Voice For Liberty

Tag: Economics

  • Stretching figures strains credibility

    I recently read that the Wichita Airport’s economic impact was estimated at $1.6 billion per year. I thought this seemed high, so I investigated further.

    I became aware of this study prepared by the Center for Economic Development and Business Research at Wichita State University, available here: Wichita Mid-Continent Airport Economic Impact.

    By reading this study I learned that the employees of Cessna and Bombardier — 12,134 in total — are counted in determining the economic impact of the airport. Why? To quote the study: “While it might appear that manufacturing businesses could be based anywhere in the area, both Cessna and Bombardier require a location with runways and instrumentation structures that allow for flights and flight testing of business jet airplanes.” This is true, but it is quite a stretch to attribute the economic impact of these employees to the airport.

    For one thing, if we count the economic impact of the income of these employees as belonging to the airport, what then do we say about the economic impact of Cessna and Bombardier? We would have to count it as very little, because the impact of their employees’ earnings has been assigned to the airport. This is, of course, assuming that we count the impact of these employees only once.

    Or suppose that Cessna tires of being on the west side of town, so it moves east and starts using Jabara Airport. Would Cessna’s economic impact on Sedgwick County be any different? I think it wouldn’t. But its impact on the Wichita airport would now be zero. Similar reasoning would apply if Cessna built its own runway.

    Or it may be that someday Cessna or Bombardier will ask Sedgwick County for some type of economic subsidy, and they will use these same economic impact dollars in their justification. But these dollars will have already been used, as they were attributed to the airport.

    To its credit, the WSU study does provide some figures with the manufacturing employees excluded. The impact without the manufacturing employees included is estimated at $183 million, or about 11 percent of the $1.6 billion claimed earlier.

    It is a convenient circumstance that these two manufacturers happen to be located near the airport. To credit the airport with the economic impact of these companies — as though the airport was involved in the actual manufacture of airplanes instead of providing an incidental (but important) service — is to grossly overstate the airport’s role and its economic importance.

    Of course the airport is important to Wichita. We should seek to measure its impact sensibly instead of stretching to attribute every dollar possible to it. When advocates of any cause manufacture figures like the $1.6 billion economic impact, it casts doubt on other arguments they advance.

    Links referred to: Wichita Mid-Continent Airport Economic Impact

  • Let’s Pay for Our Own Health Insurance

    Having most people obtain medical insurance, and therefore their healthcare, from their employers is a peculiar tradition that leads to several less-than-optimal situations.

    I would venture to guess that most employees don’t know the cost of their insurance. They probably pay a portion of the cost through a deduction on their payroll checks and they know what that amount is, but that is a long way from knowing the total cost. Knowing — and having to pay for — the entire cost of something is a good motivator for controlling its cost.

    It makes no more sense for employers to provide health insurance than it does for employers to provide auto or homeowners insurance.

    With employer-provided coverage, when people change jobs, they likely lose their coverage.

    At most companies, employees are not rated according to their likely healthcare expenditures. There may be a cost for a single employee, another cost for an employee and spouse, and another cost for employee with spouse and children. Never have I seen a case where the cost to the employee was based on how many children there were in the family, even though each additional child adds a predictable risk and associated cost. Other types of insurance, such as auto and homeowners, are priced very carefully based on the characteristics of the driver, auto, and property being insured. This illustrates that present health insurance plans are not so much insurance against catastrophic loss as much as they are pre-paid healthcare plans that cover every little cost. But even then, they aren’t priced very carefully according to their likely cost.

    Having employers provide healthcare removes choice from employees. If an employee doesn’t like the plan offered by their employer, they are certainly free to purchase one they prefer. But this will likely be more expensive, partly because of the fact that employer-provided plans are paid for with pre-tax dollars. A plan that is privately purchased would be paid for with after-tax dollars.

    Removing the ability to choose health care plans from most people also removes competition amongst health care plan providers. Introducing competition to the marketplace is good for consumers.

    The fact of employer-provided health insurance creeps into issues such as same-sex marriage. Advocates of same-sex marriage or civil unions point out that same-sex partners are denied the employer-provided health coverage that their partner enjoys.

    What if we decided to stop employer-provided health coverage? There are a few obstacles.

    Currently, since health insurance is often paid for with pre-tax dollars, people would pay more in tax. This could be overcome, of course, by lowering tax rates.

    It may be that employers, since they often purchase insurance plans for large numbers of employees, are able to get price discounts based on volume. Wholesale purchasing, so to speak. I do not know how this would impact families purchasing plans one at a time. There may be significant sales costs. Certainly families would face choices and would have to think about them. But being more informed is better.

    Some people, undoubtedly, would decide to forgo the purchase of health insurance, and therefore risk becoming a burden to us all if they become ill. This is a real problem because currently our healthcare system treats those who can’t afford to pay, sometimes with little concern given to if they will ever be able to pay. (Recently the New York Times and Wall Street Journal have given coverage to cases where hospitals have aggressively collected debts from poor people. The Times thought this a tragedy.) The fact is that the cost of care given to those who can’t — or won’t — pay is paid for by the rest of us who do pay. It would take a disciplined system to refuse to treat those who have chosen to forgo purchasing insurance.

    In a Reason Magazine article titled Mandatory Health Insurance Now! we find this paragraph:

    Why not just tell Americans they are responsible for buying their own health insurance from now on? If people couldn’t pay for medical care, either through insurance or out of pocket, they wouldn’t get it. “After people begin to notice the growing pile of bodies by emergency room entrances,” Tom Miller wryly suggests, “they will quickly get the message and go get medical coverage.”

    The solution to the problem, the article says, is in the slogan for a proposal by The New America Foundation: “Universal coverage in exchange for universal responsibility.” All of us would have to purchase our own insurance plans. The employer-provided plans would end. The problem, of course, is that even a plan covering only catastrophic expenses for a family of four might cost $3,600 annually, which is out of the reach of many low-income families. So the rest of the taxpayers would have to subsidize the purchase of these plans. We already do this now, so does anything change?

    Yes, I think things would change for the better. If we could truly enforce the “universal responsibility” part of the plan — everyone has to pay his or her own way — this plan has a chance.

    Additional reading:
    To Guarantee Universal Coverage, Require It
    Health Insurance Required
    Insurance Required
    Universal Coverage, Universal Responsibility: A Roadmap To Make Coverage Affordable For All Americans (full report)

  • Prepare for sales tax-induced job effects now

    Collecting the sales tax to pay for the downtown Wichita arena may produce unintended consequences.

    A paper titled “An Assessment of the Economic Impact of a Multipurpose Arena” by Ronald John Hy and R. Lawson Veasey, both of the University of Central Arkansas, (Public Administration & Management: An Interactive Journal 5, 2, 2000, pp. 86-98) looked at the effect of jobs and economic activity during the construction of the Alltel Arena in Pulaski County, Arkansas. This arena cost $50 million. It was funded in part by a one percent increase in the county sales tax for one year (1998). The sales tax generated $20 million.

    In the net, considering both jobs lost and jobs gained due to sales tax and construction effects, workers in the wholesale and retail trades lost 60 jobs, and service workers lost 52 jobs. There was a net increase of 198 jobs in construction.

    The fact that jobs were lost in retail should not be a surprise. When a sales tax makes nearly everything sold at retail more expensive, the supply curve shifts to the left, and less is demanded. It may be difficult to estimate the magnitude of the change in demand, but it is certain that it does change.

    Workers in these sectors, should the sales tax increase take effect, may want to reconsider their career plans. How many retail and service workers can make the transition to construction work is unknown. It is certain, however, that when workers lose their jobs it imposes benefits costs on the government — and the taxpayers.

    The population of Pulaski County in 2000 was 361,474, while Sedgwick County’s population at the same time was 452,869, so Sedgwick County is a somewhat larger. Our sales tax will last 2.5 times as long, and our proposed arena is about three times as expensive. How these factors will impact the number of jobs is unknown, but I feel that the number of jobs lost in Sedgwick County in retail and services will be larger that what Pulaski County experienced.

    It is interesting to note that the authors of this study, while measuring a positive net economic impact for the Alltel Arena, make this conclusion:

    “The primary reason for this positive economic impact is that the state of Arkansas contributed $20 million to the construction of the arena. As a result, the economic impact of building the arena in Pulaski County is greater than it would be if the county had funded the arena by itself. A vast majority of the jobs that will be created will be in the service sector that frequently offers lower wages than jobs in other sectors of the economy.”

    The proposed downtown Wichita arena does not have the advantage of having 40% of its cost paid for by outsiders. It may be that we feel even more strongly the negative impacts of the sales tax.

  • The value of economic impact studies

    One of the factors that usually plays a part in an economic impact study like that used to promote the Downtown Wichita arena is the “multiplier,” which accounts for the fact that money spent once is spent again, and maybe yet again.

    To quote from “Economic Impact Multipliers for Kansas” published in “Kansas Business Review” Vol 12, No. 3, Spring 1989, and available at http://www.ku.edu/pri/publicat/multipliers/multipliers.htm:

    It sometimes seems that the bigger a multiplier is, the more often it is quoted. (1) In any case, some distinctly one-sided political and economic motives encourage the propagation of exaggerated multipliers.

    In particular, economic multipliers are used to justify public concessions to private industry. Such assistance for business may include land acquisition, new roads and sewers, job training programs, subsidized loans, and tax incentives.(2) The extent of public concessions is determined through bargaining between government and industry, and in the course of the bargaining those who stand to gain most from the new enterprise have a natural tendency to inflate the relevant multipliers.(3)

    The inflation of multipliers may stem less from venality than from an innate optimism, which seems to be necessary in the risky business of development. Since multipliers are costly to measure, of uncertain accuracy, varied in their meanings, and multifarious in their origins, a convenient range of multiplier values is always available; discriminating users are free to choose the best values for their purposes.