The Benefits of Federalism and Self-Government

Posted on by John Payne

Here is a fantastic video made by the students of Young Americans for Liberty at the University of Virginia (full disclosure: in my spare time, I am the Missouri State Chair for YAL) showing how we can make more people happy by keeping the ability to make choices at more local levels:

The idea has almost innumerable applications, but the most relevant example for Missourians today is the federal health care reform bill. Missourians overwhelmingly rejected the portion of the law requiring all Americans to purchase health insurance when they voted for Proposition C in August. However, barring repeal (effectively impossible) or a court injunction (more likely, especially if more attorneys general, like Missouri’s Chris Koster, join the pending lawsuit on the matter), we will all be forced to participate in a program that most of us dislike.

If decisions about health care policy were left up to the states, we could have a multitude of systems, which would better reflect the wishes of individual voters and generate more information about which policies work best. Some politicians in Vermont, including the new governor, have floated the idea of creating a single-payer health care system for the state. I think that’s a terrible policy because it removes competition from the system, and along with it any incentive to perform better-quality work for less money, but it is certainly within Vermont’s rights under the Constitution to try it. If the program succeeds, great. If it fails, we can all learn a valuable lesson and it will be far easier to change a state law than federal law.

Of course, the best system would be no system at all: Allow all individuals to decide what kind of health care plan they want. (We could design a health insurance voucher program for those without the means to pay for it on their own. This would allow them to choose among a number of options instead of being forced into a government program.) Government rules are one-size-fits-all by nature, but each person has different needs and wants. We are happiest when we can pursue those goals as we see fit.

Missouri: The Show Me Smuggler State

Posted on by Christine Harbin

I want to direct our readers to an amusing post on Missourinet by Bob Priddy about the positive consequences of assessing a lower tax rate on cigarettes relative to other states. He argues that the state should advertise it and encourage smuggling. He writes:

The best part–and this is why the health department needs to sign on–is that they’ll take the cigarettes back to Illinois to smoke them, meaning their later health problems will be issues for Illinois to deal with, not Missouri. So Missouri would profit, generating more money for education, highways, and maybe for health programs, and Illinois would have to deal with the problems smoking causes. […]

Let’s all root for Illinois to pass this dollar-a-pack cigarette tax increase.
It can mean so much to The Smuggler State.

States already do use selective tax rates to advertise products, to a certain extent. Recently, I saw such an advertisement for cigarettes on the Wisconsin-Illinois border.

I realize that the author is largely being facetious, but there is truth in his analysis that Missouri would likely experience benefits as a consequence of this policy. By keeping its tax rate on cigarettes low relative to other states, Missouri will encourage a marginally higher number of individuals to buy cigarettes in Missouri instead of in their home states.

School Choice and Graduation Rates

Posted on by Abhi Sivasailam

A newly released report evaluating the impact of Milwaukee’s voucher program (Milwaukee Parental Choice Program) provides evidence that the program has improved student outcomes. The study notes that prior evaluations have demonstrated positive effects of the voucher program on test scores:

Do students benefit by using the Milwaukee Parental Choice Program (MPCP) to attend a private school instead of a Milwaukee Public Schools (MPS) school? In addressing that question, most prior evaluations focus on whether students in the MPCP score better on tests of academic achievement than students in MPS schools. As reviewed in our 2007 report, two studies based on randomized trials each demonstrated significantly higher mathematics test scores for MPCP students as compared to MPS students four years after enrolling in the program; one study also showed significantly higher reading test scores.

In contrast, the focus of the present study was to investigate the effect of the voucher program on graduation rates:

Overall, had MPS graduation rates equaled those for MPCP students in the classes of 2003 through 2009, the number of MPS graduates would have been about 18 percent higher. That higher rate would have resulted in 3,939 more MPS graduates during the 2003-2009 years. A recent analysis of the economic impact of high school dropouts suggests that the annual impact from an additional 3,939 MPS graduates would include an additional $24.9 million in personal income and about $4.2 million in extra tax revenue.

An important consideration to bear in mind when reviewing education research is that educational goals are varied, and a wide variety of educational outcomes can be implicated by policy changes. As such, even if a policy change is demonstrated to have a negligent impact on an important student outcome such as test scores, that policy may still positively impact other desirable student outcomes. In the case of the voucher program in Milwaukee, it appears that several student outcomes are positively implicated by school choice. In other regions of the country, school choice programs have had a much less significant impact on test scores. It is important that researchers and the general public then probe the effects of such programs on other desirable outcomes, as well, before a summary judgment of the policy is made.

Education Debt: The Next Bailout?

Posted on by Christine Harbin

  1. Subsidize

  2. Over-Consume

  3. Bailout

  4. Repeat

It’s a continuous cycle that that policymakers would be wise to end.

Whenever the government subsidizes a good or an activity, it causes individuals to consume more it than they would otherwise. This is because the subsidy decreases the price to consumers, many of whom, by the law of demand, consequently consume a higher quantity. This occurs across all industries. In Missouri, for example, it happens in ethanol production, homeownership, historic preservation, health care, film production, etc.

Education is another product that is over-consumed when subsidized. Last Sunday, a New York Times article illustrated how federal subsidy is partly responsible for the over-consumption of law school:

Apparently, there is no shortage of 22-year-olds who think that law school is the perfect place to wait out a lousy economy and the gasoline that fuels this system — federally backed student loans — is still widely available.

A negative consequence of this overconsumption is degree inflation. According to the signalling model, which contributors to Show Me Daily have discussed previously, individuals have an incentive to accumulate degrees to indicate to employers that they are higher-quality than others in the labor supply. Many jobs that may have required only a high school degree in the past now require a college degree. Based on this article, it seems that jobs that may have required a college degree in the past now require a law degree.

Another negative consequence is lower earnings. It’s a catch-22: The prospect of high earnings encourages a higher number of people go to law school, but because there is a high supply of lawyers, there is downward pressure on earnings.

By knocking the price system out of equilibrium, the government causes a misallocation of resources, which produces a market bubble that will burst as soon as the subsidy ends. Is education debt the next bubble to burst? Will there be an education debt bailout? The protagonist in the article — who has a law degree, $250,000 in debt, and a low-wage temp job — doesn’t seem too worried. He says:

“Bank bailouts, company bailouts — I don’t know, we’re the generation of bailouts,” he says in a hallway during a break from his Peak Discovery job. “And like, this debt of mine is just sort of, it’s a little illusory. I feel like at some point, I’ll negotiate it away, or they won’t collect it.”

Bailing out education debts would mean bad news for taxpayers, since the costs would be diffused onto them. The federal government could not afford it — adding the debts of debt-laden law students would certainly exacerbate the federal deficit.

I’m Just Disappointed That the AP Didn’t Play Up the “Dickensian Aspect” a Bit More

Posted on by Audrey Spalding

Watch out. According to the latest report from the Associated Press (AP), despite recent attempts by states to limit the availability of pseudoephedrine, a key ingredient in both meth production and cold medicine, meth production is up. The AP reached this conclusion after its review of federal data showing that “meth incidents” are on the rise.

Meth incidents, I should note, are a count of the number of times that meth labs, dumpsites, or even meth production equipment is seized. The statistic is not, as I once naïvely thought, a count of meth lab explosions, or even labs themselves. The AP’s analysis does not delve into which types of “incidents” are on the rise, just that the total is up. Additionally, an uptick in meth lab incidents could just be an effect of law enforcement cracking down on meth production more effectively. So, already, we should approach the AP analysis with skepticism.

A few years ago, a number of states, including Missouri, limited the purchase of pseudoephedrine, restricted where it could be sold, and began to track those who purchased the drug. The AP says that those restrictions have created a black market trade in pseudoephedrine, the cold medicine.

From the AP:

An Associated Press review of federal data shows that the lure of such easy money has drawn thousands of new people into the methamphetamine underworld over the last few years.

“It’s almost like a sub-criminal culture,” said Gary Boggs, an agent at the Drug Enforcement Administration. “You’ll see them with a GPS unit set up in a van with a list of every single pharmacy or retail outlet. They’ll spend the entire week going store to store and buy to the limit.”

Well, don’t count me among the shocked. After all, it’s pretty common knowledge that regulation and restriction can create all sorts of black markets of perfectly banal commodities, such as “food, cookware, haircuts, clothing, machinery repair, house building—almost everything people use in their everyday lives.” In this case, government restriction has made something that had previously been easy to acquire that much more difficult, thus increasing the price of pseudoephedrine on the black market to far above the, say, Walgreens price.

Recent government regulation of pseudoephedrine appears to have led to a brief decline in meth production after the regulations were put in place, followed by a bounce back as meth producers found other ways to acquire drug ingredients. In the past year there were, as the AP breathlessly tells it, “10,064 meth incidents, a 62 percent rise over the previous two years.”

Yikes, I guess. This means that there are 0.00003278 meth incidents for every person in the U.S. If that’s too many decimal places for you, perhaps a better way of looking at it would be to say that there is one meth lab incident for every 30,505 people. Per year. And that can be as minor as the seizure of “chemicals and glassware.” I personally am more concerned with car fatalities (which are, by definition, fatal and occur three times more frequently than meth lab incidents).

Say you, or perhaps Gov. Jay Nixon, are still concerned by this uptick in meth statistics. Let’s set aside that we don’t know what type of “incident” is on the rise; whether this is attributable to an increase in use or to better law enforcement; whether the previous low points in the statistics were attributable to declining drug production, or just a shift from one type of drug production to another; and the extraordinarily probable explanation that drug producers will figure out how to adapt (as they have already done) to additional government regulation of pseudoephedrine.

Let’s say that the governor, or even AP reporters, suggest instead that pseudoephedrine be put behind a prescription wall. Only those who have a prescription from a doctor would be allowed to purchase cold medicine. Would that solve the problem? And would that step be worth it?

Okay, yes, those were rhetorical questions. For the first question: Of course not. If meth producers are paying individuals to buy up pseudoephedrine until they hit government-imposed purchased limits, it certainly seems likely that those producers would pay individuals to take the additional step of getting prescriptions to buy up pseudoephedrine. I suppose such a policy would help at least one group of people: Those who could get a perscription and then sell pseudoephedrine to meth producers. I bet that they could get a better price.

The second question is one that I’ve already answered on this blog, and has the same answer as the first: Of course not! There are so few “meth incidents” that to reduce them even by half hardly seems worth the cost to everyone else of either having to go to the doctor’s office when they have a cold, or forgoing treatment.

Again, I’d like to remind legislators, governors, and reporters that health care costs are a huge issue that seems insurmountable at the moment. Regulations like these are bound to increase those costs: Either individuals will have to pay for a doctor’s time in order to obtain a prescription for cold relief, or, if that person has a low co-pay, this regulation will raise health insurance providers’ costs, which will most certainly result in health insurance premium costs rising.

I hope that politicians and reporters will find some other, less intrusive issue to sensationalize for personal gain.

(H/T for post title suggestion to John Payne.)

Missouri’s Urban and Transportation Infrastructures – Jerome J. Day previews his Show-Me Institute Case Study

Posted on by Jerome Day

In a study released by the Show-Me Institute, Jerome Day makes a strong case for helping to drive Missouri’s economy by revamping the state’s transportation infrastructure. The long-time university professor and administrator envisions an innovative partnership with the private sector to build a new I-70 north of the existing highway that would carry more than just vehicle traffic.

Day adds that the railway could be used for passenger traffic.

“Wha’eva, I Do What I Want”: The DED Goes Off the Reservation

Posted on by Audrey Spalding

I thought that the Missouri Department of Economic Development (DED) could sink no further. After all, the agency recently awarded tax credits to a man who pleaded guilty to passing bad checks, and has been scolded by the State Auditor’s Office for (perhaps accidentally) pulling numbers out of thin air that happen to overstate the economic benefits of a particular tax credit project.

But the DED has outdone even itself. This week, the St. Louis Post-Dispatch reported that the agency had awarded $8 million to a redevelopment project that a court judge has ruled no longer exists.

NorthSide Regeneration LLC, the company behind an enormous and ambitious project slated to occur in north Saint Louis, received the $8 million. However, the tax credits that the DED awarded must be tied, according to state statute, to a “redevelopment agreement.”

State statute specifies that such a redevelopment agreement exists only when a city has selected a developer (in this case, NorthSide), by passing an ordinance to award additional local tax incentives to the company. Unfortunately for the NorthSide company, although city alderman passed such an agreement, it was thrown out by a judge in July — so, according to the statute, NorthSide simply isn’t entitled to the money. The judge, in his ruling, stated:

FURTHER ORDERED, ADJUDGED AND DECREED that defendants [including NorthSide and the city of Saint Louis], their officers, agents, employees, and all persons acting in concert with them with notice of this Order and Judgment be and they are hereby permanently restrained and enjoined from implementing Ordinances 68484 and 68485 [the city ordinances that authorized the redevelopment agreement] of the City of St. Louis, including but not limited to implementing any special allocation fund pursuant to said ordinances, transferring revenues to or from any fund pursuant to said ordinances, or otherwise taking action under said ordinances.

I find these lines from the Post-Dispatch to be sadly amusing:

The credits, which come on top of $20 million the developer received in 2009, were authorized under the Distressed Areas Land Assemblage program. Economic development officials said that after McKee met all the law’s requirements, they had no choice but to issue the credits.

“We have to abide by the statute as it stands and as it stands, there are no safeguards for taxpayers,” said agency spokesman John Fougere. “We thought it was very important to demand the protections we secured in this agreement.”

Of course, what Fougere fails to mention is that one easy way of safeguarding Missouri taxpayers is not to award $8 million to a redevelopment agreement that has been thrown out by the court. Instead, the department awarded the tax credits, but with a specification that if a court were to throw out the redevelopment agreement again, the company has to give back the money.

In essence, the DED has awarded NorthSide an interest-free loan, just in case the company manages to prevail in court at some point in the future. I admit that I am flabbergasted as to why the DED would do this. Surely, DED employees wouldn’t ignore their statutory obligations?

A possible reason is that because NorthSide is in the process of appealing this ruling, the DED viewed the judge’s ruling as not final — it could be overturned. However, it is strange that the DED, especially in light of recent public scrutiny, would not take the more prudent course of awaiting the result of the appeal before awarding tax credits.

Not only does Missouri desperately need a thorough, critical review of tax credit programs in general, it is clear that the workings of the DED need to be examined. This agency awards hundreds of millions of dollars each year, and is neglecting its duty to safeguard taxpayer money.

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