Recently, the Institute for Justice released a response to criticisms aimed at their ongoing case against the regulation of interior designers. IJ’s original study, Designing Cartels, exposed arguments in favor of certification and licensure as baseless stabs at protectionism by current practitioners. Many objections leveled against the pro-regulation segment of the industry across the nation are identical to those relevant in St. Joseph’s consideration of contractor licensing.

The fact of the matter is, almost any attempt at regulation is orchestrated by industry insiders to address perceived threats to consumer satisfaction or public health. That alone wouldn’t be so troubling if the dangers they warned of were usually substantive. Personally, I see no need to use legislative tools like those that endorse the competency of doctors and nurses as prerequisites to practicing interior design.

In Missouri, interior design certification is handled by the Interior Design Council. Although individuals are still free to make decorating suggestions without the accreditation of a registered interior designer, the regulatory distinctions currently in place deny them the ability to advertise themselves competitively. The differences are akin to the distinction between a bookkeeper and a CPA. In the one case we sacrifice the virtues of a competitive free market to ensure that our bills are handled according to a standard. In the other, we endure higher prices and fewer alternatives in exchange for decorators who have spent superfluous amounts of time fulfilling coursework that is only questionably necessary to their trade.

Before I depart for a semester in London, I plan on replacing a portion of my seasoned wardrobe. I’ll be shopping in the States because (thanks, in no small part, to monetary distortions on a much larger level) the value of my wealth will roughly halve when the “fasten seatbelt” sign illuminates.

As my fellow bloggers have noted, with differing degrees of enthusiasm, we are in the midst of a tax “holiday.” My consternation about this practice is mostly explainable by the theory-driven gripe I’m about to offer. However, I’m also upset that the holiday has landed on one of the few weekends where I have better things to do than draw funds out of savings.

The tax holiday is a feel-good gimmick. Many people, maybe even some needy parents gearing up for another costly school year, will return home from the store with a few more bucks than they otherwise might have. The state budget won’t really suffer, either. What’s the harm? If you don’t find yourself frequently daydreaming about monetary policy, there really isn’t any; enjoy your shopping spree.

Still with me? Then you’ll agree that the tax holiday tarnishes the price system’s fidelity as an indicator of value. This distortion is based on the fact that, at least for the foreseeable future, state and local revenues draw heavily from sales tax. In fact, I think it’s reasonable to say that a good’s price after tax is more faithful than its pretax price at representing that good’s real cost. By this reasoning, the expenditures of state and local governments are inputs partially included in the price of a good. This makes sense, considering who builds the roads on which inventories and customers travel. When this input is discounted, the resulting price could (and will) motivate consumers to buy more than they otherwise would in an efficient market. Sarah’s example of a hypothetical shopper driving far away to cash in on tax-free shopping is a great example of how price distortions can affect individual behavior in negative ways.

I also feel shorted because of the arbitrary nature of the holiday. In general, I’m enthusiastic about reducing taxes and regulation in hopes of bettering economic freedom. However, this instance of a tax break slightly benefits those who shop during this weekend at a tiny cost to those who make purchases on the other 362 days. In order to retain the tax revenue that would be available without a holiday, Missouri officials will have to marginally increase the sales tax rate. If they choose not to do so, the state will have less revenue than it otherwise would. Although it’s certainly not the case that tax revenue necessarily benefits me or any other voter effectively, it does so to at least some extent. The holiday also unnecessarily benefits those who spend relatively more money during these three days. There’s just no good reason for rewarding people who shop this weekend rather than any other.

So, is the tax holiday highly damaging? Absolutely not. However, any humanitarian advocate for it should research more direct methods to promote their desired outcomes. In the end, we are only billing ourselves to indulge in a weekend of slightly less expensive shopping. I think the only really unfortunate outcome of this event is that we further distance public sentiment from good economic thought by allowing shoppers to get excited about a gimmick.

Today, the Post-Dispatch editors chastised the leading Republican gubernatorial candidates for turning the Missouri ethanol mandate into a major campaign issue. The editors may well be correct that “the mandate makes very little difference in the bank accounts of drivers, grocery shoppers, or even farmers.” However, contention over the mandate might provide a worthy outlet for opinions about larger issues, such as the government’s involvement in ethanol production and the appropriateness of direct intervention into other markets.

As a practical matter, the future of the current ethanol mandate will not have a large effect on the commodity prices Missourians face. Our study, which was a narrowly focused rebuttal of another study, estimates a considerable, but not overwhelming, price tag of $29 per Missouri driver per year. The P-D suggests that “for drivers, there’s probably only a tiny savings.” Regardless of whether the mandate is a net positive or net negative, we both agree that the effect is relatively small. After all, the legislation only touches statewide consumption of globally traded commodities in the event that their associated market prices are lower than those of conventional gas.

Even so, the current discussion is anything but frivolous. The ethanol savings figures given by the Missouri Corn Merchandising Council are patently false. Further, the use of coercive intervention into a fully functional market raises legitimate doubts. The Republican candidates obliviously feel that they can effectively offer different shades of conservatism through a real — although perhaps not earth shattering — debate. Whether their attempts to differentiate themselves will pay off remains to be seen, but we can’t blame them for trying.

A story in the St. Louis Business Journal (the first few paragraphs of which are available for free online) reports that two of the area’s largest law firms, Thompson Coburn LLP and Armstrong Teasdale LLP, are considering moving from downtown St. Louis to Clayton. These considerations will potentially move more than 1,000 jobs from the city to the county. Despite the fact that comparable office space costs 23 percent less downtown than in Clayton, those involved in the decision suggest that “employee satisfaction and location” are enough motivation to move.

Although Clayton is probably closer to home for many St. Louis lawyers, there are relevant costs that certainly factor into any moving decision. The most obvious disincentive for high-earnings professionals, like lawyers, to work in St. Louis city is the earnings tax. A detailed case against the earnings tax can be found on the Show-Me Institutes’s website. In short, the earnings tax imposes costs on being productive and promotes this westward migration that the city ardently fights. If either of these firms moves, the earnings tax will continue its distortionary effects without yielding some of the revenues it was engineered to extract.

One potentially disastrous fix to retaining economic activity in the city would be the use of tax incentives. Others have articulated the negative effects of using tax credits, especially as they pertained to the recent “mega-project” proposal in Kansas City. These same arguments hold true in St. Louis.

If St. Louis officials intervene in the law firms’ decision making, they will have two readily available options. Potentially, they could see instant results and help the city’s long-term prospects by eliminating the earnings tax. Hopefully, they won’t settle for preferential tax treatments that leave local business owners and taxpayers worse off for benefits that they don’t have access to.

Last week, I was introduced to the Tax Foundation’s Tax Freedom Day report. Aside from being an educational visualization of the confusing tax structure in this country, the report gives a breakdown of total tax burdens by state. A quick look at the map shows that, generally, wealthier states pay more taxes than poorer states. Looking into this relationship, I produced the following chart, comparing the per-capita personal income of each state with the number of days its average resident spends working to pay taxes (click to enlarge):

The relationship between the two inputs is strong, but with a considerable amount of variance and a few outliers. Also, the data itself says nothing of causality. I speculate that richer states are more willing and able to pay higher taxes, although this simplistic chart alone could just as easily suggest (I think incorrectly) that rich states are prosperous because of their higher taxes.

Regardless, the numbers show Missouri’s standing when compared with neighboring states. Residing barely underneath the trend line, Missouri taxpayers make slightly more money than they pay in taxes when compared to all 50 states. Although we spend relatively more in taxes than neighbors Oklahoma and Tennessee, the chart shows healthier proportions than many other nearby states. Missourians should continue striving for a low-tax environment, perhaps looking no further than across state borders for role models.

Sources: Tax Foundation, U.S. Bureau of Economic Analysis and Bureau of the Census
Please note that all data is for 2007. Image created with Microsoft Excel.

The inevitable has come to pass. The Missouri Textbook Transparency Act has become law.

I adopted this issue as my pet cause at the beginning of the summer, leading to a critical op-ed that received a little bit of attention.

It’s not surprising that the bill passed. I understand that only one senator opposed it as it glided through the General Assembly. I am, however, satisfied to see that its proponents have already begun apologizing for its inadequacies. From the AP article:

The law’s sponsor, Rep. Jake Zimmerman, D-Olivette, said his measure won’t help the price of new textbooks but could give students and their instructors more ways to save money.

I’d like to emphasize again how unlikely it is that any government mandate will positively affect the marketplace for used books. I contend that the combination of the law’s shortcomings and a vibrant online alternative to school bookstores offers virtually no benefits to outweigh the costs of market intervention. I don’t anticipate seeing an increase in textbook success stories for otherwise cash-strapped students during the coming years. More likely, this law will pass into obscurity, where it may or may not create hidden costs for buyers. If nothing else, it can serve as an example of unnecessary regulation in an area that has and will continue to be well-served by market forces.

The Southeast Missourian reports that the potential ban on casino construction might cost local developers a promising opportunity in Cape Girardeau:

Because companies already operating casinos in Missouri are sponsoring the ballot measure through an initiative petition and have refused to negotiate for a share in the Cape Girardeau project, [businessman David] Knight said he must attract an out-of-state casino operator to take part. He intends to have an application ready if the ballot measure fails to make the ballot or if voters reject the proposal.

“We’ve got nobody left in Missouri to talk to,” Knight said. “We are proceeding on in the meantime and getting a gaming partner.”

Thanks to the rhetoric-charged protectionism of the initiative and the short-term moratorium it spawned, Missouri stands to lose a large development to out-of-state builders. It appears that although no one in-state is willing to begin a project that faces considerable risk of being legally prohibited in November, Mr. Knight will be able to find someone else who will help him build his casino. If the initiative never materializes as law, Missourians will watch as recent regulatory debacles negatively affect the state’s businesses. If ballot issue is passed, we will never know the damages caused to state revenues, recipients of casino taxes, and entrepreneurial individuals like Mr. Knight.

Early this week, the Missouri Gaming Commission mandated a restriction on the number of casinos allowable in the state. The move was justified as a prohibition on any sudden actions by would-be casino owners in anticipation of a possible referendum that might permanently prohibit entrants to the gaming business.

The Jefferson City News Tribune correctly discredited the moratorium as naked protectionism of the industry supposedly being regulated. Faced with the prospects of increased competition and a larger tax base, consumers and policymakers alike would benefit from the lack of restrictive policies like this. The only parties that benefit financially from the moratorium (or the referendum it’s behaving like) are the currently established casinos, which are now partially exempt from the required efficiencies of market competition.

Arguments in favor of the moratorium are founded on strange conceptions of the state’s relationship with the market. Speculation that the gambling industry needs special treatment because its revenues are highly taxed is ludicrous. For the most part, artificial barriers to entry will only consolidate gambling revenues to fewer casinos while limiting potential long-run growth. Any decrease in revenue that might result from free competition would probably come from a reduction of monopolistic pricing. Although proponents of the moratorium might possibly defend such monopolistic power because of its implications for state income, I hold that any such intervention is extremely inappropriate. Why would the government be permitted to promote monopolies for one industry while breaking them up for the majority of others?

The suggestion that new casino projects shouldn’t currently be allowed because of a potential referendum also rejects market mechanisms. If developers are bold enough to begin a project in the face of possibly imminent legal prohibition, why should the state stop them? To my knowledge, no other industry is so simplistically regulated against basic market risk.

The current moratorium and the potential ballot issue provide nothing but damaging regulation that arbitrarily selects winners and losers. Regardless of their personal opinions about casinos, Missourians should identify poor policies and consider their universally negative consequences.

Kansas City residents are resisting a proposed increase in the numbers and operational hours of downtown parking meters.

As much as I want to admonish them with a tenable free-market argument in favor of meters, I can’t help but allow our shared hatred of urban inconvenience to unite us. I regularly insult the dedicated individuals who have taught me neoliberal economics by expending excessive resources to avoid meters out of shortsighted laziness and an immediate unwillingness to part with the contents of my coin tray.

But Kansas City may offer conditions that complement my irrational distaste for meters. Although I have absolutely no knowledge of Kansas City’s downtown geography, I gather that — like my native St. Louis — revitalization efforts are aimed at drawing in the suburban population. When target customers are offered similar services closer to home and without the costs of going downtown (explicit and implicit), lawmakers should be careful when imposing additional burdens on urban businesses. Concerned business owners reasonably speculate that the selective
implementation of new meters might create an incentive for city-goers to choose
economically inefficient alternatives along streets that offer free
parking. Especially in condensed urban areas, disparities in the application of avoidable burdens will produce inefficiency and hassle. However, blanketing an entire area with parking meters is probably not the solution to attracting suburban customers.

David interestingly noted in a previous discussion of the same issue that the University City Loop benefits from its free public parking. The Loop’s successful model may not be suited to the financial hub in central Kansas City, but it might be applicable to surrounding areas, like the Crossroads Arts District, that are being considered for new parking meter placement.

Dave reported that the Missouri Supreme Court recently ruled in favor of property owners regarding the misuse of eminent domain. In addition to setting a much needed precedent, this ruling will have important economic consequences. Specifically, it promotes a slightly more equitable and efficient compensation procedure that, in turn, creates new disincentives for some unnecessary designations of blight.

Clearly, this ruling defends blight victims’ rights to just compensation. The owners of blighted properties are now armed to potentially claim
damages caused over time by the negative designation on their homes and
businesses. We can easily sympathize with businesses and homeowners who suffer for years from decreased revenues and property values because of the uncertainties inherent in owning "blight." Hopefully, deserving home and business owners will follow the Gladstone
Plaza Shopping Center’s lead by keeping the thorough financial records necessary to sue for damages. Although the court’s decision will by no means deliver fully the promises of the Fifth Amendment, it is a step in the right direction for a select group of property owners.

I contend that a move toward compensation at market value will permit greater economic efficiency as well. Simply put, if a development will be more beneficial to society than the current inhabitants of a parcel of land, its investors should be able to buy out this inferior market competition. Half-baked arguments about positive externalities and the failure of markets to deliver public goods should not suffice to construct legal barriers for a class of private conflicts that can usually be resolved by supply and demand. Even if the unavoidable difficulty of providing for public goods can theoretically be used as a justification for eminent domain, Missouri authorities have surely crossed the line from beneficial to harmful.

For the most part, current legal hurdles exist solely to favor developers (socially beneficial and otherwise) by allowing them to force away competition for property at inefficiently low prices. If those prices become less hampered by interference, society will better allocate its scarce resources into the most efficient avenues (see the Coase Theorem). Nonetheless, there are certainly cases in which eminent domain can be used for greater social efficiency, regardless of its moral ramifications. Because of these exceptions, I cannot provide a wholesale endorsement of the due criticism leveled at eminent domain abuses based solely on economic efficiency grounds. Even so, marginal decreases in the use of eminent domain would undoubtedly benefit society economically. A move toward market forces, then, is not only ethically right but economically sound. In a limited capacity, the recent court ruling represents such a move.

Additionally, this decision will cause some developers to think twice before seeking government assistance in dealing with resistant property owners. Faced with the threat of lawsuits, those developers who don’t intend to proceed quickly with their projects will be less willing to stake claims on other people’s property. Unfortunately, this specific case in Gladstone offers little promise to owners of property that is condemned so quickly that its initial blight designation causes no quantifiable harm. Nonetheless, the Supreme Court has offered a partial solution to one group of victims — individuals whose possessions hang in the uncertain limbo of pre-condemnation blight. This empowerment should at least deter future encroachments on property rights that won’t produce results within a somewhat reasonable time frame.

The recent court ruling is by no means a sufficient fix to Missouri’s struggle with eminent domain abuse. Because of its limited applicability, the decision will probably only benefit a handful of vigilant property owners. Nevertheless, those individuals will receive unprecedented relief that may establish a positive trend.

Special thanks to the St. Joseph News-Press for reporting on an op-ed I wrote a few weeks ago. I hope that this coverage opens some debate about a relatively obscure bill that is in danger of being signed.

From the report:

The bill’s sponsor, Rep. Jake Zimmerman, D-Olivette, Mo., has a degree in economics and law degree from Harvard. He refers to the Show-Me Institute analysis as “over simplistic and flawed.”

“If you’ll pardon the expression,” Mr. Zimmerman said, “he’s taking a freshman year economics textbook approach to the problem, which does not accurately reflect the real world circumstances that we’re talking about.”

I urge readers to critically read my op-ed to search for the deficiencies Mr. Zimmerman is referring to. I agree that the interaction between supply and demand is essential to any freshman economics course, but I don’t agree that it is inappropriately considered in my commentary. His criticism would be more satisfying if it was specific.

Mr. Zimmerman correctly points out that my take on the bill hasn’t "drummed up any public outcry." I hope that the small publicity it recently received engages Missourians outside of academia and the legislature to give this bill a hard look as it sits on the governor’s desk. After all, you can’t oppose poor legislation if you don’t know it exists.

According to a Post-Dispatch article, the metropolitan St. Louis area can expect sharp increases in sewer bills during the next few years. Increases will be necessary to follow an EPA mandate that regulates how the metro area deals with sewage overflows regularly caused by inclement weather. The current practice of dumping excess waste in natural waterways will be replaced by an infrastructure project that could cost more than $4 billion.

Is it worth quadrupling the average household’s sewage tax to create an expensive system that offers help only sporadically? The EPA seemingly addressed potential problems with waste in rivers by requiring warning signs last year. Although this measure understandably wouldn’t satisfy conservationists, everyone should weigh benefits and costs, especially when replacing a system that has worked for a long time. The article also notes that current spillways include the Mississippi and the River Des Peres. Frankly, the current system poses no threat to anyone wise enough to stay out of already-polluted bodies.

Overly zealous environmental regulation should not be allowed to impose unnecessary costs on anyone, especially a targeted area with an sufficient policy already in place. Bullying like this only harms St. Louis’ economic condition, both in absolute and relative terms.