October 24, 2014

Bring Dead Capital to Life

Think of that spare bedroom left vacant by children leaving the nest. Think of that empty passenger seat in most cars as they clog traffic in our major cities. To an economist, those are unused bits of capital: The room could be rented out, satisfying someone’s need for a short-term stay in town; that car seat could be occupied by someone heading in the same direction as the driver. Such unused sources of production are, simply put, dead capital.

Arthur C. Brooks, president of the American Enterprise Institute, recently argued that significant amounts of such dead capital could be brought to productive life if only local governments would stop protecting vested interests and allow entrepreneurs to invigorate their local economies.

How? There are new, exciting companies that empower individuals to improve their economic condition and, at the same time, improve the productivity of capital. One example is the ridesharing service Uber. Uber brings together those with empty passenger seats and those needing a ride across town. My experience (unfortunately, not in Saint Louis) is that Uber rides showed up faster than traditional taxis and that the drivers were more attentive to my needs. Because Uber drivers are rated by riders even in transit, poor drivers can lose business for inadequate service. Competition drives out poor performers.

Airbnb is a market solution to the problem of underutilized housing capital. With excess bedrooms in the United States, why not allow the owners of those empty rooms to satisfy the needs of individuals seeking a place to stay for a night or two? The needs of those willing and able to pay for a room are served and the owner is rewarded with, especially in these still-difficult times, an extra bit of income.

Unfortunately, a maze of state and local regulations block Uber and Airbnb from operating in many locales. “Governments have their own golden opportunity,” Brooks writes, “to exercise creativity in service of the common good, whether that entails rethinking anachronistic zoning laws or adjusting tax policies that treat someone’s spare bedroom the same as a Marriott suite.”

If bringing dead capital to life is good for the economy, isn’t it time for politicians and regulators to awaken to the potential benefits that such services can provide?

August 1, 2014

Show Me Better (Part 4): Certificate Of Need And Market Power

How far are you from the nearest hospital? Maybe you wonder why there is a single mega-hospital 10 miles away but aren’t any smaller ones nearby. Part of the explanation may be certificate of need (CON) regulations.

A 2004 report by the U.S. Department of Justice and Federal Trade Commission found that CON programs “pose serious anticompetitive risks that usually outweigh their purported economic benefits.” So far, I have written about how CON regulations can limit access to care and have been shown to not effectively control costs. CON regulations have the potential to stifle competition and grant existing hospitals monopolies over certain regions. Some existing hospitals may even attempt to use these regulations to prevent competition from entering the market.

How does this play out in Missouri?

In the past, any time a new hospital wanted to open up in Missouri, it had to apply for a CON – irrespective of its size and cost. A revision to Missouri’s CON rules changed the criteria for review from every new hospital to every new hospital whose cost is at least $1 million.

In April 2010, Patients First Community Hospital expressed its intent to build a small hospital in Saint Louis County that did not meet the new threshold for certificate of need review. Shortly thereafter, a regional rival, St. John’s Mercy Health System, filed a lawsuit against the Missouri Health Facilities Review Committee and Patients First. St. John’s challenged the legitimacy of the new $1 million amendment and construction of the new hospital. In 2012, the Missouri Supreme Court ruled that the new criteria for review was perfectly legal, thus giving Patient’s First the green light for the project.

Despite the ruling against St. John’s, this is an excellent example of a hospital using the legal system in an attempt to stomp out the competition, all under the pretense of CON regulation. It took about two years for Patients First to have its plan approved. These sorts of delays can deprive patients of new, much-needed medical facilities.

The state should not allow such an environment to exist.

July 29, 2014

Show Me Better (Part 3): Certificate Of Need And The Cost Of Care

As consumers, we like to get more for less – especially when it comes to our health. Usually we feel ripped off if we receive a lower-quality service for the same (or higher) cost of a better service. In a previous blog post, I discussed how, in some cases, certificate of need (CON) programs can be the very reason patients are forced to receive inferior care from less-skilled doctors. Additionally, CON regulations likely do not save patients much money, if any.

In a world of limited resources and virtually unlimited wants, we are forced to make trade-offs. A decrease in the quality of health care might be acceptable if CON led to lower costs. Proponents of CON argue that this regulation does contain the cost of care by preventing the “duplication of services” in a given geographic area. To illustrate this chain of reasoning, let’s say that Barnes-Jewish Hospital and Saint Louis University Hospital buy “too many” MRI machines – as a result, many of the new MRI machines go unused. Because of the outlay, CON proponents assume the two hospitals will probably charge higher prices for MRI scans to make up for the mistake.

There is evidence to suggest that theory is not well founded. One evaluation of Illinois’ CON program found that “there is little direct broad proof that overcapacity duplication leads to higher charges.” CON regulations may result in “tangible savings on the actual costs of specific medical technologies” but these programs tend to “redirect expenditures to other areas.” In other words, CON may actually prevent hospitals from spending too much on a certain type of medical technology, but any savings will be spent on other items instead of being passed onto patients. One study even suggests that strict CON programs may actually increase health care costs by as much as 5 percent.

What use is a program that can be delivering sub-optimal health care without cutting costs?

July 23, 2014

St. Louis Taxicab Commission Giveth With One Hand, Taketh With The Other

The St. Louis Metropolitan Taxicab Commission (MTC) has long stifled competition in the name of customer safety. The MTC controls market entry, tells cab and sedan businesses how they can operate, and sets prices. When Lyft launched in Saint Louis, MTC officials claimed they needed to shut down the app to protect customer safety, despite Lyft’s extensive insurance policy, background checks, and vehicle inspections. Now, with Uber preparing to launch in Saint Louis, the MTC is at it again, proposing more regulations to shut out competition.

Yesterday, the MTC approved changes to the taxicab code that would ostensibly allow a company such as Uber (although not Lyft) to operate in Saint Louis. The MTC altered the section of the code concerning premium sedans, which previously were quite onerous, with the implication that Uber can now pursue a license as a premium sedan company. Previously, premium sedans were required to bear written placards with the names of their customers, premium sedan companies could not start a business with fewer than three sedans, and (critically) sedans had to contract services at least 60 minutes in advance of pickup. The MTC voted to remove or relax these restrictions.

While some restrictions are gone, other competition-stifling regulations remain. Sedan companies still must obtain a Certificate of Convenience and Necessity (CCN) for $2,500, essentially asking companies to prove that Saint Louis needs cab service. Furthermore, the MTC still requires that each individual vehicle be licensed as a vehicle for hire (in Uber’s or Lyft’s cases, a premium sedan) with all the controls the MTC places on the appearance and operation of such vehicles.

While Uber might be able to operate with the code changes, it would be severely limited by regulations that the MTC plans on addingFirst, the MTC is still considering making sedans charge a minimum fare of $25 per trip, although the final decision on this takes place later this month. This essentially limits Uber to its premium, black car service. Second, all sedans now have to pay a permit renewal fee of $500 per year. That is more than double the current cost of renewal for sedans and almost five times the fees required for cabs. Uber has cried foul, correctly calling these practices anti-competitive.

The restrictions on sedans in the taxicab code never had much to do with safety, and it is good to see the MTC repeal some of these regulations. However, the additions for a minimum fee for sedan services and onerous renewal requirements have no safety merit whatsoever. Their only possible purpose is to prevent Uber or Lyft from operating an on-demand, cheap vehicle service that might compete with existing taxicabs. Once again, the MTC has shown its true mission is not customer safety or satisfaction, but rather control over the Saint Louis taxi industry.

July 22, 2014

Show Me Better (Part 2): Certificate Of Need And Access To Care

One of the benefits of free markets is their ability to match buyers with sellers. Potential customers assess the supply of goods and services, the parties agree to the prices, and, generally speaking, purchases are efficient – delivering comparable value to both parties.

Unfortunately, Missouri’s certificate of need (CON) program may be erecting barriers to the market functioning efficiently when matching care providers and care consumers. A recent working paper by the National Bureau of Economic Research examined how hospital entry deregulation in Pennsylvania affected the market for cardiac revascularization. Because Pennsylvania eliminated its CON program in 1996, economists were able to compare clinical outcomes before and after the program’s repeal — the ideal conditions by which to conduct an experiment. The researchers found that “free-entry improves the match between underlying medical risk and treatment intensity” and “improved access to care.”

Another study conducted in the same state, on the same topic, found that the post-deregulatory market did a better job at matching the appropriate procedure to the appropriate risk level. After deregulation, better doctors also saw an influx in demand for their services.

Removing the CON program in Pennsylvania empowered patients to attain better care from better doctors. Certainly, a market uninhibited by cumbersome regulations does a better job at matching the right patient to the right procedure, performed by a better doctor, than a nine-member regulatory board. Missouri could follow Pennsylvania’s lead in doing away with the micromanagement and creating a system conducive to competition and innovation.

July 21, 2014

Show Me Better: Assessing Certificate Of Need In Missouri

One of the most obvious examples of a massive government burden on our health care system is the Affordable Care Act (Obamacare), but Obamacare does not have a monopoly on onerous government regulations in Missouri. In fact, some state-run regulatory programs, such as certificate of need (CON), may also play a role in increasing the cost of care and decreasing access to care for some of the state’s neediest patients.

A certificate of need is a legal document the state issues to allow a health care provider to expand, modify, or construct certain health care facilities. In Missouri, a nine-member committee reviews applications for certificates of need and administers them in accordance with its own rules. For example, last year, the Lafayette Health Center received a CON to construct a new $40 million hospital. Based on the committee’s rules, Lafayette likely paid the review committee a hefty $40,000 application fee.

One of the original purposes of the program was to guarantee health care access by limiting competition in a particular region. Proponents assert that, with less competition, the likelihood of a hospital going out of business will be reduced, hopefully ensuring a sufficient level of care for citizens near the health care provider. Yet, empirical evidence suggests that CON programs neither control costs nor improve health outcomes. Indeed, they may actually hamper access to care and patient choice, at least under some circumstances.

If the certificate of need law could be hurting the people it was intended to help, should it be reformed? Abandoned? These questions are central to why we, as Missourians, ought to take a serious look at the necessity and efficacy of the state’s CON program. In future posts, I will review how CON regulations impact health care costs, access to care, and clinical outcomes.

July 16, 2014

The Nanny State Of Nannies: Missouri’s New Day Care Regulations

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Being a working mom isn’t easy — I know this because I am one. If the dark circles under my eyes aren’t evidence enough, my bank statement certainly is — day care is expensive. According to one guide, the average working parent spends $600 a month on child care (in cities, that number is closer to $1,000, and in rural communities, it is $350).

The federal government provides financial assistance to eligible parents through the Missouri Child Care Assistance program, regardless of whether or not the day care facility of choice is licensed. According to the St. Louis Post-Dispatch, 4,000 unlicensed day cares receive $38 million in federal funding per year. In order to continue receiving federal subsidies, Missouri must comply with new standards that the U.S. Department of Health and Senior Services set.

To do so, Missouri Gov. Jay Nixon signed Missouri House Bill 1831. Unlicensed child care providers who receive federal or state funding will now be regulated. Some of these regulations are beneficial (tuberculosis testing), while others seem redundant, such as compliance with building codes. Though regulations aimed at keeping children safe are laudable (yes, if there are indeed fire code exemptions for some child care providers, that should be changed), they may have unintended cost consequences.

According to child care director Latonda Moody, new regulations will negatively affect urban communities, including increasing day care costs. The regulations, she says, will incentivize choosing unlicensed child care providers at lower costs with or without government subsidies.

“If day cares have to raise their rates, their kids will be with people who shouldn’t be watching kids — unlicensed homes, unlicensed churches — or they’ll flat out quit their jobs,” Moody said.

Licensing-averse David Stokes, Show-Me Institute’s director of local government policy, agrees with Latonda’s perspective on rising costs.

“Even if you believe that increased licensing would increase child safety — a belief that is unproven — the changes would have the unintended consequence of driving some marginal number of people toward other alternatives,” Stokes said.

Remember, “unlicensed” facilities in Missouri do have to meet some standards. If you increase costs, some providers will really start offering services in the background with no standards.

We all want safe day care facilities for our children. My child’s safety is at the forefront of any decision I make, but I also understand what it means to have a budget. If increased regulation and licensing cause parents to choose “off-the-grid” day care facilities, then this issue should be further examined.

July 14, 2014

‘Right To Try’ Law Gets Gov. Nixon’s Signature

Today is the last day for Missouri Gov. Jay Nixon to veto or sign legislation that the 2014 General Assembly passed. So, with the state’s “Right to Try” proposal still sitting on his desk, I started my workday with a smidgen of trepidation. “Right to Try,” you might remember, would empower patients with terminal illnesses to more freely seek experimental medications in hopes of finding something that could help them.

The concern: Would the governor veto “Right to Try” this year, much like he vetoed the Volunteer Health Services Act last year?

The answer: Nope. He just signed it.

The Governor signed two health-related bills, which will provide Missourians in specific situations with additional options for medical treatment of illness and disease. House Bill 1685 allows drug manufacturers to make available investigational drugs, biological products, or devices to certain eligible terminally ill patients. House Bill 2238 allows the use of hemp extract to treat some individuals with epilepsy and also allows the Department of Agriculture to issue licenses to grow industrial hemp strictly for research purposes. House Bill 2238 contains an emergency clause.

I talked about this bill a lot in the last few months. This was, to me, an obvious opportunity to empower people to make each other’s lives better. The government should open doors for people to care for one another, not erect and maintain barriers to helping each other. “Right to Try’s” enactment is not only a victory of reform-minded policy, but more importantly, it is a victory for Missourians in need.

Congratulations to the Missouri House and Senate for sending the bill to the governor, to the legislators who sponsored the bill and powered this important conversation, and to the governor for making the right decision by adding his support to the unanimous votes of the legislature. Well done.

June 18, 2014

Supply, Demand, And The Minimum Wage

Early last week, Lindenwood University Professor and Show-Me Institute Fellow Howard Wall debated the merits of raising the minimum wage on St. Louis Public Radio. It was an interesting discussion, but  one thing stuck out for me. In the debate, Chris Sommers, who co-owns Pi Pizza and is in favor of raising the minimum wage, stated that (at 5:37), “We raised the wage in order to also attract better people.” This was said in the context of Pi raising the wages its pays its employees.

This is interesting because Pi raised its wages voluntarily. It didn’t need the government to mandate a hike in pay, it chose to do it because it made sense from a business perspective. That is how it is supposed to be. In fact, that is what businesses do. They pay their workers a competitive rate commensurate with the value that these employees generate for the business. If they pay their employees too little, other businesses can offer these workers a higher rate and they will leave. Sommers mentioned his workers moving to another business because it offered a 25-cent increase in hourly wages (at 4:30). This is the market working.

Take what happened in North Dakota as an example. Because businesses were so desperate for workers, even fast food establishments had to significantly increase what they would pay their employees. For example, Taco John’s, a local area fast food restaurant, had to offer new employees $15 an hour salaries in order to get them to work there.

north dakota

I want to help the poor do better, but there are betters options available than raising the minimum wage, like the Earned Income Tax Credit. This would ensure the benefits would go to the people who really need them, the working poor.

June 16, 2014

Power Play In Southeast Missouri

Ameren is one of the state’s largest electrical utilities. Noranda is an aluminum company in Southeast Missouri that, due to the nature of making aluminum, uses an enormous amount of electricity. This is a tricky post to write because it is certainly complicated stuff and I don’t have a Ph.D. in electrical engineering like my father-in-law does. Noranda and Ameren have several cases before the Public Service Commission (PSC) that are being considered. In an effort to simplify things, it all basically comes down to two issues:

1) Claims that Ameren has been overcharging its customers from what the PSC allows it to receive in profits, and

2) Demands for mandated lower rates for Noranda itself, the state’s largest electricity consumer.

As to claim No. 1, if that is correct, then the PSC will take appropriate action. While rates themselves don’t directly compare to returns, in fairness to Ameren, the most recent annual electricity rate survey just showed Saint Louis as having the second-lowest residential electricity rates in the survey (which included much, but not all, of the country). The same survey showed Ameren having among the lowest commercial rates as well. So, while it may be possible to over-earn while charging comparatively very low rates, Ameren is hardly holding its customers (at least its Saint Louis customers) over the barrel.

As for Noranda’s demands for even lower rates, they already pay the lowest rates in the state. Furthermore, the Missouri General Assembly has already given Noranda the unique right to shop for electrical providers, unlike any other person or business in the state. I don’t begrudge Noranda any of this. As the largest user, I understand why their bulk discount is so high. Also, while I may want to give more customers the same right to shop that Noranda has, I certainly don’t want to take that option away from them.

That said, there has to be a limit on having the state solve Noranda’s electrical cost issues. If they can’t negotiate an even better deal from Ameren, Noranda does have the right to switch providers. Indeed, that is how they switched to Ameren in the first place. That is more than enough special treatment from the state.

Noranda’s efforts to curb its power costs goes back years. Noranda used to purchase electrical power from the rural cooperative by its smelter. But with the help of a law passed solely for its benefit by the Missouri General Assembly, Noranda was allowed to switch electricity providers. As of 2005, it has purchased electricity from Ameren at a cheaper rate than the cooperative had offered.

It is the role of the PSC to regulate private utilities, but it is not the role of the PSC to fix Noranda’s bottom line. We all want Noranda to successfully continue operating in Missouri, but it is not the role of state government to aggressively interfere in an attempt to guarantee that.

 

June 2, 2014

Kansas City’s War On The Future

With all the political rhetoric floating around Kansas City, one would think the city is embracing high technology and forward-looking, well, everything. A closer examination reveals just the opposite. The city is using 19th-century politics and policymaking, and hoping for 21st-century results. It is as anachronistic as those future-looking movies of the past.

width= What old-timey look at the past would be complete without a monorail light trail streetcar? Kansas City politicians are determined to employ 19th-century fixed rail transit, thinking wrongly that it will solve our problems. We’ve written extensively about why rail is bad for Kansas City. You can read about it here.

The most jaw-droppingly insipid claim is that such policies will draw the creative class. Never mind that there is no research to back up this claim — Kansas City already is rapidly becoming a fact-free city. In fact, a vocal proponent of streetcars who claimed to speak for millennials just announced that he is leaving Kansas City for the East Coast to seek greater opportunities. This supports the writings of my Show-Me Institute colleague: the so-called creative class goes where the jobs are, not to streetcars or airports.

Meanwhile, city officials view actual future-looking technologies such as those that Lyft and Uber provide with hostility because officials are mired in 19th-century protectionist cronyism. How are Kansas City officials going to react to the inevitable arrival of driver-less Google cars? Demand that cars undergo a background check? Require that each one contain a detailed street map? This is not forward-thinking; in fact, it’s not thinking.

Speaking of Google, Kansas City Mayor Sly James and others love to extol Google Fiber, as if Kansas City, Mo., won that national bidding war to bring them here a few years ago. We didn’t. We lost to Kansas City, Kan. We were just lucky enough to be next door. Kansas City, Kan., won because they demonstrated small and efficient government, not heavy-handed regulation and federal money.

In looking to create density downtown, city officials are falling over themselves to offer up any sort of taxpayer subsidy, handout, or corporate welfare package to bring density — sometimes just to move jobs two blocks. Yet they are unable or unwilling to deliver basic services to the rest of the city. This is not forward-thinking, it is urban cannibalism.

If Kansas City officials are serious about building a brighter future, they need to shed the city’s knee-jerk tax-and-regulate policies and start doing the few things a city can do well: maintain the streets and parks, fight crime, provide quality education, and do so while keeping taxes low. Then the city won’t need to pick winners — because the winners will come to the city on their own.

May 20, 2014

Useless Taxi Regulation In Saint Louis

The recent conflict between Lyft and the St. Louis Metropolitan Taxicab Commission (MTC) adds even more credence to the argument that the MTC should not exist. Under the guise of protecting public safety, the MTC controls market entry for taxis in Saint Louis, sets prices, and needlessly regulates the for-hire vehicle market in favor of large taxi companies. There are many examples of these types of competition stifling regulations in the MTC’s For Hire Vehicle Code, including:

Regulations that restrict market entry:

  • Section 203: All For Hire Vehicle Owners require a Certificate of Convenience and Necessity (CCN) from the MTC. The MTC, staffed by taxi industry players, gets to decide if there is enough demand for more cabs. (The MTC has frozen CCN issuances for taxis until they finish a study on taxi demand, because apparently the job of the MTC should be to centrally plan taxi supply).
  • 202: Transfer or sale of a CCN must be accompanied by a $2,500 application fee.
  • 210: All CCNs must retain and maintain a non-residential office address with a business telephone number that is staffed 24 hours a day.
  • 301: All for-hire vehicles require a permit (airport taxi, premium sedan, etc.). Vehicles can only receive one type of permit.
  • 602: Taxis cannot be older than nine model years and premium sedans cannot be older than five model years. Taxis that are more than six model years cannot enter service and premium sedans more than two model years cannot enter service.
  • 604: All new premium sedan CCNs require at least three sedans at the time of permit issuance.

Regulations that restrict competition:

  • 501: Taxi meter rates are controlled.
  • 301: For-hire vehicles can only receive one type of permit; hence, airport cabs cannot compete with normal taxis which cannot become premium sedans.
  • 604: Premium sedans cannot be stationed within 2,500 feet of a hotel or business property.
  • 604: Premium sedans must contract for passengers at least 60 minutes before pickup.

Regulations that are needless or simply ridiculous:

  • 501: Taxis must have printed, in colors contrasting to that of the vehicle surface to which affixed, on the outside of one door, the name of the vehicle license holder in letters at least 2.5 inches high.
  • 504: Drivers are required to wear a uniform of black slacks and a solid, button-up shirt.
  • 701: All on-call taxicabs should arrive at a hotel with heat or air conditioning running, set between 65-75 degrees.
  • 304: Vehicles cannot have spinning wheels or covers.
  • 304: Bumper paint must match vehicle paint unless paint is not required, then it must be factory black.

You are free to believe these and many other MTC regulations have some tangential connection to keeping passengers safe. But the simplest explanation is that the purpose of these rules is the same as their result: to limit market entry and control competition. Equally simple is the method for improving taxi service in Saint Louis: shutting down the Metropolitan Taxicab Commission.

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