A summer tutorial

The summer reading season is here. And there are plenty of classic economics books that should be on your list. Too heavy a lift for the livin’-is-easy season? Hardly.

While there are many books that fit the bill – anything by Frederic Bastiat and F.A. Hayek comes to mind – one, in particular, is a truly great read and quite accessible.

That is, while it offers timeless economic axioms of great import, it does so in a conversational and easy-to-understand manner. So easy, in fact, that even your favorite public policy maker should be able to understand it. Ahem.

That book is Henry Hazlitt’s “Economics in One Lesson” from 1946. Hazlitt was a storied Wall Street Journal scribe with writing chops so adroit that he succeeded the legendary H.L. Mencken as editor of The American Mercury.

As Steve Forbes reminded in the foreword to the 1996 edition:

“Reading ‘Economic is One Lesson’ is sheer joy because, as Mencken said, Hazlitt could really write. In the clearest and most lucid terms, the author spills forth his arguments against every major tenet of conventional economic thinking.

“Wasting nothing, his attacks show why these tenets are wrong in practice and in principle. On the feel-good goal of full employment, he notes that we can’t have full production without it, but we surely can have full employment without having full production.

“Our focus must always be on growth and production. Labor-saving machines don’t cause unemployment but actually create more and better jobs.”

And as Hazlitt himself put it:

“The best way to raise wages, therefore, is to raise marginal labor productivity. This can be done by many methods: by an increase in capital accumulation – i.e., by an increase in the machines with which the workers are aided; by new inventions and improvements; by more efficient management on the part of employers; by more industriousness and efficiency on the part of workers; by better education and training.

“The more the individual worker produces, the more he increases the wealth of the whole community. The more he produces, the more his services are worth to consumers and, hence, to employers. And the more he is worth to employers, the more he will be paid. Real wages come out of production, not out of government decrees.”

Oh, how sad that so few contemporary public policy makers simply don’t get that.

The concluding chapter of “Economics in One Lesson” offers this phenomenal truism:

“Now few people recognize the necessary implications of the economic statements they are constantly making. When they say that the way to economic salvation is to increase credit, it is just as if they said that the way to economic salvation is to increase debt: these are different names for the same thing seen from opposite sides.

“When they say that the way to prosperity is to increase farm prices, it is like saying that the way to prosperity is to make food dearer for the city worker.

“When they say that the way to national wealth is to pay out governmental subsidies, they are in effect saying that the way to national wealth is to increase taxes.

“When they make it a main objective to increase exports, most of them do not realize that they necessarily make it a main objective ultimately to increase imports.

“When they say, under nearly all conditions, that the way to recovery is to increase wage rates, they have found only another way of saying that the way to recovery is to increase costs of production.”

Pardon the less-than-scholarly summation but this is good stuff. And at a slim 195 pages, it’s a summer tutorial well worth the time of thinking people.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org)

A Closer Look at Two County Funds

The County Controller’s office has released the 2017 Comprehensive Annual Financial Report and this blog covers two operating funds that we have written about previously: the Transit Fund and the Infrastructure Support Fund.

In 2017 the Transit Fund’s (page 260) two main revenue sources, the drink tax and the car rental tax, raised $47.8 million.  With penalties and interest total revenue was $47.9 million.  In making the required local match for Port Authority mass transit operations, expenditures from the fund were $30.9 million.  Then, transfers out of the fund for capital and debt service obligations were $15.4 million, leaving a result of $1.5 million.  Tacked on to the fund balance at the beginning of 2017, $14.4 million, at the end of 2017 $16.0 million was in the fund.  As we noted in the 2016 Brief, the fact that the Regional Asset District is contributing to the operating match given the sizeable surpluses in the fund is very questionable.

The Infrastructure Support Fund (page 262) holds revenue from the $5 auto registration fee that is on top of the state’s registration fee.  $4.8 million was raised in 2017, about $0.7 million more than in 2016.  However, the expenditures from the fund related to public works, $5.5 million, were greater than the revenue brought in and part of the beginning of the year fund balance was used, leaving a surplus of $0.2 million at the end of the year.

What Was the Impact of the Parking Authority Rate Hikes?

Summary: A look at audited figures on the 2014 to 2017 Pittsburgh Parking Authority (PPA) facility rate increases and the taxes paid by the PPA and other parking facility owners to the City of Pittsburgh.

 

In June of 2014 the PPA board approved a series of annual rate hikes at its parking facilities (garages and attended lots). Downtown garages contain over 6,700 lined parking spaces. These were the first increases since 2004 and came from a recommendation in the City of Pittsburgh’s 2014 recovery plan. Since the city’s parking tax rate was (and is) locked in at 37.5 percent in Act 44 of 2009 the plan suggested requesting that the PPA increase parking rates to provide more revenue to the city.

The increases affected daily, evening/weekend, and lease parking rates. In August 2014 the increases were essentially across the board for daily (one hour or less, two hours or less, etc.), evening/weekend and lease rates. The increases for daily rate of one hour or less of parking were in the range of 11 to 33 percent. The increases in 2015 applied mostly to the daily rate for four to 24 hours and were in the range of six to nine percent as well as on lease rates. Thus the price increases were heavily front-loaded in 2014. A final increase that was to occur in 2017 on the daily four to 24 hours and on lease rates was rescinded. The increase in the evening/weekend rate was implemented.

For example, a patron parking in the Wood Allies Garage for eight hours saw the rate change from $9.75 to $12.00 in August 2014, to $13.00 in August 2015 and finally would have paid $14.00 in August 2017 but that increase did not occur. At the Mellon Square Garage a patron parking for eight hours saw the rate increase from $13.75 to $18.00, to $19.00 in the time frame.

In 2013—the year before the increases—PPA parking facility receipts totaled $29.2 million. Audited amounts for each year since then show receipts increased a total of $6.8 million (23 percent) by the end of 2017.

PPA Parking Facility Receipts, 2013-17

So how did the city benefit from the rate increases? Based on the tax revenue paid from parking receipts (27.27 percent—(0.375/1.375) the city’s collection of parking tax revenue from facility receipts rose from $7.9 million to $9.8 million ($1.8 million, or 23 percent) from 2013 to 2017. From 2013 to 2014 the tax from facility receipts rose 7.7 percent. After the additional price increase in 2015, the tax on facility receipts climbed 10.5 percent in 2015 over 2014. By 2017 gross PPA receipts had risen 23 percent. Bear in mind that total parking prices at PPA facilities had been raised by an average of around 25 percent. Thus, it appears the volume of taxable parking was essentially unchanged over the period.

Recall that the city also collects parking taxes from the PPA’s facilities but also from other public, private, and non-profit owners of lots and facilities. The city’s parking tax collections rose from $51.9 million to $58.6 million ($6.7 million, or 13 percent) from 2013 to 2017. This reflects over $200 million spent on parking in 2017. Since the taxes from PPA facilities accounted for $1.8 million of that change, $4.8 million came from non-PPA facilities. This 11 percent rise was lower than the increase in taxes from PPA facilities and resulted from a boost in parking prices or an increase in parking volume or some combination of both.

The parking tax is a key part of the funding of the city’s pensions. Under the 2010 plan that avoided a state takeover of pensions the city dedicated a stream of parking tax revenue. This year marks the first of 23 annual payments of $26.8 million in parking tax dollars, a doubling of what was being contributed from the tax the last several years to the pensions.

There were additional changes in the relationship between the PPA and the city during the years of the facility rate hikes. In 2015 parking meter rates changed and the PPA board amended its cooperation agreements with the city regarding revenue sharing from meters and the parking court as well as the payments in lieu of taxes made to the city. Overall, in the years 2013 to 2017 the total amount paid by the PPA to the city rose from $18.8 million to $29.8 million and the percentage of PPA expenses accounted for by payments to the city grew from 41 percent to 51 percent.

The city’s high parking tax is a significant part of the budget. It was 13 percent of total tax revenue and was the third largest tax in terms of dollars collected in 2017.

State Budget Done Before Deadline?

There was no agenda announced ahead of time for the House Appropriations Committee today, but a news article is reporting that the Committee voted unanimously to approve a $32.7 billion general fund state budget.  Another article mentions that a budget could be though the General Assembly by the end of the week.

Our Brief from last July–when there was a budget impasse that stretched beyond the start of the fiscal year–chronicled approval dates for state budgets in the previous decade.

One of the general fund items mentioned is an increase of $100 million in basic education funding for K-12 education.  For FY 2017-18 the basic education total was $5.995 billion with $452 million of that being driven out by the Act 35 student weighted formula.  An additional $100 million would take that new money amount to around $550 million.

Officials Trying to Reboot GEDTF Money?

A news article indicates that local officials might not be ready to see an allocation from the Gaming Economic Development and Tourism Fund (GEDTF) go away quietly.

Our Brief from April detailed the changes brought by Act 42 of 2017 to projects in Allegheny County.  Some will go on, others will cease, and one will be repurposed.  The David L. Lawrence Convention Center received three GEDTF allocations when the original gaming law was passed in 2004: $20 million for Center Debt, $20 million for Center operating deficit, and $44 million for a Center hotel.  The latter allocation was shifted to Allegheny County for the creation of an economic development fund when the hotel did not materialize.

With the end of the ten-year period for the original payment schedule approaching, local officials are “..scrambling for ways to replace [the money]” which has been used in part to discount convention events (Act 42 does not extend the payments for the Center debt, and repurposes the money that was going for the deficit to the creation of a Regional Sports Commission; both are essentially ending in the next two years, but the article seems to conflate the two streams).

From the point of view of a state senator, the money won’t continue “…because the convention center presumably was doing OK”.  How about this for a solution if the center is not OK?  Officials could make a case to take a piece of the annual allotments from the three streams of money (for the airport and for two county economic development funds) that will continue past the original ten-year deadline as set up by Act 42.  That would present a scenario in which those GEDTF recipients could show why they need all of the money for their projects and for Center boosters to plead for restoration of what will end.

Minimum wage games

“(T)he Pennsylvania Legislature hasn’t given (private-sector) workers a raise in nine years,” Gov. Tom Wolf lamented in a tweet last week.

But it should not be the role of any government to set wage floors – a minimum wage — for those working in the private sector.

Wage rates must be set by productivity and supply and demand, not by government fiat.

And, simply put, when government raises the cost of labor, private employers react. As Fraser Institute scholar Yanick Labrie puts it:

“In reaction to the establishment of a minimum wage, or to the raising of a minimum wage, some workers will see their wages rise, it’s true. But some other workers will lose their jobs, as employers reduce the number of people they employ or decide not to create new jobs or create fewer jobs, perhaps automating or eliminating certain posts.”

Continues Labrie:

“Minimum wage increases lead to higher unemployment, especially among the youngest workers, who tend to be least skilled.”

And minority workers typically are the most affected in this subset.

Thus, young workers seeking entry-level jobs – jobs that help to teach new workers how to work – see that step on the employment ladder sawn away.

And here’s a great assessment from another economics scholar, Mark J. Perry, a University of Michigan economics professor:

“If you trust government officials and politicians to set a minimum wage for unskilled workers, you should logically trust those same bureaucrats and politicians to set all prices, wages and interest rates in the economy.

“Inevitable result: Soviet-style central planning, command-and-control, and economic chaos like in Cuba, North Korea and Venezuela.

“If you agree that economy-wide central planning and price controls would be undesirable, then I think you should also agree that the minimum wage law, as an arbitrary, artificial, government-mandated price control, is undesirable.”

Then there’s this, from Ira Stoll, writing at Reason.com:

It’s a sneaky way to increase welfare spending and raise taxes. Raising taxes to spend more on welfare is a political loser. But raising the minimum wage puts money in the pockets of working poor people, at the expense of business owners (and of consumers who would pay in the form of higher prices).

“If politicians want to increase the earned income tax credit or other work-related welfare benefits, they should do the hard work of building political support for such policies, rather than choosing the roundabout approach of a minimum wage increase.”

Then there’s this legal question, as Stoll also detailed:

“It’s not clear that (government-set wage floors are) constitutional. The Supreme Court, in its opinion in the 1923 case Adkins v. Children’s Hospital of District of Columbia, made a strong argument that a minimum wage was a violation of the constitutionally guaranteed freedom of contract embedded in the Fifth Amendment’s language about due process and the deprivation of liberty and property.

“’To the extent that the sum fixed exceeds the fair value of the services rendered, it amounts to a compulsory exaction from the employer for the support of a partially indigent person, for whose condition there rests upon him no peculiar responsibility, and therefore, in effect, arbitrarily shifts to his shoulders a burden which, if it belongs to anybody, belongs to society as a whole.”

The court later, in West Coast Hotel v. Parrish (1937), reversed itself,  5-4.

“But maybe the court was right the first time around,” Stoll posits

For Gov. Wolf, the “seen” is a higher wage for some. Sadly, what he fails to see is the damage such a move causes them – and others.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

Weekend essay: Moments on a porch

The bustle and the hustle of the afternoon rush hour finally has subsided on Catalpa Place Flats.

And from the broad front porch built nearly 30 years ago, the more important sights, sounds and smells of life are coming back to the forefront.

There’s the whir of the ceiling fan. It’s dissipating the late spring heat that summer will claim as its own in a few short days.

But it’s also helping to spread the sweet and striking Stratocaster guitar stylings of The Shadows, an old British band — just loud enough but not too loud — all along the winding-down street.

Then there’s that certain squeak with each back push of the glider. Some folks might run to apply a bit of graphite or oil to remedy what they’d consider an annoyance.

But that squeak will go unremedied. For, odd as it seems, it evokes memories of the smell of the old vinyl-covered cushions on a grandparents’ Ohio glider of 50 years ago.

And speaking of smells, a brief gust of wind just delivered the spittin’ image of Granny lifting the top off her pressure cooker and releasing the aroma of a just-finished pot of chicken and noodles.

Somebody in this neighborhood deserves the highest kudo for such “old-school” cooking.

A sudden scratching sound brings the reminiscer back to reality. Two squirrels are scurrying up the front-yard silver maple. They’re looking for the seed and nut block that used to hang from a sturdy hook.

But regular daylight raids by a far-too-friendly raccoon has ended that practice. The squirrels will have to look elsewhere for their snack.

In the distance, a rumble burgeons. It’s not a gathering storm but a short-line freight train entering the Castle Shannon Valley. As the rumble grows, there are a series of quick horn blasts, then two longer, as it approaches a crossing.

And from the Department of You Had to Be Here to Believe It, just as the echoes of the last blast fade, the first strains of The Shadows’ rendition of “Trains and Boats and Planes” begin to play.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

 

Proposal Would Prohibit Local Business Mandates

In a 2017 Policy Brief we argued that it was an appropriate time for the General Assembly to expand the language of the Home Rule Charter and Optional Plans law in regards to regulating the duties of businesses to all municipalities.  A few years earlier Philadelphia and Pittsburgh passed ordinances mandating paid sick leave and just before that Philadelphia enacted an ordinance barring municipalities from asking about salary history.

A bill was introduced this spring and just had a hearing yesterday by a legislative committee. It would preempt a municipality (defined as encompassing all classes of local government from counties, cities, boroughs, townships, towns, home rule and optional plan municipalities, school districts) from passing any mandate on employer practices including wages, hiring and firing, the workplace, and sick and vacation leave. It would not apply to practices relating to employees of the municipality itself.

If the bill were to become law, any mandate enacted on or after January 1, 2015 would be void.  That would include the sick leave ordinances in the cities of Philadelphia and Pittsburgh (the latter is in front of the state Supreme Court along with another employer-employee mandate).  A local government that would enact an ordinance related to employer practices could be sued in a court of law by an aggrieved party under the proposal.

Pittsburgh MSA Out of Sync with U.S. Labor Market Performance

Summary: The April jobs numbers were released for the Pittsburgh Metropolitan Statistical Area (MSA) and the results are not too encouraging.  While growth was positive, it does not keep pace with the nation overall and underscores just how much work needs to be done to boost the area’s economy.

 _____________________________________________________________________

Recently released labor force and employment data for the seven-county Pittsburgh metro area show the region trailing the nation for the April 2017 to April 2018 period.  In April 2018, the Labor Department survey of households show the region’s labor force tumbled by 17,600 (1.5 percent) and household employment (persons employed) slipped by 8,500 (0.7 percent) from the April 2017 level. Meanwhile, over the same 12-month period, the U.S. labor force climbed by 1,346,000 (0.8 percent) and the number of people counted as being employed rose 2,020,000 (1.3 percent).

Data from the Establishment survey, which counts the number of payroll jobs as opposed to the number of persons working, indicate private payroll employment in the Pittsburgh region rose 14,300 (1.35 percent), driven largely by gains in education and health, leisure and hospitality along with professional services. There were modest pickups in the goods sectors as well.

However, nationally, private payrolls jumped by 2,271,000 (1.8 percent) during the period, a 33 percent faster gain than the Pittsburgh region.  Note, too, that the national growth rate reflects both fast growing and slower growing states.  For instance, North Carolina comes in at 2.1 percent, Texas at 3.2 percent and Florida at 2.2 percent. These and other rapid-growth states are propelling the country to faster growth than the Pittsburgh MSA as well many other states.

The region’s 1,069,700 million payroll jobs represent the highest April level for the last ten years (2018-2008).  Still, the ten-year growth was only 4.7 percent or well under one half percent per year. The highest recorded amount in any month over the last decade occurred in November 2017 when the survey showed 1,078,200 people were on total private payrolls.

The April to April increase represents the smallest gain thus far in 2018.  In January, the 12-month increase was 17,500, for a rise of 1.7 percent, while the February gain was 15,700 and March posted a 12-month pickup of 15,300.

In the Pittsburgh MSA, leisure and hospitality added 3,500 new jobs from April 2017, a gain of just under three percent.  That was the smallest 12-month gain so far this year. The national April to April gain was 1.6 percent and has been gradually declining since January’s high rate of 2.09 percent.

Education and health provided the Pittsburgh region with the largest number of jobs, adding 5,400 jobs in April 2018 compared to the year ago reading—a 2.2 percent rise. Of this total, the health care and social services sector contributed 5,000 of the new jobs, while educational services added only 400.

Nationally, the education and health services sector did not grow quite as fast as the Pittsburgh area, increasing by only 1.87 percent.  The national growth lagged Pittsburgh’s in hospital, nursing facilities and social assistance.

The trade, transportation and utilities group was the weakest sector in the Pittsburgh MSA, losing 1,400 jobs over the year (-0.66 percent).  The monthly year-over-year losses stretch back to December 2017.  The decline was led by a fall in retail trade employment of 2,200—a drop of 1.8 percent.  That being said, not enough information is available to figure out exactly where the losses happened.  There was an increase in building materials and general merchandise stores but losses in food and beverage stores as well as in clothing and department stores.

Meanwhile, in stark contrast, the trade, transportation and utilities sector nationally had an April year-over-year pick-up of 1.11 percent.  It has been picking up steam as 2018 progressed ranging from a low of 0.58 percent in January to a high of 1.17 percent in March.  At the national level, retail trade is also picking up momentum.  After a decline in January, the year-over-year growth rates have been increasing every month since.

The April 2018 jobs and labor force numbers show that Pittsburgh lags the national labor market pace of improvement. As we have been writing for years, reducing taxes, repealing onerous regulations and curtailing the power of unions would go a long way boosting the business climate which in turn will lead to better labor market numbers. Curbing the desire and willingness to subsidize development and highly questionable ventures that should fund themselves would be a giant step toward relying on the free market to drive the economy.

Better questions & sour milk

The Port Authority of Allegheny County this week began conducting the first of three “Voices of the Customers” in-person surveys.

The first, which bowed Monday, involves customer satisfaction. The topics of the other surveys reportedly have not been chosen.

Here are a few pertinent questions that should be included in those future surveys:

  1. Are you satisfied, dissatisfied or neutral that, out of 28 metropolitan areas, the Port Authority was, in 2016, second only to New York’s transit agency for total operating expenses per revenue hour for buses?
  2. Are you satisfied, dissatisfied or neutral that the Port Authority’s cost per passenger for 2016 of $5.82 was the highest of nine peer agencies?
  3. Are you satisfied, dissatisfied or neutral that the Port Authority’s practice of buying labor peace has come at a steep cost, placed upward pressure on fares and the need for ever more state funding?
  4. Are you satisfied, dissatisfied or neutral that the state Legislature’s decision to allow unionized transit workers to strike — and the unwillingness of Port Authority management to stand up to unions threatening to strike — has resulted in a cost structure that is far outside the norm?
  5. Are you satisfied, dissatisfied or neutral that Port Authority CEO Katharine Kelleman rationalizes that it’s OK that passengers pay only 24 percent of the cost of their rides at the fare box because they are paying for the rest of it through state and federal taxes?

Again, these are just a few of the questions that should be put to Port Authority riders in subsequent surveys.

Pennsylvania dairy farmers are struggling, of course. And one of the reasons is that there’s a glut of milk on the market at a time when demand is falling.

Price floors designed to “save” dairy farmers are to blame in no small measure by encouraging over-production. But, as The Daily Caller notes, a U.S. Department of Agriculture (USDA) program to market milk appears to have done more harm than good.

As the online news site details it, one Pennsylvania dairy farmer who is forced to pay $4,000 annually into the program thinks it is doing a lousy job.

As The Caller reports:

“The nonprofit that receives the largest share of dairy checkoff dollars has used the funds to finance ineffective promotion campaigns and has diverted millions of dollars toward lofty compensation packages for its top executives.”

Citing the Government Accountability Office, it says U.S. dairy farmers paid $332 million into the program in 2016 alone – and $1.21 billion between 2008 and 2016.

And referencing USDA data, the news site even notes that the supposedly iconic “Got Milk” campaign that ran for more than two decades was a bust – per capita fluid milk consumption dropped 24 percent between 1993 and 2014.

Too much milk. Too many dairy farmers. Too much government interventionism. And too many greedy hands in the dairy farmers’ pockets.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).