Sunday’s Post-Dispatch had a great story about expanded interest in hydropower along the Mississippi River. New technology is making it possible to generate power from rivers without the vertical drop, or “flow,” that has been needed in the past. That is why most of America’s hydropower has, to date, come from rivers that emerge from mountainous areas — they have a much greater flow. Anyway, the Post article details the renewed interest in Mississippi hydropower by private industry and public utilities. Of course, private investment is much more interesting to me, although most of the private proposals do involve using public dams along the river. It is exciting to read about these proposals, and I hope that local hydropower can take its place along with wind and solar power as an important auxiliary, peak, or complementary power source.

Of course, if you want clean and remewable baseload power generation for Missouri, there is really only one way to go. …

A friend emailed me this story from the Sun-Times about the City of Chicago continuing its privatization efforts. According to the article, officials are considering privatizing the famous Taste of Chicago, which I have attended a couple of times. My friend’s response was, “Why wasn’t it fully private in the first place?”, which I completely agree it should have been (no surprise there).

So, I started thinking about St. Louis’ own premier restaurant festival — the Taste of Clayton. I quickly learned two things about Taste of Clayton: I assumed it was private, but it has actually been run by the city; and, it isn’t happening at all in 2010. The Taste of Clayton was always run as a nonprofit event. The restaurants donated their time and effort, the city made all its expenses back so that taxpayers didn’t foot the bill, and the rest went to charity. (See pages 38 and 43 of the Clayton budget if you want the financial data.)

So, if the city really is considering new ideas for 2011, here is a simple one: Allow a private organization or entrepreneur to operate it as a for-profit enterprise! Charge them for the costs of street and police services at the event, and allow them to make money off of it.

But back to Chicago. Mayor Richard Daley says some terrific things in this story (ellipses in original):

But, Daley said he’s determined to hold the line on property taxes and all other taxes and fees and there are precious few alternatives.

“People don’t want to see government growing. They don’t want to see their taxes growing. … People are suffering,” he said.

“What can you do if it costs you more and more money? … You have to look at government differently. If you don’t look at government differently, you live in the past.”

I would dispute the line about precious few alternatives. Chicago could choose to fire the thousands of its city employees that essentially do nothing, including the infamous “Boiler Watchers” who do nothing but monitor public building boilers that have had internal alarm sensors for decades now. But that would mean taking machine party hacks dedicated public employees off of the public payroll.

Nonetheless, the proposal (and other similar privatization ideas) is getting the predictable response from the public employees’ union:

Phillips has said he’s “totally against” farming out recycling because it’s “less jobs for us” at a time when his members are taking unpaid furlough days and comp time instead of cash overtime.

I appreciate the honesty there. Government work is not about providing services; it’s about jobs for their union members. It’s almost refreshing to hear it said.

I commend Mayor Daley for these ideas (not that he cares what I think), and hope that our big city mayors in Missouri can learn from them. Although, to be fair, the Chicago system gives the mayor much more power there than is the case in St. Louis or Kansas City.

Not to just jump in and pile on, but it appears some people might lose some sleep if the city privatized the water division. Some of the employees, that is:

Kansas City officials said Wednesday that they were investigating an incident in which a man videotaped Water Services Department employees who appeared to be sleeping on the job.

Yes, I know it’s a cheap shot, but it was too easy to pass on. I will add that Kansas City did at least install water meters a long time ago.

A trolley line serving the Kansas City Strip recently opened and is slowly building a clientele in the area by providing easy transportation to bar patrons on weekend nights. The Kansas City Star reports:

While ridership has fluctuated wildly depending on the weather, it has ticked up most weekends since June (except for the slow July 4 weekend), reaching more than 800 people on July 30 and 31.

That’s not yet close to the system’s capacity of 1,200 per night.

“You don’t change people’s patterns immediately,” [chief executive of the Kansas City Transportation Group Bill] George said. “Let’s face it, this is not a mass transit town.”

But he said ridership is where he hoped it would be at this point.

Most remarkable of all is that this trolley line receives very little government funding:

KC Strip received $100,000 in tourism tax dollars through the Neighborhood Tourist Development Fund.

The City Council also approved $295,000 in convention/tourism taxes. Of that, $95,000 was a grant and the rest a secured loan, to be paid back over four years.

These are tiny subsidies compared to the $25 million in federal funding that the Loop Trolley in Saint Louis is set to receive. The KC Strip trolley service should prove to be a fairly good market test for trolleys in Missouri’s cities. If it prospers, it will show that such mass transit options do not require lavish public subsidies to survive. However, if it fails to make money, it’s a good indication that people are not terribly interested in riding a trolley system, so we should save our public dollars for more pressing needs.

What a difference a month makes.

In July, the city of St. Louis’s Land Reutilization Authority (LRA) Board of Commissioners heard public testimony from six persons seeking to purchase property, and the board actually approved three of the sales! (Commissioners deferred action on one of the properties and offered a five-year “garden lease” on each of the other two parcels subject to public testimony.) Per its usual practice, the LRA sent buyers off with the encouragement that they “will receive a letter in the mail” enumerating their required next steps for taking title to the city-owned properties.

All other agenda items received their recommended actions.

The above may seem like nothing more than minutiae to persons unfamiliar with the problems associated with LRA ownership of formerly private lands, but for persons who live next door to any of the LRA’s thousands of parcels in the city or for taxpayers anywhere in the city, the above actions are of particular significance.

One person who testified this month seeking to purchase a vacant lot adjacent to her home spoke of how burglaries are “a constant problem,” and that she hoped the acquisition of the lot would allow her to better protect her property. Another potential purchaser expressed her desire to become a homeowner, only to be rebuffed by the commission with an admonishment that she “talk to the alderman,” demonstrate stronger financial abilities, and await further review by the commission at the next meeting. A husband and wife expressed their desire to purchase the lot adjacent to their home in order to provide space for room additions to accommodate their daughter, son-in-law, and grandchildren. Two representatives from a church spoke about how the purchase of a fenced parking lot would greatly assist in the church’s programming and outreach.

Considered together, the myriad of motivations and the multitude of proposed uses for LRA-owned land parcels suggest to me that individuals, when free to conduct land transfers, make better decisions about land use than do any seemingly well-intentioned bureaucrats on an executive commission.

The LRA meets in the Board Room at St. Louis Development Corporation, 1015 Locust Street, Suite 1200, at 8:30 a.m. on the last Wednesday of each month.

An article in the Post-Dispatch reports that the National Park Service is considering converting the St. Louis treasure that is Grant’s Farm into a national park. One of the great things about Grant’s Farm is that it is run privately by Anheuser-Busch, Inc., and the Busch family, at no cost to taxpayers. The park has been run for 55 years without charging an entrance fee, all while losing $3.5 to $4 million annually.

It is not clear who approached whom with the proposition to make Grant’s Farm a national park, but one can only hope it was not the National Park Service. The budget for our national parks is already strapped, and the lack of funds is evidenced by deteriorating infrastructure. The last thing needed is to add one more park to be maintained with public funds. Furthermore, the growing national debt makes it unlikely that the NPS will be receiving a significant increase in funding in the near future.

I believe Grant’s Farm has the potential to become sustainable if it were to charge an entrance fee. The 273-acre animal preserve is visited by 550,000 people a year, more than enough demand to allow the parks owners to cover costs — or even turn a profit, if management operates the park efficiently.

I hope the Busch family and Anheuser-Busch continue to run Grant’s Farm, even if that means charging an entrance fee. Grant’s Farm provides a unique experience that will be lost if it falls under government control.

New Jersey’s governor is pushing for the privatization of numerous public services as a means to trim the state’s budget. These services include car inspections, state parks, psychiatric hospitals, and turnpike toll booths. Furthermore, preschools would no longer be constructed on the public dime, public employees would be required to pay for their own parking, and the cafeteria, education, and health care programs in prisons would be handled by private vendors.

Some estimates project that the proposal will save New Jersey $210 million annually in taxpayer funds. From the article:

“The question has to be, ‘Why do you continue to operate in a manner that’s more costly and less effective?’ rather than, ‘Why change?’ ” said Richard Zimmer, the former Republican congressman who chaired the task force.

By and large, privatization lowers costs and raises quality. Unlike the government, which can continually operate in the red, a private firm must turn a profit to stay in business, a fact that makes private service providers much more accountable to consumers. The unresponsiveness of public service providers is especially evident when spending hours in line at the DMV or post office. A private firm with a similar service record would either have to take steps to become profitable, by increasing service and lowering costs, or face going out of business.

Missourians would benefit if state officials followed New Jersey’s lead by finding ways to privatize services and save taxpayer money. The efficiency gains that privatization bring would provide a means to cut costs without cutting services. Missouri could do well for itself by entrusting responsible private businesses to help carry some of the state’s fiscal load.

The title of this blog entry should be spoken as if you were Johnny Cochran (R.I.P.).

The Post-Dispatch is reporting that the city of St. Louis is raising its water rates (link via Combest). Now, I have no criticism of the rate increase — things cost what they cost, and government utilities have historically underpriced their products. If rates are rising, though, it should be a good time to consider the benefits of privatizing the St. Louis water system. C’mon, St. Louis. It’s good for what ails you.

St. Louis is, George; St. Louis is.

The plan to contract out the operation of the animal shelter to Stray Rescue has been canceled. The Suburban Journals has the story on the new plan here, which still involves Stray Rescue and many other animal rescue groups. Another plan had been offered by a local vet to operate the shelter as a clinic/shelter on a for-profit basis, as has been done in Kansas City. It is one thing to reject the vet’s plan, which was submitted after the deadline, when another plan involving Stray Rescue was already going forward. It is quite another to continue to disregard the vet’s idea now that plan no. 1 has crashed and burned.

I attended the news conference when the program cancellation was announced last week. I asked a health department official there if the veterinarian’s privatization proposal would be revised. She said she would be willing to talk to him, but (and this is an exact quote) “I am uncomfortable with for-profit groups.” So, in other words, the proposal — no matter how great it may or may not be — is off-limits because the veterinarian has the audacity to possibly earn some type of profit from the care of lost, sick, and abused animals.

This fear is perfectly reasonable of course, given that the for-profit bid for the animal shelter was coordinated by Drexel Burnham Lambert as part of a thinly disguised hostile takeover of the shelter, which would then be cannibalized and sold off piecemeal to enrich the financiers at the expense of the kittens. Oh, wait — you say it was actually proposed by a local vet with a long history of taking care of animals in the city of St. Louis? Well, then maybe the city should reconsider the idea. …

Seriously, only someone who has spent their entire lives working for the government could say something like, “I am uncomfortable with for-profit groups.” I am sure that the director has accomplished many worthy things during her public service, and I am sure she is a fine person, but the knee-jerk opposition to any group that might earn any type of profit is unseemly, albeit not surprising. For too many government employees, P.J. O’Rourke’s words about John Kenneth Galbraith apply:

[...] and, after 97 years of comfort and achievement in a free market society, still believed that a free market society is wrong.

The city should undertake to reconsider new proposals for the animal shelter, and for-profit ideas should be given just as much consideration as any other. Taking care of animals and making a profit are not mutually exclusive.

Sunday’s Post-Dispatch had an excellent story about the use of taxpayer-funded cars for public officials. In past decades, when government employees really did make a lot less than private-sector employees, a perk like the car might have made sense. Now, with the growth of public sector salaries, it is a practice that really should be abolished. I highly recommend that you read the Post story, but keep in mind that the people cited in it are not to blame for a practice that has been going on for a long time.

The real purpose of this blog post is to note that there is a private-sector solution to this issue. The Reason Foundation has done some great work on the subject of private companies managing government vehicle fleets. It might be the right time for state, county, and city governments in Missouri to give this idea serious consideration.

The Suburban Journals has an updated piece on where the city of St. Louis stands with its animal shelter. According to the story, the city has learned from Kansas City that privatization can work in this area:

“The nonprofit groups appear to have worked well in other cities of our size, and this was kind of the route that they wanted to explore first,” Hane said.

Kansas City is among the cities where an outside group has taken control, Hane said.

The city deserves credit for its willingness to go with privatization here, but I don’t understand the favoring of a nonprofit over a for-profit model:

A veterinarian with extensive experience with animal welfare groups has proposed an alternative. He wants to run a for-profit operation at the Gasconade shelter – a proposal that runs counter to the city’s wishes.

I am not saying the for-profit idea should trump the nonprofit, just that the choice should be made according to who can best provide the necessary services, rather than whether the operation hopes to earn a profit. (The fact that the vet who wants to run a for-profit shelter was a little late in submitting his proposal should not be a big deal.) After all, the privatized shelter in Kansas City is run by a veterinarian, and is nominally a for-profit enterprise — although I think it operates in more of a gray area. I really doubt the vets who run the shelter are making a large profit doing their amazing work in caring for lost, abused, and neglected animals.

As a dog lover with great memories of Harvey, Casey, Marleigh, and other dogs my family and I have had, I love seeing the city realize that there options exist outside of the government for providing this necessary service. It is also great to see one big  Missouri city learning from another.

I’ll be guesting on the McGraw Show with McGraw Milhaven on The Big 550 at 9 a.m. on Monday morning. We’ll be talking about water, water, and more water, which is appropriate given that it is supposed to rain all weekend. Please listen in, if you can.

The St. Louis Post-Dispatch editorial board wrote a piece yesterday about a number of bills in the legislature that would allow utility companies to request rate hikes every six months, as opposed to the current policy that limits a change to every 11 months. The Public Service Commission regulates the rates of investor-owned utilities, like Ameren electric and Laclede gas.

From the article:

Under the proposed new law, rate hike cases could last no more than six months, meaning utilities could file two requests each year.

That’s not just two rate hike cases for each electric company, including AmerenUE. It also means extra rate cases for water companies, including Missouri American Water, which is seeking a 21 percent rate hike, and for gas companies, including Laclede Gas, which has a $52.6 million rate hike request before utility regulators.

Last year, when AmerenUE raised its rates by 8 percent after a 12.1-percent increase the previous year, the utility’s president justified it in order to continue “maintaining reliable electric service.” He also said:

“Much of the increase covers the costs of projects initiated to improve the reliability of our electric system, the costs of environmental and efficiency improvements at our generating plants, and the costs of fuel for those plants.”

It is hard to evaluate the validity of these claims without a field of competitors providing greater incentives for efficiency and cost reduction. That competition doesn’t exist, though, because utilities are generally viewed as a natural monopoly, an industry that requires economies of scale so large that it is most efficient to have a single supplier. As a result, municipalities generally restrict entry into utility markets. In The Concise Encyclopedia of Economics, economist David Henderson pointed out that this restriction is probably unnecessary:

Economists tend to oppose regulating entry. The reason is as follows: If the industry really is a natural monopoly, then preventing new competitors from entering is unnecessary because no competitor would want to enter anyway. If, on the other hand, the industry is not a natural monopoly, then preventing competition is undesirable. Either way, preventing entry does not make sense.

In “The Myth of the Natural Monopoly,” Loyola University economics professor Thomas J. DiLorenzo cited economist Walter J. Primeaux’s findings from more than 20 years of studying electrical utilities and competition:

• Contrary to natural monopoly theory, costs are actually lower where there are two firms operating;
• Contrary to natural monopoly theory, there is no more excess capacity under competition than under monopoly in the electric utility industry;
• The theory of natural monopoly fails on every count: competition exists, price wars are not “serious,” there is better consumer service and lower prices with competition, competition persists for very long periods of time, and consumers themselves prefer competition to regulated monopoly;

If a utility is providing the lowest price, a competitor’s challenge will not be a serious threat. Competition itself — or the potential for competition — can keep prices low. Regulatory boards, on the other hand, historically have not been successful in lowering prices, as DiLorenzo noted:

In one of the first statistical studies of the effects of rate regulation in the electric utilities industry, published in 1962, George Stigler and Claire Friedland found no significant differences in prices and profits of utilities with and without regulatory commissions from 1917 to 1932. Early rate regulators did not benefit the consumer, but were rather “captured” by the industry, as happened in so many other industries, from trucking to airlines to cable television.

If barriers to entry are low enough, the potential for competition can increase efficiency and cost reduction in existing utilities. Instead of a focus on how often a utility company can change its rates, Missouri residents would benefit more from lowered regulatory barriers to entry in utility markets. In that case, future rate increases — like the recent decision to increase rates by 3 percent in order to promote energy efficiency — will be weighed against the possibility of a competitor attracting market share through lower prices.

Here are two examples of government privatization moving forward in the St. Louis area: First, Festus is selling its municipal airport. Now, this won’t have anywhere near the effect of the private, commercial airport in Branson, but it is nonetheless a good example of a local government shredding itself of a role that the private sector can perform just as well (and probably better).

Second, the city of St. Louis is bidding out the operation of its animal shelter. The well-known nonprofit organization Stray Rescue will apparently get the contract. Kansas City privatized the operation of its animal shelter last year, and the accounts I have read about it indicate that the shelter is operating smoothly under private management.

As governments at every level deal with serious budget issues, it’s important that the private sector be allowed to play a role previously played by the public sector, as a major part of the changes that state and local government need to make.

The Washington Post recently carried an article by Reason magazine senior editor Katherine Mangu-Ward on the benefits of online education and its even greater potential. It is worth quoting at some length:

Since the Internet hit the big time in the mid-1990s, Amazon and eBay have changed the way we shop, Google has revolutionized the way we find information, Facebook has superseded other ways to keep track of friends and iTunes has altered how we consume music. But kids remain stuck in analog schools. Part of the reason online education hasn’t taken off is that powerful forces such as teachers unions — which prefer to keep students in traditional classrooms under the supervision of their members — are aligned against it.

So children continue to learn from blackboards and books — the kind made of dead trees! no hyperlinks! — rather than getting lessons the way they consume virtually all other information: online. Putting reading materials and lecture notes on the Internet, like many teachers do today, is just the first step; it’s like when, in the early days of movies, filmmakers pointed a camera at a stage play. Kids are still stuck watching those old-style movies, when they could be enjoying the learning equivalent of “Avatar” in 3-D. Thousands of ninth-grade English teachers are cobbling together yet another lecture on the Globe Theatre in Shakespeare’s day, when YouTube is overflowing with accessible, multimedia presentations from experts on Elizabethan theater construction, not to mention a very nice illustrated series on the Kennedy Center’s ArtsEdge site. [...]

How do we know online education will work? Well, for one thing, it already does. Full-time virtual charter schools are operating in dozens of states. The Florida Virtual School, which offers for-credit online classes to any child enrolled in the state system, has 100,000 students. Teachers are available by phone or e-mail from 8 a.m. to 8 p.m. seven days a week. The state cuts a funding check to the school only when students demonstrate that they have mastered the material, whether it takes them two months or two years. The program is one of the largest in the country. Kids who enroll in Advanced Placement courses — 39 percent of whom are minority students — score an average of 3.05 out of 5, compared with a state average of 2.49 for public school students…

Moving lesson planning and delivery online can provide students with more supervision, not less, says Michael Horn, one of the co-authors of “Disrupting Class.” It would free teachers, Horn says, “to do hand-holding and mentoring, something which is pretty much impossible in the current model.” After all, where is it written that the babysitter, disciplinarian, lecturer and evaluator must all be the same person? Or even that they all have to be in the same building?

Some online learning models eliminate human interaction, but the vast majority do not. Instead, they connect students and teachers via polls, video, chat, text and good old-fashioned phone calls. The Virtual Virginia program focuses on offering Advanced Placement classes to every student in the state, bringing college-level courses to rural districts and inner-city Richmond, where high-level instruction is difficult to get. Rocketship Education, in San Jose, Calif., brings at-risk elementary students together in a safe, cheap, modular space along with a small staff and hands their studies over to online curriculum for part of each day.

Online education has already become a boon for kids with special needs, the students least served by the traditional system. Education entrepreneur Tom Vander Ark launched Internet Academy, the first online K-12 establishment, in 1995 in part to serve kids with unorthodox education requirements, from serious athletes to children with health problems or learning disabilities.

One of the most successful areas of online education so far is helping kids who have fallen off the educational grid. Companies such as AdvancePath Academics scoop up students classified as unrecoverable by traditional schools and help them complete their education. Some dropout-recovery programs can be found in shopping malls and gyms.

Online education is no silver bullet for Missouri’s educational problems because there is no such thing. Each student is different, and although the traditional models may work well for most (a point I think is debatable), others may experience far more success in a more structured online program that still allows students to move at their own pace. Others could benefit from more independent learning styles like Montessori schools. All these options have their places, and we will be most successful when we allow parents and students find the pedagogical methods that work best for them instead of trying to force hundreds of thousands of individuals into the same boxes.

Sarah Brodsky has written about online schooling several times, and Caitlin Hartsell has also blogged about the issue.

This is an extremely interesting (and relatively short) video, made by PBS’s Frontline and NPR’s Planet Money, about the private buses in Haiti called “tap-taps.” The buses shuttle residents of Port au Prince around the city for just a few pennies per trip, which is necessary because most Haitians make less than $2 a day. The buses are extremely competitive and completely unregulated, so the owners of the buses have devised a method of signaling which buses are well-maintained and staffed by good drivers, and which aren’t: elaborate murals painted on the sides of the buses. If an owner is not willing to stringently maintain the outside of the bus, chances are the internal workings and driver leave something to be desired as well.

If post-earthquake Port au Prince can operate a cheap and efficient system of mass transportation, it stands to reason that much richer American cities like Saint Louis can, as well. There are, of course, many differences between the markets for mass transportation in Saint Louis and Port au Prince. Only 3 percent of Haitians own cars, and Port au Prince has more than 73,000 people per square mile compared to fewer than 6,000 per square mile in Saint Louis city, so there is much higher demand for mass transportation in Port au Prince than in Saint Louis. Still, there are clearly numerous people in the area that use some form of mass transportation, so private buses are at least a possibility … or they would be if they weren’t essentially outlawed in order to give Metro a mass transportation monopoly.

We need not eliminate Metro to find out whether a competitive system can replace the current monopoly. If Bi-State simply allowed private bus lines to compete, and the cities and counties in the area loosened the regulations on jitneys and taxis, we could very well see many cheaper and more efficient transportation alternatives emerge. Metro would still have an unfair advantage because of its public subsidy, but we could decrease that subsidy and use the savings to instead institute mass transportation vouchers for people below a certain income level. These people could then use the vouchers to ride the transportation system of their choosing.

It’s possible that the public transportation system would still outperform the private sector, and the devil is always in the details, but economic theory and massive amounts of historical experience show that monopolies are inefficient and charge high prices while competition improves products and lowers prices. We should not expect mass transportation to be any different; the burden of proof should be on those who defend the monopoly system. If private mass transportation can operate in Port au Prince, where per-capita income is less than 1/35 of the level in the United States, it’s at least worth trying here.

As you may or may not know, America’s only privately owned and operated commercial airport is located in Branson. It opened right around a year ago, and from what I can tell everything seems to be going well. The Springfield Business Journal has a write-up on the expansion of flight at  Branson airport, and it also made Robert Poole’s recent Reason Foundation newsletter on airport issues.

Kansas City has considered this idea, and it would be wise for St. Louis to consider it as well. The idea that only the government can operate our airports may be deeply imbedded in public opinion, but private operators could certainly undertake airport operations if given the opportunity. Hopefully (and apparently), Branson will show us the way.

The U.S. Postal Service doesn’t want to deliver mail on Saturday anymore. Facing a large budget gap, the USPS is lobbying Congress to allow the agency to deliver mail only five days per week, a cost-cutting measure it has advanced for more than a year.

As I said back in August, the Postal Service’s decline seems to be inevitable. USPS is subsidized not by tax dollars but by regulatory capture: The Private Express Statutes limit private mail carriers from delivering mail to mailboxes and from charging less than $3 to deliver a letter.

Luckily for the USPS, it doesn’t have to compete in a free market, where its work schedule would be drastically insufficient to compete successfully with others. UPS and FedEx don’t have the same regulatory luxury, and consequently have some locations that are open 24 hours a day and on weekends, because that is what customers want. Private delivery companies also price shipments based on distance traveled, which makes more sense than the flat rate that the USPS levies for first-class letters. Mailing a letter to one’s landlord in the next town over has a lower marginal cost for a postal service than mailing a letter to a cousin across the country, but first-class USPS prices don’t reflect that.

Unlike private delivery services, the USPS does not face direct competitive pressure, and so has found it difficult to adjust to changing technology and market conditions. This has left the agency well past its prime, if that prime ever really existed. James Bovard pointed out in a review of USPS history that government-provided postal services were originally conceived as revenue generators, and that regulators had to actively stamp out competitors who were providing more reliable, trustworthy services at lower prices:

The early colonists inherited the tradition of government postal monopoly from Britain. In sixteenth-century England, the Tudor monarch outlawed private post in order to hinder communication between potentially rebellious subjects. Later, the monopoly was justified as a revenue raiser for the Crown. But even 270 years ago, private carriers were breaking the law and providing the public with better service than the government:

In 1709, Charles Povey used bell ringers to collect letters, which he delivered anywhere in London for a halfpenny. The Post Office prosecuted Povey, who was convicted and fined, and then it adopted his system for the government service.[2]

Since 1709, not much has changed in how governments run their postal monopolies.

In 1789 the Constitution granted the federal government the right to set up a post office, but it did not prohibit competition from private services. However, the first postal act, in 1792, did effectively outlaw private competition.

The first postage rates were extremely high, as Congress tried to force easterners to subsidize the more expensive service to outlying settlements on the western frontier. As the Postal Service’s official history notes, “Until 1851, the cost of sending a single sheet letter 40 miles was either 6› or 8›. When the letter traveled over 400 miles, it cost 25›. These prices doubled, tripled, or quadrupled with each additional sheet.”[3] In 1843, “it cost 18 1/2› to send a letter from New York City to Troy, New York, but only 12 1/2› to send a barrel of flour the same distance.”[4] The government charged 25› to deliver a letter from Philadelphia to New York.

Henry Wells (later of Wells-Fargo fame) entered the market, charged 6› a letter, and delivered faster.[5] In the Boston area alone, over a hundred private express companies carried the mail. Private companies delivered letters directly to addressees’ homes, while the government still required people to pick up their mail at the nearest post office.

As private business flourished, government postal revenues declined. The postmaster general admitted in 1843 that many people thought the government’s monopoly was “odious,” but insisted that it had to be preserved for the good of the country.[6] In 1845, Congress tightened the laws prohibiting competition and increased the penalties for violators. In 1851, Congress lowered postal rates and began providing a direct subsidy for postal operations.

An 1844 competitor, the American Letter Mail Company, was founded and operated by notable proto-libertarian Lysander Spooner. This competition was so effective and efficient that “The end result was that in 1851 Congress again had to lower the postal rates to a uniform 3 cents” from previous prices “of 18 3/4 cents or 25 cents.” Lawmakers simultaneously put Spooner out of business for good by strengthening the USPS monopoly laws.

The notion that government postal services may have been necessary to provide a crucial public service in the absence of trustworthy private alternatives doesn’t stand up to the historical record, and is even less justifiable in today’s electronic information age, in which private companies are the primary means by which most people send and receive sensitive communication.

Missourians — and the United States in general — would greatly benefit if the USPS lost its monopoly protection so that costs could be reduced through the efficiency of competitive pressure, rather than through elimination of services.

Charles Jaco just finished taping an interview with Show-Me Institute research assistant John Payne, about the Metro mass transit system in the St. Louis area. At least some portion of it is slated to appear in tonight’s FOX 2 news broadcast at 10:00. Be sure to tune in. [UPDATE: The video is now online.]

For more information about St. Louis transit, read Payne’s recent op-ed about MetroLink, which also ran on the Riverfront Times blog and in the St. Louis Business Journal. His commentary attracted some attention from a Metro board member, who responded on our blog, followed by a short rejoinder by Payne.

The Show-Me Institute ran a trio of pieces in October 2008 about transit funding in St. Louis, considering the problem from different angles. We’ve also been fortunate enough to publish a few pieces analyzing Kansas City light rail plans, by transit scholar Randal O’Toole and policy analyst David Stokes. Although these latter pieces considered the issue specifically as it relates to the Kansas City area, many of the broad observations about light rail costs and efficiency apply just as well to St. Louis.

The Show-Me Institute recently released an op-ed by research assistant John Payne titled, “Adding New MetroLink Lines Too Costly, Inefficient.” The piece appeared on the Riverfront Times blog on Feb. 15, along with comment from the paper, and ran in the St. Louis Business Journal on Feb. 19.

We recently received a thoughtful response from Hugh Scott, III, who has been a member of Metro’s Board of Commissioners for nearly five years, commenting on Payne’s op-ed. In the interest of furthering dialogue about important issues like public transit funding, his entire letter appears unedited below:

As even noted anti-tax advocate Glenn Beck acknowledged on his show yesterday, (2/22/10) some taxes are necessary. In the case of public transit, I would maintain that taxes supporting these systems inure to the economic benefit of metropolitan areas. Public transit enables people to commute to jobs and transit centers provide a critical mass of customers for businesses located near them. Not only does Metro employ 2000 St. Louisans but it assists countless thousands of workers to get to jobs in healthcare, retail, manufacturing and distribution. For many of these commuters, no public transit would mean no job.

Show-Me Research Assistant John Payne misses the mark in his article, “Adding New MetroLink Lines Too Costly, Inefficient.” While he tacitly agrees that public transit is important for our community, he advocates opposition to the proposed referendum for a ½ cent sales tax on the April ballot. The focus of his criticism is on the part of the proposal which suggests some the addition of light rail corridors. Extending light rail is however, not the major thrust of the proposal.

Throughout its history, BiState (Metro) has not had sufficient dedicated taxes to support its operations. It has relied on the beneficence of the City of St. Louis and the adjoining Missouri and Illinois counties, the States of Missouri and Illinois, and the Federal government to provide operating subsidies. Some of these entities have been generous over the years. Others have been quite parsimonious. In all cases, awarding of funds is arbitrary and Metro must beg for money from its stakeholders on an annual basis. If Metro is expected to operate in a business-like manner, it must have a stable reliable source of revenue. This, in fact, is what the April 6 ballot proposal is really all about.

When the last tax measure failed in a very close vote in November of 2008, Metro was forced to cut 40% of its bus and train service and 400 staff members. This resulted in the loss of at least 5000 jobs in our community. While half of these cuts were quickly restored due to the receipt of emergency funds from St. Clair County and the State of Missouri, deeper cuts will be necessary if the proposed tax is not approved by the voters. With the approval of the new tax, pre-2009 service will be restored and the current system will be able to operate on a stable financial footing for the first time in memory.

Other short term (1-5 year) priorities include implementation of a bus rapid transit system similar to the “higher speed bus routes” advocated by Payne, adding amenities such as a “smart card” fare system, and beginning planning for more light rail. These programs will be implemented only after the pre 2009 service is in place and only when funds are available. The five year plan does not call for construction of new light rail corridors.

Putting a light rail extension in service will take a minimum of ten years. It will also require large amounts of federal funds in order to build. Metro does not believe that the community should “foot the bill” for any Metrolink expansions without the majority of the funds being provided by the federal government. Instead Metro is asking for funds to begin the planning process so that when federal funds become available for light rail expansion, St. Louis will be in line. It only makes good sense to spend some money on planning. Otherwise, federal money for light rail will go to other cities and St. Louis will be left out.

Payne tries to make a case for increased bus service as opposed to more light rail. He asserts that buses are a better form of transit because they are cheaper and provide more flexible route opportunities. This was precisely the argument made by former BiState CEO, Col. Rudolph Smyser in the 1960’s when he ordered the shutdown of the last of the street car lines in St. Louis.

While it may be argued that buses are superior to light rail from an economic standpoint, flexibility of routes is precisely the problem with buses. Businesses which might prosper by being near a transit stop do not locate near bus stops because a bus stop might easily move to another street or corner. Many non-transit dependent customers will not ride buses because it is often difficult to know where the bus is going. With streetcars, subways and light rail, one need only look at a map showing landmarks or look down the track to know where the car is headed.

In some ways, Metro has successfully mitigated the confusion caused by changing bus routes by creating a hub and spoke system integrating buses and light rail. Thus a person who boards a bus that says “Clayton Station” can expect to travel to the Clayton Metrolink station. Similarly, a passenger who boards our most heavily traveled bus route, Grand Avenue, can be confident the bus will travel north or south on Grand without deviating. In a sense, our increased market share in buses may be in part attributed to our lack of flexibility with routes not the reverse.

In conclusion, Metro has built a world class transit system which integrates bus and rail service quite successfully. While our population density might be low for light rail travel our market share compared to peer group cities is very high. Light rail continues to gain popularity from non-transit dependent riders and nationally, our market share is in the top three cities in our ten city peer group. The April ballot proposal is about preserving this fine system. Our first priority must be to stabilize the existing system. Future planning is always important but it comes further down the list of priorities.

A recurring concern within our national health care debate has been about insurance, and how to make it work for our friends that don’t want, or cannot afford, to participate. This led some of us to examine how that problem is solved elsewhere. One approach is seen in Switzerland. As many are aware, Switzerland is a country with a history of high-quality health care. It has 7.2 million people living in 26 cantons (states). The 1994 Swiss health insurance law requires everyone staying in that country for 90 days or more to purchase a basic health insurance policy.

Before 1994, health care insurance was not compulsory in Switzerland and premiums were risk-related. That older system was similar to what we have now in the United States. At that time, most people with jobs had some form of private health care insurance supplied by an employer. Members of the military and full-time government employees had health care insurance through a government-owned company. People outside of those categories were able to purchase insurance, and the rates varied over a wide range. A publicly discussed concern at that time was the fact that certain individuals, classed as high-risk because of chronic disease and age, found health insurance unaffordable. In response to the public outcry about that, the Swiss Federal Health Insurance Act was designed to help all the people without insurance and to promote competition between health insurers.

Now there are 91 Swiss health insurance companies that offer these compulsory policies through their “not-for-profit” divisions. Market forces are such that some companies have chosen to limit the cantons where they sell insurance. In each canton, as a result, there are about 50 companies competing in the health care insurance marketplace. The compulsory policy premiums are community-based, so everyone living within the same mail code is charged an identical fee, without regard to any previous medical problems. The competing insurers differentiate themselves and make their profits by selling extra benefits through complementary policies managed by the for-profit divisions of those companies. The extra benefits available through those insurers include things like dental care programs, hotel-quality single bed hospital rooms, “in-your-home” child care when a parent is ill, spa/gym memberships, etc.

The Swiss health plan purchasing process is designed to make consumers aware of their personal ownership of the insurance policies. A nationwide website guides people to the most appropriate plan to match their personal needs. Each policy must be bought by an individual, even though the government may reimburse a purchaser for part of the cost. The policy belongs to the purchaser, and goes with the purchaser when moving to a new job, because it is not a job benefit.

People that are indigent have health care insurance, too. In each canton, a “means test” determines how much the canton will reimburse an indigent resident, but that person gets to pick their own preferred private insurer just like everyone else. Then, the cantonal government issues a voucher that the recipient transfers to the insurance company. In 2001, the cantonal governments paid about 19 percent of the health care policy premiums.

Regulations there require a given insurer to charge the same fee to each purchaser for the basic policy, without regard to any preexisting health conditions. This results in a universalized program that provides for the treatment of illnesses, accidents, and pregnancies, and which includes the costs of all medical treatments, hospitalizations, and medications. However, at every interaction with the health care system, an individual must contribute something out-of-pocket. This is intended to make the purchaser acutely aware of the medical costs. These payments are not just nominal amounts of money, as seen in health insurance co-pays in this country; it is the full price of the interaction. In a typical Swiss policy, an individual pays a deductible, and the initial cost of all treatment and medications are paid out-of-pocket. Then, after the event, the patient is reimbursed by the insurer for almost 90 percent of the amount paid. However, to avoid any sudden economic calamities, the compulsory policies have a pre-set maximum out-of-pocket level, and all expenses beyond that are paid directly by the insurer.

The Swiss compulsory universal health insurance program was developed through a series of referendum elections in each canton. Significant improvement in health care access has been reported, because the system is intended to allow everyone to see a physician whenever necessary. Perhaps as a result, about five years ago Swiss life expectancy at birth was 79 years for men and 84 years for women. In comparison, U.S. life expectancy is just this year beginning to approach 78, and in Missouri, during the most recent year with accurate data, it was only 76.4.

Such care is not inexpensive, but it costs less than what we pay here. Implementation of the Swiss plan resulted in spending on health care representing only 11.5 percent of that country’s GDP, at a time when the health care spending in the United States approached 15.3 percent of our GDP. Although our country is not the same as theirs, maybe there is something we can learn from them.

To learn more about the Swiss and other health care systems, please see “The Grass is Not Always Greener: A Look at National Health Care Systems Around the World,” by Michael Tanner of the Cato Institute.

The St. Louis Post-Dispatch is reporting on the budget troubles in Florissant, the largest city in St. Louis County. Not surprisingly, the police officers there are objecting to a proposed 3-percent pay cut. Now, I don’t ordinarily sympathize much with government employees, but the ones in uniforms generally deserve a little more compensation than some politically hired clerk. Even more importantly, there is a very reasonable solution, at least for the short term, that is being proposed by one of the councilmembers.

He says they should close the municipal golf course. I agree, but first they should try to sell it.

Podleski ran unsuccessfully against Lowery in April 2007 and continues to be the chief critic of the city budget. After the Monday’s meeting, he suggested the city close its golf course. The budget predicts the golf course would lose nearly $164,000 in the next fiscal year, he noted. When the city is cutting pay, “can it afford a golf course?” he asked.

No, it can’t afford a golf course, but privatization is better than closure. Even if the course only fetches a reduced amount in this economy, at least it then goes back onto the tax rolls as private property. This really is a no-brainer for Florissant. Other think tanks have done a lot of work on the issue of government golf privatization, especially Reason. I can’t think of any item that is less necessary for the government to provide than a golf course. A budget crisis might make the issue more immediate, but even if it were flush with cash, Florissant should privatize its golf course.

During the drive home from work yesterday, I listened to a discussion of high-speed rail on NPR’s “Marketplace.” Mitchell Hartman discussed a new report from the Pew Research Center reminding us that high-speed rail depends on federal assistance. Pew calculated that Amtrak receives a $32 subsidy per ticket, on average, from taxpayers. Amtrak, however, estimates that the size of the subsidy is $8. From the show’s transcript:

The difference is Pew includes all the costs of running a railroad, like depreciation — that’s wear-and-tear on tracks and trains — and overhead, like the legal and HR departments. Taxpayers pick up those costs too. Amtrak got $1.3 billion in funding last year.

The program even quoted Randall O’Toole, a Cato Institute senior fellow and self-described “Antiplanner”:

Best thing we can do for mass transportation would be to privatize it, let the private operators respond to the market, and then we’ll have a more efficient system that might be attractive to more people.

O’Toole has written several policy studies for the Show-Me Institute on the subject of high speed rail and its free-market alternatives. His most recent, “Why Missouri Taxpayers Should Not Build High-Speed Rail,” was published late last month.

High-speed rail is relevant to Missouri, particularly as officials consider upgrading the tracks from Saint Louis to Kansas City to accommodate high-speed trains. As David Stokes testified before the Joint Committee on Transportation Oversight earlier this month:

For Missouri to build true high-speed rail — the type that American tourists ride in Europe at 150 mph — would cost Missouri taxpayers billions more, all to serve the small percentage of the population that uses passenger rail.