Law Is Not a Band-Aid for Every Problem

As much as our society changes, some ideals stand the test of the centuries. One of these ideals is law. This does not necessarily imply that law is the most effective solution for every problem of society, but rather that laws tend to be long-lasting and powerful. We should be careful about which rules we allow to become law, because they may outlive us and the situations that they were designed to fix. Furthermore, it is all too easy for laws to become the means for one person or group of people to force their will upon those in a weaker position.

Frédéric Bastiat, a French economist and legislator who fought for free trade rights in the 1840s, warned his contemporaries of this threat that law can pose, and he also pointed out how easy it is for law to become a powerful weapon against any who disagree with the legislators.

The Show-Me Institute book club, which meets every other Wednesday night at 7:00 (join us at our next meeting on December 1!), discussed Bastiat’s Selected Essays on Political Economy last year. The first essay, “What Is Seen and What Is Not Seen,” outlines a vital concept of economics — and, indeed, of life in general. Bastiat explains that actions have consequences in both the short term and the long term, both seen and unseen, and that often the unseen consequences are far-reaching in their scope. The unseen consequences of new laws can be disastrous when circumstances change. Moreover, a lawmaker may not be in a position to understand the practical consequences for all the people who will be affected by a law. In this way, a law which is intended solely to help people may end up hurting many, for a long time to come.

The Springfield News-Leader ran an article this week in which the author, Dr. John Lilly, explains how Bastiat’s ideas continue to be relevant 150 years after they were written. Lilly examines the origin and purpose of law, explaining that when one person takes another’s property by force, this is the definition of “plunder.” From the article:

Life, liberty and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty and property existed beforehand that caused men to make laws in the first place.

[…] Legal plunder occurs when the law takes from one person, and gives it to another person. Legal plunder benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.

Lilly asserts that law exists in order to serve people and protect their rights, but that law can also be twisted to sanction and enforce plunder. He illustrates this with a quote:

Bastiat stated, “And, in all sincerity, can anything more than the absence of plunder be required of the law? Can the law — which necessarily requires the use of force — rationally be used for anything except protecting the rights of everyone? I defy anyone to extend it beyond this purpose without perverting it and, consequently, turning might against right.”

State Film Tax Credit Program Reading List

In Mound City Money, David Nicklaus highlights a recent study from the Center on Budget and Policy Priorities that demonstrates the ineffectiveness of state film tax credit programs. This is particularly well-timed, because the Tax Credit Review Commission just voted to recommend eliminating this program in Missouri. From the study:

  • No state can “win” the film subsidy war . Film subsidies are sometimes described as an “investment” that will pay off by creating a long-lasting industry. This strategy is dubious at best. Even Louisiana and New Mexico — the two states most often cited as exemplars of successful industry-building strategies — are finding it hard to hold on to the production that they have lured. The film industry is inherently risky and therefore dependent on subsidies.

Regular readers of Show-Me Daily know that I am a frequent critic of these programs. The following is a list of additional recent studies that I have referenced previously, all of which are specific to film tax credit programs. Each of these concludes that film tax credit programs have negative fiscal consequences for states. If any of you are aware of quality literature on the topic that I may have excluded, please leave a note in the comments section of this post.

  1. In October 2010, the state auditor’s office in Iowa released a report on the state’s film tax credit program, which was subject to recent scandals. The auditor found that a full 80 percent of the credits that the state had granted were issued improperly — amounting to more than $25 million.
  2. In September 2010, the Senate Fiscal Agency in Michigan released a study showing that the state spends more on film tax programs than they generate in economic activity. For example, in fiscal year 2010–11, Michigan will spend $125 million on film credits, which will generate merely $13.5 million in new tax receipts. This amounts to a net fiscal cost of $111.5 million.
  3. In March 2010, the Wisconsin Department of Commerce published a cost-benefit analysis of the state’s film tax credit program, reporting that it costs 20 times more to create a job using the state’s movie tax incentive program than it does using other state job creation programs.
  4. In January 2010, Tax Foundation released a study, “Movie Production Incentives: Blockbuster Support for Lackluster Policy,” concluding that production incentives such as targeted tax credits do not spur economic growth.
  5. According to a 2007 study by Oxford Economics, “The Economic Impact of the UK Film Industry,” the film industry has a multiplier of only 2.0. This is lower than the multiplier for the economy average, and indicates that the indirect impacts on employment and output from the film industry are not very far-reaching. Even if there were a significant multiplier when money is spent in the economy, then certainly permanent businesses would provide more favorable returns — not short-lived activity such as film productions.

Subcommittee Recommends Buying Back Tax Credits

The Tax Credit Review Commission is beginning to deliver its final recommendations on targeted tax credit programs. From an article by the Missouri Watchdog:

The low-income housing program has more than $1 billion in credits outstanding through the year 2022. The subcommittee recommends buying back some of those credits to lessen the state’s indebtedness.

Recommending buying back credits is an admission that outstanding tax credits represent a considerable future liability for the state. If individuals and businesses did not redeem tax credits at indeterminate times in the future, then state revenues would be more constant and the state government would be able to forecast and plan its budget more easily. If there were a high number of tax credits outstanding, and they were suddenly redeemed, it could create or exacerbate budget problems in the future.

I have some questions relating to the logistics of this recommendation, however. Won’t buying back credits increase the state’s indebtedness in the present? Will the state government buy them at their face value, or will it buy them at a premium to encourage recipients to sell early?

Fantastic News for Missouri Taxpayers!

Maybe I spoke too soon. The Tax Credit Review Commission just voted to recommend cutting the film tax credit program in Missouri!

I have written 21 blog posts, and also an editorial, on the specific subject of the film tax credit program in Missouri. Maybe this recent recommendation indicates that people listened to me!

The committee also voted to recommend ending other tax credit programs during that meeting, including the Distressed Areas Land Assemblage tax credit and the Rebuilding Communities tax credit.

I applaud the commission for recommending aggressive cuts to these particular programs, and I hope that the legislature adopts them. I am thrilled that the film tax credit program may be ended soon; I don’t want to jinx it!

Show-Me Institute in the Media

The primary purpose of Show-Me Daily is to facilitate conversation and debate about policy issues in Missouri, from a free-market perspective. Our blog has other roles, though, and one of them is … ahem … self-promotion. So, with that in mind, I’d like to call your attention to the good amount of media coverage we’ve had lately. Here is the convenient and concise rundown for you, our dedicated fans.

Last Tuesday, Nov. 9, David Stokes and Dave Roland appeared on the Bernie Hayes Show on WGNU St. Louis AM 920 to talk about occupational licensing generally, and African hair braiders specifically. You can listen to the whole show here.

On Thursday, Nov. 11, Audrey Spalding was a guest on a panel discussing public education and the film Waiting For “Superman,” at Plaza Frontenac. Audrey was quoted in the St. Louis Beacon and on the St. Louis Business Journal‘s blog about the film and the issues of school quality and choice that it addressed.

Thursday night, David Stokes was quoted in a KMOV CBS Channel 4 story about public pensions. Show-Me Institute scholar Dr. Susan Feigenbaum was also interviewed for the story, an issue that the institute has addressed previously. If I could stress one point further, it would be to repeat the point Dr. Feigenbaum made in her interview that governments themselves are to blame for much of the public pension shortfalls by not making adequate contributions during good fiscal times.

On Friday, Stokes was quoted in a St. Louis Business-Journal piece by Dave Drebes about the potential for the city of St. Louis to re-enter St. Louis County. (You need to subscribe in order to access the full story online.)

Last, but not at all least, is yesterday’s major Post-Dispatch article on economic development, tax-increment financing (TIF), etc. Show-Me Institute intern Tom Duda and Stokes were both quoted in the story on how “economic development” in the St. Louis area amounts to nothing more than using tax dollars to lure business from one part of the area to another — sometimes only a few blocks away.

As a fun parlor game from the Post-Dispatch article, I’ll give 10 Show-Me Institute bonus points (whatever those are) to the first commenter who correctly cites the blatant red herring argument used by someone quoted in that last story.

Tax Credit Review Commission Delivers Final Recommendations; Expect No Surprises

The subcommittees on the Tax Credit Review Commission are delivering their final recommendations. From an article by the Missouri Watchdog:

The tax credit commission will not come back with any sweeping generalizations about the 61-different tax credit programs in Missouri, [co-chair] Gross said.

“Some programs have out lived their useful life… and some have sunsets we will allow to sunset. Those are not going to be controversial,” he said.

Although this is disappointing, it is not surprising. Back in June, I predicted that there would not be calls for scaling back these programs. This is largely attributable to the composition of the commission. It includes businessmen whose companies have been issued tax credits, along with bureaucrats and politicians who have an incentive to grow the size of government.

This was a missed opportunity to reform the economic development strategy in Missouri. It is very likely that targeted tax credit programs are a contributing factor to the state’s budget problems, and the commission should have evaluated their effectiveness in general. True economic reform in Missouri will require a high-level, macroeconomic cost-benefit analysis. Without any reform, Missourians would experience a continuation of the status quo.

The ostensible purpose for the Commission, as Gov. Jay Nixon outlined in his opening remarks, was threefold: help the state make wise use of taxpayers’ dollars to create jobs, incite economic development, and build strong communities. Instead of assuming that tax credit programs are the best means of achieving these goals, the commission should have investigated whether there are other tools that achieve these goals better.

Instead, the commission will deliver recommendations that will not actually do anything to limit the number of tax credits issued in Missouri — it will instead maintain the status quo.

The state economy is not without problems. When the state government says that it will investigate reform, it should engage in a serious effort, rather than mere political posturing.

I Would Be Thrilled if Geoffrey Canada Were the Richest Man in the United States

On Thursday, I was fortunate to participate on a panel to discuss solutions to some of the failings of the U.S. public education system. The panel, which included Russell Grammer, the director of Prodigy Leadership Academy, Anthony Thompson, president and CEO of KWAME Building Group, Inc., and Carter Ward, the executive director of the Missouri School Boards’ Association, spoke after a screening of Waiting for “Superman,” a documentary about children trying to escape failing traditional public schools for higher-performing charter schools.

I am optimistic about the future of K–12 education, because certain schools and education innovators have proven that what researchers and education administrators thought was impossible is, in fact, not.

For example, the Knowledge Is Power Program (KIPP) charter schools have been especially effective in reducing, if not eliminating, the achievement gap:

Students in at least half the KIPP schools Mathematica studied gained the equivalent of 1.2 years in mathematics and 0.9 years in reading three years after enrolling. The results effectively cut the racial achievement gap in half.

Another example of what is possible are the incredible gains made in Harlem, N.Y., by educational advocate Geoffrey Canada. He chose to attempt to “change the odds” of low income children in central Harlem — an area the New York Times reported had a poverty rate of more than 60 percent, and where three quarters of students were scoring below grade level on state aptitude tests. Today, we know Canada’s education nonprofit as the Harlem Children’s Zone (HCZ).

HCZ reports that 90 percent of its high school seniors were accepted into college this past year, and that those students received more than $6 million in scholarships and grants. HCZ also reports that of the four-year-olds that entered one of its programs, nearly one in five were initially achieving educational scores so low that they were classified as “delayed.” By the end of one year in the HCZ program, none of those students were delayed, and the percentage of students in that class that were classified as “advanced” had doubled, to more than 40 percent.

Canada was featured extensively in Waiting for “Superman.” Besides showing the struggles of students, the documentary’s broader message is about the big failures of traditional public education — including rapidly increasing education costs with no change in student academic achievement, the extreme difficulty of firing an incompetent teacher, and the seemingly endless bureaucracy that impedes educational innovation. The documentary’s strength is that it juxtaposes the flat-lining of student academic achievement in traditional public schools with what education innovators, like Canada, have been able to accomplish.

After watching the movie, the panelists took questions from audience members. About halfway through, Chris Guinther, the president of the Missouri National Education Association (the state’s largest teacher union), stood up to rail against the movie. I could write a series of blog posts responding to the statements she made — but space is limited, and you, reader, can only take so much.

I was most disturbed by Guinther’s objection to Canada’s success, because he had, according to her, made money by running the school. Now, after some brief research, I can’t find any indication that Canada has made outsized profits from HCZ, especially because the organization is a nonprofit. However, for the sake of argument, I’ll grant Guinther’s claim that the man who turned around student achievement in one of the most dangerous places in Harlem made a lot of money doing so.

I would be ecstatic if Canada were one of the most wealthy people in the United States. He has unarguably helped some of this country’s neediest children — in an area with extremely high foster care rates — gain an appreciation and mastery of education. I am more excited about Canada potentially reaping financial rewards for his risk taking and success than I am for almost anyone else. Why would money invalidate the success of the HCZ program? If the only criticism of Canada and his work encouraging low-performing Harlem children to succeed academically is that he might be making more than the average teacher, then that’s really no criticism at all.

In fact, I wish there were more potential for great rewards for people who work hard and take risks to vastly improve K–12 education. That might encourage more people to work to solve some of the shortcomings we are seeing in U.S. schools.

The real scandal is that, although educational innovators can make great strides and perhaps be begrudged for their relative financial success, teachers who fail their students can be nearly impossible to fire. For example, New York City’s school system has managed to fire only three teachers during the past two years. Or, as Waiting for “Superman” director David Guggenheim illustrated, in Illinois, only one in every 2,500 teachers lose their credentials, while the disbarment rate for Illinois lawyers is roughly one out of 100. Florida has difficulties firing bad teachers, too. Missouri, at least, appears to have a slightly higher rate — about 2 percent.

Shortage? Yes. Government Solution Required? No.

Today’s St. Joseph News-Press has an editorial about a recent Missouri Dept. of Agriculture program to encourage veterinarians to focus their practice on farm animals and not just lovable puppies and kittens in the suburbs. The basis of the editorial is interesting. I did not know about the shortage of vets in farming areas and the obvious problems that this can cause. Just the other day, my three-year old said he wanted to be a veterinarian when he grows up, so perhaps this will be an issue in my family one day. (I think pretty much every child says that at some point, though.)

To help combat this problem/issue, the editorial suggests, we (of course) need a government solution. This is where I start to disagree:

Recognizing the value of animal health professionals, USDA Rural Development has contributed $500,000 to a partnership with the Missouri Department of Agriculture to create a business plan and pilot program for an educational institution to train veterinarians. The program will focus on skills specific to treating food animals.

Like many things, this problem does not need a government solution. In fact, strict licensing of veterinarians may be one of the reasons we have a shortage in the first place. Furthermore, the veterinarians (via their licensing board) are actively involved in maintaining that general supply shortgage, as evidenced by the ongoing lawsuits against horse-teeth floaters in Missouri. As Dave Roland wrote:

Missouri’s Veterinary Medical Board has sued to prevent horse owners from hiring anyone but licensed veterinarians from working on their animals’ teeth. Equine dentistry is a centuries-old profession that veterinarians traditionally avoided, and equine dentists have their own educational programs that offer far more training and experience with horses’ teeth than is offered in veterinary schools. Nevertheless, the law states that equine dentists must be punished with a $1,000 fine and a year in prison for every horse they treat.

Basic economics tells us that the solution to a shortage is: 1) higher prices or salaries; and, 2) reduced barriers to entry. If we make it easier to be a veterinarian (or vet tech, or horse teeth floater) and allow for the market demand to increase prices or salaries for vets who work on farm animals, this shortage will solve itself.

(Note: Don’t take this as a call to completely eliminate all licensing for veterinarians. There are many worse examples of unnecessarily licensed professions than vets. But there are changes that can be made — expanding the role of vet techs, for example — that would reduce the role of government and allow the market to solve this problem.)

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