Debate Tonight!

Posted on by John Payne

The Show-Me Institute is sponsoring a debate between me, Research Assistant John Payne, and Policy Analyst David Stokes on the subject “Are Conservatives and Libertarians Natural Allies?” The debate will be held at 6:00 p.m. today at Dressel’s, located at 419 N. Euclid in Saint Louis’ Central West End.

Since the end of World War II, libertarians have typically been considered a part of the right, in a “fusionist” alliance with traditional conservatives. However, a number of libertarians have questioned the usefulness of this longstanding relationship in light of the dramatic growth in the size of government and restrictive social policies instituted by self-described conservatives in government.

Both Stokes and I want to see dramatic reductions in the size of government and the roles it plays, but we disagree on the strategy for achieving those goals. Stokes will argue in the affirmative that libertarians’ best hope is to ally with conservatives — the only other group he sees as trying to limit the size of government. I will take the negative, contending that, despite their rhetoric, the conservative commitment to limited government is only skin-deep.

Outside of our employment at the Show-Me Institute, I serve as the Missouri state chair of Young Americans for Liberty, and Stokes is the Republican committeeman for Clayton Township in Saint Louis County.

Join us tonight (Thursday, Sept. 30) at Dressel’s in the Central West End for food, drinks, and discussion. (Cash dining and bar.)

Tax Credits: A Poor Strategy for Economic Development in Missouri

Posted on by Christine Harbin

Not surprisingly, every person who has testified before the Missouri Tax Credit Commission during its regional meetings has spoken in favor of tax credit programs — primarily because those people, who work in industries subsidized by state tax credits, directly benefit from the programs.

Tax credit programs defeat the purposes that supporters usually cite in their favor: encouraging employment and helping Missouri compete. In short, tax credits are a form of wealth redistribution — we all bear the cost, but only special interests and favored industries benefit.

Tax credit programs are not as effective as advertised. The state auditor recently found that fiscal notes underestimated the total cost of the programs by $1.1 billion over a five-year period. Tax credit programs have failed to deliver on their promises in other states, too. The Mackinac Center for Public Policy in Michigan released a study in which it compared job estimates made by Michigan’s economic development agency accompanying tax credit awards to the actual outcomes of those programs. Mackinac found that only 7.9 percent of projects were completed on time and produced the number of jobs promised. Missouri cannot afford this failure rate.

A particular program may provide some social benefits, but the state has to weigh this against its cost. Dollar signs are missing too frequently from these discussions. Whenever the state of Missouri awards a tax credit, that credit comes at the expense of other activities. A dollar spent on tax credits is a dollar that the state must cut from another program. The state should consider whether the social benefits of, say, increased wine production, film production, or vacant land assemblage are worth cutting the budget of another state program.

In addition, another recent audit by the state auditor found that the Department of Economic Development (DED) had a 43-percent error rate just when recording estimated jobs and investment figures from businesses receiving enterprise zone tax credits. In one instance, the DED inflated a business’ investment estimate by 333 percent.
Given this amount of misinformation, how can the state possibly have a chance at encouraging the right businesses and industries? The government has no special ability to predict which businesses and industries will succeed, yet tax credits are an attempt to identify and subsidize future successes.

Tax credits often don’t create economic activity, but instead merely shift it to another location. When states compete over companies by offering increasingly generous incentive packages, taxpayers lose because they have to foot the bill. As a recent example, while Ford lobbied for $150 million in tax incentives from Missouri, Ford also courted Kentucky, Michigan, Ohio, and Illinois for financial assistance, communicating the message that it would locate within the borders of the highest bidder. This is a very expensive game, and taxpayers everywhere would be better off if their state governments stopped playing.

Even if other nations, states, or localities offer tax incentives to lure businesses, Missouri would be better off if we don’t do the same — because we benefit from the lower prices that those subsidies create, without it costing Missouri’s taxpayers a dime. It would be better for everyone if all states stopped providing these subsidies, but Missouri will still experience better economic growth if it unilaterally removes itself from the tax incentive bidding wars.

Missourians would benefit if the state government took a hands-off approach to economic development instead of providing subsidies to private companies. Missouri’s tax credit programs have not fulfilled their stated purposes, and spending more on them will not likely result in better outcomes. Missouri’s tax dollars would be much better spent in the hands of individual Missourians than on enticements for companies like IBM and Ford.

If Missouri’s state government officials are serious about promoting economic development, they will stop attempting to pick and choose the economic activities that occur within its borders. Centrally planned economies have never worked, and that strategy won’t work for Missouri, either.

Christine Harbin is a research analyst for the Show-Me Institute, a Missouri-based think tank.

 

Billy Goats Not So Gruff

Posted on by John Payne

KSDK is running a nice little story about the entrepreneurial success of the Billy Goat Chip Company in Saint Louis:

It all started in 2002 as a side item at their restaurant, but it didn’t take long to realize it was a stand-out item rather than a side. So they closed their restaurant and decided to focus on chips.

“What we’re trying to do is bring out the potato,” Lyons says.

Of course each chip is sprinkled with a magical dust, then bagged, boxed and hand delivered to more than 150 places […]

It’s not as if these guys hope to one day dethrone Lays.

“Our focus is to be Saint Louis’ potato chip. We want to stay hand made, handcrafted, the local guy,” Lyons added.

I recently purchased my first bag of Billy Goat Chips. Although they cost more than most chips, I have to say that it was worth every penny and more. The company is a good example of how smaller companies can survive and even thrive while competing against corporate giants if they offer a superior product. Lays and Ruffles may be cheaper, but their industrial style of production prevents them from offering the best product possible.

The beauty of the free market is that it allows for both options to exist. People who want or need to conserve money can opt for cheaper, mass-produced chips, while others concerned more with quality than price can purchase craft chips like Billy Goat, and people are always free to make a different choice the next time they visit the supermarket. Contrast this with the government, where, at best, a majority imposes its will on the whole population, and those choices are extremely difficult to undo. It is easy to understand why government controls should be limited to only those areas where they are absolutely necessary.

Payday Loans vs. Loan Sharks

Posted on by Abhi Sivasailam

This old article from the Sacramento News & Review contains some interesting sentences about sub-prime credit:

While the Chicago Outfit may have been a bit heavy-handed in its debt-collection practices, the interest rate the crew charged for a loan was a bargain. A bargain, that is, compared to the fees charged by the numerous payday loan outfits in Sacramento and throughout the state.

Carlisi and company extended short-term credit, or “juice loans,” for fees that pencil out to an annual interest rate of 260 percent. The Outfit may be disappointed to learn that they were working for chump change. Had they waited a few years, and then come out West, they could have become payday lenders and made some real money.

Although the gratification of physically collecting a loan isn’t allowed, in California it’s perfectly legal for a state licensed payday lender to charge up to 5,474 percent annual interest in this rapidly expanding niche lending business.

I’ve been meaning to comment on this for a while, because this is really fascinating data. Readers who peruse the article from which this excerpt is lifted will note that the author uses this statistic to argue that payday rates are excessive and exploitative. Well, perhaps, but this data doesn’t render that claim obvious. The fact that payday loan rates are higher than loan shark rates could simply suggest either that payday lenders face higher costs of enforcement, higher default rates, higher transaction costs, lower-quality information, or some combination of these factors.

It’s easy to see how a legitimate, white-market business would have higher overhead costs than a black market loan scheme, if for no other reason than that a white-market business must handle contractual disputes with tools furnished by the legal environment. No such encumbrances burden black market creditors. As former Show-Me Institute Policy Analyst Justin Hauke put it in an op-ed: “At least with a payday lender, default is settled in court. In the black market, it usually involves a crowbar.” In this sense, the higher prices of payday loans likely reflect the premium that consumers are willing to pay for safety.

“Speaking Words of Wisdom, [Gary Becker Says] Let It Be”

Posted on by Christine Harbin

Today in the Wall Street Journal, economist Gary Becker writes about what would make China’s economy grow at an even faster rate. From the editorial (emphasis mine):

No country in the modern world has managed persistent economic growth without considerable reliance on private enterprise and decentralized private markets. All centrally planned economies failed to achieve sustained development, including the Soviet Union before its collapse, China before market reforms began in the late 1970s, and Cuba since Castro’s revolution in the late 1950s.

This is advice that the state government in Missouri should take to heart. Through the use of programs like targeted tax credits, TIF, and the LRA’s land holding policy, the government in Missouri attempts to plan the economy and consequently stunts its growth.

Missourians and the Chinese alike would experience more economic growth if the government allowed private enterprise and the decentralized market to function.

Awarding Funding for Low Performance Encourages Failure

Posted on by Mary Chism

According to this Post-Dispatch article, only the worst-performing schools were eligible for recent School Improvement Grants awarded by the U.S. Department of Education. With grants ranging from $50,000 to $1.7 million per school, these funds are intended to help schools whose students’ proficiency in reading and math falls within the lowest 5 percent in the nation.

In Saint Louis, 21 schools will receive funds, with the requirement that they undergo drastic changes of administration, such as replacing half of the teaching staff. These funds, not to mention the thoughtful revamping of educational systems that are clearly not working, represent the possibility for positive change in the worst schools — but is it really likely to improve education? From the article:

But state education officials in Illinois warned districts that the more academically troubled schools would have a better shot at getting the grants. They plan to help schools work on reform plans to prepare for the 2012 grant competition.

That’s right, there will be ongoing competition to prove which school is the least competent, and hence the most deserving of improvement grants. It doesn’t take a high-quality education to see that this will provide an incentive for low-quality schools to encourage their students to languish until their test scores approach the fifth percentile.

This reminds me of a one of Lawrence Reed’s Seven Principles of Sound Public Policy: If you encourage something, you get more of it; if you discourage something, you get less of it. (Here’s a video of Reed delivering this as a speech at a Show-Me Institute event in 2006.)

“I Want to Ride My Bicycle / I Want to Ride My Bike / I Want to Ride My Bicycle / I Want to Ride It Where I Like”

Posted on by Christine Harbin

Trusty Rusty
Riding My Bicycle, “Trusty Rusty.”
Photo Credit: Nicole Harbin

I wasn’t aware that Saint Charles was considering banning bicycles, but, thankfully, the measure didn’t pass.

Individuals may move freely in Saint Charles on a bike for the time being, but this may unfortunately change in the future. According to a KMOX article, the committee will consider two alternatives:

One would require permits for large cycling events, another would color-code certain roads to let cyclists know how dangerous they are.

Every action involves risks. It’s not the job of government to protect individuals from behavior that has internalized risks. If a person happens to view biking as very dangerous, then he or she can choose not to do do it. I bike in Saint Louis frequently, and I accept the associated risk as a free adult. I also drive my car, which also has risks — it’s possible that I could crash into a telephone pole, or another car.

Does it follow, then, that local governments should ban biking in urban areas because it is dangerous? No. To the contrary, government and urban planners often encourage biking over driving in urban areas. Biking in Saint Louis city is pretty dangerous, but the city encourages me to do it. Biking in downtown Minneapolis is similarly risky, but the local government sponsors a public bike sharing program, as I observed during my last visit.

If a local government were serious about saving its residents from physical harm, it would ban cars in addition to bikes, and it would also ban planes from flying in the airspace because one could potentially fall out of the sky and land on somebody.

Furthermore, banning bicycles would likely have the unintended consequence of making biking more dangerous. In today’s status quo, drivers look out for bicyclists because hitting one with their car will lead to severe consequences, such as getting sent to jail or paying a steep fine. If bikes were banned, drivers would be less likely to keep an eye out for those bikers who decide to brave the roads anyway.

Interesting Article About the Head of the Kansas City Fed

Posted on by David Stokes

I recommend this article about the president of the Federal Reserve Bank of Kansas City. If you are the type of person who visits Show-Me Daily regularly, then you are the type of person who will enjoy this article in Bloomberg Businessweek.

By “enjoy,” I don’t necessarily mean “agree with everything in it,” but the piece raises a number of interesting points and provides a great bio of a very powerful Missouri economist. Thanks to the Kansas City Star for the link.

Regulation to Go

Posted on by John Payne

The Sunday edition of the Post-Dispatch ran an interesting story about the proliferation of food trucks in Saint Louis and other cities across the country. Not surprisingly, the mobile restaurants have come into conflict with their more traditional competitors:

For restaurateurs or aspiring chefs, the food truck can pave an easy route into the business. The capital and overhead costs are lower, and the mobility is an advantage: They can meet their customer base where they live and work.

But many “fixed” restaurants say this gives food trucks an unfair edge, siphons away business and can ultimately depress rents and erode tax bases. Some see food trucks as vultures, swooping in and stealing customers.

In New York City, a merchants association complained to a city official, who earlier this year introduced a bill that would revoke a food truck’s license if it gets three parking tickets within a year. In Los Angeles, officials are looking at limiting food trucks to certain prescribed zones or charging a kind of rental fee, in addition to vending permit fees. In Washington, lawmakers are considering a proposal that would prohibit food trucks from parking within 60 feet of a competitor.
[…]
Food truck vendors, meanwhile, say these measures would unfairly limit business.

“The issue is: Are we a capitalist society and do we believe in competition?” said Kristi Cunningham, who sells more than 1,000 cupcakes a day from her van in Washington. “… We pay sales tax, we pay a fee to be a street vendor and we pay all the other fees associated with running a business.”

Earlier in the article, Todd Waelterman, director of Saint Louis’ street department, claims that “[t]he vendors make the neighborhoods come alive. We want that kind of activity,” but “[w]e don’t want an ice cream truck in front of a Baskin-Robbins. Those bricks-and-mortar people pay taxes.” This is the wrong attitude to have about new forms of economic activity. Although brick-and-mortar restaurants pay more in property taxes than the food trucks, they both pay sales tax. Regardless, the government’s mission should not be to simply maximize its own revenues. Furthermore, there’s no reason why an ice cream truck shouldn’t be competing against Baskin-Robbins. If the truck is able to offer consumers lower prices, higher-quality ice cream, better service, or some combination of the three, it’s better for people to have the option of buying from them. Even if the ice cream truck ultimately puts Baskin-Robbins out of business, that just means that consumers no longer value Baskin-Robbins highly enough to justify its existence, and the building, capital, and labor it used should be redirected to making goods and services consumers want more.

Unfortunately, it appears that the city will attempt to “balance” the interests of the food trucks and restaurants with some new regulations on vendors:

The city of St. Louis, for years, has issued 10 vendor permits, most of them to food carts of the kind seen around Busch Stadium. Most of the permits were $25 and allowed vendors to roam in any of the city’s seven vending zones.

But earlier this year, the city instituted a new policy that will require vendors to bid on particular spots. The change caused an uproar among city vendors who had long assumed they were grandfathered in and could wander around as they wanted, Waelterman said.

On Oct. 15, the bidding will begin. Waelterman explained that his department would take bids on as many as 12 locations. But for mobile vendors, the city isn’t putting a limit yet and will assess each bid on a case-by-case basis.

“It’s not a pure high-bid deal,” he said. “It’s what you can do for the city. It’s what we’re lacking. What your truck looks like.”

In other words, politicians and bureaucrats will be directing business activity, not entrepreneurs and consumers.

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