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.

Patrick Tuohey, co-founder and policy director of the Better Cities Project, has been critical of the Sun Fresh project. He says the store looks “great on paper” but does not have demand to support it. Plus, he noted, the neighborhood has other options because of a nearby Aldi store and the independent Happy Foods Center.

Kansas City officials hoped that subsidizing the grocery store would revitalize a long-neglected corridor. Ten years later, with the store on the brink of closure, city leaders are asking what went wrong. But they needn’t look far: the answers were visible from the start—and many of them were detailed in the very Show-Me Institute blog posts I wrote at the time.

Since 2015, I’ve chronicled the Sun Fresh project and argued that its shortcomings were structural, not situational. Here are the key arguments made then, all of which remain relevant now.

• In May 2015, I wrote that “Kansas City government is going into the grocery business,” a move I called “a stunning development.” I noted that the city would lease the property to Sun Fresh for just $1 per year and that the entire project was heavily subsidized—a sign that market demand alone wasn’t enough to support it.
• In the same 2015 post, I argued that grocery demand was already being met in nearby areas: “people who make a living running grocery stores by investing their own money do not think this [Sun Fresh investment] is a good idea.”
• The next week, I conducted some shoe-leather reporting by driving around the supposed food desert. I found several grocery stores with well-stocked produce aisles, and marveled about how, due to the city’s use of various taxing jurisdictions, food in some of the city’s poorer neighborhoods was more expensive than in wealthier areas.
• In May 2016, I updated the story of the subsidized grocery store, noting costs were ballooning, ending with: “In short, it appears that city leaders are planning to lose money investing in an already-failed venture in order to pursue a policy that has no evidence backing its effectiveness.”
• The next month, I wrote that the USDA was becoming skeptical of the “food desert” idea itself. I also noted research showing that the mere availability of healthy food was not sufficient to solve the problem of unhealthy diets.
• In March 2017, I pointed out that project costs continued to rise.
• In December 2017, I summarized new research showing that the “food desert” premise was deeply flawed.
• In October 2018, I highlighted a Kansas City Star piece indicating grocers are in the business of giving people what they want, not what someone else thinks they ought to have. The Sun Fresh store director told the paper, “You can pick apart any store that you want to on what they have or don’t have, but it’s about if people request these things or not . . .  We’re going to give our customers what they want. Not just what looks good.”
• In July 2019, I wrote that there were signs the project was already failing. “Despite city-funded construction and dramatically subsidized rent, the store cannot pay its bills. The question now seems to be whether taxpayers should further fund this failing enterprise.”

The city’s logic was clear enough: offer fresh food options in a historically underserved area, and hope it drives neighborhood investment. The Star quoted then-Mayor Sly James as saying the Sun Fresh Market would be the “beginning of the revitalization of this entire corridor.” He was wrong. The policy approach ignored fundamental questions of market feasibility and safety. Even when intentions are noble, taxpayer subsidies cannot manufacture demand where it doesn’t exist.

Supporters may argue that this was an experiment worth trying. But experiments should come with contingency planning and humility—not endless subsidies. The city’s willingness to absorb risk that private firms declined should have been a warning, not a point of pride.

The real tragedy is that Kansas City could have directed those resources toward improving public safety, supporting neighborhood-scale entrepreneurship, or partnering with existing grocery providers willing to operate without public subsidy. All of those approaches would have been more fiscally responsible and, most likely, more sustainable than what the city did.

As policymakers consider next steps, they would do well to revisit the early warnings and lessons from Sun Fresh. The problem was never just about food access. It was about how we define, diagnose, and address the challenges facing our neighborhoods.

This was a foreseeable failure. Hopefully, our policymakers learn from it.

The post Sun Fresh’s Struggles Were Predictable—and Predicted appeared first on Show-Me Institute.

Well, the cap was enacted and consumers can already see the difference it’s making. I was considering an order on DoorDash and I noticed a new fee included during checkout. As shown below, I saw a “Regulatory Response Fee” included with the other taxes and fees.

When I clicked on the symbol for more information, the below image appeared:

And there it is. The new fee on customers in St. Louis City is a direct response to the regulatory cap that the St. Louis Board of Aldermen passed.

I don’t revel in this “I told you so” moment. Lawmakers thought they were protecting small businesses, but instead they are hurting consumers by increasing the prices of delivery services. If consumers respond to this by using delivery services less, the small businesses this move was designed to protect will be the ones that end up getting hurt.

Previous fees were mutually agreed upon in the market and neither party was forced to partner with the other. Consumers may have paid a portion of the higher fees before the cap, but they are certainly paying this fee now. This $1 fee may not be budget-breaking, but consumers are only subject to it because lawmakers interfered. Lawmakers should let the market work to avoid unintended though predictable consequences.

The post We’re Already Seeing the Effects of Delivery Fee Regulation appeared first on Show-Me Institute.

If a market is truly failing, there can be economic justification for government policies in response. Though in practice, government intervention rarely hits the mark. For example, Missouri’s state and local governments would have you believe the housing market is failing. Their argument is that the market is failing to provide a sufficient supply of affordable housing. In 1996, the state’s elected officials decided that they should intervene. But is Missouri’s housing market any better for the state’s low-income residents today than it was 23 years ago?

More than two decades have passed since Missouri implemented the state’s version of the federal low-income housing tax credit (LIHTC). In that time, billions of dollars have been devoted to building new housing with 30-year rent protections, yet the program’s wait list is supposedly longer than ever. If that is really the case, it’s time to question why policymakers would consider continuing a government intervention that is failing to solve the problem it was intended to address.

LIHTC is predicated on the idea that subsidizing the development of housing will increase access to more affordable places to live across the state. But this is only true if there is currently not enough housing because it’s too expensive to build, and if subsidizing new developments will spur further housing investment by private entities. Without both of those conditions being met, the program can’t be effective—which matches the academic research on the subject and more importantly, Missouri’s past experience.

If the market is failing and there is an insufficient supply, policymakers should look into what may be causing the inefficiency. Restrictive regulations and zoning laws add to project costs, which discourage investment in neighborhoods where an increase in housing supply may be needed. Or if there is already enough housing but it is simply unaffordable, demand-side fixes such as housing vouchers or other measures that effectively lower the cost of already existing housing may be more appropriate.

It’s extremely unlikely that the issues plaguing the housing market in St. Louis are identical to those being faced in Pilot Grove. Policymakers shouldn’t expect broad-stroke statewide policy actions to be equally successful in both Missouri’s metropolitan and rural areas.

The fact of the matter is that very little has been done to establish whether Missouri’s supply of housing is actually lacking or why that may be the case. Without that information, it’s nearly impossible for policymakers to successfully intervene. Two things they do know are that many of their constituents would appreciate greater access to less expensive housing, and that developers have told them that issuing tax credits is the only way to make that construction worthwhile.

For some reason, policymakers continue to act as though the LIHTC program is their only tool for “fixing” housing in Missouri, when that couldn’t be further from the truth. Instead of doubling down on an already-failed policy, why don’t Missouri’s elected officials take a closer look at the underlying causes of the supposed market failure to find a new path forward for Missouri; or better yet, step back and let the market take care of itself.

The post The Myth of Supposed Market Failures appeared first on Show-Me Institute.

It should then come as no surprise to anyone who regularly reads this blog that the taxpayer-subsidized Sun Fresh grocery store at the Linwood Shopping Center is failing. Despite city-funded construction and dramatically subsidized rent, the store cannot pay its bills. The question now seems to be whether taxpayers should further fund this failing enterprise.

The answer is no. Just as with the years-long debacle with the 18^th and Vine Jazz District, the problem here is market demand. There isn’t any; at least not enough to support an additional grocery store in an area that already has Aldi and Sav-A-Lot stores each within a mile of the Sun Fresh. Leon’s Thriftway grocery store, a mere mile and a half from the Sun Fresh, recently closed after 50 years because it could not keep up with the competitive market—presumably including a government subsidized Sun Fresh. This should not be surprising. As The Kansas City Star editorial board wrote in May 2015:

[Kansas City Mayor Sly] James said building the Sun Fresh Market would be the “beginning of the revitalization of this entire corridor.” In truth, that’s been said before. For example, the current forlorn Linwood Shopping Center opened to rave reviews almost 30 years ago on the site of the demolished St. Joseph Hospital.

The editorial board was right to be skeptical then, and that skepticism has been borne out. Good intentions are not a substitute for good policy. City leaders should not waste another penny on this failing enterprise, lest it become yet another perpetual drain on city resources.

The post Food Desert Mirage Exposed appeared first on Show-Me Institute.

As anyone who took Economics 101 would expect, the increase in hotel room supply will drive down prices. And a drop in prices can hurt hotel operators. This is why—in a free-market system—hotel operators may be hesitant to build new hotels. If they overbuild, their investment won’t be as profitable.

But in Kansas City, they aren’t just spending their own money. They are receiving subsidies in the form of abatements and tax-increment financing to shield them from risk. Recall that one development attorney made exactly this point in a recent letter to the folks who dole out such subsidies.

As a result, Kansas City is in a predicament: too many hotels rooms resulting in lower than ideal occupancy rates. To fill as many rooms as they can, hotels will reduce their rates and settle for lower profits. VisitKC refers to these completely expected free-market forces as “destabilization.”

VisitKC wants to avoid this. So one of their “strategies for combatting the destabilization” is “increased resources for VisitKC” including a “re-focused” sales and marketing strategy. (A copy of the Visit KC presentation is available below.) In short, they want to spend money doing what hotels should be doing themselves: selling hotel rooms. To their credit, they have also called for a halt in development subsidies for hotels.

To recap: city hall spent so much taxpayer money subsidizing hotels that more hotels were built than necessary because developers were shielded from the risks of expansion. Now that overproduction risks reducing hotel rates, city hall wants to spend taxpayer money. As I said on KCPT’s Ruckus, yes, this is as stupid as it sounds. Kansas City must do better.

tif april 10 2019.pdf

The post Hotels and Supply and Demand appeared first on Show-Me Institute.

Award-winning legal scholar, teacher, and University of Missouri Law Professor Thomas Lambert recently brought this message to our state in a Show-Me Institute Policy Series.  His new book, How to Regulate: A Guide for Policy Makers, outlines the narrow circumstances in which markets fail and how regulators should approach the situation—like a doctor carefully considering the risks to the patient before prescribing surgery where a band-aid would suffice.

The post Recognizing and Reacting to Market Failure appeared first on Show-Me Institute.

One facility, planned for construction in the Chesterfield valley, would include $7 million in taxpayer handouts from a special sales tax district known as a transportation development district (TDD). If the TDD is approved (by the less than 1% of households in Chesterfield who get to vote), anyone who shops in the valley retail area will pay extra sales taxes to help subsidize the private venture. The other facility, which would double as a new practice facility for the Saint Louis Blues, would entail $6 million in taxpayer help from the City of Maryland Heights and 40 acres of free land in Creve Coeur Lake Park from Saint Louis County.

At least two aspects of these proposals warrant further discussion.

1. Proponents of both projects claim there is high demand for hockey and ice time in the Saint Louis region. This may or may not be true (though a recent market analysis concluded it is not). One would think the closure of the current ice complex in Chesterfield is telling of the market for hockey and ice time. But, suppose it isn’t, and that subsidy proponents’ claims are true; let’s say there is genuine demand for ice time in the region. If so, why does the public need to subsidize private ice facilities? If Saint Louis (or Chesterfield, or Maryland Heights) is a “hockey town,” and if these facilities will be such powerful economic engines, why are project boosters panhandling? If a project is meeting a real demand, it shouldn’t need taxpayer help.
2. One facility is leaving the market, and two are trying to take its place. This would be fine—if no public money were involved. Subsidizing a private business (especially in a depressed market) is questionable policy, but it is even harder to justify asking taxpayers to subsidize competing businesses. Suppose one facility puts the other out of business. What then? Are taxpayers left holding the bag as their “investment” in one facility goes down the drain? It should go without saying that it isn’t the taxpayers’ responsibility to subsidize one facility to siphon business away from another taxpayer-subsidized facility.

The region dodged a bullet when cash-hungry millionaires were denied $60 million in public funds for a professional soccer stadium in downtown Saint Louis. But some local officials, along with those on the receiving end of subsidies, still appear to have taxpayer dollars in their sights. Policymakers who want to know where demand exists for ice time (or anything else) would do well to listen to the market instead of special interests.

The post Why Subsidize It Once When You Can Subsidize It Twice? appeared first on Show-Me Institute.

Regulating a market is not the same as regulating a monopoly.

I say this because of the huge outcry around Betsy DeVos’s putative beliefs on how to bring accountability to charter schools and schools that participate in voucher programs. Differing conceptions of accountability have become equated with being “for” or “against” the idea in toto. But which is more strict? Requiring that schools be evaluated on an A–F scale and automatically kicked out of a charter program of they fail? Or establishing a mayorally-appointed commission to decide what schools should and shouldn’t stay open? I actually don’t know.

I do know that as increasing numbers of our schools move to a more market-like arrangement, we need to rethink what we mean by accountability and regulation. I say “market-like” just to reinforce that even the most generous voucher programs or the charter programs with the lightest-regulatory touch are not in any true sense a “market.” There are regulations around who can participate and who cannot; there are rules that fix prices; and government picks up the tab.

But given this quasi-market arrangement (a term popularized by Blairites across the pond), we must change our expectations of schools that receive public dollars. Because we’re looking to manage functions differently, we need different tools in our toolbox. Here are just a few examples:

1. Academic accountability. In a school system with little to no parental choice, creating standardized, state-level accountability and teacher evaluation systems makes intuitive sense. We require families to send their children to school, so we should do something to ensure that the school is of sufficient quality. But when we have parents actively choosing, accountability needs to take a different form. We shouldn’t cram the square pegs of unique private and charter schools into the round holes of current accountability systems. Schools have vastly different curricula and methods (compare Great Hearts’ classical learning approach to Academie Lafayette’s French immersion to Carpe Diem’s technology-blended classrooms) that no single set of indicators will be able to capture. We should require transparency, program-wide evaluations made available to legislators and taxpayers. If, and only if, there is strong evidence of some kind of market failure should we intervene and override the wishes of parents and forcibly shut down schools. Market failures happen, but many advocates seem to have a hair trigger in identifying them.
2. Financial Accountability. Arizona’s Education Savings Account law requires “random, quarterly and annual audits of empowerment scholarship accounts.” This seems appropriate and in line with how financial institutions audit their operations. Interestingly, it seems more likely to spot malfeasance than our current system. Here in the Kansas City area alone, in the last year, we found out that the Belton School District had been getting shorted up to $500,000 per year since 1991 by improperly calculated property taxes, and, if it weren’t for a brave whistleblower, we still might not know that the former superintendent of the St. Joseph public schools had improperly inflated his salary and bilked Missouri taxpayers for over $600,000. Quasi-market or not, random, quarterly, and annual audits are looking a lot more robust now, aren’t they?
3. Location and start-ups. Ex ante we don’t know which schools are going to be good and which schools are going to be bad. Even the rigorous vetting processes we see from many charter school authorizers still authorize and establish schools that don’t end up working out. This shouldn’t shock us. Research shows that as many as 3 in 4 firms backed by venture capital firms (which have their own rigorous vetting processes and are investing their own money) never return investors’ capital. Predicting the future is hard. As a result, continuing to centralize power over who can and cannot start schools, or where schools can or cannot locate, seems like a fool’s errand. If there is a case for accountability, it is much stronger for the back end, rather than the front.

The past several weeks have been nasty. That is unfortunate and avoidable. A bit of charity and reflection before dismissing someone with a slightly different conception of how schools should be funded or regulated would go a long way toward promoting civil discourse. If we in the education world can’t model it, who do we think will?

The post A New Mantra for the School Choice Movement appeared first on Show-Me Institute.

It does not take a Ph.D. in economics to realize this is a foolish regulation. In the absence of proper competitive incentives, the other lemonade stands will continue serving sour lemonade.

Now replace the words “lemonade stand” with “three-bed hospital” and “your eight-year-old self” with “Paul McKee,” and you have a real-life situation.

McKee, a well-known real estate developer in the area, has been working on a project to renovate a portion of North Saint Louis City. On July 9, he unveiled a plan to establish a three-bed urgent care facility within the redevelopment area. According to state law, a certificate of need (CON) must be obtained in order to open a new hospital with costs of at least $1 million. It appears his proposal meets this threshold. However, requiring McKee to obtain a CON to open a small urgent care hospital in an underserved and impoverished area is a totally unnecessary government regulation.

CON programs initially were implemented in order to prevent the duplication of health services in a given geographic area, thereby controlling costs. The reasoning was that an excess supply of medical services would compel hospitals to increase prices in order to cover the high fixed costs associated with medical treatment.

There have been many different studies on how CON regulations impact the cost of care. A thorough survey of the relevant data reveals that CON regulations do very little, if anything, to control the overall cost of care. Furthermore, with respect to certain procedures, CON regulations have been shown to limit patient choice, resulting in worse care delivered from less capable doctors. Additionally, these regulations can create an inefficient market structure and grant existing hospitals monopolies over certain regions.

Some may even argue that McKee will attempt to use the regulatory program to prevent competitors from entering the market in North Saint Louis. Given CON rules, if his project is approved, it likely will be more difficult for new medical facilities to open nearby. But doesn’t the potential to abuse and use CON regulations to create a monopoly give all the more reason to eliminate them?

Additionally, Missouri’s CON program delays groundbreaking on new hospitals. McKee said he intends to submit his proposal by Aug. 22 and, in all likelihood, his application will not be reviewed until early November.

Christien West is an intern at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Delays and Blockades: Certificate of Need in Saint Louis appeared first on Show-Me Institute.

According to Krugman, the “self-proclaimed libertarians” are either stupidly or maliciously engaged in “projection” – attributing base motives to their political opponents that underlie their own highly prejudicial reasoning.

Kudos to Per Bylund, a research professor at the Hankamer School of Business at Baylor University, for flipping the situation around and pointing out how all you need to do is to replace “libertarian” with any of the words that Krugman might use to describe his own thinking to see a wonderful example of projecting your own intellectual failings onto others of the opposite persuasion.

As Bylund observed in today’s Mises.org: “Keynesiasn/progressives/(whatever) like Krugman deal with the problem of government failure both by pretending that it doesn’t happen and by imagining the market as much worse than it is.”

The post Krugman Upended By His Own Logic appeared first on Show-Me Institute.

The post Limitations on Distributor Ownership Are Unnecessary appeared first on Show-Me Institute.

Speaking as a professional economist, the likelihood that an EEZ board could outperform the marketplace in redirecting taxpayer money to selected enterprises is about as high as the chance that I could pick the Jack of diamonds from a pack of playing cards on my first try.

These reflections are prompted by what I have observed in following the sometimes heated debate about Columbia’s Enhanced Enterprise Zone. Some citizens are worried that the application of an EEZ in Columbia could lead to indiscriminate use of blighting and eminent domain confiscations. Others question whether EEZs work.

Let me tackle the second of those two issues first. Supporters treat the EEZ as a kind of free lunch for city economic development in conferring benefits on selected developers. But the benefit or subsidy has to come from somewhere. If the subsidy is a state tax credit then the resources are coming from all Missourians who pay taxes. Alternatively, in the case of property tax abatements, resources that would normally go to local schools or local services are redirected to benefit a particular company or developer.

Once we agree that the benefit or subsidy is a redirection of resources, the question becomes whether we can expect a better result from the proposed EEZ subsidy/investment than we would get through the ordinary working of the marketplace, with no subsidies.

The short answer to that question is “No.” On economic grounds, it is impossible to make a convincing case that EEZs work. No matter how well-intentioned and how smart the members of an EEZ board may be, the deck will always be stacked against them.

For one thing, the set of projects that they will be asked to consider will be too small. For another, the incentives are not lined up; the EEZ board does not have any skin in the game and therefore the careful vetting that occurs when people are spending their own money will be missing.

What then of the fears of eminent domain abuse?

I submit that Columbia officials are being truthful when they answer these concerns by saying that widespread eminent domain abuses are the farthest thing from their minds. I do not see the current group wielding power willy-nilly to drive residents from their homesteads just to make property available for some startup from California. However, once on the books, there are no restrictions on those in future city governments that see opportunities. Time inconsistency is what economists call this lack of a commitment by current government on future governments. And there is no way to impose anti-abuse conditions on these future city governments.

Thus, in order for a Columbia EEZ to be a net positive for the city’s economic development, the board members would have to be at the top of their game (channeling Warren Buffett and no Mamteks), there has to be a strong enough multiplier effect (from a discredited economic theory), and the future governments must be no less noble and forbearing than current government. If any one of those three conditions fail (and the odds are that all three will not be satisfied), then the EEZ is a bad economic deal for Columbia.

Of course, the same is true for other Missouri cities considering EEZs.

Joseph Haslag is chief economist at the Show-Me Institute, which promotes market solutions for Missouri public policy, and a professor of economics at the University of Missouri-Columbia.

The post Why Enhanced Enterprise Zones Are A Bad Deal For Missouri Cities appeared first on Show-Me Institute.

Second, I briefly summarize the methodology used to analyze the effects of public-sector market interventions. This methodology, named cost-benefit analysis, is generally accepted in academic literature and mandated by the federal government for many federally-funded projects. Based on this short review, I have concluded that it is very unlikely that Aerotropolis would need public subsidies. Given the absence of well-identified market failures it follows that if Aerotropolis were a project involving government subsidies it would also be a project that private markets would be willing to finance without subsidies, provided there is an economic justification for the project in the first place.

Third, I focus specifically on the costs and benefits of the Aerotropolis subsidies by means of two simple theoretical models. Aerotropolis subsidies come in two varieties: direct export subsidies and warehouse development subsidies. The direct export subsidies would most likely be captured by exporting firms that would use Lambert as a shipping hub. Given Lambert’s location, the benefits of these subsidies would significantly spill over into regions outside Missouri. In fact, some of these benefits would likely accrue to foreign consumers of the exported goods. The warehouse development subsidies, on the other hand, would directly benefit the current owners of land neighboring Lambert or otherwise qualifying for special tax credit treatment, with likely spillover effects showering the local construction industry.

The lack of careful studies addressing the economic impact of the proposed legislation exposes one very surprising aspect of the Aerotropolis discussion. While a few very rudimentary calculations on job creation and economic output have been presented, no serious cost-benefit analyses have been reported. This essay explains why job creation and output impact estimates are not the right way to evaluate policy interventions like Aerotropolis, even if we take their numbers at face value.

Finally, I quickly review the economic agglomeration rationale for the Aerotropolis subsidies. Because agglomeration effects are hard to quantify and hard evidence supporting same is missing, I leave this topic as an open question for consideration.

The post Assessing the Economic Impact of the Proposed Aerotropolis Legislation appeared first on Show-Me Institute.

In the example of gasoline, which I do believe is unique, the demand could be high due to events not directly related to the price of gas, such as 9/11. Many bought gasoline on that day or the day after for fear that prices would rise in the future. What happened, however, is that some gas stations took advantage of the increased demand and jacked up their prices. […]

But gasoline is unique for many reasons: (a) demand is usually very high and relatively constant/predictable (b) practically speaking, one can only buy so much gasoline at one time (c) gasoline is a dangerous substance (d) gasoline is absolutely vital to the national economy (e) gasoline is product derived from an internationally traded commodity at which level prices already reflect speculation of higher/lower demand and supply.

None of these reasons is call for government intervention in gasoline markets. When the government intervenes in the market for a good by controlling the price, it causes artificial shortages and surpluses, and it also obstructs resources from being put to their highest use. Overall welfare is maximized when prices are allowed to represent relative values accurately.

1. If the level of demand is high and constant already, then why should the government focus on protecting it from volatility? Price “gouging” is simply a misleading term for supply and demand. By increasing their prices in response to higher demand, gas station owners are simply capturing excess consumer surplus.
2. All resources are scarce and finite. This is not an attribute that is unique to gasoline.
3. The role of government doesn’t entail protecting individuals from products that they consume voluntarily. Practically every activity or product can be potentially harmful — smoking cigarettes, consuming raw milk, crossing the street — and individuals weigh the risks against their associated benefits. There is a risk that the gas station will ignite when I am filling my car with gas, but if I don’t fill it up, I can’t easily get places.
4. Gasoline may be an important source of energy in the status quo, but substitutes exist (e.g., electricity, ethanol, geothermal, etc.). If the price of gasoline increases in the future, this will provide an incentive for entrepreneurs to seek other substitutes and to improve relevant processes.
5. This is another attribute that is not unique to gasoline. A considerable percentage of the goods and services that people consume are internationally traded. Should the federal government protect the price of bananas or wine from volatility? It would not be feasible for the federal government to regulate prices in all of these markets.

Prices coordinate individual action efficiently by communicating relative scarcities and preferences, as I have discussed previously. However, government officials knock the price system out of equilibrium whenever they decide to subsidize or restrict an economic activity. When the government knocks the price of a good or service out of equilibrium, it results in a misallocation of resources. In other words, resources no longer go toward their highest use.

Changes in price are important for allocating scarce resources. This is why the price for plywood increases during hurricanes — individuals living in disaster-ridden areas have a higher demand for plywood than, say, a person building a treehouse elsewhere in the country. Because the former individual has a more critical need for the resource, he or she is willing to pay more for it. Those who think that the price has grown too high will refrain from buying the product, which leaves more available to be purchased by those with a higher willingness to buy. In the absence of externalities, a sudden rise in price levels does not represent market failure, so even theoretical economic rationales for government intervention don’t apply.

The post Government Should Not Be in the Business of Preventing Price Gouging appeared first on Show-Me Institute.

In one of its final actions of 2010, the LRA Commission voted — with two of its three members present — to approve a lease agreement with CBS Outdoor that will permit the LRA to capture revenue from billboards that recently entered the public corporation’s land holdings.

That’s right. In St. Louis city, government owns billboards.

Perhaps I’m old-fashioned, but I see no rationale for government ownership of billboards. Does a market failure really exist for outdoor advertising in St. Louis city?

Although the LRA nominally purports to represent the interests of the St. Louis mayor, comptroller, and Board of Education, little of the public corporation’s revenue ever seems to reach city taxing districts. Furthermore, billboard revenues are not the panacea for the city’s long-term fiscal problems.

Oddly enough, the LRA Commission’s action in 2010 directly contravenes the actions of the LRA Commission in 2001. During the April 25, 2001, meeting of the commission, a commissioner “asked that staff investigate the location and condition of [the LRA’s] billboards, so they can determine how the LRA can get out of the billboard business, in a reasonable amount of time.”

This is not the first case of “mission creep” for the LRA, and I doubt that it will be the last.

My hope for the new year is that the LRA will do right by the taxpayers of St. Louis city by selling its assets. Privatization broadens the tax base, which should lower marginal tax rates.

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When incentives enter the picture, so do an army of specialists, from consultants who help the projects qualify to brokers who turn the incentives into cash. A whole new layer of lawyers and bankers help work out the complicated financing of it all.

Taken together, these people form an industry, one that has flourished in St. Louis over the last decade. Thousands of skilled professionals have made good livings off the $3.5 billion in public money that cities and the state have poured into private real estate deals. And they regularly — and loudly — make themselves heard anytime someone tries to crimp the tap.

The businesses and individuals that directly profit from tax credit programs have a very strong incentive to maintain the status quo. For this reason, they are unlikely to approach tax credit reform measures seriously or substantively. Instead of implementing changes that limit the size of these programs, they will tend to support measures that expand and cement them.

They constitute quite a powerful lobby. This fact was quite obvious to me when I testified before the Tax Credit Review Commission in September at a regional meeting in Saint Louis. Except for me, every other person in who testified at that meeting spoke in support for a program that benefits them.

Again, from the Post-Dispatch:

The lobbying isn’t unusual. Every industry fights for its interests. But the real estate industry has more local clout than most — its bosses and workers all live here — and that, coupled with developers’ promises of jobs and investment, gives them a huge influence in city halls and the Missouri Capitol.

“Developers, bond counsels, retailers, consultants — they have got a powerful lobby between them,” said Les Sterman, former head of the East-West Gateway Council of Governments.

“The developers will fight you every chance they get,” [Sen. Tim Green] said. “Wouldn’t you fight it if the taxpayer pays for your development instead of you?”

In a sense, the proliferation of this army of specialists is a market response to government intervention. It can be amazing to see how markets evolve to address new economic niches, whatever their source.

As a negative consequence, however, this large administrative cost reduces the ability of the program to produce the intended activity efficiently. The Low-Income Housing Tax Credit is an egregious example of this. From a report issued in April 2008 by the Missouri state auditor’s office:

For every $1 in LIHTC authorized and issued, the current tax credit model provides only about $.35 towards the development of housing. The remaining $.65 goes to investors, syndication firms, and to the federal government in the form of increased taxes resulting from the use of state tax credits.

Supporters of tax credit programs might argue that this represents another form of job creation. However, these jobs are not permanent; they will disappear as soon as the subsidy ends. Additionally, these jobs specialize in unproductive activities. They exist largely because of government-created market inefficiency. If tax credit programs were reduced or eliminated, then the individuals currently working in these positions could put their knowledge, skills, and abilities to more productive uses. The economy would be better off if those resources were allocated instead to strong, profitable businesses that exist independent of subsidy.

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It appears that the company figured out how to secure tax credits from the state government without increasing the level of employment. Ford is sending one line to Kentucky, but it is starting a new line in Kansas City. Although the number of jobs will remain constant, the company will continue to receive financial assistance from the state. Failing to deliver on promises, in terms of job creation and economic activity, is unfortunately a pervasive problem in Missouri. From an article in the Kansas City Business Journal:

The automobile side of the Kansas City Assembly Plant will cease production sometime during the fourth quarter of 2011, soon after the Louisville Assembly Plant in Kentucky begins production of the next-generation Ford Escape.

The effect on the 3,700 hourly employees in Kansas City remains unclear. However, Missouri state officials seem to expect some downtime at the Kansas City Assembly Plant in Claycomo, Mo., creating an opportunity for a big retooling in preparation for a new product.

Ford has a long history of pitting states against each other, so this news is not particularly surprising. The company has a pattern of securing millions in incentives from state governments, then shutting down operations and leaving the state unless it can secure additional incentives. Taxpayers, of course, are left to pick up the tab.

Don’t forget that the state of Michigan issued $909 million in incentives to Ford in October.

I find it disconcerting that the state government has a working relationship with the company in its operations. According to a statement from Gov. Jay Nixon’s office:

We have been working closely with senior Ford officials for months to make sure the vehicles of the future are manufactured at the Claycomo plant, and it’s clear that our hard work will pay real dividends for Kansas City and suppliers in communities across Missouri. We look forward to putting the finishing touches on this agreement in the coming weeks. Automotive manufacturing has a bright future in the Show-Me State.

Government officials can attempt to anticipate what the most efficient solution to a given problem will be — but, in all likelihood, they will get it wrong. This is because no individual has access to perfect information. As the Show-Me Institute’s editor Eric Dixon explained in the comment section of a recent post, the likelihood that an individual is wrong increases as he becomes further removed from the decentralized feedback loops that markets provide. Nixon and state policymakers are too far removed from the business of manufacturing vehicles to know the optimal state of the market. Missourians would be better off if the state government stayed out of this particular market, and instead allowed market forces to work.

This reminds me of the following concept that Henry Hazlitt describes in Economics in One Lesson. I cite this classic work frequently because it relates to many public policy issues in Missouri. I referenced this passage in a recent post in which I argued that government non-intervention is the optimal job creation strategy. Hazlitt wrote:

When providing employment becomes the end, need becomes a subordinate consideration. “Projects” have to be invented. Instead of thinking only where bridges must be built, the government spenders begin to ask themselves where bridges can be built.

Would the Claycomo plant stay open in the absence of the subsidy from the state of Missouri? If it would not, then the plant is, essentially, an invented project that is maintained because it can be, rather than because it satisfies a market demand. The fact that the new line has yet to be determined makes me wonder whether the project is in the process of being invented.

The post Encouraging Job Creation in Claycomo, Mo. Louisville, Ky. appeared first on Show-Me Institute.

As the latest illustration of this, biodiesel producers in Missouri are calling for extending the $1-per-gallon biodiesel blender’s federal tax credit. In its Friday issue, the St. Louis Business Journal published two articles that profile a struggling biodiesel plant as it waits for extended handouts from the government.

Meanwhile, there exists a lack of demand for biodiesel in the market, and the government has responded by setting a mandate to create an artificial level of demand. From one article:

Environmental mandates that require oil companies to blend petroleum-based diesel with minimum levels of biodiesel […] have increased demand, and therefore prices, for biodiesel and helped offset the loss of the expired tax credit.

The problem with mandates and production subsidies like those for biodiesel is that the government is encouraging energy producers to invest in an infrastructure that is neither efficient nor cost effective. Residents of Missouri and other states could achieve higher levels of utility if government stayed out of the market and allowed the profit-and-loss system to allocate resources. As another positive consequence of eliminating handouts to biodiesel producers, fewer resources would be distracted from the development of other alternative energies that are perhaps more viable.

The post All Businesses Are Equal, but Some Businesses Are More Equal Than Others appeared first on Show-Me Institute.

Economic development tax incentives, no matter how they are packaged, are not effective. They allow government officials, who have no special knowledge of how to maximize growth, to pick winners and losers in the market. As Show-Me Institute Executive Vice President Joseph Haslag has written before, lowering broad tax rates is a much more efficient method of stimulating the economy than targeted tax credits. This allows everyone to benefit, rather than a few select industries chosen by the state.

Empirically, studies analyzing the benefits that development tax credits deliver in comparison to their costs show that such tax credits have not worked. A recent Missouri state audit report found that tax credits are less effective (and more expensive) than their proponents claim. Yesterday, St. Louis Public Radio broadcast a segment featuring a study that examined another form of tax incentives in Missouri, tax increment financing (TIF). Kenneth Thomas, a political science professor at the University of Missouri–St. Louis, recently coauthored a study that found the use of TIF is not effective in most cases. He noted that the St. Louis area uses TIF more than nearly every other area in the nation. In the interview with St. Louis Public Radio’s Matt Sepic:

Sepic: That’s one longstanding criticism, is that TIF pits communities against one another. A prime example is that tussle between Bridgeton and St. Anne over a Walmart. Is that a bigger problem in the St. Louis area than elsewhere, with this panoply of municipalities that we have here?

Thomas: Oh, yes, certainly having more municipalities makes the competition more intense.

The study argues that, although many economists have found TIF to be ineffective, this method of funding continues to be used because of the competitive nature of tax incentives. When one area offers a tax incentive, other areas nearby often try to “win” a company’s business by offering competitive tax incentives. The result is a bidding war in which the taxpayers lose. This can be seen in the Claycomo Ford tax credit situation, as well — other states, like Kentucky, have offered tax incentives to Ford in an effort to persuade them to relocate their plant. In order to compete, Missouri would have to offer a better deal, while recognizing that this game will be played again the next time the credits run out.

Later in the interview, Thomas notes an important misunderstanding — the idea that tax incentives like TIF “create” jobs:

Thomas: [T]hose estimates never take into account the fact that, well, yes, we are going to create 200 jobs here, but what’s going to happen is we’re going to knock out 180 in the next mall over.

Tax credits and TIF tend to shift economic activity from one area to another, without creating wealth. Missouri’s tax dollars would be much better spent in the hands of individual Missourians than on enticements for companies like Walmart or Ford.

As Milton Friedman pointed out on his PBS TV series “Free to Choose,” even if other nations, states, or localities offer tax incentives to lure businesses, we’re better off if we don’t do the same — because we benefit from the lower prices their subsidy creates. Missouri will experience better economic growth if it unilaterally removes itself from the tax incentive bidding wars.

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