Lisa Snyder watches her neighbors’ children for less than an hour every day while they wait for the school bus. She is a stay-at-home mom and she does not accept any money in exchange for doing this. According to the Department of Human Services in Michigan, however, she is running an illegal daycare center. Department officials have notified Snyder that she needs to get a license in order to continue this informal babysitting, or she’ll go to jail for 90 days or pay a $1,000 fine. Even if it is raining or snowing, and even if the arrangement has been agreed upon by the parents, the DHS says that it is illegal for the children to come into Snyder’s home (or even into her garage).

Snyder’s story is getting a lot of attention in the national media. “The Today Show” and Fox News have both reported on it.

By requiring licenses, the government is telling individuals that it knows better than they do. It’s paternalism in another form. The parents in Snyder’s neighborhood know her very well, so they are in a much better position to determine whether her home is a safe environment for their children.

Furthermore, having a daycare license does not ensure that a person is fit to supervise children. Earlier this year, for example, a woman running a licensed daycare in Arkansas accidentally placed windshield wiper fluid in her refrigerator and later served it to children! As a parent, I would much rather leave my kids under the supervision of a person like Lisa Snyder than a person who can’t tell the difference between wiper fluid and Gatorade. The Department of Human Services would feel differently, apparently.

Daycare licensure requirements do not result in better outcomes (e.g., fewer ER visits), nor do they improve the general welfare. In this case, all the involved parties (i.e., Snyder, parents, and children) are happy with their current arrangement. If the DHS gets its way, the parents will either have to stay home from work or pay a licensed daycare provider to watch their children.

Professional licensing has many negative consequences, which contributors to this blog have discussed extensively. The Show-Me Institute has produced scholarly work on this subject, as well.

Alex Tabarrok is blogging about merit pay for teachers. An experiment in India found that incentives for teachers have a significant, positive effect on students’ test scores.

One of the most interesting results of this study is that incentives created a spillover effect. The teachers facing incentives were rewarded if students did well in two subjects, but the benefits weren’t limited to those subjects. This is good news, showing that a little incentive can go a long way. It also indicates that the test score gains reflect real learning rather than cheating, for if teachers were to artificially inflate scores in hopes of a reward, they would have no reason to distort scores in subjects that are unrelated to the incentive.

How do incentives for one subject improve test scores in a separate subject? It could be that students are taking the skills they learned in reading or math class and applying them in other areas; students who are well-prepared in math can go farther in science, for example.

The spillover could also be because of another effect of merit pay: Incentives change the way people view their profession. When teachers are paid according to a set schedule, they may feel, “I’m just like any other teacher with the same amount of experience. We all do the same work, and we earn the same amount. I don’t need to try to be exceptional.”

But when teachers are rewarded for student achievement, they think, “My students’ success depends on my individual effort and creativity. I don’t have to wait years for a pay raise; I can get one immediately if I bring achievement up far enough. We earn bonuses because outstanding teachers are valuable, and I want to be outstanding.” This attitude can motivate teachers across all subjects, not just in the areas linked to a monetary incentive.

For more about why I like merit pay for teachers, see this recent post.

I was quoted this morning in the University of Missouri–Columbia’s student newspaper, The Maneater, as part of a story about a proposal to have a state bond issue for education construction. I briefly want to explain a little further what I meant. The reporter quoted me accurately, but my original quote could have been a little more clear, and because I got a call from a state rep this morning asking me to clarify, I should probably do so.

This is my quote about the bond issue, from the article:

“The legislature shouldn’t just pass this onto the people,” he said. “If they believe the benefits outweigh the costs, then they should pass it, but this is something they should think carefully about.”

When I said they should not just pass it on to the people, I didn’t mean that they should pass the bond issue without allowing Missourians to vote on it — a process that is legally required for almost all bond issues. I am fully aware that bond issues require voter approval. Rather, I meant two things: First, the legislature as a whole should not just use the fact that voters will vote on this as an excuse simply to put it on the ballot without first fully debating the costs and benefits of the proposal. Second, in a related way, individual legislators should not say, “I don’t support this proposal, but I want to let the voters make the decision, so I’ll vote to put it on the ballot.” I want the legislators to consider the issue fully, from all sides, and if the majority of the legislators believe it will benefit Missouri, then — and only then — should they put it on the ballot so that the voters can have the final say.

I generally prefer the traditions of a representative republic over more direct action democracy. I prefer elected officials to make the tough decisions, and to have voters then judge whether to reelect them based on those decisions, rather than having those decisions made through referendums and the like. I don’t prefer that process because I believe elected officials are smarter than the voters, nor because I think elected officials make better decisions than the voters. Instead, I prefer it because I think that, in general, the legislative process is slower and more deliberative than the type of constant voter initiatives they have in California. There are certainly some issues, such as smoking bans and concealed carry, for which the general public intrinsically understands the questions at hand every bit as well as elected officials do, and I think those types of questions are better suited to go straight to the voters. (Let’s leave aside the difficult question of whether people should be able to vote on the fundamental rights of others in the first place.)

I think that a major bond issuance entails enough complications that both legislators and the general public need to give their separate approvals to before it goes forward.

A couple of weeks ago, the Show-Me Institute hosted events in Kansas City and St. Louis at which Jeff Benedict discussed his book Little Pink House: A True Story of Defiance and Courage, the story of Susette Kelo’s fight to save her home in New London, Conn. As most will know, Susette lost her fight when the U.S. Supreme Court ruled that the U.S. Constitution permits cities to take private property on behalf of new private owners, so long as those owners are considered more likely to generate more tax revenue for the city.

Many people at these events asked whatever became of the planned development once the city won the case. Did they ever build the luxury hotels and condominiums, or the high-end retail shopping establishments that were promised? New London’s local newspaper, The Day, has produced a video that lets you see for yourself how the development is faring, four years after Mrs. Kelo’s neighborhood was leveled. I hope the city is satisfied with the Fort Trumbull neighborhood’s new residents.

Dan Pink argues in this talk that extrinsic rewards like bonuses don’t motivate people to do well when charged with complex tasks. His conclusion: Businesses need to change the way they reward employees, by moving away from performance incentives and by emphasizing greater autonomy for each worker.

Does this apply to merit pay for teachers? Here are a few reasons merit pay is still good policy:

1. The experiments Pink cites as evidence involved tasks that took just a few minutes to complete. In each of these tests, one group of people was asked to solve a puzzle in order to get a reward, while another group was asked to solve the puzzle without an incentive. The group facing the incentive took a little bit longer to complete the task. That group might have dawdled for a minute or two at first because the members were distracted by thoughts of what they would do with the reward. For activities that take up a short amount of time, every minute counts, and a few minutes of divided attention can set you back. But it doesn’t follow that people offered larger incentives for work done over the course of a year would spend a sizable chunk of that time dreaming of the reward. Maybe they would be distracted for a couple minutes — and then go on to work really hard for the rest of the year.
2. In real life, people are not randomly assigned to professions the way subjects of an experiment are assigned to control groups. If certain people work harder than others for rewards, and if they make good teachers, an incentive system could attract the best people for the job. It wouldn’t matter if the average person responds better to a different pay structure.
3. Merit pay doesn’t have to come in the “If you do this, then you get that” form that Pink warns against. If tying bonuses to test scores is counterproductive, there are other ways to use merit pay. Schools can reward teachers for their knowledge in subjects like math and science, to prevent valuable teachers from leaving for more lucrative careers. Schools can reward teachers who put in the most effort, or teachers with whose performance parents are most satisfied.

I’m still in favor of merit pay, but it can’t solve all of the education system’s problems. Merit pay alone won’t induce anyone to work hard in a system of few choices. Bonuses can’t outweigh the harmful effects of quashing new ideas, or of assigning teachers to schools based on arbitrary factors like seniority. That’s where Pink’s ideas about autonomy are important. A competitive education market would present teachers with more possibilities, some of which might include merit pay.

Today, we released a new study about the proposed high-speed rail corridor that, if constructed, would connect Saint Louis, Kansas City, and Chicago. The study was written by Randal O’Toole, one of the nation’s leading thinkers on transit and planning. Missourinet covered the study this morning, and I’d like to thank Combest for linking to it. Randal appeared on The McGraw Show this morning on KTRS, and I’ll put a link up to that interview when it gets put online. This afternoon at 2 p.m., Randal will be guesting on the Mark Reardon Show on KMOX, and I encourage you all to listen in.

Be sure also to read the briefing paper and the op-ed that go along with the full study.

As the saying goes, if all of the world’s economists were laid end to end, they wouldn’t reach a conclusion.

Unless, of course, the topic of discussion is federal agricultural subsidy programs. Economists largely agree that agricultural subsidies negatively affect practically everyone except for the farmers who receive them. On Sunday, John Combest linked to an article in the Lebanon Daily Record on this subject.

The program described therein would reward farmers for producing products that consumers don’t want, and then it would give them an incentive to produce even more. In the status quo, there is already a low demand for these products. By shifting the supply curve to the right, these subsidies would drive the quantity of demand even lower. The program’s solution, apparently, is to give the product away for free:

Another point of the program outlined by Hagler would allow those who receive food assistance through the Electronic Benefits Transfer program to receive additional funds each month for the exclusive purchase of meat, milk or dairy products.

This, of course, would be underwritten by taxpayers, at artificially inflated prices.

The agricultural industry already receives a tremendous amount of federal assistance. According to the Environmental Working Group, the USDA awarded $177.6 billion in subsidies between 1995 and 2006. By itself, the dairy industry received $3.6 billion during this period.

Instead of lobbying their friends in Washington for more money, perhaps the farmers’ time would be better spent improving their operations or determining what consumers actually want.

It is a delicious coincidence that the Show-Me Institute is bringing the Antiplanner himself, Randal O’Toole, to St. Louis on the same day that the Post-Dispatch reports on a county renewal plan for Jamestown Mall that involves the recommendations of a number of urban planners from around the country. Seriously, it apparently wasn’t enough just to get terrible advice from planners in our own state. We had to bring planners in from around the country to give us stupid suggestions and offensive recommendations — i.e., that St. Louis County should just use eminent domain to take the mall if the owners won’t sell it.

From the article:

A key first step, the panel said, is for St. Louis County to take over the entire site, chunks of which today are owned by five companies, all from outside the area. It should buy them out, through eminent domain if necessary.

There are a lot of things wrong with urban planning, but the total lack of respect for basic property rights is the most awful. That goes hand in hand with the insufferable condescension that planners demonstrate in their assumptions that people don’t know how to use their own property, and that it takes a panel of “experts” to build places in which other people want to live. In almost every case, the places most people want to live — the suburbs — are exactly the types of places the planners hate. But still they pretend to know what is good for us.

Thank God for the planners who can help the county achieve this:

[I]t’s the only way to create a fresh start, to build something new that is big enough and great enough and unique enough to draw people there, like people go to the Loop or the Central West End now.

I can assure you that urban planners had little to nothing to do with the successes of the West End (where I used to live) or the Loop (where I hang out a lot now, as a U. City resident). Entrepreneurs and residents, not government planners, built those places into what they are today. (Although one can commend the local governments in both places for allowing entrepreneurship to work, rather than getting in the way.)

One planner from L.A. is excited about the potential:

“We need to be brave,” he said. “We need to be bold. We need to have a sense of urgency.”

Unfortunately, I am pretty sure we will also need taxpayer dollars as incentives for the planners to create their “livable space.” I can pretty much guarantee that if the county trusts the urban planners too much and leaves too little room for the risks and rewards of the free market to operate, anything they do for Jamestown Mall will fail even more than it is failing now.

Combest today links to a great editorial in the Kansas City Star advocating that we pay for the proposed truck-only lanes on I-70 with toll roads. Not surprisingly, I agree with every word in it. I’m excited that the Star is supporting such ideas and suggestions as this:

That’s why this plan cries out for a different approach — namely, a toll road. It’s time for Missouri to get over its traditional aversion to tolls.

Or:

Tolls are user fees in their purest form. If you don’t use the road, you don’t have to pay.

I highly recommend the editorial, and look forward to the Show-Me Institute’s own work on transportation and tolling being a part of the debate.

Today’s Springfield News-Leader has a rebuttal to a prior op-ed that quoted some information from the Show-Me Institute. The topic is Springfield’s pension problem, and the rebuttal questions how the Show-Me Institute writer (me) came up with a value of $75 million for Springfield’s water utility. From today’s piece:

- Neither the city staff, nor City Utilities, has any idea how the Show-Me Institute arrived at a $75 million valuation for CU’s water division. Regardless, there are two larger points here. First, the Show-Me Institute is not an unbiased source. Its mission statement is to promote free-market solutions for public policy. Maybe selling off some or all of CU’s assets is a good “market solution” for the buyer, but it would not be in the best interests of the CU consumer.

We may not be unbiased, but at least we are not lazy. As in, too lazy to do one minute’s worth of work to answer your own question. About three weeks ago, the Springfield Business-Journal ran my op-ed that cited the $75 million figure. I can’t link to the SBJ’s version of the piece online, but I can link to our copy. It very clearly states how I arrived at that estimate:

It is difficult to estimate the windfall Springfield might receive, because public utility valuations are very complicated, but Webster Groves, which has one tenth the population of Springfield, received $9.5 million in 2002 just for its water system. Using a rough per-capita calculation and adjusting for inflation, a similar sale might bring more than $75 million for Springfield’s water division alone.

I clearly stated that this was a rough estimated value, but as to how I came up with it, the answer was right there in black and white.

There’s an article in the Chicago Sun-Times about the state of the taxi industry in the Windy City, and how cab drivers are presently working to change it. Rates are capped there by the city, and any rate hike requires prior approval by the City Council. The last such hike happened in 2005, when rates rose by 11.7 percent. Drivers are currently petitioning for a hike of 22 percent, as well as requesting a $1 fee for each additional passenger, $1 for trips dispatched over the phone, a $1.50 credit card “convenience” fee, and a $50 fee for “clean-up” in case a cavorter gets sick in the back of a car.

The additional passenger fee is an industry standard; I’m surprised they don’t charge this already. The other fees seem like ways to internalize the cost of doing business. That is, the cabbies will have to pay for these things anyway, in the form of cell phones, fees to a credit card company for having access to credit card billing machines, and professional cleaning services. They either take a hit when these types of situations arise, and are thus marginally less likely to provide service to those sorts of customers (credit card users, people who order by phone, and the inebriated), or else they lobby to raise their rates even higher, thereby dispersing the costs onto customers who don’t force the cabbies to bear them (those who pay in cash and hold their liquor). The legislators who are voting on the cabbies’ petition profess to have a sympathetic ear for the working drivers, but aren’t sure if cab riders can face the increased costs, especially what with “this recession that we’re in.”

Perhaps it is the case that taxicabs should be licensed by someone — I would argue that this should be a private, professional agency like the AICPA (which certifies accountants) rather than a local or state government board — but even if we grant the necessity of things like a criminal background check and a driving competency rating (perhaps this is what a driver’s license is for), why regulate the amounts that can be charged? The “moral” and “social” arguments for limiting what drivers can charge are endless, as well as baseless. What would happen in the total absence of taxi rate regulation in a large city?

First, let’s see what happens when prices are regulated. Economics 101 tells us that if regulators set the prices too low, there will be a shortage of cabs; more people will want a ride at that price than there will be drivers willing to take them. Similarly, if regulators set the price too high, there is a possibility that the market will approach equilibrium, but the restriction on supply brought about by the presence of limited “taxi licenses” will likely result in increased revenue for cab drivers above market levels, and fewer people riding in taxis than would do so in the absence of such a limited number of licenses. In addition, there are other adverse effects that such restrictions have on the market, similar to the negative effects of rent control, such as a decreased incentive to improve product quality, or to distinguish your company or cab as having better quality, through branding or other similar behavior.

In the absence of price controls, some cabs would charge more, but there is every reason to believe that many — or even most — would charge less. Competition drives down prices and improves quality, because customers demand low prices and high quality. Sufficiently competitive circumstances allow the best to rise to the top. Restrictive licensing and legislating the rates that taxis can charge are both bad ideas for Chicago, and they’re also bad ideas right here in Missouri.

The definition of rent-seeking behavior:

The expenditure of resources in order to bring about an uncompensated transfer of goods or services from another person or persons to one’s self as the result of a “favorable” decision on some public policy.

Ladies and gentlemen, I present to you the modern ethanol industry. The Kansas City Star has a story about how industry representatives now want to require some type of “nation of origin” sticker on all the gas we buy — in an effort to appeal to patriotism, I guess. “Buy American corn instead of evil, foreign oil,” or something like that. Of course, here in Missouri, we are forced to buy gas made with American corn in a 10 percent ethanol blend, because of our state’s obscene ethanol requirement.

I love the response from the oil companies, who know how difficult this proposal would be to implement — and how stupid it is, anyway:

“Growth Energy (the pro-ethanol group) clearly doesn’t understand fuel markets, consumers, supply or demand,” Charles T. Drevna, president of the National Petrochemical and Refiners Association said in a prepared statement.

There is a new gas station not too far from my house that chooses to sell higher ethanol blended gas at lower per-gallon prices. This is not because of the law — rather, it is the market at work. I have not yet chosen to purchase that gas, even though one of our cars can run fine on higher ethanol blends. I may one day choose to buy it; I may not. That is how free markets are supposed to work, rather than passing government mandates to tell everyone they have to put ethanol blends into their engines whether they want to or not.

Here is our case study about the economic effects of the ethanol requirement in Missouri.