were angry and confused – not knowing where the axe would fall next and bitterly resenting a sudden loss of the personal security that they had gained (and felt entitled to) through years of fealty to the same company. What they didn’t see was that a whole way of life was disappearing.

And now it is gone. Today, no one – not even someone graduating from a top business school – expects to spend his or her entire adult life with a single company. Everyone accepts that big companies really aren’t built to last. More like lumps of butter than castles of perpetual growth and stability, they may dissolve at any moment and disappear into the liquid churn.

One may think of the quarter of a century from 1955 (the first year of the Fortune 500) to 1980 as a golden age for big business in America. During that time, Fortune 500 companies ruled the roost – growing at about twice the rate of GDP growth and enjoying robust profitability from one year to the next – even during recessions. In 1975, the last year of the virulent recession touched off by the Arab oil embargo, only 15 Fortune 500 companies, or 3 percent of the total, reported losses, and all of the top 50 companies were solidly in the black.

Compare that to 1993 – which happened to be my last year as an employee at McDonnell Douglas. This was a brutal year for many big companies. Even though the 1990-91 recession was officially over, no fewer than 151 Fortune 500 companies – or just more than 30 percent – lost money in 1993, and that included 4 out of the top 10 (GM, Ford, IBM, and DuPont) and 22 out of the top 50 ranked by revenues.

To add just one more statistic gleaned from sifting through old issues of the Fortune annual survey, it is worth noting that Fortune 500 companies shed close to 3 million jobs in the 10-year period ending in 1993.

So what happened to bring the era of big business dominance to a close and set the stage for a new era of entrepreneurship and greater dispersal as opposed to centralization of economic activity?

We may turn to Ronald Coase for what I believe is the key insight. In his essay on the nature of the firm – published in 1937, when he was a young professor at the London School of Economics – he addressed the different ways in which technological advancements could affect the size of companies:

It should be noted that most inventions will change both the costs of organizing and the costs of using the price mechanism. In such cases, whether the invention tends to make firms larger or smaller will depend upon the relative effect on these two sets of costs. For instance, if the telephone reduces the costs of using the price mechanism more than it reduces the costs of organizing, then it will have the effect of reducing the size of the firm.

But of course, I thought, when I read those words for the first time. This was a year before John McDonnell and I struck our Coasian bargain. With his encouragement, I had agreed to take part in a research project by the Center for the Study of American Business at Washington University in St. Louis examining how U.S. firms (including McDonnell Douglas) were responding to the twin challenges of the information revolution and globalization . . . and to write sections of a book (The Dynamic American Firm) summarizing the findings.

Coase’s thinking loomed large in the book and in my own subsequent decision to go out on my own.

The mainframe computers that came into existence in the 1950s were so big and expensive that only the biggest companies could use them. With the help of these early computers in reducing the costs of organizing production and marketing, Fortune 500 companies became bigger and more prosperous throughout the sixties and seventies.

Then came the information revolution – which (even before the Internet) had the opposite effect of reducing the size of firms. It reduced the need for corporate bureaucracy. Still more, it caused many big companies to disassemble their carefully constructed vertical empires and to contract out for just about everything outside of their own core competencies. I knew that writing was not one McDonnell Douglas’s core competencies, and I reasoned that I should set a price for my work as an outside contractor that would be equal to the cost that the company would incur in having to hire a full-time speechwriter to replace me. Because the drafting of speeches and annual reports took maybe 50 percent of my time at McDonnell Douglas, I figured I would free up many hours that would go into serving other clients.

The Dynamic American Firm did not become a best-seller, but in re-reading some passages of the book, I can relive some of the excitement that I felt in pondering the next step in my own life:

Like “de-industrialization,” the rapid rise in business services and self-employment over the past several years has set alarm bells ringing in enlightened centers of thought. “In the future,” one displaced executive told Time magazine, “we are going to be moving from job to job in the same way that migrant workers move from crop to crop.”

Perhaps. But unlike the migrant worker, today’s corporate refugee, equipped with a personal computer, printer, copier and fax machine – all purchased for about $7,000 – can earn a good living toiling in the comfort of his, or her, home. That is so because the information revolution has greatly reduced transactions costs – for big firms and small contractors alike.

Coase may have done more to extend our understanding of business and commerce than any thinker since Adam Smith. But his influence did not stop there. He also had a profound influence in challenging the belief that government regulations, taxes, or subsidies were the best and, indeed, the only way of dealing with actions of business firms that have harmful effects on others, with a commonly cited example being the emission of sparks from a train that causes damage to a farmer’s crops along the railroad’s right-of-way.

In a “The Problem of Social Cost,” his second most famous essay, published in 1960, Coase argued that most disputes of this nature are best resolved by negotiation, rather than regulation or imposing strict penalties on the damaging party.

As Coase pointed out, both the railroad and the farmer would be better off if the latter agreed not to cultivate the vulnerable portion of his land in exchange for a payment that would equal or exceed the opportunity cost incurred in foregoing its cultivation. In other words, without regulation, the two sides could easily reach a mutually beneficial solution.

“The Problem of Social Cost” gave rise to a whole new body of literature in the field of “economics and the law.”

In awarding him the 1991 prize in economics, the Nobel committee observed that “Coase may be said to have identified a new set of ‘elementary particles’ in the economic systems.” Coase himself made no such claims, saying in a 2012 interview, “I’ve never done anything that wasn’t obvious and I didn’t know why other people didn’t do it.”

Andrew B. Wilson is a resident fellow and senior writer at the Show-Me Institute, which promotes market solutions for public policy in Missouri.

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Last night was obviously Snowmaggedon, and I hope everyone is staying safe out there as some of the roads are still nasty. The previous night, Wednesday, we hosted the second Show-Me Institute Saint Louis Book Club meeting of the year. We discussed the classic The Road to Serfdom, by Friedrich Hayek. The central theme of the book is that fascism is a natural outgrowth of socialist central planning. Hayek’s desperate wish was to warn the western nations, especially England and the U.S., not to pursue the path of central planning. Hayek believed that a descent into fascism was more likely than it seemed to his audience: the citizens of non-fascist western nations in 1944.

But all that just makes the book sound like a dated warning against something no one really advocates anymore, right? Well, the book has staying power because of two timeless features which are perhaps separate sides of the same coin: Hayek explains why the price system not only works, but is the best system possible for maximizing individual welfare while also making a strong case for individual liberty and limited government, which Hayek calls (using the connotation of his time), liberalism.

It was a wonderful meeting and a rousing discussion. Book club meetings start at 7 p.m. and usually wrap up about 8:30 or 9 p.m. But Wednesday’s meeting did not end until shortly after 9:30 p.m. — we all had so much to discuss. Here are some of the topics and ideas we discussed:

• Whether a person’s concept of what is possible constrains their action.
• The important distinction between freedom and power: what it is and why it is important that they not be confused.
• This wonderful quote from Adam Smith (introduced roughly by Hayek): “[the regimentation of economic life puts governments in a position where] to support themselves they are obliged to be oppressive and tyrannical.”
• Where Hayek drew the line on the proper role of government and how that might undermine his overall message of liberty.
• Whether market competition is inherently violent (hint: it is not).
• Whether a legal system is necessary for competition, and David Friedman’s “the discipline of constant dealings.”
• The contradiction and ugliness of “competitive socialism.”
• An extended interlude about “Little House on the Prairie.”

The reading for next month is The Machinery of Freedom, by David Friedman, another classic. Friedman is an economics and law professor with a Ph.D. in physics, and the son of free-market titan Milton Friedman. From the Amazon description: “This book argues the case for a society organized by private property, individual rights, and voluntary co-operation, with little or no government.” I am looking forward to some excellent discussion on this one at our March meeting, so please join us if you can (date of meeting to be announced, check here).

The post February Book Club Recap – The Road to Serfdom appeared first on Show-Me Institute.

By contrast, the modern State of the Union address is carefully orchestrated both by politicians and the media to instill a feeling of awe in viewers. Like a well-rehearsed religious ceremony, participants rise and show their approval at predetermined breaks in the speech as the president releases a steady stream of policy proposals, like mystic prayers that he is confident will elevate his people. This spectacle places government — especially the president — at the center of our lives, but this is as backward as the medieval idea that the sun revolved around the earth.

Last night, Obama briefly acknowledged that America’s free-market system “sparks the creativity and imagination of our people,” but quickly moved on to extol government subsidies for, among other things, high-speed rail, broadband Internet access, and renewable energy sources. All these projects stifle individual creativity and imagination by attempting to direct innovation and economic growth from on high — they are a kinder, gentler central planning and reflect what Nobel Prize–winning economist F.A. Hayek called “the fatal conceit” that politicians know better than the dispersed knowledge of the people they rule.

In fact, it is everyday people using bits of knowledge in their particular areas of expertise who keep the economy functioning and drive it forward. Not only does the president not possess the knowledge necessary to understand and successfully redirect that multitude of choices to his preferred ends, it is impossible for him to possess it. Only an entrepreneur facing the discipline of profit and loss can discover which new energy source will prove popular. Only a rural resident weighing the costs and benefits of faster Internet access can decide whether it makes sense for him. Only a commuter running late for work can decide whether high-speed rail is more efficient than driving. The economy, Hayek explained, is the product of human action but not human design, so it must be steered by the choices of individuals free from government influence and coercion.

In The Theory of Moral Sentiments, Adam Smith wrote about the arrogance of the “man of system,” who “seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board.” But, as Smith points out, we are not chess pieces; each of us has different hopes, goals, and dreams — and different ideas about how to achieve them. We naturally resist the hand of the man of system when it tries to move us away from our chosen paths and ruin all the grand designs of politicians and their planners. People will flourish most when an equitable set of rules is enforced, but they are otherwise left to move about life’s board as they see fit.

Political rhetoric like last night’s speech may sound exquisite and offer hope for great improvements in the human condition, but, almost without exception, the improvements we know of came about not from a government plan but from individuals going about their lives and pursuing their own goals. Presidents may flatter themselves with the idea that they are the center of the universe, but as King Solomon, who knew something about the arrogance of public officials, wrote in Ecclesiastes, “vanity of vanities; all is vanity.”

The post A State of Arrogance appeared first on Show-Me Institute.

The egregious amount of deficit spending is leaving taxpayers with a sizable bill. The federal government would like the “rich” (those that make more than $200,000 in pre-tax income) to pay a higher proportion of that bill, making them the lucky recipients of a tax rate increase. The politics of the tax cuts have already begun. It seems like an impossible task for Washington to divorce the economics from the politics. At this point in history I’m betting that that those individuals and families in the highest tax brackets will certainly see a tax increase come January.

The president recently said, “There will be no more taxpayer-funded bailouts. Period.” But, as Dan Henninger of the Wall Street Journal points out, “Raising taxes to cut the deficit is a bailout for the spenders.”

I’m beginning to think that an effective training regimen for politicians would include an undergraduate degree in linguistics.

Maybe I am missing something. Maybe classical microeconomics has become outdated and doesn’t adequately reflect decisions in the real world anymore. Maybe the nuance of their arguments is too much for me. Or maybe they’re wrong.

Economists have been developing mathematical equations since the days of Adam Smith, attempting to ascribe reality to a system of variables that can be changed and tweaked to more accurately reflect what economists empirically see. The problem with these equations is that they are not reality. That being the case, it is best to avoid needless complication.

Someone best illustrated this to me using the game of billiards as an analogy. Hitting the cue ball into the eight ball in an effort to send the eight ball into a corner-pocket requires skill and accuracy. Ricocheting the cue ball off the rail into the three ball which then will kiss the nine ball on its way into the two ball which will subsequently fall into the pocket is an entirely different problem. The more complex the system gets, the more accuracy is required, and initial mistakes are magnified further down the line.

Intertemporal decision making can be a complex problem to study, but most of the world makes such decisions intuitively — we are all practicing economists. The amount available for future consumption is future income plus savings plus the amount of interest earned on savings. If savings are negative, the person is borrowing and must pay back the amount borrowed plus the interest in the second period. This has the effect of reducing future consumption.

Future Consumption: P₂C₂ = M₂ – M₂t + S + iS

This means that today’s purchases change tomorrow’s parameters.

Current Consumption: P₁C₁ = M₁ – M₁t – S

Reality is an integration of these two equations. We do it constantly, and instantaneously most of the time. Income (M₁ & M₂) is a function of spent spent in leisure and work, and wages. People often decide how much they will work based on how much they plan to consume and how long it will take them to achieve the desired amount of income for that consumption (this also allows income to implicitly represent labor decisions in these micro equations).

Enter government, with a budget constraint that looks very similar. What is different is that the government doesn’t have to make labor decisions; it makes taxing decisions, and consumes through expenditures.

Government Expenditures: p₁E₁ = M_G + S

Government Revenue: M_G = M₁t (this form represents an income tax)

Taking from the income produced by others is the government’s only real source of revenue. This has two very obvious implications: 1) Taxation has an obvious impact on private consumption decisions, because it subtracts from real income (this also affects savings and consumption patterns, both now and later); and, 2) tax rates and government expenditure choices signal to the public the likely outcome of future taxation and expenditure decisions. This model of the aggregate economy suggests that eliminating the tax cuts will have deleterious effects on output and employment.

For some reason, Keynesian economists believe they have the power to affect the M₁ variable in this equation on a massive scale. The government is just adding pool balls to the equation. When the government decides to increase expenditures, it also has to increase revenue, by increasing the tax rate (t) now or in the future (after borrowing). This will have a negative effect on personal income, which translates to a decrease in personal consumption. The government has also decided to implement a progressive income tax structure. This means that, as M₁ increases, so does t. Because people tend to make decisions based on marginal welfare at their original consumption pattern, the last unit of consumption is roughly equal to the leisure that a person gives up to work that extra little bit so they can afford that last bit of consumption. With a progressive income tax, or an increase in the tax rate on any person, production is decreased at a marginal rate. When this happens to 300 million people at the same time, we begin to see problems.

The opponents of tax cuts often ask: What is the difference between swelling the public sector and cutting taxes, in terms of the federal government’s deficit? The answer is that they have different compensation structures and lead to different production decisions. Public money doesn’t force firms (whether they are public firms, or private firms contracted by the government) to make marginal decisions that maximize efficiency. Unfortunately, this means that public money is attached to inefficiency margins for anyone accepting it. Raising taxes therefore has a double whammy effect: Private production slows based on marginal decisions, and when it is converted to public money, it integrates inefficiency into each dollar.

Does this sound like a good prescription for an ailing economy?

The post Expiring Tax Cuts appeared first on Show-Me Institute.

First, the ban wouldn’t even solve the problem, because all of the Toyotas that were recalled in January for malfunctioning gas pedals weren’t manufactured in Japan. They were manufactured in the United States:

As for banning Japanese-made vehicles: All 2.4 million Toyotas recalled Jan. 21 due to sticky gas pedals, and most of the 5.6 million vehicles recalled because floor mats might jam pedals, were assembled in the USA.

Would this ban have anything to do with the fact that the U.S. government has a large financial stake in GM, a major Toyota competitor?

Banning Toyotas would have many negative consequences. For example, the men and women who work in Toyota dealerships and Toyota manufacturing plants would have to join the ranks of the unemployed. This would have a noticeably negative effect in Missouri, which has a high-enough unemployment rate already — 9.6 percent as of December.

Banning foreign imports like Toyota would hurt consumers because it would limit their choice of cars. When free trade is restricted, a people can only consume what their country is able to produce. In an adapted excerpt from their book Free to Choose: A Personal Statement, Milton and Rose Friedman elucidated what this means to consumers:

We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports. As Adam Smith saw so clearly, the citizens of a nation benefit from getting as large a volume of imports as possible in return for its exports or, equivalently, from exporting as little as possible to pay for its imports.

The ban would also increase consumer prices on all cars by decreasing the total supply. Domestic car producers do not have the capacity to make up for the shortfall in the short run, which would aggravate this effect. In the aforementioned excerpt, Milton and Rose Friedman explained that “‘Protection’ really means exploiting the consumer” because she has to pay more for goods.

The ban would also decrease the quality of vehicles that are available to American consumers, which is the very problem that this policy is intended to alleviate. When a country attempts to protect certain industries, it removes their incentive to innovate in order to compete in the global market. By banning foreign imports such as Toyota, the United States would do the American car industry and American consumers no favors. GM and Ford have difficulty competing with foreign firms like Toyota and Honda in the status quo world economy because they have “benefited” from American protectionist policies on cars for so long. Furthermore, bans on foreign imports become even more disadvantageous in the future if/when the trade restriction is lifted, because domestic car companies would have lower-tech, lower-quality products than their foreign competitors.

Government intervention in international markets hurts business and discourages economic growth. When a country slaps protective measures on its trade policy, it is probable that other nations will retaliate in kind, leading to increased consumer prices. Impeding free trade is very dangerous policy when international economies are so intertwined. We only have to look to the recent past for evidence of this. Last September, Obama placed a 35-percent tariff on tire imports from China. This was effectively a tax on Americans who drive cars, who were predicted to experience a 20- to 30-percent increase in the cost of tires as a result of the policy. China responded the following Sunday in retaliation by placing its own tariffs on imports of American poultry and automobiles.

I have an alternative suggestion: Instead of banning foreign imports, each U.S. senator should complete a refresher course on macroeconomics before assuming office. Based on Sen. Johanns’ proposal, I see no evidence this the former secretary of agriculture ever took one in the first place.

The post Against the Proposed Toyota Ban appeared first on Show-Me Institute.

The term “wealth” gets thrown around a lot. Like “public good,” however, economists mean something specific when they talk about wealth. It is not just money; it is anything that people want. When a person has more of what they want than they did a year ago, we can say that they are wealthier. If they have more of what someone else wants, we can also say that they are wealthier if they are then able to trade with the person who desires their things and thus get more of what they want.
The question of what people want is somewhat normative (econ jargon meaning “opinion-based”), but some examples will help here. Fishing, farming, and hunting are all ways of obtaining very simple forms of wealth: food, or the stuffs to make it. Besides food, people want clothing and shelter almost universally. Thus, making or trading those things can create wealth.

This point requires some explanation. The term “create wealth” is by no means a misnomer. Any time a person exerts effort to make some materials a little bit more useful or desirable to others, they are creating wealth. As an example, oranges on a tree in Florida aren’t of much use to us in Missouri. When someone makes the effort of picking, packing and trucking them here, they have created wealth.

Trade is another way to create wealth. Any time a person trades something they have for something else, economists tend to assume that they gave up one thing for another thing that they valued more. Because trade usually happens between two people (or two families, businesses, etc.) we can assume that they each feel like they got more out of the trade than they put in, or else they wouldn’t have traded.

Adam Smith more or less invented the modern study of economics when he published “The Wealth of Nations” in 1776. It’s safe to say that no economist today disagrees with his fundamental assertions that societies are made wealthier through specialization and trade (I thought about linking to eBay and Craigslist here, but the fact is that most people do their trading face to face, at the store, etc.).

Today, and for many years now, human civilization has been able to support a standard of living well above subsistence for many people. Specialization and trade, coupled with the concomitant improvements in technology made possible through the application of science to business, have made our current level of total wealth possible. It is also possible to destroy wealth, however. When willing traders are forbidden to trade by force or by law, wealth is destroyed. Property destruction is by far the most obvious form of wealth destruction (not counting campfires or other destructive acts where the destruction itself has value).

I have tried to explicitly avoid mentioning money so far. Though it is essential to our current degree of specialization, money is not truly necessary for specialization and trade — it’s just very convenient, and uneclipsed in efficiency as a medium of exchange.

Try thinking about wealth in the terms I’ve laid out here. Imagine the wealth you create for yourself, your friends and family, your employer. See whether you can think of any forms of wealth destruction that I didn’t mention. I look forward to any and all comments pertaining to this important free-market concept: wealth.

The post Economics Forum 2: Wealth appeared first on Show-Me Institute.

The Pitch‘s piece isn’t uniformly great; for instance, the author, David Martin, mentions at one point that despite some misgivings, "relics such as the old Greyhound station make me thankful that the TIF Commission and other inscrutable quasi-government agencies have the power of eminent domain." But Martin picks up on something that many other people omit when they discuss eliminating the earnings tax — the Show-Me Institute’s suggestion that lost earnings tax revenues could be replaced with a much less distortionary land tax:

[T]he Show-Me Institute released a study on January 25, 2007, urging Kansas City to phase out the 1 percent tax on income and put in its place a tax on land. The author, Joseph Haslag, an economics professor at the University of Missouri-Columbia, calls the land tax a "slam dunk" in terms of promoting growth. […]

The beauty of the land tax is that it essentially makes available to everyone the tax abatements that big-shot developers are always getting at City Hall. It would also save the city from having to go to court to pry valuable real estate from the bony fingers of people like Barber. When the land tax works as intended, speculators are forced to develop their holdings or sell them to somebody who will.

This is indeed one of the advantages of levying taxes on land value. Owners of land would have more of an incentive to either use their land in productive ways, so that they can recoup the value of the taxes the must pay, or avoid paying the tax at all by selling the land to somebody else who believes they can use it profitably. Although Henry George is most famous for promoting this idea, one of the earliest free-market economists, Adam Smith, also observed the value of a land tax as an alternative to other potential forms of taxation.

Of course, a more optimal outcome would be for government officials simply to find ways to cut unnecessary programs and spend much less of the taxpayers’ money. But nobody’s holding their breath for that to happen.

The post Pitch Whacks Earnings Tax Flat in Its Tracks; Backs Tax on Plats, in Fact appeared first on Show-Me Institute.