On Government-Mandated Coffee Machines

Posted on by Patrick Ishmael

Over at the Kansas City Star, Dave Helling comments on a raucous online debate about Kansas's LLC tax exemption—specifically, the misgivings of a Kansas business owner interviewed by the Star who, after Kansas's tax cuts, regrets that some of his income isn't taxed anymore. The businessman's detractors say that if he regrets having the money, he should donate it. But in a sympathetic analogy, Dave lays out a story about the potential perils of employees pooling money to buy an office coffee machine and how without forced giving, your morning Folger's would be hard to come by. As Dave puts it, unless everyone contributes the agreed amount for the coffee machine—presumably the office "tax"—then "the coffee pot remains on the store’s shelf."

But the Great Caffeine Shortage of 2016 (and 2015, and before) never really materialized in most of our offices. That's not because the government or some government-analog always provides the capital for coffee. Some of us make coffee ourselves and bring it to the job site in a thermos; others buy coffee on the way to work, or take a break mid-morning to get a pumpkin spice latte. (now available!) In fact, the coffee I drink at my office here on Troost is, more often than not, from my own coffee machine, which I brought to the break room and share with my coworkers.

I could demand that the Show-Me Institute provide me with "free" coffee and force everyone else to pay for it, and certainly there are office necessities and amenities that the Institute does underwrite. The point is, I wanted a certain kind of coffee, and I felt strongly enough that I didn't bother lobbying my employer for "shared sacrifice," but instead took care of that want myself—to the benefit of more than just myself. Not everything is best given from on high, including coffee. And somehow, some way, most of us have easy access to the stuff.

Of course Dave's office analogy for government has other limitations, too. First among them is that taxpayers don't work for the government. Taxpayers also cannot "switch" governments if we find ours unresponsive to our coffee demands—at least not to the extent, manner, and speed with which we can switch actual employers. Moreover, we can vote ourselves other peoples' money in government; I can't, by majority vote, requisition Patrick Tuohey's fancy-pants wallet and force him to pay for, say, a new coffee machine for the other 99% of us. 

You get my point.

Government has appropriate roles, and funding expenditures to carry out those roles is already fraught with all sorts of moral questions, because it requires taking money from people, even if it's against their will. But just because government can force other people to buy you a coffeemaker doesn't mean it should, and it is no virtue to publicly regret your good fortune as a means to force others to pay for your own priorities.

If you care about it, be an example to others and put your money where your mug is. And if you don't really care about it? Don't tell everyone else they owe you a latte.

Education Funding, Burger Flipping, and the Law of Diminishing Returns

Posted on by Michael Austin

Here’s a fun hypothetical. Imagine you own a burger joint, but you only have one grill, no one to work it, and a line out the door for your burgers. If you hire one burger flipper, you can make 10 burgers an hour. If you hire two more, you might get up to nearly 30 an hour. Why stop there? Let’s keep hiring more workers on that same grill and we’ll continue to make more burgers every hour, right?

Kind of.

At a certain point the grill gets cramped and workers elbow for space. The fourth or fifth flipper might increase burger output, but at a decreasing rate relative to the gain in burger production from the first or second hire. This is what is known in economics as the “Law of Diminishing Returns.”

Unfortunately, when it comes to education, this is a law that many don’t believe exists.

Last week, the Kansas Association of School Boards (KASB) released the State Education Report Card for 2016. In it, KASB ranks states, including Kansas and Missouri, on fifteen performance measures. It then compares that ranking to state spending per pupil. The Executive Director for KASB speaks to Kansas coming in at 29th for spending per pupil in 2014 and then elaborates,

In the long run, this threatens our ability to compete with other states economically for not just high-paying jobs, but almost any job.

Really? If the state doesn’t spend a few hundred more dollars per pupil it will set the entire economy back? This argument suggests that the more you spend, the better you’ll be—or the more flippers on the grill, the more burgers you’ll make.

As it turns out, the data they present offer a great example of the law of diminishing returns.

 In the chart below, I plotted funding per pupil on the horizontal axis and educational ranking on the vertical axis. Each point on this chart represents a state. I noted Missouri, Kansas, and states that KASB “aspire to be” on this chart. If the KASB’s diagnosis is accurate, then we would see a steep downward sloping line (or trend), because that would mean that an increase in education spending comes with a significant improvement in outcome rankings (lower-ranking numbers are better). The flatter the line/trend, the weaker the relationship between funding and outcome rank. This is a concept in statistics known as the coefficient of determination.

The line is pretty darn flat. In fact, education funding per pupil only explains about 10% of a state’s improvement in educational outcome rank.

So, what does this mean? Well, since 90% of the variation in state performance is determined by factors other than spending (a good example of which might be how that money is spent), we need to look beyond simply pumping more money into our schools if we want to improve those schools’ performance. School funding is subject to the law of diminishing returns. And I think now is a good time to go get a cheeseburger.

This Sandwich Costs $1,500 and Takes 6 Months to Make

Posted on by Michael Q. McShane

No, I didn’t relinquish my title as Director of Education Policy at SMI to become the Institute’s new food critic, but the teacher in me loved this video series I recently stumbled across in which an enterprising YouTuber decided to make his own chicken sandwich from scratch.

And when I say from scratch, I mean, from scratch.

He harvests the vegetables, he kills (fair warning, graphically) the chicken, and he even evaporates his own salt from the ocean! Really, what he did was a millennial-focused version of I, Pencil, the famous free market lesson popularized by Nobel-Prize winning economist Milton Friedman in his Free to Choose television series.

In both videos, the incredible organizing capacity of the free market is brought into stark relief. If we didn’t trade with each other or specialize in raising chickens or harvesting vegetables, most of the modern conveniences we take for granted would be completely impossible.

We often like to talk about the power of the free market in macro terms, using it to explain why Myanmar is rising while Venezuela is falling. But the benefits of the free market are much more prosaic. From the writing utensils we use to the food we eat, the mutual cooperation that the free market enables is on full display, if we choose to see it. 

It’s a Simple Plan, and That’s Why We’re Worried

Posted on by Michael Highsmith

Tonight at 7pm the Chesterfield City Council will meet and open the floor to public comment regarding the construction and funding of a new ice facility.  Under consideration is the extension of a 3/8-cent sales tax in the Chesterfield Valley area to raise $10 million for the development, but there are a few questions that should be asked in order to better understand where the project currently stands.

The first of these questions should be whether there is enough market demand in the area to warrant the construction.  In June, Ballard*King & Associates performed a cursory market analysis that found “…the demand for ice time has not exceeded the supply which has resulted in creating a ‘buyers’ market.”  Increased access to hockey rinks is ideal for anyone interested in cheaper ice time, but should public funds go towards the construction of a facility that won’t be filling a void in demand, but would instead reallocate where spending takes place? 

It’s also important to know what the proposed sales tax revenue would be spent on:  Revenue generated from an extension of the current Chesterfield Valley TDD could be used only to fund transportation-related projects such as bridges, streets, parking lots, garages, etc.  According to a concept-level estimate for ice rinks, the total construction costs would be $26 million, but spending almost two-fifths of total construction costs on street renovations seems excessive.  A final cost estimate that specifies a particular site and project is crucial to help residents see exactly where their dollars would be going.

With the Hardee’s IcePlex set to close and be taken over by Topgolf, it’s completely understandable for residents to want a new ice rink close to home in the Valley.  All the same, if none of the information provided thus far goes beyond the conceptual level into specifics, more details may be needed before an informed decision can be made regarding funding a new project.

I will be presenting testimony (the full text of which is available by clicking on the link below) at tonight’s hearing.

Yes, Voter Fraud Remains a Concern in Missouri

Posted on by Patrick Ishmael

The difference between winning and losing a political race can come down to a handful of votes. Every vote counts, and those votes change the public policies that we spend money on and are subject to. But what happens when votes are counted that shouldn't be? Voter fraud comes in many forms and may not significantly impact every race, but especially in tight races it can be the difference between holding office and setting policy, and not.

And to be clear, we know fraud happens, and that's why vigiliance in protecting the vote is so important. Photo voter ID is one item in that menu of reforms and we've talked about it at length before, but reform can't stop there, as an investigative report last week from the St. Louis Post-Dispatch bears out. An episode cited in the Post-Dispatch's report from a previous year stands out in particular; I've removed the names, but you can read the full article at the link.

The employee, a former supervisor, said that when large numbers of ballots were delivered, she would email other employees and bosses.

“I’d say, ‘Hey, we’ve received numerous ballots from the [ . . . ] campaign and it seems pretty suspicious and they need to be reviewed.’ ” Her emails would go unanswered, she said.

When employees refused to accept hand-delivered ballots, [an individual associated with the campaign] would complain directly to top Election Board officials, Bingham said.

Both former employees said ballots the department initially refused were sometimes slipped through the door, or mysteriously appear elsewhere in the office. Eventually, the employees said, the department would accept them. [Emphasis mine]

The entire article at the Post-Dispatch's website is worth your time. Particularly concerning are the reports about absentee voting irregularities, with absentee ballots dispatched for "incapacitated" voters who were anything but, and absentee ballot requests made by individuals other than the voter. The point is that the suggestion that voter fraud is somehow a fake issue is flatly wrong, and that insistence may have contributed to the wide berth into which this scandal just parked itself. Good government requires public confidence in our elections, and without a concerted effort to protect our ballot boxes against bad actors, our democracy will be at risk.

School Choice: The Personal and the Political

Posted on by James V. Shuls

Parents naturally want the best schools for their children. In Saint Louis and Kansas City, this leads many parents to a tough decision. Do they pursue the best school for their child, which may not be the local public school, or do they work to improve their neighborhood school? Many decide to move to a higher-performing county school, to pay for a private school, or to enroll their child in a public charter school. These choices, of course, are not equally available to all parents. As in all areas of life, those with financial means have more options.

A while ago, I decided to explore this issue by conducting focus groups with parents in Missouri’s two largest urban centers. I met with 35 parents in five focus groups. In a forthcoming issue of the Journal of School Choice: International Research and Reform, I discuss the findings from these focus groups.

The crux of what I discovered in my research was a paradox: most parents value choices for themselves, but are skeptical of expanding the choices of others. While they valued the opportunities that would be available to their children, they worried that expanding choices might harm the education system as a whole.

As parents expressed reservations about school choice, one thing that stood out to me:

In many cases, parents seemed to have overstated the comparison. They did not compare school choice to reality; they compared school choice to a preconceived idea of a perfect education system – a high-quality school in every neighborhood. With this comparison, it is easy to see why they politically oppose school choice – it does not lead to their preconceived ideal. Poverty is the problem, not the schools. If we fix poverty, we will fix the schools. That comparison, however, does not describe the current reality in St. Louis or Kansas City. In both cities, the public school district model has failed to create a high-quality school in every neighborhood. It has led to a disparate education system.

We should not fall into this trap. The school systems in St. Louis and Kansas City had problems long before school choice was ever on the scene. Indeed, school choice offers a path out.

You can check out my full working paper here. 

A New Agenda for Cities Must Come from Cities

Posted on by Patrick Tuohey

Recently, Kansas City, Missouri’s mayor, Sly James, wrote in The Hill that America needed a new agenda for cities. No argument here. But contrary to the Mayor’s suggestion, the new thinking needs to come not from Washington but from the communities with a vested interest in their own success.

One of the biggest problems in Kansas City (as with other metropolitan areas) is that the city’s affairs have been so poorly managed for a very long time through regular rounds of bad “public investments.” It’s not that Kansas City needs more money—it receives plenty through various taxes—but that the city spends and invests that money so poorly, chasing glitz while letting basic services languish. Throwing more federal dollars at failed initiatives won’t retroactively salvage these projects.

Here’s some background. Kansas City is the 29th-largest metropolitan area in the United States. Like many Midwestern cities, our population growth hasn’t kept up with that of cities in other regions.

Unlike many cities (but similar to Washington, DC, where I grew up), our metro region is divided right down the middle by State Line Road. Half our population resides in Kansas, with the entire city proper and the urban core in Missouri.

Also like many urban cities over the past few decades, our city leaders have chosen to bet our future on large development projects. In our downtown we spent—and continue to spend—millions to prop up a large entertainment district whose revenue has yet to meet rosy projections. We have diverted taxpayer dollars to subsidize luxury apartment buildings and world headquarters for wealthy international corporations. We have committed millions more to build a convention hotel downtown despite the unpleasant experiences of our sister cities in Missouri and across the country with similarly ambitious—but ultimately disappointing—investments.

The assessed value of property in Kansas City has been largely flat since 2007, but because of tax diversions to developers, the amount we actually collected in taxes in 2015 was $200 million less than it would have been without those giveaways.

City leaders are eager to spend over a billion dollars to tear down and rebuild our international airport despite its widespread popularity as a convenient and efficient place to travel to and from. And we have the honor of having just finished one of the country’s most expensive streetcar systems for over $46 million per mile, and advocates now want to expand it at an even higher cost.

Kansas City bears the scars of all this misspending. While we suffer through a spike in homicides, our police department has fewer officers than it did in 2011. Embarrassed by a recent documentary on the plight of the urban core, city leaders issued bonds to demolish 800 dangerous buildings—the majority of which were city-owned. City leaders now contemplate a billion-dollar bond to fund badly needed infrastructure repairs due to years of neglect.

Yet Kansas City’s taxes are high. We have a combined sales tax in many neighborhoods of 10% or higher. The Tax Foundation listed Kansas City as having the 15th-highest sales tax in the country. A 2013 Brookings Institution study found that our county and the surrounding counties have well-above-average property taxes paid and taxes paid relative to home value. And of course, Kansas City also charges a 1% earnings tax on those who live or work within city limits.

Mayor James is correct to say that “we clearly cannot afford the status quo.” But his solution is to seek more government funds to bail out decades of bad investments and decision making in Kansas City and elsewhere. If cities like Kansas City, Chicago, Detroit, Newark, and Stockton are allowed to throw good money after bad, none of us will be any better off. America’s new agenda for cities must start with those cities, and it must involve a serious effort to right the wrongs of the past and return to sound management. The solution is not federal bailouts but better management of the money that cities are already collecting.

The Root Cause of Mylan’s “Evil”

Posted on by Graham Renz

In 2015, an average pound of coffee cost about $4.70. Now imagine if, over the next nine years, the price of that same pound of coffee rises to over $26. Our imagined future selves would likely want an explanation for the 500% price increase.

Now just imagine that instead of coffee, the ballooning cost was for a vital medicine hundreds of thousands of people might need in an emergency situation. This is no longer a hypothetical scenario, but the current state of affairs of Mylan, a major pharmaceutical company, and its product, the EpiPen.

The EpiPen is an epinephrine auto-injector (EAI) used to treat severe allergic reactions. In 2007 it cost roughly $100, but today it costs $608. And although Mylan has invested in improvements to their product, critics don’t think the 500% price increase is justified. They think Mylan is just a case study in corporate greed.

But while it’s convenient to blame Mylan for the price surge, that doesn’t go quite deep enough. Mylan is just like any other for-profit business trying to make the highest profit it can. What’s to blame is the near monopoly (98% market share) Mylan has been granted on the EAI market.  

Just this year, a potential competitor to Mylan, Teva, unexpectedly failed to receive approval from the FDA for a generic EAI. And last year, another EAI was removed from the market by the FDA for minor dosage issues. (Note: Mylan just announced it will introduce a generic EAI, although it will cost $300.) Moreover, in 2013, the School Access to Emergency Epinephrine Act, which incentivized schools to stockpile EpiPens, was signed into law.

In short, regulations have made purchasing an EAI besides the EpiPen nearly impossible. Predictably, in the absence of any competition, EpiPen prices rose.

So regardless of whether Mylan’s prices are “unfair,” the real question to ask is this: What is the framework in which private enterprises like Mylan best serve the needs of ordinary people? The answer is a free and competitive market—where barriers to entry are reasonable, regulations make sense, and preferential government treatment is non-existent. Unfortunately, the EAI market is nothing like this.

Perhaps the current EpiPen outrage will make policymakers ask themselves: Is our healthcare market open and competitive? Are our healthcare regulations reasonable and fair? Should we cautiously deregulate the pharmaceutical industry? 

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