April 30, 2015

Some Good Economic News (Well, at Least About Cost of Living)

Economic data released by the Bureau of Economic Analysis (BEA) last April continued to show that income in Missouri just isn’t increasing very rapidly. The data also provide some good news: It is cheaper to live in Missouri than almost any other state in the union.

The BEA now adjusts nominal incomes at the state level for price-level differences across states. This is made possible by the development of regional price parities (RPP). Basically, the state RPPs measure geographic differences in prices; that is, comparable costs of living. The 2014 release marks the first time these series are being recognized as “official” statistics. What do the new data tell us about Missouri?

The chart below shows that growth in Missouri’s real personal income for 2011-12, the most recent years for which the data are available, falls in the next to lowest quintile of states. We have eight other low-growth cohorts, including neighboring states Nebraska and Kentucky. But the vast majority of states (and most of our neighbors) experienced faster growth in real personal income compared with Missouri.


The income data is disheartening. But the evidence about Missouri’s cost of living compared to other states strikes a definite positive note. The chart below shows that Missouri’s RPP in 2012 places it near the bottom of the ranking. And being at the bottom of this ranking is good news for a change. This means that the general level of prices in Missouri is below the national average and lower than all but three states.


Translation: While Missourians’ real incomes still are not rising as fast as we’d like, the cost of living in Missouri is less than nearly every other state. Maybe the BEA’s next release of this data, scheduled for July 1, 2015, will provide positive news on both fronts.

April 24, 2015

Of Stadiums and Economic Spillovers

Recently, we wrote a letter to the Post-Dispatch that criticized the idea that new tax revenue from a riverfront stadium would “pay” for $405 million in public subsidies. In response, one Saint Louis County resident claimed that: 1. spending on the Rams is not diverted from other areas; and 2. he trusts the governor and his numbers, not the Show-Me Institute’s.

First, we’ll address the substitution effect, or the idea that money spent on the Rams does not necessarily mean new economic activity. Our critic claims that if the Rams leave, he and many others would not be spending their dollars downtown. The problem with that reasoning is that it conceptualizes the Saint Louis region as municipally balkanized, and not as part of a regional or state economy, which in fact they are. Thus, if he and other county residents stay in the county on Sunday and spend money there, the regional and state economy is unaffected, along with the regional and state tax base.

Addressing the second point, if our critic does not believe Show-Me Institute’s numbers, why not the Brookings Institution, which wrote:

A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. . . . No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus . . . most tax collections inside a stadium are substitutes: as other entertainment businesses decline, tax collections from them fall.

Or our critic could also read a review of the economic literature, which finds:

Because sports facilities are not expected to generate additional net output in a metropolitan area and no systematic empirical analysis ever finds evidence that they do, sports facilities cannot be counted on to augment tax collections.

Put simply, the evidence on whether sports stadiums generate economic growth or sufficient tax revenue to justify large subsidies is overwhelmingly in the negative. Our findings accord with these prior results, the governor’s and Post-Dispatch’s do not. I’ll leave it to the reader to decide whose heart is leading whose head.

April 14, 2015

The 27th State: Missouri’s Place in “Rich States, Poor States”

For folks in the free-market movement, the annual publication of Rich States, Poor States (RSPS) in many ways marks time. The book is part almanac and part analysis; it explores the minutia of state economic policies nationwide, highlights ongoing state economic successes or failures, and assesses the prospects of states succeeding economically in the future.

rich-states-poor-states-2015-edition-1-638It always makes for interesting reading, and this year’s edition (released last week) is no exception. Missouri’s economic performance has bounced along RSPS’s bottom quintile of states since its first edition, and unfortunately Missouri hasn’t made much progress since 2008; Missouri now ranks 42nd of 50 states in economic performance for 2015. That finding is consistent with economic assessments we’ve shared with readers in the past. Simply put, the state hasn’t made a lot of economic progress over the last decade relative to its peers.

Missouri is seeing movement in its “economic outlook”—but it’s all in the wrong direction. In 2012 Missouri ranked 7th for how bright its economic future appeared, which at the time I noted that the ranking looked a bit like an aberration. Only three years on, however, the state has dropped back to 27th overall. That is the worst Missouri has ever done in RSPS’s outlook ranking, dating all the way back to 2008 when the state ranked 25th. Suffice it to say, a weak economic track record paired with a mediocre economic outlook doesn’t inspire a lot of confidence in the status quo.

The fact is not a whole lot changed from 2013 to today, which is sort of the problem. States across the country are pursuing tax cuts and regulatory reforms in earnest, and yet Missouri has been slow to respond for years. Last year’s tax cut was an important first step toward turning the economic tide, but it is too small and being too slowly instituted to be a last step. Time is running out for the legislature to do much on the tax issue this year; it will be interesting to see if the body chooses to do nothing.

March 3, 2015

Nationwide Convention Business Declining


There is little doubt that once the coming elections are over Kansas City leaders will start pushing for a convention hotel. The mayor has talked about it, and Star editorial writer Yael Abouhalkah champions it. When the GOP decided not to have their 2016 convention in Kansas City, those involved in the bid sought to blame a lack of hotel capacity.

According to CityLab, a think tank attached to The Atlantic Monthly magazine,

Over the last 20 years, convention space in the United States has increased by 50 percent; since 2005, 44 new convention spaces have been planned or constructed in this country alone. That boom hasn’t come cheap. In the last ten years, spending on convention centers has doubled to $2.4 billion annually, much of it from public coffers.

“It’s a very, very, very competitive thing,” says Susan S. Gregg, managing editor of Association Conventions and Facilities magazine, one of a large number of trade publications devoted to the convention industry. “All these cities that are so competitive are constantly having to upgrade and expand and improve.”

So if Kansas City built a convention hotel it would just be the latest comer to an already crowded market. Worse off, the convention industry is shrinking. Again according to CityLab:

But there’s a problem with this building bonanza, and it’s a doozy: There aren’t really enough conventions to go around. The actual number of conventions hosted in the U.S. has fallen over the last decade. Attendance at the 200 largest conventions peaked at about 5 million in the mid-1990s and has fallen steadily since then.

Even Las Vegas, a leader in the industry, has yet to get back to its pre-recession peak. According to CalculatedRiskBlog, Vegas reports that

There were 39,668,221 visitors to Las Vegas in 2013, just below the record 39,727,022 visitors  in 2012.  The pre-recession high was 39,196,761 in 2007. Convention attendance was at 5,107,416 in 2013, still well below the record of 6,307,961 in 2006.
As the money spent on downtown Kansas City demonstrates, taxpayers need to be vigilant of big promises from developers and politicians. When it comes to convention hotels, the need is even greater.

February 23, 2015

Lackluster Outlook for Saint Louis in 2015

The PNC Financial Services Group provides economic forecasts for those areas in which it has a significant business footprint. The Saint Louis area is one of those areas. While the PNC forecast for 2015 covers several measures, let’s focus on jobs and income.

The economists at PNC predict that the unemployment rate in Saint Louis will continue its slow decline, falling to a little over 6 percent by year’s end (see accompanying chart). Even so, job growth in services is expected to slow as the year progresses, and manufacturing jobs are not expected to show much change over 2015. According to its regional outlook, when comparing potential job growth from the trough of the recession through 2015 across a number of Midwest metropolitan areas, PNC ranks Saint Louis well behind such cities as Indianapolis, Chicago, and Milwaukee.


The PNC report, which provided both charts shown here, also predicts that while household income will continue its post-recession recovery, improvement will be slow. As shown in the chart, PNC predicts that median household income in Saint Louis will increase from about $54,000 to approximately $56,000 between the end of 2013 and the end of 2015. This is less than a 2 percent annual rate of increase. As noted in the PNC report, “Income growth in St. Louis still lacks the job market support necessary to break out to a much stronger pace.”


February 21, 2015

Ditching City Hall: A Kansas City Development Story

Kansas City has a low population density for a city its size. How low? According to the Census Bureau, Kansas City had a population of around 2 million in 2010, making it the 29th largest city in the United States by metro population. However, in terms of population density, Kansas City had roughly 2,326 residents per square mile, making it the 129th densest city in the country, just ahead of Poughkeepsie, N.Y. (population 670,000).

In terms of population distribution, only around 216,000 residents live less than five miles from city hall, whereas the average city of Kansas City’s metro population has close to 400,000 residents living within the first five miles. Cincinnati, the 27th largest city by total metro population, has more than double the total population density of Kansas City within the first two miles outside of city hall, with just over 316,000 residents living within five miles of its city hall.



Kansas City’s low population near its city hall results in low population density at the city core. Similar to Saint Louis, Kansas City’s average population density is lower within two miles of its city hall than it is slightly further away from downtown, as the map below demonstrates:


Also like Saint Louis, the story of Kansas City’s development is actually one of decreasing density. Aside from the area right around city hall, Kansas City’s core (within eight miles of city hall) lost both population and population density on average between 2000 to 2010. Steady population growth only accrued in the city center and in low-density areas further than eight miles from city hall.


Many individual areas close to downtown are doing well. However, much like Saint Louis, those gains are outweighed by losses in other areas equidistant from Kansas City’s downtown. Furthermore, they are decreasing in precisely the areas where residents most rely on transit.

These types of population movements are not exclusive to Kansas City. City governments (especially Kansas City) often spend hundreds of millions adding amenities and subsidizing development downtown. And while the most visible parts of the city show modest improvement, structural problems in the city’s competitiveness and broad economic forces continue to erode population in traditionally poor, working-class, and middle-class neighborhoods.

Whether city hall can alter these trends is debatable. What is not contested is that, despite some increased density right downtown, Kansas City has a comparatively low population density that shows little evidence of rapid, or for that matter any, increase. When it comes to providing public services that depend on high densities to function efficiently, like transit, if the city plans under the pretense that it is as dense and centralized as, say, Cincinnati, it may end up providing worse service to the vast majority of residents, even as it favors certain sections of the city.

February 18, 2015

Ditching City Hall: A Saint Louis Development Story

We’ve said it on this blog many times before: Saint Louis has low population density. The population is widely spread among multiple counties in Missouri and Illinois, with a much-reduced core city and growing population and employment centers far away from downtown.

We have shown census tracts representing Saint Louis’ population distribution before. However, a different way to view the data is to consider metro population within certain distances from a central point (in this case city hall), allowing easier city-to-city comparisons. When we compare Saint Louis to cities of similar population, we observe that the city has abnormally low population density in its core. According to 2010 Census figures, Saint Louis had the 18th largest MSA population (2,812,896), but only the 31st largest population within 10 miles of city hall. For example, compared to Baltimore, with a slightly smaller population than Saint Louis (2,710,489 in 2010), Saint Louis has a larger metro area but much lower densities close to the city center.


In fact, the area within a mile of the Saint Louis city hall has a lower population density (5,020 per square mile) than most of the rest of the city. This is atypical among peer cities, which have their highest densities downtown (averaging 9,000 per square mile). The map below shows population density in Saint Louis in concentric one-mile rings radiating from city hall:


In addition, contrary to the narrative of a rebounding core, the city’s population density fell most in Saint Louis City from 2000 to 2010, as the map below demonstrates:

Pecentage change Pop_dens

Population did increase in certain neighborhoods in the central corridor and in the heart of downtown Saint Louis. And the growth downtown is somewhat misleading because of the incredibly low base it grew from: in 2000, the population density less than one mile from the courthouse was a mere 3,870 persons per square mile. And in the city as a whole, notable neighborhood gains are more than made up for by loses in areas to the north, south, and east of those improving neighborhoods. Looking at the region as a whole, outside of the heart of downtown, population density only showed steady growth in areas further than 25 miles away from city hall.

Saint Louis’ low population density and abnormal population distribution has important implications for the provision of public services. For example, when the type of service provision relies on density (such as with transit), it may be better for the city to model its service on other cities with similar densities rather than ones with similar MSA population totals. In addition, the pretense that Saint Louis’ downtown is (or should be) the dense economic engine of the region that drives much of regional planning may be inappropriate and result in misaligned public services.

However, the abnormal situation of Saint Louis’ downtown is also a reason to hope. Other cities show that there is a market for downtown living, and perhaps if the officials focus on safety and service instead of big-bang projects, organic growth will take hold. Or maybe they’ll build a new football stadium instead.

February 17, 2015

Still Movin’ On Out

In a recent analysis of Missouri’s migration patterns since 2004, Michael Rathbone and I found that Missouri’s net out-migration—more people moving out than in—has been especially pronounced since 2008. The most current information used in that study ended in 2013. Because some of the data have been updated, has there been any change over the past year in Missouri’s migration pattern?

Our earlier analysis used information provided by Atlas Van Lines and United Van Lines. These moving companies track outbound and inbound moves for all states. Calculating the ratio of outbound moves to total moves provides a rough gauge of whether more households are relocating into or out of a state.

Both companies recently published their findings for 2014. The table below reports the ratio of outbound to total moves for Missouri and its neighboring states. The evidence from Atlas Van Lines shows that more households moved out of Missouri (55.5 percent of total moves) than in. United Van Line’s 2014 National Movers Study also finds that outbound moves exceeded inbound moves.

Here are two aspects about these numbers. First, they prolong a trend that began several years ago: more households moving out of Missouri than moving in. Second, in 2014 Missouri’s percent of outbound moves exceeded that of most neighboring states. The Atlas report found that the percent of outbound moves was lower in six states relative to Missouri. Five states had relatively fewer outbound moves than Missouri, according to the United study.

“Relying on data sources as varied as moving companies to the Census Bureau and the IRS,” Rathbone and I noted, “our evidence reveals that, especially since 2007, more of Missouri’s residents have relocated out of the state than others have moved in.” Updating the moving company figures does not alter that conclusion.


Outbound (%) in 2014

State Atlas   United
Arkansas 52.4   51.7
Illinois 60.1   63.4
Iowa 54.6   52.5
Kansas 54.7   58.2
Kentucky 50.3   55.0
Missouri 55.5   53.1
Nebraska 57.8   46.2
Oklahoma 45.4   43.4
Tennessee 44.4   50.0


Don’t Ban Tesla to Protect Middlemen

Missouri auto dealers, through the Missouri Automobile Dealers Association (MADA), is on the offensive. Their target is Tesla, the luxury electric car manufacturer, and their goal is to prevent the company from selling cars in Missouri. They backed a bill in 2014 which would have banned Tesla, and now that that effort has failed, they have filed a lawsuit against the state of Missouri.

The essence of the dispute is that Tesla, uniquely among U.S. car companies, does not use middlemen (dealerships) to sell its cars. MADA, which represents those middlemen, wants it to be illegal for a car company to directly sell its vehicles to consumers. They claim it already is illegal, under the Missouri Motor Vehicle Franchise laws. But the Missouri Department of Revenue disagrees, claiming the laws are only applicable to manufacturers that have dealerships in the state and are not designed to enshrine dealerships as the only method of selling cars.

Along with their legal and legislature maneuvering, MADA is publicizing why Missouri should create more regulations to enshrine the dealership model as the only way to sell cars. They argue that without car dealerships the state’s economy would suffer and that consumers need the type of long-term car care that only they, and not the manufacturer, can provide.

Without a doubt, using car dealerships as a sales and maintenance unit has many advantages for manufacturers and consumers. After all, it became the dominant mode of selling cars for a reason. However, it is not an intrinsically superior way to buy and sell a car and certainly should not be afforded new legal protection.

For example, according to a report from the Department of Justice, dealerships can raise the costs of selling cars. Experiences from General Motors sales internationally have shown that manufacturer-direct sales can lower the cost of a car by 8.6 percent. Furthermore, consumers may prefer manufacturer-direct sales over the uncertainty of haggling with car dealers, if they are given the choice. One poll conducted in the United States found that half of respondents would prefer to buy from the manufacturer even if they were not offered a lower price.

MADA’s efforts would take that choice away. They claim that buying a car is an important financial decision and that dealers provide the long-term care customers need. But there is no shortage of ways consumers could choose to service their vehicles if they buy directly from Tesla, including agreements with auto-repair shops. Car buyers are no less capable of looking after their assets than homebuyers, who somehow manage to purchase and maintain houses without house dealerships.

As for the economy as a whole, protecting a certain way of selling cars is no way to increase jobs or increase competitiveness. Business models change constantly and create new opportunities and products even as they replace older ones. That sentiment underlined the Federal Trade Commission’s (FTC) criticism of Missouri’s legally entrenched franchise system. They stated, “[C]onsumers are the ones best situated to choose for themselves both the cars they want to buy and how they want to buy them.” That may not always be to the benefit of car dealers, but it’s good economics and good for the state.


February 3, 2015

The Good and Not-So-Good News from Missouri’s Labor Market

The Bureau of Labor Statistics (BLS) recently released its report on state employment (see Table 5) allowing us to see how Missouri’s labor markets have fared.

The good news is that between December 2013 and December 2014, seasonally adjusted nonfarm employment in Missouri increased by 44,700 jobs to a preliminary estimate of 2,795,000 jobs. This amounts to a 1.62 percent increase. Compared with our neighboring states, in terms of percentage increases, in 2014 Missouri did better at creating jobs compared to Kentucky, Iowa, Kansas, Illinois, and Nebraska. Missouri’s rate of job growth lagged that in Tennessee, Arkansas, and Oklahoma.

Although Missouri did relatively well when comparing percentage growth rates for 2014, the not-so-good news is that the state’s economy has not been generating jobs at a pace that would return employment to levels seen at the onset of the Great Recession.

The table below ranks Missouri and its neighboring states by their ability to create jobs over the past six years. The first column of numbers reports the most recent estimate of nonfarm jobs (seasonally adjusted) in each state in December 2014. The second number column includes the peak number of jobs and the date of the peak. The final column reports the difference between the peak employment number and that for December 2014. Based on this comparison, Missouri has lagged neighboring states in job production over the past six years. The current number of jobs in five states (Kentucky, Nebraska, Tennessee, Iowa, and Oklahoma) is above their previous peak, while Arkansas and Kansas are relatively close to their peak. Missouri shows a substantial lag of 15,700 jobs. The silver lining? It isn’t as bad as Illinois.

Trying to explain the differences in job creation would require more space than we have here. Still, possible candidates are the mix of industries in each state; the migration of companies (and people) to better economic climates; and the states’ taxes and spending policies. Whatever the reasons, the Missouri economy is still looking for the answer.

Basic RGB

January 26, 2015

Kansas City Embraces Baristanomics

Streetcars, entertainment districts, new airport terminals, Republican confabs, Super Bowls, creative-class millennials, and convention hotels all have grabbed headlines in recent months in Kansas City. Certainly they are evidence that city leaders think they can spend, spend, spend their way into wealth. But they are also evidence that Kansas City has embraced something my colleague at the Show-Me Institute dubbed “Baristanomics.” Baristanomics is the theory that lifestyle spending can revitalize an urban economy.

It doesn’t work.

Richard Florida first proposed the idea that cities need to attract the so-called creative class in order to survive. His prediction was not borne out by time. But like all good economic theories, zealous adherents aren’t swayed by plain evidence. Here in Kansas City, leaders still talk about attracting this creative class with streetcars despite the fact that the evidence tells us that even the millennial-age cohort is no less likely to own cars than their peers in past generations. They act the same way any group does: They move to regions that offer jobs.

A study of successful innovation hubs even demonstrated that among those that have been successful there is no winning government strategy—success does not lend itself to a simple formula.

Boosters of Baristanomics point to the slight growth of downtown residents to show the success of the city’s profligate spending. As another high rise is proposed for downtown—and subsidized with taxpayer dollars—the high availability no doubt will drive prices into the basement. Laying aside the question of whether such modest growth is worth the huge cost to taxpayers, it is clear that Baristanomics has not produced the jobs necessary to keep people downtown. Downtown residents commute out of the core for work—something that writers elsewheredubbed Urban Inversion. Basically, Kansas City is turning itself inside out.

Without jobs—baristas, hotel concierges, and restaurant staff notwithstanding—any measure of success will be short lived if Kansas City isn’t attracting jobs. In fact, the growth of residential development is coming at the cost of commercial and industrial growth potential as one-time office buildings and warehouses are converted into trendy lofts. Furthermore, many of those living spaces were built or renovated with tax abatements or subsidies that will make them much less attractive in 25 years when they end.

Cities do not form around coffeeshops and large entertainment venues. (If they did, where is the development around the Truman Sports Complex? There are barely hotels over there.) People generally live where they work, and if Kansas City continues to be an unattractive place to build a business, all the hip speakeasies and entertainment subsidies will amount to nothing more than curious finds for future archeologists.

January 5, 2015

Lower Gas Prices Produces Higher Spendable Income for Missourians

I hope you enjoyed the extra (and unexpected) gift of lower gas prices this recent holiday season! According to GasBuddy.com, gas prices in Missouri averaged about $1.90 a gallon during the first week of 2015. This is significantly below the January 2014 average of about $3.00. How does this drop in gas prices translate into spendable income for the average Missouri household?

To answer that question we need to make some assumptions. First, we need an estimate for miles driven. Using national driving data for 2014 from the U.S. Department of Transportation the average male aged 35-54 drove 18,858 miles. The average female in the same age group put 11,464 miles on the car. Adding two teenagers to our household increases mileage driven by 8,206 for a boy and 6,873 for a girl. All told, then, our average family of four put about 45,400 miles on their car(s). If we further assume that the cars driven by our family averaged 25 miles per gallon, our representative family bought 1,816 gallons of gas.

Now for the income effect. At the January 2014 price of $3.00 a gallon, our family would spend about $5,450 a year on gasoline. At the current price of $1.90 (and assuming they do not increase miles driven) their gas bill drops a whopping 37 percent to $3,450. If the average family of four in Missouri had an income of about $72,600 in 2014, an estimate based on updating the 2013 median family income figures from the U.S. Census, their $2,000 savings in gasoline expenditures is equivalent to a 2.75 percent increase in household income. Not a bad raise for our average Missouri family!

What brought about this unexpected windfall? Increased oil production in the United States has been one of the most significant developments leading to more competition in world oil markets. With OPEC’s control over oil prices curtailed, market forces have pushed oil prices and, therefore, gas prices down. Whether oil and gas prices remain at their current levels is unknown. What is clear, however, is that competition has once again benefited consumers.

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