Researchers at MIT and George Mason University estimate that delayed and canceled flights imposed on passengers an aggregate delay of 28,500 years in 2007. The cost of these delays, and of risk-averting behavior like traveling early to destinations, was estimated at $15.3 billion, a startling number that accounts for the opportunity cost of time but doesn’t measure the consequences of missing critical appointments like weddings or job interviews.

While Sexton refers specifically to airline cancellations, his larger point is about the time costs to passengers. This study mirrors recent observations from SaveKCI’s blogger Kevin Koster:

Yesterday, I had to make a day trip to Denver. As I tweeted yesterday morning, it literally took me only 8-minutes from the time I locked my car in the KCI garage until I was through security and standing at the gate ready to board. By comparison that afternoon in Denver, it took me 45 minutes from the time I was dropped at the curb until I was at the gate – and I was told the security lines were unusually short.

More impressive though was our return to KC. It took me less time to get from the gate to my home than it did in Denver to get from the gate to a waiting cab outside. To the business traveler time is money – on average $150/hr. We should be selling KCI’s “private jet speed” convenience to businesses in other markets, rather than considering destroying it.

Airport administrators want to move to airport models used elsewhere in the country to maximize revenue. Kansas Citians like Kansas City International Airport because it allows them to be efficient with their time. For many in the region, this time cost is the most important.

The post The Price Of Air Travel appeared first on Show-Me Institute.

MoDOT officials state that in order to pay to rebuild I-70 using gas taxes (and I have nothing against gas taxes; I just prefer tolls where feasible), they would have to impose a 15-cent per gallon state gas tax hike. I am going to do a follow-up post next week on costs after I have time to work through the numbers, but for now, realize that everyone in Missouri would pay that same extra 15 cents, including people who rarely use highways, particularly I-70. People in Kennett would pay the same as people in Kingdom City. People who drive primarily on local roads (paid for with local property and sales taxes as well as gas taxes) would pay the same as people who drive predominantly on highways (which gas taxes pay for almost entirely).

The Show-Me Institute released a terrific study on private financing of highways back in November 2008. The study was done by “distinguished urban economist” (Freakonomics’ words, not mine) Kenneth Small. It may be my favorite paper that we have released, and it has something important to say about this exchange in the hearing with MoDOT yesterday:

Committee chair, Sen. Bill Stouffer, R-Napton, said he was concerned that motorists may try to avoid I-70 if it became a toll road, pushing traffic onto smaller roads, such as Highway 36 and Highway 50.

Keith said the concern was valid, but it would be up to the toll road operator to make sure tolls aren’t excessive.

The concern about traffic being pushed onto other roads because of high tolls is legitimate. Prof. Small states on page 23 of the study: 

The best results occur when the objective for awarding the franchise takes into account a combination of all three forms of payment by users and taxpayers: their own costs of congestion, toll payments, and the subsidy required. This is a highly stylized model not suited for designing a franchise for a specific road, but it does highlight the importance of considering not only toll payments and subsidies but also congestion costs incurred by users of both roads. 

I have one minor critisicm of the proposal. I do not think this should be required:

After the project is complete, the contractors would operate the toll plazas for a period of years until the contractor’s investment has been repaid.

I say just toll it now and forever. After the investment is repaid, there will still be maintenance costs. It may be reasonable to require that the toll be lowered at that point in time (when the debt is gone and MoDOT faces just upkeep), but doing away with toll at that point is not necessary, in my opinion. However, that point is minor, and I think MoDOT deserves great credit for this proposal.

The post Is Missouri Ready For Tolls? appeared first on Show-Me Institute.

This is exactly why I listen to the Freakonomics podcast, which highlights the ways that economics can provide insight to seemingly inexplicable situations. Recently, Freakonomics discussed efforts in Romania to fine witches if their predictions fail to come true. The jail-time punishment being proposed for multiple false predictions could result in six months to up to three years in jail.

I suppose that if you acted on a false prediction, you would want to punish the person who led you astray. But think of all of the people and organizations who make predictions that affect the way our economy runs. We don’t penalize, say, politicians, economic development officials, or coalition groups when the promises they make fail to materialize.

As Steven Dubner, host of the Freakonomics podcast put it, “I don’t care if you’re anti-witch or pro-witch or witch-agnostic. Why should witches be the only people held accountable for bad predictions?”

In Missouri, it isn’t very hard to find evidence of bad economic development predictions. The recent Mamtek scandal is one. The 2006 prediction that the Ballpark Village development in downtown Saint Louis would result in more than $700 million in economic impact looks unlikely, to put it kindly. And, for a recent example, we have the ever-changing job estimates associated with a proposal to dedicate $300 million in state tax credits to construct warehouses and facilities.

Consider also a state audit report that found, among many other problems, that Missouri’s Low Income Housing Tax Credit is much more costly than initially predicted. How about the overly rosy economic growth assumptions used to sell Tax Increment Financing (TIF) projects? An East-West Gateway Council of Government study found that “broad measures of regional economic outcomes strongly suggest that massive tax expenditures to promote development have not resulted in real growth” (emphasis mine).

Of course, I’m not advocating that we throw politicians and economic development officials in jail for making the wrong promises. But I would suggest, for the health of Missouri’s economy, that we start holding these people responsible for their predictions.

As Freakonomics co-host Steve Levitt points out in the podcast, people have every incentive to make absurd predictions:

So, most predictions we remember are ones which were fabulously, wildly, unexpected and then came true. Now, the person who makes that prediction has a strong incentive to remind everyone that they made that crazy prediction which came true. …But if you’re wrong, there’s no person on the other side of the transaction who draws any real benefit from embarrassing you by bringing up the bad prediction over and over.

Levitt’s point reminds me of the St. Louis Regional Chamber and Growth Association’s outlandish predictions. The RCGA frequently issues press releases touting incredible job and investment numbers. Sometimes, the message of one RCGA study (say, that the region needs to build millions more in warehouse space) conflicts with another RCGA press release (that the region has an abundance of cheap warehouse space). The agency clearly isn’t worried about making an unlikely prediction, either.

I also wonder about the Missouri Department of Economic Development, and the state legislature’s propensity to create tax credit programs in the hopes of attracting jobs to the state. Audit reports have shown that these tax credits are more expensive than anticipated, and that the state gets little in return. And yet, in the face of  bad earlier predictions (and even blatant overstatements), state legislators continue to fail to pass substantive tax credit reform.

A solution that Freakonomics proposes is a little unexpected, but elegant. We all are familiar with baseball players’ batting averages. Let’s apply those to people who make economic development predictions.

Consulting organizations should report their track record of success (and failure). What if every estimate of job and investment creation the RCGA publishes had to be accompanied with a percentage showing the accuracy of previous estimates the agency predicted? What if, when contemplating creating new tax credit programs, we considered whether existing programs delivered on the promises used to create them?

If we are considering whether hundreds of millions of taxpayer dollars should be allocated to a particular project, it is not enough to take proponents’ claims for fact, especially if those organizations have a track record of poor prediction. We need to know how frequently those predictions actually become reality.

We wouldn’t throw anyone in jail. We might find that some organizations are really good at making predictions. And, like Romanians burned by a bad prediction from a witch, we could stop relying on organizations and individuals that provide wildly unreliable predictions.

The post Witches, Economic Development Promises, and Baseball appeared first on Show-Me Institute.

RYSSDAL: So anyway, it’s called “deadweight loss.” It’s that thing where my wife’s great-grandma buys me a sweater at $85 and to me it’s worth like $1.50. Because I don’t like it.

Most people enjoy finding gifts for others. I suspect that this negates a nonzero amount of dead-weight loss. However, this only occurs when the gift is well-fitted to the preferences of the recipient. Value is not added when you give your friend something that she hates. Additionally, she may have to endure the costs of storing and loathing the gift.

The act of searching for presents takes a lot of time and energy, and this increases their cost because individuals could be spending their time engaged in other activities. I’m one of those “clickers and gifters” described in the interview. Although I still experience high search costs, I find efficiency gains elsewhere (e.g., avoiding the mall).

Our staff recently did a Secret Santa exchange, and we instituted a $10 cap. I gave Jim a $10 bill. I find utility in the fact that I didn’t destroy any wealth in that transaction. I suspect that Jim finds utility in the fact that he may buy something that he actually wants.

The post “But It’s the Thought That Counts, Right?” appeared first on Show-Me Institute.

I was curious whether the fire department in this case was a private company (many areas in Tennessee make use of privatized fire departments). However, as best I can determine from the city’s website, it is a standard municipal fire department, rather than a private contractor. But should they have put out the fire anyway, and just sent the family a bill afterward?

The easy answer is “yes,” but that is simple to say when you are not the one responsible for putting out the fire. Firefighting is an inherently dangerous act, and expecting someone else to put out a fire for people who have not fulfilled their end of a contract is rather presumptuous. It is important to note that the particular fire in question did not occur within the city limits of the responding fire department. Although they don’t have to do so, the department agrees to serve people outside the city limits who pay an annual bill.

Ben Franklin would not have put the fire out. When I visited Philly in 2000 for a certain convention, I took the city’s historic tour. I remember the guide talking about how the fire department / insurance company (which Franklin founded) would not put out your fire if they arrived at your house and saw that you had not paid the bill that year.

I think Daniel Hamermesh at the Freakonomics blog makes a good point about the differences between rural and urban areas. In a rural area, you may be able to distinguish between houses that are far apart. In an urban area, the threat of the fire rapidly expanding to other homes is too great, so a more efficient way to manage risk is to charge for the service via taxes to make sure that everyone receives proper fire service. I can agree with that, but I see nothing wrong with the way that the department in Tennessee acted.

The post Ben Franklin Would Have Let the House Burn Down, Too appeared first on Show-Me Institute.

I think it is terrific that Kansas City gets the All-Star Game in 2012. All sports fans know that baseball’s All-Star Game is the only one in which the players legitimately compete. (This is mainly because of the lower marginal risk for injury in baseball than in other sports.) But the Freakonomics blog has a post up today that could give Kansas City pause and Saint Louis some statistical revisions.

The post is about the economic impact of major sporting events. Needless to say, they generally don’t live up to the hype. From the entry:

The gist of it is that you can make an economic impact study say pretty much whatever you want, since it’s an exercise in speculation, and that the economists hired by bid committees make sure the numbers say yes.

The entry goes on to quote economist Dennis Coates:

Few analysts who aren’t in the employ of the event boosters have ever found such events to pay for themselves in a purely dollars and cents view.

A study on this issue published in the Southern Economic Journal reported :

In March 2005, Denver, Colorado, tourism officials predicted 100,000 visitors for the NBA All-Star Game. Considering that the Pepsi Center, the game’s venue, only holds 20,000 fans and taking into account that Denver has only about 6000 hotel rooms, it is not clear exactly how such an influx of basketball fans would be possible.

At the very least, we should question numbers thrown around without any supporting documentation, as in this article:

Major League Baseball estimated that last year’s All-Star Game in St. Louis had an economic benefit of $60 million on the city. The game a year earlier at Yankee Stadium had a positive fiscal impact of $148.4 million on New York — while San Francisco’s estimate in 2007 was $65 million.

I recognize that there is a big difference between hosting an event for which you have to build facilities, like the Olympics, and hosting an event for which you already have the requisite facilities for other purposes. The All-Star Game fits into this later category, which means it is far easier to make money — or, at least, limit any losses. I am sure that the 2012 All-Star Game will be great for Kansas City in many ways, but I hope people don’t believe the financial projections and hype without any evidence to back it up.

I have no idea whether the 2009 All-Star Game in St. Louis actually resulted in the $60 million impact that all of these articles cited. The consistency of the number does not make me more likely to believe it — rather, it tells me that someone came up with a preliminary estimate and everybody else likely repeated that number after Googling it.

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Daniel Hamermesh, whose short posts on microeconomics-related subjects I really enjoy, writes that we need more national holidays because Americans deserve more time off of work, like Europeans. To this, I say: If you want more time off work, start your own business, hire employees who can do the work when you are out, and take as many — or as few — days off as you like. The idea that it is the role of the government to give us more time off just buys into the idea that the government should serve as mother-protector, and the rest of us as dependent children. (Yes, I do sometimes work on the national holidays that we have. At a prior job, I used to work on holidays regularly.)

This question applies here in Missouri because our state government has long taken off Truman’s birthday. That is one of the issues surrounding lesser national holidays (not naming any examples, lest I upset some overly profound interest group): In reality, legislating additional holidays would only lead to paid days off for government workers and bankers. Most of us would still have to work or use a vacation day if we wanted to take that day off, as well.

But back to Truman Day. It has been proposed that the state should cut its budget by eliminating Truman Day as a state holiday. It is my understanding that this would save money because some state workers are still required to work on that day (like prison guards and highway patrolmen), and they are currently paid time-and-a-half to do so. The Associated Press has reported that state employees will still get Truman Day off next week, no matter the final decision, but I support the effort to eliminate it as a state holiday. If state employees really want to take that day off, they can use some of their generous vacation time. Otherwise, go to work like the rest of us.

Thanks to Combest for the AP link.

The post Matt Holliday, Truman Day, and “Freakonomics” appeared first on Show-Me Institute.

But let’s move on. We are talking a lot around here about ways to cut the state’s budget. Although this idea is more closely related to Missouri’s county governments, personal property tax declarations could very easily be done online. As far as I can tell, only Jackson County allows you to do the entire process online. That saves every taxpayer the postage cost of two letters, and it should be emulated by every other county. St. Louis County offers some helpful things online, but I think they should go the full mile here and try to phase out the requirement for physical mailings of property tax declarations for as many people as possible. Cutting costs here might also save the state at least a little money, given that the state reimburses counties for portions of their assessment expenses.

Please let me know if you are aware of other counties that have gone completely online with this process.

The post Governmental Things One Should Be Able to Do Online appeared first on Show-Me Institute.

The most obvious consequence of these closings would be that people formerly employed in that segment of the adult business in Missouri would either seek new lines of work or move to other states that are more accommodating of their current professions. The supply of this good may diminish or even disappear, but the demand for it won’t go anywhere. This situation could easily lead to results that should give pause to the social conservatives who support this bill.

The increased hassle of the legislation might dissuade some people from consuming such lascivious services, but others will seek out substitutes. It would likely lead to an increase in the consumption of pornography and prostitution (and some unemployed strippers would probably enter the world of prostitution, as well). But that still may not be the worst of it.

A 2006 study by Clemson University economist Todd Kendall argued that greater access to Internet pornography helped drive down the incidence of rape during the prior two decades. In a Slate article, fellow economist Steven Landsburg summarized Kendall’s findings:

First, porn. What happens when more people view more of it? The rise of the Internet offers a gigantic natural experiment. Better yet, because Internet usage caught on at different times in different states, it offers 50 natural experiments.

The bottom line on these experiments is, “More Net access, less rape.” A 10 percent increase in Net access yields about a 7.3 percent decrease in reported rapes. States that adopted the Internet quickly saw the biggest declines. And, according to Clemson professor Todd Kendall, the effects remain even after you control for all of the obvious confounding variables, such as alcohol consumption, police presence, poverty and unemployment rates, population density, and so forth.

OK, so we can at least tentatively conclude that Net access reduces rape. But that’s a far cry from proving that porn access reduces rape. Maybe rape is down because the rapists are all indoors reading Slate or vandalizing Wikipedia. But professor Kendall points out that there is no similar effect of Internet access on homicide. It’s hard to see how Wikipedia can deter rape without deterring other violent crimes at the same time. On the other hand, it’s easy to imagine how porn might serve as a substitute for rape.

If not Wikipedia, then what? Maybe rape is down because former rapists have found their true loves on Match.com. But professor Kendall points out that the effects are strongest among 15-year-old to 19-year-old perpetrators—the group least likely to use such dating services.

Moreover, professor Kendall argues that those teenagers are precisely the group that (presumably) relies most heavily on the Internet for access to porn. When you’re living with your parents, it’s a lot easier to close your browser in a hurry than to hide a stash of magazines. So, the auxiliary evidence is all consistent with the hypothesis that Net access reduces rape because Net access makes it easy to find porn.

There are legitimate reasons to question such a strong conclusion on Kendall’s part, some of which were pointed out by Steven Levitt of Freakonomics fame, but it cannot be easily dismissed. Furthermore, it would be inappropriate to draw direct parallels between Kendall’s study and the strip club situation in Missouri, because they are not perfectly analogous. Most obviously, 15-year-old to 19-year-old boys are not likely to be found in strip clubs to begin with. Still, the general idea holds up. People seeking sexual gratification may turn to much worse alternatives in the absence of easy access to common consensual options like pornography and strip clubs.

Let me be very clear: I am not predicting that this law would result in a measureable uptick in rapes in Missouri. In fact, absent a good control group, it would be hard to establish statistical correlation, let alone causation. What we do have is some very suggestive evidence that the law of unintended consequences may apply to this law in a fierce way, and it is something that the law’s supporters should think carefully about.

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This is not to say that Feldstein’s column is in full agreement with the health savings account approach favored here at the Show-Me Institute. In fact, she raises some very interesting questions about them:

Research shows patients in these plans, particularly those with low incomes, sometimes avoid cost-effective preventive tests and prescription therapies because of their cost.

There is simply no magic potion to take our health care system and make it perfect. Last night we cosponsored the Steven Levitt (coauthor of Freakonomics) lecture along with St. Louis University, where the event was held. Levitt, in response to a question from a lottery-winning audience member who regularly runs for office, talked about health care. He believes that market pricing has to be put back into the system, and consumers and insurers are going to have to make tough choices about what people can and can not afford.

As Feldstein writes:

Patients should have a financial stake in their health and health care. But plans should encourage, not discourage, the wise use of limited resources.

I see her point perfectly. It is one thing for parents not to take their teenager, who only has a simple cold, to the doctor. That choice allows for more important uses of limited resources. To go further, it is unfortunate — but probably necessary — that dying elderly people do not receive every single expensive treatment possible. Remember when Mickey Mantle got a liver transplant and died soon anyway, after potentially taking away a precious resource (a functioning liver) that someone else may have used to live much longer? (Note: there is no proven evidence that someone other than Mantle died because of that transplant, but the decision to give the liver to him was still very controversial.)

It is another issue entirely for people with treatable conditions not to take their medicine because they are responsible for the first $2,000 of their costs before insurance kicks in, and they can’t afford it. I am not saying HSAs don’t work because of this issue, just that it is a reasonable possibility to consider. The great thing about Feldstein’s column is that it is a well-researched piece about a complicated issue, as opposed to Herbert’s uninformed broadside.

The post Interesting Questions About Health Insurance appeared first on Show-Me Institute.

The survey and the related discussion both point out the easy fact that economists who list themselves as registered Republican or registered Democrat obviously favor the candidate of their party affiliation. But the discussion then goes to note that economists who are registered independent also favor Obama, by a fairly substantial margin. The problem with the party affiliation question is that it does not account for states that do not require, or even allow, voters to register by party. I often hear people in Missouri say while talking politics that they are “registered this-or-that’s.” I always want to say, and sometimes do say, “No, you’re not, we don’t register by party here.” A more accurate way to phrase the question is, “Do you consider yourself a Democrat, Republican, Indepedent, third-party supporter, or non-voter?”

How the hell can this affect the results? Well … if someone, for a poll or survey, asks me whether I am a registered member of a party, it is perfectly legitimate for me to say no. If they instead ask me whether I consider myself a member of a certain party, I would say yes, and any other answer would be lying. We can be sure that some of the responders to this question are from states like Missouri that do not register by party. As such, people from those states with strong political leanings may have very reasonably chosen “registered independent” as the best of the available options, even though they are not truly independents. With a polling universe heavy on people from acadamia, it is likely that many of those not-really-independents favored the obvious candidate.

The results of the poll are not my point. And the overall survey is very interesting. But doing the demographics in a way that assumes all people register by party, or else officially register as an independent, is erroneous.

The post Freakonomics to the Left, Freakonomics to the Right appeared first on Show-Me Institute.

Steven D. Levitt is a rock star among economists, a title that would have been an oxymoron a few years ago. The book he co-authored, Freakonomics, has taken economics out from the dark, dusty classroom and into the pop-culture spotlight. To call his work “nontraditional” or “unconventional” would be an understatement. Quite abruptly, Freakonomics has become one of the foundations of an economic education. Repeatedly, I have had professors assign different sections of the book as in-class readings. I cannot recommend this book highly enough to anyone, whether or not they have a background or interest in economics. Then again, I’m posting on a free-market economic think tank blog, so I’m sure those reading this are familiar with Freakonomics.

Since beginning my study of economics at SLU a few years ago, people have suggested I read Freakonomics, but I didn’t take the time to do so till this past summer. Frankly, I wish I had gotten around to reading it sooner. The book analyzes topics I would never have dreamed to associate with economics, such as sumo wrestling results and inner-city gang financing. Levitt successfully shows that there is a transparent economic layer to nearly anything you can imagine. Levitt’s speech on the 23rd promises to be both entertaining and thought-provoking. I could try to predict the topics he will cover, but I believe such an efforts would be in vein. Nothing at this point would surprise me. I would be in a state of euphoria if I heard any official news about the Internet rumors concerning a possible sequel, Superfreakonomics.

If you have not yet read Freakonomics, I highly advise it. Don’t forget to check out the details of the speech, and to register. Be advised that seats are going fast.

The talk will be held Tuesday, September 23rd, an the Anheuser-Busch Auditorium in the lower level of the John Cook School of Business at St. Louis University. I hope to see you there.

The post Counting Down to “Beyond Freakonomics” appeared first on Show-Me Institute.

Why do drug dealers still live with their moms? What makes a perfect parent? What do schoolteachers and sumo wrestlers have in common? These are questions that Steven D. Levitt asks in his controversial, critically acclaimed book FREAKONOMICS: A Rogue Economist Explores the Hidden Side of Everything. Levitt will expand on his book’s inquisitive premise during an address on Tuesday, Sept. 23, at Saint Louis University.

Levitt’s speech is part of the economic policy series presented by the Show-Me Institute in conjunction with Saint Louis University and its John Cook School of Business. He will be the third lecturer in the series, which began earlier this year.

If you, or anybody you know, is interested in attending, be sure to register sooner rather than later. Seating is limited, and we expect that demand will likely exceed supply.

The post Beyond Freakonomics: Steven Levitt to Speak in St. Louis appeared first on Show-Me Institute.

The Affton School Board has approved a policy that could fine parents who habitually pick up their children late from the district’s after-school program. […]

Parents who arrive late will now be given one warning. Thereafter, parents will be subject to a $10 fine for arriving up to 15 minutes late, $15 for up to 30 minutes late, and $20 for any pickup after 6:30 p.m.

In the book, Levitt and Dubner discuss a study in which an incentive scheme like that was found to increase the number of kids left at school late (actually, in the case of the study, I think it was a daycare center). That’s because in the absence of fines, parents assume that leaving their kids late is a large burden on the staff. They’ll try hard to get there on time. When you institute modest fines, parents think, "Hey, the school doesn’t really care whether I’m on time or not. It’s just a little bit of an inconvenience for them, but I don’t need to feel bad about that because I’ll pay the $15." Now, if they charged $150, that would bring down the number of late parents.

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