Bacon's Rebellion

Sheila and Kevin Nelson are obviously good at what they do. Since purchasing Groomingdale’s, an established pet grooming business, in November, they’ve boosted sales six percent, as Joan Tupponce tells the story in today’s Richmond Times-Dispatch. I wish the Nelsons all the luck in the world. I like to see small businesses succeed, especially in a heart-tugging instance like this: The flexibility of the business allows the couple to schedule appointments around the needs of their oldest daughter, who has cerebral palsy

But I really do wonder: Was there a public policy justification for the Small Business Administration to finance the Nelsons’ takeover of the business with $175,200 in loans?

As the SBA says on its website, it was formed in 1953 to “aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.”

How did financing the Nelsons’ business “maintain and strengthen the overall economy of the nation”? Groomingdale’s had been in business since 1992. In other words, the SBA-guaranteed loans helped finance the purchase of an existing pet grooming business by a new owner. Are the owners creating new jobs or expand the tax base? Does the business serve new markets? Does it stimulate exports? Is it advancing a new technology? Does the enterprise complement, and help grow, a strategically important business cluster?

With Wall Street firms collapsing, with the federal government committing itself to gazillion-dollar bailouts of mortgage-securitization giants Freddie Mac and Fannie Mae, with the U.S. financial system imploding, foreign investors withdrawing their capital and lenders trimming their sales, is a pet-grooming service the kind of business into which the United States should be funneling scarce investment capital? Nothing personal against the Nelsons, whom I’m sure are wonderful people, but I reaaalllly don’t think so.

(This blog entry was adapted from a post on R’Biz.)

Arthur Laffer, known for the “Laffer Curve,” and Stephen Moore, a Cato Institute scholar, published a study last year, “Rich States, Poor States,” that asks exactly the kinds of questions we explore here on the Bacon’s Rebellion blog. What are the public policy variables that affect states’ long-term economic growth — and how does Virginia fare?

I have only now come across this study. Although its data is a year older than we’d like, “Rich States, Poor States,” covers a recent 10-year period (1997 to 2006), so its conclusions are still informative for purposes of long-term analysis.

Laffer and Moore pick three criteria for tracking a state’s economic performance: per capita income, net in-migration, and job creation. We have oft-touted the virtues of “per capita income” as a metric for economic well-being. The usefulness of “job creation” as a measure of economic vitality needs no elaboration.

I find the net in-migration number the most interesting because the data is less widely reported and it’s a forward-looking indicator. Domestic migration is the best single indicator there is of the flow of human capital. For the most part, domestic migrants are better educated and earn more money than those who stay behind. They enrich the human capital of the regions and states where they end up. If you’re trying to build up your creative class, domestic in-migration is a good measure of how you’re doing.

Anyway, according to Laffer and Moore, between the 1Q of 1997 and the 1Q of 2006, Virginia recorded:

• per capita income growth of 56.4 percent (7th best in the country)
• job growth of 18.8 percent (12th best in the country), and
• net domestic in-migration of 162,653 (12th best in the country)

Add it all up, and Virginia had the 4th strongest economic performance nationally over that period. (Arizona was 3rd, Florida was 2nd, and Texas was 1st.)

What contributed to that strong performance? Laffer and Moore focus mainly on state tax and regulatory policies. They don’t provide a composite score for each state, but here’s how Virginia ranks for individual variables (with state rank in parenthesis):

Top marginal personal income tax rate: 5.75%…. (23)

Top marginal income tax rate: 6.0%…. (15)

Personal income tax progressivity (change in tax liability per $1,000 in income): $6.42…. (22)

Property tax burden (per $1,000 of personal income): $29.85…. (20)

Sales tax burden (per $1,000 of personal income): $15.00…. (9)

Remaining tax burden (per $1,000 of personal income): $21.35…. (33)

Estate/inheritance tax: No…. (1, tie)

Recent legislated tax changes (2005 and 2006, per $1,000 of personal income): -0.37…. (14)

Debt service as % of total tax revenue: 7.8%…. (17)

Public employees per 10,000 population (FTE): 563.4… (28)

State liability system survey (tort litigation treatment, judicial impartiality): 66.9…. (12)

State minimum wage (federal floor is $5.85): $5.85…. (1, tie)

Average workers comp costs (per $100 of payrol): $1.52…. (3)

Right to work state? Yes…. (1, tied)

Number of tax expenditure limits: least/worst…. (23, tied)

Education freedom index score (vouchers, ease of private/home schooling): 1.47…. (42)

My main quibble with the Laffer/Moore analysis is that it chooses states as the unit of analysis rather than metropolitan regions. Breaking down the performance data by region would permit a finer-grained analysis. Here in Virginia, there is enormous variability between the performance of Charlottesville or Northern Virginia and, say, Danville.

While tax/regulatory policy clearly is a major determinant, it is not the only one. Human capital — and the capacity for upgrading human capital, i.e. education and training — is another one. The existence of strong industry clusters is another. Human settlement patterns are yet another. Still, while the Laffer/Moore analysis doesn’t explain everything, it explains a lot.

Virginia Republicans may be losing their grip on power, but they can console themselves that they’re still perceived as “pro business.” That gives them a significant advantage in fund raising. I’m yet to be convinced, however, that the pro-business epithet is terribly beneficial for the rest of us.

According to the 2008 report card issued by the Virginia Foundation for Research and Economic Education (Virginia FREE), the top pro-business legislators in the General Assembly are all Republican. As listed by the Associated Press, they include:

1. Sen. Walter Scotch, R
(tie) Sen. John Watkins, R
3. Sen. Kenneth Stolle, R
(tie) Sen. Thomas Norment, R
5. Sen. William Wampler, R
6. Sen. Frank Wagner, R
(tie) Del. Thomas Rust, R
8. Sen. Harry Blevins, R
9. Sen. Robert Hurt, R
(tie) Sen. Stephen Newman, R

Once upon a time, I would have said it was a good thing to be pro-business. America is, after all, a capitalist society. A healthy economy requires healthy, profitable businesses. But I’m not so sure I believe that anymore. Increasingly, businesses view government and politics not as a thing apart from the private sector but as an extension of marketplace, an arena where they can manipulate the rules and the power of patronage for their own benefit. Increasingly, the “business” lobby has evolved into an aggregation of special interests that look out for themselves, not the general welfare.

Clayton Roberts, president of Virginia FREE, doesn’t see it that way. In a column published widely around the state this morning, he regards the interests of business, the citizenry and good government as largely synonomous:

Virginia businesses do not see public safety, education, health care, transportation, and energy as partisan issues. They are Virginia issues. They are pressing business issues.

Roberts, a delightful guy whom I regard as a friend, blames elected officials and partisan stand-offs for Virginia’s failure to devise legislative fixes. I wouldn’t disagree. Mindless partisanship does not lend itself to solving problems.

But the biggest obstacle in Virginia is something else entirely: the widespread belief that complex problems have easy answers — usually entailing the expenditure of larger amounts of money. The answer, we hear repeatedly, is mo’ money. We don’t hear a cry for Fundamental Change.

John McCain may be trying to seize the mantle of change in the presidential elections, but I see little evidence that Virginia Republicans — or businesses — have been caught up in the same spirit.

Inc. Magazine is known mainly for its prestigious “Inc. 500” list of fastest-growing private companies in the United States. As I reported for R’Biz last month, the Richmond region contributed only one company – Logical Innovations, a software development firm — to that list. But it turns out that Inc. compiles an even bigger list, an “Inc. 5000,” that dips even deeper into the entrepreneurial economy.

Ah, hah, I thought. Perhaps the Richmond area’s successful companies were buried a layer or two under the elite strata of the top 500. If only I searched the larger database, I reasoned, the region’s rising stars would be unveiled. Alas, searching the Inc. 5000 list proved to be even more demoralizing. Out of the 5,000 fastest-growing private companies in the United States, 244 companies are from Virginia — nearly one out of 20. But the vast majority are from Northern Virginia; only 12 are located in Richmond.

In a metropolitan area of about one million people and a country of 300 million people, the odds are that at least one company out of 300 would be found here. In actuality, the ratio is less than one out of 400. If the Inc. 5000 list can be trusted as an accurate reflection of economic reality, the Richmond region is entrepreneur poor. We have a severe shortage of the fast-growth companies that drive regional economic development through job and wealth creation.

While Richmond has been successful at recruiting corporate headquarters and professional firms, we’re doing a lousy job of creating the next generation of businesses, jobs and technologies. No wonder the Milken Institute ranked the region 102 out of the 200 largest Metropolitan Statistical Areas for the growth of its technology sector. (See “Richmond Falling Short in Tech Cred.”)

As the Richmond region has experienced repeatedly, large corporations come — and they go. It’s great when we recruit a new manufacturer or, even better, a corporate headquarters. But there is no assurance that they will stay. In the past year alone, Albemarle Corp., a specialty chemicals manufacturer, has relocated its corporate headquarters to Baton Rouge, La. Far more damaging to the local economy, Wachovia Securities moved to St. Louis, taking hundreds of highly compensated employees with it.

As Robert Reich argued in his book, “Supercapitalism,” corporations today have no regional loyalties. They invest their capital wherever they can maximize their profits, whether that’s in Virginia, or Louisiana… or China. Maximizing profit for shareholders is the reason why corporations exist. If senior executives don’t maximize profit, they will either be relieved of their command or investors will shun their stock.

By contrast, citizens are invested in their communities, and they want to see their communities prosper. The citizens of Richmond need to create the social and economic conditions – a deep pool of human capital, and institutions supportive of entrepreneurs — that encourage the formation of innovative, fast-growth companies. Even successful fast-growth companies can grow up to become Fortune 500 companies and move out of town. But in the two or three decades it takes to reach that stage, the fast-growth companies are creating jobs, wealth for investors, opportunities for vendors and partners, and economic prosperity generally.

Our business, political and civic leaders appear to be very engaged in community issues. But, whatever priorities they may have, supporting entrepreneurial growthis not one they take terribly seriously. Perhaps more depressing evidence like that of the Inc. 5000 will induce the big shots to change. Instead of jetting off to places like Jacksonville, Fla., for inspiration, maybe they should take a bus up to Northern Virginia to see where that region’s entrepreneurs come from.

(This post was adapted from an article first published in R’Biz.)

Washington, D.C., has the greatest extremes of wealth and poverty of almost any place in the United States. Yet, ironically, both extremes — the rich and the poor — vote overwhelmingly for Democrats, observes David Frum, former speechwriter for President George W. Bush and now a resident fellow at the American Enterprise Institute.

The same pattern applies across the country: Places with greater income inequality vote for the Dems, places with more egalitarian incomes prefer Republicans. The danger for the GOP is that the nation is becoming more unequal, Frum argues in “The Vanishing Republican Voter,” an article published Sunday in the New York Times Magazine.” As America becomes more unequal, it also becomes less Republican,”

To advance his argument, Frum hones in on Fairfax County, a once solidly Republican stronghold that now leans Democratic, and Prince William County, where the GOP lock is loosening.

The million residents of Fairfax County have an economy larger than Vietnam’s. Incomes average more than $100,000. But that high average conceals wide variations between those with great educations and high incomes, and the arrivals “speaking 40 different tongues.” Inequality has created new social problems, contends Frum: “The schools are stressed. The roads are choked. Land use is more contentious.” And the county is shifting steadily into the Democratic column.

Why? Frum doesn’t really explain why. He just notes that super-affluent Americans generally trend Democratic. Says Frum: “Al Gore beat George Bush 56-39, among the 4 percent of voters who identified themselves as ‘upper class.’ America’s wealthiest ZIP codes are a roll call of Democratic strongholds.” It goes without saying that poor people prefer Democrats, who look more favorably upon the redistribution of wealth.

Moving on to Prince William County, Frum says, “There are no more egalitarian and no more Republican places in the United States than these exurbs. The rich shun them, and the poor can find no easy foothold.” But even here, the Republican dominance is slipping. Democrats Gov. Tim Kaine and Sen. Jim Webb both won majorities here.

Frum argues that Republican policies under the Bush administration have yielded few benefits to middle-income Americans. He then focuses on Prince William as “ground zero” for the illegal immigration debate. Illegal immigration is bad for the poor because it drives down wages, and it helps the rich because it lowers the price of personal services like landscaping and restraurant meals. In other words, it fosters inequality. Making matters worse, middle-class communities like Prince William are paying the cost of maintaining social services for the illegals.

Frum points to one other crisis: the rising cost of health care. What the middle class needs even more than tax breaks, he suggests, is for someone to tame the soaring inflation in health care that has bitten deeply into wages and salaries. “If health-insurance costs had risen 50 percent rather than 100 percent over the Bush years,” he writes, “middle-income voters would have enjoyed a pay raise instead of enduring wage stagnation.”

Bacon’s bottom line: Frum’s article is a good read, and parts of it are quite perceptive. But he fails to close the loops of logic in a number of his arguments. For instance, I agree with Frum’s economic analysis about the disparate impact of illegal immigration, but he never explains how that issue would induce the stressed-out middle-class residents of Prince William County to vote for Tim Kaine or Jim Webb, neither of whom have championed the anti-illegal immigration cause.

On health care, Frum may be on firmer ground. If middle-class Americans are worried about the impact of health care costs, they may be drawn to the Democratic pitch for a national health care system. Even then, though, he doesn’t take his argument quite that far.

Finally, Frum omits what may be the most crucial cluster of issues of all: those relating to transportation, land use, energy and the environment. Middle-class NoVa residents fall into the demographic that Ed Risse refers to as the “Running As Hard As They Cans” (RHTCs) whose lives are impacted by dysfunctional land use patterns — unaffordable and inaccessible housing, traffic congestion, fiscal stress at the municipal level, rising energy costs — in ways they do not fully understand. It’s possible that they’re losing faith in the old Republican mantra: Just keep keep taxes low.

Without question, taxes matter to the middle class, but so do wage levels, and health care costs, and mortgage costs, and housing values, and gasoline/energy costs, and traffic congestion, and the quality of the schools… What those problems have to do with income inequality, I’m still not certain. I would think they would matter to everyone. If Republicans want to hold on to middle class voters, they’d better find a bigger bag of tricks — regardless of what happens to income inequality.

Funny how old associations come up. About two weeks ago, I was up near Tysons Corner for an appointment. I was early so I dropped by the Borders across the street. As I was waiting for the cashier with my CD of bluesman John Lee Hooker, I noticed one of those stand-up photo advertisements. The face looked awfully familiar.

It was. It was Steve Baker, a BusinessWeek senior writer with whom I have worked off and on for 20 years. He was in Mexico City when I was in Moscow and later he was in Pittsburgh while I was in Cleveland. The latter association brought on occasional barroom discussions of rust belt economics and the many sins of our New York editors.

Steve’s done very well. The ad was for an excellent book he’s just published about “The Numerati,” a class of math experts who quietly orchestrate the massaging of the zillions of bits of data about us. We generate the stuff every time we use our cell phones or search Google, use a grocery loyalty card or whisk through a toll booth using a Smarttag.

Steve, who has specialized in technology reporting for more than a decade, draws intriguing portraits of the numbers class, many of whom are non-Americans from Syria, Pakistan, or France. How they use the tremendous cache of data about us will make a huge difference in our future lives.

Even in Virginia. In his section on politics, Steve zeroes in on how pollsters and campaign officials used and massaged data in the state gubernatorial race in 2005 to get money or reach out to undecided and critically important voters. How such data will be gathered and analyzed will be extremely important in the tight presidential race this year between Barack Obama and John McCain, especially in the Old Dominion, which is a swing state. Data management will probably be less important in the Mark Warner versus Jim Gilmore senatorial contest, as an outcome favorable to the Democrat seems preordained.

For more, please check out https://www.baconsrebellion.com/Issues08/09-08/Galuszka.php

Peter Galuszka

Bacon’s Rebellion has been a huge part of my life for the past six years. But it’s time for a break, as I explain in “Passing the Baton.” While I will continue to participate in Virginia’s public policy dialog in the blog, I just don’t have the energy right now to keep up the time-consuming commitment of publishing the e-zine every other week. I have more important obligations, foremost among them my wife, my children and my elderly parents.

That doesn’t mean the e-zine is necessarily dead, or even dormant. It may be taking a breather. A number of long-time friends of the e-zine have approached me with ideas for keeping it going. I am most gratified by their response, and I’m open to their thoughts. I expect those conversations to unfold over the next two or three weeks. If there are any breakthroughs, I will keep you posted.

Meanwhile, if anyone has any suggestions on how to keep the e-zine going, or knows of any potential benefactors — life was sweet when the Piedmont Environmental Council supported us, I didn’t have to make a “real” living — please feel free to e-mail me at [email protected].

For my e-zine swan song, I figured I might as well go way out on a limb and divine the future of regional and community media. So, here goes…

Newspaper profitability is imploding. Here is the latest round-up, as summarized in “Who Will Report the News?“:

Media General’s Virginia newspaper group, which includes the Richmond Times-Dispatch as well as papers in Charlottesville, Lynchburg, Danville, Bristol and other locations, saw month-to-month revenues plunge 17 percent in July. While Media General reported a nominal loss in the second quarter, the once-formidable Washington Post Company racked up a $2.7 million loss, reflecting $133 million in early retirement write-offs for the Washington newspaper and Newsweek magazine. Print advertising revenues at the newspaper sank 22 percent. Privately owned Landmark Communications does not report its financial results, but the fact that the Virginian-Pilot and Roanoke Times are still for sale after months and months on the market suggests that they aren’t faring much better.

Newspapers are all shifting to an Internet-based model as fast as they can. But newspaper websites can’t possibly support the volume of news generated under the old print media model.

For metropolitan newspapers, the end game is a business model as an online publication… a publication with lean staffs and paper-thin profit margins… a publication that produces a small fraction of news content that it did in its heyday.

The citizens of Virginia have to face the prospect that their traditional sources of news and information about state, regional and community affairs may well dry up and blow away.Where, then, will people get their information? I foresee four sources:

• Paid content for information of a highly specialized nature, such as newsletters, market analysis and business intelligence articulated by industry gurus.
• Public relations content dressed up as press releases and journalism-style articles.
• News aggregators that comb the Internet for content from news articles, press releases, blogs and other sources, digest it, repackage it and comment upon it.
• Superstars, the Oprahs and Rush Limbaughs of the world, who are such huge phenomena they can break through the clutter and capture the economic value now provided by networks, broadcast stations and other bundlers of cable, television and radio content.

It ain’t pretty, folks. I’m not saying that it’s a better world — I’m just calling ’em as I see ’em. I was hoping that Bacon’s Rebellion e-zine might last long enough to feast upon the decomposing remains of the Mainstream Media, but I just ran out of steam. More on that subject in the next post.

All good things must pass…. even rebels need to take a break. This is the last edition of the Bacon’s Rebellion e-zine under my editorial direction for the foreseeable future. While it’s possible that I may turn over the e-zine to “new management” — I am exploring the idea with some long-time friends of the Rebellion — no decision has been made.

So, rebels and friends, enjoy this edition of the Rebellion. It may be the last. (There’s no need to totally wig out, however. You can continue getting your fix of insurrection and mayhem on the Bacon’s Rebellion blog.)

Passing the Baton
After six great years, the time has come to step down from the Bacon’s Rebellion e-zine. It’s been fun, rewarding — and exhausting.
by James A. Bacon

Who Will Report the News?
How’s this for irony: The knowledge economy craves information more than ever, but newspapers and print media are imploding. Where will Virginians get their news in the Internet age?
by James A. Bacon

Katrina Yet Again
The hurricanes keep coming — and they always will. We can continue Business As Usual, making ourselves more vulnerable, or we can evolve safer, better protected human settlement patterns.
by EM Risse

A Picture is Worth a Thousand Lies
One reason it’s so hard for people to envision functional human settlement patterns is that the images peddled by the Business-As-Usual crowd are so deceptive.
by EM Risse

Ch-ch-ch-ch-Changes
Turn and face the strange: An African-American from Illinois and a woman from Alaska have infected millions of Americans with a thirst for change. Will Virginia heed the call?
by Michael Thompson

Making the World a Better Place — with Other Peoples’ Money
We all want change. The question is, whom do you trust to deliver it — a government run by self-appointed elites, or friends and neighbors working as volunteers?
by Norman Leahy

The Numerati
In the land of the mathematically challenged, the “numerati” rule as kings. These inscrutable geniuses massage the data that drives business decisions — and, increasingly, determines who wins elections.
by Peter Galuszka

Nice & Curious Questions
A Rocky Business: Quarries in Virginia
by Edwin S. Clay III and Patricia Bangs

One of the more fascinating things about Richmond politics is that it combines roughness with dysfunction to such a degree that it becomes a form of art. The two strands are on full display here, where not just average folks, but a passel of school board members go at it in the comments section. Comment #20, from Carol Wolf, is eye-opening. Snip:

If this contract were “fair,” then this School Board would already require each school in the system to file “monthly written financial statements, including specifically all operating and non-operating expenses and sources of revenue.” [p.8 of the contract]. Additionally, each school should have to provide to the School Board a written consolidated financial report. [loc.cit].

We don’t. One need only read the audits of the RPS conducted by City Auditor Umesh Dalal to see that such a reporting requirement would greatly assist the taxpayers of this city to understand why it is that our per pupil costs are as high as they are.

And it just gets better… and more informative.

(HT: Jonathan Mallard… a Bacon’s regular who is also a candidate for the Richmond school board)

Via RVANews comes a copy of the contract for the Patrick Henry Charter School. It contains margin notes from school board member Carol Wolf, some of which are quite interesting.

The story is that board member Keith West will try to revised and resubmit the contract to the board. However, his chances of success are slim:

Two School Board members who supported the original contract expressed no interest yesterday in seeing West’s revisions.

School Board Chairman George P. Braxton II said he didn’t want “some watered-down” version. He also nixed West’s hope for quick reconsideration, saying he would send any new contract proposal to committee for review.

“I don’t think there’s any support for a scaled-back version, especially when it’s presented this way,” said Vice Chairwoman Lisa Dawson, another supporter of the original contract.

Unless their objections can be overcome, the idea seems dead.

Virginia doesn’t have the worst public school system in the country — we’re fair to middlin’ as measured by spending per pupil and educational outcomes — but it is arguably the most resistant to change. The latest evidence is a rejection of a charter for the Patrick Henry charter school earlier this week by the City of Richmond school board.

Keith West, one of the school’s main backers, wound up voting against the proposal on the grounds that it had been bound up by so many contract restrictions that the city was setting up the school for failure. ‘The contract “micromanages them,” he said, as reported by the Times-Dispatch. “We’re telling them how to do what they’re supposed to do.”

The elementary school would have occupied a school building that had been closed down more than a year ago, and would have offered an integrated science and arts curriculum that integrated the neighboring Forest Hill Park into the curriculum to teach “environmental awareness and social responsibility.” The school would have been funded by the usual state and city sources for schools, supplemented by private sources. It would have been governed by its own board of directors.

The school was opposed by the usual constituencies. The NAACP, the Richmond Council of PTAs and the Richmond Education Association had mobilized in protest. “We oppose any scheme that creates a private school in a public school setting,” said Melvin Law, a former School Board chairman and a Richmond NAACP branch member.

As Times-Dispatch columnist Barton Hinkle points out, there are about 4,200 charter schools across the United States. Only three are located in Virginia. Support for vouchers, an even more radical alternative to charter schools, is spreading. Opponents, he suggests aren’t worried that the school might fail — “they’re petrified that it might succeed.” In the words of one school board member, “By allowing this group to proceed, it would open the door for any other group that wants to create a school.”

As infuriating as such thinking is, it’s not restricted to the City of Richmond. Outside of one school in Albemarle County, one in the city of Hampton and one in York County, there aren’t any charter schools anywhere in Virginia. (According to the Virginia Charter School Resource Center, five other charter schools have opened and closed.)

What a disgrace. The educrats and special interests are determined to protect the current system, regardless of what it costs the children. And no one in Virginia is willing to override them.

Tropical Storm Hanna is expected to graze the coast of Virginia this weekend on its northward path, and Gov. Timothy M. Kaine has declared a state of emergency. In a follow-up message, Attorney General Bob McDonnell issued a warning that the Virginia Post-Disaster Anti-Price Gouging Statute is now activated.

And what does that act do?

It “prohibits the charging of “unconscionable” prices for “necessary goods and services” within the affected area during the 30 day period following issuance of a declared state of emergency. The basic test under the statute is whether the price charged for the goods or services “grossly exceeds” the price charged immediately (within 10 days) before the disaster. “Necessary goods and services” includes those goods or services for which demand does, or is likely to, increase as a result of the disaster.

The AG’s office thoughtfully provided a “price gouging complaint form” so citizens can report offenders.

It will be interesting to see what impact the price-gouging statute has on the clean-up after the storm. I’m not persuaded that it will be especially helpful. It might even hurt. Let me explain:

One thing we can anticipate from the tropical storm is a glut of fallen trees. Trees on power lines. Trees on houses (some causing structural damage and others not). Trees across roads. Trees in driveways. Trees in the back yard. Trees in the woods. The urgency associated with clearing any given tree will vary widely. A tree blocking traffic or preventing a roof repair will be a priority; a tree simply looking unsightly in the front yard will be less of a priority.

There will be a finite number of tree service employees, even if they come in from miles around and work 16-hour days. They will not be able to clear everybody’s trees all at one time. Some people will have to wait. Who will decide whose tree gets cleared immediately and who has to wait?

Well, if tree service crews are able to respond to supply and demand and raise their rates to “unconscionable” levels, they will prioritize work based upon on peoples’ willingness to pay. That willingness to pay will reflect, among other things, the urgency of a given situation. Someone with a leaking roof will be willing to pay more than someone who wants to clear a tree from his back yard… which makes total sense.

What happens if tree service crews are worried about getting prosecuted if they charge “too much.” What happens if they don’t feel free to increase their rates? Perhaps they’ll work on a first-come, first-serve basis, regardless of priority. Perhaps some will work only 12 hours a day rather than 16. Perhaps, if they live in Richmond or Fredericksburg, some will figure it won’t pay to drive down to Hampton Roads and check into a hotel. Maybe they’ll just stay home. Maybe it’ll wind up taking twice as long to clear all the trees as it would have if people could charge the market price.

A similar logic applies to the sale of every other product and service, from electric generators to chainsaws, from repairing broken windows to supplying water, ice and food. Economic theory suggests that repressing prices will inflate demand, slow the arrival of new supplies, and create shortages.

Maybe it won’t work out that way. Maybe the inhabitants of eastern Virginia will all pitch in and share in a spontaneous display of good will towards their fellow man. We’ll see. It will be most fascinating to watch.