Speakers Series on Economic Policy: Hardee’s CEO Talks Jobs!

Posted on by Rick Edlund

Andrew Puzder pulled the famous fast-food chain back from the brink of bankruptcy, so he knows something about creating jobs in a tough economic environment. Puzder, the CEO of CKE, will join the Show-Me Institute, the Saint Louis University John Cook School of Business, and the Sinquefield Charitable Foundation  on Tuesday night at the John Cook School of Business to talk about his new book, “Job Creation: How It Really Works and Why the Government Doesn’t Understand It.”

You’ll want to hear what he has to say. Reservations are required, so be sure to RSVP for the St. Louis event here.

STL Andy Puzder Invite_web

KCPL Economic Policy Le#910

Show-Me Institute Seeks Spring Interns

Posted on by Administrator

SAINT LOUIS – The Show-Me Institute announced its spring internship program today.

Interns at the Show-Me Institute Internship are involved in virtually all aspects of the institute’s operations, working closely with senior staff on a wide variety of projects. Show-Me Institute interns develop an in-depth understanding of how a think tank works, including editing and publishing, event planning, and occasional travel around the state.

Recent interns have also had articles published in newspapers throughout the state, including the St. Louis Post-Dispatch, the Columbia Daily Tribune, the Springfield News-Leader, the Kansas City Daily Record, the St. Louis American, and the St. Louis Business Journal.

The spring internship runs from January through May, and will be held at the institute’s offices in downtown Clayton. Interns receive a modest stipend.

Applications are . The application deadline is December 2.

Tax Credit Sunsets: A Step Toward Reform

Posted on by Patrick Ishmael

Over the last few months, we have worked hard to make the following point crystal clear: Tax credits that are narrowly tailored to benefit a powerful elite or fail to produce the return promised to taxpayers should be opposed when proposed, and mitigated or eliminated if enacted. The Aerotropolis tax credit was initially introduced as a nearly half-billion dollar behemoth. Today, the proposed tax credit program stands at $60 million, with the most problematic portion — the real estate credits — removed. The remaining $60 million poses concerns, as well, and legislators should take a hard look at whether the credit is going to be taxpayer money well-spent.

But there are other parts of the bill that includes Aerotropolis that deserve attention. Although the legislation is peppered with a grab-bag of new incentive programs of questionable value to the state, there is a fair chance that two enormous tax credits — the Low Income Housing Tax Credit (LIHTC) and Historic Tax Credit (HTC) — may be phased out if the so-called “jobs bill” is going make it to the governor’s desk (emphasis mine).

Gov. Jay Nixon called the Legislature into special session on Sept. 6 to overhaul the state’s tax credits, which cost the general revenue fund more than $540 million a year. Nixon wanted legislators to scale back some programs while adding a few new ones, such as a tax break to spur development of a hub in St. Louis for freight flown between the Midwest and China.

But an agreement forged last summer by House and Senate Republican leaders fell apart, leaving the two chambers split over how much to cut and whether to set expiration dates or ‘sunsets” for programs that fund historic preservation and low-income housing development.

Senators remain committed to passage of seven-year sunset clauses, Mayer said Tuesday. An alternative review process proposed by Rep. Ryan Silvey, R-Kansas City, would not corral the programs’ growing costs, Mayer said.

The proposed “alternative review process” is underwhelming to say the least, and as a solitary legislative move, would force no substantive action on Missouri’s burgeoning tax credit system until at least 2016, if ever. The heart of the problem is that while the presumption in the House is that the tax credit system should exist largely (and for all intents and purposes, indefinitely) in its current form, in fact, many tax credits need to be extinguished, most sooner rather than later, and all need to be seriously investigated as to whether they’re achieving their objectives.

This is where the sunsets play a role. Sunset provisions like the one proposed turn the old tax credit presumption on its head, phasing out programs like LIHTC and HTC — which, in the state’s own analysis, do not even remotely pay for themselves — but nonetheless giving the legislature an opportunity to reduce and reform the programs in the interim. On an ideological spectrum, that is the conservative position: responsibly reducing the size and scope of government.

LIHTC and HTC combined have carved out billions of dollars from the state budget over the last decade, with disappointing economic results. If Missouri’s legislature can’t responsibly reform these two programs within a seven-year window, there’s no reason to believe the legislature will ever reform the programs.

Reappraising – and Praising – Capitalism

Posted on by Greg Aubuchon

“For over a hundred years,” F.A. Hayek wrote in 1961, “we have been exhorted to embrace socialism because it would give us more goods. Since it has so lamentably failed to achieve this…we are now urged to adopt it because more goods after all are not important.”

As a long-time teacher of economics in Missouri, I believe that Hayek’s words are just as apt today as they were 50 years ago. Here we live in a country that has been singularly successful both in creating material prosperity and enabling more and more people to enjoy the blessings of “life, liberty, and the pursuit of happiness.” Yet despite this unrivaled record of success, many of those entrusted with the education of our children regard capitalism, the engine of the nation’s prosperity, not as something to be celebrated, but as something deplorable or shameful.

I have seen first-hand how an aversion to free markets, competition, and economic logic permeates our classrooms. To cite one example, a good friend of mine once invited a professor of education to collaborate in designing a summer curriculum on entrepreneurship for disadvantaged youth in Saint Louis. The professor, a prominent member of his university’s college of education, was aghast. He told my friend that entrepreneurship is the very antithesis of education and the teaching of good citizenship. And over the past 12 years, that is the world view that he has inculcated in hundreds if not thousands of future teachers at all levels of education.

Consider the daughter of my friend. Her teacher, while discussing the environment and the spotted owl, denounced the meat and fur industries. The daughter, parroting her teacher, told her mother that the government should ban both industries. Noticing the obvious slant to the curriculum, mom challenged her daughter to compare the benefits and costs, including the loss of jobs and income. Daughter, resorting to ideological labels in lieu of reasoned response (a sure sign of educational neglect), declared her mother a “capitalist pig.”

Why this bias? Could it be that educators identify entrepreneurial free markets as win-lose zero sum confrontations? One’s gain must be another’s loss? Perhaps they imagine the violent overthrow of kind cooperation in favor of brutal aggression and profit. Self-esteem is sacrificed to the survival of the fittest. The very thought, however fanciful, rattles the nerves of educators.

Market competition, in fact, brings people together through voluntary exchange. You satisfy your own needs by discovering ways to satisfy the needs of others. This evolution from self-sufficient individuals to interdependent beings elevates social cooperation from a generous impulse to the essential linchpin supporting our means of survival. This should warm the hearts of educators everywhere.

Now consider what happens when governments replace entrepreneurs in picking the winners and losers. For example, analyze the multitude of tax credits that Missouri government gives away to insiders with lobbyists. Here, taxpayers are coerced into financing the Taj Mahals of wellconnected developers. Far from a cooperative game of willing participants, this is favoritism for the few, which eliminates competition and promotes waste.

Competition and free markets are the best assurances of social cooperation and peaceful coexistence. That is what we should be teaching our children. Even more, it is what we should be teaching our teachers.

Gregory Aubuchon is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri Public Policy.

Witches, Economic Development Promises, and Baseball

Posted on by Audrey Spalding

I had no idea that there were so many witches in Romania. Or that European politicians (including French President Nicolas Sarkozy) often go to witches to seek advice.

This is exactly why I listen to the Freakonomics podcast, which highlights the ways that economics can provide insight to seemingly inexplicable situations. Recently, Freakonomics discussed efforts in Romania to fine witches if their predictions fail to come true. The jail-time punishment being proposed for multiple false predictions could result in six months to up to three years in jail.

I suppose that if you acted on a false prediction, you would want to punish the person who led you astray. But think of all of the people and organizations who make predictions that affect the way our economy runs. We don’t penalize, say, politicians, economic development officials, or coalition groups when the promises they make fail to materialize.

As Steven Dubner, host of the Freakonomics podcast put it, “I don’t care if you’re anti-witch or pro-witch or witch-agnostic. Why should witches be the only people held accountable for bad predictions?”

In Missouri, it isn’t very hard to find evidence of bad economic development predictions. The recent Mamtek scandal is one. The 2006 prediction that the Ballpark Village development in downtown Saint Louis would result in more than $700 million in economic impact looks unlikely, to put it kindly. And, for a recent example, we have the ever-changing job estimates associated with a proposal to dedicate $300 million in state tax credits to construct warehouses and facilities.

Consider also a state audit report that found, among many other problems, that Missouri’s Low Income Housing Tax Credit is much more costly than initially predicted. How about the overly rosy economic growth assumptions used to sell Tax Increment Financing (TIF) projects? An East-West Gateway Council of Government study found that “broad measures of regional economic outcomes strongly suggest that massive tax expenditures to promote development have not resulted in real growth” (emphasis mine).

Of course, I’m not advocating that we throw politicians and economic development officials in jail for making the wrong promises. But I would suggest, for the health of Missouri’s economy, that we start holding these people responsible for their predictions.

As Freakonomics co-host Steve Levitt points out in the podcast, people have every incentive to make absurd predictions:

So, most predictions we remember are ones which were fabulously, wildly, unexpected and then came true. Now, the person who makes that prediction has a strong incentive to remind everyone that they made that crazy prediction which came true. …But if you’re wrong, there’s no person on the other side of the transaction who draws any real benefit from embarrassing you by bringing up the bad prediction over and over.

Levitt’s point reminds me of the St. Louis Regional Chamber and Growth Association’s outlandish predictions. The RCGA frequently issues press releases touting incredible job and investment numbers. Sometimes, the message of one RCGA study (say, that the region needs to build millions more in warehouse space) conflicts with another RCGA press release (that the region has an abundance of cheap warehouse space). The agency clearly isn’t worried about making an unlikely prediction, either.

I also wonder about the Missouri Department of Economic Development, and the state legislature’s propensity to create tax credit programs in the hopes of attracting jobs to the state. Audit reports have shown that these tax credits are more expensive than anticipated, and that the state gets little in return. And yet, in the face of  bad earlier predictions (and even blatant overstatements), state legislators continue to fail to pass substantive tax credit reform.

A solution that Freakonomics proposes is a little unexpected, but elegant. We all are familiar with baseball players’ batting averages. Let’s apply those to people who make economic development predictions.

Consulting organizations should report their track record of success (and failure). What if every estimate of job and investment creation the RCGA publishes had to be accompanied with a percentage showing the accuracy of previous estimates the agency predicted? What if, when contemplating creating new tax credit programs, we considered whether existing programs delivered on the promises used to create them?

If we are considering whether hundreds of millions of taxpayer dollars should be allocated to a particular project, it is not enough to take proponents’ claims for fact, especially if those organizations have a track record of poor prediction. We need to know how frequently those predictions actually become reality.

We wouldn’t throw anyone in jail. We might find that some organizations are really good at making predictions. And, like Romanians burned by a bad prediction from a witch, we could stop relying on organizations and individuals that provide wildly unreliable predictions.

Aerotropolis and the Climate for Substantive Tax Credit Reform

Posted on by Patrick Ishmael

News on the proposed China Hub tax credits has been pretty sparse the past few weeks. Just before the Missouri Senate went out of session for all practical (albeit, not technical) purposes on Sept. 23, it kicked its economic development bill containing Aerotropolis over to the House for that chamber’s consideration. Yesterday, the House passed its version of the tax credit package, which, like the Senate version, left out the China Hub’s $300 million warehouse provision, but it also left out the sunsets — that is, the statutory phaseouts — that the Senate placed elsewhere in the bill on some of the state’s most expensive existing tax credit programs.

The Missouri house has pushed through the China hub bill after putting in nine amendments and leaving out tax credit sunsets.

Senate leadership says a tax bill with no sunsets doesn’t stand a chance, but the House passed China hub anyway. Speaker of the House Steve Tilley says he hopes the Senate is willing to compromise.

[…]

The bill passed the House by a vote of 98 to 48 and heads back to the Senate Tuesday.  The Senate will take the issue up when they resume Tuesday.

As a reference point, the original House tax credit bill passed with a 142-14 vote during the regular session in April. Big change.

Setting aside the political considerations in play — considerations that, granted, are nearly indispensable to understanding the day-to-day dynamic in the chamber — it is mystifying to me that budget hawks in the House aren’t demanding sunsets on most tax credit programs. When an amendment was introduced yesterday that would have phased out the Low Income Housing and Historic Tax Credits, it was resoundingly defeated with a 131-17 vote.

That’s unfortunate. Taken together over the last decade, the LIHTC and HTC have carved out a multi-billion dollar hole in Missouri budgets for a highly questionable return. An 11-cent return for every tax dollar spent on the former? A 23-cent return for every tax dollar spent on the latter? Whether or not you’re inclined to believe those findings, it’s worth keeping in mind how economic development tax credits have been distributed, and in what amounts. If tax credits are the spur to economic growth that proponents in the House say they are, I’d like to know what evidence precisely has brought them to that conclusion.

It would be apropos, however, that a House which initially envisioned an enormous half-billion dollar Aerotropolis tax credit would effectively reduce the program to $0 because it chose not to sunset — and therefore require legislative reauthorization — for a host of tax credits that have had ample time to prove their value to the state, but failed to compellingly do so. Barring a breakthrough between the House and Senate before the constitutionally-required close of the session in early November, that’s precisely where the House will find itself: without a bill passed into law, and therefore, without an Aerotropolis tax credit of any amount. We’ll know more next week.

Collecting fiscal boondoggles is not a credible economic strategy, and setting Missouri’s fiscal ship on a new course does not simply mean stopping bad policy from becoming law; it also means reforming existing law. Until Missouri’s legislators get serious about reforming or ending economic programs that are failing and, simultaneously, reducing the tax burden for all rather than a select few, Missouri will continue to drift into troubling budgetary waters.

Red Harvest

Posted on by Michael Rathbone

The Kansas City Star published an editorial last weekend regarding agricultural budget cuts. The article details a shocking amount of waste that would drive any taxpayer nuts.

The state of Missouri, like most states in the Union, is faced with the difficult task of balancing the budget. The article gives some examples of reforms on the federal level, where the savings to taxpayers wouldn’t be “poultry.” However, I will focus on one particular reform mentioned in the article because it has relevance to state spending. The reform in question is to shuck subsidies for ethanol.

The state also has a long list of its own ethanol incentives and the budget impact of these ethanol incentives is not insubstantial. In fact, ethanol subsidies account for 37% (click on HB 6-Department of Agriculture, page 81) of the fiscal year 2011 Missouri Department of Agriculture budget. In the not-too-distant past (FY 2010), it has amounted to 58% (pages 43 and 55) of the Department of Agriculture budget. Considering the dollar amounts involved and the percentage of the Department of Agriculture’s budget that state ethanol subsidies take up, it would be prudent to ask whether the state is serving the taxpayers well by investing in ethanol subsidies.

The Show-Me Institute has researched the effects of ethanol on Missouri and I would encourage everybody to give the case study a gander. Considering the other negative consequences the Show-Me Institute mentioned in its case study, it would seem that ethanol subsidies should be a ripe target for the budget cutter’s scythe. Before making the really difficult decisions on where to cut the budget (like deciding between laying off teachers or closing down mental health centers), wouldn’t it be great if the state could go after the low-hanging fruit? Just some food for thought.

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