From an article by the Associated Press (hat tip to Audrey Spalding):

Gov. Jay Nixon, who signed the legislation, has traveled the state promoting job expansions in other industries. He expressed little concern Friday about the potential loss of jobs for strippers and others in the adult entertainment industry.

“I do not believe that the economy of the future of my state will be built on that industry,” Nixon said.

If a person disapproves of the exotic services industry, then he or she may choose not to patronize those businesses. It is quite another thing, however, to prevent other individuals from engaging in voluntary market transactions.

The problem in Missouri is that the state government is propping up industries that are failing, and simultaneously squashing industries that are successful without subsidy in the private sector. Individuals and businesses should not be given special advantages over others — even if one economic activity (e.g., exotic dancing) is viewed as less glamorous or moral than another (e.g., filmmaking or computer services). Restrictions such as this one create inequality because they force unfavored businesses to compete at a competitive disadvantage in the marketplace. This invites corruption as a consequence, because the restrictions incite individuals and businesses to petition the government for special treatment.

If the state government in Missouri were serious about promoting economic development, it would stop attempting to pick and choose the economic activities that occur within its borders. This strategy didn’t work for the Soviet Union, and it won’t work for Missouri, either.

In The Economist, Will Wilkinson, a Missourian by birth, recently argued that the financial crisis was caused by the government’s attempt to reduce wealth inequality through homeownership (bolded emphasis mine):

If you ask me, the ultimate culprit in the financial crisis was the American cult of homeownership. There are many ways to help poorer Americans accumulate wealth, such as channeling payroll taxes into personal retirement accounts. But we don’t do that. Instead, because we consider it a humiliating indignity not to have a room or ten of our own, we subsidise home-buying six ways to Sunday and tell banks they won’t have to suffer the downside of loans offered to bad credit risks. I think it’s safe to say that this hasn’t turned out to be the best scheme for helping poorer Americans into the ownership class.

This commentary is consistent with my previous discussion of the negative policy implications of encouraging homeownership in Missouri, such as promoting inflated housing prices.

Unfortunately, the emphasis on homeownership persists in Missouri public policy. There have been recent calls from politicians in Missouri to make the federal homeowner tax credit permanent. From the Think Progress blog (hat tip to Audrey Spalding):

[T]he home buyer’s tax credit was enacted as part of the stimulus and then extended a couple of times, and by all accounts it was a complete and total boondoggle, costing taxpayers billions to subsidize activity that was going to happen anyway. Even the credit’s staunchest supporters have said that its “sunsetting is an incentive to drive people to the marketplace” and poo-pooed the notion of extending it forever, which clearly turns it into a permanent subsidy to the real estate industry.

Additionally, just as the government shouldn’t favor certain businesses and industries over others, the role of government should not be to favor or subsidize one lifestyle over another — like homeownership over renting, or rural lifestyles over urban ones. Despite its infinite wisdom, the government does not know the mix of goods and services that an individual or family should consume in order to maximize their level of utility. Missourians would be better off if the government stayed out of the housing market entirely.

I attended my first Land Clearance for Redevelopment Authority (LCRA) board meeting in Saint Louis yesterday. I couldn’t help but notice stark similarities and differences between the LCRA and the Land Reutilization Authority (LRA) board.

One stark difference is the amount of information that each board expects from the petitioners. When presenting before the LRA board, an individual has to demonstrate financial ability and provide the written endorsement of an alderperson, as contributors to Show-Me Daily have communicated previously. When presenting before the LCRA board, apparently, the presenter provides neither. He only has to cite the dollar amount that the developer is spending on the project, as well as the projected number of jobs that will be created.

As a related point of contrast, committee members of the LRA board pose probing questions to petitioners, whereas those of the LCRA members ask few, if any.

As a point of similarity, both the LRA and the LCRA promote policies that remove properties from the tax base and therefore reduce the amount of property tax revenue received by the city. Each has a different way to accomplish this, however — the LRA board denies proposals from individuals to buy properties that are withheld by the city, and the LCRA board approves proposals from private corporate developers to abate property taxes.

I encourage you to compare the number of suits in the first photo below to the number in the second photo.

To me, it begs the following question: Whom is Saint Louis City government serving: taxpaying individuals or corporate developers?

Land Clearance for Redevelopment Authority (LCRA) Meeting, August 24, 2010

Photo Credit: Thomas Duda

Land Reutilization Authority (LRA) Meeting, June 30, 2010

Photo Credit: Thomas Duda

There has been some great talk in the blogosphere about occupational licensing over the past week. Matthew Yglesias began the discussion, and Conor Friedersdorf, guest hosting at Andrew Sullivan’s Daily Dish, has joined in. I may be a few days late to the discussion, but I can ascribe that to two words: State Fair.

While some of the larger national think tanks regularly take on this issue, we here at the Show-Me Institute cover occupational licensing more than most other state-based groups. It is great to see people engaged in the conversation, and I hope they enjoy getting punched in the face as much as I enjoy throwing the punches.

There really isn’t a more accurate example of democratic failure than occupational licensing. It is public choice economics at its most concise. A small group of people stand to gain financially from a very narrow policy action, and passionately advocate for it. A large group of people stand to be harmed very marginally from that same issue and so don’t care about it enough to spend time and effort becoming informed and fighting back. Politicians measure the gains for them to be made from satisfying the small group (campaign contributions, union support, etc.) versus the fallout from harming the larger group (there’s generally no fallout), and — voilà! — an entire industry becomes regulated with a few votes and the stroke of a pen, while the only person who shows up to complain about it is some jerk like me. You grandfather in the existing practitioners (or exclude only a small portion of them), and put the screws to future practitioners and the general public, neither of whom realizes at the time that anything is going on.

The purpose of licensing is always the economic gain of those practicing the occupation to be licensed (the regulatory push never comes from the outside — always the inside), but advocates are usually smart enough not to say that. Instead, the arguments actually advanced in favor of licensing are twofold: safety and search costs. The safety argument might be legitimate for a few professions (i.e., drug testing for school bus drivers) but very quickly devolves into a love of the nanny state — unless you really believe that the threat of a bad haircut actually involves your “safety.”

The search costs argument was always wildly overstated. It assumes that we need the state to license heart surgeons, for instance, so you don’t have to check references on your own while you are having a heart attack. (This is sort of a bad example, given that I think doctors and nurses may be one field in which the benefits of licensing outweigh the costs, but stick with me.) This general argument fails in that the employer is unlikely to have hired an unqualified person in the first place (the hospital probably confirmed that the doctor graduated from medical school), and how often do people really hire someone cold? You get references for plumbers, electricians, pediatricians, etc., from family, neighbors, or friends who have used those people before, and who are willing to recommend them. License or no license, reputation and referrals are what keep people in business, or drive them out of it.

The scam artists who successfully operate in the underground economy and show up at your house to do the roofing right after the straight-line wind blows the shingles off won’t be stopped by licensing laws. Even if I thought licensing laws protected consumers by limiting scams, I still don’t favor giving the government more power over our economic lives and taking the responsibility away from individuals to make better choices by checking references, calling the Better Business Bureau, etc. Others might disagree, but the evidence that licensing improves quality and protects the public is lacking.

I could go on, but this post is long enough. It is great to see people participating in this debate. Now, as they told me during my very brief boxing career, keep your hands up. …

Last month, the Missouri Court of Appeals ruled that a St. Louis man cannot be compelled to purchase trash hauling service after he was able to demonstrate that he is a very diligent recycler and does not generate any trash. The Post-Dispatch had a story about the ruling yesterday. The trash plan for unincorporated St. Louis County was incredibly controversial about three years ago. It, along with ticket scalping, was one of the first major issues we debated and covered closely on this blog.

This is a very interesting ruling. I’m aware this ruling won’t actually establish a precedent for courts hearing lawsuits about the federal health care mandate (they’re in different jurisdictions, etc.), but it is still intriguing to note that one court has decided that the government cannot compel someone to purchase something for the public good.

Prior to the county’s trash plan, the law specified that you had to have trash service, but it was left completely up to the individual or neighborhood to acquire it. So, the man who won the lawsuit was probably technically violating the old ordinance for a long time, but nobody noticed or cared because he didn’t produce trash. Now, the hauler that exclusively covers his area wants his money. Thankfully, the court ruled in favor of the individual and against the county.

I think nuisance laws against allowing trash to accumulate on your property are sufficient legal powers for the county to enforce basic health codes against trash. If this man does not generate any trash, he should not have to pay for trash service. I agree with the appeals court ruling, and I wonder if future judges will think the same way about other goods and services. Replace “man who does not generate any trash” with “healthy 25-year-old person who does not need or want any health care,” and it will be interesting to see how the relevant cases are ultimately decided.

Hiking tax rates on cigarettes and alcohol would negatively affect businesses in Missouri, so the fact that the editorial board at the St. Louis Business Journal is promoting this paternalist policy is perplexing.

Raising the tax rates on “sin” products would be particularly harmful to convenience and grocery stores close to the state border, because they would lose business to states that assess lower tax rates relative to Missouri. As a similar consequence of this policy, fewer people and businesses would locate to Missouri because the costs of living and doing business would be higher here. By keeping its tax rate low relative to other states, Missouri can help ensure that its residents will shop within the state, and it can incite individuals located near the border to shop here, as well. As a consequence, Missouri can generate a higher amount of revenue.

Missouri residents and businesses would be better off if the state government pursued alternative strategies to address the budget deficit than increasing selective sales taxes on cigarettes and alcoholic beverages (or on fatty foods, soda, and tanning). If it created a low-tax environment instead, Missouri would attract more businesses and individuals to the state, and they would contribute additional tax revenue. Alternatively, if the state government stopped carving out large sections of the tax base and subsidizing the favored few, it would have fewer expenditures to cover.

As we’ve discussed before on Show-Me Daily, Missouri residents enjoy lower tax rates on “sin” products (e.g., beer, wine, spirits, cigarettes, and gasoline) than residents in neighboring states. In an editorial published on Friday, the St. Louis Business Journal editorial board argued that Missouri should increase its tax rates on these products as a means to cover its $600 million budget deficit.

Although I disagree with many of the points made in the editorial, and intend to address them in a future blog post, I find the following to be particularly egregious (emphasis mine):

This is more than a matter of budget balancing: It’s sound public policy. Higher taxes are meant to be a deterrent to behaviors that harm individuals and society as a whole.

Laws and the judicial system — not higher taxes — exist to deter individuals from harming others and society as whole. If a person causes physical harm to another person or property, then he or she gets sent to jail. If a person happens to view a behavior (i.e., smoking, consuming alcohol) as destructive, then he or she can choose not to engage in this behavior and perhaps persuade others to abstain also.

Every activity is associated with some level of risk, and individuals must weigh the costs and benefits of these activities. If I chose to engage in an activity, I accept the risk as a free adult. If I drive my car to work, I could crash into another car. If I walk instead, I could fall through an open manhole and break my leg. If I frequent the beach, I may get skin cancer. If I eat fatty food, I could develop heart disease.

As Peter McWilliams argues in Ain’t Nobody’s Business If You Do (which we read recently in the Show-Me Institute’s book club), it’s not the role of the government to protect individuals from risk or negative outcomes. He argues:

As we take risks, bad things will occasionally happen—that’s why they’re called risks. At that point, we must learn to shrug and say, “That’s life,” not, “Why isn’t there a law against this? Why isn’t the government protecting me from every possible negative occurrence I might get myself into?” When we, as adults, consent to do something—unless we are deceived—we become responsible for the outcome.

On Friday, August 20, the Show-Me Institute, along with Liberty on Tour and the American Civil Liberties Union (ACLU), will host an informal panel discussion about recording the police. Recently, individuals in Maryland, Illinois, and Massachusetts have been arrested for filming either their or others’ arrests. In Maryland, police raided a motorcyclist’s home after he had posted video footage of a traffic stop on YouTube. Anthony Graber, the motorcyclist, faces up to 16 years if convicted of violating Maryland’s wiretap laws. The Illinois legislature has explicitly made it illegal to record an on-duty police officer without his or her permission. A man arrested for filming an arrest in Boston has recently filed suit against the city.

These arrests raise interesting questions of privacy expectations, free speech, differing state laws, and, as Reason Senior Editor Radley Balko has noted, your right to petition the government. This panel discussion is our attempt to explore the issues of liberty at stake, as well as provide the opportunity for anyone who is interested to meet the panelists and to ask questions.

The discussion will begin at 6:00 p.m. on Friday, August 20, at the Show-Me Institute’s office at 4512 W. Pine Blvd in the Central West End of Saint Louis. Please RSVP either by email to info@showmeinstitute.org, by phone to (314) 454-0647, or by commenting on this blog entry.

The event is free and snacks will be provided. However, because Liberty on Tour is traveling across the country, we suggest a $5 to $10 donation to help pay for the group’s travel costs.

Our star-studded panel includes:

• Adam Mueller and Pete Eyre of Liberty on Tour, a project to tour 13 cities in 13 weeks to talk about the principles of voluntaryism. Adam is also a founder of Cop Block, an organization devoted to watchdogging police officers who break the law. Pete Eyre currently works for the Future of Freedom Foundation, which advocates for individual liberty, free markets, private property rights, and limited government. Both Adam and Pete were part of the Motorhome Diaries project.
• Redditt Hudson, of the ACLU of Eastern Missouri. Redditt is a former Saint Louis police officer, and part of his work at the ACLU is to lead workshops that educate people about their rights under the law, including practical advice about how to interact with the police.
• John Payne, a research assistant at the Show-Me Institute, will be moderating the discussion. John has argued for greater transparency and recording of SWAT raids in Missouri, and follows issues of civil asset forfeiture closely.

If you have the time, please drop by, and don’t hesitate to bring questions! The panelists will speak briefly about their perspectives on recording the police, and then we will open up the discussion for questions from the general public. After about an hour of discussion, we will move the group to Sasha’s on Shaw for dinner and drinks.

If you can’t make it, you can send questions you’d like asked to info@showmeinstitute.org, tweet them to @showmeinstitute, or post questions on the event’s Facebook wall. Finally, we will film the discussion and post it online for those who cannot attend.

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.

Several weeks ago in a post about adult establishments, an interesting discussion about liquor licenses began in the comment section. (And I say “began”, because they sort of got out of control.) Anyway, while going through the news today, multiple examples of liquor license issues struck me as a good opportunity for a blog post. I say all this as someone who basically likes our liquor laws in Missouri. By most measures (taxes, wine import restrictions, market quotas, time limits, etc.) our liquor laws are pretty reasonable compared to other states. There are exceptions to this, but because eliminating liquor laws entirely won’t happen, the next best option is having rational, limited laws that accomplish a few goals (preventing minors from drinking), while allowing adults easy access to a very popular item: alcohol.

But anytime you give the government power to license something, it invites the opportunity for abuse. In St. John, a suburb of St. Louis, a restaurant entrepreneur will have to wait a few more weeks to know whether he can sell alcohol at his restaurant, because one councilmember does not want him to have a liquor license. Now, this may not be that big of a deal, because it appears he will get the license at the next meeting, but it is still a delay in his business plans.

A worse abuse of power was also featured in a Post-Dispatch article yesterday: A liquor license inspector has been charged with bribery. He attempted to force a prospective bar owner to pay him off and give him a job in order for the owner to get the license. Thankfully, the bar owner was able to obtain the license anyway (evidence that it is not all that hard to get a liquor license here), but this is further evidence of the inevitable abuses that come from government control.

I pointed out a moment ago that it is not all that hard to get a liquor license here. Well, that’s not true if you live in the city of St. Louis’ 20th Ward, where the local alderman decided (several years ago) that he does not want any more bars or liquor stores. If you have to have a liquor license process (and we’ll realistically have one whether we like it or not), it needs to be a public, evenhanded process, not reliant on whether or not one elected official approves it.

There are abuses in Kansas City, too. The Pitch has a story on the liquor licenses being suspended in restaurants that have been caught allowing smoking. This is terrible, and most aptly demonstrates the title of this post. If you have a law banning smoking in public establishments, the punishment should be a fine, not the suspension of an unrelated item. At the bottom of the Pitch article, you see examples of suspending liquor licenses for acts that at least relate to alcohol (one of which is actually important enough to warrant some type of punishment).

I won’t get into the dispute over liquor licenses and violence at the clubs in downtown St. Louis. This post is long enough. One good thing about our liquor laws is Missouri is that we generally (with exceptions like the 20th Ward) don’t have numerical restrictions on total licenses in an area, which is usually the worst part of any licensing system. But any system can and will be abused. The most important change we need to liquor laws in Missouri is to eliminate the ability for one individual to block a potential license all on their own — be it an inspector or an elected official. Requiring that all applicants get a vote of the full legislative body could be a good start.

I bristle when public policy advocates contend that persons who oppose a favored policy simply lack an understanding of “how well the program works.” Instead of wasting breath on patronizing dismissals of those who offer alternative perspectives, perhaps a policy advocate’s time would be best spent providing the public with valuable, unbiased information with which we can form our own opinions.

It is in this spirit that I present one of my works in progress from my summer here at the Show-Me Institute.

Backers of the 25-percent Missouri Historic Preservation Tax Credit often cite the statistic that our state is “first in the nation” for “federal historic rehab tax credit projects,” so I thought that it could prove valuable to see exactly where said federal projects occurred.

Click here to view a draft map of Missouri rehabilitation projects that received the 20-percent Federal Historic Preservation Tax Credit. Data comes from a June 2010 information request to the National Park Service, and includes projects dating from 1996 to mid-June 2010.

I see no need to editorialize about the map at this stage in my research, but I think that those who proudly support historic tax credit programs would do well by the public to explain why spending millions on certain construction activities is an appropriate use of public funds.

However, given that “historic preservation” is a catchall for education, place-making, job creation, and aesthetics, defining the precise function of public expenditures made in the name of preservation is an impossible task. Our positions as taxpayers, historians, developers, contractors, homeowners, tenants, policymakers, and tourists necessarily inform our differing and potentially divergent perceptions of these policies and expenditures. Our propensity toward repeated engagement in the same argument about the relative worth of a tax dollar spent on historic preservation as opposed to one spent on public education, while refusing to acknowledge some basic facts about the program in question, often leaves us blowing hot air.

At present in Missouri, recipients of historic preservation tax credits need not acknowledge the receipt of public funds in any format on the project site. In fact, recipients of historic preservation tax credits need not even acknowledge the historic significance of their taxpayer-supported property on site, such as in the form of a plaque. If we are to have a truly informed debate about the worth of the historic preservation tax credit, I would hope that we can all agree that disclosure is a good place to start.

Without good information, our state will never make good policy.

In my mind, the verdict is still out on whether the historic preservation tax credit really does what its backers aver.

One legislative sponsor of legislation to cap interest rates on Missouri’s payday loans, responded to my op-ed on the subject in this Sunday’s edition of the Joplin Globe. The end of the response quotes a line from The Merchant of Venice about the devil’s ability to use scripture for his own purposes, as a way of criticizing my use of fairly basic statistics provided by the payday loan industry. I’m not entirely certain whether this is meant to imply that I am the devil, or that payday lenders are, but I find it oddly flattering. No one has ever written about me as though I possess superhuman powers.

Hyperbole aside, the piece does make some good points about the lack of transparency in the hearing. Only representatives of the industry were allowed to speak, and the chairman of the committee does own a payday lending business — a clear conflict of interest. Although I happen to agree with the industry in this instance, the political process should be an open one. In the long run, legislative stalling and one-sided presentations will not preserve a healthy democracy or the free market. (It is worth pointing out, however, that town hall meetings on the issue also presented only the opposing side of the debate. Admittedly, those were not official government hearings, but the principle remains the same.) An open market produces better outcomes than a monopoly, and I believe that rule applies just as much to ideas as to physical goods and services.

Finally, I think this phrase shows a misunderstanding of my argument: “Mr. Payne’s point that usury today is not as bad as it was in Shakespeare’s time provides little comfort to the working poor and to those trapped in a spiral of debt.” My point is that if payday lending is regulated out of existence, people who currently rely on those loans for short-term credit will be forced to seek out loan sharks every bit as brutal as Shylock, who will demand a pound of flesh from those who cannot pay up.

According to the United States Census Bureau’s American Community Survey, the city of Saint Louis has an estimated 21.5-percent residential vacancy rate. This rate compares unfavorably to the 12-percent rate for the nation as a whole and aligns closely with those found in Cleveland, Ohio, and Buffalo, N.Y. In raw numbers, this amounts to 38,743 empty housing units within the boundaries of Missouri’s second-largest city.

With vacancy pervasive throughout our community, St. Louisans may often logically conclude that said emptiness is the direct consequence of the stark reality that persons simply do not want to live here in the same numbers that they once did. In fact, it would be difficult to argue that losing nearly two-thirds of the city’s peak population would have a negligible impact on the appearance of the city’s landscape.

But does so much property necessarily remain vacant from a lack of market demand for single-family homes, larger yards, and new business locations, or could vacancy be the product of market distortion by a governmental agency?

At the urging of a colleague, I attended my first ever hearing of the St. Louis Land Reutilization Authority (LRA) on Wednesday morning, looking for an answer.

Within moments of its commencement, the meeting shattered every expectation that I had for a body with the following statutory mandate (emphasis and link added):

The land reutilization authority is hereby created to foster the public purpose of returning land which is in a nonrevenue generating nontax producing status, to effective utilization in order to provide housing, new industry, and jobs for the citizens of any city operating under the provisions of sections 92.700 to 92.920 and new tax revenues for said city.

Instead of operating in a manner consistent with its above-enumerated legislative intent, the LRA appeared to operate according to a morass of opaque cultural practices that stand divorced from any legislative language. Indeed, the insistence by the assembled commissioners that prospective buyers of tax-foreclosed properties have the express written support of the alderman representing the ward that is home to the vacant property struck me as patently absurd. (After all, the word “alderman” does not appear in Chapter 92 of the Revised Statutes of Missouri.) Five people attempted to purchase property from the LRA this month without a letter of support from their alderman. Of those five, four offers were rejected, because the LRA purportedly treats a lack of aldermanic support as a reason to reject a prospective buyer’s offer.

After witnessing Wednesday’s proceedings and perusing the many purchase offers on the LRA agenda, I can say with great certainty that much of the vacancy subject to the LRA’s jurisdiction in St. Louis city is not a consequence of a lack of private demand for property; rather, much of it derives from government legitimation and infringements on the free market.

Right now, our country is in the process of passing legislation that many see as badly needed reform in the financial industry. The reform comes as a reaction to the most recent banking crisis, which sent the world economy into a tailspin.

As we climb our way out of this recession, the last thing we need is monetary policies that would stagnate private capital flow. The second-to-last thing (but if anyone would like to convince me it should at the top of my list, I’d be willing to listen) we need is a rise in the costs of necessary consumer products. Financial products like savings and checking accounts exhibit relatively inelastic demand trends, which gives the producers of those products, the banks, better pricing power. If the proposed regulations are enacted, financial institutions across the nation will incur new costs. My bet is that at least a substantial proportion of those costs won’t come out of their profit margin — they will come out of our pockets.

A recent article in the St. Louis Beacon debates the pros and cons of the proposed regulations. In the article, Dr. Joseph Haslag, the Show-Me Institute’s chief economist and an economics professor at the University of Missouri–Columbia, points out that the proposed regulations miss the mark.

“It’s not the derivatives or the swaps or any of the other complicated financial contracts that are problems by themselves,” said Haslag, who holds the Kenneth Lay chair in economics at Mizzou. “They are mechanisms that parcel out risk. People see these as ways to make big gambles, and there are risks in the world. If you line up your gambles all in one direction, and the risks come out in a certain way, you can lose a lot of money.”

As people in the finance industry seek to maximize their profits, they will find ways around the new regulations. It may very well be the case that these regulations force bankers into even riskier behavior that is outside the scope of presently foreseeable action. The government has no way of knowing or policing the instruments that may be developed next. In fact, by mandating this type of regulatory environment they might very well cause a new variant of the type of behavior they were trying to quash.

As regulatory protocols are activated, the banks with the best chance to survive the rough waters are the the same banks that were implicated in the financial crisis in the first place. On the other hand, small community banks that keep capital localized will have a tough time staying afloat. This is all trouble for consumers.

Yesterday, the Wall Street Journal ran a piece titled “The End of Community Banking. From the article:

What does all this mean for our customers? Less credit will be available, costs will increase, and we will be less able to make loans to regular people who were creditworthy in the past. This is the perfect storm for the small retail banking customer.
[...]
Small community financial institutions care about the people in their communities. Unfortunately, the new financial regulatory reform bill will greatly inhibit our ability to help them.

In the free market, supply and demand intersect at the point of equilibrium. At this point, the amount that individuals pay for an appliance equals its value. If more individuals were willing to buy an energy-efficient appliance but the suppliers were producing at full capacity, then the price would increase. For some individuals, the higher price will exceed the amount that they value the appliance, and they will not buy one. Additionally, the higher price will incite more firms to enter the market and manufacture energy-efficient appliances, which will push the price back to its equilibrium level.

By offering a rebate, the government distorts the market for energy-efficient appliances, resulting in a loss to the economy. I made the following graph to demonstrate how this happens. (Please keep in mind that I was an economics major, not an art major!) The critical error that many make when evaluating this policy is ignoring this loss.

Graph of Supply and Demand for Energy-Efficient Appliances

Let’s assume that the price of an energy-efficient appliance is $500. At this price, a certain number of people will buy one. For the sake of this example, lets assume that 1,000 individuals will buy one appliance at $500. Next, the government provides a rebate of $175 to incite additional people to buy them. At this lower price, a greater number of people will buy one.

Let’s say that 1,200 people are willing to buy them at this price. Now, these individuals consume a product that the economy-wide equilibrium values at $500, but which the individual values at $325. This means that there is a cost to the economy of $175 (the amount of the rebate) for each appliance sold under the new program. This number, multiplied by the number of additional of appliances sold, roughly equals the dead-weight loss to the economy. In this example, the dead-weight loss equals $175 * 200 = $35,000. In this simplified example, this represents the goods and services that would have been bought in the absence of the rebate, which constitutes destroyed wealth.

Another factor that contributes to the economic loss is the amount of the old appliances that are destroyed despite still being operable. This, too, is represented in the graph.

What’s more, this distortion does not increase the number of energy-efficient appliances sold in the long run. This is because the rebate incites transactions that would have occurred anyway in the future. As old appliances break down, individuals will replace them with new appliances that use improved technology.

Ultimately, the rebate program will destroy wealth and fail to hold down energy prices in the long term. Missourians would be better off if the state and federal governments considered the long-term negative consequences of this policy and let the price system work its magic without this kind of short-sighted intervention.

While spending the week at a seminar sponsored by the Foundation for Economic Education, I’ve repeatedly noticed the presenters tripping over a wired microphone. With some help from the Google machine, I learned that this is because the Federal Communications Commission recently placed a ban on wireless microphones that use the 700 megahertz band. The space will be reserved for the use of emergency responders.

Although this ban may provide some social benefits in terms of improving emergency services, these should be weighed against the increased marginal costs of doing business — costs that are inevitably imposed on others.

This ban will negatively affect the organizations that use such microphones in their operations — businesses, theaters, churches, schools, news stations, etc. Organizations that have already made a capital investment in wireless microphones will have to spend additional money to replace them. This is money that they could have invested in other areas of their business, or kept as profit. Furthermore, manufacturers of wireless microphones will have to close or produce a different product, not for lack of consumer demand, but because of government mandate.

If this ban means that I can’t play Beatles Rock Band on my Nintendo Wii because the signal for my wireless guitars is blocked, then I will be inconsolable.

The Wall Street Journal recently highlighted some of the possible effects, including increased unemployment, of a bill on the governor’s desk concerning strip club regulation in Missouri. Similarly, Christine Harbin’s post earlier this month highlights some further potential economic ramifications of S.B. 586. Among other restrictions, included in the bill is a requirement that clubs close by midnight. There are further problems beyond the economic impact on those Missouri employees affected, though.

Tightening restrictions in Missouri gives an automatic boost to the strip club industries along Missouri’s borders, which in some cases may be even more unsavory. Closing the Missouri clubs earlier than in other states will also unwittingly create more post-midnight (including cross-river) traffic — a public safety concern that effects more people than the clubs’ patrons.

Well-intentioned measures frequently have unintended consequences.

Consider Springfield’s proposal to ban smoking in workplaces. Most workplaces are smoke-free by choice, but some businesses — like cigar bars and hookah lounges — are built around smoking customers. Although it’s likely that the ordinance will make some exceptions, those exceptions themselves create a tilted playing field for competition.

If you don’t like strip clubs and smoking (and I certainly do not), the simplest solution is not to smoke and not to patronize strip clubs or smoky bars. This an example of how the over-regulation of an industry potentially creates conditions favorable to further problems — while solving none of those it was intended to solve — and, in the process, harming the livelihoods of people who have elected to work in affected industries (after all, erotic dancers need to eat, too).

The fairest (and most effective) way to kill an unsavory business remains not to patronize it.

The city of St. Louis is debating a local legislative proposal that will, for the first time, impose a mandatory monthly fee for its residents’ garbage collection.

At present, the city supports its Refuse Division with an approximately $15 million annual appropriation, of which almost 90 percent comes from General Fund revenues. The controversial earnings tax is the largest component revenue stream of the General Fund, accompanied by property, sales, payroll, franchise, and license taxes, in addition to departmental fines and fees, intergovernmental revenues, and other fund sources.

If approved by the St. Louis Board of Aldermen, Board Bill 99 will institute a reported $11 monthly fee per dwelling unit for the provision of “Solid Waste Services.” Current spending on the Refuse Division totals $42.38 annually per resident, while the proposed fee should yield a comparable amount in revenue, considering our estimated number of occupied dwelling units.

Although I am confident that nearly all of my colleagues here would prefer that local government discontinue its direct delivery of service by perhaps privatizing the Refuse Division, I am personally more sympathetic to the notion that a public agency can operate according to market forces through a financing mechanism of user fees, passed through an independent enterprise fund.

This is precisely what Board Bill 99 attempts to do, which should make me and other free-market advocates happier than the status quo. That said, I believe that the proposed legislation presents many problems for those who support intelligent and limited allocations of public resources and deployments of governmental power.

The bill opens by obliquely identifying a fiscal problem:

[...] the City is no longer able to bear the entire cost of providing [solid waste collection and disposal services for residential dwelling units] from its general revenue [...]

It then proceeds to claim authority to impose a trash fee under Section 260.215 of the Revised Statutes of Missouri. (Incidentally, this is a heavy-handed mechanism to foist the fee upon St. Louisans, because the Missouri Supreme Court held in Craig v. City of Macon, 543 S.W.2d 772 (1976) that “the accumulation of garbage is a serious threat to public health” and, as such, a municipally-legislated “mandatory service charge” to facilitate “solid waste disposal” and enabling legislation are “valid as reasonable exercises of the police power.”)

Board Bill 99 then begins a series of legislative contortions to target those who shall pay the proposed “service charge for solid waste collection and disposal services.” From the bill’s text, it appears that both a “Customer” — or recipient of a city water bill — and an “Owner” — the person on file at the assessor’s office recorded as owning a parcel on which a “Dwelling Unit” sits — share responsibility for payment of the fee.

Collection of the charge will be the responsibility of the city’s collector of revenue, who must consult with the assessor to “determine the number of Dwelling Units for which each Customer receives water service [...]” The customer will receive a bill for the monthly charge.

If a customer fails to pay the assessed fee, then the collector, under Section 99.700 of the Revised Statutes of Missouri, “may proceed to file a lien upon the Property [...] for the amount of delinquent Solid Waste Services Fee payments,” and also “shall have power to sue any Customer [...] in a civil action to recover any sums due for Solid Waste Services Fees, plus a reasonable attorney’s fee to be fixed by the court.” (In other words, the bill conflates responsibility for payment of the fee with the source of refuse and the site of its disposal.)

Enforcement of the ordinance falls on the Building Division, which must verify that the solid waste services fees for a dwelling unit are paid prior to issuing a certificate of inspection for the property. A failure to pay the fee or a failure to seek exemption from the fee is an ordinance violation, punishable by a $500 fine for each day that the owner of the property does not have “appropriate and adequate” solid waste service.

The bill offers a fluid mechanism for exemption from the fee. In an intelligent move, the bill seems to envision that certain properties may not actually produce solid waste and, therefore, not be subject to the fine for violation (page 8, line 16). In a questionable and dubious infringement on the market for private waste disposal services, the bill unfortunately affords the refuse commissioner discretion to grant exemptions from the disposal fee for housing units if the units receive “adequate Solid Waste Services from a Private Solid Waste Contractor pursuant to a binding contract [...]” (the St. Louis City Revised Code outlines regulations for private solid waste contractors). The city’s director of streets grants both “hauling” and “vehicle” permits to private trash haulers, who otherwise are ineligible to dispose of refuse in the city.

Legislative language is too often confounding at worst and annoying at best, but a close reading of Board Bill 99 elicits both reactions.

Firstly, how many city departments does it take to assess and collect a trash fee?

• At least five, but probably more. (Confounding.)

Secondly, why is the city instituting a mandatory charge for trash service?

• The Board of Aldermen’s penchant for selectively absolving powerful interests of their tax burdens without even pretending to account for the fiscal impacts of the board’s legislation. (Annoying.)

Wait, doesn’t this mean that the proposed “service charge for solid waste collection and disposal services” is nothing more than a subsidy to backfill unfunded grants of public money from the city’s General Fund?

• Yes. (Confounding and annoying.)

Consider this: Board Bill 99 proposes to use the city’s police power to take additional funds from its residents in order to provide continued funding for the city’s Refuse Division, whose present operating funds derive from taxation and grant funding. St. Louis’ decade of legislation that pretended there was no cost associated with special interest tax forgiveness is hitting home hard — and at the worst possible time. We simply do not have the funds to continue throwing money into public systems and agencies that stand unaccountable to the vicissitudes of the marketplace.

Board Bill 99 displays an unwillingness to account transparently for the forces and the decisions that have led us to the point of its economic coercion. Furthermore, the bill fixes service fees according to current levels of Refuse Division spending, not the true costs of service delivery in a free market. In addition, the bill appears to authorize a mechanism through which the city could very well attempt to profit from the sale of recyclable materials that its residents dispose of (page 2, lines 3–5, 18).

I would prefer to continue receiving trash service than to pay for an unneeded performing arts facility. Money is fungible, however, and government mandates are inherently oppressive, so city residents will soon begin paying for Kiel in monthly $11 installments. No wonder so many “developers” choose to reside outside the city limits. They aren’t chumps.

My only question to St. Louis city government is whether it will honor the spirit of Hancock Amendment by allowing a public vote on this fee. Tax forgiveness requires no vote, but the last time I checked, the addition of user fees and new taxes does.

Check out the latest entry in our series of economic performance art pieces, in which I take out a payday loan and then quickly lose most of the money at a casino:

Accompanied by my trusty colleauges, John Payne and Josh Smith, I decided that if we were going to write about the payday loan industry we should know exactly what the process involves. I think John summed it up best in the video when he pointed out that it took him less time to buy cars than it took me to get $50 from a payday lender.

The Christian County Health Department just did what regulators are best at: protecting us from ourselves because we are all stupid and can’t make our own decisions. The Springfield News-Leader reports that Christian County has banned the sale of raw milk within the county. We here at the Show-Me Institute have written about raw milk before. According to the Springfield News-Leader, the county’s health board (not the elected county board of commissioners, just the appointed health board) went even further than state law required (not that I agree with the state law in the first place) and issued a wide-ranging ban of the sale of raw milk at markets, even though it is perfectly legal to consume raw milk if you do it at your own house.

In my opinion, the only law needed is that the milk in question must be clearly labeled as unprocessed, or “raw.” When that information is available, adults can make their own choices.

The News-Leader article is very good, and contains some great quotes. And by “great,” I mean “infuriating.” Check out the nanny state in action:

The board said allowing unregulated dairy farmers to sell to the public was not in the interest of the public they are charged to protect. Without regulations or testing, no one would know if the raw milk was safe.

Check out the local health department version of “we had to destroy the village in order to save it”:

Though consumption of raw milk is legal, board member Aaron Grier said the ban could help people get more informed about the farm where they’re buying it.

We have to ban it so we can we be sure you want it! And here is where they went even further than state law in making certain that people in Christian County don’t get to make decisions that affect themselves:

However, the board voted to ban all raw milk sales and distribution, including Grade A permitted raw milk, which can be sold to end-consumers, under state law.

I presume that the elected county officials have the capacity to overrule the appointed board. I hope that the citizens of Christian County bring these concerns to the elected board, and I wish them luck in changing this absurd decision.

While reading the Springfield Business Journal, I ran across a mention of the governor’s recently formed Executive Advisory Board, which will produce “a five-year plan for economic growth.” The governor’s press release states:

The final outcome of the planning process will be six to 10 strategic objectives to transform Missouri’s economy for the 21st century. The objectives will pinpoint existing and future industries that will drive growth. Along with each strategic objective, the plan will include specific tactical steps necessary to accomplish the goal. The strategic objectives and tactics will focus on the next five years.

Although I find the Executive Advisory Board’s mandate ludicrous — that state government should chart and shape the course of something as complex as our collective future economic development, I do find it encouraging that a committee member quoted in the Springfield Business Journal stated:

“We spend lots of money on economic development every year. The question is, ‘Are we strategically aligned to do it in the most effective way?’”

Obviously, the panel will not consider the possibility that the state of Missouri leave the business of economic development entirely, but I am somewhat hopeful that Executive Advisory Board just might conclude that the termination of some market-distorting policies would set Missouri on a course toward a freer and more prosperous future.

Here’s hoping.

The Columbia Daily Tribune published an article about the opposition to SB 586, a bill on Gov. Jay Nixon’s desk that places restrictions on the erotic services industry. Although this effort is probably well-intentioned, it would have negative economic ramifications.

First, it could negatively affect 3,000 jobs statewide, according to the article. These 3,000 jobs don’t require subsidization from taxpayers, quite unlike the 600 jobs that the IBM service center has promised to create. The government should not favor certain occupations over others (i.e., computer technicians over strippers). Furthermore, these establishments provide employment for workers who are low-income and low-skilled, so restricting them would negatively affect this group. Additionally, because the bill outlaws contact between dancers and customers, such as tipping, a dancer’s income may decline.

Second, if the state government places these restrictions, the government will see a significant reduction in revenue. From the article:

[T]he Association of Club Executives [...] says the note attached to this bill — $100,000 — grossly underestimates the loss in sales tax, income withholding and other costs to the state. They claim that if adult businesses are restricted as proposed, at least 60 percent of them would close, costing the state about $2.7 million in lost sales tax and $720,000 in lost state withholding taxes and would put about 1,800 people out of work.

This is another striking contrast from the aforementioned IBM service center, which will be located on tax-abated property and will therefore contribute no revenue to state coffers.

Additionally, as research analyst John Payne has previously argued, it is likely that some individuals would seek out substitutes, such as pornography and prostitution — perhaps even rape.

It would be beneficial if the government didn’t stop willing buyers and sellers from engaging in voluntary transactions in the marketplace. If a person happened to disapprove of these businesses, then he or she can choose not to patronize them and perhaps convince others to follow suit. Because this behavior does not cause physical harm to other people or their personal property, however, the government should not be involved. The scope of government should not extend to regulating the behavior of consenting adults in strip clubs, in sex stores, or in their own bedrooms.

The Riverfront Times gets it exactly right as to whom the recently passed health care bill will help in the short-term: the modern-day 20-something slacker. The recently passed bill contains many offensive and horrible parts, but the requirement that children be covered under their parents’ policies until they are 27 is especially so.

This one rule encompasses the worst of all worlds: an overbearing nanny state, the belief that the government has the right to dictate such rules to families and private businesses, and legislation that now makes it even easier for young people out of college to further delay adulthood.

On Wednesday next week, the Show-Me Institute and the Saint Louis chapter of Liberty on the Rocks will co-host a discussion of the use of cameras in public places as a law enforcement tool. During the past few months, red light cameras and surveillance cameras have been in the news, and we’re excited to have Sen. Jim Lembke and Alderman Antonio French, both of whom have taken strong stances on these issues, speaking at this event!

The discussion will begin at 7:00 p.m. on Wednesday, June 9,
at the Show-Me Institute Office at 4512 W. Pine.
Please RSVP either by email, to info@showmeinstitute.org,
or by phone at (314) 454-0647,
or by commenting on this blog post.

Sen. Lembke, who represents part of the city of Saint Louis and Saint Louis County, has spoken out against the use of red light cameras, on the grounds that they entail the presumption of guilt. As he said in a Post-Dispatch article, “[the use of red light cameras] takes liberty away in that there’s no other crime that I know of on the books where I as a citizen am guilty until I prove my innocence.”

Alderman French, who represents the 21st ward, has been campaigning hard to have surveillance cameras set up near high-crime areas in his ward. In the Riverfront Times blog, French explained that the crime is coming from a small group of people, and that surveillance cameras might deter that activity. From the RFT:

“It’s the same group of bad guys doing bad things,” French says. “We’ll advertise the hell out if it, that there’s cameras. One of reason people do things is because they think that can get away with it. If they know somebody is watching it’s very likely they’ll go somewhere else to do drug activity and violence.”

One of the most interesting aspects about the use of both red light and surveillance cameras is that the cameras will likely soon be able to identify, without a doubt, the individual committing a crime. At that point, although camera surveillance seems to be a particularly un-American activity, is there any constitutional argument against it? Do cameras really infringe upon our liberties if they are placed in public places where any police officer could also be placed?

French and Lembke will have the opportunity to answer these questions, and others, on June 9. If you are free, please drop by. The discussion will be informal; it our hope that attendees can ask the elected officials questions directly, and be part of an engaging conversation about the trade-offs between liberty and security.

Liberty on the Rocks is a nonpartisan, nonprofit, social organization that seeks to unite individuals, regardless of political affiliation, who desire liberty. With the goal of facilitating networks, friendships, and intelligent conversation, Liberty on the Rocks seeks to initiate the energy and dialogue necessary to move America from the grassroots up, toward the constitutional principles of freedom used to found this nation.

The City of Saint Louis is removing the pretzel vendors along Jamieson Avenue in south St. Louis due to complaints of traffic congestion. John Payne blogged about this yesterday, and cited this as an example of the government shutting down a successful entrepreneur.

I have a different perspective on the story. Although the city is cracking down on selling pretzels at that particular intersection, it is not banning the sale of pretzels in any other location. According to a recent story by Fox 2 on the subject, the city will take a laissez faire approach in the future:

“We’re not out looking for them, we didn’t put it on our hot list, I don’t have an inspector driving by every day. Our inspectors have plenty to do,” [Streets Director Todd Waelterman] explains. “You know if someone comes out here starts selling again and we receive a complaint, we’ll be back. If we don’t receive a complaint, we’re not planning on coming back.”

In this situation, the policy of looking the other way has many positive consequences. South City doesn’t become a generic, pretzel-less area; it can retain a feature that’s specific to Saint Louis. It secures a job for the vendors, and also generates business for a locally owned firm. Additionally, consumers win because they can get a pretzel fix without driving too far out of their way. Furthermore, instead of cracking down on pretzel vendors, the city can concentrate on bigger issues, like reducing crime and fixing the streets.

I applaud the city for taking a hands-off approach, and I hope that this is predictive of a larger trend of encouraging entrepreneurial activity in Missouri.

Today’s Post-Dispatch has a big story on pool safety and regulation in the St. Louis area. I’ll stipulate right off the bat that I think public health is a perfectly legitimate function of government, and has been so for a long time (controlling communicable diseases, especially). However, as with so many other things, there are countless examples in which the government has expanded that role to increase its part in our daily lives. And those rules may make us safer by bits and pieces, but they also make us less free in the same manner. I think most people have, and will continue, to accept that trade-off. I think that is unfortunate. But back to the pools.

I can’t imagine most people would have any objection — I certainly don’t — to the government monitoring the water quality and safety rules of truly public pools. But the government also defines “public” to include apartment buildings, private clubs, and more. In St. Louis County:

As of Wednesday, 248 pools had not been approved to open for summer, although many were awaiting final inspections this week. The county expects that some of those pools will remain closed, particularly at apartment complexes.

Assuming that most of these apartment complexes with pools are somewhat large complexes, we can reasonably say that thousands of people in St. Louis will now be denied the use of a pool this summer — and millions of dollars will be spent across the country on pool improvements — because of drain issues that have killed an average of one person per year across the entire nation. I am certain I sound like a jerk, but this immediately brings a classic Onion article to mind.

The Post-Dispatch article points out that Jefferson County does not have any pool inspectors. I think this is supposed to be a criticism of good ol’ JeffCo, but something important is lacking from the article — any evidence at all that there are problems with the pools in Jefferson County! Instead, believe it or not, the people of the county seem to be doing a perfectly good job of maintaining their own pools even without the threat of inspections to close them down.

Without a county, state or federal ordinance on sanitation, public pool owners in Jefferson County can make their own rules.

“We don’t care if we get checked or not. We keep a clean pool,” said Beverly Sweet, the superintendent of the Crystal City public pool. She said the water is tested several times a day and that chlorine tablets are automatically fed into the pool, which opens Saturday.

I’ll end with quoting the famous playwright David Mamet about how people (the vast majority, at least) tend do the right thing and work things out even if the government is not there to compel them:

But if the government is not to intervene, how will we, mere human beings, work it all out?

I wondered and read, and it occurred to me that I knew the answer, and here it is: We just seem to. How do I know? From experience. I referred to my own—take away the director from the staged play and what do you get? Usually a diminution of strife, a shorter rehearsal period, and a better production.

The director, generally, does not cause strife, but his or her presence impels the actors to direct (and manufacture) claims designed to appeal to Authority—that is, to set aside the original goal (staging a play for the audience) and indulge in politics, the purpose of which may be to gain status and influence outside the ostensible goal of the endeavor.

Strand unacquainted bus travelers in the middle of the night, and what do you get? A lot of bad drama, and a shake-and-bake Mayflower Compact. Each, instantly, adds what he or she can to the solution. Why? Each wants, and in fact needs, to contribute—to throw into the pot what gifts each has in order to achieve the overall goal, as well as status in the new-formed community. And so they work it out.

Enjoy the pool this summer. Have a great Memorial Day weekend.

Rand Paul, the newly designated Republican candidate for one of Kentucky’s seats in the U.S. Senate, has taken a lot of flack over the past couple of days as a result of his views on the landmark Civil Rights Act of 1964. MSNBC’s Rachel Maddow spent roughly 15 minutes of interview time with Mr. Paul trying to get him to directly express his belief that the government should not prohibit private business owners from engaging in racial discrimination. Rather than offer a soundbite that would allow political opponents to caricature him as a closet racist or opponent of civil rights, Paul first emphasized all that he found admirable and beneficial about the Civil Rights Act, then tried to express the difference between discrimination as a governmental policy, which he believes to be both abhorrent and unconstitutional, and discrimination as a private choice, which he believes to be both abhorrent and unwise, but beyond the proper authority of government to prohibit.

It’s true that a strict libertarian or free-market perspective might prevent the government from interfering when individuals choose to act in a discriminatory fashion. This may make people uncomfortable. But, as Mr. Paul pointed out, the very idea of freedom requires us to tolerate certain decisions that we might find distasteful, in order to ensure that we have the liberty to make decisions that others might find distasteful. For example: Our nation prizes freedom of expression so much that our constitutions deny governments the authority to restrict or punish speech, even if the ideas expressed are almost universally regarded as offensive. Respect for this form of freedom is so ingrained in our culture that its wisdom is only rarely challenged. Mr. Paul was trying to help Ms. Maddow understand that, similarly, if one believes in individual liberty then one must necessarily be prepared to tolerate the fact that some individuals will use that liberty in ways that others might find offensive.

The proper question, I believe, is how best to deal with those situations when they present themselves. Where speech is concerned, if someone says something offensive, the ideal solution for those offended would be either not to listen to that speaker or to respond with their own speech. Likewise, the best response to discriminatory business establishments would have been for others to boycott the offending establishments and/or to open non-discriminatory establishments of their own. The same principle can be applied to businesses that refuse to hire or promote qualified minority or female applicants. These discriminatory decisions create an opportunity for competing businesses to hire those same applicants — which, presumably, will allow them to offer higher-quality services than the discriminatory employer. The effect might not be immediate, but eventually it will become plain that discrimination is both foolish and costly.

It is also vitally important to remember that governmental power is a double-edged sword. A power that can be used in ways of which you approve can also be used in ways that you find repugnant. The problem of segregation/desegregation is a useful example, because the governmental action at issue represented flip sides of the same freedom-denying coin. In much of the Jim Crow South, segregation was not optional. Those allowed to vote — almost exclusively white people, many of whom had an interest in maintaining a privileged status in society — elected representatives who decided that individual business owners were not permitted to offer a desegregated environment. Thus, all people were forced to live with governmentally enforced segregation. After the Civil Rights reforms were enacted, individual business owners were not permitted to offer a segregated environment — all people were forced to live with governmentally enforced desegregation. At all times, individual citizens had only a limited ability to make these choices for themselves.

In a libertarian or free-market paradigm, the government would not have the authority to dictate these matters to individual in either direction. The government’s sole responsibility would be to ensure that those who sought actively to harm others would be brought to justice and, if necessary, their victims compensated for any demonstrable, quantifiable injuries suffered. Those who believed strongly in the importance of segregation would be permitted to live out their choice — but would also be forced to suffer the disadvantages that would flow from their choice. Those who favored integration would realize a unique competitive advantage that, eventually, would reveal the wisdom of that approach.

To sum up, governmental control over the decisions that individuals may make for themselves presents a seductive shortcut for those who believe that the world ought to be ordered in some particular way. But not only does it represent a denial of individual liberty, a government vested with the power to dictate decisions made by its citizens can very easily turn against those who had hoped to use it to pursue their vision of a “good” society. As George Washington once warned: “Government is not reason; it is not eloquence; it is force! Like fire, it is a dangerous servant and a fearful master.”

Yesterday, we released the lastest Show-Me Institute case study, about the potential for privatization of the St. Louis city water division. We officially unveiled it on The McGraw Show, on KTRS The Big 550 AM. I’d like to take this opportunity to thank Monsieur Milhaven for that invitation. I had a lot of fun on the program, and I appreciate all the people who phoned in with questions.

I have two goals with this case study. First, to get the city to consider the gains it could realize by privatizing the water division, which is the only one of the three traditional utilities served by a public agency in St. Louis city or county. All three — water, gas and electric — are provided by private companies in St. Louis County, while gas and electric are privately provided in the city. (Kirkwood and Eureka are exceptions in the county.)

The other goal, equally important in my mind, is to convince the city of St. Louis to install water meters. It is nothing short of insane that the city still charges via flat-rate billing for residences. The only good thing about not having moved to meters yet — decades after most other large cities did so — is that the city now has the opportunity to skip using regular meters and move directly to electronic meters that don’t involve meter readers. Maybe that was the secret plan all along. …

The work in this study could just as easily be applied to Kansas City, and especially Springfield.

I live in the Shaw neighborhood in Saint Louis, and I subscribe to the area’s email listserv. Last week, a subject of much debate was the Shaw Neighborhood Local Historic District’s long list of Use, Rehabilitation and New Construction Standards, which describes which architectural details, roof shapes, roof materials, etc., that residents are allowed to use.

When a person walks through a neighborhood like Shaw that features aesthetic continuity, he sees only part of the story; historic codes like those in the Shaw neighborhood entail many unseen costs and negative unintended consequences, which I will attempt to enumerate in this post. For these reasons, historic building codes discourage the practical use of existing structures — the very thing they are supposed to encourage.

1. Historic codes violate private property rights.
    
   They restrict individuals from altering, adding to, or demolishing the buildings that they own. By purchasing an older property, an individual assumes the risk that it could lose value in the future. Property owners have an incentive to maintain their investment, because otherwise the value of the property will decline.
2. Mandating aesthetics should not be the role of government.
    
   Ensuring that a building is structurally sound is one thing, as David Stokes has written previously, but mandating how a building looks aesthetically is another. In my opinion, individuals should be free to enter into voluntary agreements of this nature, but only as a private matter (e.g., neighborhood covenants). I disagree that it should be the role of the government to ensure that the block “works visually,” as one person writes on Shawtalk:
   

   There is something to be said for architectural cognizance-for having the entire block look so different that it no longer works visually. Sort of like wearing a plaid shirt with flowered pants and a striped jacket-one can do it but it looks silly.

   Furthermore, mandating and regulating this conformity is largely redundant, because the majority will not choose to make egregious violations of social convention, such as paint their houses hot pink. As an analogous example, there is no law against cutting in line, but people choose to wait their turn out of social convention. People choose to wear jeans because many other people also wear them. Businessmen and politicians wear dark suits because their peers and colleagues do.

3. Historic codes increase the cost of the materials required to rehabilitate a house.
    
   A homeowner has to search for windows, doors, and millwork that fit the conditions of the code. There can also be additional costs for compliance, such as, say, the need to build a different fence because the one you have is an inch too short. As a negative consequence of this increase in cost, homeowners have less of a marginal incentive to repair their property.

   Tangentially, supporters of historic credits argue that the regulations benefit the local economy, because the code-appropriate items are often made regionally or locally. This argument fails because it ignores the unseen. The resources that are devoted to making code-approved materials could be put toward other uses. It’s possible that local manufacturers do not possess a comparative advantage in manufacturing windows and doors, and that they could manufacture other products more efficiently.

4. Historic codes discourages people from making technological improvements to their home, such as upgrading the energy efficiency.
    
   How new can something be and still be considered historic? Is modern plumbing historic? Is central air historic? Is an Internet hookup historic?
5. Housing codes are passed under the guise of protecting quality, but homeowners have other avenues of redress.
    
   Another commenter observes:
   

   It also plays into safety issues as some people would do very flimsy and faulty work in an effort to sell the house without regard for how well the job was done.

   This is one reason that the judicial system exists. If a carpenter does flimsy and faulty work, the homeowner can take him to court. Furthermore, if a carpenter does flimsy and faulty work, the homeowner would discourage his friends and neighbors from hiring him. The carpenter would lose business as a consequence.

6. Historic codes like Shaw’s favor home ownership over renting; cementing such preferences through policy also should not be the role of government.
    
   The Shaw Neighborhood Historic District Rehabilitation and New Construction Standards explicitly state the following:
   

   it is the intent of this ordinance to decrease the density of housing units within the neighborhood without demolishing buildings. Whenever feasible, buildings should remain with the same amount or less living units as the building was originally designed.

   [...] Buildings should not be converted from single-family to multi-family. Two-family structures should not be converted to more than two units. Four family buildings should not be converted to more than six units with no units having less than six hundred net rentable square feet.

   First, this code prohibits a person from subdividing her property. This means that she cannot lease out her property and receive rental income. Second, this policy restricts renters and people of lower income from moving into the neighborhood.

   Through this policy, the government favors home ownership over renting. Owning a home is a significant investment that isn’t suitable for all individuals; by renting, many people who can’t afford the investment commitment and risk of a home can live within their means.

The St. Louis Post-Dispatch recently published an article that synthesizes the arguments for and against raw milk consumption.

It strikes me that the debate over the appropriateness of raw milk consumption is a natural application of the general principle in Ain’t Nobody’s Business if You Do: The Absurdity of Consensual Crimes in Our Free Society, by Peter McWilliams, which we recently read for the Show-Me Institute’s book club. His central idea is the following:

You should be allowed to do whatever you want with your own person and property, as long as you don’t physically harm the person or property of a nonconsenting other.

It should not be the role of government to protect individuals from their own actions, such as consuming raw milk. Consumers of raw milk are rational, consenting adults. They can judge for themselves the costs and benefits associated with consuming milk that is unpasteurized. A person may harm himself by drinking raw milk (just as he may harm himself by drinking pasteurized milk), but he does not harm others by doing so.

Furthermore, it should not should not be the role of government to instruct individuals about which products are appropriate to consume and to produce, and which behaviors are appropriate to engage in, provided they do not hurt other individuals. Individuals who desire to buy raw milk should have the freedom to do so, and dairy farmers who want to produce and sell raw milk should similarly be free to do so.

As an unintended negative consequence, prohibiting the sale of raw milk will be ineffective at stopping its consumption; instead, it will drive such consumption underground and encourage real crimes. Raw milk bans will increase search and transaction costs for the consumer — they could join a raw milk club, travel to a state that permits it, or buy the product disguised with a misleading label.

Sarah Brodsky has written previously about the laws related to raw milk consumption. McWilliams would disagree that the consumption of raw milk should be illegal. From his book:

People often use the word legal too loosely. They fail to give sufficient thought as to what legal and illegal really mean. When we say a given activity should be illegal, what we’re saying is that if someone takes part in that activity, we should put that person in jail. When it comes to consensual crimes, however, when people say, “It should be illegal,” what they usually mean is, “That’s not right,” “That’s not a good idea,” or “That’s immoral.” When using the word illegal, it’s important to remember how forceful the force of law truly is. We are all entitled, of course, to our opinions about certain activities, but do we really want to lock up people who don’t go along with our opinions?

Parenthetically, from the article, I suspect that raw milk bans could be motivated by rent-seeking behavior. Producers of pasteurized milk could encourage banning raw milk as a means to create a barrier to entry to the market:

To some, new legislative efforts to relax raw milk laws could encourage more producers in the struggling dairy industry to get into the raw milk game[.]

Similarly, bans on the production and sale of raw milk discourage small farms from entering and operating in the market, and they favor larger firms that currently operate in the market and possess the resources to pasteurize their product.