The fundamental issue here is supply and demand. There is a tight housing market in many places in the country where supply is already constrained—though that is generally not the case in Kansas City or St. Louis. Housing policies that focus on boosting demand rather than increasing supply tend to backfire. The Housing and Urban Development Act of 1968 and the Clinton administration’s National Homeownership Strategy both drove temporary housing booms followed by market crashes. These policies didn’t solve affordability; they exacerbated it.

The same flawed logic has shaped housing markets in Kansas City and St. Louis, where misguided interventions have made housing less affordable. Kansas City’s adoption of the 2021 International Energy Conservation Code (IECC) stifled new home construction by inflating costs. Builders, facing steep regulatory burdens, simply stopped building. In St. Louis, a reliance on tax credits and incentives for flashy developments has left vast swaths of the city with vacant lots and dilapidated buildings. In both cities, the results are clear: policies that ignore basic market principles fail to deliver desired results.

Kansas City and St. Louis offer cautionary tales. We don’t need more interventions that drive prices higher. We need policies that foster more housing construction, deregulate land use, and let the market work. Housing affordability won’t improve with more government spending—it will improve when we stop putting obstacles in the way.

The post Missouri Shows that More Government Doesn’t Equal More Housing appeared first on Show-Me Institute.

In an attempt to increase the supply of affordable housing in Kansas City, the Mayor and council have passed, with various amendments over time, requirements that developers seeking city tax incentives set aside some units for lower-income residents. There have been arguments over the exact details of the law, but overall the requirement is valid because it is, to a large extent, voluntary. Developers don’t have to seek tax subsidies. However, if they choose to seek them, they have to play by certain rules. So far, so good.

The latest proposal to support affordable housing in Kansas City, however, is the opposite of voluntary. The city council is considering a requirement called a “source of income” rule. This rule would prohibit landlords from refusing to rent to tenants who pay with housing vouchers or other types of government assistance. The most familiar of these programs is called Section 8. This proposal is a violation of the individual rights of landlords and a dangerous expansion of city government’s role in the economy and housing market. Beyond that, it is simply infuriating that local officials think they have the right to do this.

The Section 8 housing voucher program, along with the other programs run by the Department of Housing and Urban Development (HUD), is a federal government program. It has always been voluntary for landlords to participate. That voluntary nature is one of the program’s strengths, and there is no shortage of landlords who choose to take part in it. The most recent estimate we know of stated there were around 695,000 landlords nationwide who participated as of 2016. Many of those are large, property-management businesses with numerous units.

There are many examples of government social programs in which participation is voluntary. Doctors are not forced to accept Medicaid payments, yet many do. Grocery stores are not required to accept food stamps, yet many, if not most, do. That is how the Section 8 housing voucher program has successfully worked for many years. Imposing a local mandate in Kansas City will force landlords either to join the program against their will, creatively find other reasons to deny high-risk renters, or sell their properties to larger landlords. Each of these results is bad.

Denying high-risk renters is made more difficult by other aspects of the bill, which take the proposal beyond tragedy to farce. The bill states landlords cannot reject applicants based on things like poor credit scores, past eviction history, or criminal record. It is essentially forcing landlords to rent to anyone who applies, no matter their financial state or criminal history. Are laws requiring school bus companies to hire drunk drivers and pre-schools to hire sex offenders coming next?

It is fair to question the presumption that something needs to be done about Kansas City’s supply of affordable housing in the first place. The Kansas City metropolitan area was ranked the 13th most affordable housing market in the country in one survey. Another very recent survey ranked Kansas City 27th out of the 100 largest metro areas in total affordability, where housing was an important part of the calculations. Among the many other worthy objections to this source-of-income rule is the fact that it’s a solution in search of a problem.

If Kansas City wants to do something that might actually help lower-income people find more affordable housing, it could rezone parts of the city, especially those near transit stops, to allow for more multi-family housing units. Increasing the supply of housing of all types is the best way to lower the cost of housing. Minneapolis dramatically reduced its zoning requirements in 2018 to allow more apartments and condominium developments. Since that time, median rental rates in Minneapolis have increased by just one percent—the lowest in the nation—due to increased housing supply. The law of supply and demand remains undefeated, no matter how much members of the Kansas City Council may prefer addressing this issue by ordering people around.

Landlords and developers can meet this demand for housing if they are allowed to—authoritarian mandates are not required. This council can let the free-market work for housing in Kansas City, as it has done very effectively for decades.

The post Kansas City’s “Source of Income” Housing Rule Is an Abuse of Government Power appeared first on Show-Me Institute.

This essay presents the original rationale behind Missouri’s certificate of need law, explains how the law is implemented, and marshals both theoretical argument and empirical evidence to show that certificate of need law has, unfortunately, achieved the opposite of its intended effect in the Show-Me state. To read the entire essay, click on the link below.

The post End Certificate of Need in Missouri appeared first on Show-Me Institute.

Hard-luck stories are a common feature in election-year advertisements, and I hope the gentleman from Oklahoma has found his way out of his job loss—which, based on Oklahoma’s right-to-work timeline, may have happened nearly twenty years ago. But that doesn’t alter the underlying facts about Oklahoma’s economy and the effects of right-to-work laws generally—facts which the ad either ignored or mischaracterized.

First, let’s look at the employment facts for Oklahoma. Oklahoma voters passed a right-to-work law in 2001. In March 2001 (before the recession that year and before the passage of right-to-work) there were 1.53 million people employed there. As of May 2018, there were 1.68 million Oklahomans employed. Simple arithmetic reveals that 150,000 more people are on Oklahoma’s payrolls now compared with payrolls before right-to-work passed, so since 2001, tens of thousands of jobs have actually been added in Oklahoma, not lost.

Could the gentleman be referring to what happened to employment between December 2001 and July 2002, when Oklahoma payrolls declined by 40,000 workers? Maybe, but that decline was unlikely to have been related to right-to-work legislation. The recession of 2001 is a much better explanation for why employment fell in Oklahoma during that period, as payrolls were declining in many places at the time.

But the issues with the ad don’t stop with the numbers themselves. The ad essentially claims that right-to-work laws lower employment and lower wages, but economically speaking (and, as seen in practice,) that claim is highly suspect. Here’s how it works in terms of old-fashioned demand-and-supply: When the cost of labor is no longer driven up by the bargaining power funded by compulsory union dues, it becomes less expensive for employers to hire new workers. The less expensive labor is, the more of it employers can buy.

Claiming broadly that “wages will fall” as a result of right-to-work is grossly misleading. Employers are not going to slash the pay of the current workforce. Without union interference, newly hired workers will be paid what they are worth, and there will be more of them.

Somehow, our ad-man argues that both wages and employment will decline. He doesn’t explain why making it less expensive to hire workers will lead businesses to hire fewer of them.

Unfortunately, the ad conceals a great deal in its depiction of Oklahoma and of facts in general, cocooning a host of dubious conclusions inside a hard-luck personal story. That might be politics, but it ain’t economics.

Luckily, people throwing numbers at Missourians also need to show us why their explanation is better than the one suggested by basic economics. I look forward to an exchange of ideas rather than thirty-second sound bites.

The post Prop A Facts appeared first on Show-Me Institute.

As this father’s day coincides with the summer solstice, it is an appropriate time to recall the astonishingly accurate calculation of the circumference of the Earth that was made on this same day more than 22 centuries ago by one of the founding fathers of mathematics and scientific measurement.

Like other Greek astronomers and scholars at the time, Eratosthenes (276-195 B.C.), the head of the famous Library at Alexandria in Ptolemaic Egypt, assumed the Earth was round and revolved around the Sun. From his research, he discovered a fascinating fact: Every year, at noon time on this day (June 21) and no other, the Sun shone directly to the bottom of a deep well in the town of Syene (site of today’s Aswan Dam).

Syene was almost due south of Alexandria, and Eratosthenes estimated distance between the two cities to be 5,014 stadia (or 800 kilometers).

When the Sun was at its zenith in Syene—shining directly down a well and reflecting back up again—Eratosthenes surmised that it must cast a tell-tale shadow in more northern Alexandria. Using the obelisk located in front of the library (or using some other tall, vertical object), he calculated the angle of the Sun to be 7.2 degrees south of its zenith in Alexandria.

Since 7.2 degrees is 7.2 / 360, or one fiftieth of a full circle, Eratosthenes reasoned that the circumference of the Earth must be 50 times the distance made by the curvature of the Earth between the two cities. That worked out to 252,000 stadia, which is within 1 percent of the modern measurement of 40,008 kilometers.

Just as the Sun cannot be directly overhead two distant cities at the same time, it is impossible to think that suddenly doubling the minimum wage in the cities of Saint Louis and Kansas City (with the mayors of both cities strongly supporting legislation to mandate a $15 an-an-hour minimum wage) will not cast a long and dark shadow over the prospects for future employment in those same core city areas.

The law of supply and demand is as immutable as rules of geometry and the law of gravity. If you make something more expensive, demand for it will decrease. That holds true for lemons, lightbulbs, and labor. By dictating businesses double the pay of the lowest-paid workers, cities that pass such laws are making it less attractive for businesses to hire or to continue to employ inexperienced and unskilled workers.

Here are three entirely predictable consequences of artificially setting the price of low-skilled labor far above the market price. First, it will make sense to substitute capital for labor through increased automation. Second, it will depress earnings and cause businesses to raise prices or cut corners in striving to deliver the best value to their customers. Third, many businesses will consider moving to other locations—with ample opportunity for doing so in surrounding suburbs.

Summer solstice comes but once a year. Doubling the minimum wage would damage job growth in Saint Louis and Kansas City every day of every year. It’s a matter of simple math and logic.

The post Father’s Day Thoughts On the Summer Solstice and the Minimum Wage appeared first on Show-Me Institute.

. . . the MTC still plans to tightly control the supply of premium sedans available to Uber through the issuance of permits. Initially, the MTC will only issue 26 permits for premium services, and only five will be rewarded to new, single-vehicle operators. The rest will go to existing sedan companies that can afford three or more sedans. These smoke and mirror tricks, designed to make it appear that the MTC is becoming friendlier to other services and companies, are in reality reinforcing the restrictions on the entry and pricing of the taxi market.

As a result, Uber cannot hire new drivers as demand dictates; it can only use the limited pool of existing MTC-approved premium sedans.

The result, predictably, is that people who want to ride Uber’s premium service are often unable to. This mismatch between supply and demand hurts both Saint Louis residents hoping to use a service they want as well as Uber. MTC Director Ron Klein is unconcerned, stating, “We’re very flexible. . . . We just didn’t want to go out there and say, ‘Let’s add 100 [permits for black cars],’ and then have 75 guys standing around.” He stated that the MTC will vote on adding 26 cars next month, and might add more if Uber can prove there is a demand.

It should be readily apparent that demand exceeds supply if people are demanding Uber and there are no cars to send. Furthermore, why should the MTC, like a cabal of Gosplan apparatchiks, think it is appropriate for them to attempt to match supply and demand? Why should Uber have to prove demand before the MTC will consider allowing more black cars? When does it become obvious that MTC policies, far from ensuring safe taxi service, are limiting consumer choice and making the city a less attractive place to live?

If the MTC is so concerned about the quality of for-hire vehicle service in Saint Louis, they should limit the supply of regulations, not the number of premium sedans in the city. And if they can’t do that, perhaps residents should reduce the area’s supply of taxicab commissions. To zero.

The post Haven’t Been Able to Get Uber in Saint Louis? Blame the Taxicab Commission appeared first on Show-Me Institute.

1. Lyft and Uber have insurance gaps.

This statement may have had validity a few months ago, but this is no longer the case. In July, both Uber and Lyft changed their insurance policies so that cars operate under liability insurance whenever the ridesharing apps are activated. Commercial insurance becomes primary (not secondary as Mundy stated in the interview) when a passenger has been accepted. Both Lyft and Uber detail their policies, and no driver or customer needs to use these systems if they find them inadequate. But regulators and those of Mundy’s persuasion would rather legislate additional insurance (shown not to improve safety) or ban ridesharing.

2. Every time the taxi industry has been deregulated, it’s been reregulated.

This statement is empirically false, as a Reason study demonstrates.

3. Ridesharing companies do not perform adequate background checks.

Mundy claims Uber and Lyft drivers might be dangerous because they do not use the same type of background check as most cab companies. Peruse Uber’s qualifications for yourself:

According the Mundy, these tests do not go back as far as taxi checks and do not include arrests where there are no convictions. That seems like a contrived standard, and once again, customers can decide whether they feel Uber or Lyft drivers are safe. But Mundy and other regulators would rather residents did not have such options.

4. Uber and Lyft use price gouging.

Mundy, and other defenders of taxi regulations, do not like Uber and Lyft using variable pricing, such as charging more money at different times of night or when demand is higher. In reality, allowing for higher fares means drivers have a larger incentive to take fares at 2 a.m. or on New Year’s Eve. It allows the price mechanism to match supply with demand. But Mundy and other regulators would rather Saint Louisans wait hours for cabs that don’t come rather than have the choice to pay a higher fare.

5. Uber hurts the poor, because cab companies cannot cross-subsidize service.

It is well known that, despite stringent regulations, taxis around the country refuse fares and avoid depressed neighborhoods. The best protection against fare refusal and more service is a large, diverse supply of for-hire vehicles, which ridesharing can help provide. And what’s more, cities like Saint Louis spend hundreds of millions of dollars a year on extensive public transit and para-transit services to serve the poor and the disabled. The for-hire vehicle market should not be regulated in order to duplicate those efforts.

If there is a common theme to Mundy’s and regulators’ arguments, it is that city officials, and not city residents, should decide whether ridesharing companies are safe enough, charge the right amount, and provide the right kind of service. But in reality, the corrective action of riders and drivers making their own decisions regarding Uber and Lyft are a far better test of all those criteria, and even Mundy admits the popularity of ridesharing where it has not been quashed by city government. The reality is that most Saint Louisans don’t see cabs as an option, because the service does not meet their needs. That’s a shame, because that hurts residents and hurts the city. But Mundy and the taxicab commission would rather keep it the way it is than let residents make their own choices.

The post Ridesharing an Option Regulators Want to Keep from Residents appeared first on Show-Me Institute.

This is interesting because Pi raised its wages voluntarily. It didn’t need the government to mandate a hike in pay, it chose to do it because it made sense from a business perspective. That is how it is supposed to be. In fact, that is what businesses do. They pay their workers a competitive rate commensurate with the value that these employees generate for the business. If they pay their employees too little, other businesses can offer these workers a higher rate and they will leave. Sommers mentioned his workers moving to another business because it offered a 25-cent increase in hourly wages (at 4:30). This is the market working.

Take what happened in North Dakota as an example. Because businesses were so desperate for workers, even fast food establishments had to significantly increase what they would pay their employees. For example, Taco John’s, a local area fast food restaurant, had to offer new employees $15 an hour salaries in order to get them to work there.

I want to help the poor do better, but there are betters options available than raising the minimum wage, like the Earned Income Tax Credit. This would ensure the benefits would go to the people who really need them, the working poor.

The post Supply, Demand, And The Minimum Wage appeared first on Show-Me Institute.

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My friend’s concerns are many, but he has two main questions. Is it fair to pay teachers of one subject more than teachers of another? And, if we paid math and science (a.k.a. STEM) teachers more, wouldn’t it lead to shortages in other fields?

In the paper, I tried to focus on what is practical and logical from what we know about teaching and the job market. Because STEM teachers are in high demand and short supply, it does not make logical sense to pay them the same amount as teachers of other subjects who are in abundant supply. Fairness, of course, is a subjective term and paying teachers of some subjects more may seem unfair to some; but as I say in the paper, “it seems more unfair . . . to not recognize teachers for their specific skills and talents. Not all teachers are the same and not all skills are equally demanded.”

It is also important to remember that schools are not in the business of adult fairness, they are in the business of educating children. To that end, single salary schedules put a straitjacket on school officials and prevent them from having the ability to attract and retain teachers.

School districts need to be released from their straitjackets so they can begin paying teachers for their unique contributions. Schools districts then would have more leverage to attract high-quality teachers in STEM fields. If this creates shortages in other fields, the market would need to adjust. That is the beauty of the free market; it has an uncanny way of adjusting to supply and demand, whereas our current system is inflexible and perpetuates the problem of shortages in STEM subjects.

The post Easing Concerns About My Salary Straitjacket Solutions appeared first on Show-Me Institute.

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If you visited the Cardinals’ official website today to buy tickets, you’ve probably seen this page:

Now for the good news: Tickets to the game are still available! The bad-ish news? It’s going to be expensive if you want into Busch Stadium tonight. The lowest price going on StubHub right now is $489, for standing room only.

The most expensive ticket for the game: more than $12,000. David Stokes, a Show-Me Institute policy analyst, wrote Wednesday about the effect of legalizing scalping on the cost of after-market ticket purchases. From the article he quotes:

The ante rises during the playoffs, when a box seat can fetch more than $1,000 and even the price of standing through a nine-inning ballgame can run as high as $300.

We are well beyond that point today. But simply put, secondary markets – whether on the street or online – usually do a fine job of reducing product inventories by matching willing sellers with willing buyers. Those that value a ticket literally as much as a house payment can buy one; those seeking to unload their ticket can sell it; and those making the market receive their own cut for the service they provide. Everybody wins.

(By the way, originally I was going to write that “thousands of tickets are still available,” but that’s rapidly becoming untrue. During the 20 or so minutes it took to write this post this afternoon, the available number of tickets dropped from approximately 2,100 to 1,800. Prices are high, but they’re obviously not too high.)

This all naturally flows into David’s other post on the World Series regarding parking prices. Websites like StubHub (which is, not surprisingly, owned by eBay) are great because the market is pretty clearly informing what sellers are charging. World Series tickets, while they may have some collectible value after the fact, are ultimately perishable: they’re used for a game, or they’re not. That’s why if you want to go to a regular-season game and don’t mind missing the first inning or two, you can get better deals, as scalpers try to avoid getting stuck with tickets when the music stops. That “wait and buy” opportunity will, for the most part, be non-existent tonight (I think) but the moral of the story is that people place different values on different products, services, and conveniences. Parking lots around the stadium wouldn’t raise their prices if they didn’t think those spaces were valuable to parking customers. World Series ticket prices are very similar in that regard.

In any case, enough economics. Here’s to you, Cards. May the rally squirrel be with you.

The post Laws of Supply and Demand At Work in Game 7 Ticket Pricing appeared first on Show-Me Institute.

There really is no legitimate argument against it. There might be legitimate gripes or complaints against it, but those aren’t arguments. Every person reading this, or listening to Bernie’s show (probably more of the latter), would – if they owned a parking lot downtown – raise prices in this situation. Parking for sporting events like this is an example of market-day supply, like the fish market in your economics textbook. The supply of parking is fixed for any individual baseball game. With the increased attendance for the playoffs (the dominant, but not only, factor, increasing demand here), the demand for parking increases. Because the supply of parking is fixed, prices will increase. This will happen in every situation everywhere, and there is nothing wrong with it. (Note: the supposition that the supply of parking is fixed in a single day is correct, but there might be some exceptions. You can’t build a new parking lot in a few days because the team makes the playoffs. However, some things could be added to the supply in response to high demand. For example, a private parking lot may open itself to the public in response to high demand and high prices. That, of course, would result in more supply and lower prices.)

None of this says that parking lot operators are taking advantage of monopolistic power. People have plenty of choices here. Parking farther away from the stadium will still be less expensive than parking closer. If you are willing to walk further, you can save money. You can carpool and share parking expenses. You can take a bus or Metrolink. If parking lot operators set the price at $1,000 per spot, they won’t sell many spots. Every parking operator is going to set the price at a level they think will result in selling all their spots for as much as they can. If they set their prices too high, they will lower them quickly as market equilibrium sets in.

Of course, Mr. Miklasz would do the exact same thing with his show and column. If his ratings skyrocket, he wil increase the advertising rates for his show. Now, he might not be able to increase his rates today in response to more listeners during the playoffs.  But that is not because he is behaving morally and parking lot owners immorally. It is likely because he has chosen to sell long-term advertising agreements with customers for so many spots over a period of time because that is the best way for him and his station to operate. The parking lot operators who service the ballpark are not under such constraints.  

If Bernie was to say, write a terrible book that for some strange reason millions of people buy and it becomes a terrible movie, he will demand a raise from his employers. If they don’t give him the raise he feels he deserves, he can write more terrible books and make money that way. If he has enough time and desire, he can try to do all of these things at once. But he will sell his services, and the various items that accompany his services (ad rates, etc.) for the highest price he can based on the ever-changing market conditions. 

The parking lot operators do the exact same thing. There is absolutely nothing wrong with it.

The post “How Much For Parking???” 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.

Wisconsin had 5,800 student tickets to sell. They went up for purchase on uwbadgers.com at 9 p.m. Sunday and were sold out by 9:20 p.m.

The above students had the nerve to put their Rose Bowl tickets up for sale on Facebook Marketplace within two hours of tickets selling out. Face value was $150. Some were trying to get the tickets for more than $400 a pop.

Truly, there is a special place in Hell for people who buy Rose Bowl tickets with the sole intention of profiting from them. It is entirely unfair to those who actually love this football team and were counting on a cheap face value ticket in order to make the trip to Pasadena an economic reality.

I understand more about economics than sports, so in my opinion, we’re simply seeing a correction of the market inefficiency resulting from setting the price of a ticket lower than equilibrium. For an individual whose utility from attending the Rose Bowl game is less than $400, it is rational to resell the tickets at a price that exceeds their face value. Instead of being labeled “the worst people on campus,” the individuals listed in the Badger Herald article should be admired for possessing the insight to forecast a market opportunity.

Contributors to Show-Me Daily have discussed previously how ticket scalping improves efficiencies in the market. Last summer, David Stokes led a team of Show-Me Institute interns and staffers on a free-market field trip that demonstrated how ticket scalping is a type of market transaction that can improve the welfare of both buyers and sellers.

The graph below illustrates the market for tickets to the Rose Bowl game. The face value of a ticket, P₀, equals $150 and the equilibrium price, P_e, is higher than this level. From the article, it appears that the equilibrium price is currently approximately $400. At P₀, the quantity of tickets demanded, Q_d, exceeds the quantity supplied, Q_s (i.e., there is a shortage). When individuals are prohibited from reselling a ticket at a price higher than its face value (i.e., when the price ceiling is enforced), dead-weight loss results.

Market for Rose Bowl Tickets

In the presence of scarcity (and tickets to the Rose Bowl are indeed scarce), the price system works to allocate goods and services. Prices coordinate individual action efficiently by communicating relative scarcities and preferences, and individuals signal their relative levels of demand through their willingness to pay. In order to buy a ticket, a person either gives up disposable income, or he reduces his consumption of some other good. When the price system is allowed to work unrestricted, the tickets will more likely end up with the people who have the greatest willingness to pay.

Critics of scalping say that these $400 prices prevent current students who have low incomes from buying a ticket because they tend to lack disposable income. However, tickets to this particular game are already scarce, and capping the price does nothing to alleviate this. This is illustrated in the graph above; when the price ceiling is enforced below the equilibrium price, then the quantity of tickets demanded exceeds the quantity supplied. In other words, even if an administrative entity prevented reselling the tickets at a price higher than P₀, some individuals who have willingness to buy will still miss out on purchasing a ticket. For example, if the tickets were restricted to current students, then then fewer alums who have the means to pay $400 for a ticket will be able to buy one. Furthermore, banning scalping would harm low-income students more than it would help them, because scalping is a potential means for them to generate income.

Critics also say that the event is better off when the student section is packed with loud, rowdy fans. Because the secondary market drives up prices, fewer students may be able to attend, resulting in a crowd that’s more reserved. A rowdy student section certainly has some positive externalities, but these are impossible to measure.

Students at the University of Wisconsin routinely resell tickets at a premium for home games at Camp Randal. During my time as a student, I bought and sold Badger football tickets on several occasions. Why are tickets to the Rose Bowl game any different? Tickets to games against big rivals, like Ohio State or Northwestern, can sell for more than $150 each. This is simply a result of the law of demand. For certain football games (e.g., bowl games), just like any other product, the demand curve shifts to the right and results in a price increase.

The Coase theorem says that transactions will lead to an efficient outcome in situtations in which trade in an externality is possible, transaction costs are zero, and property rights are clearly defined (here, to students). It says that those who will be able to put the tickets to the most highly valued use will end up owning them. Because non-students are buying tickets on the secondary market in this scenario, it’s apparent that this group is not restricted to current students.

The post Scalp ‘Em, Bucky! On, Wisconsin! appeared first on Show-Me Institute.

To help combat this problem/issue, the editorial suggests, we (of course) need a government solution. This is where I start to disagree:

Recognizing the value of animal health professionals, USDA Rural Development has contributed $500,000 to a partnership with the Missouri Department of Agriculture to create a business plan and pilot program for an educational institution to train veterinarians. The program will focus on skills specific to treating food animals.

Like many things, this problem does not need a government solution. In fact, strict licensing of veterinarians may be one of the reasons we have a shortage in the first place. Furthermore, the veterinarians (via their licensing board) are actively involved in maintaining that general supply shortgage, as evidenced by the ongoing lawsuits against horse-teeth floaters in Missouri. As Dave Roland wrote:

Missouri’s Veterinary Medical Board has sued to prevent horse owners from hiring anyone but licensed veterinarians from working on their animals’ teeth. Equine dentistry is a centuries-old profession that veterinarians traditionally avoided, and equine dentists have their own educational programs that offer far more training and experience with horses’ teeth than is offered in veterinary schools. Nevertheless, the law states that equine dentists must be punished with a $1,000 fine and a year in prison for every horse they treat.

Basic economics tells us that the solution to a shortage is: 1) higher prices or salaries; and, 2) reduced barriers to entry. If we make it easier to be a veterinarian (or vet tech, or horse teeth floater) and allow for the market demand to increase prices or salaries for vets who work on farm animals, this shortage will solve itself.

(Note: Don’t take this as a call to completely eliminate all licensing for veterinarians. There are many worse examples of unnecessarily licensed professions than vets. But there are changes that can be made — expanding the role of vet techs, for example — that would reduce the role of government and allow the market to solve this problem.)

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“Getting the price right is vital for minimum pricing to work — too low and it will simply be ineffective. After careful consideration, we believe that 45p per unit is the right price.”

The chances that the government set the “right” price are zero. There is no such thing as a “right” price set by government. The “right” price for alcohol, and everything else, is set by the interaction of constantly changing supply and demand curves. The “right” price is different for different people at different times, whether buyers or sellers. In fact, we just produced a video about the dynamics of market pricing — and I can assure that the video in no way involved any alcohol.

The Scottish policy is ostensibly being implemented for health reasons. I won’t get into the antitrust, anti-dumping implications of the regulation of minimum prices. I believe that is a separate issue, albeit related.

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We assembled into four teams, starting out with either Cardinals tickets (two tickets normally valued at $39, although we bought them for $20 each) or money ($60). We each competed to try to improve our situation by engaging in voluntary market transactions.

Even ticket scalping can leave both parties better off! Without giving too much away, the video demonstrates a few key economics lessons, like information asymmetry — where one party has better information than the other. In this case, the experienced sellers understood the market much better than some of our teams did. Another lesson that comes up in the video is the idea of value: A ticket’s face value does not necessarily reflect how another party will value it, and thus it may be difficult to recoup a ticket’s nominal “worth” when selling it. Issues of supply and demand also came into play, as we were at a game on a hot day when tickets were not sold out.

Further lessons can be gleaned from the free-market explanations interspersed throughout the video. I encourage you to watch it!

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You see, unlike most industries, where workers are free to solicit offers from a range of potential employers before choosing the one most to their liking, NFL teams have a collusive agreement: Only one NFL team at a time may negotiate with the best of the rookie class. This relieves teams of the need to bid against each other for these young players, meaning that the players are stripped of most of their bargaining power when negotiating their initial contracts. However, the practice has also resulted in unanticipated negative consequences for teams. Thus, the limitations that the current NFL drafting system imposes on teams and rookie players distorts the laws of supply and demand, resulting in an inefficient allocation of resources.

If you will, join me in a thought experiment. Several teams this year would like to add a promising young quarterback to their roster. Right now, the Rams are in the best position to do so because they hold the first pick in the draft — and they are widely expected to select Sam Bradford, a Heisman Trophy-winning quarterback out of the University of Oklahoma. If another team (such as the Cleveland Browns, Oakland Raiders, or the Buffalo Bills) wants to be sure it has a chance to secure Bradford’s services, their only option is to negotiate a trade in which the Rams would give up the number one draft slot in exchange for players and/or draft choices offered by the other team.

Why would the Browns, Raiders, or Bills make this trade? Because they place a certain value on obtaining Bradford as a player. The problem is, even though Bradford’s particular skills and attributes are the reason he is so highly valued, he will not personally get to realize the return on the value he offers. As I point out below, Bradford’s rookie contract will have roughly the same parameters, regardless of which team selects him. But a team that trades up to get him would, by doing so, demonstrate its willingness to pay not only the size of that rookie contract, but all the additional costs that they would be sinking into the trade. And the recipient of the additional largess would not be the individual creating the value, but rather the Rams, whose only contribution to the transaction was being a particularly awful team last season. This arrangement is clearly not fair to Bradford.

But even if the Rams valued Bradford most highly, it is extremely unlikely that he could maximize the value that should result from demand for his services. As the draft system currently exists, there is an informal pay scale imposed on teams and players that depends on the slot in which a player is drafted, rather than the value that the team believes it will realize as a result of employing the player. The pay scale is determined both by a set, limited amount of “rookie pool money” and the contracts signed by the previous year’s set of rookie players. Very rarely can either teams or players deviate from this pay scale, although it is not uncommon for them to try.

Last year’s draft provides an excellent example. Matthew Stafford, the first player selected in 2009, signed a contract guaranteeing him more than $41 million. The Rams drafted second and ultimately agreed to pay Jason Smith $33 million. Kansas City chose third and guaranteed Tyson Jackson $31 million. These transactions demonstrate how the pay scale usually works. But interesting things then happened with four of the next six players selected. The Seattle Seahawks, picking fourth, chose Aaron Curry, a player many regarded as being the best in the draft and a potential number one pick. The Seahawks ultimately ended up guaranteeing Curry $34 million — more money than either the second or third players selected. In the meantime, the Oakland Raiders used the seventh pick in the draft to select the first wide receiver taken last year, Darrius Heyward-Bey. This was a highly unusual pick for two reasons: First, most experts figured Heyward-Bey to be only the third- or fourth-best receiver available. Second, the Raiders guaranteed him $23.5 million — significantly more money than would normally be expected for the seventh selection in that draft. Heyward-Bey’s contract had a direct effect on contract negotiations for two other rookie players. The Cincinnati Bengals selected Andre Smith with the sixth selection, and, after Heyward-Bey signed, Smith demanded to be paid more money than the player selected after him. Meanwhile, the San Francisco 49ers had used the 10th overall selection to take Michael Crabtree, who was almost unanimously considered to be the best wide receiver in the draft. Despite being selected three spots lower than Heyward-Bey (and, despite Heyward-Bey’s unusually large contract), Crabtree demanded to be paid as though he were the first receiver selected.

Both Andre Smith and Michael Crabtree ended up refusing to report to their teams (the only kind of real leverage afforded to rookie players) in order to get the kinds of deals they wanted; neither was ultimately successful. Smith missed several weeks of training camp before settling for $21 million guaranteed — which, accounting for the fact that he signed a four-year contract rather than the five-year deal more commonly given to high draft picks, is about what would have been expected given the slot in which he was selected. Crabtree, on the other hand, refused to join the team until well into the season, eventually signing for a guaranteed $17 million — slightly less than was given to the player selected ninth, and slightly more than was given to the player selected 11th. In both cases, the negotiations that resulted from the NFL draft and its resulting “slotting” system cost both the players and the teams weeks of distraction and invaluable time with which to prepare for the upcoming season.

A much more efficient system would have the teams bidding against one another. The most-desperate team would likely secure the player most likely to meet their needs because they would be willing to sacrifice more than any other team to sign that player. A slightly less-desperate team would be able to sign the next-best prospect, and so on, until teams were no longer willing to pay the amount a player demanded. Thus, players would realize the full market value resulting from the demand for their services, and teams would be able to maximize their utility by focusing on the players they most wanted to employ, rather than just those who happened to remain on the draft board. Freed from the restrictive confines of the “slotting system,” teams and players should be able to come to mutually agreeable contracts well before training camp begins, eliminating the hassles and lost opportunities that result when teams and players are limited in their freedom to negotiate with other prospective partners.

The law of supply and demand maximizes efficiency in free markets — and the NFL could help to maximize its own efficiency by abandoning its current, anti-competitive labor model in favor of a model more closely resembling a free market.

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