The St. Louis Business Journal wrote a delightful editorial about the state and federal subsidization of broadband access for rural areas. The article quoted our research analyst, Christine Harbin (you have to be a paid subscriber to read her comment on the Business Journal site):

Some will argue the money could be better spent on education, health care, you name it. Indeed, there are many needs but these federal funds were designated for broadband. The state’s in-kind contribution does not impact the dire budgetary situation or projected $600 million shortfall.

Only the Show-Me Institute, the ultraconservative think tank, finds a reason to object. Research analyst Christine Harbin commented: “If an individual desires faster Internet service, he or she can either pay the market rate for the service or relocate to a larger town in order to access a broadband connection that’s less expensive.”

Of course, we received Ms. Harbin’s remarks via a high-speed Internet connection, and we certainly would not have wanted to miss sharing them with you.

The Business Journal could not have illustrated Christine’s point more succinctly. She, and the Business Journal, have both chosen to locate in the city of St. Louis. This decision entails extra costs, like the earnings tax and a higher cost of living, but it also has some cost-saving benefits, like less-expensive broadband access.

It is more expensive to provide Internet access to rural areas. This does not mean that rural areas should not have Internet access, only that they should shoulder the steeper costs of this service if they want to use it. When Internet access is subsidized, it distorts the market because the lower price leads people to consume more without seeing the true cost. If someone opts for the lower general cost of living in a rural town, she should accept that urban amenities may not be available at as low of a price as they are in more populated urban areas. In the same way that rural areas may be loathe to subsidize an urban area’s mass transit, it is reasonable for urban areas to be loathe to subsidize a rural area’s broadband Internet.

People should be allowed to live where they choose, but that doesn’t mean that everyone else should subsidize them.

Eminem released a new CD in June. There is a track on the album titled “Talkin’ 2 Myself.” Sometimes I feel the exact same way:

Can anybody hear me yeah, I guess I keep talking to myself
Feels like I’m going insane, am I the one who’s crazy?

The president recently signed the Improper Payments Elimination and Recovery Act. I might favor this type of reform if the fraudulent payments it intends to target were recovered in a cost-effective manner. But is this law even needed?

Here’s a quote from the White House Blog:

Last year, improper payments by the Federal Government added up to $110 billion.

If a publicly owned corporation misplaced $110 billion dollars, it would be more than reprimanded — it would be bankrupt and out of business.

This legislation shows in unadulterated clarity the inherent flaws of government. The federal agencies responsible for this irresponsible behavior will be fined and face “penalties and other repercussions,” but I wonder who exactly the federal government thinks pays for penalties levied on federal agencies.

And people wonder why consumer confidence is low.

The email that I cited in my previous blog entry also contains the following passage:

Much has been made of the total dollar amount of some of the tax credits. That isn’t necessarily a bad thing. For example, an auto dealer would be pleased to have a bigger bill from an auto manufacturer. It means the dealer has sold more cars, made more profit and has the money in the bank to pay the bill. The historic tax credits and housing credits work somewhat similarly, but not everyone is looking at the revenue coming in.

Let’s say that my parents visit me in Saint Louis and take me out to dinner. Although it is free to me, they pay for my meal in addition to their own. The meal that I eat is the seen benefit, but there is a cost to the meal that I do not see.

The moral of the story is that there is no such thing as a free lunch. It’s an elementary concept that’s relevant to economic policy, but, unfortunately, it’s too frequently overlooked. If a good or service is not paid for by the individual who is consuming it, somebody else is paying for it. The money has to come from somewhere.

Business incentive programs like tax credits, tax abatements, and TIF work in exactly the same way — they aren’t free meals. There is no such thing as found money or free fiscal stimulus. Although the recipents of these programs experience tangible benefits (e.g., preserved historic buildings, blockbuster films, remediated brownfield lots), they are also associated with unseen costs (e.g., increased consumer costs, barriers to entry, lost productive economic growth, goods and services that would have otherwise been purchased in the private market).

The extra money that such an auto dealer would receive has to come from from somewhere, and that happens to be the pockets of taxpayers. As a result, taxpayers have less after-tax money to spend on products and services, including cars.

I recently received a thought-provoking email from a Show-Me Daily reader. This person writes:

The more I read your posts on the Show-Me Daily site, along with those of some of your colleagues, the more puzzled I become. You are all mixing up apples, oranges, pears, cantaloupes and watermelons and acting as they are all the same. They aren’t. [...]

Tax abatements, tax credits and tax increment financing (TIF) have all been in the news recently. Tax credits are very different from tax abatements though they are often reported on as if they were the same.

It’s true that tax abatements, tax credits, and TIF are structured very differently, and my tendency to lump them together is probably more confusing than I realize. I thank the reader for pointing this out to me.

Tax credits reduce a company’s or individual’s tax liability, dollar for dollar. Tax abatements function by exempting a company’s or individual’s burden altogether. TIF generates money for a project by borrowing against future property tax revenues. There are additional ways in which the government intervenes in the market that are structured differently still, such as occupational licensing requirements, zoning codes, and mandates.

I tend to discuss these policies ensembles because they have many of the same negative consequences. Each of these policies distorts the market considerably — by inciting shortages and surpluses, by encouraging individuals to buy products that they otherwise wouldn’t, by luring favored businesses to locate within the region, and by driving unfavored businesses out. They also give an artificial competitive advantage to select groups, and make it harder for others to enter and compete in the marketplace.

As an additional negative consequence, these policies carve out sections of the tax base for a favored few, and push the burden onto everybody else. The problem with this is that the favored few are still consuming goods and services, and the unfavored many have to pay for them. For example, if there is a fire at a tax-abated property (e.g., a city building, a church, or a nonprofit), the fire department will still come to the property to extinguish the fire, but the land holder will contribute comparatively little or no revenue via property taxes.

This reminds me of the following line in I ♥ Huckabees, which is one of my favorite films:

Albert Markovski: Everything is the same, even if it’s different.

In the context of government intervention in the marketplace, the consequences of these policies are (reasonably) the same, even if their structure is different.

I’m looking forward to speaking with Rabbi Eukel, the radio rabbi, on Ramble & Rumble with Rabbi, Venue For Vision & Values in Our Communities tomorrow at 7:10 a.m. CST. I will talk about IDEAS, the Show-Me Institute’s newest web tool. You can listen online here. I encourage our blog readers to tune in!

The Kansas City Star’s website has a piece today by two Saint Louis University professors arguing against the repeal of the earnings taxes in St. Louis and Kansas City. The bulk of their commentary is intended to be a criticism of this 2006 study by Show-Me Institute executive vice president and University of Missouri–Columbia economics professor Joseph Haslag, but the SLU professors, Lisa Gladson and Jack Strauss, have crafted an argument that doesn’t really address Haslag’s findings. In fact, they seem to have missed the point entirely.

In the Show-Me Institute study, “How an Earnings Tax Harms Cities Like Saint Louis and Kansas City,” Haslag shares his findings that there is a measurable negative impact for cities with an earnings tax. The opening of the paper itself provides an ideal summary: “About one in four large cities in the United States has an earnings tax. I attempt to quantify the relationship between the earnings tax rate and the growth rate of cities relative to their metropolitan statistical areas (MSA). I find that cities with an earnings tax tend to have a significantly lower ratio of city income to MSA income than those without them.”

Haslag goes on to argue that the earnings tax distorts the growth of the MSA, encouraging people to locate in outlying areas rather than in the city center — discouraging investment in the city and reducing per-capita income.

The counter offered by Gladson and Strauss is responding to a different point — one not made in the Show-Me Institute study. They claim that Haslag’s study “offers a simple negative correlation between cities with earnings taxes and real per capita income growth.” This is emphatically not the point being made in the study. Growth implies a comparison over time, whereas the Show-Me Institute policy study to which they refer used side-by-side comparisons of population proportions and where they happened to be located within the MSA. Haslag does not make any arguments about the level of growth, but rather about where the people are located. It may be that the MSAs grow faster or slower because of the presence or absence of an earnings tax, but Haslag’s study drew no connection between growth and the presence of an earnings tax. Haslag may or may not be surprised to learn that Gladson and Strauss “found no relationship between earnings taxes and a city’s income growth, and no evidence that earnings taxes are a reason for a city’s slow growth,” because this is not what he looked at in his study.

Haslag found, with careful, externally reviewed analysis, that the presence of an earnings tax negatively impacts the growth of the cities that implement them when residents can easily shift to a nearby area without such a tax. Perhaps after a more careful reading of the piece, Gladson and Strauss will find some salient point on which they can disagree with this study, but for now their offering is an argument without an opponent.

Missouri lawmakers, via Senate Bill 784 and House Bill 1812, have proposed to reform the Access Missouri program. Currently, the program awards need-based grants to Missouri students. Students attending private colleges may receive up to $4,600 of aid, and students attending public schools may receive up to $2,150. Under the reform bills, these amounts would be equalized to $2,850 for all students. The bills perplex me; is the brand of reform they endorse really necessary?

Proponents of reform have made three, general arguments, all of them dubious:

First, they assert that reform would make the distribution of public aid more equitable. It’s atrocious that private school students may receive more than $2,000 in additional funding than their public school counterparts. This is tantamount to pandering to special interests. This argument is very puzzling; do its exponents not remember that the award amounts were carefully derived from two years of collaboration among private and public representatives and financial aid experts in order to meet “just” and “equitable” standards? Do they not understand that public aid is already lavished upon public school students and that the Access Missouri grants constitute the only form of public aid available for low-income students attending private colleges? Would not equalization of AM grants then be tantamount to pandering to public college students at the expense of their deserving private school counterparts? Are taxpaying Missouri citizens choosing to attend private colleges less deserving of the taxpayer dime than those attending public colleges?

Second, they argue that private school students should not receive a higher subsidy because they chose a more expensive education. It is an inefficient use of government funds to confer grants to students who are simply “paying too much” for education that they could receive at a public institution at a much lower cost. Here, too, problems abound. First, this claim once again ignores the state appropriations already going toward public institutions and the students who matriculate there. Second, the claim assumes that private and public schools have homogeneous curricula that can easily be compared. The reality is more complicated. Private colleges offer unique course and degree possibilities, with unique levels of quality and market value relative to public schools. In that light, the value of education at a private college is private and subjective. Even if we were to assume that private and public colleges are perfect substitutes, it is unclear why Missouri should, other things being equal, choose to subsidize one group of students at the expense of another group.

Third, proponents suggest that reform would open access to more students. Some legislators have argued that equalizing the award amounts would result in an increase in the total matriculation of Missouri students. Given a dearth of quality data on the impact of Access Missouri, this claim is utterly unsubstantiated; without appropriate data, I find it very difficult to accept prima facie. To begin, the reform package reduces the maximum amount of private aid by $1,750 and increases the maximum amount of public aid by $750. All else equal, it is reasonable to assume that students would be less motivated to attend private colleges, but not significantly more motivated to attend public universities. Of course, all else would not be equal, and the sum effect of reform is difficult to project. What can be said is that the claim that access would increase as a result of the reform is premature.

The Post-Dispatch doesn’t seem to like the reform package, and instead suggests that schools compete for funds. As per this view, students would receive aid relative to the “effectiveness” of the institution they attend. It is an interesting idea, primarily because it would involve the development of outcome measures that higher education currently lacks.

I have a better idea, one on which I have previously written: Support students through higher education vouchers, and then use Access Missouri for the rest.

Can guilt really be a good thing when it comes to the choices we make, and can ethical — namely, “green” — behavior be a bad thing? George Monbiot recently wrote a post on Guardian News about green buying habits and their lingering effects on the moral psyche of the public. He mentioned a recent study released by the University of Toronto, “Do Green Products Make Us Better People?”

The study provides evidence that consumer choices — in this case, choosing green versus conventional products — affect not only price and other economic factors, but they affect social and moral attitudes as well. The authors, Nina Mazar and Chen-Bo Zhong, argue that buying green products, to which people attach a high social and moral value, actually produces a licensing effect: Those who behave in a nominally ethical and pro-social way in one instance will be less likely to regulate their subsequent behaviors. Buying green products establishes moral credentials, and this can lead to less ethical behavior in other areas — essentially, instilling in some people’s minds the idea that they can act more selfishly than before they performed the instance of ethical behavior.

The authors performed three experiments, one of which demonstrates the licensing effect in action: Participants who purchased green products were shown to lie, cheat, and steal more often. The psychological term “licensing effect” is, in my mind, analogous to the economic concept of “moral hazard,” which characterizes a situation in which an economic actor behaves differently when he is partially insulated from a risk than he would if he were fully exposed to it. When a person purchases car insurance, he may feel that he has purchased a “license” to drive more dangerously than before, to some degree, because of the compensatory reassurance that insurance provides. The psychological licensing effect may produce an impact on the public that is similar to that of economic moral hazard.

We may not be able to alter our psychology, but structural incentives can be changed. Monbiot’s Guardian piece mentions that we are living in a consumer democracy, and in such a system some people hold more “votes” than others. Those who possess disproportionately more votes are less inclined to change a system that has served them well, which ultimately means that those seeking change must look to a different mechanism, such as the political process.

These insights into human nature, and their potential implications, should be kept in mind as public policy is developed. Missouri has joined the ranks of many other states by instituting green legislation, such as a 2008 bill pertaining to green cleaning in schools, which the governor signed into law only after altering the legislation so that it would suggest guidelines and recommendations rather than mandate requirements for green cleaning. The licensing effect ties into this as well: A suggestion to behave responsibly may be more likely to result in moral credentials that justify irresponsible behavior elsewhere than if that behavior were mandated. This is not to suggest that policymakers should always use mandates, but the potential unintended consequences are worth thinking about.

There’s been a lot of talk lately about health care, especially at the suddenly very popular town hall–style meetings, which have seen both violence and passionate debate. As both David Stokes and I have argued, we are better off remaining civil. And, because health care is so important to us here at the Show-Me Institute, I thought I’d weigh in with some thoughts on health care reform.

If it were the case that a government solution, in the form of any act of Congress or national board of medical care, could provide service better than an actual competitive system, I would support it wholeheartedly, and would advocate it strongly. It’s worth pointing out, though, that what we have now is not a free market — it’s not even close.

Because of economic reality, no act of government would produce something better than a competitive system would, so long as the good or service in question is excludable (and medicine certainly is). This is because the price system operates in a way that produces an optimum allocation of resources, given limited availability of goods and information.

Health care in this country is broken because government intervention prevents competition from fixing it. Alleviation of licensing, regulation, and other burdens would encourage entrepreneurs to innovate cheaper forms of care. This is true not only of the providers of health care services, but also of health insurance provision. Right now, we are lucky we aren’t all getting the kind of “care” they get in McAllen, Texas. That’s a place where doctors are really exploiting the market power they are granted by the AMA monopoly and the current level of federally funded medicine (Medicare and Medicaid). I definitely recommend this New Yorker article — which we’ve linked to before — even though I disagree with the author’s conclusions about how to proceed, policy-wise.

And, for the record, medicine is not the best way to improve health. Sound counter-intuitive? Well, check this out:

our main problem in health policy is a huge overemphasis on medicine. The U.S. spends one sixth of national income on medicine, more than on all manufacturing. But health policy experts know that we see at best only weak aggregate relations between health and medicine, in contrast to apparently strong aggregate relations between health and many other factors, such as exercise, diet, sleep, smoking, pollution, climate, and social status. Cutting half of medical spending would seem to cost little in health, and yet would free up vast resources for other health and utility gains. To their shame, health experts have not said this loudly and clearly enough.

I added the emphasis for the “other factors,” because it’s important to realize which factors may make more of a difference than increasing medical treatment, which, unfortunately, is getting all the attention in the current debate.

The above quote is from a fantastic article by Robin Hanson. I HIGHLY recommend it to anyone concerned with making this country healthier.

Or, if you just want the latest coverage of Missouri’s town hall meetings from the Show-Me Institute’s roving reporter Audrey Spalding, check out her article on Policy Pulse.

James McWilliams, author of Just Food, discusses in a recent issue of Forbes magazine how the practice of buying local does not necessarily support the aim of reducing environmental impact.

McWiliams begins by citing a 2006 academic study in New Zealand that determined Londoners could reduce their environmental impact by purchasing lamb imported from New Zealand rather than lamb produced in England, because factors other than transportation often play a far larger role in environmental impact.

Mcwilliams continues by discussing how economies of scale in production can positively distribute environmental costs:

To choose a locally grown apple over an apple trucked in from across the country might seem easy. But this decision ignores economies of scale. To take an extreme example, a shipper sending a truck with 2,000 apples over 2,000 miles would consume the same amount of fuel per apple as a local farmer who takes a pickup 50 miles to sell 50 apples at his stall at the green market. The critical measure here is not food miles but apples per gallon.

We’ve argued on this website before that locavore policies constitute a new form of protectionism. This is true, but likely not a very compelling line of reasoning for locavores.

In this case, the economically efficient and environmentally efficient solutions do not have to be polarly aligned. Locavores should understand how their actions may fail to uphold the values they are rooted in, because of logistics and unintended consequences that haven’t been thoroughly considered. It’s even more important to view with a skeptical eye any legislation, government purchases, or changes in trade policy based on the reasoning that local consumption equates to environmentally friendly consumption.

The National Animal Identification System (NAIS), bureaucratic brainchild of the U.S. Department of Agriculture, mandates identity registration for livestock to allow for centralized tracking and oversight in the event of disease outbreak. The policy may be well-intentioned, but its stated goals don’t justify the incursion into private life, erosion of liberty and livelihoods, and the increase in prices that it would undoubtedly foster. The program calls for livestock owners to furnish federal databases with personal information: their name, home address, telephone number, and the GPS coordinates of their home. Further, if these owners wished to transport the animals outside of their birth farm for any reason (even on a trail ride or to a fair), the animals would need to be biochipped and registered to a federal identification number. It’s no wonder this policy has been the target of recent protests in Jefferson City.

Given that compliance costs for this program are relatively high, smaller farms will close down, farmers will lose their livelihoods, and larger farms will pass on their costs to consumers in the form of higher prices. All for what? Farmers and livestock research organizations argue that the spread of disease is not even initiated at the level of the farms, but rather at meat processing plants, so this policy is misguided not only in implementation, but also in its conception.

Metro, as previously announced, made cuts to its service yesterday. Bus service will be reduced by 44 percent, MetroLink by 32 percent, and the call-a-ride service by 15 percent. Also, the call-a-ride service will no longer provide transportation to those who reside west and south of I-270. Metro predicts that job access in Saint Louis County will fall from 98 percent to 71 percent.

This could cause the unemployment within Saint Louis County to increase in the medium run, especially when added to the 600 employees that Metro itself plans to terminate. In testimony before the Metro Board of Commissioners, Show-Me Institute policy analyst David Stokes contributed possible alternative solutions to cutting services while still making the budget. He found that one potential solution to avoid making the cuts would be to “increase the cost of individual tickets more than the cost of monthly passes. That way, regular riders who depend on mass transit would not be priced out of the system, and would still be able to purchase affordable monthly passes.”

In short, it seems there is an alternative revenue source method, and — as Stokes suggests — Metro could have avoided the service cuts and minimize the costs of restructuring. Overall efficiency should be at the heart of the debate.

A recent article by Jo Mannies in the St. Louis Beacon (link via John O’Combest) reports:

The executive board of the Missouri Police Chiefs Association says it has officially endorsed red-light cameras “as part of a comprehensive traffic safety enforcement toolbox that should remain available to reduce deaths and injuries on our roads.”

This stance runs counter to that of the St. Louis Police Officers Association, which came out earlier this month against the cameras.

I would really like to see why the state’s police chiefs believe red-light cameras are actually a safety tool, despite the contrary conclusions of several studies. Either way, it is a very interesting split among the people enforcing the tickets. We’ll be sure to keep you updated on any and all movement that we see on this issue.

Something fun for a Monday morning …

My buddy Mike Sweeney, over at STL Hops, is having a “Best Missouri Craft Beer Challenge.” It’s a bracketed tournament that is set up like much like the March Madness tournament, in which you vote for one beer over another and whichever one has the most votes moves on to the next round.  Currently, they are on Round 3, so get over there and vote.

My personal pick to go all the way is the O’Fallon 5-Day IPA. The site attracts a large proportion of hopheads (fans of the ingredient that bitters the beer — not dope smokers), so that bodes well for O’Fallon. Plus, I always favor the underdog, and since they are a 52 seed out of 64, you can’t get much more underdog than that.

As long as a pumpkin beer doesn’t win, I will consider it a valid tournament. Enjoy.

An article by the Heartland Institute focuses on the adverse affects of the stimulus bill’s weighty legal lingo.  The author claims that lawyers will have their hands full trying to find out ways for their clients to get a slice of the massive government check.  Although the increased job security for laywers that this forest of verbiage enables was probably unintended, this may well catalyze a trend in which everyone scrambles for a piece of somebody else’s pie. And we’ll all end up paying for it later.

Earlier this month, the Center for American Progress released a study suggesting that credit card companies utilize text messaging in order to administer early warnings to customers who are at risk of incurring penalty fees. From the perspective of the credit card holder, this information could be very helpful in reducing the occurrence of penalty charges.

I disagree with the Center for American Progress, however, regarding their suggestion that this should be written into law. However helpful such a practice might seem from a consumer standpoint, it’s difficult to gauge the costs involved in implementation and therefore determine whether, overall, it would actually be a value-added service in practice. The decision should probably be left to market forces.

The Columbia Daily Tribune reported early last month that Education Week’s annual “Quality Counts” report on public education found that Missouri’s performance has a particularly low ranking. In fact, the study found that “Only 10 other states and the District of Columbia scored as low or lower than Missouri; and Nebraska is the only bordering state to earn a lower grade.”

The State registered C’s and D’s on important matters, such as children’s chances of success, transitions and alignment from early childhood to post-secondary education, and teaching. In addition, according to the study, Missouri is not offering incentives to highly qualified teachers, and has among the lowest teacher salaries. This should be a wake up call for improvement. So many solutions could be proposed to improve the quality of education we are giving to our children — our future. Many of these solutions can be found in the Show-Me Institute’s studies and articles about education policy.

Whether you like red light cameras or hate them (although if you’re visiting this site, I’ll guess the latter), no one can argue the fact that they do not discriminate. Whether you’re driving a Pinto, a Hummer, or a Ford Ranger, red light cameras will catch you if you are running those yellows. In that aspect, they were fair — until now. According to this St. Louis Post-Dispatch article,* many policymakers who pushed for these cameras in the first place are failing to pay their fines when they are photographed breaking the law.

I don’t know how I’m expected to follow this law when even the lawmakers don’t. Apparently, civil liberties are something to worry about only when your own are threatened.

*If you squint hard enough at the top right corner of the photo in the article, you can kind of see my apartment.

The Show-Me Institute’s very own David Stokes was interviewed by David Nicklaus of the St. Louis Post-Dispatch for an article discussing the topic of licensing in the state of Missouri. While Missouri has been ranked to have the least amount of licensing restrictions, Stokes was still able to show how regulation can affect the economy by focusing on the massage therapy industry, which is a licensed profession in Missouri but not in Kansas.

His latest case study compared the prices of the metropolitan Kansas City market on both sides of the state line, and compared Springfield to Wichita. Unsurprisingly, the data show that Missourians pay a higher cost for massage services, a situation likely caused by market regulation. Stokes is quoted in the article as saying:

“This is a system designed to limit competition for the people who have the current licenses,” Stokes asserts. “That’s the only reason. Everything else is a smoke screen.”

I agree with David Stokes 100 percent. It baffles me how people try to argue for occupational licensing by saying that it is a form of consumer protection. Although his study demonstrates some of the ancillary benefits that licensing can provide, such as reduced search costs when trying to find a competent practitioner, government officials aren’t in a position to determine whether those benefits are worth the higher market costs that reduced competition brings. Ultimately, the primary thing being protected is the income of a particular set of licensed professionals.

I could easily prolong this post, but interns at the Show-Me Institute don’t get that long of a break. So excuse me while I go to Kansas to get a massage — it’s been a loooong day!

By way of John Combest, I saw an article in the Southeast Missourian that would tickle Nick Naylor pink. Ten years ago, Big Tobacco settled a lawsuit with the states agreeing to pay $294 billion over 25 years to fund health care and smoking-cessation programs. Unfortunately, there were no strings attached to the way the 46 states spent these settlement funds. According to the article, less than 4 percent of the money was used for the programs they were intended for. This is far from the first time government has misused funds. It’s the same old bologna, just a different flavor.