“If You Can’t Be a Good Example, Then You’ll Just Have to Serve as a Horrible Warning”

Posted on by Christine Harbin

The Post-Dispatch recently published a letter to the editor that applauded the passage of the $150 million Ford Claycomo tax incentive package (link via John Combest):

The GOP should take positive action to keep jobs in Missouri. Look at Michigan. It offers numerous incentives to corporations to move to Michigan. And it works.

[…] With unemployment in Missouri at more than 9 percent, what exactly does the GOP have to offer?

From this letter, it is apparent that the writer measures success in terms of job growth. However, the writer ignores the fact that Michigan boasts the second-highest unemployment rate in the union — certainly higher than the rate in Missouri. According to the Local Area Unemployment Statistics (LAUS) from the Bureau of Labor Statistics, the unemployment rate in May 2010 is 13.6 percent in Michigan and 9.3 percent in Missouri.

Moreover, the unemployment rate in Missouri is historically much lower than Michigan’s. Using the Show-Me Institute’s IDEAS application, I produced the following graph:

Trend of Unemployment Rate In Michigan and Missouri

Unemployment Rate MI MO

Why are there calls to emulate the public policies in Michigan? Its economy is in terrible shape! To paraphrase Catherine Aird, Michigan would be better viewed as a horrible warning than as a good example.

Furthermore, targeted tax credit programs do not work in Michigan. The Mackinac Center for Public Policy in Michigan has produced many studies that demonstrate this. As Audrey Spalding recently wrote on this blog, tax credits fail to deliver on their promises — particularly in terms of job creation, and particularly in Michigan.

Will They Push George Brett Around in a Wheelchair?

Posted on by David Stokes

I sure hope not. For starters, I think he’s only 60 and in perfectly good health. But ever since the Red Sox did it with The Kid, and the Cards repeated it last year with The Man (although I don’t recall Stan Musial using a wheelchair last year, and, yes, I did attend), celebrating your city’s greatest baseball player is just what you do when you host the All-Star Game now.

I think it is terrific that Kansas City gets the All-Star Game in 2012. All sports fans know that baseball’s All-Star Game is the only one in which the players legitimately compete. (This is mainly because of the lower marginal risk for injury in baseball than in other sports.) But the Freakonomics blog has a post up today that could give Kansas City pause and Saint Louis some statistical revisions.

The post is about the economic impact of major sporting events. Needless to say, they generally don’t live up to the hype. From the entry:

The gist of it is that you can make an economic impact study say pretty much whatever you want, since it’s an exercise in speculation, and that the economists hired by bid committees make sure the numbers say yes.

The entry goes on to quote economist Dennis Coates:

Few analysts who aren’t in the employ of the event boosters have ever found such events to pay for themselves in a purely dollars and cents view.

A study on this issue published in the Southern Economic Journal reported :

In March 2005, Denver, Colorado, tourism officials predicted 100,000 visitors for the NBA All-Star Game. Considering that the Pepsi Center, the game’s venue, only holds 20,000 fans and taking into account that Denver has only about 6000 hotel rooms, it is not clear exactly how such an influx of basketball fans would be possible.

At the very least, we should question numbers thrown around without any supporting documentation, as in this article:

Major League Baseball estimated that last year’s All-Star Game in St. Louis had an economic benefit of $60 million on the city. The game a year earlier at Yankee Stadium had a positive fiscal impact of $148.4 million on New York — while San Francisco’s estimate in 2007 was $65 million.

I recognize that there is a big difference between hosting an event for which you have to build facilities, like the Olympics, and hosting an event for which you already have the requisite facilities for other purposes. The All-Star Game fits into this later category, which means it is far easier to make money — or, at least, limit any losses. I am sure that the 2012 All-Star Game will be great for Kansas City in many ways, but I hope people don’t believe the financial projections and hype without any evidence to back it up.

I have no idea whether the 2009 All-Star Game in St. Louis actually resulted in the $60 million impact that all of these articles cited. The consistency of the number does not make me more likely to believe it — rather, it tells me that someone came up with a preliminary estimate and everybody else likely repeated that number after Googling it.

Filmmaking in the Free Market: A Good Example

Posted on by Christine Harbin

The New York Times recently featured a micro-lending website, Kickstarter, that connects filmmakers to private individual donors. The initiative has been so successful, it is planning to host its first film festival.

From the article:

Kickstarter is a concept: a Web site that puts together creative types seeking money with backers willing to chip in micro- and macro-payments, a way to crowd-source the financing of ideas. Started last year, the company has become an unexpected influence on indie culture, a new model for a D.I.Y. generation.
[…]
Matthew Lessner, the director of “The Woods,” made his directorial debut with a viral video starring Michael Cera and has worked on videos for of-the-moment bands like Dirty Projectors and Fools Gold. He had already shot the film, his first feature, financing it on credit cards two years ago. But then the economy collapsed, and Mr. Lessner, 26, was left without money to finish it.

Enter Kickstarter, where Mr. Lessner was able to raise more than $11,000 from 95 backers to complete the film. “One of the things that’s most exciting about Kickstarter to me, it really provides an opportunity for films that otherwise would not have a chance,” Mr. Lessner said.

This demonstrates that a vibrant film community can emerge in the private sector, and that it doesn’t require financial assistance from the state government. I have argued, admittedly obsessively, against the use of film tax credits in Missouri on this blog.

Furthermore, this is evidence that in the unrestricted market, individuals that have a demand for film will voluntarily pay for it. In the status quo, state tax credits coerce individuals who do not possess a demand for film to pay for it through a marginally higher tax rate. This practice is particularly harmful to taxpayers, because they end up paying for something that they do not want. It is also harmful to businesses and individuals who operate outside of the film industry, because it forces them to compete at a competitive disadvantage.

Capital Before Credit

Posted on by Joseph Steelman

A recent article in the St. Louis Beacon posed a question to local economists that is being tossed around globally:

Given the current state of the economy and the deficit, is this the time to pull back on stimulus spending and pay more attention to the deficit, or should Washington worry more about the short term and let the long term take care of itself?

The Paul Krugman camp, consisting of those economists wanting to stimulate the
recovery through expansive government spending, are — like the spending they are advocating — lost in their own arguments.
In the article, Steve Fazzari, a professor of economics at Washington University in St. Louis, states, “One person’s spending is someone else’s income.” I absolutely agree. But then, in a quick turn of events, he goes on to say, “When the government cuts spending, it’s cutting income to someone.” This is also true, strictly speaking, but the implications of his first statement are more important.

I used to mow lawns, and if my employer had told me that he would give my payment to my brother after I finished my work so that my brother could do some weeding, I would have immediately walked away and taken my labor elsewhere.

If that same employer had given me $10 the week before I was supposed to mow the lawn, two things might have resulted: (1) With cash already in hand, my attention to detail would have suffered considerably; and, (2) I would not have been in any hurry to finish the job.

Historically speaking, capital evolved before credit, and for most of the real world, that is how personal finance is understood — you largely only spend what you have. The problem that got us into this recession was egregious spending beyond our means. If mortgage lenders hadn’t been so eager to hand out money — apart from the fact that home loans were implicitly backed by the federal government’s approval — this last recession most likely could have been avoided.

Without the possibility of high default rates at the micro level, the financial instruments that impregnated the system with risk may never have been implemented on such a large scale. Now, after the crisis, we see the world’s top economists trying to formulate a plan to fix the system. In practice so far, that has involved injecting liquidity into the economy through massive government spending. The Krugman camp claims this is more responsible than private investment, because the Fed can print more money to increase the flow of capital rather than bearing the risks of default. There’s no need to worry about the deficit now, they say; we can take care of that later.

Yet few are buying the empty promises of the government. And why should they? With an aging population and massive health care overhauls on the way, everyone can see that entitlement spending is about to skyrocket. Higher taxes are almost certain. Increasingly larger numbers of the American people are holding onto their money in an effort to maintain liquidity in anticipation of the expiring tax cuts at the end of the year. Stimulus money is falling into the same trap; it’s not multiplying the way Keynesians had hoped because investors are wary of the uncertain economic conditions that may be brought about by still more government spending and higher taxes.

We cannot extricate ourselves from the hole we are in until we stop digging. Americans need to see the sunlight before they are willing to buy an expensive ladder to climb out.

New Jersey Looks to Privatization as a Means to Trim Budget

Posted on by Vince Smith

New Jersey’s governor is pushing for the privatization of numerous public services as a means to trim the state’s budget. These services include car inspections, state parks, psychiatric hospitals, and turnpike toll booths. Furthermore, preschools would no longer be constructed on the public dime, public employees would be required to pay for their own parking, and the cafeteria, education, and health care programs in prisons would be handled by private vendors.

Some estimates project that the proposal will save New Jersey $210 million annually in taxpayer funds. From the article:

“The question has to be, ‘Why do you continue to operate in a manner that’s more costly and less effective?’ rather than, ‘Why change?’?” said Richard Zimmer, the former Republican congressman who chaired the task force.

By and large, privatization lowers costs and raises quality. Unlike the government, which can continually operate in the red, a private firm must turn a profit to stay in business, a fact that makes private service providers much more accountable to consumers. The unresponsiveness of public service providers is especially evident when spending hours in line at the DMV or post office. A private firm with a similar service record would either have to take steps to become profitable, by increasing service and lowering costs, or face going out of business.

Missourians would benefit if state officials followed New Jersey’s lead by finding ways to privatize services and save taxpayer money. The efficiency gains that privatization bring would provide a means to cut costs without cutting services. Missouri could do well for itself by entrusting responsible private businesses to help carry some of the state’s fiscal load.

High Heat and Low Taxes

Posted on by Joseph Steelman

LeBron James recently announced that he will be moving to Miami. This is great news for Miami, but terrible news for the rest of the cities courting him.

An economic impact study commissioned by the mayor of New York City concluded that the LeBron effect would likely inject $60 million per year into the local economy. Not surprising, given that ticket sales, advertising revenues, and team retail in Cleveland had increased dramatically since James’ rookie year.

Because of the way the free-agent landscape worked out, and overall team salary cap requirements, Miami was not able to offer James a competitive contract, while both New York and Cleveland were. But Miami did possess a wild card that the other suitors couldn’t match: tax-relief. No, not in the form of direct incentives, in the form of a healthier tax climate.

Interestingly, Florida does not impose a personal income tax, whereas both Ohio and New York levy personal income taxes of 6 percent and 12.6 percent, respectively, in their highest brackets. On a deal said to be worth around $100 million, that 12.6 percent tax on income wipes out the economic comparative advantage that New York may have had. However, the 6-percent income tax would level the playing field for Miami and Cleveland were it not for Cleveland’s pesky earnings tax. The 2 percent of James’ income that the city of Cleveland could claim was enough to give Miami the fiscal residual it needed to land its new money-making machine.

What can Missouri learn from all this?

Simply put, our current economic development plans may not be able to compete against states with lower taxes. New York may offer James lots of incentives to coax him to the state, but the simple ability to keep the money you’ve earned is a strong incentive in itself.

Snapshots Vs. Trends in School Testing

Posted on by Abhi Sivasailam

Saint Louis’s Paideia Academy, a charter school, is set to close its doors following a recent defeat in a court battle with Missouri’s Board of Education, which rejected the school’s charter application earlier this year. The Post-Dispatch reports that the Board of Education, in rejecting the application, and the Cole County Circuit Judge, in upholding its decision, cited poor management, the lack of a sponsor, and low test scores as reasons to revoke the charter. Although I am not in a position to speak about the quality of management, or about the lack of a sponsor (which certainly seems like a valid reason to revoke a charter), I do, however, object to the “low test score” argument on two grounds.

First, although it is true that Paideia’s test scores rank among the lowest in the state, absolute measures of test scores are not a very meaningful measure of school quality. The production of education is similar to the production of anything else in the economy: Poorer quality inputs, in the form of poorer students from historically disadvantaged ethnic backgrounds, translate to poorer quality outputs, in the form of test scores. It’s not only a mistake, then, to compare Paideia’s students to those of high-performing districts, but also to an arbitrary benchmark determined by the state. Taking a snapshot of test scores is not enough, because a reliance on mere glimpses into time discourages an understanding of the underlying trends at work. The more important measure is the longitudinal one: Are Paideia’s students learning more now than they were before the school existed? Perhaps the answer is no, but it doesn’t look like this question was considered by either the Board of Education or the Cole County Circuit Judge.

Second, I am willing to believe that we may overvalue test score measures of all kinds. One-size-fits-all models don’t work in schools, where abilities and interests vary greatly between student populations. Schools that produce less significant test score gains but more significant “creativity” gains may still be cultivating meaningful human capital.

Dave on Don Marsh This Morning

Posted on by Dave Roland

If you happen to be in the St. Louis area and near a radio (or at a computer pretty much anywhere) today around 11:00 a.m., please consider tuning in to KWMU 90.7 FM, where I’ll be a guest on Don Marsh’s Legal Roundtable. We’re planning to discuss a wide range of topics, including recent U.S. Supreme Court decisions, the ruling in the NorthSide redevelopment case here in St. Louis, and some other fascinating and timely legal issues.

Assessing Legal Prospects for Lawsuit Over Federal Health Care Reform

Posted on by Dave Roland

On July 7, Missouri’s lieutenant governor filed suit against the recently passed federal health care reform. It’s difficult to know exactly what to make of certain aspects of this lawsuit, because it assumes the manner in which the federal health care law will function — and it is not clear that the lawsuit’s assumptions are correct. Even if they are correct, however, there are a few issues that may prevent this lawsuit from proceeding.

The first is the question of standing. Before a court will consider and rule on a legal issue, plaintiffs must establish that there is a current case or controversy between themselves and any defendants. Where the government is the defendant, this usually means that the government must have taken some act that has caused a harm or detriment to the person filing the lawsuit. It is not usually sufficient simply for a law to be on the books; courts usually (although not always) require that there must have been some implementation of the law before they will address its validity. Also, it is important to remember that plaintiffs cannot generally bring claims on behalf of others.

This lawsuit has eight counts. Several of these assert rights properly belonging to the state of Missouri. The lieutenant governor suggests that because a state statute gives his office the responsibility to be an advocate for the state’s elderly citizens, he has authority to seek relief on behalf of the state government. Similarly, the lawsuit claims that the citizen plaintiffs, as taxpayers, have a right to raise these claims on behalf of the state government. It is possible that courts have previously found citizen taxpayers to have standing to sue on behalf of their state government, but I cannot think of any examples and I do think it unlikely. Thus, I don’t think a court is likely to agree to consider counts one, three, and four. And, even if the court did address them, I question the viability of several of the lawsuit’s assertions in these counts.

It may be correct that the federal government has no proper authority to require the state government to adopt certain programs (count one), no authority to compel the state government to make a payment to the federal Department of the Treasury (count three), and no authority to force the state government to increase state taxes in violation of the Missouri Constitution (count four) — but it is not particularly clear that the federal health care law would actually do any of these things. As I have pointed out, the lawsuit assumes that the law will be implemented in a particular way, but we cannot be sure that its assumptions are accurate. This has an enormous bearing on the validity of these claims.

Count two deals with the compensation provided to state officials, so it is at least arguable that the lieutenant governor could have standing to assert the claims of that count. The substance of the claim, however, is dubious. It seems highly unlikely that the federal government is not permitted to impose certain limitations on how the state of Missouri is permitted to compensate its employees. For example, would the state argue that it is not required to pay minimum wage or to comply with anti-discrimination laws? The principles of state sovereignty expressed in count two are, I believe, well made, but they do not necessarily demand a conclusion that the targeted provision of the federal health care law is unconstitutional.

Counts five and six address the individual insurance mandate, which does not even go into effect until 2014. I think the legal arguments in these counts are well-founded, but the claims are premature and will continue to be so until the mandate is actually implemented.

Count seven may actually have some legs. It addresses the provision of special treatment for citizens of certain states, which was incorporated into the health care law in order to secure the votes of certain congressional representatives. The count points out that these exemptions, or “grandfather” provisions, require that the law be applied differently to similarly situated citizens based on nothing other than their geography. That’s a powerful claim, assuming that the law will be implemented in the way that the lawsuit envisions. Those aspects of the statute go into force on Jan. 1, 2011, so it’s possible that the court will be willing to address them.

Count eight attacks the infamous “panels” that are expected to be established to evaluate the appropriate levels of treatment for various health care situations. The lawsuit assumes that these panels will have the power to forbid doctors to provide services to citizens willing to pay for them. If that assumption is correct, this count may have life — if and when the panels are ever constituted and actually issue the anticipated prohibitions. I do not, however, think that a court is likely to assess this claim until those things have taken place.

So, taken as a whole, I think it likely that the court will ultimately dismiss at least half of the claims raised in this lawsuit (and probably three quarters of them) as lacking either standing or ripeness. It is possible that the court will address the merits of counts two and seven. It is difficult to predict how the court will come out on count two, although I think it unlikely that the court will find a constitutional violation. If, however, the federal statute implements the provision targeted by count seven in the manner that the lawsuit anticipates, I think there is a very strong chance that it will be struck down as unconstitutional.

Dave Roland is a policy analyst at the Show-Me Institute, a Missouri-based think tank.

 

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