The European Migrant Crisis

April, 2020

One of the main reasons for advocating international integration and, even more precisely, for the creation of supra-state governance structures is the very idea of crisis and crisis management. This chapter explores the case of the migrant crises in European and the European Union’s (EU’s) response. Starting 2015, millions of migrants and refugees crossed into Europe and EU countries have struggled to cope. Tensions and divisions emerged in the EU over how best to deal with this massive resettlement of people. Taking a look at the case, we get a better sense of the role of the states (and state-like structures) not only in solving such crises but also in fueling and maintaining them.

Government Intervention Induced Structural Crises

March, 2020

This chapter examines long-term crises which are induced by the government’s intervention in the structure of the economy when a certain set of structural changes in the economy sets into motion a series of developments that sooner or later lead to what the technical literature has called the “economy of shortage” or shortage economy. This chapter discusses the particular case of Venezuela and several examples of bottom-up responses in Venezuela, as reflected in mass media, in an attempt to get a better sense of the nature and dynamics of the bottom-up responses to structural, shortage economy crises induced by the state.

Addressing Concerns with Congestion Pricing

May 16, 2017

Congestion pricing, a variable toll that highway users pay based on the volume of traffic, offers a solution to the inefficiencies and high travel costs of highway congestion in the United States. Despite its potential, some worry that moving from a fuel tax to congestion pricing would be unpopular because of concerns over pricing, privacy, and equity. Recent research published by the Mercatus Center at George Mason University describes ways to address these concerns that may make congestion pricing an effective and popular public policy.

The Problems with Congestion and a Realistic Solution

Congestion occurs when scarce space on a road is overused, and it forces commuters to spend more time on the road at the expense of time at work or home. The increased air pollution affects the environment and can bring down the value of property along congested roads. Highway congestion also has large adverse effects on the growth rates of GDP, employment, labor earnings, and commodity freight flows.

In 2014, congestion on highways alone cost commuters in the United States $160 billion. The average annual traffic delay that drivers experience in urban areas has doubled in length over the past three decades.

Governments have attempted to alleviate congestion with little success:

  • Government transportation projects such as rail often experience cost overruns while doing little to alleviate congestion.
  • Government projects to expand highways are able to alleviate traffic congestion for a short while, but eventually traffic volume increases and traffic congestion returns. This creates additional costs to drivers.
  • Cities attempt to expand mass transit, but these investments still fail to reduce congestion on the roads, especially in the most densely populated cities.

Variable tolls (also called congestion pricing) can solve the problem of congestion. Under this system, toll prices change based on how many cars are on the road. Tolls will be set higher during peak driving hours and lower (or at zero) during off-peak hours when there are fewer cars. Drivers will thereby have more incentive to drive at off-peak times, when they do not contribute to the congestion problem.

Congestion pricing does present some public policy concerns, including risks to data privacy and the potential to shift tax burdens to low-income individuals. Congestion pricing must also overcome political opposition. However, policymakers have ways to squarely address these issues.

Congestion Pricing and Privacy Concerns

To determine toll prices at various times, information on traffic volume would be constantly collected through license plate scans, driver IDs, and other means. Some critics are concerned about how and where the data on drivers will be collected and stored. While privacy concerns are much greater with congestion pricing than with fuel taxes, Mercatus scholars have found that these concerns can be alleviated while still reducing traffic:

  • Charging drivers for vehicle miles traveled (a VMT charge) could allow for data to be collected based on location and time, and the information could remain stored in the car via an onboard unit, rather than on remote servers.
  • Travel details could be sent monthly to a private firm that would convert the data into a bill that would then be matched to an account for payment. After the bill is paid, the data would be deleted.
  • Laws in Oregon currently restrict how collected data can be used and how long it can be stored. The State of Oregon also has a private company manage the data.
  • Successful models can also be found in London. The use of updated GPS technology allows for affordable ways to store up-to-date road pricing information and allows information to stay within the vehicle.

In an era when government agencies have not always honored the trust placed in them when handling confidential information, it is understandable that many commuters may still be concerned about the privacy of their data. But as the current models are expanded and commuters see the benefits of the programs, their concerns about how transportation data is handled may be alleviated. 

Congestion Pricing and Equity Concerns

The effects of congestion pricing on equity vary based on where commuters live, work, attend school, and shop and on how much they have to travel.

  • A distributional analysis of the effects of comprehensive tolling compared to fuel taxes considered whether more high-income or low-income drivers were using the road and who was affected by noise and air pollution. The results were mixed.
  • Excise taxes such as fuel taxes are regressive because poorer people spend a larger portion of their budget on necessities like gasoline for their cars, yet they pay the same percentage in fuel taxes as those who are wealthier. In comparative studies, congestion pricing was found to be no more regressive than a fuel tax, while congestion pricing succeeds in reducing congestion (unlike fuel taxes). 
  • If this type of congestion pricing system replaces fuel taxes, there are also concerns that costs and benefits for each driver will vary. Economists have long argued that the capacity of the road is normally determined by peak-time traffic, so peak-time travelers should pay higher tolls because they receive the greatest benefit from additional capacity. Peak-time drivers who pay the toll will benefit from continued use of the road, while drivers who try to avoid higher tolls will have to use less preferred travel methods or times or even travel less. 

Congestion Pricing: Costs and Benefits Considered

The current fuel tax system funds highway construction and maintenance. The federal government taxes gasoline at about 18 cents per gallon and diesel fuel at 24 cents per gallon. States also impose their own taxes on gasoline and diesel fuel. However, these taxes are not designed to reduce traffic congestion and the problems that come with congestion. Congestion pricing can help alleviate the problems that a fuel tax fails to address.

When highway use is toll free, drivers only consider their own costs, not other costs to society. When there is no toll, drivers only consider their costs, like gas and travel time, to use the congested highway. This causes social marginal costs (a combination of private and external costs) to exceed social marginal benefits (a combination of private and external benefits), which results in an inefficient overuse of the highway.

  • Congestion pricing through tolls helps reduce the inefficient use of highways. A toll can be set to equate social marginal costs and benefits, allowing for more efficient use of highway resources. 
  • Equating social marginal costs and benefits means drivers consider the costs they bear and the externalities they put on other drivers by driving on the congested road.
  • With congestion pricing, drivers are encouraged to consider not only the costs to drive on the road, but also the congestion they may add, since the toll increases as the road becomes more congested.

Congestion prices can be adjusted to the flow of traffic. Under a VMT charge, drivers pay a toll that is based on a combination of congestion and distance driven on the road.

  • In addition, truckers could be charged by axle weight to account for their trucks’ damage to the road. Truckers would then be incentivized to shift to vehicles with more axles, which would do less damage to roads and help reduce maintenance costs.

Even when costs and benefits are explained to commuters, opposition to congestion pricing can still persist. Policymakers can overcome this opposition by examining how drivers and policymakers understand costs and benefits when using congestion pricing. This can be achieved through voluntary programs or pilot programs of congestion pricing. One example of a voluntary program is the VMT pricing model implemented by the Oregon Department of Transportation in 2015, where participants receive a tax credit for participating.

Congestion Pricing Works with Other Highway Transportation Reforms

Congestion pricing can be an important part of a broader agenda to improve the transportation system in ways that benefit society.

Reforms to highway spending are also important. If tolls are used to maintain the road and improve its quality, other reforms to highway spending will also be needed. Some drivers will prefer more spending on other modes of transportation, while others will prefer to see highway capacity expanded. These differences in preferences are not unique to congestion pricing, however, and they must be considered whenever highway funding is increased or changed.

Governments should be more transparent in how they spend taxpayer dollars on transportation. The important point for taxpayers to understand is that all transportation revenues (including those gained from tolls) are fungible; toll revenues must be spent as promised and not used for other types of spending. If taxpayers cannot trust elected officials to spend tax revenue as promised, the perceived benefits of congestion pricing drop significantly. This implies that state transportation departments should take a customer service approach toward drivers and make processes as transparent as possible.

Other technological improvements can also help reduce congestion. Cars and smartphones are now able to warn drivers of traffic problems and suggest alternate routes, allowing drivers to spend less time in their cars. New technology, including widespread adoption of driverless vehicles, could also reduce highway congestion by greatly improving the flow of traffic and reducing vehicle accidents without significantly increasing the monetary cost of commuting.

Policy Lessons and Conclusions

Congestion pricing through a VMT charge will hopefully become more popular as drivers learn more about its benefits and as concerns of policymakers and the public are alleviated. Congestion pricing systems will continue to improve, and drivers will learn from experiences with the systems. Objections that VMT charges are regressive could be addressed with reductions in other regressive taxes, like gas taxes or sales taxes. VMT charges could eventually be made permanent and replace the gas tax altogether.

A Snapshot of Ohio’s Budget Situation from 2006 to 2015

December 13, 2016

Ohio has a problem. Its public sector pensions are strained, and if retirees want their pensions to be paid in full the status quo cannot continue. In order for Ohio to adequately fund its pensions, some combination of spending cuts and tax increases is necessary, because Ohio’s economy is unlikely to grow its way out of the problem.

It is important to understand how Ohio spends its tax dollars before discussing any potential spending cuts. The first chart displays Ohio’s state spending by category.

Over the past 10 years, the category that has seen the greatest increase in spending has been “public assistance and Medicaid.” From 2006 to 2016, spending on public assistance and Medicaid steadily increased (except for a slight dip from 2007 to 2008 during the recession), rising from roughly $19 billion to $28 billion. The “education” category has had the second highest level of spending, but education spending started to decline in 2009 after public assistance and Medicaid spending resumed rising in 2008.

Meanwhile, other spending in other categories has either decreased or remained roughly constant. The category “general government and other funds” saw a slight decline in spending after 2011, while “transportation and development” saw a slight increase after 2010. Spending for “justice and public protection” has hovered between $3 billion and $4 billion for the entire time period. “Health and human services” spending saw a significant drop in 2013, when spending on public assistance and Medicaid sharply increased (corresponding with Ohio’s 2013 Medicaid expansion).

During the past decade, Ohio’s expenditures have generally exceeded its revenue, as shown in the second chart. The majority of the state’s revenue was from state-level sources (between $27 billion and $34 billion). Aside from taxes, the state also gets revenue from licenses, permits and fees, sales, services and charges, and the federal government. While the majority of Ohio’s revenue is from state-level sources, revenue from the federal government began increasing after 2008 following the recession and has remained relatively high post-recession.

Ohio lawmakers will need to make changes to Ohio’s pension plans if they are to remain solvent. The two most obvious changes are increasing spending on pensions by cutting it from other areas, such as public assistance and Medicaid or education, and raising additional revenue through tax increases. Another option to consider is whether Ohio can grow its way out of its spending problems. After all, greater economic growth can generate more tax revenue without any change to the percentage of total economic output collected.

While we do not have a crystal ball, such growth appears unlikely. The third chart shows the change in real GDP and the percentage change in GDP from 2006 to 2015. The contraction from 2006 to 2009 due to the financial crisis and recession is evident, and then from 2009 onward the Ohio economy grew modestly.

The sharpest increases in economic growth usually occur in the years immediately following a crash, but these boom years never materialized after the latest recession. Recent growth has just barely returned Ohio to its 2006 GDP level (roughly $608 billion). The recent modest growth rates suggest that unless something changes it is unlikely that Ohio can grow its way out of its pension problem.

Considering both recent findings published by the Mercatus Center on Ohio public pensions and the analysis above, the state’s financial situation is likely to change in the future. Such change will necessitate spending cuts, tax increases, or both, and these difficult decisions will only become more difficult if action is delayed. Ohio voters, legislators, and the governor will have to decide which tradeoffs to make, and the sooner they act, the less painful the solution will be.

Note: The first chart uses the categories from Ohio’s comprehensive annual financial reports (CAFRs). The “education” category combines the primary and secondary education and higher and other education categories from the CAFRs. The “general government and other funds” category combines the general government, environmental protection and natural resources, and community and economic development categories from the CAFRs.

A Win for San Diego

Monday, November 14, 2016
Michael D. Farren

Regardless of your political leanings, this year's election saw a lot of wins and losses. But here's a big win for Californians: Voters rejected raising hotel taxes to pay for a new stadium for the NFL's San Diego Chargers.

Ballot Measure C received only 43 percent support from San Diego County voters. (It needed at least 66.7 percent to pass.) The Chargers' loyal fan base is justifiably worried about the team's future in San Diego, but from a pure policy standpoint, they dodged a financial bullet.

Why? In order to attract professional sports teams, or prevent them from moving elsewhere, cities often sweeten the pot through tax breaks, subsidies or both. Taxpayers foot the bill for these special favors.

Advocates argue that building taxpayer-funded stadiums is a boon for the local economy, but we need to look at the bigger picture. Impartial economists who have done the math generally agree that subsidizing stadiums brings more costs into a community than revenue.

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Craft Breweries Need Help, Not Handouts

Wednesday, September 21, 2016
Christopher Koopman

In a development that has become as commonplace as the hoppy IPAs that symbolize the United States’ craft beer renaissance, state and local governments are rushing to “help” breweries. Port City Brewing in Alexandria is just the latest example of what’s happening across the country. Thanks in part to $500,000 in public grants from the Virginia Department of Agriculture and the city government, Port City announced that it will expand its operations and nearly triple its brewing capacity.

The knee-jerk reaction for beer lovers would be to rejoice. After all, this means more beer. People looking for a way to boost the local economy might find cause for celebration. This means more jobs. And local politicians certainly love this, too. Piggybacking off of craft beer’s popularity might increase their popularity (read: re-electability) as well.

While these sentiments are certainly understandable, they neglect to consider how policymakers can actually lend a hand to the industry. Craft breweries do not need subsidies, but they do need help.

In fact, giving money to brewers simply masks the biggest problem facing the industry’s continued growth: Craft brewers face an outdated, counterproductive and oftentimes redundant regulatory mess. In Virginia, for example, starting a craft brewery requires 20 regulatory steps at the local, state and federal levels. This is as many bureaucratic steps as starting a small business in China or Venezuela.

This is not to say that there is no role for regulation, especially when a real public-safety concern is in play. But most of these regulations date to the end of Prohibition, fail to account for changes in the market over the last eight decades and have become poorly disguised gifts to established breweries and wholesalers.

At the federal level, aspiring craft brewers currently must wait more than 160 days to get approval from the Alcohol and Tobacco Tax and Trade Bureau. This includes background checks, field investigations, equipment and premises examination and a legal analysis of proposed operations. Then it’s another 24 days for the TTB to approve the label you put on the bottle. The TTB may also need to approve your formula (depending on your ingredients and brewing methods), which requiresmore waiting. In all, just at the federal level, a brewer must wait nearly six months for the necessary approval.

An aspiring brewer’s work is not done, however, as he or she must also obtain permission at the state level. In Virginia, the problem is not how long it will take to get approval but whether approval will be given at all. The state can deny a license if the applicant is “physically unable to carry on the business” (couldn’t this person hire some help?). Or if the applicant is not a “person of good moral character and repute” (who makes this subjective judgment?). Or even if the applicant is “unable to speak, understand, read and write the English language in a reasonably satisfactory manner” (so much for inclusiveness).

If you become a craft brewer today, don’t plan on selling your first bottle of beer until this time next year. That is, if you’re able to make it through the process at all.

Policymakers have correctly recognized that this process creates problems for craft brewers. Focusing on subsidizing some brewers, however, rather than reforming the entire process for all brewers, does more harm than good. It gives the appearance that policymakers are taking active steps to support an industry when the truth is that it’s only supporting certain members of the industry: those lucky (or shrewd) enough the win subsidies.

You could help this entire industry without spending a dime. Instead of getting financially involved, get out of the way.

Rio's Olympic Win is Rio's Economic Loss

Monday, August 8, 2016
Christopher Koopman

The Olympics are a time for celebration, when nearly half of the world’s population comes together to watch the dedication and sacrifice required of elite athletes. It’s a time for appreciating the inspirational stories about what the games can accomplish for individual athletes and the global community. Unfortunately, the Olympics have also become as much about economic development as athletics. This is where the fairy tale ends, because the games actually do little to lift up the economy of the host country.

Hosting the Olympics seems like it would give a fantastic boost to the local economy. Building massive, shiny new stadiums requires both labor and materials. Tourists from the around the globe converge, spending money on the local businesses and paying taxes.

Despite this flurry of activity, evidence for the economic benefits of hosting mega-events like the Olympics is extremely exaggerated. While the International Olympic Committee touted studies that England would continue to see new business contracts, additional sales and foreign investment for nearly a decade after hosting the 2012 Games, there’s little reason to believe such predictions will come true.

The slogan for this year’s games is “Rio 2016: A New World,” but Brazil’s post-Olympic world won’t likely include an economic boom.

Brazilians should look no further than Greece for a cautionary tale, where the massive costs of hosting in 2004 hastened its financial collapse years later. The birthplace of the Olympics was driven into financial ruin partly because of the Summer Games’ costs.

No one denies that Olympic facilities cost a massive amount of money. The big debate is typically over who should pay for them. Even when private stadium owners are involved, they try to secure some form of public funding.

Publicly funded stadium projects are almost ubiquitous in American sports, and NFL owners have become notoriously effective at getting taxpayers to pay for their venues. The IOC, and its ability to extract concessions from host cities, is no different. Part of the selection process includes a potential host city’s ability to fund the construction the IOC believes it deserves. In return, the IOC promises that hosting the Olympics will have “long-lasting economic benefits” for a host city.

But not every shiny object should be mistaken for a gold medal. For a host country, the Summer Olympics is almost certainly a one-time event. Only four cites have ever hosted more than one Summer Olympics, but it took London 64 years (1948, 2012); Athens 108 years (1896, 2004); Los Angeles 52 years (1932, 1984); and Paris 24 years (1900, 1924).

This means that Olympic hosts may struggle with what to do with these massive complexes following the games. Some go unused for decades while host cities foot the bill for continued upkeep and maintenance. Others are simply abandoned, left to be reclaimed by nature. Many of the 2008 Olympic venues, for example, are now deserted on the outskirts of Beijing. Local artists and student drivers have put these venues to use, but is that really worth the billions of dollars it took to build and tens of millions it requires to maintain these sites?

Contrary to popular belief, it’s not even clear that the games increase tourism or new investments during the times immediately surrounding the games. Britain received about 5 percent fewer foreign visitors during the month it hosted the 2012 Summer Olympics than during the same month in 2011. Greece lost 70,000 jobs — mostly in the construction industry — in the three months immediately after the 2004 Summer Olympics in Athens.

And what about the promise of increased economic activity in the long run? One recent study found that unsuccessful bids to host the Olympics were just as beneficial for a country’s exports as actually hosting. What’s more important is the signal a country sends by throwing its hat in the ring — that it’s open for business. Eventually hosting seems to be less consequential. That said, cities should be careful: Chicago is still suffering from costly deals it made in an attempt to win its 2009 bid for the Olympics.

As it turns out, hosting the Olympics isn’t that different from competing in the games: It requires a great deal of effort, stamina and a willingness to achieve what you set out to do. When it comes to hosting, however, winning might be worse than losing. Rio should enjoy its time in the Olympic limelight, because it will certainly pay for it come September.

New York Politicians Should Stay out of the Private Sector's Way

Monday, June 27, 2016
Christopher Koopman

New York state politicians think they can and should pick winners and losers in the private sector. But their record is clear: They’re really good at picking losers.

Before the legislative session ended, lawmakers had the opportunity to open up the state to thriving businesses, but they didn’t. They decided to continue picking which industries and businesses succeed or fail. When Albany tries to select winners, New Yorkers always lose.

First, state lawmakers wrapped up the 2016 legislative session without resolving how ridesharing companies like Uber and Lyft can expand outside of New York City, missing their chance to bring in much-needed jobs and better services.

This alone would be a cause for concern, since it denies New Yorkers one of the sharing economy’s most successful industries. But, Albany wasn’t finished. The Legislature also passed a bill preventing Airbnb users from advertising entire apartments for rent for less than 30 days.

On its face, it may look like the Legislature is trying to chase business out of the Empire State. But this isn’t an anti-business crusade. Airbnb, Uber and Lyft are just part of the wrong industry.

While lawmakers were busy building roadblocks for the sharing economy, they were also giving hundreds of millions of taxpayer dollars to other ventures. New York is willing to hand out $50 million a year in tax subsidies for music and video-game producers and $420 million for TV and film production.

Picking winners and losers is certainly bad governance. New York is also extremely bad at it.

Businesses that receive Albany’s financial support have a tendency to flop. The state has spent hundreds of millions to support General Electric, a notoriously flighty company that tends to chase tax privileges. GE’s Durathon battery plant in Schenectady, a recipient of 2013’s “JOBS Now” capital funding, closed down in 2015. Albany doubled down, committing another $50 million to convince GE to put another factory in Utica. Not exactly a shining record of success.

Economic growth, we’re told, will follow these investments. But private-sector employment in the state grew at barely half the average US rate during the last year. And what’s more, most of this job growth was limited to New York City and its suburbs.

Bringing jobs and opportunity upstate is not as difficult as Albany makes it look, but ongoing efforts to stifle the sharing economy show that lawmakers are more interested in playing politics than setting sound policy.

Expanding ridesharing across New York would provide new job opportunities, as it has done nearly nationwide.

Taxi drivers in Rochester and Albany have protested bringing ridesharing to areas outside New York City, claiming passengers are less safe riding with Uber and Lyft, and that they cannot adequately provide for disabled passengers.

Albany seems to be receptive to these arguments. Yet it’s becoming increasingly clear it shouldn’t be.

In addition to providing passengers with safety features unavailable in taxis — pictures of drivers, maps of the trip, ETAs, driver ratings, vehicle descriptions and license-plate numbers — recent research shows that competition from Uber makes taxis better. Using data from the New York City Taxi and Limousine Commission, Georgetown’s Scott Wallsten notes that the rate of consumer complaints about taxis decreases as ridesharing becomes more common.

The best thing for upstate taxi passengers may be Uber’s expansion outside of New York City. Reforms must embrace the changes that are already taking place and allow cab companies to improve, rather than entrench their outdated business practices.

All New Yorkers — not just city dwellers — deserve the opportunity to choose the type of services they pay for, whether it’s who picks them up, where they stay or where they work. And New Yorkers deserve the economic boost that the sharing economy provides.

Unfortunately, lawmakers appear to have missed their chance, and they will have to wait until next year. It’s time Albany realized picking winners and losers is easier than they’ve made it. They don’t have to pick at all. They just have to get out of the way.