Tag Archives: San Francisco

This Week in Economic Freedom

It’s been a promising week for supporters of freer markets as several states and municipalities have taken steps toward deregulation and consumer choice. Here’s a roundup of some new developments:

1. Washington state is making headlines by being the first state (and first place globally) to legalize recreational marijuana. This policy change comes after recent polls indicate that most Americans favor legalizing marijuana. Of course what remains to be seen  is how the federal government will respond to this change in state law. The U.S. Attorney General’s office has issued a letter stating that marijuana remains illegal under federal law in these states and under the Obama administration the office has aggressively prosecuted medical marijuana dispensaries that are legal under states’ laws.

2. In Michigan right to work legislation looks poised to pass. The change would make it legal for employers to pay workers who choose not to be union members. James Sherck explains the political calculus behind this potential policy change:

Republicans have large majorities in both houses of the state legislature. Until now, however, Governor Rick Snyder has insisted right to work was not on his agenda. But today he changed his tune and called for the legislature to pass the bill — Snyder’s support removes the last obstacle to right to work passing in Michigan.

How did this happen? For one, unions badly miscalculated. They tried to amend the state constitution to preemptively ban right to work and attempted to elevate union contracts above state law. Michigan voters roundly rejected the proposal, but the debate put the issue on the public’s agenda.

Unsurprisingly, Michigan unions strongly oppose this change and are currently rallying against this potential change.

3. In Washington, DC City Council took two steps toward greater economic freedom. On Tuesday, the DC Council passed legislation allowing Uber, a popular sedan service which customers use their cell phones to book, to continue operating in the city. The new legislation legalizes “digital dispatch” and permits this new type of service that fits between taxis and traditional car services. Uber still faces legal challenges in San Francisco, Boston, Toronto, New York, and Chicago. Also on Tuesday, DC joined its neighbors Maryland and Virginia with legal Sunday liquor sales. As is so often the case with regulation,  many liquor store owners supported the status quo of mandatory Sunday closings. Store owners testified that they appreciated the mandatory day off and worried that the policy change would allow competitors to cut into the profits of stores that choose to close on Sunday.

D.C. Council Considers Privileges for Taxis

I had an economics professor who once joked that it is a good thing that New York City imposes rent controls. Why? Because it helps economics teachers everywhere explain the folly of price controls.

I suppose that I should thank the D.C. City Council because today they are evidently considering a measure that illustrates an important economic concept: regulations often benefit entrenched interests at the expense of customers and would-be competitors.

In my latest paper I write:

Though business leaders and politicians often speak of regulations as “burdensome” or “crushing”…sometimes it can be a privilege to be regulated, especially if it hobbles one’s competition.

An amendment before the D.C. council today illustrates this point beautifully. First, some background: “Uber” is a San Francisco-based Internet startup. They offer a cell-phone app that allows you to instantly call a luxury sedan to your location (full disclosure: I have never used this service and only recently became aware of its existence). It is, as one might imagine, more expensive than a typical cab service, but apparently a lot of people are willing to pay more for the easy and convenience.

Now, some on the D.C. council would like people to pay a lot more. An amendment—you can’t make this up—called the “Uber Amendments” actually singles out the company by name and sets a price floor with the explicit aim of limiting competition with traditional cabs. According to the Uber blog, section C) 1) of the amendment reads:

The minimum fare for sedan-class vehicles shall be five times the drop rate for taxicabs, as established by 31 DCMR § 801.3 (a).

In case their intentions were not clear, the “rationale” section of the amendment states:

These requirements would ensure that sedan service is a premium class of service with a substantially higher cost that does not directly compete with or undercut taxicab service.

If you can’t win customers on price and quality, you can always go to government and enlist its help in boxing out the competition.

Update: I’ve just learned that language has been introduced to strike the minimum fare part of the amendment. Apparently it isn’t a winning strategy to be so overt when passing out government privileges.


CalPERS proceeds with lawsuit against credit ratings agencies

A judge in San Francisco has ruled that the California Public Employees Retirement System (CalPERS) may proceed with a lawsuit against Moody’s and Standard and Poors. The suit was brought in July 2009 on the grounds that the credit ratings agencies misled CalPERS investors by giving its highest ratings to three companies that tanked in 2007 and 2008.The ratings agencies claim the suit is groundless since ratings opinions are a matter of free speech. CalPERS counters that the agencies furnish investors with supposedly factual information, and “without reasonable grounds to believe that the representations were true.”

The three companies that defaulted on their payments to CalPERS: Cheyne Finance LLC, Stanfield Victoria Funding LLC and Sigma Finance Inc were “structured investment vehicles” or SIVs. The assets underlying the SIVs (packages of loans, debt and sub-prime mortgages) were only known to the SIVs. CalPERs lost $1 billion in the investment. A similar suit brought by CalPERS against Fitch Ratings was dropped in August 2011.

Other public pension systems that have sued ratings agencies due to bad investments include the state of Ohio on behalf of the Ohio Police and Fire Pension Fund and the Ohio Public Employee Retirement System. In September a judge ruled that the opinions of ratings agencies are protected speech, dismissing Ohio’s $457 million suit.


Midwestern population shifts

Metropolitan areas the cities and the suburbs that suround them have grown by 10.8 percent over the last decade. Rural areas only grew by half as much in the same period. In addition, demographic trends show America is becoming more diverse and less racially-segregated. This trend is alongside another shift – the move away from  northern central cities such as Detroit and Chicago -towards southern and western metro areas. The WSJ’s interactive map of the top 50 cities is worth exploring. New York and San Francisco have been flat over the decade. Cleveland saw a major decline in population while Colorado Springs has surged.

Pension Reforms from California Progressive Leaders

California’s pension tsunami is a few years from decimating the cities. In 2015 it is estimated one-third of Los Angeles’ budget could go to pay for employee retirement costs. Steven Greenhut reports at City Journal these facts have touched off calls for reform not just among fiscal conservatives but among several prominent progressive leaders in the state.

San Francisco Public Defender Jeff Adachi is a Democrat and the sponsor of “Proposition B” or the Sustainable City Employee Benefits Reform Act which will appear on the November ballot. If passed, the measure requires uniformed police and firefighters to dedicate 10 percent of their income to their retirement.(City employees would have to increase their contributions to 9 percent).

While unions and their political backers are likely to challenge any alteration to the status quo, a shift in thinking may be taking place, as Greenhut reports. Governor Schwarzenegger’s pension adviser, David Crane, points out the price for ignoring pension reform is less public funding for progressive programs. That tradeoff is real and significant. In the next five years the cost for San Francisco’s employee benefits are slated to rise from $413 million to $1 billion. Charles Lane writing at The Washington Post puts it another way: “Nothing threatens the political consensus of progressive government more than the widespread impression –and reality– that public employees have captured government.”

In other words, profligate fiscal policy doesn’t just affect taxpayers and weaken economies. Unsustainable spending also harms beneficiairies by undermining expectations and trust — a recipe for dysfunctional government.

Local Governments Taxing Online Travel Services?

A new study from the Tax Foundation looks at how local governments are attempting to change the way they calculate hotel occupancy taxes, from the amount paid to the hotel to the amount paid by the consumer to online travel services like Expedia and Priceline:

Local governments’ efforts to collect discriminatory taxes from online travel services amount to a revenue grab from out-of-staters and ultimately harm interstate commerce, according to a new Tax Foundation report.

City officials in 22 states have, with limited success, sought to reinterpret hotel occupancy taxes to apply to amounts paid by consumers for online travel booking services (such as Expedia, Orbitz and Priceline).

“Hotel taxes are attractive to local politicians because they are a way to shift the tax burden to ‘outsiders,'” said Joseph Henchman, the Tax Foundation’s Tax Counsel and Director of State Projects, who authored the report. “But because every U.S. city has a hotel tax, we’re all somebody else’s ‘outsider.’ And that means everyone is paying high hotel taxes everywhere.” Continue reading

Public Transit 2010: Higher Fares and Less Service

The Wall Street Journal reports higher fares and less frequent service will hit public transit systems nationwide this year. About $8.4 billion of the $787 billion stimulus  meant to boost state and local budgets and prevent transit cuts has only pushed forward tough decisions by 11 months. Chicago will furlough some transit workers. San Francisco is raising fares to close a $129 million budget gap. And New York is cutting service. Transit riders may well be frustrated in 2010, but ultimately that’s because riders aren’t customers, they are beneficiaries of a subsidized service. As Sam Staley writes at Planetizen, only one-third of transit’s revenues come from fares, the bulk comes from tax revenues and federal grants. Urban transit systems have evolved as a product of political lobbying not in response to rider needs.

The crisis in budgets has a silver lining. More cities and states may be forced to pursue fundamental reform. Leonard Gilroy writes in the Reason Foundation’s  23rd Annual Privatization Report, Chicago leased its parking meters and Dunwoody, Georgia is contracting out non-safety-related services. Given the revenue outlook for local and state governments 2010 may be the year that cities finally try and fix what ails public transit.

“If you have a decent job, do what you’re supposed to do with your money, save your pennies, and pay off your bills, you can have the world by the tail in Flint.”

Recently, Bob Nelson discussed plans to bulldoze sections of Flint, Michigan to shrink the city to make up for declining population. San Franciscan Gordon Young discusses in Slate why he’s giving up the Paris of the West to buy a house in Flint:

As the veteran of a brutal San Francisco home-buying odyssey, there’s no denying the appeal of a place where desperate Realtors sometimes offer up houses by the dozen. But this is more than a quest for cheap housing. I have an almost unhealthy attachment to Flint. I want to do something—anything—to help my hometown. Maybe a “summer place” in what has been ranked one of America’s most depressing cities can pump a little life into the local economy. And I fear that after 15 years in San Francisco—sometimes described as 49 square miles surrounded on all sides by reality—I’m losing touch with my roots, drifting uncomfortably far from the factory town my grandparents moved to at the turn of the 20th century.

Read the whole thing here. Young blogs at flintexpats.com.

Want to Help the Earth? Move Back to Metropolis

Ed Glaeser writes in City Journal on his latest study, which suggests that cities emit less carbon than suburbs. (Full NBER paper with Matthew Kahn can be found here.) The top five cities (by emissions) are in California.

This sounds counterintuitive at first blush. But, Glaeser suggests, people who live in the suburbs drive more and consume more housing. The policy implication is make cities more affordable by loosening building restrictions:

If climate change is the major environmental challenge that we face, the state should actively encourage new construction, rather than push it toward other areas. True, increasing development in California might increase per-household carbon emissions within the state if the new development, following the current model, took place on the extreme edges of urban areas. A better path would be to ease restrictions in the urban cores of San Francisco, San Jose, Los Angeles, and San Diego. More building there would reduce average commute lengths and improve per-capita emissions. Higher densities could also justify more investment in new, low-emissions energy plants.

Similarly, limiting the height or growth of New York City skyscrapers incurs environmental costs. Building more apartments in Gotham will not only make the city more affordable; it will also reduce global warming.

Here’s Glaeser’s write-up at the New York Times Economix blog. Here’s Tyler Cowen on a previous, related study.