Page 676 – Show-Me Institute

Problems With Ethanol Subsidies and Mandates

Posted on March 22, 2010May 5, 2026 by Caitlin Hartsell

The St. Joseph News-Press ran an article this past week about the biodiesel industry’s fight for a tax credit extension. Show-Me Institute research analyst Christine Harbin wrote about the negative consequences of corn ethanol subsidies on our blog recently, and provided good analysis about why such subsidies hurt taxpayers. The St. Joe’s article is filled with quotes from people within the industry that exemplify why the tax credits are counterproductive:

“Any further delays will cause additional harm to the industry,” said Michael Frohlich, director of communications for the National Biodiesel Board. “(The expiration has) really been devastating. What you’ve seen is a complete drop in demand.”

Frolich essentially concedes here that the subsidy drives demand, implying that ethanol cannot, on its own, be a profitable endeavor. But the industry leaders interviewed in the article go on to argue that these subsidies will make the industry competitive in the future:

“(The tax credit) is crucial in order for (the biodiesel industry) to keep running,” said Brooks Hurst, a state director for the Missouri Soybean Association. “As we’re starting out, it’s critical to make us cost competitive with petroleum diesel.”

Soybean oil is a feedstock for the production of biodiesel.

If the tax credit were eliminated altogether, the industry would likely “cease production,” Mr. Hurst added.

“The biodiesel industry is an infant industry,” he said. “We’re trying to build demand.”

The nascent or infant industry argument is one used throughout history to protect emerging industries. It suggests that new industries need to be protected temporarily in order to gain the economies of scale that their competitors already enjoy. This is later expanded by Frolich, however, who says:

“Obviously, the long-term goal is for a multi-year (tax credit) extension.”

Ethanol needs the subsidy in order to be profitable, but subsidy proponents argue for more than just economic viability. Some claim that ethanol is better for the environment than standard gasoline, and suggest that it should be subsidized for that reason alone; however, there is a substantial body of research showing that this is not the case. A 2005 study in BioScience debunked that notion by looking at the effects of ethanol use in both Brazil and the United States, concluding that it did not bring net environmental gains. From the study’s conclusion (emphasis added):

The use of ethanol as a substitute for gasoline proved to be neither a sustainable nor an environmentally friendly option, considering ecological footprint values, and both net energy and CO₂ offset considerations seemed relatively unimportant compared to the ecological footprint. As revealed by the ecological footprint approach, the direct and indirect environmental impacts of growing, harvesting, and converting biomass to ethanol far exceed any value in developing this alternative resource on a large scale.
[…]
In the US case, the use of ethanol would require enormous areas of corn agriculture, and the accompanying environmental impacts outweigh its benefits. Ethanol cannot alleviate the United States’ dependence on petroleum.

Other studies have replicated these results, such as another piece from 2005, printed in the Renewable and Sustainable Energy Reviews. The authors reached a similar conclusion about E10, the ethanol mixture used for Missouri gasoline:

The study indicates that E10 is of debatable air pollution merit (and may in fact increase the production of photochemical smog); offers little advantage in terms of greenhouse gas emissions, energy efficiency or environmental sustainability; and will significantly increase both the risk and severity of soil and groundwater contamination.

A 2004 study published in Natural Resources Research concluded that ethanol creation uses more energy than the ethanol itself provides:

Specifically about 29% more energy is used to produce a gallon of ethanol than the energy in a gallon of ethanol. Fossil energy powers corn production and the fermentation/distillation processes. Increasing subsidized ethanol production will take more feed from livestock production, and is estimated to currently cost consumers an additional $1 billion per year. Ethanol production increases environmental degradation. Corn production causes more total soil erosion than any other crop. Also, corn production uses more insecticides, herbicides, and nitrogen fertilizers than any other crop. All these factors degrade the agricultural and natural environment and contribute to water pollution and air pollution.

Missouri is at a disadvantage because the state’s ethanol mandate requires at least 10 percent ethanol in the gasoline sold here. Show-Me Institute policy analysts David Stokes and Justin Hauke published a case study analyzing the effects of the mandate, concluding that it cost the taxpayers much more than it saved — the opposite of the cost-savings argument originally made in favor of the mandate. Requiring ethanol to be used in the state’s gasoline also discourages research toward better and more efficient forms of biofuel by propping up the corn ethanol industry.

The data shows that the ethanol mandate is expensive and does not help the environment. Ethanol may even harm the environment, by discouraging more efficient and environmentally solutions. That being the case, what justification is left to protect the ethanol industry with mandates and subsidies?

Hard Choices, Not False Choices

Posted on March 22, 2010May 5, 2026 by Sarah Brodsky

The Tour of Missouri website encourages Missourians to lobby for restored funding. Here are some of the reasons it gives:

Contact your local representatives and let them know how important this event is to you and for what reasons, whether it is because of the economic impact it has on the local communities and state as a whole, the educational aspect of providing an interesting curriculum to the schools, that it promotes healthy lifestyles for children and adults alike (Bike sales increased the week of the event in 2009), the Tourism exposure as the eyes of the world focus on Missouri for a week each year, or the increased sense of community as all of the host cities unite to put together a special welcome to the visitors from nearly 100 countries and all 50 states. Or maybe you can just tell them you want it because it is a heck of a lot of fun!

The Tour of Missouri, like other potential recipients of state funds, does a lot of constructive things. But that’s not enough reason for the state to continue subsidizing it when revenue decreases.

In order to show that Tour of Missouri deserves a subsidy, supporters would have to demonstrate that a dollar spent on the Tour gives Missourians more benefit than that same dollar would if spent on anything else. There are other programs out there that claim to accomplish some of the same things as the Tour. For example, it’s been suggested that archery is a good basis for interesting curricula. Film tax credits are said to boost the economy, local food initiatives to engender healthy habits, and Census promotional events to build community.

This state representative gets the idea:

“You wouldn’t want to cut something that was proven to have brought money back,” he said, adding that the money has to come from somewhere. By way of example, he said you could ask educators if they would cut $1 million from Parents as Teachers or Career Ladders programs to fund the race.

Some people have told me that comparing programs like that is a “false choice.” They say that we don’t have to choose between Parents and Teachers and a bicycle race, because we can have both. They imply that it’s unfair to bring up education funding when you’re discussing a subsidy for an unrelated program — as if no program could appear deserving when held up against the schools.

If by “false choice” people mean that we shouldn’t fund one program we like best to the exclusion of all others, then they’re right. We don’t want to fund public schools and nothing else; government funding is not winner-take-all. However, at the margin — when we’re deciding where to spend that last dollar of state funds, or where to make the next cut to balance the budget — we do need to compare programs. We need to make sure that we’re cutting funds from the program that is least necessary, not the program that is most productive.

People who still think these decisions at the margin are “false choices” are making a mistake. They’re assuming that their favorite program doesn’t need to be as productive as others when, in fact, it does. Resources are scarce. Tax dollars can’t go toward funding just any program that does a nice job. Deciding to increase funding for one program but not another would be a false choice only if there were some way to give every program the full funding increase its supporters want. There isn’t — so, as the state representative pointed out, a dollar spent on one program is a dollar that could have been spent on something else.

It’s also a mistake to think that schools would gobble up all the money if only the most deserving programs were funded. Suppose we decided to spend tax dollars where they’re most needed, and we started funneling dollar after dollar into education. Pretty soon, the state would be in dire need of other services that schools can’t provide. In that situation, a dollar spent on one of several other programs would be more productive than a dollar spent on schools.

Besides comparing programs as I’ve discussed, legislators also have to consider whether the last dollar spent on a state program would have been put to better use if left in the private sector. If the answer is “Yes,” it should be returned to the taxpayers.

Choosing between funding a program that’s “a heck of a lot of fun” and funding a program that’s boring but productive may be a difficult choice, but it isn’t a false choice.

“Where a Student Lives”

Posted on March 21, 2010May 5, 2026 by Sarah Brodsky

I’m grateful to Audrey Spalding for directing me to this op-ed in the New York Times. The author argues in favor of adopting a national curriculum, or at the very least national education standards. She then produces an inspirational quote from Daniel Webster and concludes with these words:

These great principles cannot be upheld if the quality of our public schooling continues to depend more on where a student lives than on a national commitment to excellence.

Advocates for standards rely on this reasoning time and again: In the current public school system, they observe, students can receive an excellent education if they live in a wealthy neighborhood or a terrible education if they live in a poor neighborhood. This is obviously inequitable. Therefore, they think that the federal government should intervene and ensure that every school follow the same standards.

There’s a problem with that argument. If the government could iron out variations in educational quality by imposing standards, we would already have a more equitable education system. States maintain education standards, yet there’s a wide range of school districts within each state; some districts exceed the state standards, and others fall short. School boards ostensibly choose one curriculum for all of a district’s students, but every district has some schools that are known to be better than others. Even within a single school building, you’ll find teachers who are helping their students excel and others who really ought to look for a new line of work.

Advocates for national standards are implicitly saying that the federal government is different. Where lower levels of government have failed, they expect a national policy to be more effective. This is wishful thinking. If levels of government that are closer to the classrooms can’t bring a few schools up to a standard, a directive from far-off Washington won’t be able to transform all the schools in the nation.

This City Is Going on a Diet

Posted on March 19, 2010May 5, 2026 by Charis Fischer

Here’s an example of an admirable effort to improve public health without spending a dime of government money: On Jan. 1, Oklahoma City Mayor Mick Cornett challenged the citizens of his city to lose 1 million pounds. As part of this initiative, residents can sign up on the mayor’s interactive website, “This City Is Going on a Diet,” which has recipes, exercise tips, and a place for people to track their weight loss, among other helpful tools.

This program caught my eye because the mayor was featured on Fitness magazine’s “Champions of Health & Fitness 2010” list. As of January, 40,436 residents have lost a collective 519,460 pounds (the mayor himself lost 38 pounds). Restaurants have responded by creating low-cal offerings that they list as “the mayor’s special” on menus (no government mandates required). The best part is that the interactive website was entirely funded by contributors from the private sector. No taxes or bans on unhealthy foods were imposed, and no taxpayer money was spent. As I noted in my last post, the low level of government spending on public health in Missouri doesn’t necessarily have to result in hampering efforts to encourage our citizens to be healthier. Creative, fully voluntary ideas like this one should be encouraged and copied.

A Ban I Actually Support

Posted on March 19, 2010May 5, 2026 by John Payne

That would be a ban on red light cameras, which was recently proposed in the Missouri Senate. Although I am not a fan of most rules, I have no problem with the fair enforcement of effective traffic laws. The problem is that red light cameras are not effective in preventing accidents — quite the opposite — and only serve as revenue streams for the cities that install them.

A 2008 study published in the Florida Public Health Review surveyed the literature on red light cameras and found that they actually increased the number of accidents at red light intersections. Here are some of the study’s key findings:

• Comprehensive studies from North Carolina, Virginia, and Ontario have all reported cameras are significantly associated with increases in crashes, as well as crashes involving injuries. The study by the Virginia Transportation Research Council also found that cameras were linked to increased crash costs.

• Some studies that conclude cameras reduced crashes or injuries contained major “research design flaws,” such as incomplete data or inadequate analyses, and were conducted by researchers with links to the Insurance Institute for Highway Safety. The IIHS, funded by automobile insurance companies, is the leading advocate for red-light cameras. Insurers can profit from red-light cameras, since their revenues will increase when higher premiums are charged due to the crash and citation increase, the researchers say.

Langland-Orban said the findings have been known for some time. She cites a 2001 paper by the Office of the Majority Leader, U.S. House of Representatives, reporting that red-light cameras are “a hidden tax levied on motorists.” The report concluded cameras are associated with increased crashes, the timings at yellow lights are often set too short to increase tickets for red-light running, and most research concluding cameras are effective was conducted by one researcher from the IIHS. Since then, studies independent of the automobile insurance industry continue to find cameras are associated with large increases in crashes.

In the two years since the study was published, there have been numerous reports of cities shortening the length of yellow lights at intersections, which leads to even more accidents, purely in the name of generating more revenue from tickets. If the evidence showed that red light cameras made the roads safer, I would not complain, but they simply encourage cash-strapped city governments to deliberately make them less safe, so they can rake in some much-needed revenue. That’s an unacceptable set of incentives, and Missouri should put a stop to it.

Full disclosure: I did just get a ticket from the city of Saint Louis for running a red light equipped with a camera. I didn’t actually run the light, but a rolling right turn is apparently also illegal.

What Does It Cost if Your Neighbor Has No Health Care Insurance?

Posted on March 19, 2010May 5, 2026 by Stephen Feman

Americans are proud of their independence and their rights as individuals to express their unique perspectives. No one is about to tell you what to do, and many people would be willing to fight to keep that privilege. That’s good, but our concern in recent weeks has been how that extends to health care. As it is now, everyone goes about getting health insurance on their own, if that is what they desire. Most of the people who have employer-supplied insurance usually accept that. All the people who are older than age 65 have the federal government–sponsored Medicare program accessible to them. Americans who are truly indigent are eligible for the various state-managed Medicaid programs. Individuals with jobs that don’t offer employer sponsored health care insurance can buy it on their own, if they wish. The problem is that this arrangement is partly responsible for the continuing increases in health care costs.

During the past few years, there has been a gradual downturn in our economy. There are fewer jobs, and many of those that exist are offering reduced benefits. In keeping with our independent American spirit, some people are opting out of the personal choice of buying health care insurance. In Missouri, the number of people without health care insurance has continued to grow. Back in 2004, there were 463,000 Missouri citizens without any form of health care insurance. By the beginning of 2007, the number of Missourians without health care insurance had increased to 744,030 people. It is expected that the numbers are higher now, but more recent verifiable data is not accessible.

This year, the St. Louis Area Business Health Coalition examined how changes in our economy have affected some aspects of hospital costs in this region. What they discovered should give us all a reason to rethink the current health care debate. Their report looked at the same years mentioned above.

The first item of theirs that caught my attention was an evolving change in language use. The generic term for hospitals’ economic problems is “uncompensated care.” Historically, hospitals have listed some nonpayment for services as bad debts, and those items would be transferred to financial services companies. At the same time, those health care service activities that were charity care were thought to be situations in which the hospitals had no expectation of payment. During the past decade, though, the differences between charity care and bad debts were in a state of flux because of variations in the Internal Revenue Service’s reporting guidelines. However, if one only restricts these expenditure types to the generic term “uncompensated care,” there has been a great increase during this time interval.

Here is a look at the exact numbers: It appears that in 2004, the Missouri hospitals included in the Business Health Coalition report spent $60 million on charity care, and, in addition, bad debt cost them another $140 million, for a total of $200 million. By the end of 2005, those same Missouri hospitals spent $73 million in charity care, and bad debt cost them an additional $165 million, for a total of $238 million.

It is important to add here that these figures represent only the hospital care costs. None of these numbers relate to any of the uncompensated care that physicians contribute every day, and none of this relates to uncompensated care supplied by nurses, technical personnel, clinics, surgical centers, medical laboratories, etc. That is, this data is just in regard to the “big box” hospitals.

The arithmetic is very simple, though. There were about 5.8 million people living in Missouri in the years of the Business Health Coalition report. So, $238 million dollars divided by 5.8 million people is $41 per person. That is, during 2005, each and every man, woman, and child in Missouri had to contribute at least $41 toward the hospital uncompensated care bill. (Some might say, “Your tax money at work.”)

This average $41-per-person cost may not seem like much, until you realize that there was a 19-percent increase between 2004 and 2005, and things have continued to rise since that time. Would you be better off if this problem were reduced? Something like that could happen if everyone had their own independent insurance policies. It appears that some countries have done that already and are doing well. Do you think we should try it here?

Isn’t It Ironic? (Don’t You Think?)

Posted on March 19, 2010May 5, 2026 by Christine Harbin

As Caitlin pointed out last night here on Show-Me Daily, the Saint Louis blogosphere has been criticizing the Show-Me Institute for moving from Clayton to the Central West End, claiming that it is ironic that we moved to the land of the earnings tax, when the institute’s publications have argued that the earnings tax drives people and businesses away from St. Louis city. This assertion reminds me of that old Alanis Morissette song, “Ironic,” which described situations of mere coincidence, not irony. (Indeed, the only thing ironic about the song was that it contained no irony.)

Apparently, these authors understand neither the marginal nature of economic incentives, nor the fallacy of insufficient sampling.

Moving to a new area has advantages and disadvantages, and an individual or firm considers both in their decision process. The earnings tax is a cost that is associated with living and working in the city — not unlike higher crime rates and street parking — and it serves as an incentive to businesses and residents to locate in an area not subject to the tax. Individuals and firms weigh the sum of these costs against the benefits of living and working in Saint Louis City, such as proximity to other businesses, shorter commutes, and nightlife.

In its cost-benefit analysis, the Show-Me Institute determined that the benefits of being located within the city outweighed the costs. An increasing number of other firms, in their cost-benefit analyses, have concluded the opposite, and they go elsewhere. This is demonstrated by the overall exodus of businesses and individuals, and restricted economic growth for the city.

It should also be noted that the majority of people who work at the Show-Me Institute already live in Saint Louis city, and therefore were paying the earnings tax even when our office was located in Clayton. This group includes me.

Furthermore, these authors are using a sampling size of one to make a hasty generalization about how the earnings tax affects the movements of individuals and businesses. In no way does this move contradict the scholarly work that the Show-Me Institute has done on the earnings tax.

Parental Choice in Education: How Missouri Compares With Florida

Posted on March 19, 2010May 5, 2026 by Sarah Brodsky

Watching this video about the Florida School Choice Parent Resource Center, I marveled at the many options available to Florida families:

Some of the educational choices that exist in Florida are notably absent in Missouri. For example, Florida students with disabilities may choose between different public schools or receive scholarships to attend private schools. Tax credits drive a separate scholarship program for students from low-income families; these students also have the option to receive tutoring, which is provided by private companies through contracts with school districts. Florida’s public school system boasts multiple virtual schools. And Florida does not constrain its charter schools to a few cities, as Missouri does; they’re spread out across dozens of counties.

Even more remarkable is the view expressed in the video that parents should research different schools and decide which would be best for their children. Missouri doesn’t need to import all of Florida’s parental choice programs and establish all of the same scholarships. It would be enough to adopt the perspective that choice in education is every parent’s right. Choice shouldn’t be seen as a last-ditch response to failure.

The Earnings Tax, Marginal Utility, and Our Move

Posted on March 18, 2010May 5, 2026 by Caitlin Hartsell

A few articles and blogs have recently criticized the Show-Me Institute for moving to our lovely new location in the Central West End. (One article erroneously cites another blog as having broken the news, when it was actually David Stokes here at Show-Me Daily who reported it first. We’ve also been planning the move for the better part of a year, and it wasn’t a secret.)

Collectively, these pieces suggest that there is some irony in the fact that the Show-Me Institute has long pointed out that the earnings tax creates marginal disincentives for economic growth and location within city boundaries, and yet we moved into the city anyway.

There is a useful economics concept at work here: marginalism. A 1-percent earnings tax is not enough enough of a disincentive to determine the location of all businesses or residents, but all disincentives are marginal to varying degrees. Some number of people at the margin, who would otherwise be near an equilibrium point between the positive and negative aspects of living in the city, will find that the earnings tax tips the balance so that the negatives outweigh the positives, and they move away — or never move to the city at all, despite having considered it as a possibility. For others, the positives will continue to outweigh the negatives. This is something we’ve discussed before here at Show-Me Daily. Work published by the Show-Me Institute has always been careful to note that the earnings tax is only one factor among many in the locational decisions of St. Louis–area individuals and businesses. It serves as a disincentive for nearly everybody, but becomes an actual deterrent only for some.

Taxes on income and production are counterproductive. They diminish the incentive to work (even if only slightly) and encourage business owners to find alternatives for their labor costs, like increasing mechanization. The earnings tax, like an income tax, establishes a marginal incentive for businesses and individuals to find ways around this higher cost for labor and wages in the city, whether that entails moving to a suburb, investing in new machinery, cutting corners in production or service, etc. This all distorts the market to varying degrees. Specific types of taxes on property, on the other hand, are much less distortionary. They encourage development of land and maximization of the property value, bringing (again, marginal) new economic growth to the city.

The earnings tax does not keep everyone out of the city, but it does keep away some. Why this is true is one of the most important insights of the marginal revolution. At any rate, incentives are constantly in flux, and equilibrium points between them change frequently. Right now, it makes sense for the Show-Me Institute to work out of the city. But if the earnings tax hadn’t been in place, who knows? The Show-Me Institute might have moved here five years ago.

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