Stanford economist Russ Roberts summarized the phenomenon thusly: “If you’re paying, I’ll have top sirloin.”

But in Chesterfield, it’s more like: “If you’re paying, I’ll have an ice rink.”

News of the Hardee’s Iceplex closure in Chesterfield was quickly followed by calls to find a new home for the Chesterfield Hockey Association. Quicker than a winger can flank the defense, a proposal for a new, $22.6 million facility came forward. The only catch? Taxpayers would have to cough up $7 million.

Those funds could come from a special taxing district, better known as a transportation development district (TDD), which levies an extra sales tax in the Chesterfield Valley retail area. If voters in the district—which encompasses less than a single percent of Chesterfield households—approve the tax, shoppers in the valley will help buy and improve land for a narrow special interest, adding yet another chapter to what’s become Missouri’s never-ending-story of public-cost/private-benefit development.

The problems with this deal are obvious and myriad.

For one, there’s the issue of “investing” in an ice facility when one just went out of business. The developer’s own market analyses show there is a glut of ice facilities in the region, which has “resulted in creating a ‘buyer’s market’.” If an ice rink isn’t a good use of private resources, what reason is there to think it’s a good use of the public’s resources?

Second, despite tax dollars being used to buy and improve land for the developer, there will be no public ownership of the facility. In fact, there isn’t even an agreement in place to let the public use the facility! If the facility changes hands or goes under, the city could end up owning the associated parking lot, but the last time I checked, there was no dearth of parking in the valley. 

Then there’s the white elephant just up the road: the $45 million complex proposed by the Blues for Creve Coeur Lake Park. The duly-subsidized complex will undoubtedly compete with the Chesterfield facility, but—incredibly—proponents claim their project is insulated from economic pressures.

And the (unreported) cherry on top? Last month it was announced that a private investment group acquired a new facility for the Chesterfield Hockey Association to use as an ice rink. So even though the group has a new “home,” they still want you to build them an ice palace.

All in all, this project makes little economic sense. So why is it moving forward? Because Missouri’s loose TDD laws sanction (or rather, encourage) special interests to tax the pubic for private gain. And when you’re spending other people’s money, you’ll “invest” in just about anything.

TDD reform is long overdue. Until things change, I suggest we update Roberts’ adage so it reads: “If taxpayers are paying, I’ll have whatever I darn please.”

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Roberts and Papola are producing another video with the same actors playing Hayek and Keynes, and applying their theories to the present situation. You can catch a preview of the video, along with a short interview with Roberts and Papola from a conference sponsored by The Economist magazine, embedded below.

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The following passage from Economics In One Lesson, by Henry Hazlitt, seems particularly relevant:

The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buy-able minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

The editorial includes the following pie chart:

Source: St. Louis Business Journal

According to the explanation in the text:

The chart above shows where the money went in the $34 million Crown Village Redevelopment project using LIHTC and historic preservation tax credits.

The chart raises more questions than it provides answers. Does it indicate the actual amount or the projected amount of economic activity resulting from the specified project? Does it include direct expenditure by the state, or does it account for an economic multiplier? (And, if so, at what assumed rate?) How is it similar to or different from the breakdown of other projects, and of other tax credit programs? What was the duration of the project? Where did these jobs go when the project was completed and the subsidy ended?

Furthermore, were the workers in question unemployed before they were hired to work on the Crown Village Redevelopment project? If not, then the subsidy displaces economic activity that already existed in the private sector. If so, then the subsidy is another form of unemployment. Economist Russ Roberts discussed this in a recent post on Cafe Hayek:

Having them do nothing–either because the task is unproductive or because you simply give them a check with no strings attached–does not in and of itself create prosperity for anyone other than the people who get the check.

I have argued repeatedly that targeted development tax credits are a poor strategy for economic development, and that they have negative consequences in Missouri. For evidence, I encourage our readers to read an editorial, which recently ran in the St. Louis Beacon, in which I argued that targeted tax credit programs create an uneven playing field in Missouri.

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Such problems led the government to scrap the private system in favor of a public one in 2007, and Munger explains how this led to far worse outcomes on pretty much every measure. The average commute for a mass transit rider immediately skyrocketed from 40 minutes to an hour and 40 minutes. This encouraged more people to drive or use small taxi services, feeding a vicious cycle. Furthermore, because bus drivers are paid based on how often they are on time, they have no incentive to stop for passengers at bus stops if they are running late. The extremely lengthy lines for buses routinely lead to pushing and shoving to board and fights often break out. Although the public system was specifically designed to solve safety problems in the private system, the number of wrecks actually increased because the city purchased extra long bendy buses, which require two lanes to turn, so cars frequently crash into them. Finally, the system as a whole went from running a profit of $60 million to requiring a government subsidy of $600 million — more than $100 for every resident of Santiago.

Munger argues that the problems with the private buses could have been solved relatively easily without resorting to socializing the system. A very minimal licensing requirement could ensure that the buses do not emit excess levels of pollutants, and the enforcement of property rights in private bus stops has been shown to prevent buses from driving recklessly to swipe passengers out from under the competition. Although Saint Louis and Kansas City do not have the same level of demand for bus services as Santiago, the city has shown that government ownership is not necessary for a decent mass transportation system.

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According to the Bureau of Labor Statistics, the United States economy lost 273,000 jobs last month. Of those lost jobs, 29,000 were in state and local education, bringing the total losses in that category over the past five months to 143,000. That may not sound like much, but education is one of those areas that should, and normally does, keep growing even during a recession.

Krugman doesn’t mention the steady growth in per-pupil spending that has taken place over the last several decades. I refer interested readers to Andrew Coulson’s analysis of public schooling’s productivity.

Sinking resources into an inefficient sector will not propel the economy forward. But Krugman is right that people should increase investment in human-capital formation during a recession. So, why would the government back away from funding schools just when people need education the most? Is it a newfound interest in efficiency? Not if the calls for a stimulus are any indication!

It turns out that the government isn’t very good at timing expenditures. Russ Roberts explains why:

Government is actually staffed by human beings. It is not something called G that economists or even politicians can move up and down at will. Bureaucrats are cautious. They’re uncertain about what is going to happen to their budgets in the future. They’re uncertain about what the best thing is to do with the money they’re given. They’re worried about being accountable for their actions. So what do they do? They hoard.

Education means different things to individual people and to states. A person who can’t find a good job during a recession will think ahead, realize that he will earn more later if he goes to school now, and pay tuition in order to reap the future benefits. But, to government officials, education spending is just spending — it isn’t an investment that they will personally benefit from later. Sure, they may talk about it as an investment, and they probably know that education can lead to higher tax revenues in years to come. However, there’s no direct link between what officials spend on schools now and their prosperity in a few years’ time, the way the market rewards people who pay for their own education. So the government spends less on education during a recession.

Recessions are a rare opportunity for inefficient public systems to be pared back, which is good. The flip side is that when the government pays for education, spending increases don’t come at the optimal times. If Krugman cares about the timing of human capital investments as much as he cares about the overall level of education spending, he should reconsider whether the government ought to pay for as large a share of schooling as it does.

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David Stokes links to a New Yorker review of Barry Schwartz’s book The Paradox of Choice: Why More Is Less, noting that when faced with an ever-growing variety of products from which to choose, "at some point, the variety of choices leads to diminishing returns." I don’t dispute that this can be the case — for a majority of people, most of the time, even — but that this is no argument for artificial elimination of any of those choices.

Sometimes eliminating choices is a business strategy that makes sense. Some restaurants are getting rid of menus, some supermarkets are paring down the number of items on their shelves, and the Internet is filled with advice on how to make decisions effectively — suggesting that there’s a wide range of people out there that needs help coping with the bewildering array of choices life has to offer them.

So, yes, I grant all of this. And yet … it’s easy to forget that the long tail has become the basis for the most valuable new business plans of the Internet age. The idea here is that people have such widely varied tastes that the many items people buy very little of, with low market share, add up to a mass of options that rivals the popular items that nearly everybody buys.

Schwartz coined a couple of terms for different types of deision-makers: "maximizers" and "satisficers."

Maximizers are the people who try to find the best of whatever they’re choosing — the best new car, the best brand of toothpaste, the best hamburger, etc. These people may enjoy their optimal choices more than other people enjoy their subpar choices, but there’s a large opportunity cost in pursuing knowledge of the "best" choice.

Satisficers, on the other hand, choose things that are "good enough." They don’t second-guess whether there’s a better brand of peanut butter if the brand they’ve already purchased results in satisfactory sandwiches.

Schwartz essentially argues that satisficers are happier than maximizers because they don’t expend an inefficient amount of time and energy looking for goods that are only marginally better than things they would be satisfied with. And his argument might make sense if people fit exclusively into one or the other of his categories.

But the fact is that everybody is both a maximizer and a satisficer, just for different sets of choices. As Virginia Postrel argued in Reason:

Since different people care intensely about different things, only a society where choice is abundant everywhere can truly accommodate the variety of human beings. Abundant choice doesn’t force us to look for the absolute best of everything. It allows us to find the extremes in those things we really care about, whether that means great coffee, jeans cut wide across the hips, or a spouse who shares your zeal for mountaineering, Zen meditation, and science fiction.

A world in which there’s an ever-expanding array of choices means I get to maximize my music preferences by listening to Zorn and Zappa while others can satisfice theirs with Lavigne and Timberlake. It also means that some people can maximize their preference for vehicles with luxury BMWs or SUVs, while I can satisfice with my trusty Hyundai Elantra. And it means that while David Stokes can satisfice his baby bottle needs with whatever’s on sale, somebody else who’s looking for certain characteristics in a bottle that David might not care about, or have even considered, can find what they’re looking for as well.

Patri Friedman (son of David and grandson of Milton) argued that despite the declining marginal utility of additional choice past the point of satisfaction, the ability to choose maximization in favored areas is necessary to achieve Flow — a state that some psychologists describe as optimal for creativity and success.

But without the array of choices the market makes available, we’d all be settling for less than what we really want — every time.

There are some people who’ve even used this as a pretext to propose bad policy:

As Fred Hirsch argued in his 1977 book, “The Social Limits to Growth”, many good things in life are “positional”. You can enjoy them only if others don’t. Sometimes, a quick car, fine suit or attractive house is not enough. One must have the fastest car, finest suit or priciest house.

Think of the scramble for schools, Mr Frank says. Only 10% of kids can go to the top 10% of schools. In many countries, wherever the schools are good, the houses will be expensive. Thus parents who want the best education for their child must overwork to afford a house in a good school district. In doing so, however, they raise the bar for everyone else.

Is mutual disarmament possible? Not without government help, Mr Frank and [Richard Layard, an economist at the London School of Economics,] argue. The exchequer should tax earned income heavily enough to deter one-upmanship, they say.

Despite appearances, this is not a naked example of punitive redistribution—the fiscal politics of envy. Mr Frank and Lord Layard do not want to level the social order. Their aim is much more conservative than that. Their taxes would leave the pecking order intact and envy undiminished. But people would be deterred from acting on the green-eyed monster. The problem these economists want to tackle is not inequality per se. It is that people don’t know their place and scramble vainly to improve it.

There are few things more onerous than the idea that everybody should "know their place" rather than pursuing their own vision of excellence. It’s bad enough when this takes the form of the mores of class stasis or social conservatism — all the worse when people try to enshrine it as government policy.

Economist Russell Roberts wrote at Cafe Hayek:

Yes, there are times when all of us have trouble making decision. [sic] And yes, there are times when all of us ask for help, either from experts or friends to help narrow our choices. But what are the policy implications of this anxiety? Boy, there sure are a lot of news sites on the web. I can narrow them down by bookmarking the ones I like. I can narrow them down by using Google news. Is there anyone out there who wants the government to pick my bookmarks? Or limit my access to all those web sites? There are a lot of stocks out there and right now, I actually invest in some of them. I use something called mutual funds to simplify the range of choices and reduce my risk. It’s not perfect. There’s risk. I might be in the wrong funds. But would I want there to be fewer choices so I woudn’t have to worry as much?

My answer has to be no. We’re better off having the choices available, so we can pursue the best choice when it comes to things we care about, and settle for the satisfactory — or the random, even — when it comes to the rest.

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