As Caitlin pointed out last night here on Show-Me Daily, the Saint Louis blogosphere has been criticizing the Show-Me Institute for moving from Clayton to the Central West End, claiming that it is ironic that we moved to the land of the earnings tax, when the institute’s publications have argued that the earnings tax drives people and businesses away from St. Louis city. This assertion reminds me of that old Alanis Morissette song, “Ironic,” which described situations of mere coincidence, not irony. (Indeed, the only thing ironic about the song was that it contained no irony.)

Apparently, these authors understand neither the marginal nature of economic incentives, nor the fallacy of insufficient sampling.

Moving to a new area has advantages and disadvantages, and an individual or firm considers both in their decision process. The earnings tax is a cost that is associated with living and working in the city — not unlike higher crime rates and street parking — and it serves as an incentive to businesses and residents to locate in an area not subject to the tax. Individuals and firms weigh the sum of these costs against the benefits of living and working in Saint Louis City, such as proximity to other businesses, shorter commutes, and nightlife.

In its cost-benefit analysis, the Show-Me Institute determined that the benefits of being located within the city outweighed the costs. An increasing number of other firms, in their cost-benefit analyses, have concluded the opposite, and they go elsewhere. This is demonstrated by the overall exodus of businesses and individuals, and restricted economic growth for the city.

It should also be noted that the majority of people who work at the Show-Me Institute already live in Saint Louis city, and therefore were paying the earnings tax even when our office was located in Clayton. This group includes me.

Furthermore, these authors are using a sampling size of one to make a hasty generalization about how the earnings tax affects the movements of individuals and businesses. In no way does this move contradict the scholarly work that the Show-Me Institute has done on the earnings tax.