When Advocates for Subsidies Say “Local,” They Mean “A Short Distance Away”

Posted on by Sarah Brodsky

This article about local food in San Francisco illustrates the problems with subsidizing food production on pricey urban real estate. When people could more profitably use land for other purposes than growing fruits and vegetables, it takes huge subsidies to keep it cultivated. It’s not enough for people to prefer local food — they have to be willing to pay so much for it that no other use of the land would be more profitable:

“It’s really a conundrum,” says Sibella Kraus, president of nonprofit Sustainable Agriculture Education, or SAGE, which encourages sustainable local farming. “There is this demand for local, but we’re not really investing in local.” Ms. Kraus, known for her work planning the San Francisco Ferry Building market, says that while development is at a lull now due to the real-estate downturn, government at the state and local level hasn’t created enough incentives to prevent farmland loss when economic activity rebounds.

It’s worth noting that the advocates quoted here are not fighting for environmentally sound agriculture, or for forging relationships with farmers, or for supporting small farms. All those things could be done at a distance. They want the farming to take place at close geographical proximity; they think minimizing the physical space between grower and consumer is what matters. If what they really cared about were the environment or small farms, they would drop their demands for farmland in San Francisco — where it makes no sense economically — and instead support those practices where farmland is affordable. Which is more sustainable: farming in a rural area where land values are stable and crops pay for themselves, or farming next to a big city where the high price of land means the enterprise would fail without subsidies?

So, advocates should abandon the idea that “local” is a code word for “sustainable” or “better.” It isn’t. It just means “close by.” If you look around and see that the farmers near you are environmentally responsible, you can’t conclude that farmers everywhere are equally responsible. And those other farmers are local from the point of view of their neighbors. Every destructive, unsound farming practice is local to the people who live near it.

When cities or state grant subsidies to local agriculture — and in every policy I’ve seen proposed, “local” is defined in terms of a geographical area — they can’t be sure that those subsidies will go to the good local farmers and not the bad local farmers. Even if all the farmers who currently work in that region are all virtuous, there’s no guarantee that an unscrupulous farmer from somewhere else won’t move in to become local and claim the subsidy.

To those who argue for such subsidies in Missouri, I say: Not in my backyard!

Uniform Standards Would Make Education Research More Difficult

Posted on by Sarah Brodsky

A New York Times editorial celebrates national standards as if they were the pot of gold at the end of an education reform rainbow:

The countries that have left the United States behind in math and science education have one thing in common: They offer the same high education standards — often the same curriculum — from one end of the nation to the other. The United States relies on a generally mediocre patchwork of standards that vary, not just from state to state, but often from district to district. A child’s education depends primarily on ZIP code.

That could eventually change if the states adopt the new rigorous standards proposed last week by the National Governors Association and a group representing state school superintendents.

The editorial’s optimism is unwarranted. It’s true that the countries that score above us on international tests have national education standards. But we can’t conclude that standards contributed to their success, because almost all of the countries that score below us have national standards, too. Maybe standards would make us more like those high-scoring countries, or it could be that they would bring us down to the level of the lower-scoring countries. Data from international tests can’t tell us what effect national standards would have on U.S. education.

Uniformity is a hindrance when you’re trying to research the effects of national standards. It’s also a problem for researchers who study curriculum and teaching methods. All the research behind the proposed national standards was possible because lots of schools did different things. If every school took the same course of action — for example, by following national standards — less research would be possible. The standards’ authors defend their proposal as “research-based,” all the while advocating for a policy that would impede research if states agreed to it.

Forum on Proposed Metro Bus and Light Rail Tax in St. Louis County

Posted on by David Stokes

I’d just like to quickly promote the upcoming forum/debate on the proposed half-cent Metro tax for buses and light rail that will be on the ballot in April. The forum takes place this Monday, March 15, at 11:45 a.m., at the Center of Clayton — just west of downtown Clayton by the high school (on Gay Ave., just south of Maryland). Feel free to bring your lunch; it should last about an hour.

Mayor John Nations of Chesterfield will speak in favor of the tax increase, and John Burns, head of Citizens for Better Transit, will speak in opposition. I think they will both be very good, and it should be a worthwhile debate. The only thing I can personally guarantee is that everything will go according to the time schedule, because yours truly will serve as the timekeeper. The Clayton Chamber of Commerce is sponsoring the event, and everyone is welcome to attend. Please call the chamber at (314) 726-3033 if you have any questions, and to register.

Here are a few of the items that the Show-Me Institute has published about this important issue.

Negative Unintended Consequences of Corn Ethanol Production Incentives

Posted on by Christine Harbin

This month, the University of Missouri Food and Agricultural Policy Research Institute released its 2010 US Baseline Briefing Book (PDF). Among other topics, the report explores the effects of eliminating the credits and tariffs currently in place for corn ethanol. The current corn ethanol tax credit has many unintended negative consequences, and the United States would be better off if the program were scrapped entirely.

  1. This production incentive encourages overproduction. This is undesireable from an environmental perspective, because it leads to deforestation. It’s also detrimental for the American economy because it results in an inefficient allocation of resources.

  2. It increases the cost of fuel for taxpayers. Each gallon of ethanol that is produced costs them $4.18. This is separate from and in addition to the price that they pay at the pump. In a piece on The Huffington Post, Nathanael Greene explains how this happens:

    [N]ext year the oil companies will be required to buy 12.6 billion gallons of conventional corn ethanol, but because tax payers are giving them $5.85 billion they’ll consume 1.4 billion more than required. That works out to $4.18 per extra gallon.

  3. It drives up the prices for corn, soybeans, and wheat. This is bad for consumers because they have to pay more for food. This is also bad for the environment because it leads to land-use change and further overproduction and deforestation. The FAPRI report quantifies that eliminating the tax credit for corn ethanol would cause the prices of these grains to fall. According to p. 64, if the production incentives were removed, the average corn prices would decrease by approximately $0.15 per bushel during the 2010-2019 period:
    Screen shot 2010-03-12 at 12.15.55 AM

  4. It discourages the development of biofuels that are cleaner and more renewable than corn ethanol. These alternatives are forced to compete at a disadvantage because they do not receive the financial favor that corn ethanol does.

The corn ethanol production incentive program is an application of the broken window fallacy. Politicians in Washington fail to consider the cost to taxpayers, and the aforementioned negative consequences. When taxpayers are forced to spend their money on subsidizing the overproduction of corn ethanol, they cannot spend it on something else, such as infrastructure or education or alternative renewable fuels.

Supporters of the production incentives will argue that discontinuing the program would hurt farmers’ bottom lines. However, government payments constitute a very small amount of their compensation relative to sales, as shown on p. 62 of the report. For this reason, eliminating the production incentives would not actually be detrimental to this group:

Screen shot 2010-03-12 at 12.21.32 AM

“Innovative Schools”

Posted on by Sarah Brodsky

Mississippi’s state legislature is revising a bill that, if passed into law, would allow some traditional public schools to convert to charter schools with certain limitations. Legislators have dubbed this brand of charters “innovative schools.” Here’s how they would work:

An innovative school is a type of charter school but does not divert dollars or students. The concept is simply parents taking an existing school and running it, Brown said. More than 50 percent of the parents would have to agree and the parents would elect a board to run the school.

I don’t think these charters would be as innovative as their name suggests. There are several disadvantages to the “innovative schools” model:

  • “Innovative schools” would start out with their student bodies already in place. In comparison, the typical charter school has to market itself from the very beginning. An “innovative school” would face less pressure to try anything new, because students would be enrolled from the start whether it innovates or not.

  • Regular charter schools are free to specialize. They can offer programs that don’t interest everyone — like language immersion or career preparation — and enroll students who formerly attended many different schools. “Innovative schools” could only form at the agreement of parents of students who attend one traditional public school. They would have to settle on a safe plan that the majority is happy with.

  • Poorly performing schools would be eligible to convert to “innovative schools,” whereas other public schools would not. So, every “innovative school” would have to focus on turning around a bad situation and correcting mistakes. The need to work with multiple grade levels might compound the difficulty. “Innovative schools” could not start with one grade and build up, as many successful charters have done. It would be difficult for any school to innovate while struggling with these challenges.

Mississippi would see more innovation if it were to drop the “innovative schools” idea and instead authorize schools that are more like the charters currently found in Missouri and other states.

Birth Center Regulations

Posted on by Sarah Brodsky

This article in the Post-Dispatch identifies a regulatory barrier to opening birth centers in Missouri:

Another challenge in Missouri is the state’s licensing requirements for birth centers, which Henman and others are trying to change[.] Birth centers are licensed as ambulatory surgical centers even though no surgeries take place. Many of the requirements are expensive and unnecessary, says nurse midwife Rachel Williston, 34, who wants to open a birth center in Independence, Mo.

Complying with all the regulations for ambulatory surgical centers is no simple task. The regulations can make the difference between a facility being profitable enough to operate and being forced to close. This was evident in 2007, when Missouri law was changed to impose the ambulatory surgical center regulations on abortion clinics, which challenged the law in court. They argued that imposing such onerous regulations was a ploy to shut them down.

It’s unfair to regulate birth centers the same way as surgery centers, when no one performs surgery in them. Women can legally give birth at home, and their houses need not meet all the code specifications of a surgery center. Births in birth centers should be regulated more like births in homes.

Public Health Spending

Posted on by Charis Fischer

On Monday, the St. Louis Post-Dispatch ran this opinion piece discussing the amount of public health spending by state. The article points out that Missouri spent just $9.26 for each resident, which is the second-lowest amount of all the states, higher only than Nevada. The author is concerned because “public health is one of the most cost-effective investments any state can make.” To support this assertion, the piece cites a 2008 study which, “found that investing in public health and disease prevention can reduce rates of chronic illnesses such as cancer, [heart] disease and diabetes.” This study also estimated “that every $1 invested in those programs would return $5.60 in benefits over five years.”

What the article doesn’t mention is that the study it cites also concluded that an investment of $10 per person per year in “proven community-based programs” would give us the aforementioned rate of return. Furthermore, according to this study, “evidence shows that implementing these programs in communities reduces rates of type 2 diabetes and high blood pressure by 5 percent within 2 years; reduces heart disease, kidney disease, and stroke by 5 percent within 5 years; and reduces some forms of cancer, arthritis, and chronic obstructive pulmonary disease by 2.5 percent within 10 to 20 years.” Missouri spends almost $10 per person per year, the figure observed in the study, but still has poor health outcomes. This tells me that we are probably not spending our money in the most effective way.

There is further evidence of that in a comparison of four measures of public health in Missouri and Nevada, the one state that spends even less than we do in this area:

Missouri Nevada
Overweight/Obese (2008) 65.4% 62.6%
Diabetes (2008) 9.1% 8.5%
High blood pressure (2003) 27.5% 23.6%
Smokers (2004) 24.9% 22.1%

* Information on high blood pressure from CDC; all other information from statehealthfacts.org

So, even though we spend more than Nevada on public health, we still have higher numbers in all four of these categories. This is admittedly an overly simplistic analysis, but the point is that amount of state public health spending is obviously not the only factor that matters for health outcomes in Missouri. The programs themselves should be evaluated for effectiveness, to determine whether investment of additional resources in them is worthwhile.

The larger point here is that using state taxpayer funds to address public health problems might not be the best strategy, given the frequent ineffectiveness of state-run programs. Instead, we should end the tax benefit for employer-provided health insurance, which would allow individuals to have control over their health insurance. People would then have a direct financial incentive to become more sensitive to the effect that their lifestyle choices have on their premiums. As a result, a greater number of people would make healthier choices, in addition to the obvious incentive of health in and of itself.

Kansas City School District Makes the Hard Decisions

Posted on by David Stokes

I am not writing to commend the Kansas City School District for closing down almost half of its schools or laying off hundreds of staff. I will, however, commend it for being willing to make hard decisions, and these must have been incredibly hard.

I don’t think there is anything more difficult in current public policy debates than the issue of education in big cities. Even the school choice measures I believe in strongly, like charter schools and vouchers, are by no means magic bullets. That being said, the Kansas City School District has changed dramatically during recent decades, and it needed to shrink in order to reflect those changes and efficiently operate itself. The last thing the school district, or any government agency, should do is linger on indefinitely as a jobs program for government workers, whether they are needed or not.

Payday Loan Reading List

Posted on by Abhi Sivasailam

One problem with the debate over payday loan regulation in Missouri and elsewhere is a lack of sustained focus on data. Regrettably, both opponents and proponents of regulatory legislation within the state seem to cling reflexively to familiar, abstract narratives and consequently fail to engage the public with meaningful evidence to support their assumptions. To alleviate this problem, I am compiling this list of literature — both sympathetic and unsympathetic to the payday loan industry — to enrich the public dialogue. If any of you know of more quality literature on the topic, please add to this post in the comments.

  1. Payday Holiday: How Households Fare after Payday Credit Bans (ungated), Donald P. Morgan and Michael R. Strain.

    “Compared with households in states where payday lending is permitted, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate. North Carolina households have fared about the same. This negative correlation—reduced payday credit supply, increased credit problems—contradicts the debt trap critique of payday lending.”

  2. The Economics of Payday Lending (ungated), John P. Caskey, Swarthmore College.

    General overview of payday lending industry and basic issues. Written for a lay audience.

  3. Do Payday Loans Cause Bankruptcy? (ungated), Paige Marta Skiba and Jeremy Tobacman.

    “Though the size of the typical payday loan is only $300, we find that loan approval for first-time applicants increases the two-year Chapter 13 bankruptcy filing rate by 2.48 percentage points.”

  4. Factors Affecting the Location of Payday Lending and Traditional Banking Services in North Carolina (ungated), Mark L. Burkey and Scott P. Simkins.

    Explores the geography of payday loan institutions. “A key finding is that after controlling for many covariates, race is still a powerful predictor of the locations of both banks and payday lenders.”

  5. The Profitability of Payday Loans (ungated), Paige Marta Skiba and Jeremy Tobacman.

    “Despite charging effective annualized rates of many thousand percent, we find lenders’ firm-level returns differ little from typical financial returns. The data are consistent with an interpretation that payday lenders face high per-loan and per-store fixed costs in a competitive market.”

  6. Quantifying the Economic Cost of Predatory Payday Lending (ungated), Keith Ernst, John Farris, Uriah King:

    “Our analysis of quantitative data reveals that payday lenders collect the vast majority of their fees from borrowers trapped in a cycle of repeated transactions, where borrowers are forced to pay high fees every two weeks just to keep an existing loan outstanding that they cannot afford to pay off.”

  7. A Comparative Analysis of Payday Loan Customers (gated), Edward C. Lawrence and Gregory Elliehausen.

    “By analyzing the data collected in a national survey of payday customers, this research allows policymakers to better understand what type of consumer borrows from payday lenders, for what purpose, and what the true benefits and costs are. The results confirm a strong demand for payday loans that satisfy a real financial need within a certain segment of the population.”

  8. Mayday Payday: Can Corporate Social Responsibility Save Payday Lenders (ungated), Carmen M. Butler and Niloufar A. Park.

    “In this article we ask what the best ways are to maximize the wealth of the payday lending industry while limiting the industry’s harmful impact on consumer communities? We assert that payday lenders will likely demonstrate greater corporate social responsibility only after there is a change in the laws that govern the industry coupled with industry-wide reform in corporate governance.”

  9. Restricting consumer credit access: Household survey evidence on effects around the Oregon rate cap (ungated), Jon Zinman.

    “Borrowing fell in Oregon [after interest rate caps] relative to Washington, with former payday borrowers shifting partially into plausibly inferior substitutes: bank overdrafts and late bill payment. Additional evidence suggests that restricting access caused deterioration in the overall financial condition of Oregon households. Overall the results are consistent with restricted access harming, not helping, consumers on average.”

  10. Consumers’ Use of High-Price Credit Products: Do They Know What They Are Doing? (gated), Gregory Elliehausen:

    This paper asserts that consumers of payday loans are sufficiently rational. A caveat, however, is that rationality is a just a process and does not imply that “good” decisions are made.

Some op-eds include:

The last of those op-eds was written by a former employee of the Show-Me Institute. Perhaps unsurprisingly, my views on payday loans are fairly similar to his. Taking an economic view, I’m concerned that regulatory reform will be unable to limit payday loan harms effectively without driving the market underground. Taking a political view, I view payday loan consumers as sufficiently rational and believe that a government (at least in this arena) has more of an imperative to maintain free, private contracts than to protect the politically weak.

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