Page 664 – Show-Me Institute

Salutary Incentives

Posted on June 2, 2010May 5, 2026 by Martha King

A recent article in the Columbia Missourian highlights some of the steps being taken in Missouri to combat childhood obesity. Among the initiatives mentioned are the Walking School Bus and Farm to School programs:

More than 400 students from 10 Columbia public elementary schools participate in this Walking School Bus program, sponsored by the PedNet Coalition. A trained adult walks a set route each morning, picking up kids along the way and guiding them to school.

In addition to cutting costs for buses facing rising fuel expenses, the Walking School Bus is designed to increase physical activity for children in order to combat the country’s growing childhood obesity epidemic.

The difference between the two programs is that the Walking School Bus is grounded in the volunteerism of adults willing to walk with children to school, with the end of incentivizing good habit formation, whereas Farm to School is a government program that encourages the use of local food in school lunches. There are a couple of problems with the latter. As Sarah Brodsky and Caitlin Hartsell have pointed out, it’s incorrect to conflate “local food” with “healthy food”; food produced locally may not always be healthy, and food that is healthy may be imported from outside a given region. Mandating that school food be locally procured is also costly, because price-based competition from a large portion of the potential market for food is left unconsidered, and the increased demand for local food contributes to a rise in its prices.

It can also be a costly mandate for local farmers, who must cope with changes in the types of crops that they grow. A Columbia school district official admitted:

“We’re essentially asking farmers to start to grow what we want them to grow. And that’s a big risk for them.”

It is indeed a risk for Missouri farmers, who must diversify their crops to meet a new form of demand. Modern farmers maintain a delicate balancing act of running up huge debts in acquiring machinery that is geared specifically for the crops they have elected to raise. Mandating that schools provide local food presents an opportunity for local farmers, but also places a burden on them to raise a diversity of crops year-round — for many, a costly and impractical endeavor. Missouri farmers will be taking more than a “big risk” here and now; this involves their whole financial life plans.

Tackling the difficult issue of childhood obesity requires daily diligence in habit formation, because parents ultimately control the health of their children. One or more healthy meals served at school every day can be negated by a pantry full of junk food at home. This is not to say that schools shouldn’t care about serving healthy food — indeed, school lunch programs that focused on meeting nutritional guidelines, whether or not the food is locally procured, would better balance costs with student health.

Similarly, a mandated exercise class during the school day doesn’t affect the inactivity of kids who stay indoors and play video games all day on the weekends and during the summer. Yet initiatives like the Walking School Bus program directly incentivize the most important players on this issue — the parents and children themselves. Children are habituated toward associating activity with involvement with their peers, and parents are given an easy, safe, and inexpensive way of getting their kids to school that may benefit the community (e.g., through reduced traffic congestion near schools) at the same time. Yet again, volunteerism creates a win-win for everyone.

How Green Is the Valley of Recycled Energy-Inefficient Appliances?

Posted on June 1, 2010May 5, 2026 by Martha King

The State of Missouri recently announced that it would offer an extra $50 in rebates to consumers who participate in the Energize Missouri Appliance Rebate Program. The additional money comes as an incentive to help participants in paying the cost of recycling their old appliances.

But just what are the costs of recycling these appliances? Missouri’s State Energy Efficient Appliance Rebate program (SEEARP) is explicitly restricted to the replacement of existing appliances. Further, there are essentially no qualifications on eligibility for replacing older appliances.

Thus, a couple looking to buy necessary appliances for their new home are not given the government incentive to purchase energy efficient appliances, but homeowners with already functioning appliances are.

What happens to the old appliances? In order to qualify for the rebate, consumers must show proof that the appliance was “properly recycled.” Recycling appliances, however, is tricky business. Most of the materials aren’t biodegradable, so the appliances have to be broken down into their parts and either sold as scrap or, in the case of metals, reprocessed altogether. How much more earth-friendly could this process be compared to simply repairing and using an existing appliance for as long as possible? Further, for the appliance to be recycled, its parts need to be in a minimally workable condition in order to be repurposed. Otherwise, the scrap ends up in a landfill. On the other hand, if the appliance could be repaired, why would anyone replace it? Answer: because you can get a government discount on a new one.

Not only does the SEEARP program then distort the market, it incentivizes consumers, who by and large have no real need for new appliances, to wastefully and expensively toss workable ones. Supporters of initiatives like the rebate initiative may argue that the continued use of such appliances generates a negative environmental impact. While that might perhaps be marginally true, there remain serious environmental, and economic, problems with this argument. For one, the process of recycling old, functioning appliances itself requires a great deal of energy. Further, energy-efficient appliances may even encourage individuals to consume more energy overall. Incentivizing the disposal of viable machinery also misallocates resources that could have been spent on encouraging growth in other areas of the economy. Remember: The rebate program does not simply encourage people to buy energy-efficient appliances, but to replace their old — functioning or not — appliances.

Additionally, in order to qualify for the rebate, consumers are limited to select Missouri retailers. This might not be cost effective for the consumer, who, for instance, could potentially find a better deal online — and it’s certainly not cost effective for Missouri.

Because the rebate program only applies to recycling an appliance, consumers are further disincentivized from selling, or donating, these appliances to others who might need them. Those who actually need to purchase appliances, either new or used, are therefore harmed by the program, both because workable, used appliances would need to be recycled, rather than sold or donated, by owners replacing them with energy efficient appliances, and because those who want to purchase a new appliance do not qualify for the rebate.

The truly green solution is to let consumers decide without government prodding when, and how, to replace their appliances.

Good News and Bad News for Missouri’s Sunshine Law Applications

Posted on June 1, 2010May 5, 2026 by David Stokes

Recently, the Pennsylvania Public Interest Research Group ranked the states on issues of transparency and spending openness. Missouri received a “B” in the report, which only assigned one “A,” so I guess we can be pretty proud of the “B.” Kentucky got the only “A,” which is good for them because I only remember one other thing for which Kentucky was considered a leader.

This ranking is great news for our state government, but openness in local government is still an issue. A recent state audit, detailed here at OzarksFirst.com, determined that local governments in Missouri are still committing numerous Sunshine Law violations. My own selfish goals are best summed up by this ranking from the Sunshine Review in their study of local government transparency in Missouri:

Missouri’s counties received an “F,” a reflection of the fact that 61 of the state’s 114 counties have no Website.

I realize that I am one of a very small number of people for whom researching Missouri county and city budgets is a big part of their job. However, it would be very inexpensive for every Missouri city and county to be required to post their budgets online. It does not even have to involve their own website — they could just email the annual budget document to the state auditor’s office, to be hosted there. That would be much better for open government in Missouri.

You Don’t Have to Go Home, But You Can’t Stay Here

Posted on May 28, 2010May 5, 2026 by Christine Harbin

The City of Saint Louis is removing the pretzel vendors along Jamieson Avenue in south St. Louis due to complaints of traffic congestion. John Payne blogged about this yesterday, and cited this as an example of the government shutting down a successful entrepreneur.

I have a different perspective on the story. Although the city is cracking down on selling pretzels at that particular intersection, it is not banning the sale of pretzels in any other location. According to a recent story by Fox 2 on the subject, the city will take a laissez faire approach in the future:

“We’re not out looking for them, we didn’t put it on our hot list, I don’t have an inspector driving by every day. Our inspectors have plenty to do,” [Streets Director Todd Waelterman] explains. “You know if someone comes out here starts selling again and we receive a complaint, we’ll be back. If we don’t receive a complaint, we’re not planning on coming back.”

In this situation, the policy of looking the other way has many positive consequences. South City doesn’t become a generic, pretzel-less area; it can retain a feature that’s specific to Saint Louis. It secures a job for the vendors, and also generates business for a locally owned firm. Additionally, consumers win because they can get a pretzel fix without driving too far out of their way. Furthermore, instead of cracking down on pretzel vendors, the city can concentrate on bigger issues, like reducing crime and fixing the streets.

I applaud the city for taking a hands-off approach, and I hope that this is predictive of a larger trend of encouraging entrepreneurial activity in Missouri.

Rules Too Cool for the Pools

Posted on May 28, 2010May 5, 2026 by David Stokes

Today’s Post-Dispatch has a big story on pool safety and regulation in the St. Louis area. I’ll stipulate right off the bat that I think public health is a perfectly legitimate function of government, and has been so for a long time (controlling communicable diseases, especially). However, as with so many other things, there are countless examples in which the government has expanded that role to increase its part in our daily lives. And those rules may make us safer by bits and pieces, but they also make us less free in the same manner. I think most people have, and will continue, to accept that trade-off. I think that is unfortunate. But back to the pools.

I can’t imagine most people would have any objection — I certainly don’t — to the government monitoring the water quality and safety rules of truly public pools. But the government also defines “public” to include apartment buildings, private clubs, and more. In St. Louis County:

As of Wednesday, 248 pools had not been approved to open for summer, although many were awaiting final inspections this week. The county expects that some of those pools will remain closed, particularly at apartment complexes.

Assuming that most of these apartment complexes with pools are somewhat large complexes, we can reasonably say that thousands of people in St. Louis will now be denied the use of a pool this summer — and millions of dollars will be spent across the country on pool improvements — because of drain issues that have killed an average of one person per year across the entire nation. I am certain I sound like a jerk, but this immediately brings a classic Onion article to mind.

The Post-Dispatch article points out that Jefferson County does not have any pool inspectors. I think this is supposed to be a criticism of good ol’ JeffCo, but something important is lacking from the article — any evidence at all that there are problems with the pools in Jefferson County! Instead, believe it or not, the people of the county seem to be doing a perfectly good job of maintaining their own pools even without the threat of inspections to close them down.

Without a county, state or federal ordinance on sanitation, public pool owners in Jefferson County can make their own rules.

“We don’t care if we get checked or not. We keep a clean pool,” said Beverly Sweet, the superintendent of the Crystal City public pool. She said the water is tested several times a day and that chlorine tablets are automatically fed into the pool, which opens Saturday.

I’ll end with quoting the famous playwright David Mamet about how people (the vast majority, at least) tend do the right thing and work things out even if the government is not there to compel them:

But if the government is not to intervene, how will we, mere human beings, work it all out?

I wondered and read, and it occurred to me that I knew the answer, and here it is: We just seem to. How do I know? From experience. I referred to my own—take away the director from the staged play and what do you get? Usually a diminution of strife, a shorter rehearsal period, and a better production.

The director, generally, does not cause strife, but his or her presence impels the actors to direct (and manufacture) claims designed to appeal to Authority—that is, to set aside the original goal (staging a play for the audience) and indulge in politics, the purpose of which may be to gain status and influence outside the ostensible goal of the endeavor.

Strand unacquainted bus travelers in the middle of the night, and what do you get? A lot of bad drama, and a shake-and-bake Mayflower Compact. Each, instantly, adds what he or she can to the solution. Why? Each wants, and in fact needs, to contribute—to throw into the pot what gifts each has in order to achieve the overall goal, as well as status in the new-formed community. And so they work it out.

Enjoy the pool this summer. Have a great Memorial Day weekend.

Death Panels and the Market

Posted on May 28, 2010May 5, 2026 by Caitlin Hartsell

Within the health care debate that has taken place during the past year, “death panels” and health care rationing were both pegged by some as distinct possibilities and dismissed by others as ridiculous fantasies. Yesterday, Michael Tanner at the CATO Institute wrote that the concept of death panels may come to fruition, considering that the new director of Medicare and Medicaid is a fan of the United Kingdom’s National Institute for Clinical Excellence (NICE), a government agency that has been accused of rationing health care.

Like all things, health care is a finite resource. As such, it is always rationed in some way. The important issue to determine is who — or what — is doing the rationing, and what criteria is used. After all, people ration in their daily lives when they choose how much of their paychecks to spend on groceries, clothes, or movie tickets. When individuals ration, they decide between individual trade-offs. The difference is not the mechanism, but the actor.

The price system is arguably the most efficient method to allocate resources. As Nobel laureate economist F.A. Hayek articulated in “The Use of Knowledge in Society,” the price system contains information for both the seller and buyer. With health care, however, true costs are largely veiled by what can be termed a “health care wedge” — a separation of consumers from knowledge of costs. A patient may face a decision of whether to seek treatment in the form of high-cost, high-intensity care or low-cost, low-intensity care (or no care, as the case may be) but lacks real price information to make an informed decision about whether the expected outcome will be worth the cost. This lack of information makes the high-cost, high-intensity care more appealing in situations where it might not otherwise be chosen. Because of the skewed incentive structure that this creates in the current health insurance market, costs will continue to rise. This leads some to believe that it is necessary for the government to establish new ways of rationing care, which ignores the real problem: the separation of consumer and cost of treatment. By finding a way to mitigate that health care wedge, the decisions about when and why to ration can be returned to individuals and their physicians.

How can this be done? Nearly two decades ago, Show-Me Institute scholar Susan Feigenbaum suggested a different mechanism for health insurance: indemnity insurance. She likened the process to automobile insurance. When an illness is diagnosed, the insurance company would follow a process that is similar to when an automobile claim is made. The company would assess the medical issue and write a check for the probable cost. The customer would then be able to choose how to spend that money.

This system would create an incentive to shop around. Less intensive — and less costly — treatments become would more appealing, because thriftiness is rewarded. Some people would choose to use the entire amount for intensive health care. Others, especially those with terminal illnesses, might opt for minimal hospice or palliative care and set aside the remainder in a trust fund for a child or grandchild. Depending on how this type of plan were implemented, certain caveats could be included, like specifying a minimum level of required care, or precluding autonomy in making medical choices for those deemed too sick to make a sound decision. Those issues aside, indemnity insurance would place the decision in the hands of the individual.

The important thing is that this mechanism would introduce competition into one of the more expensive areas of health care, end-of-life care. Competition is necessary to bring down health care costs in the long term. Indemnity care is not the only possible solution, but it is one that must be considered, alongside other market-based solutions like health savings accounts. Missourians would benefit with an opportunity to choose from a variety of market-based health care options.

City of Saint Louis Twisting Pretzel Vendors out of Business

Posted on May 27, 2010May 5, 2026 by John Payne

If you have spent much time in the South City area of Saint Louis, you’ve probably seen street vendors selling Gus’ Pretzels at several area intersections. Well, that may not be the case for much longer:

The city is cracking down on the long tradition of pretzel vendors along Jamieson Avenue in south St. Louis. Because of complaints, city officials say, they must enforce an ordinance that prohibits the vendors.

Kunkel began selling pretzels in 1980 after retiring from the U.S. Postal Service. He first worked at Grand Avenue near Carondelet Park, but later moved to the Lindenwood Park neighborhood, where he had more success.

He became a fixture on Saturday mornings. Until a couple of years ago, he was the lone vendor in the median at Jamieson and Fyler avenues. He sold pretzels for 50 cents.

Then brothers John and Reuben Galvin set up shop five blocks south in Jamieson’s median at Pernod Avenue.
[…]
John Galvin insists he wasn’t trying to run Kunkel out of business. He was always careful to not sell at his spot. The median was just too good a place to pass up.

“You can hit people on both sides,” Galvin said, adding that the city has few similar medians remaining at stop signs.
[…]
Kunkel says his customers called the city complaining about the Galvins. They thought they were doing Kunkel a favor by targeting his competition.

But it turns out both parties had been operating outside the law. The city forbids street vending outside of downtown.

“You can’t get rid of them without getting rid of me,” Kunkel said.

Todd Waelterman, director of streets, said city inspectors don’t typically enforce the rule without complaints. During the past month, some residents said the vendors blocked their view of traffic, and the city had to act.

Although it is always unfortunate to see a successful entrepreneur shut down by the government, if there are legitimate safety concerns, this move could be for the best. After all, major thoroughfares like Jamieson are primarily for driving, not selling goods and services. However, if the the city could institute some minimal safety rules, there should be nothing to stop these successful businessmen from serving hungry drivers. If that proves impossible, there are other, less busy, intersections where I have encountered pretzel vendors plying their trade without impeding traffic or endangering anyone — some of the intersections around Tower Grove Park, for instance. Hopefully, the city can ensure public safety with a few simple rules and go back to leaving the pretzel vendors in benign neglect.

Government: No Costs, All Benefits

Posted on May 26, 2010May 5, 2026 by John Payne

Government has no costs — only benefits — according to several professors in economics at the University of Missouri–Kansas City, which is well known for its heterodox (i.e., usually very anti-market) economics department, writing at The Huffington Post about deficit “myths.” I hesitate to actually use the label “economist” to describe any of these people, because they do not seem to accept the very basic economic concept of opportunity cost — at least not when it comes to government spending. (For what it’s worth, I hold no degree in economics, and do not claim to be an economist myself, but I at least like to think that I understand the basics of the subject.)

Opportunity cost is what a person or group gives up when they choose between two or more alternatives. This may be a strong limitation on the actions of mere mortals, but these UMKC professors imply that the government is capable of magic that can free us from the burden of trade-offs. There are enough fallacies and half-truths in the article that it would take a whole book to respond in full (a book that someone actually wrote more than 60 years ago), so I will confine myself to some of the more glaring ones.

Arguing that there is no fiscal crisis in Social Security and Medicare, UMKC Associate Professor Stephanie Kelton writes:

the government’s ability to pay benefits does not in any way depend on the balance in the Social Security or Medicare Trust Funds. Benefit checks come directly from the Treasury, and, as Alan Greenspan has admitted, “[A] government cannot become insolvent with respect to obligations in its own currency.”

There is definitely some truth here; Social Security and Medicare are both paid out of general revenues, which is going to be even more necessary now that Social Security is itself running a deficit. Kelton tries to claim that we face no “tough choices” with these programs, but if no cuts are made to Medicare or Social Security, we will have to cut spending on other government programs, raise taxes, increase the deficit, or (as Kelton alludes with the Greenspan quote) trigger substantial inflation. I admit that I don’t know exactly what Kelton means by a “tough choice,” but none of those options are politically popular, so they all seem pretty tough to me.

Next, Professor Randall Wray takes a shot at showing that current deficits won’t get passed on to the next generation because government debt is really just an accounting trick:

There are about 13 trillion dollars in Treasury securities at the Fed. Collectively, these savings accounts are known as the national debt. The national debt represents a portion of the combined savings of US residents, corporations, banks, and foreign governments. And most folks probably don’t know that when a person buys them, the Fed simply transfers the dollars from her checking account to a savings account at the Fed called a “Treasury security.”

Tens of billions of dollars of these Treasury securities come due every week. When that happens, the Fed pays off that “debt” simply by transferring the dollars, plus interest, out of these savings accounts and back to the holders’ checking accounts.

In the future, when our grandkids make payments on Treasury securities, they will simply credit accounts at the Fed-just as we do today, and as our grandparents did before us. It is a simple matter of data entry, and not a financial burden.

Again, this has some truth to it, but what Wray does not discuss is that running deficits of upwards of 10 percent of GDP will eventually cause the interest rate the government pays on those bonds to skyrocket. Take a look at the second graph in this article, which shows the Congressional Budget Office’s projection of costs for Medicare, Social Security, and interest on the debt. Unless we rein in deficits, by the early 2030s we will be paying 5 percent of our GDP just for the privilege of borrowing more, and the number only rises from there. Furthermore, government debt is not merely an accounting trick. Those dollars command real resources in the economy, and when the government spends those dollars, there are fewer resources for private use. If the debt continues to grow, we will have to devote more resources every year to paying off those loans, which again entails either higher taxes, decreased government spending on other items, inflation, or some combination thereof.

Although the first two examples are bad enough, I have saved the worst for last (there are plenty of other absurdities in the article, but this post is long enough as it is). After giving us the single most asinine sentence in the article (“Taxes, then, are what give value to money.”), doctoral candidate Yeva Nersisyan gives a full-throated defense to the government-as-magic view of the world:

Any and all financial constraints on government spending such as issuing government bonds dollar for dollar against deficit spending, debt ceilings, and restrictions on the Fed’s ability to buy treasury securities are purely political and necessarily self imposed, because they are imposed on us by our chosen institutional arrangements and not by something inherent in our economic system.

No doubt that in purely dollar terms the government can spend as much as it wants. It could print us all checks for a million-kajillion dollars if it so pleased, but it still operates within a world with real constraints. There are only so many resources available in the country at any given time, and it is impossible for the government to create more out of thin air. Any attempt by the government to raise more revenue through taxation or inflation will be met at the margin with more and greater attempts by individuals and businesses to avoid those taxes and hedge against rising prices. In short, government cannot mandate prosperity.

I’m sure it’s comforting to believe that there is some omnipotent organization that can solve all our problems for us, but that is a childish view of the world, and as adults we must put away childish things.

North Carolina and American Express Provide a Good Example

Posted on May 26, 2010May 5, 2026 by Christine Harbin

According to an editorial in the News & Record in Greensboro, N.C., American Express chose that state’s Guilford County as the location for its new $600 million data center. This is a big deal for the following reason:

The financial services giant […] never asked for millions of dollars in incentives that the Greensboro City Council and Guilford County Board of Commissioners were prepared to consider.

This is advantageous for taxpayers in North Carolina and in Guilford County. Not only will they experience job growth and productive economic activity, they don’t have to subsidize those jobs.

Furthermore, their tax money can be diverted to programs that have a higher priority, such as education or infrastructure, or returned to them to save or to spend in the private sector.

Additionally, because AmEx remains in the tax base, the state and local government in North Carolina can assess a tax rate that’s lower and more equal for all taxpayers. Unlike the new IBM service center in Columbia, Mo., AmEx will contribute property tax revenues, which will benefit public schools in the area.

The News & Record editorial also says:

[American Express] operates on an ethic of giving to the community, not taking from it, and now it has enhanced that reputation many times over.

I applaud the restraint that American Express has shown, and I hope that other corporations follow this example in their own expansion efforts. According to the editorial, a computer distribution center has also opened in the area without government incentives.

North Carolina is fortunate because profitable, confident businesses like American Express are moving to the state on their own volition, and without the financial assistance of the government. (If only Missouri were so lucky!)

Hat tip to John Payne.

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