The proposed Missouri Medicaid expansion has reached the end of the line, at least for this year. When Missouri Gov. Jay Nixon announced he would pursue the expansion after last November’s election, I expressed my substantial reservations about both the cost and effectiveness of the program. And I repeated those reservations on television, on the radio, in print, before audiences, before the Missouri Legislature and on our blog again, and again, and again . . .

Suffice to say, I think that Missouri not expanding a broken Medicaid program is a victory for Missouri taxpayers. Kudos to the legislature for its steadfast opposition to the Affordable Care Act (ACA) and support for reforms that will actually help to make Missourians healthier. Unfortunately, the ACA just isn’t that vehicle.

Today, the Show-Me Institute released my new essay, “Public Dollars, Private Schools: Examining the Options in Missouri.” The paper helps clarify some misconceptions people often have about private school choice programs.

Here are some of the misconceptions:

1. All private school programs are the same. The fact of the matter is there are many different ways private school choice programs can be designed. Today, other states are using vouchers, tax credit scholarships, and education savings accounts to expand educational options for students. The paper explains some of the differences between these programs.
2. We cannot afford private school choice programs. Our current school funding formula is not fully funded. Therefore, some argue that we cannot start a new choice program. This argument is really a red herring. Private school choice programs can be designed to save the state money, not cost more. The reality is that we cannot afford to not investigate programs that might save the state money.
3. Students do not benefit from private school choice. The academic literature is clear, students benefit from private school choice. Below is a table I reproduced from a paper that the Friedman Foundation for Educational Choice recently released. As the table makes clear, the most rigorous studies consistently find benefits from private school choice programs.

You can download the essay from the Show-Me Institute website.

Let’s cut to the chase. Matt Taibbi of Rolling Stone magazine has jumped on the American Federation of Teachers “blacklist bandwagon.” As it turns out, the Show-Me Institute’s work on public union pensions and public union policy generally has made us a national bête noire of the Left.

Of course, Taibbi knows his role in that game and plays it as best he can. But I would like to know his source on this nifty factoid (emphasis mine):

Dan Loeb isn’t the only hedge fund manager aligned with groups like Students First, the Manhattan Institute, or local anti-benefit lobbies like the Show-Me Institute (created by billionaire Rex Sinquefield to campaign against defined benefit plans in Missouri) . . .

Oh? And what actual evidence, Matt, do you have for the assertion that the Show-Me Institute — now close to a decade old — was founded for the purpose of “campaign[ing] against defined benefit plans”?

We’re waiting.

But while we wait, Matt, I did want to tell you that I found your investment advice remarkable, compelling, and ironic (emphasis mine):

A lot of teachers and public sector workers would do just as well to just dump their money on some plain-vanilla S&P index and not pay obscene tax-sheltered fees[...]. Not only would the returns probably be a wash or close to it, but retirees at least wouldn’t be stripping themselves of their biggest asset – the political power their money represents.

That is excellent advice. And you know who helped invent the first S&P index fund? Rex Sinquefield, of course. But you knew that, right?

Right?

Today, the American Federation of Teachers targeted the Show-Me Institute for our work to improve educational opportunities for Missouri’s families.

The public-sector union included Show-Me Institute board members as part of a national blacklist of fund managers that public pension trustees are encouraged to avoid.

According to a Wall Street Journal article, the union’s goal is to “strong-arm pension trustees not to invest in hedge funds or private-equity funds that support education reform.” (Full Article)

“The Show-Me Institute will not be bullied by the American Federation of Teachers into abandoning ideas that are in the interests of the people of Missouri,” Show-Me Institute Executive Director Brenda Talent said. “It is ironic, and sad, that a union which claims to represent kids and teachers is using pressure tactics to defeat proposals that would benefit both groups. We will continue our principled fight for Missouri’s students, taxpayers, and pensioners — whether the AFT likes it or not.”

It seems James Shuls’ ongoing efforts to make our children’s education better and Andrew Biggs’ report on Missouri’s public pension liabilities have struck a sour chord with the American Federation of Teachers (AFT), a nationwide public employee union. How sour? So sour that the AFT named the Show-Me Institute on a “blacklist” meant to attack supporters of education and pension reform (emphasis mine).

The union report says it wants pension trustees to “take into account certain collateral factors, such as a manager’s position on collective bargaining, privatization [read: vouchers] or proposals to discontinue providing benefits through defined benefit plans.”

The report adds the lovely threat that “The American Federation of Teachers is committed to shining a bright light on organizations that harm public sector workers, especially when those organizations are financed by individuals who earn their money from the deferred wages of our teachers.”

The report goes on to list StudentsFirst, the Show Me Institute and the Manhattan Institute as special bêtes noires that promote school and pension reform. And it helpfully lists no fewer than 34 funds whose “directors, managers, advisors and executives” have dared to support reform organizations. The funds on the blackball list include such well-known names as Appaloosa Management, Elliott Management, Khronos, KKR and Tudor Investment.

The AFT’s national report also appears to have been coordinated with a local AFT affiliate. Today, the St. Louis Post-Dispatch published a letter to the editor by Byron Clemens that assailed the Show-Me Institute and the pension work of Mike Podgursky, a Show-Me Institute board member and economist. Yet despite all of Clemens’ supposed sleuthing, the author ironically failed to reveal that he . . . is a “union organizer” with AFT. For a letter so intent on establishing “links,” it is curious Clemens did not reveal his own.

But what the AFT and Clemens did get right, explicitly and implicitly, is that if public unions such as the AFT stand in the way of reforms that would protect taxpayers and help kids, they should absolutely worry about the threat the Show-Me Institute poses to them. And to be clear, we will, with great pleasure, continue the fervent, methodical, and fact-based research that has raised their ire.

U.S. Sen. Elizabeth Warren (D-Mass.) wonders why we do not pay workers a minimum wage of $22 an hour (hat tip: The Corner). Regarding that $22 an hour, Sen. Warren probably is referring to this study by the Center for Economic and Policy Research (CEPR) that showed what the minimum wage would be if it had kept up with increases in worker productivity. However, one key thing that Sen. Warren fails to notice is the source of that increase in productivity.

The study linked to above talks about average productivity. Average workers do not earn the minimum wage. This study does not track changes in the productivity of workers who make at or below the minimum wage. Isn’t it possible that the largest increases in productivity have been among more skilled employees who already earn above the minimum wage?

Also, if workers do not feel that they are being fairly compensated, they are free to look for employment elsewhere.  In non-monopolies, employers have to compete for workers and thus offer a competitive wage in order to attract and keep talent. Christina Romer, President Barack Obama’s former chair of economic advisers, made this point in her analysis of increasing the minimum wage: “Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers’ bottom lines.”

Minimum wage laws simply amount to “compulsory unemployment,“ as they make it illegal to hire a worker below the prescribed minimum. At an hourly minimum of $22, an employer loses money if he or she hires anybody who produces less than $22 of value an hour. One Missouri small business owner stated that he “would fire one employee, maybe two” if the minimum wage increases to $22. That is quite a lot, given that he only employs three people. Politicians understand all of this, which is why they typically propose only modest increases. After all, if the forgoing economic critique is flawed, why not raise it to $100 an hour?

Raising the minimum wage is an attractive idea to many voters (at least on the surface). Yet, it really is not an effective way to help poor families. According to David Neumark, in his 2012 study for the Show-Me Institute, “. . . minimum wages may do little or nothing to help poor and low-income families.” People from both sides of the ideological spectrum have issues with raising the minimum wage, and increasing it all the way to $22 an hour would just be silly. Let’s focus on ways to truly help the poor.

It appears that Ohio officials are trying to get in on the tax-cutting act. Good for them. Seriously, Ohio is one of the few states that has performed worse economically than Missouri over the past 14 years.

Ohio Gov. John Kasich has proposed a major tax overhaul for the state. Features of the plan include a phased-in individual income tax cut, which would reduce the top rate to 4.74 percent in 2015, and a 50 percent deduction for pass-through entity income that is less than $750,000. A detailed analysis of the plan is on the Tax Foundation website.

I keep harping on these developments in other states to underlie the importance for Missouri to reform its tax code. Show-Me Policy Analyst Patrick Ishmael also has blogged at length about the “American Growth Corridor” sprouting up around Missouri and the need for Missouri to keep up. Gov. Kasich’s plan is an indicator that some in Ohio are starting to recognize the importance of a competitive tax code.

Thankfully, the Missouri Legislature has made progress on some kind of tax cut. The Missouri Senate passed a bill last week that would cut the top rate by a .75 percentage point and also lower taxes on business income. The Missouri House also has good bills with potential to make some significant changes to the state’s tax environment. A lot of work needs to be completed, but there is room for optimism.

Just cutting taxes will not be enough to cure all of Missouri’s economic problems. However, it is a necessary step. Hopefully, the prospect of even more states cutting their taxes will spur Missouri to finally overcome the obstacles to serious tax reform.

At one point or another, we are all guilty of it . . . making bad analogies. This time, the bad analogy award goes to Gary Findlay, executive director of the Missouri State Employees Retirement System (MOSERS). According to the St. Louis Post-Dispatch’s David Nicklaus, Findlay believes using a risk-free discount rate to calculate the state’s unfunded pension liabilities is akin to taking a “zero-risk approach to traffic accidents — by banning cars.”

Findlay’s analogy was in response to a recent Show-Me Institute paper on Missouri’s unfunded pension liabilities. The author of the policy study, Andrew Biggs, demonstrates that Missouri’s unfunded pension liabilities are much higher than the state has reported when we accurately account for the risk of the investments.

Biggs, on the Show-Me Daily blog, and Jason Richwine, of the Heritage Foundation, have criticized Findlay’s remarks. In his post, Richwine states: “From an economist’s perspective on costs, Findlay is free to pursue whatever level of risk he wants with the Missouri pension fund. What he cannot do is pretend that more risk comes at no cost to the state’s taxpayers, who must make up for any funding shortfalls.”

I cannot help but heap more criticism on Findlay. His analogy would be accurate if Biggs had suggested we take a zero-risk approach to pensions by banning pensions. Of course, that is not what he suggests. Rather, Biggs argues that pension liabilities should be calculated with a low-risk discount rate. In non-economist speak, that means when you are gambling with taxpayer money, it is wise to hedge your bets.

If we want to stick with the car theme, a better analogy would be that calculating pension liabilities with a low-risk discount rate is akin to purchasing auto insurance. Like driving, our investments have risks embedded in them. I believe it is important for Missourians to adequately plan for that risk before we let our unfunded liabilities come back to rear-end us. (How is that for a car analogy?)

Usually, food on trains is nothing to brag about. A quick Google search showed that Amtrak actually has a chicken menu item called “Choo-choo Chewies.” They say it tastes like chicken. I hope they are correct.

Eating inside a cargo container sounds even less appealing than Choo-choo Chewies. (Unless it means I get to hang out with the Boxcar Children.)

As difficult as it may be to believe, there is a new project in Saint Louis that could make dining in cargo trendy and charming. Washington University in St. Louis and the City of Saint Louis named Bistro Box, “a small business incubator that transforms surplus cargo containers into a compact restaurant and culinary destination,” as one of the finalists in Washington University’s Sustainable Land Lab competition.

The Sustainable Land Lab competition invites teams to design innovative projects that transform vacant lots into assets. The City of Saint Louis owns more than 8,000 vacant lots that are just sitting there, deteriorating and underutilized. Show-Me Institute policy analysts have offered suggestions in the past about how the city can work to get more of those lots back into productive use. The Sustainable Land Lab competition is a great method to put these vacant parcels in the spotlight, and proves that innovators and entrepreneurs have exciting ideas to utilize this vacant land.

This is the first year of the competition. I hope that it will be successful in transforming vacant land and will shift the way Saint Louis treats that land. The best outcome of this project is that it would not only help improve blighted areas of the city, but encourage others to take on similar projects. Revitalization lies in the hands of eager residents who care about the community. In the past, the Saint Louis Land Reutilization Authority (LRA) has not been willing to allow development to occur organically, preferring to hold land for development that the agency chooses. But the government cannot predict what will be the best use of the land (remember Pruitt-Igoe?), nor will it come up with the most creative solutions.

Anything — including eating train-track chicken in an abandoned cargo container — is preferable to the city holding the land for decades.

Drawing done for the February book club meeting by former SMI intern Mary Chism

Last night was obviously Snowmaggedon, and I hope everyone is staying safe out there as some of the roads are still nasty. The previous night, Wednesday, we hosted the second Show-Me Institute Saint Louis Book Club meeting of the year. We discussed the classic The Road to Serfdom, by Friedrich Hayek. The central theme of the book is that fascism is a natural outgrowth of socialist central planning. Hayek’s desperate wish was to warn the western nations, especially England and the U.S., not to pursue the path of central planning. Hayek believed that a descent into fascism was more likely than it seemed to his audience: the citizens of non-fascist western nations in 1944.

But all that just makes the book sound like a dated warning against something no one really advocates anymore, right? Well, the book has staying power because of two timeless features which are perhaps separate sides of the same coin: Hayek explains why the price system not only works, but is the best system possible for maximizing individual welfare while also making a strong case for individual liberty and limited government, which Hayek calls (using the connotation of his time), liberalism.

It was a wonderful meeting and a rousing discussion. Book club meetings start at 7 p.m. and usually wrap up about 8:30 or 9 p.m. But Wednesday’s meeting did not end until shortly after 9:30 p.m. — we all had so much to discuss. Here are some of the topics and ideas we discussed:

• Whether a person’s concept of what is possible constrains their action.
• The important distinction between freedom and power: what it is and why it is important that they not be confused.
• This wonderful quote from Adam Smith (introduced roughly by Hayek): “[the regimentation of economic life puts governments in a position where] to support themselves they are obliged to be oppressive and tyrannical.”
• Where Hayek drew the line on the proper role of government and how that might undermine his overall message of liberty.
• Whether market competition is inherently violent (hint: it is not).
• Whether a legal system is necessary for competition, and David Friedman’s “the discipline of constant dealings.”
• The contradiction and ugliness of “competitive socialism.”
• An extended interlude about “Little House on the Prairie.”

The reading for next month is The Machinery of Freedom, by David Friedman, another classic. Friedman is an economics and law professor with a Ph.D. in physics, and the son of free-market titan Milton Friedman. From the Amazon description: “This book argues the case for a society organized by private property, individual rights, and voluntary co-operation, with little or no government.” I am looking forward to some excellent discussion on this one at our March meeting, so please join us if you can (date of meeting to be announced, check here).

President Barack Obama delivered his State of the Union address last night and in it, he called for raising the federal minimum wage to $9 an hour. “This single step would raise the incomes of millions of working families,” he said.

This an appealing sentiment, but Prof. David Neumark’s 2012 study for the Show-Me Institute, “Should Missouri Raise Its Minimum Wage?” found that “research for the United States on state minimum wage increases generally fails to find evidence that minimum wages help the poor.” This is because the minimum wage targets low-wage workers and not low-wage families.

In 2008, 12.7 percent of all workers earning the federal minimum wage ($7.25) were in poor families, while 44.6 percent of workers earning less than $7.25 were in families that earned more than three times the poverty line. In their book “Myth and Measurement: The New Economics of the Minimum Wage,” authors David Card and Alan B. Krueger admit that the minimum wage is a “blunt instrument” for reducing poverty.

Not only would raising the minimum wage be ineffective in helping poor families, it would also mean that many businesses will hire fewer workers because of increased labor costs.

On the surface, increasing the minimum wage is an attractive idea. However, doing so does not help those who need it. The market should set wages, not the government.

I was on Kansas City Public Television’s “Kansas City Week in Review” last week to discuss the impact of Kansas’ tax reform proposals on Kansas City and Missouri. Video of that segment is below. You can find more on the issues regarding Kansas’ reforms in the research paper “Passing Through Missouri: Left Behind on Taxes?” My colleague Michael Rathbone and I researched and wrote the paper, which was released last Friday. That research report expands on our previous report, “Cutting The Ties That Bind: End Missouri’s Corporate Income Tax,” which was released late last year.