Friday, August 24, 2007

King O'Malley on "Smart Growth"

Previously, I reported on the links between the housing crash and government meddling in the economy, including so-called "smart growth" policies.

Well, to no one's surprise, it seems as if King O'Malley is attempting to bring this failed policy back, full scale. The Baltimore Sun did their usual one-sided ass kissing reporting on this, complete with whiney O'Malley quotes, and just one sentence reserved for even mentioning the many issues that make up the opposition of such policies. We'll break the report down.

”The public is crying out for this,” O’Malley said”

No, your out of state, wealthy, anti-capitalist environmental nut-job friends are crying out for this. Oh, and people like Glendenning, who supports statist control over the property of others because it makes his property values increase in the short-term.

…the governor said Maryland needs to figure out how to accommodate the new people while still preserving its environment and quality of life.

Obviously the higher density urban areas are not marketable to most people in the areas of environment and quality of life. How about you do a better job at crime prevention in those areas? Maybe tax cuts to spur growth? Why would people want to move into urban areas where they risk the safety of their lives and property, and all the while are guaranteed that the government will take more of their money?

It does not make sense to enact policies that discourage growth in suburban, exurban or rural areas, thus driving the costs of existing housing to unaffordable levels when the alternative urban areas are terrible place to live for most people. Make people want to come back to the urban areas, then you won’t need to worry so much about “sprawl.”

The state’s population has increased by 30 percent since 1973, O’Malley noted, while the amount of land developed has doubled.

OH NO! The people are able to afford to buy more land and build their own homes and move up the economic ladder?! The economy has been growing and getting better?! EVERYBODY PANIC, says O’Malley, we can’t have that! Then they’re less likely to vote for him!

”If in the next 30 years we grow like that again, I shudder to think about the future we’re going to leave for our kids,” he said.

Oh please, spare us your crocodile tears. We have it better today than we’ve ever had it before, and there is no reason to suspect we’ll have it worse when the next generation arrives on the economic scene. This increased prosperity will only improve the economy, standards of living and society, naturally, without any of your central planning. Even Baltimore isn’t a lost cause, and as more people are prosperous, it will improve as well.

The governor said he hoped the workshop, funded by the Environmental Protection Agency and the National Endowment for the Arts, would help his administration tweak state development policy so that it protects Chesapeake Bay and saves taxpayers money but also is “predictable,” so businesses, farmers and residents can all get behind it.

Wait, the National Endowment for the Arts??? They have a say in these meetings, but everyone else gets shut out?

Oh and if you want predictable, how about you let landowners, farmers and residents continue to care for their own property, which has been proven to be far more beneficial to the environment than more statist control of land.

”We need to find predictable ways that we as a people can say no to development that is irresponsible and say yes to development that is responsible,” he said.

Like how it would be irresponsible for a family to grow in Baltimore given the present conditions in regards to their personal safety, and the value and safety of their property? Seems alot of people are saying no to the city in the shape you left it, Governor.

Glendening said that he had offered to work with O’Malley to restore what he said is the state’s faded prominence in the nationwide effort to curb sprawl.

Faded prominence, or the fear of a well justified voter backlash on the state’s violation of property rights, like in Oregon?

Some have faulted former Republican Gov. Robert L. Ehrlich Jr. for neglecting or undermining the effort...

You can’t have a Sun article about another grand idea from O'Malley without a swipe at Ehrlich. I guess Ehrlich was supposedly neglectful or undermined “the effort” by supporting more family and property owner-friendly, market-based solutions? You know, the ones that in the end provide for a much better situation? I mean if statist control of land works so well for the environment, then why was the USSR one of the most polluted nations on earth?

...but others have questioned whether state funding alone is a powerful enough incentive to counter market forces and local zoning practices that seem to favor development in green fields over rebuilding faded urban communities.

Ah yes, the token single sentence where the BS presents another view…without any elaboration that might undermine O’Malley’s position, of course. It’s too bad, because this is exactly right. Market forces cannot be tamed. If there is a demand for housing (which there will be so long as people are still being born and growing up to work and make money), there will continue to be the need for a steady supply. In addition, localities know who butters their bread, home and property owners who pay taxes.

But most of the tracts on which houses were built were outside of designated growth areas, and the share grew from 1992 through 2004, the latest year for which data are available, according to the state Department of Planning.

Maybe because the government does a TERRIBLE job at gauging supply and demand, always has always will.

Finally, the communist overtones in this article are downright scary. You know who else had “designated growth?” The USSR. Yeah, how’d those endless rows of block style apartment buildings hold up?

Thursday, August 16, 2007

The Intellectual Dishonesty Surrounding King O'Malley's Executive Orders

After another look at the Baltimore Sun article on Martin O'Malley's executive orders allowing home health care and child care workers who are already subsidized by the state to unionize, I noticed one glaring bit of misinformation:

"Lorraine Sheehan, co-chairwoman of the advocacy group Medicaid Matters, said home health aides can be paid as little as $24.50 a day, leading to significant turnover and difficulty in recruiting quality workers."
Sounds damning at first, doesn't it? Only $24.50 a day? Who could possibly live on that? But what the article fails to point out are the number of hours the supposed $24.50 a day worker puts in. So let's take a look at how many hours one could work for $24.50 a day.

If we assume that the worker is making the BLS average for a nonsupervisory home health care worker, $14.41 an hour, this worker is only working 1.7 hours a day. Even if we assume that this worker is only making Maryland minimum wage (which is not the case, given the national average), of $6.55 an hour, this worker is only putting in about 3 hours and 45 minutes. Legally, 3 hours and 45 minutes are the most any worker can put in, in any job to make $24.50 a day. Not even an entry level janitor at McDonalds can make less than $24.50 for 3 hours and 45 minutes of their time.

Therefore, we can assume we have been given the daily wage of a very part time, probably on-call home health care worker. Why is this important? Because it was presented by a proponent of unionization as a damning statistic in favor of these executive orders.

When in fact, such a worker likely does the work because they enjoy it, not for the money, and if more of the profession were unionized, would probably be the first to be squeezed out.

An intellectually honest proponent of these executive orders might have presented the daily wage of a full-time home health care worker. Given that this isn't the case, I wonder what they're hiding? Could it be that subsidized home health care workers already make the national average, or close to it, and the union wouldn't be able to garner very much sympathy for someone making close to $14 an hour?

Wednesday, August 15, 2007

Spending in Maryland

Delegate LeRoy Meyers of Allegany and Washington counties points out that the state has increased spending by 70% over the last eight years. Meanwhile, the median family income has only increased by 28%.

Looks like we’re on a path to disaster if some responsibility isn’t taken in Annapolis to reign in spending. But don’t count on that kind of leadership from Martin O’Malley, who has cast his lot in with the big spenders, continuing to ignore the crisis.

The Intellectual Dishonesty of Martin O'Malley

Last month, in a speech at the 10th annual Irish America magazine Wall Street 50 Awards Dinner, Governor Martin O’Malley praised Ireland’s national health care system, claiming that it has "contributed to the environment" that "expands business growth."

This, despite the fact that, like other nations with nationalized care, there is drug rationing, wait-lists that can stretch for years and many are forced to also pay for supplemental private insurance.

O’Malley claimed that this, along with allowing immigration, was a big part of Ireland’s resurgent economy, now one of the top five in the world. What he failed to mention (no surprise here), are the real reasons for Ireland’s boom: low corporate taxation, decades of investment in domestic higher education, a low-cost labor market, and a policy of restraint in government spending.

Perhaps because these things (except investment in domestic higher education), all run opposite to his agenda for the state of Maryland? After all, he has called for higher taxes on large businesses and the “wealthy.” Then there is his support for labor unions, even going as far as issuing executive orders in broad support of them where the legislature has rejected them. Oh, and don’t forget the 70% and growing increase in government spending over the last eight years that has shown no sign of slowing down with O’Malley at the helm.

O’Malley also failed to make the distinction between the legal immigration of Polish, Latvian, Lithuanian and Nigerian workers in Ireland and the illegal immigration that his policies have encouraged in the state of Maryland.

Once again, all style, and zero substance from O’Malley.

King O'Malley

Well it's been a week since my last post, and now it's time to turn the attention a little closer to home, to Governor Martin O'Malley of Maryland.

Yesterday, Governor O’Malley showed his disdain for the legislative process, low-income families and the taxpayers of the state at the same time, issuing executive orders that give collective bargaining rights to home health aides and child care workers whose pay is subsidized by the state.

This, despite the fact that:

The Democratic majority Maryland legislature rejected these notions not once, but twice.

This will cause the cost of child-care and home-care to go up, further burdening low-income families and the know, the ones that O’Malley calls “Maryland’s most vulnerable citizens?” It’s nice to see where O’Malley’s priorities really are, with the special interest unions, and not the “most vulnerable.”

State subsidizations will be forced upwards if unionization occurs. This, at a time when O’Malley and other Democrats are crying about the structural deficit, and threatening to raise taxes further to cover it. Yet instead of practicing discretion, or making important cutbacks, O’Malley would rather bring bigger mouths to the state trough.

The arrogance of this administration is beyond comprehension at this point.

Wednesday, August 8, 2007

Transportation Pork: Not just Alaska and Minnesota

And so it continues. Mark Tapscott at the Examiner points out a few outlandish earmarks in the preliminary Senate Transportation and Housing and Urban Development Appropriations bill for 2008. Among them:
  • $3 million for bike trails in Illinois courtesy of Dick Durban (D-IL) and Barack Obama (D-IL).
  • $200,000 for a downtown parking garage in Provo, UT from Orrin Hatch (R-UT).
  • $200,000 to convert an old Las Vegas post office to a local history museum, from Harry Reid (D-NV).
  • $250,000 to build a museum to promote tourism in…Peoria, IL, also from Dick Durbin (D-IL)
  • $1,000,000 for a bike and pedestrian path in Baton Rouge, LA, from Mary Landrieu (D-LA).
  • Unspecified amount to renovate and restore a local bank building to a museum in Suffolk, VA from John Warner (R-VA) and Jim Webb (D-VA). Hey, at least there’s bipartisanship involved!
  • $200,000 to build a “multi-cultural” museum and community center in Beckley, WV, from Robert Byrd (D-WV).

Tapscott asks the pressing question: how many bridge inspections would $5 million worth of earmarks buy?

The Arrogance of Don Young

Last night, I posted a Time article that takes Representatives Don Young (R-AK) and James Oberstar (D-MN) to task for attempts to shift blame to the federal government’s supposed lack of transportation funding in the face of their egregious pork spending on bridges to nowhere, bridges with their names on them, nature and snowmobile trails in unpopulated areas and million dollar visitor centers on these nature trails.

This morning when I started on my Metro ride to work, I looked at the cover of the Express (which is basically a free, condensed version of the Washington Post for train commuters) and saw Don Young’s picture next to the headline “Collapse Fuels Gas Tax Push.”

In this article, the ever so arrogant Young is quoted as saying “We have to, as a Congress, grasp this problem. And yes, I would even suggest, fund this problem with a tax.”

Upon further reading in the actual Washington Post article, Rep. Young followed this with the bizarre statement “may the sky not fall on me,” somehow equating himself to Chicken Little, because, as I pointed out last night, he hemmed and hawed when President Bush forced the bloated transportation bill down from Young’s original $375 billion to $286 billion.

Yes, Rep. Don Young, whose state of about 630,000 people took home $1 billion in just in earmarks from the 2005 federal transportation bill (roughly $1,587 per Alaskan), including $231 million for a bridge in Anchorage that would be named for himself, thinks that there is a problem, and the problem is not enough money, and the solution is more taxes.

Not even included in the $1 billion pork package is the $223 million that was supposed to go to the infamous “bridge to nowhere” project, connecting a town of 8,000 with an island of 50 people with a bridge larger than the Brooklyn Bridge and Golden Gate Bridge. This earmark was specifically de-funded for being too egregious, but the money was then sent to the general Alaskan package and then used on the same project.

It would be hilarious, if it wasn’t so pathetic, and if the Express article didn’t fail to mention any of this, basically giving Rep. Young a free ride to talk about raising your taxes without questioning his outlandish pork spending. Thankfully the edition in the Post brings this up, saying:

"The [Bush] administration in turn has demanded that Congress show more discipline, citing thousands of special projects, or earmarks, in highway bills that don't reflect the real priorities. The best known among them was one that Young supported: $223 million for the "Bridge to Nowhere" in Alaska."

Still, the article gives Rep. James Oberstar a free pass, quoting him as saying “This administration failed to support robust investment in surface transportation and the funding to accompany it,” but then failing to mention his and his state's well-documented wasteful pork projects, including $13 million just for nature trails in Oberstar's district alone.

Rep. Oberstar continues, saying that in 2009, Congress won’t settle for a “bargain basement” measure.

Hopefully, Americans won’t settle for this arrogance and abuse of taxpayer’s money from blow-hards like Don Young, Ted Stevens and James Oberstar. The problem is not a lack of funds and the solution is not more taxes; it’s an abuse of the massive amounts of funds already available by politicians more interested in short-term political gain at the expense of critical projects and the only logical solution is to wake up and either vote these people out of office, or work to end the corrupt, dangerous earmark practices. If not, they’ll continue to get away with it, and will continue to demand more of your hard earned money.

Truth on the "Housing Crash"

In his latest piece, Thomas Sowell effectively argues that the “housing crash” is mostly the responsibility of government policies. Sowell points out two policies in particular: local government restrictions on building, coupled with state and federal policies that push lenders to lend to high-risk borrowers.

In effect, there was a higher demand for loans when lenders were encouraged and sometimes forced by the government to give loans to those who otherwise would not be able to afford them. Then at the same time, in many areas there was a shortage in housing thanks to various environmental, “smart-growth” and “open space” policies that restricted the construction of new homes. Thus, due to the laws of supply and demand, housing prices went up.

Still, encouraged by the government giving them the power to receive loans at the lenders’ behest, those with lower incomes went for housing loans for which they could not afford to even apply before. Lenders, meanwhile, who are businesses, and thus need to make decisions based on the best possible way to make money, were forced to exploit loopholes in the government policies that they thought would still allow them to make money. The result: sub-prime lenders offering interest only loans to borrowers who were applying for homes that were beyond their means.

Now, we’re left with record numbers of foreclosures and sub-prime lenders going belly-up…and a stagnant housing market. And all of this could have been largely avoided had the market been left to decide, as opposed to meddlesome politicians.

As Sowell points out, politicians are quick to cry “exploitation” when lenders offer high-risk applicants a high interest rate that accurately reflects the risk involved in lending the money. After all, lenders are risking their own capital, putting it out there under the assumption that it will be paid back in full, plus interest for the service of putting it out there to begin with. If there is a higher risk that it will be defaulted, a higher interest needs to be paid, so if the loan eventually defaults, they can recoup as much back as possible. This is why when you apply for a credit card, or any sort of bank loan, whether it be consumer, auto or home, your credit score is checked, and you are given a lower rate if you have a good credit score, higher if it is bad.

However, the same politicians are now crying exploitation again after lenders were able to find a loophole in the policies enacted by those very same politicians that allowed them to offer loans to high-risk borrowers that had low, interest only payments at first, but then ballooned as the principal was factored in. This, factored with the skyrocketing costs of existing homes due to local restrictions on building, led to people of modest incomes to stretch well beyond their means in order to be able to afford a home at all, thus compounding the problem.

Of course, politicians love to blame, but hate to take responsibility for the effects of their seemingly well-intended, but misguided policies. As expected, the blame is being placed on “aggressive lending” practices by sub-prime lenders, even though because of government policies, these businesses were forced to get creative in order to feed the propped-up demand for loans.

The lesson learned here: leave such things to the market; meddling by politicians, as well-intentioned as it may seem, is no match for the laws of supply and demand, and will nearly always lead to disaster.

Tuesday, August 7, 2007

Rep. James Oberstar's Hypocricy

Time magazine has an excellent article in the current issue that directly connects the lack of funding for critical transportation projects with the pork problem. Hopefully this is the start of a mainstream awareness, with even more increased calls to clean up or eliminate earmarks.

The article goes after the classic porker Don Young (R-AK), who, in the 2005 federal transportation bill:
  • Earmarked $229 million for a crossing near Anchorage to be called "Don Young's Way."
  • Had his Alaksan congressional associate Ten Stevens (R-AK) attempt to get $223 million in pork for the imfamous "bridge to nowhere," a crossing to the island of Gravina, population 50.

Still, despite these egregious demands in 2005, and, along with Stevens, being under federal investigation for misallocation of funds and projects, Young had the nerve to say "I told you so" when commenting on a supposed lack of federal funds for roads and bridges. You see, the original proposed transportation bill in 2005 was $375 billion, and back then Young bragged that he had "stuffed it like a turkey." But under veto threats from President Bush, it was scaled back to $286 billion, still higher than Bush's original demands of $256 billion, and then signed into law.

But the, the Time piece goes after Rep. James Oberstar:

Democratic Congressman James Oberstar of Minnesota — his successor as chairman of the House Transportation and Infrastructure Committee — bragged about bagging 57 "high-priority projects" for his district in the bill, including a visitor center at Mesabi Station, a bridge for snowmobiles in Onamia and a new $3 million highway between County Road 565 in Hoyt Lakes and the intersection of Highways 21 and 70 in Babbitt. You know the spot.
You know, the same guy who tried to say that the federal government didn't send enough of your money his way, and that he needs more when the next transportation bill comes around in 2009. As if we want to pay for his nature trails.

Saturday, August 4, 2007

More "High Priority" Spending in Minnesota are some interesting highlights on what is deemed to be a priority when it comes to spending in Minnesota, courtesy of the Taxpayer's League Foundation and Citizens Against Government Waste. This is from 2006:

  • The state bailout of the Minneapolis Teacher’s Retirement Fund, which puts state taxpayers on the hook for $972 million in unfunded liabilities.
  • A new $776 million Twins Stadium to be paid for with a Hennepin County sales tax increase (approved by state legislators with no voter referendum).
  • $97.5 million for the Northstar Commuter Rail line.
  • $34 million in subsidies to ethanol producers that have seen a 300 percent increase in profits in the last year.
  • $30 million for bear exhibits at the Minnesota and Como Zoos.
  • $12 million to renovate the Shubert Theater in downtown Minneapolis.
  • $1 million for a replica Vikings ship in Moorhead.
  • $500,000 for a skating rink in Roseville.
  • $310,000 for a Shakespeare festival in Winona.
  • $129,000 for state art grants for North Dakota museums and theaters.

Says Democratic Senator Klobuchar: "We have to get to the bottom of this."

Says Democratic Representative Oberstar: "[Bush] failed to support a robust investment in surface transportation."

Thanks, Senator Klobuchar and Rep. Oberstar, but it does seem we have gotten to the bottom of this, and it appears your state failed to support things that actually need state money, instead opting to spend millions of dollars on, amongst other things, a baseball stadium, corporate welfare, a seldom used railroad and ship.

The bottom line is, the states are ultimately responsible for their own transportation costs. The federal government does not have an obligation to help out, but they do, very generously (many would say too generously). The state of Minnesota does not lack its own revenue, by far, and chose to spend it on frivolous items rather than on their own transportation upgrades. Then, when they did get a half a billion dollars from the federal government, much of it was wasted on special projects, including the $48 million for nature trails.

But does that stop people like Klobuchar and Oberstar from blaming President Bush, the federal government and the war in Iraq?

More on Spending in Minnesota

First, I would like to say that I am not picking on Minnesota as if it's tax dollar waste is significantly different than any other state. God knows, this bridge tragedy could have happened on any number of the thousands of bridges in the country known to be "deficient" in any other state, all of which have wasted transportation dollars on special projects rather than critical areas of improvement.

However, the point still needs to be made, especially while some fringe elements attempt to pin the blame on the federal government.

Fringe elements like U.S. Senator Amy Klobuchar, a Minnesota Democrat, who suggested that spending on the Iraq war was to blame, calling it "messed up priorities." Never mind, that as we previously pointed out, her state took home nearly a half a billion in federal transportation earmarks in the bloated $250 billion federal transportation bill of 2005, marking only $27.2 million for I-35 projects in the Minneapolis-St. Paul metro area, but $48 million for nature trails, largely in sparsely populated northern Minnesota.

Speaking of northern Minnesota, U.S. Rep. James Oberstar, a Democrat who represents the sparsely populated 8th congressional district, attempted to blame President George W. Bush's administration. He stated that road and bridge repair was shortchanged in the 2005 highway funding bill. This, despite the fact that his district secured:
  • $900,000 for a portion of the Gitchi-Gami nature trail from Grand Marais (pop. 1,353) to Cascade River (population less than 50).
  • $500,000 for a portion of the Gitchi-Gami nature trail in Lutsen (pop 360).
  • $1,500,000 for a portion of the Gitchi-Gami nature trail in Silver Bay (pop 2,068).
    $892,000 for a nature trail linking Two Harbors High School with the town of Two Harbors (pop 3,613).
  • $2,500,000 for an extension of the Munger nature trail in Duluth (pop 86,918).
  • $235,000 for extensions to the Mesabi nature trail in Aurora (pop 2,500).
  • $1,500,000 for the Ely Area Joint Public Works Complex in the city of Ely (pop 3,724).
  • $2,700,000 for the Mesabi nature trail between Grand Rapids (pop 7,764) and Ely.
  • $1,300,000 for a "recreational visitors center" on the Mesabi nature trail in Virginia (pop 9,157).
  • $471,000 for the Edge of Wilderness Discovery Center in Marcell (pop less than 50).
  • $540,000 for a bike trail along route 11 to (but not in) Voyageurs National Park. Closest town, International Falls (pop 6,703).
  • $560,000 for the Paul Bunyan nature trail from Walker (pop 1,069) to Bemidiji (pop 11,917).

And that's just his nature trail pork, which adds up to $13,598,000. By the way, all were listed as "high-priority" projects...speaking of "messed up priorities."

It seems to me the only ones getting shortchanged are the 3,500,000 residents who drive to work, school and home every day in the Minneapolis-St. Paul area by the nature trail pork loving representative of the 8th district.

Roy Pearson Given the Boot

Good riddance.

Friday, August 3, 2007

The 2005 Federal Transportation Bill and Minnesota

The last major federal highway bill was passed in 2005, and featured 6,361 "special projects" aka earmarks.

According to the Minnesota Department of Transportation, 147 of these went to the state of Minnesota in the amount of $449 million:
  • $354 million went to road and bridge projects
  • $74 million went to public transit
  • $48 million went to...trails?
  • $19 million went to the University of Minnesota system
  • 1.9 million went to visitor centers
  • $1.5 million went to "joint public works and facility" projects

Specifically, I-35 received funds for 6 projects in the Metro (Minn-St. Paul) MDOT district in the amount of $27.2 million:

  • $800,000 for the design of an interchange with Main Street in Lino Lakes
  • $2.4 million for the design of an new interchange in Forest Lake
  • $5.6 million for the construction of ramps and a new bridge over I-35 in Chisago County
  • $7.6 million for Lake Street access to I-35 in Minneapolis
  • $5.8 million for I-35 East reconstruction from I-94 to Maryland Avenue in St. Paul
  • $5 million for I-35 East reconstruction from University Avenue to Maryland Avenue in St. Paul

What we can conclude from this, is that it's definitely NOT a problem of the federal government not chipping in to the state. It's a problem of the state, its politicians and its department of transportation wasting a more than generous federal handout on worthless crap that they should be paying for themselves (like trails, bus stations, the university system), and not using it on what it was originally intended for, interstate highways and bridges.

If there was ever a time to push for further earmark reform, I'd think this would be it. $48 million in federal transportation dollars being earmarked for trails when bridges are known to be in danger is a travesty.

Thursday, August 2, 2007

Everyday Economics: Ticket Scalping

Here in Washington DC, the 9:30 Club has been providing musical entertainment for decades. At their current location, on the corner of Florida Avenue and V Street Northwest, they have established themselves as the premier live music club in the city. Bands from all genres stop by, and most nights are booked throughout the year, sometimes doubly, with an early and a late show.

Being a major market, venues in Washington DC tend to be booked by nearly every established touring band at one point or another. While large venues such as the downtown Verizon Center, and the suburban Patriot Center in Fairfax, Nissan Pavilion in Stoneridge and Meriwether Post Pavilion in Columbia take the larger acts, the 930 Club takes on the endless up and coming, medium to not-quite-huge and established independent acts.

In the past, many shows have sold out before the day of the show, which lead to an increasing market for scalpers. Despite efforts to stop this practice through various regulations and citing city laws, scalpers always find a way to meet the demand for the product they offer.
However, recently the 9:30 Club has been experiencing fewer shows selling out before the day or day before the show date. Is the quality of acts appearing or the demand for shows at the club shrinking? Or has the club finally figured out how the market works, and adjusted their prices accordingly? According to many who complain about the higher ticket prices, it seems to be the latter.

As I write, bands currently listed on their website as having upcoming shows include popular local metal act Darkest Hour; the wildly popular mainstream rock band Stone Sour, off-shoots of the even more wildly popular Slipknot; alternative country crooner Neko Case; ska-punkers Less Than Jake; up and coming indie act The National, on a two-night stand; and the pop group known as Hanson. All of these bands have sold out shows at the club in the past, some well in advance. However, currently, only Neko Case is sold out.

Every now and then, the club gets a surprise booking by a large, arena-sized act looking to do a special show, as seen recently by shows featuring the Smashing Pumpkins, Incubus, Good Charlotte and The Beastie Boys.

Being such a popular venue in a large market, shows have often sold out. At times, it was not uncommon to scroll down the list of upcoming events and see many listed as being sold out, some well in advance. And of course, with this, comes the dreaded ticket scalper.

In the past, when tickets sold out, scalpers and the ticket less alike would head to the venue on the night of the show looking to make instantaneous trades. It was not uncommon to see multiple ticket less patrons bidding to one single scalper on the spot, until one by one they dropped out, realizing that they didn’t value the ticket as high as it was going.

Then came the internet, and the advent of websites like eBay, Craig’s List and Stub Hub; scalpers now had more venues on which they could peddle their wares and could ensure tickets were sold before going to the venue on the night of the show, and just the same, those without tickets could now try to confirm the purchase of a ticket before trekking down to the venue to risk losing out in a street-bid. The underground scalping business blew up.

All along, there have been people decrying scalpers as evil human beings, taking advantage of true fans to make a quick buck. Regulations and laws were passed, but still, the business lived on, because no matter how many laws were passed, there were still patrons who missed out on tickets that were willing to pay. As sales on the internet grew, scalping became harder and harder to stop.

Here is where the first economics lesson comes into play.

Supply and Demand

The 930 Club has a capacity to accommodate 1200 people. For the sake of simplifying things, we’ll eliminate variables such as the number of staff, artists, crew and guest-lists, and assume that 1200 tickets are available for sale for each show.

The club and its promoters set the price for each show based on a number of factors:

  • The general operating costs of opening the club on the night of the show
  • The costs of paying the performing artists
  • The general demand of the public regarding tickets to the show
The general operating costs include paying the staff to work on the night of the show, the overhead costs such as utilities, building rental/mortgage and taxes. These costs are generally fixed, with utilities varying depending on usage and the time of year, as with any building.

The second two, costs of paying the artists and the demand of the public are where we get into our economics lesson. Artists generally negotiate a fee with the venue ahead of time, based upon their perceived value. Artists that are valued high are ones that can sell a lot of tickets, whereas bands that are valued low tend to be the ones who won’t, or are at least perceived to not be able to sell a lot of tickets.

Given this, the artists and clubs will agree on terms of payment, which generally include a “guarantee,” an amount that the bands will be paid just for showing up and performing, and a percentage of the ticket sales. The more valuable the artist, the higher the guarantee. Less valuable artists generally settle on a lower guarantee, and try to make up the difference through their percentage of ticket sales.

This is where we see the first of our two points on the economics of supply and demand in action: if an artist feels that most if not all of the 1200 tickets with his name will sell, then naturally, he will ask for the most money possible that he feels he can get. This is his perceived value.

Because there is a high demand for the tickets and a limited supply are available (1200), the fee he charges for his appearance and performance will be higher. He is supplying a service to not only the fans that benefit (hopefully) from the entertainment of the performance, but to the venue as well, who promote and sell the tickets, and stand to benefit.

At the same time, the club tacks on extra to the ticket prices to help pay for their service, which is providing the venue and promotion of the show. This is where the final face-value of the ticket is set. After the club has determined the guarantee and the percentage of ticket sales that will be set aside to pay the artists, they then must determine how much it will spend operating the club that night, and how much they need to make in profit to make the club even worth maintaining.

They must also factor in how much they think fans are willing to pay. Of course, some of the costs are offset by sales of alcohol, food and merchandise within the club. But ticket prices need to be set to make up a majority of the costs of putting on a show.

This is where the second part of our lesson in supply and demand comes into play. Given that the club would like to maximize its profits in order to make the enterprise worth maintaining, naturally, higher ticket prices are preferable, especially the more the price of the tickets exceeds the costs of paying the artists and operating the club. However, they can’t charge higher prices than the fans will pay, so they have to do a bit of guesswork, roughly calculating the proper amount.

A few factors that come into play are keeping up good relations with the artists and the fans. If prices are extraordinarily higher than the guarantee paid to the band, the band might be upset and feel cheated. At the same time, if prices are significantly higher than fans feel comfortable paying, they’ll complain, or just sit at home and not pay at all.
In addition, if prices are set too low, tickets will sell out quickly. This is a basic fact of economics; if prices are set too low compared to their demand, there will be shortages. More on this in the next section.

The trick for the venue (or any business involved in the sales of goods and services) is setting the prices just high enough that they’ll sell as many as possible while also making the highest possible profit.

The Economics of Ticket Scalping

Sometimes, an artist or venue will be undervalued. The main factor that can lead to this is when an artist suddenly becomes more in demand after the terms of the performance and ticket prices have been negotiated. Other times, artists and venues simply misjudge their own value, and occasionally, the terms are undervalued on purpose, either for promotional purposes or because the “integrity” of a certain artist demands lower ticket prices for his fans.

Unfortunately, when undervaluing occurs, the marketplace is not very forgiving. Even the best of intentions, such as in promotional or integrity-based undervaluing, can turn out ugly when the demand is far greater than the supply, and ticket prices are not valued accordingly.

Say a high demand artist that is generally valued high enough to play in large venues such as arenas that hold over 10,000 people, wants to do a special show at the club. Maybe they want to take a nostalgic trip back to their roots, and play in a more intimate venue so they can better connect with the fans. The artist even decides to waive his normal high guarantee for a much lower one so tickets can be priced lower, and in addition, they include in terms of their contract that ticket prices must be controlled.

The show is announced, and tickets will go on sale the following weekend for $35 a pair, which is the same price distant upper level seats at any given arena show for the artist. The day of the sale comes, and all 10,000 people who love to see the artist in a non-intimate arena are incredibly excited about a chance to see them up close in a club. So, at 11:00am on Saturday, more than 10,000 attempt to buy 1,200 tickets at the exact same time. Naturally, within five minutes or less, the tickets are sold out. 1,200 people are happy, but over 8,800 are upset.

Granted, most of these upset patrons who were shut out will just give up and wait for the next arena show, when tickets will be a little easier to obtain; but a good number of them will still want to try other methods of obtaining tickets, the easiest of which will be through scalpers.
Even smaller acts can have a larger demand, especially when the act is probably not big enough to play in one of the 10,000+ seat arenas, but also probably too popular to accommodate their demand in a 1,200 person club. In a city like Washington, this type of act can be hard to accommodate, and thus naturally, a band would rather play a full club rather than a half-full arena.

So, tickets for the show sold out within five minutes, leaving many people who had demands for them out in the cold. How best to fix a problem like this, and get the artists and the club the most money possible (i.e. the money that the scalpers were making on the black market)? Equalize ticket prices.

Sure, some fans complain when ticket prices are higher; however, they’re also the same ones complaining louder when the tickets sell out within five minutes and they are shut out. So, when a show that costs $25 sells out within five minutes, the next time the act comes to town, the prices are raised. This way, the fans who value the experience the most will buy tickets, and those who maybe didn’t feel as strongly, but only demanded tickets because it was trendy or because their friends were going will decide it isn’t worth it for them. And most of all, scalpers will see that the face value is the same as the price they were getting last time on the street, and will also sit out.

It is argued that this discriminates against fans who don’t have the money to go; but it can also be argued that if they were true fans they would make the sacrifice to pay the extra money up front to ensure themselves a spot inside the club, rather than risk a madhouse to get cheaper tickets, where they have a much larger chance of missing out, and paying the higher price to a scalper later anyway.

It comes down to this: scalpers provide a service that is in demand only when the clubs and artists undervalue their service. If the club and artist valued their service properly, scalpers would vanish. As was mentioned in the beginning of this article, only Neko Case was sold out at the time of writing; this particular show was set at $20 a ticket, and sold out within three days. Scalpers, who can foresee this happening based on previous experiences (she sold out the last two shows at the club in advance), are inevitable. Perhaps if the club, who has the same foresight as scalpers, had priced the show closer to its market value, say $35 or $40, it wouldn’t have sold out until the day of the show. This way, they could have maximized the profit for the artist and the club and kept it out of the hands of a black market scalper.

Is it the scalper’s fault that the artist and club failed to value their product properly? No; but it does leads there being a market for his service. It is no more the scalpers fault that there is a demand for after-market tickets, than it is the fault of the poor cocoa farmer in Columbia that there is a drug problem in the United States. If the demand is there, a market will appear; if there isn’t a demand, there will be no market. All of the attempts to kill the supply through regulations and laws won’t stop something that is demanded. That’s how markets work, in everything, from tickets, to drugs and to basics such as food products and clothing.

By raising prices to accommodate for proper market value, artists, venues and true fans win, and scalpers lose.