“No Duh” Headline in Post-Dispatch Regarding Taxes

Posted on by David Stokes

Hopefully, the editorial board of the Post-Dispatch will read the AP story they are running today, titled “Rising unemployment taxes could hinder hiring.” But we are supposed to look at taxes as an “investment,” according to the Post, rather than as a compulsory taking (a term I don’t automatically regard as a bad thing, but it’s a priori what taxes are), so the fact that higher taxes are actually a detriment to economic growth will no doubt be ignored. From the story:

Bruce Meyer, a University of Chicago economics professor, said his studies show that higher unemployment taxes usually lead to lower pay for employees.

My wife and I pay unemployment taxes on our children’s nanny, so I have some knowledge about this issue. Nationally, according to the article, unemployment taxes on businesses are rising dramatically. I don’t know what the average is in Missouri, but I just received my 2010 tax rate statement, and — if I recall correctly — the rate decreased slightly, as it is supposed to when you don’t fire anyone. What did rise for everyone, though, whether they have one employee or 10,000, was the taxable wage base. So, every employer in Missouri will owe unemployment taxes on the first $13,000 of wages next year, when last year it applied only to the first $12,500, and the year before to the first $12,000. That is a tax increase by another name. Now, is it so large that it will have a significant effect on hiring in Missouri? I don’t know, but probably not. The total tax increase on a $500 base hike is roughly $16, assuming the rate remains the same and basing it on our rate.

Just because I didn’t see a rate increase, though (with our family’s one employee and history of never firing anyone), does not mean that other companies that have been forced to lay off workers are not seeing a rate increase. If that is the case, the combination of a higher rate and a higher base could clearly influence hiring decisions statewide. But I need a little more research before I know the answer to that. As it is, I am just happy that the Post carried a story about the detrimental effects of taxation.

More Kindergarten Admissions Craziness

Posted on by Sarah Brodsky

Fulton’s public kindergarten screenings are nothing compared to what New York City kids have to go through to get into a public gifted program. Kids in New York have to sit still for a whole hour and answer questions about analogies. Needless to say, few preschoolers can accomplish such a feat without preparation. A plethora of tutoring centers and workbooks have sprung up in response to parents’ demand.

A mother explains why she pays for tutoring:

“It’s quite pricey, but compared to private school, which averages about $20,000 for kindergarten, the price is right,” she said of the tutoring. “I just want the opportunity to have a choice.”

Parents will go to great lengths to have choices, even if it means subjecting their children to SAT-style practice tests at age three. Anyone who’s opposed to drilling preschoolers should support policies that would build more choices into the system. Little kids could relax if the gates to choice schools weren’t so heavily guarded.

(For more about kindergarten, see Matthew Kahn’s post applying mechanism design to the admissions process.)

Live by Political Appointment, Die by Political Appointment

Posted on by David Stokes

Kansas City’s city manager, Wayne Cauthen, is out of a job after a majority of the KC City Council surprisingly voted to remove him from office yesterday. We don’t talk about city managers too much on the eastern side of the state. St. Louis city does not use one at all, and many of the largest suburbs in St. Louis County either don’t have one (Florissant) or use a city administrator form (Chesterfield, Kirkwood, Wildwood), an arrangement very similar to a city manager, but one that gives more power to the elected officials. Add in the unincorporated population of the county, and my guess is that only about 1/5 of the county’s residents live under a city manager form of government. (A couple of the largest suburbs, like University City and Webster Groves, do use a city manager.) It is my understanding that the city administrator form is used more often by cities in St. Charles County, too, but I am not certain of that.

Kansas City, however, is one of the largest cities in the country to make full use of the city manager system. The job comes with a great deal of power, and in many ways the most important role of the council is the choice of the city manager. But city manager’s have short life spans. I could compare it to prime ministers in parliamentary systems of government. One day you are the most powerful person in the country, then something goes wrong, you lose a no-confidence vote, and you are out just like that. Margaret Thatcher sort of went out in that way. The analogy might work better if Wayne Cauthen had access to nukes.

I have no idea whether he was a good city manager. My guess is that he was, but the nature of the job is unstable. You get hired by one group of politicians and then, when power changes, who knows whether you are still wanted? I wish him well, and I think we can all agree that being escorted out of city hall by security was a bit much.

What’s Transparency Without Accuracy?

Posted on by Audrey Spalding

Uh oh. News media and bloggers have been reporting all week about federal stimulus dollars going to fictitious congressional districts. The website Watchdog.org reported that, nationwide, the fictitious districts are receiving $6.4 billion in stimulus money.

I did some reporting of my own over at Policy Pulse, the Show-Me Institute’s news site, and found that four fake congressional districts had cropped up in Missouri to receive more than $900,000. KMOX picked up on the story here.

Was it fraud? Not really. The Recovery.gov website has a little data integrity problem. Federal grant and contract recipients are responsible for making their own reports of project progress. After a 20-day review period, the self-reported information is posted online. Apparently, federal agency employees can only alert a recipient that reporting errors exist; only recipients can fix them.

The reason we’re seeing so many fake districts is that recipients are required to choose a congressional district from a drop down menu. They can choose between a range from 00 to 99. And it looks like some recipients just guessed.

I looked through the data on Tuesday,which you can download in raw form here (scroll to the bottom of the page), and although fake congressional districts make for good headlines, I think there’s a bigger issue.

Contract and grant recipients aren’t required to report a project name, description, or status. In fact, for Missouri alone, 2,258 grant recipients and 76 contract recipients left all three fields blank. Yet only 18 of those were flagged for correction.

If Recovery.gov is really supposed to promote government transparency and accountability, why not require that federal stimulus recipients report what they’re actually doing with the money?

As a Five-Year-Old, I Would Not Have Been Ready for Kindergarten in Fulton

Posted on by Sarah Brodsky

This article in the Fulton Sun details all the things the Fulton Public Schools expect entering kindergartners to be able to do:

Social and emotional skills screeners look for include children being able to go to the bathroom by themselves, sharing toys, sitting and listening, showing independence and learning how to tie their own shoes. Fine motor skills include cutting paper with scissors, coloring and the ability to hold a pencil. Academic skills include being able to say the alphabet, count to 20, recognize letters and numbers up to 10, knowing their name and birthday and identifying basic colors.

I don’t think I could do half of these things when I entered kindergarten.

The Fulton Public Schools defend this laundry list with the assertion that kindergarten is more advanced than it used to be, and children are expected to learn to read by the end of the year. I’m all for kindergartners learning to read. My problem with the list is that most of the tasks bear no relation to reading.

Sharing toys and being independent? It takes some kids years to develop those social skills, and they don’t affect reading level. Tying their own shoes? Again, no connection to reading, and lots of kids don’t catch on to this right away. There are Velcro closures for this very reason. Using scissors? Not useful for reading (or almost any other pursuit) and difficult for many little kids. Holding a pencil? Teach that the first week of class.

Now for the “academic” skills: Knowing the arbitrary order of the alphabet and the names of the letters is not a prerequisite for reading, which depends more on the ability to decode sounds and recognize words. Asking kindergartners to know their birthdays is like asking them to know their Social Security numbers: it’s totally irrelevant to their lives 99 percent of the time. And need I add that it’s not necessary for reading?

Of the whole list, being able to use the bathroom, knowing their names, and counting to 20 are the only things that make sense for this age group. Parents could give their kids a huge head start just by reading aloud to them every day — but that isn’t mentioned, perhaps because you can’t easily screen for it.

Screening for worthless indicators of kindergarten readiness is like giving kids bananas on a test day. It’s a distraction from the harder-to-implement practices that would actually improve student achievement.

No False Modesty on Government Websites

Posted on by Sarah Brodsky

Financialstability.gov no longer says “Coming Soon.” Now it reads like any other campaign website:

America is back from the brink of the worst financial crisis since the Great Depression. It was helped back by the actions of the U.S. government and the Federal Reserve, and especially the forceful and sustained policies of the Obama Administration. Our plans to spur economic recovery and rescue the financial system were the first phase of a comprehensive cure for the crippling conditions that confronted President Obama as he assumed office.

It’s one of many examples of the huge advantage incumbents enjoy. This is why campaign finance regulations are so disastrous for anyone challenging an incumbent. The incumbent can spend as much money promoting his campaign as he wants to, so long as he writes “.gov” at the end.

Fire Districts Are About as Confusing as It Gets in Local Government

Posted on by David Stokes

I recall several years ago when the Post-Dispatch ran a great series about abuses in fire districts around St. Louis that led to the mayor of Creve Coeur receiving a number of angry phone calls demanding he address those types of issues at the Creve Coeur Fire District. What almost none of the residents of Creve Couer apparently knew was that the city and the fire district were completely and totally separate political entities, and the mayor had no control over the fire district. Which brings us to today’s excellent Post-Dispatch editorial about the Northeast Fire District. I recommend reading it entirely, and I hope that the residents of that area move to abolish the district — which is a too-seldom-used option in Missouri local government. (Yes, I am thinking of you, townships.)

Here is the chart of fire districts and municipal fire departments in St. Louis County. Indeed, it’s pretty confusing. There are cities with their own fire departments, fire districts for the unincorporated areas, cities within fire districts where the city has no involvement with the fire district, and even one small unincorporated area in which the county pays a municipal fire department (Olivette, I think) to provide fire service because many years ago the area was somehow left out when fire districts were drawn up. Since that area (between Olivette and Overland) has long had a primarily African-American population, I have to guess that racism played a role in that oversight.

I live in a city with a municipal fire department — University City. At times, people have discussed saving money (?) by switching to a fire district. Needless to say, that would be the worst possible decision the city could ever make. We have a terrific fire department, and I hope we keep it just like it is now, run by the city, its mayor, and the city manager, rather than by three members of a fire district for which nobody has any idea who to hold responsible for taxes, performance, etc.

What to Avoid When Writing Preschool Policy

Posted on by Sarah Brodsky

Nobel laureate James Heckman spoke to the St. Louis Federal Reserve on Monday about human capital investment. A theme of Heckman’s research is that it’s wisest to invest in children when they’re young. Programs that serve preschool-aged children have a high rate of return, in economists’ parlance, while programs that try to make up for deficiencies later in a child’s life are less successful.

I agree that starting early is the best strategy for improving people’s chances in life, with the caveat that not all policies targeted at this age group do equally well. Here are three things to steer clear of in the realm of child policy:

  1. Preschools run by the government. Replicating the public school system for preschoolers will bring about the same inefficiencies it currently suffers from, only with younger students.

  2. Costly interventions in the lives of middle-class kids who don’t need help. Programs that involve one-on-one interaction, like Parents as Teachers, should be means-tested. Sending professionals out into homes on the taxpayers’ dime may be worth it in a few extreme situations, if there’s no other way to provide services to a child (for example, if the parents have no way to transport their children to a central location). Intensive help for kids who are going to do fine anyway results in a low rate of return. It also skews the results of these initiatives, making mediocre programs appear successful because so many graduates, who were never at risk in the first place, go on to thrive in school.

  3. Standardized tests for three-year-olds. A No-Child-Left-Behind-style assessment of alphabet mastery will yield meaningless data on preschool effectiveness. Heckman is right that early childhood education should stress emotional development rather than academic knowledge. It’s tempting for politicians to impose tests, but a better measure of preschool quality is whether parents choose to enroll their children. As a corollary, no one should be forced into preschool, and parents should have more than one option.

Fed’s Independence Vital for a Stable Economy

Posted on by Alyssa Curran

CBS’s moneywatch.com site recently released an article by Mark Thoma on the independence of the Federal Reserve, and those very real political conditions that threaten it. This situation is dangerously close to a Catch-22 scenario. Here’s the problem: When politicians get involved with monetary policy, manipulating it in their favor in order to be reelected, inflation usually results, along with a cycle of debt perpetuated in the economy. If the Fed resists such manipulation, asserting their independence, politicians could in turn place legislative restrictions on its independence — penalizing the Fed’s independence by taking it away. If that’s not a Catch-22, I don’t know what is.

Thoma’s article mentions that this very problem is currently becoming manifest in the U.S. Congress. Two pending bills are circulating in Congress, one that seeks to eliminate much of the Fed’s regulatory authority and the other to allow its monetary policy to be audited. These bills were developed as a safeguard against the Fed putting the brakes on the political business cycle, during which monetary policy plays out quicker with regard to output and unemployment than it does with regard to inflation.

So, if an incumbent politician wants to increase his chances of getting reelected, he may want output to peak right around the time of the election. To do this, he increases the money supply months before the election to reap the benefits of increased output; however, the consequent inflation will not hit until months after output peaks. This politician has begun a cycle of manipulation. It would be a wise next step to tighten monetary policy after the election to avoid inflation, but more often than not this step is not taken, because cutting the money supply will decrease output, and output is already in a state of decline after having peaked. So, rather than being perceived as responsible for a decline in output, in order to to avoid inflation, the politician lets inflation take the lead.

In addition to this sort of scenario, there is the added problem of government debt. Of the three ways to finance government purchases — increasing taxes, issuing government debt, and increasing the money supply — the most beneficial choice from a politician’s perspective would be to increase the money supply, because its drawbacks aren’t as easily seen by constituents. This also results in inflation, and can be referred to as monetizing the debt. Luckily for the politician, the blame for this inflation can be readily placed on increased prices for oil and other commodities.

As health care costs rise, and the public debt becomes more of a problem, worried politicians are resorting to the application of pressure to the Fed to act in ways that will make their political skills seem more attractive to their constituents. Consequently, it is a real possibility that the price for Fed independence — which is vital to upholding a healthy economy from the yo-yo effect of political whims — may, in the end, be that very independence.

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