Milk Does a Regulator Good

Posted on by David Stokes

The Christian County Health Department just did what regulators are best at: protecting us from ourselves because we are all stupid and can’t make our own decisions. The Springfield News-Leader reports that Christian County has banned the sale of raw milk within the county. We here at the Show-Me Institute have written about raw milk before. According to the Springfield News-Leader, the county’s health board (not the elected county board of commissioners, just the appointed health board) went even further than state law required (not that I agree with the state law in the first place) and issued a wide-ranging ban of the sale of raw milk at markets, even though it is perfectly legal to consume raw milk if you do it at your own house.

In my opinion, the only law needed is that the milk in question must be clearly labeled as unprocessed, or “raw.” When that information is available, adults can make their own choices.

The News-Leader article is very good, and contains some great quotes. And by “great,” I mean “infuriating.” Check out the nanny state in action:

The board said allowing unregulated dairy farmers to sell to the public was not in the interest of the public they are charged to protect. Without regulations or testing, no one would know if the raw milk was safe.

Check out the local health department version of “we had to destroy the village in order to save it”:

Though consumption of raw milk is legal, board member Aaron Grier said the ban could help people get more informed about the farm where they’re buying it.

We have to ban it so we can we be sure you want it! And here is where they went even further than state law in making certain that people in Christian County don’t get to make decisions that affect themselves:

However, the board voted to ban all raw milk sales and distribution, including Grade A permitted raw milk, which can be sold to end-consumers, under state law.

I presume that the elected county officials have the capacity to overrule the appointed board. I hope that the citizens of Christian County bring these concerns to the elected board, and I wish them luck in changing this absurd decision.

SLU Economics Professors Misstate Findings of Earnings Tax Paper

Posted on by Joseph Haslag

In a recent St. Louis Post-Dispatch commentary (“Don’t blame the earnings tax,” May 6), Drs. Lisa Gladson and Jack Strauss cited a paper that I wrote about the earnings tax, which was published by the Show-Me Institute. Unfortunately, Gladson and Strauss made at least three incorrect statements in their article.

First, they state that my paper’s main contribution was to report a simple negative correlation between cities with earnings taxes and real per-capita income growth. That is incorrect. The paper’s main finding was a negative correlation, between a measure of the city economy relative to the whole metro area economy and the earnings tax rate for more than 100 cities across the United States.

In other words, I presented evidence that cities with higher earnings tax rates are, on average, smaller relative to their suburbs than cities with lower earnings tax rates, suggesting that businesses relocate from cities to the suburbs in response to the earnings tax.

Second, a correlation is not causation. Economists do not have controlled experiments for aggregate economies. Consequently, they take observations, like my correlation statistic, and develop economic theories to account for that observation. Think about a physicist who observes the heat generated by the sun. The physicist cannot “recreate” the sun, but can develop a theory that accounts for the sun. The theory I applied is standard, off-the-shelf stuff; higher taxes raise prices, and people adjust their behavior to higher prices. In this case, a higher earnings tax rate can be explained by people avoiding the tax. In a metro area, tax avoidance can be accomplished by conducting business activity and generating income in a location outside the city boundaries.

Third, different statistics answer different questions. Gladson and Strauss use convergence regressions to see whether the earnings tax rate matters. When they find no significant correlation, they conclude that there is no relationship between the earnings tax rate and a city’s economic growth. They base their analysis on the result that there is no significant correlation between the earnings tax and the growth rate of income in the metropolitan area.

This result suggests that per-capita income growth in metropolitan areas across the country tend to converge. So, the earnings tax in Philadelphia, for example, has not harmed the growth rate of Philadelphia and all its suburban areas. Metropolitan areas are not harmed by a city earnings tax rate, but any careful person would recognize that this is a different question than the one asked in my paper. It is not terribly surprising to me that the St. Louis earnings tax has not harmed the growth rate of Chesterfield or Saint Charles.

To reiterate, my evidence suggests that people respond to higher earnings tax rates, avoiding the earnings tax by shifting from the city to the suburb. Their result does not contradict mine; rather, it answers a different question. The undisputed evidence is that a city economy is systematically weaker relative to its suburbs when that city’s earnings tax rate increases.

Based on this evidence, and on economic theory, my hypothesis is that Saint Louis city’s policy mix has resulted in a stronger economy in Saint Louis County. If that is the objective for St. Louis city government, then well done. Otherwise, the open question is: Are there other tax structures that will raise the same revenue and have smaller deleterious effects on the city economy?

Joseph Haslag is executive vice president of the Show-Me Institute, a Missouri-based think tank, and a professor in economics at the University of Missouri–Columbia.

 

Related Links

How an Earnings Tax Harms Cities Like Saint Louis and Kansas City

Well-Intentioned Autism Bill Also Carries Negative Consequences

Posted on by Caitlin Hartsell

Gov. Jay Nixon’s desk no doubt holds many bills with supporters eager to see them passed, although one of them will raise the cost of health insurance in Missouri when it is signed. The Autism Spectrum Disorder Coverage bill, H.B. 1311, requires state-regulated private health insurance companies — those that cover small and medium-sized businesses — to cover up to $40,000 annually for screenings and therapy for children with autism spectrum disorders. Although well-intentioned, this mandate will necessarily raise the cost of premiums for Missourians, making it more difficult for individuals and small businesses to keep their health insurance plans.

Autism is a problem in Missouri, and it is easy to be swept up by the heart-wrenching stories of families with autistic children. But there are many disorders and diseases that afflict people — children and adults alike — and mandated coverage of all or even most of these problems would make insurance prohibitively expensive for everyone, especially for those who have diseases that are not given state protection.

A mandate of any amount increases health insurance costs, and this bill’s substantial commitment would assuredly have a noticeable effect. Small businesses are particularly cost-sensitive, and the autism bill will increase the cost of doing business in Missouri — although estimates of how much costs would increase vary, depending on who is doing the calculation. This bill would exempt small businesses if the provisions demonstrably raised their premiums by more than 2.5 percent, but any increase would likely price some marginal number of businesses out of the insurance market, forcing them either to cut coverage or reduce hiring. At the same time, these costs bring only a relatively small gain for Missouri families; an independent report estimated that the bill would only help up to 350 families.

The bill also raises the cost of autism therapy by increasing licensing requirements. It establishes a board to certify applied behavior analysts, the professionals who administer the type of expensive therapy that the bill covers. This regulation will add an extra barrier to entry in becoming an analyst, reducing competition in the field. For families not covered under the mandate, this will raise their therapy costs.

State mandates raise health insurance costs across the board, and decrease people’s access to affordable coverage. In the long run, the most effective solution for families with autistic children — or any other disorder — is for officials to open the insurance market to further competition, giving providers a practical economic incentive to cater to niche health care markets. Despite the good intentions of those aiming to help some families with autistic children by supporting this insurance mandate, it will simultaneously hurt other Missourians who could face significant cost increases or even the potential loss of their own health insurance coverage.

Caitlin Hartsell is a research assistant with the Show-Me Institute and a graduate student in public health at Washington University.

 

The Beacon Ignores the Elephant in the Room Regarding Teenage Employment

Posted on by David Stokes

I was amazed to read an entire article about unemployment among teenagers and college students that did not once mention the minimum wage, even only in passing. If businesses were not forced to pay the current $7.25 minimum wage, there would be more jobs available, and more young people would be able to find summer work.

The Show-Me Institute has released two major studies on this subject. From David Neumark’s conclusion:

Where does all of this evidence leave us regarding the wisdom of raising the minimum wage? The evidence suggests that minimum wage increases do more harm than good. Minimum wages reduce employment of young and less-skilled workers. Although in principle the gains to those who keep their jobs could offset the losses to those who bear the disemployment effects, minimum wages deliver no net benefits to poor or low-income families, and if anything make them worse off, increasing poverty. Finally, minimum wages may also have longer-run adverse effects, lowering the acquisition of skills through various channels and therefore lowering wages and earnings even beyond the age at which individuals are most directly affected by a higher minimum.

Without the minimum wage, there would be more total jobs and more total hours available. Kenneth Troske and Aaron Yelowitz describe how this would help poor families:

The key difference between poor workers and the typical adult worker is in hours of work—workers are poor because, on average, they work 1,120 hours per year compared with 1,853 hours per year for all adult workers. As we will show in Table 4, the poverty rate could be dramatically lowered if poor workers worked full-time throughout the year.

The only good thing I can say about Missouri’s current minimum wage is that it is the same as the national wage (it can be higher than the national wage). But we would all benefit from more jobs, and reducing or eliminating the minimum wage is one certain way to accomplish that.

Free-Market Solutions Help All, Not Just Some

Posted on by Caitlin Hartsell

My op-ed on the new autism mandate ran in the Missouri Record this morning, and the blogosphere has already begun to respond! Perhaps I did not articulate myself clearly enough, because this author’s post reflects some misunderstandings of my argument that I would like to clear up:

The problem with free market, anti-regulation fundamentalists is that their arguments lead to despicable results (witness Rand Paul’s opposition to integrated lunch counters). A prime example shows up on the Missouri Record site, where grad student Caitlin Hartsell argues that if we increase costs to insurance companies by making them pay for autism spectrum disorders, those insurers might increase rates. (Characteristic of free-market extremists, she doesn’t provide numbers, or consider the possibility that the costs could be covered by reducing out-of-control executive compensation packages).

If you have a strong stomach or sense of humor, go read her obsequious offering to her Show-Me Institute bosses, and substitute any malady whatsoever as the subject. Try breast cancer or broken limbs, and you can have an argument in favor of freeing our health insurance companies from the burden of having to pay for, umm, health claims.

Where to begin? I never argued that insurance companies shouldn’t pay for claims; I argued that creating mandates is not the solution.

Competition needs to be increased in the insurance market, thus giving insurance companies a strong incentive to cater to people by providing coverage for things like autism therapy. A better solution than a mandate would be to increase competition by breaking the tie between someone’s employment and their insurance, by giving individuals the same tax breaks for insurance policy purchases that employers receive. This would give people more stability, because they could carry their insurance policies throughout their lives, and through uncertain economic times. If the tax break were offered to individuals rather than just employers, it would also reduce the incentive for them to offer “Cadillac” health plans that inevitably trade a portion of employees’ monetary compensation for expansive coverage that doesn’t meet everyone’s needs or budget requirements.

Unfortunately, the free-market argument is far too often misunderstood, because it focuses on the “unseen” as opposed to the very visible “seen” of children with autism. The author of that blog entry and I may very well hope for the same outcomes, but we disagree on the best way to achieve them. I want very much for children with autism to receive the necessary therapy. I also want children with any number of diseases to obtain proper care and coverage. By subjecting the market to competitive forces, people would have an increased ability to choose health insurance plans that fit their unique needs.

Statistics about the increase are available, but they are disparate, and determining the relevant figures depends on which side of the debate you ask. It will also depend on how regulators choose to interpret the provisions. But when costs increase, there will be people at the margin who are affected. Those most affected are the people whose illnesses or conditions aren’t covered by a mandate — their insurance costs are higher, but they do not receive any benefit.

Despite Government’s Encouragement, Rate of Homeownership Remains Steady

Posted on by Christine Harbin

The rate of homeownership has not increased to the extent that the author implies in this Post-Dispatch article:

After being relatively flat for much of the ‘80s and ‘90s, homeownership levels climbed several percentage points in the early 2000’s, peaking at 69 percent in 2004, according to the Census Bureau.

This rate for the United States was indeed flat during this period. However, the author does not disclose the fact the rate hovered around a mean of 64.7 percent between 1984 and 2000 — less than 3 percentage points lower than the peak in 2004. The rate increased only 5 points from 1994 and 2004, from 64 to 69 percent.

Additionally, the author restricted the vertical scale of the graph in a way that makes the increase over time seem large. Looking at an unrestricted version of the chart, this increase is not that significant.

I used annual homeownership rates by state and by metropolitan area data from the U.S. Census to produce the following graphs:

homeown_USMO

homeown_all50
Click graphs to enlarge

Interestingly, the rates of homeownership in the state of Missouri and in the Saint Louis metropolitan area are higher than the rate in the United States. I suspect that this can be attributed to the fact that housing is plentiful and relatively inexpensive in Missouri, and perhaps also to a Midwestern lifestyle that encourages homeownership, among other factors.

Looking at all 50 states, although the homeownership rate for each falls within a range between 50 and 80 percent, there hasn’t been a significant change over time.

Programs that encourage homeownership exist at practically every level in the government. They include: homeownership assistance; property tax relief for new home buyers; homeownership vouchers; housing codes that restrict the number of units in a building; and, the recent federal tax credit for home buyers. However, despite this assistance, it appears that the rate of homeownership remains steady. If it weren’t for these programs, I wonder whether the rate of homeownership would be unaffected or whether it would decrease.

Could the Governor’s Executive Advisory Board Recommend Market-Based Reforms for Missouri?

Posted on by Thomas Duda

While reading the Springfield Business Journal, I ran across a mention of the governor’s recently formed Executive Advisory Board, which will produce “a five-year plan for economic growth.” The governor’s press release states:

The final outcome of the planning process will be six to 10 strategic objectives to transform Missouri’s economy for the 21st century. The objectives will pinpoint existing and future industries that will drive growth. Along with each strategic objective, the plan will include specific tactical steps necessary to accomplish the goal. The strategic objectives and tactics will focus on the next five years.

Although I find the Executive Advisory Board’s mandate ludicrous — that state government should chart and shape the course of something as complex as our collective future economic development, I do find it encouraging that a committee member quoted in the Springfield Business Journal stated:

“We spend lots of money on economic development every year. The question is, ‘Are we strategically aligned to do it in the most effective way?’”

Obviously, the panel will not consider the possibility that the state of Missouri leave the business of economic development entirely, but I am somewhat hopeful that Executive Advisory Board just might conclude that the termination of some market-distorting policies would set Missouri on a course toward a freer and more prosperous future.

Here’s hoping.

Seventh Signature and the Bill is Free!

Posted on by Caitlin Hartsell

The governor will be jetting around Missouri over the coming week for ceremonial signings of H.B. 1311, the Autism Spectrum Disorder Coverage Bill. On Thursday, he will go to Joplin, Springfield, and Columbia. On Friday, he’ll be in St. Louis and Kansas City. On Tuesday, he’ll be in Cape Girardeau. Why one bill requires the governor to be present at six signing ceremonies across the state leads to questions about fiscal responsibility. One would hope that this expense and hoopla isn’t devoted to each of the more than 100 bills delivered to the governor for a signature.

Beyond travel expenses, though, the signing of this bill will be costly for Missouri. I’ve written before about why I think an autism mandate is bad policy for Missouri. The bill may be a huge gain for the 300 to 350 families that will be helped by the mandate, but the rest of Missouri will pay for it in higher insurance costs and foregone jobs.

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