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Wednesday, October 18, 2017

WyoFlot: Pervasive Lack of Logic

There is an old saying that you can't turn goat's pee into gasoline. Some people try, though, and one of the bravest examples I have seen recently is the report that the Minerals and Economic Development Committee ordered in support of its WyoFlot plans.


Technically, the report is a written testimony. The author, William Swelbar, is a commercial airline industry strategist with Delta Airport Consultants out of Richmond, Va.. He is listed to provide expert testimony to the Minerals and Economic Development Committee at their meeting in Casper on Monday October 26. You can request Swelbar's written testimony from the joint chairs of the committee,

Senator von Flatern: michael.vonflatern@wyoleg.gov
Representative Greear: mike.greear@wyoleg.gov

Please take some time and read the report - it makes a tragically weak case for a state-run airline in Wyoming. Yet that is precisely what Mr. Swelbar's testimony is supposed to support. By reading the report, you will get a good idea of just how weak the case for this budget behemoth actually is. 

While we all try to figure out how much the state of Wyoming paid Delta Airport Consultants for their written - and possibly in-person - testimony, let me offer my two cents on this the latest contribution to Wyoming's own Concorde project.

Mr. Swelbar begins his testimony by providing some general reasons why small airports are not doing very well: pilot shortage, regulations on airlines' use of revenue, and a trend toward the use of larger aircraft. Later on, explains the decline in demand for commercial air services in Wyoming with an index, which relies in part on economic activity as an explanatory variable. 

By starting out with explaining the decline in air services at small airports with variables that have nothing to do with economic activity, Mr. Swelbar gives the impression that the use of Wyoming's small airports is a capacity problem. All we need to do, apparently, is provide pilots and bigger aircraft - and a generous pile of taxpayers' money - and suddenly the air will be teeming with Wyomingites merrily flying in and out of the state. 

This is, of course, not the case. Later on in his testimony, Mr. Swelbar provides the only statistic he is willing to share with us, namely that demand for commercial air services in Wyoming began declining after 2014. 

That point is very important. Please keep it in mind for a moment, and we'll get back to it. First, let us note that when Mr. Swelbar talks about economic activity as part of the explanation of a decline in commercial air services, he does not go to the Bureau of Economic Analysis or even the Census Bureau, the obvious sources for such data. Instead, he refers to another consulting firm, without providing a link, and suggests that this is the data we should all trust.

This choice of data raises a number of questions, especially since Mr. Swelbar's testimony is ostensibly paid for by Wyoming taxpayers. If you are going to spend other people's money, you should at least make sure you can fact check and backward engineer everything they provide for you. 

That said, the data behind Mr. Swelbar's index actually concurs with reliable data sources, suggesting that economic activity in Wyoming has declined. Therefore, we will leave this point aside and look at the consequences of the train of thought in Mr. Swelbar's testimony.

In a nutshell, here is the story in this written testimony in favor of creating WyoFlot:

1. Economic activity in Wyoming has declined;
2. Since 2014, Wyomingites have purchased fewer tickets for commercial air travel;
3. Therefore, commercial air travel must increase.

It does not take much logic to realize that the third point does not follow from the first two. For all you logic nerds out there, this is a violation of the most elementary modus ponens

To be fair, Mr. Swelbar does not explicitly make the case for WyoFlot. His entire report is set up to propagate the state airline concept, but he just about avoids - or evades - joining the choir. That said, the illogical train of thought described above is his work, and it is apparently going to be part of the foundation for the legislative WyoFlot argument. 

Without getting lost in technicalities, Mr. Swelbar's testimony suggests that we - Wyoming - need to spend a lot of money on expanding commercial airline services for "economic development" purposes. This argument is embedded in the entire WyoFlot project. There is just one problem with it: the decline in commercial airline consumption since 2014 is the effect of the decline in general economic activity. Since the decline in general economic activity is the cause, an expansion of airline traffic, courtesy of taxpayers, will attack the symptom, not fix the problem. 

To put it differently: since the decline in air travel is caused by the decline in general economic activity, there is an excess supply of air travel capacity in our state. You do not fix the problem with excess capacity by increasing excess capacity. In more basic terms: there is more supply of commercial airline capacity than there is demand for; if we increase supply in a market where supply already exceeds demand, it does not mean that more people will buy more airline tickets. 

With the same attempt at logic, the supporters of WyoFlot could argue that when people spend less at the supermarket, we need to double the parking lot outside so more people will spend money at the supermarket. 

You don't need to be an economist to realize that the case for WyoFlot is full of holes. For every new piece of support they add to their case, it looks more and more like a house of cards built out of Swiss cheese. However, there is one more aspect to it that WyoFlot proponents gladly will present as a counter-argument, namely that air travel capacity - like roads - provides infrastructure that businesses and private citizens can utilize to set up, expand and run their businesses and live their lives. 

In theory, this is a good argument. Government provides highways that we travel on. Trucking companies ship their cargo on them, people drive up and down our interstates and other roads to get to and from business meetings and work, etc. By the same token, the WyoFlot'ers suggest, we need a government agency that provides airports, dictates the size of the planes that fly in and out of them, how often they fly, what price they can charge for the tickets, and every other commercial aspect of air travel in Wyoming. 

Once again the pro-WyoFlot train of thought is derailed by its own lack of logic. If government provided highways, dictated the size of cars people could use, what the cost of travel should be with those cars, and how often people could drive between two points on the map; then we might have a highway version of WyoFlot that would validate the highway-air service comparison. Another way of looking at the non-existing parallel: imagine if the Wyoming state government created an intercity bus agency that dictated how many buses should run between a select number of cities and towns around the state. Imagine that they dictated the minimum number of passenger seats on each bus, what ticket prices the bus company could charge, and every other commercial aspect of operating and traveling with the buses.

Is that what is next, after WyoFlot?

Air travel is down in Wyoming because there is less economic activity around the state. Economic activity does not increase because there is airline travel available; whenever a proponent of WyoFlot makes this point, he or she should present the exact study that found this to be the case. It is very likely that if such studies even exist, the answers given are based on the explicit premise that businesses would not face increased operating costs as a result of said airline service. Obviously, like everybody else, a business will gladly take something for free rather than pay for it. 

Which brings us to the last point that Mr. Swelbar's written testimony fails to address: the sequencing of events that is supposed to yield the economic benefits of WyoFlot. Here, again, the complete lack of logic in the pro-WyoFlot argument stands out.

In order for a commercial air service to benefit businesses - the point that seems to be the entire economic analysis behind WyoFlot - it has to be up and running in all its glory before the substance of business activity comes to fruition. In order for this to happen, in turn, WyoFlot must have its 21 daily flights in place, with government-dictated capacity. This, in turn, will only happen if government subsidizes the flights; even if they could, the flights are not going to pay for themselves from day one because those who are supposed to use them are supposed to move in and set up businesses once WyoFlot is operational

In other words, there will be a while when 21 daily flights with 50+ seats will take off almost empty from Denver and return almost empty from their destinations in Wyoming. That "while" when the flights go largely empty will cost taxpayers quite a bit of money. How much? Not a single WyoFlot proponent wants to even acknowledge this reality, let alone try to estimate the cost to taxpayers. 

To secure WyoFlot's full-capacity operations before a new crop of frequent fliers is storming to the airports, the Wyoming state government needs new tax revenue. In theory, they could spend down the rainy day fund, then move on to the next government fund, and then the next. In practice, this is the government equivalent of maxing out all your credit cards: you can only spend a saved or credited dollar once. Barring a complete takeover of the legislature by fiscal lunatics, its members will not tolerate a sustained spend-your-savings approach to running WyoFlot. Therefore, the state will need to raise taxes to pay for WyoFlot.

Those taxes will be there when businesses consider establishing themselves in Wyoming. They will most certainly upset the balance between benefits and costs, whereupon fewer will actually take the step and move to Wyoming. (A 2-2.5 percent Gross Receipts Tax is all it takes.) That, in turn, will raise the bar even further for those who suggest that WyoFlot at some point will become "profitable" for taxpayers. 

WyoFlot is a bad idea. Please scrap it and let us focus on real reforms that actually help our state move forward economically

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