At Least They’re Thinking About Incentives

Posted on by Matt Simpson

In an editorial (link via Combest), the Post-Dispatch argues that MoDOT is exposing Missouri drivers to too much risk by allowing contractors to inspect their own work on the reconstruction of highway 40.

The reason is obvious: Contractors have a financial incentive to approve their own work. Do-overs raise costs, and contractors face penalties if a project isn’t completed by deadline. Inspectors working for the contractors know this. Honest though they may be, they also know the financial interests of their employers.

This isn’t a complete picture of the financial interests of the contractors. If contractors cut corners to meet the deadline and put drivers at risk, they also put their business at risk. How many people would hire a contractor who built a bridge that fell into a river? According to the previous Post-Dispatch article covering MoDOT’s change in inspection policy, Jim Ernzen, an Arizona State University professor and director of the Del E. Webb School of Construction, compared inspections from previous projects to inspections from the highway 40 reconstruction:

“We found very little variance,” he said. “These guys realize no matter how fast they get the project done, if they don’t do it correctly, they don’t get the next job.”

Bingo. If a company is really worried about its long-term financial interests, it won’t do a shoddy job. In the end, the contractors really do have the proper incentives.

Scandinavian Education in the News

Posted on by Sarah Brodsky

Andrew Coulson takes issue with a news story that describes Swedish education as “socialist.” Although schools in Sweden are financed by the government, they compete vigorously for students. Some of the schools are run by for-profit companies, which earn a profit when they deliver satisfactory education for less than the amount of state funding they receive. Who decides whether the instruction is satisfactory? The students and parents, who can always switch to whatever school looks better. Coulson points out that if Sweden’s system is socialist, the American public education system, which assigns kids to government-run schools based on geographic location, is far worse.

Coulson’s right: It’s sloppy reporting to assume America’s education system is normal while calling Sweden’s “socialist.” That’s not to say that we should drop everything and try to be just like Sweden. There are some aspects of the Swedish system that we don’t need to emulate. For example, Swedish schools aren’t allowed to charge tuition, so all schools are limited by the amount of the state voucher. They are also required to teach a national curriculum, although they have some leeway to experiment with teaching methods and to make other changes.

The good news is that we already have some of the positive aspects of Sweden’s system in place here. Parents can choose charter schools or the Missouri Virtual Instruction Program as alternatives to their assigned public schools. Unfortunately, these options are limited — charter schools operate in only two cities of Missouri, and the online instruction program is a monolithic virtual academy rather than competing programs. Sweden is impressive because it has made educational choices available to all Swedish families, and the number of independent schools there has soared since they reformed the system. We don’t need to be just like Sweden, but we should learn from them and offer a wider array of choices to everybody.

Stuck Inside of Retail With the Tax Holiday Blues Again

Posted on by Dan Grana

Before I depart for a semester in London, I plan on replacing a portion of my seasoned wardrobe. I’ll be shopping in the States because (thanks, in no small part, to monetary distortions on a much larger level) the value of my wealth will roughly halve when the “fasten seatbelt” sign illuminates.

As my fellow bloggers have noted, with differing degrees of enthusiasm, we are in the midst of a tax “holiday.” My consternation about this practice is mostly explainable by the theory-driven gripe I’m about to offer. However, I’m also upset that the holiday has landed on one of the few weekends where I have better things to do than draw funds out of savings.

The tax holiday is a feel-good gimmick. Many people, maybe even some needy parents gearing up for another costly school year, will return home from the store with a few more bucks than they otherwise might have. The state budget won’t really suffer, either. What’s the harm? If you don’t find yourself frequently daydreaming about monetary policy, there really isn’t any; enjoy your shopping spree.

Still with me? Then you’ll agree that the tax holiday tarnishes the price system’s fidelity as an indicator of value. This distortion is based on the fact that, at least for the foreseeable future, state and local revenues draw heavily from sales tax. In fact, I think it’s reasonable to say that a good’s price after tax is more faithful than its pretax price at representing that good’s real cost. By this reasoning, the expenditures of state and local governments are inputs partially included in the price of a good. This makes sense, considering who builds the roads on which inventories and customers travel. When this input is discounted, the resulting price could (and will) motivate consumers to buy more than they otherwise would in an efficient market. Sarah’s example of a hypothetical shopper driving far away to cash in on tax-free shopping is a great example of how price distortions can affect individual behavior in negative ways.

I also feel shorted because of the arbitrary nature of the holiday. In general, I’m enthusiastic about reducing taxes and regulation in hopes of bettering economic freedom. However, this instance of a tax break slightly benefits those who shop during this weekend at a tiny cost to those who make purchases on the other 362 days. In order to retain the tax revenue that would be available without a holiday, Missouri officials will have to marginally increase the sales tax rate. If they choose not to do so, the state will have less revenue than it otherwise would. Although it’s certainly not the case that tax revenue necessarily benefits me or any other voter effectively, it does so to at least some extent. The holiday also unnecessarily benefits those who spend relatively more money during these three days. There’s just no good reason for rewarding people who shop this weekend rather than any other.

So, is the tax holiday highly damaging? Absolutely not. However, any humanitarian advocate for it should research more direct methods to promote their desired outcomes. In the end, we are only billing ourselves to indulge in a weekend of slightly less expensive shopping. I think the only really unfortunate outcome of this event is that we further distance public sentiment from good economic thought by allowing shoppers to get excited about a gimmick.

Where Is the Focus?

Posted on by Cynthia Juedemann

Two superintendents recently asked me to disclose a list of donors to the Show-Me Institute, as well as the amount of their donations. This came after my request for their employment contracts with their respective school districts. I asked how their school districts paid them; they asked who paid for my research.

But there’s a crucial difference. Their districts pay them with taxpayer dollars. The Show-Me Institute pays me with private ones. The two situations just aren’t comparable.

Classifying superintendent compensation as part of public record isn’t arbitrary. Missouri citizens fund superintendents, and they have a right to know where their tax dollars are going.

When denying our request to waive research and copying fees, one superintendent wrote that this research wouldn’t serve the public good, but rather personal agendas.

While I understand asking about compensation can be a touchy subject, superintendents signed up for this. They made themselves public figures the moment they took a job with a public entity. But the knee-jerk protectionist tendency is still there. Even when superintendents comply with my requests and send their contracts, the information sometimes come with comments.

“I understand it is your intent to lobby against public schools with this information,” wrote one superintendent on a cover page sent with his contract. “What a shame, the focus continues to be on anything but the students.”

I am not writing this post because I feel the need to defend or justify my research. I would hardly be working for the education branch of an organization if my intent were to fight against public education. I am a product of public education, from elementary school clear through to the public university I attended. But I do want to address, again, the purpose of what Audrey and I are doing.

Continue reading “Where Is the Focus?”

Horrible, No Good, Very Bad Sales Tax Holidays

Posted on by Sarah Brodsky

This policy is egregious enough to warrant another reference to Judith Viorst.

When I argue with people about tax holidays, I usually say something abstract about “economic distortion” and their eyes glaze over. But now I have a concrete example of the harm that tax holidays do:

This will be the 5th time the Show me state has participated in the holiday although nearly 200 cities and over 50 counties have decided not to participate in the event.

The people in the counties that aren’t participating can still buy school supplies without paying taxes — if they drive far enough. Parents decide whether the extra gas costs will be lower than the retail savings — and, if the answer is yes, they make an extra-long trip. They’re going out of their way and using lots of gas in response to arbitrary rules, not because school supplies are naturally more plentiful in the participating counties. If a legislator gave a speech encouraging his constituents to drive far away to buy something they could easily get close to home, everyone would think he (or she) was crazy. But when you call it a “holiday,” it sounds more legitimate, when in fact it’s just a state mandate to waste gasoline. It’s sort of like an ethanol mandate, except not even the corn growers benefit from this one.

Tax Holidays: Love ‘Em, Hate ‘Em? You Decide!

Posted on by Patrick Eckelkamp

For those in Missouri, it’s that time of year again. The Cardinals are fighting for the playoffs, the Royals are fighting to stay out of last place, the temperature and humidity are becoming too high, and it’s a tax holiday weekend! Yes, this is the weekend where all parents with school aged children will flock to the nearest big box store, desperate to cash in on the no-sales-tax weekend during which they will probably end up spending more money then they intended. But who cares? NO TAXES!

The validity of these types of tax holidays has long been debated on this blog, with both sides offering convincing arguments. Personally, I don’t mind the tax holidays. I don’t like taxes in any form, and any time I can get rid of them, I am happy. I know some people will take a more complicated viewpoint that the tax holiday is just distorting regular consumer behavior, and I agree, but I just don’t mind it happening this weekend. The net effects, one way or another, will probably be so minuscule that there will be no real impact on the economy.

Of course, I would favor lower taxes year-round, but for now, I will take what I can get. This argument has sparked uproar in the office, and I suspect several related blog posts will follow this one. I realize that this sales tax holiday is really nothing more than a gimmick conjured up by legislatures, and I guess they found a sucker.

Lobbying for More Government

Posted on by David Stokes

There is a brief post in Prime Buzz today about the decision by the KC City Council to renew its lobbyist contract. This is an issue that has long bothered me, and I want to direct your attention to the second comment in that Prime Buzz post. I do not believe it is proper for one level of government to hire people to lobby another level of government. That is the job of elected officials and staff, not outside lobbyists. People who represent Saint Louis or Kansas City in Jefferson City or Washington, D.C., are supposed to look out for their interests at those levels (and by “interests,” I don’t mean bringing home the pork spending).

People who represent these areas at the county seat or in city hall are supposed to follow state or national issues, and bring items to the attention of other officials if changes need to be made. Spending additional taxpayer dollars to lobby other levels of government for more money is offensive and should be stopped. In a small way, it contributes to the neverending growth of government and its constant expansion into every realm of our lives.

For the Ladies (All 105 of Them)

Posted on by Audrey Spalding

Paul, Bill, David, Steve, Michael. It’s not an exhaustive list, but those are some of the most common superintendent names. “Mary” shows up much less often.

In fact, nearly 79 percent* of Missouri superintendents are male.

Though it’s getting better, it’s a sad fact that men tend to earn higher salaries than equally qualified women. It’s a sad fact that there are more men in leadership positions than women.

But in school districts, where superintendents tend to come from the ranks of teachers and administrators, this is shocking. It’s not just that a large majority of Missouri superintendents are male. It’s that a large majority of superintendents are male while a large majority of school district employees are female. According to the National Center of Education Information, 82 percent of all teachers in the United States were female in 2005.

Continue reading “For the Ladies (All 105 of Them)”

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