I Leap Head First Into Cosmetology School Licensing, and Come Out With a Fabulous Haircut

Posted on by David Stokes

Yesterday, I was invited to attend an informal meeting in Jefferson City between members and staff of the state’s Board of Cosmetology and Barber Examiners, several owners of cosmetology and barber colleges, and lobbyists for the state association of cosmetology schools. I was invited by John and Nancy Tirre, who own Current Trends Academy in St. Peters. They are the only people in attendance that I’ll name, out of an abundance of caution. The Tirres were concerned about the provisions in House Bill 2194, which would have further regulated an already heavily regulated industry: cosmetology and barber colleges. (Here is the bill summary.) There is no nice way for me to put this; the proposals in this bill are awful, and fundamentally anti-competitive and anti–free market. If you don’t agree with me, you probably feel that the government has a perfectly good reason to dictate via legislation that every new cosmetology school in Missouri must have at least nine instructors on staff before they can enroll even one student.

At the beginning of the meeting, the lobbyist for the cosmetology school association (of which the Tirres are members) told everyone that the bulk of HB 2194 will be pulled from consideration. This is excellent news. Next, he said that a new proposal would replace the deleted language with a simple two-year moratorium on any new cosmetology and barber schools opening in Missouri. This, of course, is an equally horrible idea.

After that, the meeting got down to business. One of the moratorium’s supporters, who owns three cosmetology schools in rural Missouri, stated that the primary problem the industry is dealing with is a lack of qualified instructors in colleges. He said that the moratorium — and the language that had been removed from the bill — are all just ways of dealing with that problem, and that the moratorium is designed so the industry can collectively propose solutions.

Many of you reading this will probably react exactly as I did, which is to say that if you don’t have enough instructors, then private colleges should offer a higher salary for instructors and the problem will solve itself — resulting in whatever equilibrium instructor allocation tends to be more efficient. The most basic economics tells you that shortages are best dealt with by increasing price. If you need more instructors at barber colleges, then offer to pay them more.

However — and this is where I wanted to tear my hair out, as I patiently sat there listening — it honestly took a half-hour of shortage discussion before anyone mentioned salaries. They went through the numbers of licensed instructors in Missouri in detail. There are 343 current instructors in Missouri. There are 279 people with active instructor licenses who do not teach. Finally, there are 364 people with inactive licenses who could very quickly and easily reactivate their licenses. So, there is a pool of 643 people who are trained to do this work but not doing it. Clearly, some of them would choose to again teach at cosmetology school is the salary offered were high enough. It should be noted that, in a related and worthy effort to increase the supply of instructors, the licensing qualifications for instructors were substantially pared down a few years ago. I am all for that, but if that strategy did not work by itself, another solution like raising salaries is a logical next step.

If the first half of the meeting might have been unsettling, the second half was inspiring. The arguments of those who favored the moratorium were strongly opposed by several of the other people in attendance. One member of the state board of cosmetology, who owns a school and would benefit from the moratorium, called it “selfish” and said that the industry had no right to stop someone who was trying to “fulfill a dream” by opening their own business. Another board member said similar things, and made it clear that she would oppose the proposal. The Tirres, too — who, as school owners, could also benefit from a moratorium — opposed it on principle. In the end, those present agreed not to move forward with proposing the moratorium, and it appears that all of the anti-competitive ideas in the bill are dead for now — hopefully, dead for a long time.

The discussion contained plenty of areas of positive agreement. I heard a number of great proposals on ways that the schools could work together to improve teacher recruitment, change their teaching methods to reach students who are a “new type of learner,” and more. There was discussion about the absurdity of parts of the current regulatory system, such as how a school can get in trouble if one of its instructors goes home sick, and a random state inspection comes later that same day to find the school temporarily short of the required 25-1 student-teacher ratio. It’s beyond me why tax documents would not suffice to demonstrate the correct number of instructors. (And I’m not overlooking the fact that a mandated 25-1 ratio is a dumb requirement in the first place, but they all seemed to think it is not a big deal.)

I did say my piece at the end of the meeting. I left feeling happy to have watched members of the board kill bad legislation. I readily admit that I don’t think cosmetology and barber practitioners and schools should be licensed at all, but it is worth my time and effort to help prevent bad rules from becoming even worse rules. It was great to see defenders of competition win out, at least for now.

Anyone reading this who was present at the meeting should feel free to use our comment section to claim credit for the above paraphrased quotes, expand on my opinions, or tell me how I am stupid.

Lesson From the Election: Examine Claims on Both Sides of Tax Issues

Posted on by Rik W. Hafer

This article first appeared in the St. Louis Beacon.

In the recent election, a surprising number of tax issues were passed by the voters. Perhaps the most discussed of these was Proposition A. Passage of Prop A raises sales taxes by a fraction of a dollar. Much of those new funds are earmarked to restore many public transportation services that were shut down because of budget shortfalls.

Reaction to the outcome was predictable. Tea Party sympathizers viewed the results with outrage, though they couldn’t seem to muster enough votes to defeat the proposition. Supporters claimed victory for the people, especially those who rely on subsidized public transportation for work or school. Both positions have some validity.

Public services like mass transit simply are not cost effective. If they were, a private firm would probably be offering the services. But that does not mean that they offer no public benefit. Numerous studies show that, for the poor, the disabled and the young public, transportation is a vital service for gainful employment. If there are few job opportunities in the inner city, how do those people get to the jobs in the county? At entry-level wages, making a 50-mile round trip by cab is prohibitively expensive.

The dialogue about Prop A revealed efforts at misinformation. One anti–Prop A pundit argued that if passage helps one family get to work but, because of the higher tax, five families are unable to meet their monthly mortgage payment, then on net it is harmful. That would be true if based on fact. While making a good sound bite, I seriously doubt that there is evidence to support such hyperbole.

Such exaggeration is not unique to this one tax issue. The ongoing debate over the Saint Louis city earnings tax is another example of an issue where misdirection should not guide policy.

Two analyses are being publicized in the swelling debate over the earnings tax. Several years ago, the Show-Me Institute published a study examining whether an earnings tax affects economic growth. The question asked was very specific: Does an earnings tax like that of Saint Louis city drive businesses to the surrounding area? In other words, does the tax diminish the economic growth of Saint Louis city relative to its neighboring cities and counties?

The analysis, conducted by Joseph Haslag, a professor of economics at the University of Missouri–Columbia, found that the answer is yes. His statistical analysis of more than 100 similar municipalities showed that having an earnings tax is likely to push businesses out of the taxed area into nearby untaxed municipalities. This finding helps explain the slow growth of Saint Louis city relative to the county.

But this conclusion was recently dismissed in a study conducted by Jack Strauss, director of the Simon Center for Regional Forecasting at Saint Louis University. Writing in the Kansas City Star, Strauss and his coauthor argue that earnings taxes have no negative effect on economic growth. Does this mean that cities like Saint Louis could increase the tax without limit and not face negative repercussions? That is absurd, but it is consistent with Strauss’ finding.

There is another, more subtle, reason to suspect the applicability of the Saint Louis University study as a foundation for tax policy by cities like Saint Louis. Strauss’ investigation essentially tests whether an earnings tax by a city located within a metropolitan area impacts the aggregate growth of the entire region. In other words, does the earnings tax in Saint Louis city affect the economic growth of the 15-county metropolitan area?

That is not the question addressed in the Show-Me Institute study.

Basic economic theory predicts that if the city significantly raised its earnings tax, businesses would likely move to nearby cities or counties within the metro area. If this is true, Saint Louis city loses economically — Haslag’s finding. But this scenario also explains Strauss’ findings: The economic impact of the city’s tax increase simply washes out across the region.

Simply put, Strauss’ study focuses on the wrong geographical area. Even so, his analysis will provide those who favor the city’s earnings tax with false support.

If the policy discussion is how to improve Saint Louis city’s future economic condition, let’s first get the facts straight. As we witnessed in the debate over Prop A, unfortunately facts lose to exaggeration when the topic is taxes.

Rik W. Hafer is distinguished research professor and chair of the Department of Economics and Finance at Southern Illinois University Edwardsville and a scholar at the Show-Me Institute.

 

“Should Five Per Cent Appear Too Small, Be Thankful I Don’t Take It All”

Posted on by Christine Harbin

Last week, I wrote about how Missouri residents enjoy relatively low taxes on alcoholic beverages, cigarettes, and gasoline. Friday, on Prime Buzz, Steve Kraske enumerated reasons why these taxes are so low in Missouri, and why the state is unlikely to raise them in the future. Additionally, he explains that Missouri’s low taxes act as an incentive for its border states to keep their taxes low as well:

That Missouri is so reluctant to raise taxes puts added anti-tax pressure on Kansas. Convenience stores in Wyandotte and Johnson counties fear losing even more business to Missouri stores if Kansas boosts the tax again.

When you tax something, you get less of it, after all. When a state increases the tax rate on goods like alcoholic beverages, cigarettes, and gasoline, individuals will consume less of them. After a certain point, the total tax revenue generated from these products is reduced, as well.

By keeping its tax rate low relative to its neighboring states, Missouri can maximize the amount of revenue that it generates. This would help ensure that not only Missouri residents shop in-state, but that individuals located near the border in neighboring states will also shop here.

Tax increases are not cost-free for states. In addition to the cost of reduced sales tax revenue, they have a cost in terms of lost competitiveness. Fewer people and businesses will locate to high-tax states because the costs of living and doing business are higher.

“The County Will Help Bridgeton Find a Better Deal.”

Posted on by Christine Harbin

According to an article in the St. Louis Post Dispatch from Friday, St. Louis County Executive Charlie Dooley encourages the municipality of Bridgeton to reject TIF for Walmart. I commend St. Louis County for exercising fiscal restraint; for reasons that David Stokes explains in a 2008 editorial, it’s preferable that counties, not cities, allocate TIFs.

However, the following statement in the article concerns me:

[Garry Earls, Dooley’s chief of staff and chief operating officer of the county,] pledged “the county will help Bridgeton find a better deal.”

The government should not be in the business of “finding a better deal” or picking economic winners and losers. The free market does this fairly and more efficiently — and at zero cost to taxpayers. Instead of getting involved, local and county governments should allow development to happen naturally in an unrestricted market. Having general low-tax and pro-business policies is the most efficient way to attract businesses to an area and incite economic growth. Developments that use TIF are not guaranteed success, and those that are successful may have been successful independently.

If there is a sufficient level of consumer demand for the new Walmart, then the company will decide to move to the location independent of government assistance. If there is not enough demand in the area, then Walmart will decide to move elsewhere, and local governments would not have to forfeit revenues in the short term to pay for the project.

In Their Defense, Kids Do Love Explosions

Posted on by John Payne

From the Columbia Daily Tribune:

A recent demonstration by the Missouri State Highway Patrol SWAT team had students ducking for cover and later upset at least one parent.

On April 8, about 27 students — mostly high school juniors and seniors — were taking part in a Student Alliance Program course in the highway patrol hangar at the Jefferson City airport. As part of a demonstration by Troop F, a SWAT officer rolled a “flashbang” grenade under the seats of the students without their knowledge.

The grenade, a non-lethal weapon used to stun or divert the attention of criminals when tactical teams enter a building, went off, emitting a loud noise, a burst of light and smoke.

Thankfully, no one was seriously injured, but if police officers have become so desensitized to flashbangs that this can be considered normal behavior, the SWAT team is raiding far too many houses.

Via Radley Balko.

“That’s Right, and Who Might You Be?”

Posted on by David Stokes

In yesterday’s “Political Eye” column in the St. Louis American, the author welcomed the Show-Me Institute to the city of St. Louis:

A recent email sent to drive traffic to Slay’s campaign site with one of its inane polls referred blithely to “your tea party friends.” Slay’s team seems to want to send the message that government-hating right wingers are welcome here. No wonder the Show-Me Institute set up shop in the city.

There is, of course, only one legitimate reply to this, and, not surprisingly, it was said by Homer Simpson. From the fourth season, episode 14 — you’ll find the video here. The line comes at about the 0:48 mark. Definitely one of the best lines in one of the single best episodes of the best TV series ever.

Thanks to St. Louis’ own Bart Simpson for the article link.

Overall Tax Burdens and the Good Thing About Missouri’s Personal Property Tax

Posted on by David Stokes

Megan McArdle over at The Atlantic is one of my favorite economic bloggers. She has a very good post up today about the debate over the fact that quite a large number of Americans essentially pay no income taxes. The piece does a great job of considering all sides of the issue, and I fully agree with this key point she makes:

I think the real problem with the current setup is the political economy of it.  A very large percentage of our electorate has nothing at stake when they vote for new spending.  Since that spending imposes real costs on other people, and the economy at large, this is a problem.  We don’t want to end up in a situation where 65% of the population is systematically voting to take the stuff possessed by the other 35%.

Which leads me to property taxation in Missouri. Exactly in line with what McArdle writes on income taxes, the Lincoln Institute of Land Policy wrote in a study about property tax circuit breakers (which are targeted relief laws) that circuit breakers should not eliminate the entire property tax burden:

Circuit breakers can lead to overspending by local governments, because some taxpayers will vote for additional public services knowing that higher property taxes will be entirely offset by circuit breaker benefits.

Missouri has a circuit breaker, as well as another property tax relief program called the Homestead Preservation Act. But, aside from real estate taxes, Missouri also taxes personal property — which brings me to my main point. Although there might be legitimate arguments against personal property taxes (such as the double-tax issue; buying a car also entails a substantial sales tax), the main thing I like about the personal property tax is that, for many people, it gives them the necessary “skin in the game.”

This might seem silly to like a tax just because more people pay it, and perhaps it is. However, if roughly half of Americans pay no income tax, than we can assume roughly half of Missourians pay no state income tax (although, as I said earlier, it probably totals a little less than half). Certainly some of that portion own homes, but for most people even those taxes are partially hidden in monthly mortgage payments — or hidden to an even greater extent in rent payments. We all know that sales taxes are paid in bits and pieces, except when you buy very large items. But the large majority of Missourians own cars or trucks, and — unlike with real estate — you owe a tax on your car even if the bank that loaned you the money still has the title.

I really think that there is a significant number of Missourians for whom the only time they make a tax payment of any substance at all (automobile property taxes likely average around $200) is when they pay their personal property tax. Hopefully, everyone who makes this payment — which is not due on April 15 but Dec. 31 every year — they take a moment to think about tax rates and government services, and contemplate whether they believe they get what they pay for. If this tax gets a large number of Missourians to realize that they are taxing themselves when they vote on tax increases, rather than just taxing other people, the structure of this particular tax may have a beneficial silver lining.

Post-Dispatch Prefers Broken Legs Over Court Dates!

Posted on by Caitlin Hartsell

The editorial board for the St. Louis Post-Dispatch recently published a piece denouncing politicians who support payday loans. The editorial is filled with rhetoric, but doesn’t contain much economic analysis or critique of the bill’s actual provisions. I’d like to expand on the discussion here.

From the editorial:

The big losers are the vulnerable Missourians who are being ripped off with impunity by payday lenders. Republicans have let the public down. Gov. Jay Nixon, a Democrat, hasn’t been much help either.

The highly charged language of this paragraph ignores that payday loans are consensual agreements made by individuals. Payday loan customers are not forced to take these loans, but rather take them out voluntarily for any number of personal reasons.

People who apply for payday loans usually have a high risk of default, or need money immediately — otherwise, a bank would be willing and able to offer a longer-term loan at a much lower interest rate. When payday loan stores lend out money, they have to take into account the risk of that loan remaining unpaid. Because these loans are made to people who are less likely to pay them back, that higher risk is counterbalanced by a higher interest rate. If rates are lowered by force of law, many higher-risk borrowers will find themselves entirely without access to legitimate forms of credit.

(For those who read Show-Me Daily often, you know that payday loans have been a regular discussion topic for the past two years. The previous posts are well worth reading.)

The Post-Dispatch also includes an AP photo of a group of payday loan stores, which well illustrates the abundance of stores in the market. This image illustrates an important free-market principle: competition. The close proximity of the stores means that payday loan lenders need to compete for customers. If one store is charging a higher rate than warranted by customer risk factors, accounting for an individual’s ability to pay back the loan, then another lender will be willing to undercut their competitor by offering that loan at a lower rate (an ongoing process, until the “market rate” is reached). Any worry about people being “ripped off” should be abated when one factors in the idea of marketplace competition: Each store sets rates to vie for customers while balancing the risk of repayment.

The Post-Dispatch ignores the fact that some people who really need loans cannot always get those loans from a bank, but that the necessity of the money immediately outweighs the longer-term potential cost of a payday loan. Setting any sort of regulations on payday loan operations means that some people will not be able to get loans legally. That does not mean they won’t get loans at all, but they will have to use underground or black market means to obtain them. This puts high-risk borrowers in an even worse situation, because if someone can’t pay back a payday loan or a bank loan, there are legal methods to handle the situation, like bankruptcy. If someone doesn’t pay back a loan, on the other hand, the lender has little recourse other than black market violence.

Deciding to increase payday loan regulations amounts to misguided paternalism. People at the margin will still take out loans they cannot afford to pay back — but that will happen whether they get them from a payday lender or, as the present mortgage crisis has shown us, from a traditional bank. In an attempt to save consumers from themselves, such loan regulations push desperate borrowers to illegal sources. Payday loan rates should be left to market competition, not government officials.

The Possibilites and Limitations of Educational Alternatives

Posted on by John Payne

Last week, I wrote that we needed many more options in education than the traditional public school. In his latest column, Steve Chapman echoes that sentiment but cautions that no single alternative is likely to bring revolutionary change. For instance, Chapman looks at the lackluster results from the voucher program in Milwaukee:

In 1990, in one of the most innovative developments in modern American education, the Milwaukee public schools created a parental choice system. Some low-income parents got vouchers that could be used to send their children to private schools.

It was a richly promising idea. The new option would let disadvantaged kids escape wretched public schools. Competition would force public schools to improve or close. Students would learn more.

Twenty years have passed. Last week, researchers at the School Choice Demonstration Project at the University of Arkansas published their latest assessment of the results.

What did they find? Something unexpected: Kids in the program do no better than everyone else. “At this point,” said professor Patrick J. Wolf, “the voucher students are showing average rates of achievement gain similar to their public school peers.”

Although I agree with Chapman’s main point, I think he is too critical here.  Voucher students score basically the same as public school students, but the graduation rate for students receiving vouchers is 77% to 65% for students without the voucher, which is hardly insignificant. Even more striking, especially in such a lean fiscal year, voucher students attain the same level of education as their public school peers for less than half the cost — $6,400 a year for voucher students against $14,000 for public school students. In other words, the private schools are doing the same job with half the resources. Cutting costs without substantially improving educational outcomes is not worthy of a standing ovation, but it at least deserves mild applause. The same point can be made about charter schools.

That said, Chapman’s conclusion is incredibly wise:

What should we learn from these experiences? Not that nothing works, but that few if any remedies work consistently in different places with different populations. We shouldn’t expect that broad, one-size-fits-all changes imposed by the federal government—such as those offered by the Obama administration—will pay off in student performance.

From the local school district to the federal Department of Education, humility, caution, and open-mindedness are in order. Because right now, the main thing we know about improving schools is that we don’t know very much.

This is why changes in the educational system should come from the bottom up. Students, parents, and individual schools and districts should be encouraged to experiment and imitate those experiments that work. Grandiose nationwide (and even statewide) plans, on the other hand, have a tendency to ignore local and individual particulars. Ignoring those particulars all too often leads to general failure.

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