After attending an Institute for Humane Studies workshop this past summer, I established a firm economic foundation. My professor reduced the whole field into one single sentence: The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

This lesson is further validated by economist Henry Hazlitt, who believed that many of the economic fallacies in the world today stem from one or two issues: Looking only at the immediate consequences of an act or proposal, or looking at the consequences only for a particular group — to the neglect of others.

Today’s economic lesson is about the St. Louis Board of Aldermen and its proposal to limit payday loan stores in the area, as reported by the Post-Dispatch. Payday loans are short-term loans that are intended to cover borrowers’ expenses until their next pay period. According to many consumer advocate groups, payday loan stores are predatory — they prey on uninformed consumers and dish out loans with a vague screening process, making it easy for any Joe Six Pack to take out a loan.

Personally, I can’t stand them. Payday loan stores can take people who are already in an economic hole and turn their situations into economic craters. In spite of this, the stores represent a last resort for people who operate with little or no economic safety net. Let’s not forget, there is a market out there that really can take advantage of payday loans. Eliminating stores removes market competition, so that stores still operating end up offering even less favorable terms, or more restrictive screening. This would put those consumers in an even bigger bind. In the Post-Dispatch article, Tom Linafelt, a spokesman for Quik Cash, even stated, “Laws to restrict the opening of new stores actually help companies like his because they lessen competition.” Unfortunately, this guy is right.

Justin Hauke, a former Show-Me Institute policy analyst, wrote a piece on this topic back in 2007. Rather than pass new regulation, legislatures should get to the root of the financial problems surrounding payday loans, by encouraging programs that increase financial literacy (preferably in high school) or that seek alternative sources of short-term financing — such as lines of credit, or credit unions. No matter what, Economics 101 teaches us that we should look past the immediate consequences of an act, or the consequences for a particular group, so that we don’t neglect others.

Way to go, class. You earned your sticker for today.

The state is putting pressure on Riverview Gardens to do something about its abysmal performance, or else. If the district doesn’t shape up, it faces a state takeover — the fate that met the St. Louis Public Schools.

The threat embodies everything you could ask for in state accountability: The district has specific benchmarks that it must meet. It has to meet them in a specific amount of time, and soon. The state isn’t holding the district to some dream promise that every child will know calculus in 10 years. Riverview Gardens isn’t being asked to achieve the impossible, just to earn a few more points on its evaluation, which many other districts accomplish without trouble. The consequences of failure are substantive, and no one doubts that the state can follow through.

Despite all this, the incentive probably won’t spur much improvement in Riverview Gardens. After all, none of those factors were able to save SLPS from a takeover.

Now imagine if parents in Riverview Gardens could send their children to another school — a charter school, a private school, or a better district. Riverview Gardens would have to win people back. They would have to make changes. They would have to become more like a charter school, a private school, or a better district. They would learn from the competition, just like students learn from playing chess against a better chess player or from competing with a better basketball team.

Benchmarks are well and good. But asking a district to improve without facing competition is like asking a kid to become a better athlete by playing basketball alone.

If you want an example of the terrible effects of eminent domain, you don’t need to look any further than Hadley Township in Richmond Heights. It was covered as part of Tim Lee’s study of eminent domain abuse for the Show-Me Institute. It is even more than just a horrible example of eminent domain abuse, though — it is the ultimate example of why local government should not get into the redevelopment business in the first place. While nobody has yet been put out of their homes, an entire neighborhood is suffering greatly from the combination of a city wanting to redevelop its community, the threat of eminent domain hanging over the heads of residents (some of whom have, admittedly, always wanted to sell), and the recent failures of the development proposal stemming from the credit crisis.

None of this had to happen. If the city has stayed out, involving itself only in the potential rezoning, the developer would have made offers to the residents. If he had made a good enough offer, likely all would have sold. And if someone decided not to sell their property and the development died as a result, then so be it. As for the business knowledge of local officials, how about this quote from one of the councilmembers in the Post-Dispatch article:

But Councilwoman Gina Mitten was disappointed.

“A $200 million project — and the developer can’t come up with another $72,000?” said an exasperated Mitten.

Yes, that is exactly how business is done. You come up with a business plan and then you just have as much money waiting on the side as the government wants you to hand over. (This post should not be taken, in any way, as defending the developer. …)

St. Louis County has recently begun tightly enforcing a county ordinance allowing police to fine motorists in unincorporated areas for not wearing seat belts. So far, over 100 tickets have been given out for failing to wear a seat belt.

Once again, I think this is one of those feel-good laws that, when a layer or two is pulled back, does not make a ton of sense. Let’s take a look at this law for a moment. It penalizes any motorist who is not wearing a seat belt. Now, a seat belt is a device that protects you, and you alone, lowering the chance of injury or death in the instance of a collision. If I were driving my Danger Ranger down the road, it would make no difference to me whether every other motorist was wearing his or her seat belt. (Let’s ignore any association between not wearing a seat belt, risk-taking, and driving safely.)

Now, as with any decision, I have to consider the costs and benefits of wearing a seat belt. Some costs could be discomfort when wearing it, or the fact that my seat belt often gets caught in my car door. But these costs are offset by the benefits the seat belt offers, mainly the lower chance of injury or death that I mentioned earlier.

When talking about this law with fellow staff members here at the Show-Me Institute, a few more possible motivations for this law arose. For one, it may lead to a lower mortality rate for St. Louis County as a whole. This could be achieved in other ways, of course, such as drastically lowering speed limits, or through much stricter enforcement (as Josh Smith pointed out to me), but that would be detrimental to St. Louis County’s economy.

Here’s a fun way to look at it: The statistical value of a human life has been estimated to be $1.76 million. This figure comes from a 2002 estimate of $1.54 million, which I’ve adjusted for inflation. Now, while it can be seen as immoral to put a monetary value on human life, this number is thought to be what each person adds to society around them over the span of their life, sans all the mushy stuff like love and affection. Now, by drastically lowering the speed limit, millions of dollars would be saved in terms of human life. But the detrimental effects to our economy in terms of lost mobility and productivity would easily offset those millions. Rather, the government is able to set an equilibrium point for speed limits that is beneficial both to the economy and to human life — although the speed limit on Shrewsbury Avenue is ridiculous.

But what about seat belts? Well, it seems to me that if a person already considers the costs of wearing a seat belt to be too high, $10 will not change their mind at all. Statisitcally, it is said that you are 50 percent less likely to be hurt in an accident when wearing a seat belt. Now, the accuracy of this statistic is, of course, questionable, but shouldn’t the amount of the fine reflect it somehow? By not wearing your seat belt, you have decided that discomfort, or other costs, are a more important factor in determining your behavior than the $1.7 million you are adding to society throughout your life. But in St. Louis County, the cost for getting caught not wearing a seat belt is $10. I just wish there were more logic to this number. Sure, it’s round and ends in zero, but shouldn’t the fine at least reflect the increased risk? Why should a speeding ticket cost hundreds of dollars, and yet not wearing a seat belt only cost you 10? If you are going to make laws telling me how to drive, at least make them consistent.

Here’s a thought: How about establishing incentives to wear a seat belt (if the lower mortality or injury rates weren’t enough). Every time I drive a mile while wearing my seat belt, my insurance should drop by a penny. Sound ridiculous? It was kind of supposed to.

One of the problems with advocating market solutions and disparaging government solutions is a complaint often uttered by free-market advocates, and it is a version of the broken window problem. Government solutions are imminently visible and localized (in one agency or project), whereas market solutions tend to be spread out among competing innovative firms or individuals. No government told this girl she had to do research to determine how safe her baby brother is — she did it because she wanted to know. This characterizes the kind of individual innovation that is lost when government dictates the arrangement of resources.

It is difficult and unfair to say that this particular girl’s (admittedly dubiously scientific) idea would’ve fallen victim to a government rearrangement of resources, but it’s even harder to say what exactly would fill the void if the government left every part of the economy alone tomorrow. The marvelous thing is how much gets done without government control, and how efficient it all is. There’s a microeconomics textbook co-authored by Robert Frank and the current chairman of the Federal Reserve, in which the first two pages of chapter three tell a short but fantastic story about the difference between the markets for food and housing in NYC. Their conclusion is that the seemingly chaotic power of unfettered markets tends to bring people what they want.

If you start on page 57, you can find what I’m talking about. It’s short and well worth the read for anyone not already sold on the idea that markets are neat and inherently good. (Good at bringing people what they want. It’s a normative utilitarian analysis, admittedly.)

This past Friday I attended a conference on the economics of ethanol and got insulted by one of the speakers. Now, I was not personally insulted — but, in response to previous speakers who criticized the ethanol industry, the head of the National Corn Growers Association began his remarks by ripping think tanks. I think he said, paraphrasing, “When I grow up, I want to work at a think tank so I can just chuck spears instead of having to catch them.” He then accused the Cato Institute of being a tool of the oil industry, and of just repeating big oil’s talking points. So that was fun. …

The conference itself was awesome. It is organized by the Weidenbaum Center at Washington University, which must have had some passing knowledge of my contribution to the debate, because they sent me an invitation. Speakers included Jerry Taylor of the Cato Institute, Max Schulz of the Manhattan Institute, Jason Henderson of the KC Federal Reserve, and numerous other economists and professors. Some of them didn’t even hate ethanol, and a few of them actually liked it, stunningly enough.

I can’t do the all-day conference justice in a single blog post, so I’ll focus on one of the widely discussed points: Ethanol exists primarily as a policy industry, not a market industry. This was the primary idea presented by Jason Henderson. As a policy industry, the entire ethanol industry is built on government policies that support it, rather than on market forces that demand it. Without friendly government laws, the industry would be dramatically smaller. There are many problems with this, but when you are trying to be neutral, as Mr. Henderson was, the main issue is that those same policies that support the industry can change overnight — and then your industry ceases to exist (or becomes a lot smaller).

I might suggest that the plaintiffs’ trial bar is in a similar situation, in that its success or failure can dramatically differ depending on which party is in charge at the time. All industries are, at some level, deiven by policy in our regulated economy. But it is not hard to see how demand for clothes, or food, or books, or many other things, will still exist no matter whether the government tries to help or hurt an industry. But without government price support and mandates, there would be almost no demand for ethanol, and the potential gains — even if you accept the most optimistic estimates by its most ardent supporters — are so small that government support is really not adding much of a net benefit to our country. This is particularly true in comparison to nuclear power, which is also heavily subsidized but has such a positive upside for meeting our energy needs that those subsidies have a much greater public good potential. (But, yes, changes to nuclear policy need to be made, too.)

If Americans used ethanol at the levels required to truly wean us from foreign oil (which does not really need to happen, but that is another post), than the issues affecting food prices and availability really would be a serious concern, rather than having only the more minor effects seen recently. The lack of any real demand for ethanol was the central focus of the gentlemen from the think tanks, and while the corn growers hate to hear this, it’s the truth. So, why the hell do we give millions of dollars a year to ethanol blenders and corn growers? I think you all know the answer. Missouri’s mandate that all gas sold within the state contain 10 percent ethanol is the biggest joke of all.

In the interest of being fair — which I am not required to do, but will try anyway, because I am a wonderful person — there are two decent arguments for subsidizing ethanol. The first, which is accurate but misplaced, is the fact that growing more corn for ethanol has caused more farmland to be devoted to production, and reduced payments that the government makes to farmers for leaving their land fallow. While this is a positive thing, it does not follow that just because we have two bad policies (farm policies in general, and ethanol mandates specifically), that we need to continue both of them because one of those bad ideas makes the other slightly less bad.

The other legitimate argument really is better. Supporters say that corn ethanol is just the bridge to future biofuels with much more potential, like cellulosic ethanol. This may be true, and in the end it might work out that this has been money well spent. I don’t think that will be the case, as I trust the market to pick better options than government bureaucrats would, but I’ll admit that this is a decent argument in favor.

Mr. Crosby Kemper III, co-founder and chairman of the board for the Show-Me Institute, was profiled in the Kansas City Pitch last week. While he has accomplished much in his life, we are grateful for the work he has put in to our organization. Back in 2005, Kemper, along with Rex Sinquefield, recognized the importance of a state-based think thank for Missouri. He has since been instrumental in the board’s development, and remains a vital voice in determining the path of the institute in its efforts to improve Missouri.

Feel free to check it out. If you enjoy the GQ-style picture here, just hold tight. The swimsuit calendar is coming out this summer.

Although the deadline for the Show-Me Institute’s spring internship program came and went on Friday, we’ve already agreed to accept a couple of late applications this week. So, if you or a college student of your acquaintance is looking for some hands-on experience in public policy during the coming semester, be sure to get those applications sent in to us ASAP. After the end of this week, we’ll stop accepting late applications and begin our selection process in earnest.

I have previously noted that eminent domain has all-too-frequently been used to uproot minority communities. A few days ago, the Associated Press ran a story that highlighted San Francisco’s use of “blight” designations to destroy a thriving neighborhood that had been called the “Harlem of the West.” As the story notes, these “urban renewal” projects were undertaken to destroy black neighborhoods in Kansas City, as well as all over the nation. Despite constitutional requirements that dispossessed property owners be given “just compensation,” very few received anything like enough money to replace the homes, businesses, and community networks of which they had been forcibly stripped.

While it is no longer socially acceptable to use race as an overt factor in making a blight declaration — it is no longer kosher to refer to urban redevelopment as “negro removal,” as it was in the past — the fact remains that the burden of eminent domain still falls most heavily on neighborhoods populated primarily by minorities. Until Missouri reforms its laws, returning the use of eminent domain to its proper, sharply-limited scope, people of color in this state will have to be concerned that their homes, businesses, and houses of worship may become the next targets of “urban renewal.”

While this story lies a bit outside of the Show-Me Institute’s jurisdiction, and while I personally do not condone such blatant, yet hilarious, civil disobedience, I could not help but laugh when fellow SMI worker Josh Smith showed me this article.

I did know that red light camera aggravation was not exclusive to Americans, but now I know it’s not even exclusive to humans. Unlike in Missouri, German red light cameras require your face in the picture in order to press charges. Their cameras are specifically designed to block out the passenger’s face to keep them anonymous. Well, this could be taken advantage of by driving a British car.

This picture is not faked, altered, Photoshopped, or edited in any way. It’s Animal, in all his glory, sticking it to the man.

Any Muppet lovers or red light haters can find more info about the subject here.

Earlier today, Slate ran an article about the debates now raging over whether judicial merit selection, popularly known as “The Missouri Plan,” is a better method than elections for choosing judges. About two-thirds of the way through, the piece links to the study we released earlier this year addressing the subject:

Most Main Street businesses also seem uncertain about the would-be crusade against merit selection. In Greene County, the local chamber of commerce supported the switch to merit. Indeed, a 2007 Zogby poll showed that 71 percent of business executives supported merit selection. This presumably stems from a distaste for politicized courts and a preference for high-quality judges. In fact, the U.S. Chamber of Commerce’s own survey of in-house corporate litigators shows that of the 20 states the chamber ranked as best for business, only two elect their high courts. In Missouri, a study from the conservative Show-Me Institute called merit selection “superior” for promoting free-market goals. “I must say that I find it really odd that business groups have gone off on this kick,” the Manhattan Institute’s Walter Olson wrote this summer.

We’re always happy to receive coverage like this, but I was somewhat chagrined to find that this brief mention of our work manages to propagate two pet peeves that I’ve written about recently.

First, the Show-Me Institute is not a “conservative” think tank, a point I raised only three days ago in this blog. We’ve addressed that a few other times, as well. For some reason, people have the urge to place us toward one end of a bipolar political model, when the work we publish would fit comfortably into a wide swath of a more-useful biaxial model. (It just so happens, though, that almost everybody who wields political power — in D.C., at least — falls outside this swath.)

Labels aside, this mention of our study also fails to point out the qualifiers that the authors placed on their findings. Two weeks ago, we ran on our primary website an op-ed that I wrote about this tendency for those with a political agenda to trumpet findings they agree with while ignoring any provisos that place limits on those findings. From the piece:

The ways in which government institutions are structured have a tremendous effect on society at large. The mechanisms of the public sphere set benchmarks that radiate outward, influencing how people live, work, trade, and resolve their differences. For those of us who favor limited government and free markets, strong economic growth is one desirable side effect of public policy, but it’s not the only way to measure policy success — other metrics could tip the balance when choosing between proposals that each have evident value.

Supplementary studies might consider the extent to which a particular selection process promotes variables such as strong property rights, sensible limits on tort damages, or simple judicial accountability. People seriously considering the question of which judicial selection system would work best might place any number of factors higher than economic growth. Choosing outcome priorities for an entire legal system is an area in which people of good will can differ.

Determining the ideal structure for government institutions isn’t as simple as reading, say, the Declaration of Independence and extrapolating the principles of liberty it contains. No particular framework is implied by standard natural rights theories. If we want government to have a limited purview over the lives of the citizenry, we need to ensure that we have a robust system of checks and balances — but the exact ways in which we separate the powers of government can’t be derived from general principles. It takes hard work, observation, dialogue, and persuasion over time, and any one step in that process is not likely to provide a definitive answer.

The estimable Walter Olson, quoted in Slate right after the Show-Me Institute reference, essentially included one of those qualifications when he wrote about our study earlier this year, by including the nature of the study’s source data:

Among other conclusions, Hall and Sobel noted that the states that did best on the U.S. Chamber of Commerce’s 50-state rankings of state legal systems tend to be merit selection states.

This way, he highlights the study’s conclusion while also acknowledging that the data it used approaches the subject from a particular angle. It’s a useful and interesting angle, but — at the risk of repeating myself — other data could later provide a wider array of vantage points that ultimately reveal a more comprehensive glimpse at a complex subject.

For all of you out there who watched 2 Million Minutes and concluded that the U.S. just needs to focus more on national standards and rigorous tests, take a look at this article in the Wall Street Journal:

On the day each November that high-school seniors take the college-entrance test — Nov. 13, this year — South Korea is a changed country. Many offices and the stock market open at 10 a.m., an hour later than usual, to keep the roads free for students on their way to the test. All other students get the day off to keep schools quiet for the test takers. And while students are taking the listening portions of the tests, planes can’t land or take off at the nation’s airports. Aircraft arriving from other countries are ordered to circle at altitudes above 10,000 feet.

There’s a large cost to orienting your whole society around one test.

Asian countries must be doing something right — otherwise, their students wouldn’t be so attractive to American universities. Let’s emulate the cultural emphasis on hard work and education; we don’t need to adopt the top-down control of schools and the obsession with testing.