This notice may be too late for those of you who read our blog to tune in, but for those of you Columbia readers who encounter this blog entry right after I post it and find yourselves near a radio, be sure to tune in to The Eagle 93.9 FM at 4:33 p.m. to hear research assistant John Payne talk about unemployment and possibly our new study of the relationship between taxes and economic growth.
The Attack of the Rent-Seeking HVAC Contractors Has Begun!
Here is St. Louis Board of Aldermen Bill No. 337, which would apply current licensing requirements for commercial HVAC work to residential work, as well. Look for almost the exact same thing to be introduced in St. Louis County shortly, too. I understand that these proposed licensing rules and regulations will be introduced in Jefferson County, as well.
Should we expect another fight over this unnecessary, anti-competitive, and simply appalling use of government to restrict competition? Well, given that one of the people who led the fight against this same effort in 2000 — and who was partly successful in that effort — is now a cosigner on the letter requesting the expansion of licensing authority in the county, I don’t have much hope.
My initial post on this HVAC licensing issue last month has all the links you need to find media stories on this subject. I once again recommend the Riverfront Times story from 2000. I basically feel like a boxer who is still standing, but has been hit so many times that he can’t respond. (And, yes, I have boxed and know what it’s like to be hit really hard in the face.) These proposals are coming, they are a perversion of capitalism, and they will raise costs for St. Louis consumers, yet there is absolutely nothing anyone can do to stop it from happening. The capacity to fight back that existed in 2000 just does not appear to be extant right now (as I am sure the licensing proponents are well aware).
Taxes and Government Spending Undermine Economic Growth
With stimulus spending one of the most contentious issues in a very contentious political year, politicians of all stripes have argued about whether government spending boosts or hinders economic growth. It is beyond debate, however, that the spending will have to be paid for by taxpayers either now or in the future. Those taxes cause the economy to grow slower, according to a new study released by the Show-Me Institute, “Taxes and Economic Growth: A Review of the Evidence.” Written by Mark Skidmore and Nicole Bradshaw — both professors at Michigan State University’s Department of Agricultural, Food, and Resource Economics — the study shows that stimulus spending may not prove to be very stimulating, because only spending on highly demanded government services appears to boost economic growth.
In a review of the academic literature, Skidmore and Bradshaw find a general agreement among researchers that higher taxes lead to lower economic growth, and therefore lower standards of living for American workers. The exact size of taxation’s effect on growth is not firmly established, but the consensus range is that for a 10-percent tax cut, there will be an additional rise in economic activity of 1.5 percent to 8.5 percent. When the bills for our current spending binge eventually come due, taxes will be raised and economic growth will fall. However, when confronted with these facts, supporters of the stimulus will likely argue that the economic growth generated by current spending will more than offset the drop in growth that will follow the tax hikes. This is theoretically possible, but Skidmore and Bradshaw provide good reasons to doubt the idea.
The professors divide government spending into two categories, which they call general fund expenditures and fund transfer payments. The former involves spending on core government services like security and necessary infrastructure, and the latter are government payments made to a group of people who provide no good or service in return, a classification that includes food stamps or government provided health insurance. From their review of the literature, Skidmore and Bradshaw conclude that transfer payments have either a negligible or negative impact on government growth, which is unfortunate because transfer payments have made up the bulk of stimulus spending so far. According to a CNN analysis of the first year of the $787 billion stimulus package, only $31 billion has been spent on projects like infrastructure and high-speed rail, while the remaining $148 billion spent during the past year has gone to states and individuals for purposes such as funding Medicaid and extending unemployment insurance. That spending will directly benefit those hit hardest by the recession, by helping them weather the storm, but it will not cause the economy to recover any faster.
Even that portion of stimulus spending used for infrastructure and other government purchases, an amount projected to more than double to $84 billion for the next year, may not have the positive impact that stimulus supporters expect. Government spending on infrastructure and expanded government services usually, but not always, has a small positive effect on growth. Skidmore and Bradshaw argue that this puzzle can be solved by using a cost-benefit analysis of specific government projects. If the project is demanded by a large number of people, it will probably lead to higher economic growth, but if it is simply a pork barrel project designed to benefit relatively few people, the spending will likely have no (or even a negative) impact on economic growth. For example, spending $3.4 million on an underground animal crossing in Florida and $1.15 million to replace the guard rail around an empty lake in Oklahoma is unlikely to generate any economic growth.
Probably the most efficient part of the stimulus in terms of generating economic growth is the $119 billion in tax cuts, because the literature shows that a new job is generated by the private sector for every $1,906 to $10,800 of taxes that the government cuts from its yearly budget. Still, if tax cuts are not balanced with a corresponding decrease in spending, those gains will be at least partially wiped out by future tax increases that go toward paying off current deficits.
Skidmore and Bradshaw’s study shows that government efforts to revive the economy through greater spending and higher taxes are doomed to fail. The best prescription for reviving the economy of Missouri and the entire United States involves lowering taxes and balancing the budget.
John Payne is a research assistant at the Show-Me Institute, a Missouri-based think tank.
Literature and the Common Core Standards
The Common Core State Standards Initiative published another draft of its standards today. The new version is more detailed than the document released a few months ago, and it includes samples of students’ work and a reading list.
I’m impressed by the reading list. Based on the wishy-washy math questions that the initiative holds up as paragons of rigor, I expected the recommended texts to fall somewhere between comic books and Goodnight Moon. In fact, the selections are excellent. I attended a couple of public school districts as a kid, and I was never assigned classics like The Secret Garden or “The New Colossus.” Lots of schools could give their literature programs a boost simply by substituting these texts for whatever they currently ask students to read.
However, the trouble with any national standards, no matter how good, is that no one curriculum is right for everyone. Much as these texts appeal to me, I can imagine situations in which they might be inadequate. For example, an all-boys’ school would have a hard time interesting its students in some of the selections, such as Little Women and Cowgirl Kate and Cocoa. And a magnet school for the gifted would surely need more challenging reading material for second- and third-graders than the works on this list.
The standards’ authors insist that the list won’t cause problems, because it merely provides examples of which kinds of texts are appropriate in general — these particular titles won’t be mandatory reading. That answer is unsatisfactory. Many schools will ignore the authors’ disclaimer and adopt the reading list without modification, either because they don’t want to go to the trouble of finding comparable titles or because they don’t want to risk straying from the standards. When you include a reading list in a national standards document, you have to assume that some schools will follow it blindly — even if their students would have been better served by a different list.
But accepting the authors’ statement that these texts won’t be required for everyone, how will the standards improve education? If schools are free to deviate from the list for good reasons and choose books that would better suit them, then they’re also free to deviate from the list for the wrong reasons and keep their curricula unchanged. Standards that are forced on everyone are too rigid, but standards that schools can dumb down are worthless.
Standards supporters might argue that schools would be free to choose the content of their literature programs, but that guidance from this list would ensure that their selections are complex and challenging enough. The thing is, this list is so good exactly because of the great content of the readings. If a school finds a bunch of books that match the list in reading level, but that make no mention of the American Revolution or the Civil War, then its students don’t gain much from the standards.
It’s impossible for standards to bring schools up to a higher level of academics and allow for individuality at the same time. That’s why I still think Missouri should not adopt the Common Core Standards. But I must commend the initiative for writing up a great list of books.
Show-Me Institute Seeks Summer Interns
For those who missed the application deadline for the Koch Summer Fellowship, there is still an opportunity to work at the Show-Me Institute this summer! Today, the institute announced its summer 2010 internship program, which will take place at our new central west end office location, and will run from approximately mid- to late May until late August.
As a “small-shop” think tank, interns at the Show-Me Institute have the opportunity to be involved in all sides of the organization: assisting scholars with research, writing op-eds, blogging, and event planning. Internship positions are full-time and interns are paid on an hourly basis.
Show-Me Institute staff writer Audrey Spalding interned at the institute for a year before being hired as a full-time staff member. She credits the institute with giving her valuable job skills. “I can confidently say that without my Show-Me Institute internship, I would not have the research skills I now have. I filed more than 500 freedom of information requests as an intern.”
Applications are due by April 15, and applicants will receive notification by late April.
Occupational Licensing in the Media
I’ve noticed that some journalists assume it’s normal for the government to license occupations and restrict entry to them. When states don’t license an activity, these writers point it out as an aberration. An example of this bias appears in today’s Wall Street Journal article about anger management seminars:
There are no licensing requirements for anger-management trainers—anyone an open a business.
Let’s hope it stays that way. I’d hate to see Missouri create a Board of Anger Management Professionals (which would probably hold very calm, boring meetings).
Disappointment for Family That Sells Raw Milk
A judge refused to dismiss the state lawsuit against a family that was caught selling raw milk from its distribution stand in a parking lot. The state claims that it’s illegal for farmers to set up any raw milk pickup locations away from their farms.
In a Springfield News-Leader article, the assistant attorney general explains why selling milk “from a farm,” as state statute requires, should preclude off-site pickup spots:
“A farm is not anywhere defined in Missouri statutes as a vehicle in a parking lot away from the farm premises,” Blome argued.
Of course, no one would define a farm as a vehicle temporarily parked in a lot. But that isn’t a good definition of a food establishment, either — and the state, calling this family’s parked vehicle a food establishment, says it should be subject to the same regulations as a mini-mart or a grocery store.
If you can’t pick up raw milk from a farmer’s vehicle, what can you do with it? You can pick it up yourself at the farm. But suppose you drive your car to a parking lot, meet a friend there, and give him a gallon of the milk. Does your car now become a food establishment? Or maybe you bring your milk home, invite guests over, and serve them milk with dinner. Does your house turn into a restaurant?
Free Speech, Lawsuits, and Cheap Gags
Here at the Show-Me Institute, we have been following the North Face / South Butt lawsuit with great interest. Many of us know the father of the South Butt founder’s line of fine clothing, and think the entire lawsuit by North Face to be ridiculous. So, last month on my annual family ski trip to Colorado, I could not resist getting a few pictures taken of me in my South Butt T-shirt. Needless to say, the North Face store in Beaver Creek seemed the perfect location to snap a few photos. Enjoy, and I hope everyone at the South Butt keeps up the fight for truth, justice, and humorous relaxation.
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The Autism Bill: Negative Outcomes From Good Intentions
There is an ironic tension between two health care bills currently pending in the Missouri Senate. One seeks to create an amendment that would increase health care freedom, while another would add to an already lengthy set of health insurance mandates. The latter bill, S.B. 618, would require state-regulated private health insurance companies — approximately 40 percent of the Missouri market — to cover expensive screenings and therapy for children with autism spectrum disorders. (The House version, H.B. 1311, recently passed.) Although well-intentioned, this mandate would necessarily raise the cost of premiums for Missourians, making it more difficult for individuals and small businesses to keep health insurance plans.
S.B. 618 would require insurance plans to cover up to $55,000 annually for autism diagnosis and treatment for children up to the age of 21. A mandate of any amount increases health insurance costs, and the bill’s substantial commitment would assuredly have a noticeable effect. Its proponents argue that it would increase the price of health care premiums by less than 1 percent, while insurers believe it could raise premiums up to 3 or 4 percent. Although the bill would exclude small businesses if it raised their premiums by more than 5 percent, any increase would necessarily price some marginal number of people and companies out of the insurance market, forcing them to cut coverage or reduce hiring.
Autism is a problem in Missouri, and it is not difficult to be swept up by the heart-wrenching stories of families with autistic children. But there are many disorders and diseases that afflict people — children and adults alike — and mandated coverage of all or even most of these problems would make insurance prohibitively expensive. These kinds of mandated coverage makes insurance more expensive especially for those with diseases that are not given state protection.
It’s important to note that some forms of autism aid already exist. Although not as comprehensive as an insurance mandate, there are publicly and privately funded resources for Missouri children with autism spectrum disorders, including Medicaid waivers for families who would not otherwise qualify for assistance, and a nonprofit private school for children with severe autism.
A large part of the argument in favor of the mandate lies in the unpredictability of health insurance when it is attached to employment — a problem only exacerbated by the current economic climate — and the difficulties involved in obtaining a plan that covers autism. Instead of government-imposed mandates about coverage, families should be free to choose an insurance plan that best fits their needs. Politicians cannot know the optimal equilibrium point between price, risk, and security for any type of insurance coverage, let alone for autism, because that equilibrium will differ for everyone.
The bill in question adds a much-needed amendment allowing Missourians to purchase out-of-state insurance that does not mandate autism coverage, although Missouri already has a mechanism that would help all families find affordable health insurance. Health savings accounts (HSAs) allow policyholders to become consumers, giving them the power to choose an appropriate coverage level. HSAs are portable, and therefore less dependent on job stability that may not always be available in an uncertain economic climate. Both employers and employees can contribute pretax funds to HSAs, which can then be used toward paying most basic health expenses. With an HSA and an accompanying high-deductible plan, consumers can budget their health care expenditures more effectively than bureaucratic cost-cutting is able to do.
State mandates raise health insurance costs across the board, and decrease people’s access to affordable coverage. In the long run, the most effective solution for families with autistic children — or any other disorder — is to open the insurance market to further competition, giving them a practical economic incentive to cater to such niche markets. Small businesses — at any point, but especially during a recession — are extremely cost-sensitive to changes in premiums like the one that would assuredly occur following a large mandate on autism treatment and diagnosis. Although this insurance mandate aims to help families with autistic children, it would simultaneously hurt another group of Missourians who would face significant cost increases, or even the potential loss of their own health insurance coverage.
