It Doesn’t Get Much Worse Than This

Posted on by David Stokes

Enjoy this op-ed in the St. Louis Beacon about ways to “help,” for lack of a better word, small businesses in the United States. You won’t really be able to enjoy it, though, unless you, too, believe that a centrally planned economy is what is best for our country. I have to keep this post brief. If I don’t keep it very succinct, it will turn into a word-by-word rebuttal of (almost) everything the author says, and I just don’t have the time to do that right now.

If you think I’m exaggerating about the call in this piece for pure economic central planning, enjoy these snippets (emphasis added):

Imagine if incentives were given to entrepreneurs in Missouri to renew an industry that previously was key to our state: manufacturing shoes. These new companies would provide jobs, ones that are conveniently commensurate with the skill levels of many workers. These companies would also re-establish the proper balance between the manufacturing and service sectors of our economy. It is true that stimulating manufacturing in our country will mean higher prices, but given a choice between a full-employment economy or Wal-Mart prices for everyone, I suggest that we put people to work.

Or how about:

Ultimately the government will have to be the “employer of last resort” in finding jobs for the 14.5 million Americans out of work. However, whenever possible, we should allocate new job opportunities to start-up businesses. Government contracts are key to helping small businesses create jobs.

Fortunately, there was a book written about 70 years ago that demolishes all this bunk beautifully. I am willing to bet the author of the op-ed has never read it. Although some have been criticized for citing The Road to Serfdom by economist F.A. Hayek too broadly, there is no doubt it applies perfectly here. We can have an economy determined by markets or arranged by planners. It is amazing to me that there are serious people out there who still pine for the planners.

P.S. — The comments in the Beacon article are just as bad as the op-ed.

P.P.S. — The guy I linked to who criticized Tea Partiers, Glenn Beck, etc., for referencing the book without understanding it does not really understand it himself.

(Mostly) Private Mass Transit

Posted on by John Payne

A trolley line serving the Kansas City Strip recently opened and is slowly building a clientele in the area by providing easy transportation to bar patrons on weekend nights. The Kansas City Star reports:

While ridership has fluctuated wildly depending on the weather, it has ticked up most weekends since June (except for the slow July 4 weekend), reaching more than 800 people on July 30 and 31.

That’s not yet close to the system’s capacity of 1,200 per night.

“You don’t change people’s patterns immediately,” [chief executive of the Kansas City Transportation Group Bill] George said. “Let’s face it, this is not a mass transit town.”

But he said ridership is where he hoped it would be at this point.

Most remarkable of all is that this trolley line receives very little government funding:

KC Strip received $100,000 in tourism tax dollars through the Neighborhood Tourist Development Fund.

The City Council also approved $295,000 in convention/tourism taxes. Of that, $95,000 was a grant and the rest a secured loan, to be paid back over four years.

These are tiny subsidies compared to the $25 million in federal funding that the Loop Trolley in Saint Louis is set to receive. The KC Strip trolley service should prove to be a fairly good market test for trolleys in Missouri’s cities. If it prospers, it will show that such mass transit options do not require lavish public subsidies to survive. However, if it fails to make money, it’s a good indication that people are not terribly interested in riding a trolley system, so we should save our public dollars for more pressing needs.

Legislators Should Listen to Economists, History

Posted on by Christine Harbin

“If all the economists in the world were laid end to end,” George Bernard Shaw famously wrote, “they wouldn’t reach any conclusion.” Although economists may disagree on many policy issues, they do agree on many others. The concept that free trade is beneficial is one of these areas of consensus. In fact, 90.1 percent of economists disagree that “the U.S. should restrict employers from outsourcing work to foreign countries.” Even Paul Krugman supports free trade.

If free trade is one area that this contentious group can agree, why do elected officials in Washington and in Jeff City continue to pass measures that impede, rather than proliferate, free trade?

As the latest example of impeding free trade, the U.S. Senate is targeting companies that outsource, particularly to India:

Democrat Senator of Missouri Claire McCaskill on Thursday said the proposal would increase fees for particular companies that exploit two categories of visas — H-1B and L.

Not only do legislators seem to ignore economists, they also seem to ignore history. The fact that protectionist policies do more harm than good has been repeatedly demonstrated in the past (e.g., the Smoot-Hawley Tariff Act in 1930, the steel import tariffs in 2002, and protectionism in the vehicle manufacturing industry).

When a country or a state protects certain industries, those companies do not have to innovate their product to compete in the marketplace. As additional negative consequences, such protectionism dampens downward pressure on consumer prices and reduces the variety of goods and services available to consumers in a region, who are more limited to that which they can produce themselves because goods from elsewhere are artificially priced out of market availability. If this proposal progresses, perhaps the same problems could plague the IT services industry.

Subsidizing favored companies and industries and simultaneously imposing restrictions on those that are not favored is an expensive and inefficient practice. In doing so, the government sends the fallacious message that it can pick winners and losers in the marketplace. Overall welfare would improve if the United States and Missouri both embraced the creative destruction of their respective economies, instead of cementing favored activities for reasons of nostalgia and/or xenophobia.

“The Forgotten Man” in Missouri

Posted on by David Stokes

Read this short article from the Springfield News-Leader offering an encouraging account of politicians avoiding partisan wrangling and getting along at a recent Springfield announcement. Then read the quote by William Graham Sumner from which the title of the The Forgotten Man by Amity Shlaes is taken (or re-read it, given that many of you have probably read Shlaes’ book):

As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X or, in the better case, what A, B and C shall do for X. As for A and B, who get a law to make themselves do for X what they are willing to do for him, we have nothing to say except that they might better have done it without any law, but what I want to do is to look up C. I want to show you what manner of man he is. I call him the Forgotten Man. Perhaps the appellation is not strictly correct. He is the man who never is thought of. […]

He works, he votes, generally he prays — but he always pays — yes, above all, he pays.

Don’t take this as a specific criticism of any of the officials discussed in the News-Leader article. Even more so, don’t take it as a criticism of the programs discussed in the story, especially the great people in the Missouri National Guard. The deal to lease part of the airport may well be a good deal for taxpayers.

However — and I want subtlety to be my friend here — is it really that amazing that politicians will get along at an event where they are all either spending or receiving other people’s money? State tax dollars are being used to lease local government property, and it is supposed to be noteworthy that all the politicians are happy? It does not matter that the expenditure in this example is an arguably fully legitimate use of public money. (I’ll leave aside for a moment that it could be even better if the Springfield airport were privatized, like its competitor to the south in Branson.)

Anyone who sees public officials getting along in an instance like this and thinks that it is a notable example that bears repetition lacks an understanding of public choice economics and interest group politics.

Thanks to johncombest.com and derrickjeter.com for the story links and quote.

Home Sweet Home?

Posted on by Christine Harbin

According to the St. Louis Post-Dispatch, home prices in the St. Louis region rose 20.4 percent in the last three months — much higher than the nationwide increase of 7.9 percent. From the article (link added):

The quick growth, according to real estate data firm Clear Capital, was driven largely by sales that involved the $8,000 tax credit for first-time homebuyers. Many of the places where sale prices grew most are less-expensive Midwestern markets where $8,000 has a bigger impact.

This stimulus is artificial, and it will end as soon as the state and federal governments stop propping up housing prices with programs like this one.

Owning a home is suitable for those who can afford the investment commitment and associated risks. Nudging people into homes that they can’t afford has overwhelmingly negative consequences and could prolong the housing crisis or provoke another one.

Because this tax credit keeps housing prices artificially high, it defeats its ostensible intended purpose of nudging people into owning homes. As I have discussed previously, the rate of homeownership tends to remain constant over time in Saint Louis and elsewhere, despite the government’s nudging. Although this tax credit gives an individual the ability to make a larger down payment on a house, he or she will incur tens of thousands of dollars in additional debt by purchasing a house that is overpriced.

Furthermore, this tax credit program largely shifts transactions from the future to the present, instead of inciting new transactions to occur. Many of these beneficiaries would have purchased a home independent of the tax credit. This program is similar to sales tax holidays and last year’s cash for clunkers program in this regard.

Given that encouraging homeownership is such bad policy, why does government extend and introduce new programs? In an article in The Atlantic, Megan McArdle provides an answer (link via Audrey Spalding):

[P]oliticians want to help poor people with capital formation, and homeownership is the way that the American middle class has traditionally gone about capital formation.

Too bad that real estate is not a good investment!

Education’s Race to the Top

Posted on by Joseph Steelman

As the president tries to ramp up education reform with the administration’s new Race to the Top funding structure, he is receiving blow-back from the NAACP and a number of other groups. Their major critique of this most recent outreach program is that a funding structure based on competitive incentives during a recession cannot help the massive education problems that exist in the nation’s low-income communities.

The statement that the civil rights and other activist groups produced at the end of July suggested as a solution more of the status quo — or, at least, more for the status quo. It seems that their position is to give current schools more money (with no qualifier) and trust them to fix the problems.

Unfortunately, the economic reality is that money doesn’t grow on trees. Whether or not this attempt at ensuring that the dollars devoted to education are spent effectively actually achieves all the program’s goals, competition for the grants will hopefully create change in a stagnant system.

One of the criteria in this system that the civil rights groups oppose is the use of charter schools. Today, an article in the Wall Street Journal pointed out that minority support for these institutions is on the rise, and the numbers suggest that nearly 50 percent of African Americans and Hispanics support the formation of charter schools, while only 14 percent of African Americans and 21 percent of Hispanics oppose them. It is time for these groups to stop playing politics in education. The current system doesn’t work.

The Show-Me Institute’s most recent policy study shows that superintendents in school districts across the state are receiving compensation based not on performance factors, but rather correlated with school district characteristics, such as population size.

The time to reform education is now; competition and a fundamental change in how schools are funded have a far better chance of helping the kids that need it most. Although Missouri is not on the short list to receive any of the grants, we should pay close attention to this new federal market-based funding structure and track its results.

Funny You Should Mention It …

Posted on by Dave Roland

On July 31, the Post-Dispatch ran the following letter I had written to the editor:

Society makes a promise to children that no matter their race, ethnicity, or socioeconomic status, every child should have the education necessary to realize his potential. For many children in Saint Louis, however, that promise has been broken.

Saint Louis Public Schools maintains a handful of excellent institutions, but for three years now, the state has deemed the district as a whole to be unworthy of accreditation. State law requires that if a school district fails to maintain accreditation, the students living in that district must be given the opportunity to escape their troubled schools and attend accredited public schools in nearby districts. Just as SLPS was about to lose accreditation in May 2007, however, the elected school board formally urged county school districts to deny admission to any students seeking transfer under this law — and the county districts complied. For three years, many students from Saint Louis have been denied the educational lifeline provided by state law, trapped in failing schools for years they won’t get back.

Thanks to the Missouri Supreme Court, that now seems likely to change. With a 4-3 decision in Turner v. School District of Clayton, the judges ruled that the school districts in Saint Louis County cannot turn away Saint Louis residents seeking admission to their schools.

It also ruled that SLPS must bear the expense of their students’ education and provide transportation.

The court said that when a Missouri school district has clearly failed its students, that district is required to provide access to alternatives.

Many in the county will worry about the potential challenges of integrating kids from Saint Louis into their classrooms. Elected leaders and school officials in the city will complain about the expense of sending students to other school districts. SLPS will argue that without the money those students represent, the district cannot be expected to make the changes necessary to regain accreditation, and that this decision represents the death of public education in Saint Louis.

These arguments overlook what the law and the Missouri Supreme Court did not: Public schools exist to serve the children, not the other way around. Children in Saint Louis have already had their educational progress delayed for too long. Access to better schools cannot wait until the adults straighten out the mess they created. The welcome impact of the Turner decision is that after years of hollow promises that someday all of the students in Saint Louis would enjoy access to high-quality educational opportunities, someday has finally arrived.

Today, another letter to the Post-Dispatch (predictably) responded that the real problem with SLPS is a lack of funding — which the writer attributes to Missouri school districts’ failed attempts to persuade the courts that taxpayers should be spending billions more in school funding. There are, of course, two massive failures of logic in this letter. The first is the notion that students’ academic performance is linked to the amount of money spent by their school district, a point debunked not only by the research of Dr. Michael Podgursky (who happens to be a Show-Me Institute board member), but also by the fact that SLPS maintains some of the very best schools in the state with the same per-student funding it provides to some of the very worst schools in the state.

The second failure is linked to the first. The letter complains about school funding at the state level, but the question at issue is the failing of Saint Louis city’s unaccredited school district. Last year, SLPS spent more than $15,600 per student — far, far above the state average, and on par with the best-performing districts in Saint Louis County. SLPS also maintains a student-to-classroom-teacher ratio of 18 to 1. This means that SLPS has roughly $281,000 to spend for every active classroom in the district. That’s $281,000 per classroom! Even if, say, 40 percent of that money (more than $110,000 per classroom) went to administrative costs, that would leave nearly $170,000 to pay a teacher’s salary (let’s say $60,000) and to properly equip and maintain just that one classroom.

SLPS suffers from a number of ills, but lack of funding is not one of them.

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