Gimmicks vs. Economics

Cities and towns have come up with the most ingenious ways to increase their rates of recycling. Framingham is a perfect example of this:

Framingham has started a new recycling program with monthly themes tied to environmentally friendly practices, a move that is apparently unique among area communities even as it reflects a trend of municipalities going green, say organizers.

The town started its program in June but had its first real event July 24, when the theme was recycling electronics. On Aug. 16, the town will host a "Shred Fest," whereby residents can take unwanted documents to the recycling center for shredding. Next month's theme is recycling at home, school, and work, with a focus on green purchasing, Framingham officials say.

"We're looking at trying to have an event that will create a buzz," said Mike Lavin, operations manager for the town's Solid Waste Division. "We want people to recycle more."

It sounds like a lot of fun, but there's a much easier way. Currently Framingham pays for it's trash collection program through taxes. As I have posted previously, a move to pay-as-you-throw (PAYT) would increase the rate of recycling without much effort from the city. It doesn't rely on people caring about Framingham pride or the environment, but their own self interest.

With PAYT, it pays to recycle.

Three Years Later: Still No Eminent Doman Reform

It was over 40 years ago that Herbert Gans chronicled the destruction of Boston's West End through so-called "urban renewal" in The Urban Villagers. The neighborhood had been home to thousands of working class Italian families when it was declared "blighted," taken by eminent domain and razed by the city. It is now home to luxury condos.

In 2005, the Supreme Court took up its first eminent domain case in decades with Kelo v. New London. The court ruled that the government can take people's land and hand it over to private developers just with the vague promise of "economic development" for the area. States across the country quickly reacted in horror and passed their own legislation limiting eminent domain.

Massachusetts was not one of those states. State Representative Marty Walz is now attempting to get legislation passed, but it looks like it is being stalled in the Senate. Local politicians predict doom and gloom if the legislation is passed, but studies have shown that just ain't so. In fact, another studied has shown that poor minorities are most likely to be victims of these land grabs.

So where exactly is the "public good" here? Is there someone out there who can explain and defend the use of eminent domain for me?

Planning the City

Last week's Boston Sunday Globe Magazine contained a profile of Kairos Shen. He is the new chief planner for the city of Boston and is described in the article as "lead visionary" for the city.

The Globe printed my letter to the editor in today's magazine.

After Mayor Menino finishes my reading my letter, I will gladly loan him my copy of The Death and Life of Great American Cities.

Addendum: BHI reviewed Jacobs' The Nature of Economies back in 2000.

Convention Problems in Denver

As the Beacon Hill Institute found in 2004, the economic benefits of hosting political conventions are often exaggerated. City officials and convention planners overrate the contributions made by conventioneers to the local economy without seriously taking into account the costs such events incur. In addition, last minute changes can upset the best estimates.

According to Politico.com, Denver-area businesses are disappointed; they don't think they'll benefit the upcoming August Democratic convention. They blame union requirements, poor communication and disorganization of the Democratic committee for the dismal prospects.

There's one more wrinkle. The presumptive Democratic nominee Senator Barack Obama will now move his acceptance speech to Invesco Field, which will increase the cost of security. Thus another item on the expense side of the ledger rather than a boost.

Measuring the costs and benefits of political conventions requires a look at what conventions displace. The key is always to make sure that business as usual occurs and that disruptions are kept to a minimum. More background on the economics of political convention can be found here.

Sales Tax will Mean Trouble for Chicago, Part II

Kate Sheehan has already explained one obvious problem with Cook County's (IL) decision to increase its sales tax to 10.25%. However, economists know that there are always unforeseen economic effects to government policy. Could Chicago's sales tax have an unseen, harmful effect on its servers in the restaurant industry?

A reader made this point at the new Nudge blog written by Harvard Law Professor Cass Sunstein and University of Chicago economist Richard Thaler, who coauthored a book by the same title.

A common practice for restaurant tipping is that a diner uses the sales tax to determine the waiter's tip. For example, with a 5% tax in Massachusetts, diners generally triple or quadruple the sales tax to pay a waiter the standard 15-20% tip. The Nudge reader, who generally doubled the sales tax to figure out his waiter's tip, said he would reconsider this practice after the sales tax increase would raise the tip to a higher level than usual. The reader correctly notes that this may reduce a typical waiter's earnings with careful consumers who analyze their bills. As a result, servers will lose some of their income and purchasing power.

Not surprisingly, this is another example of a government policy that will produce unanticipated effects that harm the local economy.

Other reasons to flee

Edward Moscovitch argued in a Herald op-ed last week that the exodus of young people from Massachusetts has nothing to do with our high taxes.

Citizens for Limited Taxation's Barbara Anderson replied on Monday arguing that taxes are indeed the problem

I replied on Wednesday arguing that taxes and land-use regulations are the problem.

Recent Prop 2 1/2 Votes on Google Maps

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Green: Passed
Yellow: Mixed Pass/Fail
Red: Failed

Sales tax will mean trouble for Chicago

Last February, the Cook County Board voted to raise the sales tax to 10.25%. The increase went into effect yesterday giving Chicago the highest sales tax rate in the nation -- higher than New York City and Los Angeles. Supporters of the tax hike argue that the increase will bring in an additional $440 million. But is this a realistic estimate? Since higher taxes create a disincentive, I would bet against that optimistic estimate. That's because consumers will take their business elsewhere, particularly when planning to purchase big ticket items such as appliances, furniture, electronics and professional services.

As Old Town resident David Ashamalla told CBS News, "It's kind of frustrating. I go to Best Buy or something, and high-priced electronics – it adds like $20, $30 to a TV I bought."

Every textbook used in every college public finance class recognizes two overriding principles of taxpayer behavior: (1) Higher tax rates exert a combination of positive and negative effects on economic behavior. And (2) the negative effects exceed the positive effects insofar as it is easy for taxpayers to avoid paying the higher taxes and insofar as the tax takes a bigger bite out of taxpayer income or buying power.

Moreover sales taxes are regressive. That is to say they fall more heavily on the poor who must pay more of their income for high taxed goods and services. While the revenue estimates are open to question, there's no doubt that retail sales will be rough in Chicago and Cook County. Lake County, Indiana get ready for a wave of Chicago shoppers!

Budgeting Waste

I tend to be very skeptical whenever I hear the term "budget deficit". Back in May, my hometown of Lowell projected a deficit of $6 million for the upcoming fiscal year. Half of that deficit came from our trash collection program which is expected to increase to $4 million next year if no changes are made.

As we all learned in Economics 101, incentives matter. The problem is that everyone is charged the same standard fee each year regardless of how much trash they actually produce. Why bother to reduce the amount of waste you produce or increase the amount you recycle (Lowell has a 7% rate) if you're going to pay the same cost either way?

In response, Lowell's city manager has proposed a new flat fee/pay-as-you-throw system which could lower the deficit, increase recycling, and bring about more fairness in trash collection. The idea is that when you charge people something closer to the actual cost then they will tend to change their behavior.

This is a step in the right direction (even my nemisis at Left in Lowell agrees), but why not go all the way? The city manager is still projecting a $2.5 million trash deficit at a time when cities are struggling to balance their budgets. A complete conversion to pay-as-you-throw could totally eliminate the budget deficit and perhaps result in a surplus.

BHI's contribution to the Center for the American Experiment's Symposium: What does it mean to be an urban conservative?

Location, Location, Location
David G. Tuerck

To consider what it means to be an “urban” conservative, it’s necessary to ask what distinguishes a conservative of this variety from any other. There are already plenty of varieties to consider -- social conservatives, neoconservatives, libertarians, and so on. How, we may ask, does it benefit the lexicon to add this new one?

We can attempt an answer by recognizing that location choices are similar in important respects to choices we make in the marketplace for ordinary products. Urbanites differ from other Americans insofar as they are willing to pay for amenities that only cities can offer. New York City, that most urban of all locations, offers an endless list of amenities: symphony, opera, museums, Broadway shows, jazz clubs, churches, sporting events, lectures —- you name it. People who live or work in New York City pay for these amenities by putting up with the congestion, taxes and general mayhem that go with living or working there.

To be sure, people don’t live or work in cities merely because of the amenities they provide. Some people, who would prefer the suburbs or the country, simply have no choice. Yet as we transition to a service economy and as electronic communication makes location less and less important a consideration for running a business, it’s the amenities that cities provide that will increasingly explain the attraction they hold for people.

So what is an urban conservative? Quite simply, it’s someone who is willing to pay for the amenities offered by a city and who happens also to be conservative. The mere fact that one enjoys world class opera or sports does not bear at all on one’s ideological orientation. It bears merely on the sacrifices, in the form of suburban or rural comforts, that one is willing to make in order to enjoy these amenities.

Yet there are aspects of the urban culture that can prove challenging and troubling to a conservative.

Consider what it means to be an urban social conservative. Probably, as some argue, there is a greater concentration of gays in the “creative class” that makes up the art scene in a big city. The prominence of the gay lifestyle in cities like San Francisco is troubling to social conservatives. Social conservatives are appalled that Massachusetts now permits same-sex marriages.

Neoconservatives likewise feel uncomfortable with the anti-war sentiment that is dominant in cities like Boston, New York, and San Francisco.

Libertarians oppose the government subsidies that go to support the arts, sports stadiums, and rapid transit in the cities.

Is it philosophically possible, then, for an individual to be both conservative and happily ensconced in the city? The answer is yes, provided that he understands and acts upon a theorem handed down many years ago by economist Charles Tiebout. According to the Tiebout theorem, the ability to "vote with one’s feet" is the key to unraveling the otherwise knotty problem of providing "public goods" (including concert halls and sports stadiums) without coercing the support of people who don’t necessarily benefit from their provision.

If government subsidies are necessary in order to make the amenities offered by a locality economically viable, then the simple answer is for the locality to finance the subsidies out of local taxes. As long as the cost of subsidizing some amenity is borne by local taxpayers, even the most hardcore libertarian could feel comfortable supporting the taxes and enjoying the amenity. If not, he could vote with his feet and move to a different locality that neither imposes the taxes nor provides the amenity.

If the urban conservative doesn’t want the Metropolitan Opera badly enough to pay New York City taxes, he can move to Nashville, where the Grand Ole Opry gets along fine without government subsidies. It’s necessary only that New Yorkers pay for the Met and that Tennesseans do not. Similarly, social conservatives or neoconservatives can readily move from Boston to, say, Houston, where the ideological climate is more to their liking, provided only that Houston isn’t compelled to become like Boston in terms of its social and ideological mores.

David G. Tuerck is executive director of the Beacon Hill Institute (www.beaconhill.org) and chairman and professor of economics at Suffolk University (www.suffolk.edu) in Boston.

Reprinted from What does it mean to be an urban conservative? by the Center for the American Experiment