No One Wants to Poison Their Customers

Posted on by Mary Chism

In August, consumers across America were frightened by news of a salmonella outbreak traced to several farms in Iowa. The brands that distribute eggs from the area recalled half a billion eggs, prompting some citizens to call for increased FDA intervention. In a letter to the editor of the St. Louis Post-Dispatch, Matt Erickson, an associate of Missouri Public Interest Research Group (MoPIRG), encouraged voters to “support quick passage of the FDA Food Safety Modernization Act to increase the frequency of inspections at food factories and give FDA the authority to issue mandatory recalls so that we can keep unsafe food off grocery shelves and off our dinner tables.”

What many people do not realize is that every time a food recall is issued, it is done voluntarily by the food manufacturer. This makes sense, because a food brand or restaurant that gives food poisoning to its customers will face legal and financial consequences, not to mention gaining a nasty reputation. How many people still carry negative brand associations from the E. coli outbreaks of 1993? If a food manufacturer has reason to suspect that a shipment of food may be contaminated, it is very much in their best interests to make sure that not one bite of that food is ever eaten.

Food companies sometimes even pay organizations such as Rapid Recall Exchange to give them advance warning of any possible need for a recall. Restaurants and grocery stores don’t want to get sued for making a customer ill, but, more importantly, they do not want to become famous as the business that sells contaminated food.

It is terrible and frightening that Americans were exposed to salmonella poisoning, but this means that egg producers are being subjected to increased scrutiny from all around, so that this is unlikely to happen again soon. Increased FDA oversight would make it harder for food producers to get food to the consumers, which would raise the cost of food, not to mention requiring more tax dollars to run the investigations.

Charlie Arnot, CEO of the Center for Food Integrity, points out in his letter to the editor of the Kansas City Star that:

Americans have the right to expect farmers, food processors, restaurants and grocery stores to act responsibly. But placing restrictions on the food system and limiting the nation’s ability to produce food will decrease the availability of food choices for all of us […]

The proposed Food Safety Modernization Act raises another question: how often would the government officials have to check the food to be effective? Every day? At every source? Food contamination can also come from fast food workers, waiters, flies in the kitchen, or even a family member cooking for you — not just from the farm or factory. There is no possible way to ensure completely that food is safe to eat and not poisoned, no matter what level of regulation the government enacts. Fortunately, the manufacturers of food want to keep us healthy enough to keep buying their products.

Multiple Choice: You Will Be Graded on This

Posted on by Mary Chism

Q: Four drivers are traveling down Highway 70, going approximately 55 mph. Allen is drunk; Betty is 85 years old and has trouble seeing clearly and reacting quickly; Clarence is coming off of a 27-hour shift at work; and Deandra is happily texting while listening to ABBA on an oldies station. Which of these drivers is the most dangerous, and who most deserves a ticket?

A: Whoever causes an accident.

This is a trick question, designed to make you think about which driving distractions are actually dangerous. Some people get in collisions when there is no identifiable distraction, but the list of possible distractions is endless, including a blinding glare from the sun, kids in the back seat, and hilarious bumper stickers on other cars. One important aspect of driving, or just being on the road, is safely negotiating the hazards that come one’s way.

In the Springfield News-Leader, Timothy Cloninger postulates that texting is no more dangerous than other driving distractions, and requests that both drivers and lawmakers exercise common sense in assessing the danger (emphasis mine):

Distracted driving is the problem, not texting. Existing laws already cover this, including careless driving, driving without due care and attention and reckless driving.

Cloninger also points out that legislation against texting while driving could simply encourage violators to pay more attention to hiding their behavior:

Even if you believe it should be illegal, a law that specifically calls out texting is impossible for police to proactively enforce: One, it’s too easy to avoid detection: simply hold your phone in a lower, more dangerous position.

Show-Me Institute research assistant John Payne stated on this blog that “a newly released study by the auto insurance industry found no decrease in auto crashes in states that enacted laws banning texting or talking on a hand-held cellphone while driving.”

While creating more legislation may seem like a proactive way to protect us from one another, this is not necessary if there are already laws that prohibit dangerous driving. Most people want to drive safely and will go to great lengths to avoid a collision. I personally wish that drivers would not text or play with Foursquare while operating a vehicle. Yet I respect their rights to make their own decisions, and I evaluate their driving safety based on how many accidents they are involved in, rather than on what they were doing at the time.

Progress on Red-Light Cameras

Posted on by David Stokes

There’s some good news on this front: The Missouri Department of Transportation (MoDOT) has halted allowing any further red light cameras on state roads while it studies the issue. My opinion is this is a very difficult issue to study, so I think a proper study should take at least 20 years to perform. By that point, we will all probably have permanent government microchips implanted in our permanently attached safety helmets, so red-light cameras will be totally moot.

MoDOT’s current director cuts through the canard that cities advance suggesting the cameras are there for safety purposes (parentheses in the original):

“Whether speed or red-light running cameras, they are taking this and using it as a moneymaking, revenue-generating activity, and that’s not fair,” [interim state Transportation Director Kevin] Keith said. “I can’t say everyone is doing it. We have enough indications that there are (communities) doing that. It gives us pause.”

If anyone out there actually believes what the cities say about safety, I have a toll bridge over Lake of the Ozarks to sell you. It’s the only one in the state, so it’s pretty valuable.

There are benefits to having a large number of small governments in Missouri, and particularly in St. Louis County. There are also costs. The primary benefit is the difficulty of enacting comprehensive government planning in an area with so many separate governments. The two primary costs are the fiscal cost of redundant services and the consistent abuses of traffic regulations for revenue purposes by small cities. I commend MoDOT for attempting to halt some of those abuses.

Gaming Imitates Life

Posted on by John Payne

If you are close to my age — and something of a nerd — you probably played a lot of SimCity growing up. The game simulated running a city with the goal of maximizing its population, and it was fun up until you hit a population plateau — after which it became even more fun, because you could destroy the city that so frustrated your dreams with tornadoes, earthquakes, and Godzilla attacks. Well, a young gamer in the Philippines named Vincent Ocasla “beat” SimCity 3000 (i.e., no city design could ever reach a higher population) with a city he calls Magnasanti. For Ocasla, though, Magnasanti has implications far beyond the game:

I could probably have done something similar – depicting the awesome regimentation and brutality of our society – with a series of paintings on a canvas, or through hideous architectural models. But it wouldn’t be the same as doing it in the game, for the reason that I wanted to magnify the unbelievably sick ambitions of egotistical political dictators, ruling elites and downright insane architects, urban planners and social engineers.
[…]
Technically, no one is leaving or coming into the city. Population growth is stagnant. Sims don’t need to travel long distances, because their workplace is just within walking distance. In fact they do not even need to leave their own block. Wherever they go it’s like going to the same place.

The game, of course, is not exactly like real life. Even if we turned over our lives completely to some all-powerful — even benevolent — central planner, he would have insufficient information to properly run a city. The Sims are pure algorithms that operate by observable, static rules, but actual people’s preferences are constantly in flux and often ineffable until the actual moment of choice.

Nevertheless, it’s a stark reminder that city planners often forget that cities do not have overarching goals like maximizing population or density. The goals of a city are as diverse as the individuals that people it, and to the extent that city planning is necessary, it should facilitate people’s individual goals, not impose a preconceived notion of how urban life should be structured.

If you are interested to see the inner workings of Magnasanti, see the video here.

Creativity: Not Just for Artists

Posted on by Mary Chism

Most people think of creativity as a quality associated with art, allowing certain talented individuals to make beautiful things, unfettered by competitiveness or a need for efficiency. In his recent Show-Me Daily post, David Stokes points out that allowing private utility companies to make bids for the opportunity to serve an area tends to save the community money, as well as spurring new, less expensive, and more original methods for delivering services.

Stokes links to several insightful articles demonstrating that “the way it has always been done” is not always the best way. Not only does competition among companies help develop less expensive technology and more efficient methods, but it also allows for creating different solutions to serve different people’s diverse needs. In this Reason Foundation article (which was linked by Stokes), Geoffrey Segal discusses some of the benefits and goals of using competition to encourage creative solutions:

But cost savings aren’t the only benefit. A review of state practices around the country found that a need for greater flexibility, access to skills not available in-house, and private sector innovation are all important factors in a state government’s decision to outsource or institute competitive sourcing of services. […]

Regardless, competition is about finding new ways of doing business and buying something different from what you already have.

When a number of parties compete for people’s business, a variety of services become available, better satisfying the many different consumers who are looking for different products. A competitive market allows smaller companies to cater to the specific preferences of consumers who are in the minority, without forcing these less-popular solutions on the majority.

Not only that, but when one company does invent a new product, other companies compete by imitating the new product, creating less-expensive knockoffs and making products more affordable. In his 1991 article “Innovation, Imitation, and Economic Growth,” published in the Journal of Political Economy, economist Paul S. Segerstrom pointed out that “the benefits to society from an innovation last forever,” while the benefit to the developer of the new product only lasts until a competitor can produce a cheaper imitation. In order for producers to keep making money in a competitive atmosphere, they must constantly develop newer and better products, or else make someone else’s ideas more affordable. Either way, the general public benefits from better, less expensive products.

Film Tax Credit Programs Should Remain Capped (If Not Eliminated Entirely!)

Posted on by Christine Harbin

According to the Business Journal of Milwaukee, the state government in Wisconsin spent $40,000 to attract a film project that features the actor who played the cab driver from Wings, and now he is lobbying for the state to spend more.

It’s notable that this $40,000 figure is much lower than the cap on film tax credits in Wisconsin, my home state, which is currently $500,000 a year. That’s only 8 percent of the maximum allowed! Furthermore, the existence of the cap obviously didn’t prevent the project from being made — since it was made.

Wisconsin has had difficulty with its film tax credit program in the recent past, and that’s why the state scaled back its program. From an earlier article on the subject that appeared in the Business Journal of Milwaukee (emphasis mine):

Producers [of the film Public Enemies] spent more than $18 million, but the [D]epartment [of Commerce] said most of that money went to out-of-state workers and for out-of-state services. Wisconsin’s real economic impact — money spent here, wages to Wisconsin employees and tax revenue from those wages — equated to $5 million. At that level of spending, the $4.6 million in tax credits nearly wipe out the fiscal benefits of the tax incentives program.

Similar to Wisconsin, the state government in Missouri should consider instituting limits and sunset clauses to control the cost of tax credit programs, given that the fiscal notes have had poor predictive power. This was proposed in the April 2010 report from the state auditor’s office, which pointed out that, of the 53 programs redeemed in 2009, 23 did not have annual or cumulative limits. The report also observed that it is difficult to predict the long-term effects of specific tax credits; with a sunset provision, the effects are reviewed and evaluated before a program is continued. Annual and cumulative limits would hold tax credits to the amount specified by the bill, which would discourage underestimates as well as control tax credit expenditures.

Furthermore, cutting the film incentive program in Wisconsin doesn’t not mean that major motion pictures will not be filmed in the state. On the contrary, the film industry is thriving in Wisconsin without it. Parts of Transformers 3 were filmed in Milwaukee this past summer, and the project didn’t receive a cent of subsidy from the state government. Transformers 3 is a blockbuster movie — much larger than the PSA project described in the article — and its producers decided to film in Wisconsin based on the merits of the region.

Missourians and Wisconsonites would both be better off if they attracted companies that were profitable because they engaged in activities in the unrestricted market — not those that are profitable because they exploited the political and economic environment through programs like targeted tax credits.

New White Paper: The Negative Effects of Targeted Development Tax Credits in Missouri

Posted on by Christine Harbin

I realize that I may sound like a broken record on the subject, but I’d like to alert our readers that the white paper that I recently submitted to the 2010 Missouri Strategic Initiative for Economic Growth about the negative effects of tax credit programs in Missouri is now available online.

Paging David Ricardo

Posted on by Abhi Sivasailam

A few weeks ago, I testified at the Missouri Tax Credit Review Commission’s meeting in Columbia. I’d like to highlight one specific point from this speech.

One particular member of the commission (I do not remember which one) attacked a previous speaker who had recommended that all tax credits be abolished. The commission member suggested that since every other state uses tax credits, Missouri’s exit from the business of providing tax credits would put us at such a disadvantage that could result in Missouri no longer producing anything. There are many possible responses to this complaint that tax credit opponents can employ; for brevity, I will note just one.

Comparative Advantage:

Consider two states: Missouri and California. Suppose that these two states have firms that can produce two goods: wine and computers. Now, suppose that firms in Missouri can produce six bottles of wine or three computers per hour, whereas firms in California can produce 12 bottles of wine and four computers per hour. In this case, California firms have a higher productivity and we would say that California has an absolute advantage in the production of both wine and computers. This does not, however, imply that California will, or should, produce both goods.

One of the key insights from introductory economics courses is that comparative advantage matters. Instead of evaluating productivity in terms of outputs, we can evaluate productivity in terms of opportunity cost. Note that, in this example, when a Missouri firm produces one bottle of wine, it misses an opportunity to produce half of a computer. Similarly, when a Missouri firm produces one computer, it misses an opportunity to produce two bottles of wine. We can think of these missed opportunities as costs. For California firms, the cost of producing one bottle of wine is a third of a computer, and the cost of producing one computer is three bottles of wine. So, our example shows that even when California has an absolute advantage in the production of both goods, Missouri still retains a comparative advantage in the production of computers because its opportunity cost (two bottles of wine) is lower than the opportunity cost for California firms (three bottles of wine). Thus, in this limited illustration, it would be more efficient for Missouri to produce computers and trade with California for wine.

We can apply this insight to tax credits. Suppose that California aggressively courts winemakers and computer manufacturers with tax incentives and Missouri does not. One way to think about these incentives is that they work to lower the marginal costs that firms face, which allows a firm to produce more. This makes it appear as though California firms are more productive in translating inputs (in dollars) into outputs (in product volume). As our example illustrates, even if these apparent increases in productivity give Californian firms an absolute advantage in the production of certain goods, it is likely that Missouri will still retain comparative advantage and will continue to produce many of the goods that California chooses to subsidize.

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