Some 70 people witnessed a strong argument for school choice at a screening of The Cartel on Jan. 27 at the Tivoli Theatre in University City near Saint Louis. The documentary film, part of a forum sponsored by the Show-Me Institute, focused on floundering schools in New Jersey. Journalist Bob Bowdon vividly portrayed a system rife with overpaid administrators, ineffective union-protected teachers, and, worst of all, teens who can't read. A panel discussion followed the special screening. Moderated by the Show-Me Institute's director of communications, Rick Edlund, it featured two Missouri state representatives, both members of the House Committee on Elementary and Secondary Education. Rep. Scott Dieckhaus (R) heads up that committee as chairman, and Rep. Tishaura Jones (D) is also assistant minority floor leader. They shared their thoughts about the documentary and about the education issues that may come before their committee during the 2011 legislative session.
New Report: Tax Incentives Fail to Produce Results in Saint Louis
The East-West Gateway Council of Governments released a report that largely confirms what the Show-Me Institute has been saying all along: State and local government incentives don’t deliver on their promises in Missouri. The local government has provided $5.8 billion in subsidies to private development in Saint Louis, but doesn’t have much to show for it.
The report found that local incentives haven’t encouraged job creation, consumer spending, or economic growth in the Saint Louis region, and concluded that the reporting requirements are “seriously deficient.”
The report also found that tax-increment financing (TIF) hurts neighboring municipalities. As I have discussed before, economic development is not a zero-sum game, and municipalities in Missouri can grow faster if they didn’t view their neighbors as competitors.
The editorial board at the St. Louis Post-Dispatch provides a great commentary on the report. The following is my favorite passage:
The money has moved around within the region, however, as vampire-like new developments suck the life out of existing ones. So publicly subsidized retail developments in Chesterfield and Fenton bleed business out of existing centers in, say, Ballwin. New big-box developments in Manchester drain the vitality out of older shopping centers in Crestwood, and so on. Net gain for the region: virtually zero.
If these local incentives don’t result in overall gain, why provide them at all?
Missourians would be better off if they were allowed to keep their earnings and spend them as they desire in the private sector. If the government were serious about encouraging job creation and productive economic growth, it would eliminate such market incentives entirely.
Real School Choice Options Would Help to Narrow Educational Achievement Gap
This week, organizations across the country are holding events to celebrate National School Choice Week, so it’s worth taking a moment to reflect on the benefits we receive from the educational options that most of us enjoy. The opponents of school choice often deride it, suggesting that it only serves as a means of undermining public education. Most middle- and upper-class parents, however, already exercise control over most aspects of their children’s educations. They choose their homes based in part on the quality of the school district they are located within, or, if they have the resources, they decide among a number of private and parochial schools.
These schools are not perfect — far from it, in some cases — but, for most of these students and parents, the system works relatively well. There is a well-known correlation between academic achievement and socioeconomic status, and students from higher-income families outperform lower-income students on practically every measure. This disparity is also reflected in the achievement gap between white and minority students. Tino Sanandaji, a Ph.D. student in public policy at the University of Chicago, recently compared the scores of non-Hispanic white American students with those of non-immigrant Europeans on the Programme for International Student Assessment (PISA) test, and found that the American students performed admirably. White Americans scored seventh out of 28 countries, beating students from Denmark, Sweden, and France, as well as an average of 15 European Union countries.
On the other hand, our educational system routinely fails poor and minority students — those least able to choose a different school by moving to another district. Although the racial achievement gap has narrowed somewhat in recent years, at age 17, black and Hispanic students still score about 10 percent worse on average than white students on the reading portion of the National Assessment of Educational Progress (NAEP). There a number of proven ways we can expand choice and improve academic achievement for those students.
Missouri has already experienced some success with charter schools. According to a 2009 study by the Center for Research on Education Outcomes at Stanford University, students attending charter schools in Missouri show more improvement in both mathematics and reading than similar students in traditional public schools, and this remains true when looking only at black and Hispanic students. Unfortunately, state statute limits the existence of charter schools to the cities of Saint Louis and Kansas City. If that restriction were removed, the gains of charter schools could be expanded to students in other struggling districts.
Furthermore, we could provide parents and students with more options in existing public school districts simply by restructuring how the schools are funded. Under a weighted-student-formula program (also known as “backpack funding”), students can attend any school within the district, and the schools are funded based upon the number of students they attract — with more dollars devoted to students who typically require more resources to educate (e.g., those with disabilities). Schools are then allowed more autonomy to experiment and compete for students — and for the money attached to them. In California, the cities of San Francisco and Oakland both implemented backpack funding and saw large gains in student achievement across ethnic and socioeconomic lines. San Francisco is now the top performing large urban school district in California. There is no reason, outside of political intransigence, that the Saint Louis and Kansas City school districts could not enact the same reforms.
It would be difficult to design an educational system worse for the disadvantaged than one that assigns students to schools based on the housing that their parents can afford. Although our best schools, public and private, are the product of parental choice, poor and minority students are frequently stuck in monopolistic urban school districts. School choice is not a panacea for this problem, but giving parents the power to choose is a necessary step toward ensuring a quality education for all of Missouri’s students.
John Payne is a research assistant for the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.
Which Is Government Protecting: Consumers From Food Poisoning, or Existing Businesses From Competition?
Apparently, Saint Louis isn’t alone in its issues with food trucks. The Institute for Justice launched a lawsuit challenging a mobile vending prohibition in El Paso, Texas, that prevents food trucks from operating within 1,000 feet of brick-and-mortar restaurants. The following is a video from KTSM NBC 9 about the lawsuit:
I recently highlighted how government can get in the way of a person and her pizza slice. A couple of Show-Me Daily commenters said that the food truck wasn’t banned from Edwardsville — its operators simply failed to apply for a permit.
According to a Riverfront Times article about the incident:
Reached for comment, Pi co-owner Chris Sommers forwarded us along to Fond owner and chef Amy Zupanci, who’d invited the pizza truck to park outside her restaurant. In return for her Welcome Wagon treatment, Zupanci received a call from the health department yesterday, and an in-person visit from an Edwardsville police captain.
“The Madison County Health Department says they don’t allow trucks of any kind to serve food,” Zupanci writes in an e-mail. “However, they also have a policy of no inspection necessary as long as you have a health certificate for ‘non-consecutive food events.’ This would include festivals, farmers’ markets, etc., which may happen once a week, but not back-to-back days.”
Reasoning that under that definition the Pi truck is an “event,” Zupanci inquired about a so-called Transient Merchant permit but hit a dead end: The health department directed her to the police department, which informed her that permits involving food must be approved by…the health department.
This doesn’t tell us that the truck is de jure banned, but it can be interpreted as a de facto bureaucratic ban if public officials refuse to award the certificate required to conduct business.
Enforcing food safety is the ostensible goal of requiring permits. Nobody’s arguing against food safety — I’m certainly not. I’ve contracted food poisoning before, and I felt like I was going to die. I wouldn’t wish food poisoning on anyone — not even on a Keynesian.
However, excessive permit requirements can create a barrier to entry in the market, and keeping a number of competitors out of the market may be the unstated goal of the regulation. My friend and colleague Josh Smith explains the negative effects of this in a comment on my previous blog post:
When a local government requires some level of oversight for vendors, can it be called a “ban”? Perhaps not. If it is the case, however, that the Pi truck is not allowed to sell food in Edwardsville without the approval (through a form, or some other process) of the government, this constitutes an infringement on the right of the Pi truck to sell and the Edwardsville pizza customers to buy.
Even if this layer of bureaucracy seems small, it’s often small changes that have unfortunate marginal effects on markets. What seems like a simple matter to some may be not worth it to others.
Reputation capital can serve as an alternative (and perhaps more reliable) means of signaling quality and safety than a certificate from a local health board — a certificate that likely doesn’t signal much of anything in the way of rigorous investigation of potential health hazards. Dan Klein at the Cato Institute has published a good piece on the subject, “How Trust Is Achieved in Free Markets.”
New Hotel Tax a Bad Idea for Jefferson City
On Feb. 8, the citizens of Jefferson City will vote on a proposal to increase the city’s hotel tax. If the proposal passes, this tax would increase from 3 percent to 7 percent, with the increased tax revenues earmarked to fund a new conference center. These hotel tax votes are often an easy choice for voters, because it can seem like an attractive idea to tax somebody else to fund your own public service or community asset. Although it may seem to be an easy decision, voters of Jefferson City should think seriously about the downside to the constant quest by governments at all levels to raise tax revenues.
Hotels in Jefferson City already experience a high tax burden. They pay commercial property tax rates and the Cole County property tax surcharge. The hotels must obtain business licenses, liquor licenses, restaurant health inspections, etc., just to open and operate. Guests at the hotels pay the standard state and city sales tax of 7.725 percent for the rooms, as well as Jefferson City’s current 3-percent charge on top of that.
The question is not whether the current taxes are reasonable. In comparison with most other cities, they are. But the voters of Jefferson City should consider whether this is the time to tell their elected officials “enough.” Voters in three suburbs of Saint Louis did exactly that in response to hotel tax proposals in November. Voters in Clayton, Richmond Heights (both within Saint Louis County), and Saint Peters (in Saint Charles County) overwhelmingly rejected hotel tax proposals at the polls. The voters sent a message to local elected officials that they wanted difficult budget issues to be dealt with through greater fiscal discipline, not higher taxes. The voters of Jefferson City should give strong consideration to saying the same thing.
The private sector is capable of providing a conference center if there is a genuine market for one in Jefferson City. The taxpayers do not need to build one, even if the “taxpayers” in this case are mostly visitors from other areas. The city of Saint Louis used tax dollars to build a convention center hotel a decade ago, an investment that has worked out poorly. The hotel was unable to make its bond payments and was literally sold on the courthouse steps in 2009.
Nobody knows whether Jefferson City’s proposed conference center would also fail. It is reasonable to suspect that demand for hotels in Jefferson City is more inelastic than in many other Missouri locations, because many of those who travel to Jefferson City do so because they have matters that require the visit, regardless of the cost. However, although Jefferson City may face a lower risk than many other cities of losing business after a hotel tax increase, it does not follow that the tax should be increased.
Conference centers are not a core responsibility of local governments. There is almost nothing about a conference center that fits the economic definition of a public good. The hotel that developers plan to build next to the conference center is privately funded, and the backers of that project will undoubtedly direct their investment more efficiently than the promoters of a publicly funded conference center. Private investment in the conference center would have greater positive consequences than public subsidy, and taxpayers would not be on the hook if the hotel fails.
The voters and taxpayers of Jefferson City should think twice about assigning the role of developer to city government. Although hotel guests may be an easy mark for higher taxes, this does not mean that voters should use them to enlarge the portfolio of city hall. Rejecting this tax proposal would tell Jefferson City’s leaders that the residents want responsible, limited government, not government expansion and higher taxes.
David Stokes is a policy analyst for the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.
I Should Have Just Kept Quiet About This
This post on competing sales tax rates at sandwich shops in the Central West End has not had the results I had hoped for. (I don’t really know which results I hoped for, just not this one.) Panera The St. Louis Bread Company on the Forest Park Parkway near Euclid has apparently raised its sales taxes. In the last post, two months ago, it had by far the lowest rate in the area. On a recent trip there to get some coffee, superstar intern Tom Duda saw that the tax has been increased dramatically. A tax that had been below 6 percent is now more than 10 percent. At least 1.5 percent of that can be attributed to an application of the sit-down restaurant tax, but I don’t know where the rest comes in. (Both visits measured were “to go,” to keep it clean and simple.)
Needless to say, Show-Me Daily is not exactly proud to have potentially contributed to a tax increase.
“We Ran From It the First Time We Saw It”
The above is a direct quote from a potential investor about a stalled development project in northern Boone County. The project’s developers promised a large motorsports venue, and hinted that perhaps Missouri’s own Carl Edwards, Jr., endorsed the project.
As the Columbia Tribune reported:
[Developers Richard] Stone, Edwards, David Babel, Curt Hardin and homebuilder Tony Stuart dreamed of a $45 million venue that would break ground by fall 2008. Municipal leaders and the few merchants who remained in the little towns of Sturgeon and Clark were ecstatic, convinced that better times were just ahead.
That was three years ago.
The story, if you pay attention to the Tribune‘s detailed reporting, has all the sorts of twists and turns of a development drama: a developer charged with a dozen criminal offenses (the article goes to great length to detail those), a development proposal with financial projection numbers that appeared to be “scam quality,” a NASCAR celebrity, and — sadly but predictably — a push for public subsidy.
In this case, the public subsidy took the form of tax increment financing (TIF), a mechanism whereby the additional taxes generated by improvements made to the development (presumably the new racetrack) are instead kept by the company. Fortunately, this particular TIF district has not been created, meaning that the taxpayers of Boone and Randolph counties have not yet begun to foot part of the bill for this mess.
However, this particular instance illustrates a common problem of publicly subsidized development projects: Development projects with a higher risk of failure (or perhaps those that assuredly will fail) are more likely to seek out public subsidy. After all, it takes time, effort, and some money to petition for public funds; developers pursuing projects with high likelihood of success are less likely to seek public handouts, because their time is better spent bettering their projects in order to make even greater profits.
As discussed on this blog before, when it comes to trying to pick economic winners and losers, the government usually picks losers. The winners are too busy making a profit to bother applying for subsidy.
Stop Trying to Pick Winners and Losers in the Economy, Mr. President
The recurring theme in President Barack Obama’s State of the Union address was “winning the future.” It’s a good theme — focusing attention on the need for U.S. workers and businesses to face the challenge of competing in world markets. We are no longer living in a world — as the president pointed out — where “your competition” in seeking a job is “pretty much limited to your neighbors.” Unfortunately, the president stood his “winning the future” theme on its head through a misplaced belief in the ability of government to do a better job of picking winners and losers than the free-enterprise system is able to do on its own.
Obama cited high-speed rail as one of the primary would-be winners, saying (emphasis added): “Within 25 years, our goal is to give 80 percent of all Americans access to high-speed rail. This could allow you to go places in half the time it takes to travel by car. For some trips, it will be faster than flying.”
Show-Me Institute scholars have conducted detailed cost-benefit studies of high-speed rail and found that it would be an egregious waste of money. It is not just that 200-mph bullet trains and the infrastructure needed to support them are extraordinarily expensive. There is also the fact that it may not be practical to run even 110-mph passenger trains on the same tracks as freight trains.
Other would-be winners identified by Obama included:
- Construction: “Over the last two years, we’ve begun rebuilding for the 21st century, a project that has meant thousands of good jobs for the hard-hit construction industry. And tonight I’m proposing that we redouble those efforts.”
- Wireless technology: “Within the next five years, we’ll make it possible for businesses to deploy the next generation of high-speed wireless coverage for 98 percent of all Americans.”
- Clean energy (emphasis added): “Now, clean energy breakthroughs will only translate into clean energy jobs if businesses know there will be a market for what they’re selling. So tonight, I challenge you to join me in setting a new goal: By 2035, 80 percent of America’s electricity will come from clean energy sources.”
Let us leave aside the staggering pick-a-number-out-of-the-sky presumption of that last statement, which suggests that in two-plus decades our nation will reduce coal from more than 50 percent of total electricity generation to no more than 20 percent. It seems that the president is prepared to use a two-edged sword to make that happen: First, hitting up taxpayers in order to lavish billions of dollars in subsidies on wind, solar, and other producers of politically favored forms of alternate energy. Second, forcing utilities to buy at inflated prices from the same subsidized producers, which — by federal fiat — would be guaranteed the lion’s share of the power industry’s demand for energy. That, in turn, would force the utilities to jack up their rates on homeowners and businesses.
There is an overwhelming body of scholarly evidence, to which the Show-Me Institute has contributed, supporting the conclusion that whenever government intervenes in the marketplace in order to try to pick winners and losers, they almost always wind up picking losers and compounding failure. If, as the president suggests, there is a bright future for high-speed rail, high-speed wireless, or wind and solar energy, there is no reason to suppose that private companies would not support such enterprises, lured by the prospect of future growth and earnings.
Finally, Obama talks of giving Americans access to high-speed rail and other projects built at taxpayers’ expense. In doing so, he neglects to consider the deadening effect upon the economy as a whole that has come from ramping up public expenditures. Now or in the future, that can only mean higher taxes on individuals and businesses.
During the past two years, the federal government spending has increased from slightly more than 20 percent of GDP to nearly 25 percent. That is 4 percent of GDP that almost certainly would have been put to better use in the private sector. It is one reason that may be cited for the painfully slow pace of the economic recovery.
On Nov. 2, voters in Missouri and most other states indicated a strong desire for smaller and less intrusive government. Our president does not yet seem to have gotten the message.
Andrew Wilson is a senior editor and writer for the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy. He contributes frequently to the American Spectator, the Weekly Standard, and other national publications. This commentary also appeared in the American Spectator.
A State of Arrogance
Rather than watch the State of the Union address on television, I opted to read President Barack Obama’s remarks, which is how Americans for most of our history learned of this annual message from the president. From the Thomas Jefferson administration until Woodrow Wilson’s first address in 1913 — and again from 1924 through 1932 — presidents sent their address to Congress as a written message. Even before Jefferson rejected the “speech from the throne,” as he called it, Washington refused to discuss any matters relating to “legislative matters” for fear that he might be seen as trying to influence another branch of government. These customs suggested a modest role for the president in the government and, moreover, a limited government role in the lives of Americans.
By contrast, the modern State of the Union address is carefully orchestrated both by politicians and the media to instill a feeling of awe in viewers. Like a well-rehearsed religious ceremony, participants rise and show their approval at predetermined breaks in the speech as the president releases a steady stream of policy proposals, like mystic prayers that he is confident will elevate his people. This spectacle places government — especially the president — at the center of our lives, but this is as backward as the medieval idea that the sun revolved around the earth.
Last night, Obama briefly acknowledged that America’s free-market system “sparks the creativity and imagination of our people,” but quickly moved on to extol government subsidies for, among other things, high-speed rail, broadband Internet access, and renewable energy sources. All these projects stifle individual creativity and imagination by attempting to direct innovation and economic growth from on high — they are a kinder, gentler central planning and reflect what Nobel Prize–winning economist F.A. Hayek called “the fatal conceit” that politicians know better than the dispersed knowledge of the people they rule.
In fact, it is everyday people using bits of knowledge in their particular areas of expertise who keep the economy functioning and drive it forward. Not only does the president not possess the knowledge necessary to understand and successfully redirect that multitude of choices to his preferred ends, it is impossible for him to possess it. Only an entrepreneur facing the discipline of profit and loss can discover which new energy source will prove popular. Only a rural resident weighing the costs and benefits of faster Internet access can decide whether it makes sense for him. Only a commuter running late for work can decide whether high-speed rail is more efficient than driving. The economy, Hayek explained, is the product of human action but not human design, so it must be steered by the choices of individuals free from government influence and coercion.
In The Theory of Moral Sentiments, Adam Smith wrote about the arrogance of the “man of system,” who “seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board.” But, as Smith points out, we are not chess pieces; each of us has different hopes, goals, and dreams — and different ideas about how to achieve them. We naturally resist the hand of the man of system when it tries to move us away from our chosen paths and ruin all the grand designs of politicians and their planners. People will flourish most when an equitable set of rules is enforced, but they are otherwise left to move about life’s board as they see fit.
Political rhetoric like last night’s speech may sound exquisite and offer hope for great improvements in the human condition, but, almost without exception, the improvements we know of came about not from a government plan but from individuals going about their lives and pursuing their own goals. Presidents may flatter themselves with the idea that they are the center of the universe, but as King Solomon, who knew something about the arrogance of public officials, wrote in Ecclesiastes, “vanity of vanities; all is vanity.”
