Economic development incentives are usually sold as investments. The state offers tax credits, cash grants, or other subsidies to persuade a company to expand or relocate. If the deal works, supporters claim, taxpayers get jobs and the state or local economy is strengthened.

I’m skeptical of those claims. Back in 2017, I wrote:

What’s more, studies in Missouri and across the country have noted that these programs do not help create jobs or spur neighborhood investment in the aggregate. Often they simply enrich political cronies.

A new study concludes that some other beneficiaries of large incentive programs are lobbyists.

Instead of asking whether subsidies create jobs, the authors ask what happens to businesses’ behavior after states begin offering exceptionally large incentive packages. Their answer is striking, if not surprising: Businesses appear to devote more resources to lobbying government.

The study, recently published in Small Business Economics, examines more than 40,000 state economic development awards made between 1997 and 2019. The researchers identified the point at which a state first awarded what they call an “extraordinarily large” incentive—defined as more than 3,500 times larger than that state’s historical median award—and then compared those states with similar states that had not yet crossed that threshold.

Rather than counting announced jobs or measuring state economic output, they looked at employment in the lobbying industry.

The reasoning comes from economist William Baumol’s distinction between productive and unproductive entrepreneurship. Entrepreneurs are talented at recognizing opportunities. Sometimes those opportunities involve creating new products or better ways of serving customers. Sometimes they involve obtaining advantages through government. Public policy can influence which of those activities becomes more profitable.

The authors found that after states began offering these unusually large subsidies, employment at lobbying firms increased by roughly 3.6%. Those gains were concentrated in state capital counties, where lobbying activity is naturally centered. They also found lobbying employment became more geographically concentrated around state capitals after these awards.

The study is not claiming that lobbying is improper. Businesses have every right to petition government. Instead, the paper documents something more modest—and perhaps more important. When governments begin offering extraordinarily valuable subsidies, businesses respond by investing more heavily in political activity.

Several Show-Me Institute researchers reached a similar conclusion in 2018 when they examined the relationship between subsidy awards and political contributions in Kansas City.

If winning a government incentive can be worth hundreds of millions of dollars, devoting additional resources to influencing government becomes a rational business decision.

That makes perfect sense if you’re running a business. But is it where we want to invest our resources as a state or community? Shouldn’t that entrepreneurial energy be going toward making our lives better rather than thinking up new ways to squeeze tax dollars out of government?

In politics, we often argue about how best to solve problems. That is good. It is when we ask how government can best solve problems that we invite all sorts of additional problems. This study tells us what we likely already know: When you start handing out lots of money, you encourage more people to ask for it. We may be creating jobs—but it’s likely not the jobs you were hoping for.

The post What Happens after States Hand Out Massive Corporate Subsidies? appeared first on Show-Me Institute.

Learn more about the book here: www.cato.org/books/fighting-freedom-learn

Susan Pendergrass speaks with James Shuls, fellow at the Show-Me Institute and head of the Education Liberty Branch at Florida State University, and Neal McCluskey of the Cato Institute about their new book, Fighting for the Freedom to Learn: Examining America’s Centuries-Old School Choice Movement. They discuss how the fight for educational freedom long predates modern debates over public schooling, why early advocates viewed schooling as a family and community responsibility, and how today’s school choice expansion connects to America’s founding principles. The conversation covers the history of the common school movement, the roots of residential school assignment, and why educational freedom has always been central to the American story, and more.

Timestamps

00:00 Introduction

02:33 The Genesis of ‘Fighting for the Freedom to Learn’
05:41 Historical Perspectives on School Choice
08:04 The Evolution of Common Schools and Their Impact
10:59 The Role of Religion in Early Education
14:01 The Shift Towards Standardization in Education
16:43 The Need for School Choice in Disadvantaged Areas
19:29 The Historical Context of Property Taxes and School Assignment
22:17 The Recent Surge in School Choice Movements

Transcript

Susan Pendergrass (00:00)
Certainly looking forward to this conversation with two very, very smart people: Dr. Neal McCluskey of the Cato Institute and Dr. James Shuls of Florida State University. James, can you first tell us about this new center that you are in charge of at Florida State University? I think it’s innovative and really cool, and I’d like to hear a little bit more about it before we talk about your book.

James Shuls (00:21)
Absolutely. So I’m with the Institute for Governance and Civics, and it was created by the legislature a couple years ago. And while I would like to take credit and say I’m in charge of it, as you sort of said there, Susan, I’m not in charge of the Institute, but I’m one of the branch heads. So the IGC, as we call it, has four branches. We focus on economic liberty, constitutional liberty, conscience liberty, and education liberty. I’m the head of the education liberty branch.
And so part of what we’re doing is outreach to K–12 schools, helping to focus on civics instruction, improving knowledge and preparation for teachers as it relates to civics and governance and those sorts of things. At the same time, we’re writing about issues of educational liberty from a school choice perspective, which is exactly the topic we’re talking about today.

Susan Pendergrass (01:12)
Yeah, so you guys have a book that you just co-edited, Fighting for the Freedom to Learn: Examining America’s Centuries-Old School Choice Movement. How did you come up with this idea, and why did you decide to put this book together?

Neal McCluskey (01:27)
Sure, I’ll go with that. The idea behind the book stems from just about everything I ever do, which is I got angry about something, and I was like, well, somebody ought to do something about this. If you work in school choice advocacy for more than a day or so, you’ll quickly hear that school choice started by people trying to avoid desegregation in the South. And that’s always given as the origin. And even if somebody wants to say, well, you know, Milton Friedman wrote this essay in 1955—and he really wrote it before 1955—we know that that was really just taking advantage, at the very least, of this backlash against desegregation.
And it just drives me nuts. There is a very long, rich history of the idea and practice of school choice. So I thought, you know, somebody ought to do a book on that, and we can hit, sort of semi-chronologically, all the different eras in which this happened and the ebbs and flows. The Cato Institute and the Center for Educational Freedom, which I direct, also had something called the School Choice Timeline—this interactive online timeline that I put together also because I was angry. In particular, I wrote a chapter about the gap where not much was going on in school choice, and I wanted to explain the gap.
But we have lots of chapters—one on how progressives were really into school choice for a while, and how schooling worked before the common-schooling movement, and all sorts of stuff like that. The genesis was aggravation on my part, at least, about always hearing this narrative that school choice stems from efforts to avoid desegregation. And then I said, you know, James Shuls—there’s a guy who probably is angry a lot, too. Maybe he’d like to get in on this.

James Shuls (03:17)
Yeah, that’s right. Susan, I’ve been on the podcast before talking about some of my scholarship related to Virgil Blum. He was a real strong school choice advocate starting in the ’50s, did a ton of work, and gets absolutely no credit. I was angry that Friedman gets all the credit—he wrote this paper in 1955, yada, yada, yada—and then in the 1990s we get school choice programs. It’s like, well, a lot happened in that yada, yada, yada period that we’re not covering.
I had been writing about that when Neal came along with the idea to do the book. Part of what we’re doing as we frame this is saying: looking at school choice today through the current lens we have is the wrong way to do it. We think of school choice today as opting out of the public school system—but that only works to frame it that way if there is a public school system. Before common schools were around, people were still advocating for their kids, still trying to get schools created. So there was lots of stuff that wouldn’t fit the framework we have today.
What we’re saying in this book is these impulses for educational freedom have always existed, and we’re essentially tracing them from colonial times to today.

Neal McCluskey (04:36)
James’s stuff on Blum was also a major reason I thought, here’s a guy who could really contribute to this. I just stumbled on Blum in large part because of what James wrote. I was like, why do people not know about this guy?

Susan Pendergrass (04:41)
We did a whole podcast on it. I’ll tell you what makes me mad is that in the last month or two, tops, there have been articles in The New York Times and The Washington Post talking about low-income families—both in Florida and Arizona—generally Black and brown parents, who are participating in this right-wing conservative movement to kill the public school system because they think they deserve to be able to choose where their kid goes to school.
Even locally in political groups, people say, well, that’s a MAGA person, which means they support charter schools. When those two things get put into a sentence, it really makes my blood boil because I’ve been working in this space a long time. As we’re going to find out more, school choice is not a new thing at all. The latest iteration of it is not a MAGA thing or five years old or a COVID thing. Since at least 1990—at least 35 years—parents and activists like Howard Fuller were saying, hey, this isn’t right. We’re literally assigning kids to the worst schools and not letting them out. We ought to let them out.
Somehow this has become the Republican agenda to kill teacher unions and break up the public school system. Nothing could be further from the truth. That makes me mad. That’s why I’m really glad you guys put this book together. Let’s go back—not to the very beginning of the country—but pre–industrial revolution, pre–John Dewey, before standardized schools, attendance zones, and district lines. What did it look like, say 150 years ago? Did parents decide where their kids went to school, or did you have to go to a certain school because that was the one you helped pay to create? How did it work back in the day?

James Shuls (06:50)
I’ll jump in here because I’m awfully angry about this. Before common schools, there was a wide mixture of different types of schools. You had dame schools, private schools, public schools, and publicly funded private schools.
What you get in Charles Glenn’s chapter, “Emergence of the Common School Ideology,” is an understanding of the movement towards common schools. The impetus behind them was really to separate schooling from the family and the community and to use schools for social change. That’s the difference that comes in here—schooling would be used for social change.

Susan Pendergrass (07:29)
Mm-hmm.

James Shuls (07:35)
—to create and form Americans. Some people look at that and say it’s a good thing, but there are certainly negative side effects as well when you separate the impact of community and families. An interesting element that comes out in this book is that the common school ideology and the public school system that has come in its wake was created to form a certain kind of American citizen.
Then we get into Neal’s chapter, where Neal talks about the sort of gap where things aren’t happening. It’s because these systems were under attack. You see a reemergence in the 1950s—not just because of Brown and segregation—but because you start to have a return to some of these values and a return to trying to connect schooling and the family and the church.
When you look at school choice with this longer arc, rather than looking at the ’50s as your starting point, you see the various impulses that were leading pre–common schools, how common schools helped to squash some of those things, and how we’re starting to come back to a decentralized and pluralistic system.

Susan Pendergrass (08:50)
Certainly the common schools—also called public schools before 1900—were Protestant. They absolutely taught religion. They didn’t stop teaching religion until the Catholics started showing up. Then it was, yeah, maybe we get religion out of schools, right? Because we don’t want Catholicism in a public school. Public schools taught Protestantism; they just didn’t want to teach Catholicism. People think there’s always been separation—no religion in public schools—and that’s not true.

James Shuls (09:16)
That’s a key point in Matthew Lee’s chapter: Catholics turned to private schools. He would say it’s not necessarily school choice because the Catholics were saying you had to go to the Catholic schools—so no choice among Catholic schools. Nevertheless, the Catholic schools came up because the public schools were Protestant. Protestants went in—though not all in. There were some segments, which Neal could talk about, with the Lutherans.
By and large, Protestants supported the common school movement. Then there was a movement to secularize public schools. Again, that’s part of what happens in the 1950s with the return of Protestants starting to support school choice—because their capture of the public school system had been weakened and there were no longer Protestant schools.

Neal McCluskey (10:10)
Just as a pitch for the book: there’s so much good history in here that we won’t be able to talk about. You definitely want to get the book. It’s worth noting that for much of our early history—colonial period, early republican period, even into the common-schooling period—there wasn’t a separation people would recognize if you say, well, this is a public school and this is a private school. There were schools. There was education.
Government was sometimes involved in assisting private schools. Going back to British traditions, someone would provide—usually from the proceeds of owning land—funds to help maintain a school. In America, land was the one thing in superabundance, so that wasn’t as profitable. Governments would sometimes say, look, you’re running a school here; we’ll give you a little money to do it. There was often cooperation between government and schools.
The first voucher program that we’ve at least been able to catalog was in 1802 in Pennsylvania—specifically in Philadelphia. So this is not new. Go back more than two centuries and you had people like Paine and John Stuart Mill talking about helping people to consume education by funding parents so they can choose, not by funding schools.
Even as we have common schools, they were extremely localized. Think of the one-room schoolhouse—it was also the meeting house and often the church—serving pretty homogeneous communities. Even within what eventually became common schooling, there was a lot of differentiation where people could get the schooling they wanted. It’s only as progressives consolidate control that we move far away from that community-level, very small schooling.

Susan Pendergrass (12:13)
I thought it was so odd that Maine and Vermont have had town tuitioning of high schools for a couple hundred years. Where the town didn’t want to build a high school, they just paid tuition for their high school students to go to a different school the student picked. In some cases it’s a boarding school, even overseas. They were challenged in the Supreme Court within the last couple of years, even though those programs have existed for hundreds of years.
All of a sudden, people who don’t like the voucher idea went after Maine for town tuitioning, even though that program has been in place for so long.

James Shuls (12:53)
That radical right-wing bastion in Maine.

Susan Pendergrass (12:55)
—decided at a town meeting to do it. I think as you get into the earlier or middle part of the last century, you start building up this industrial education complex: we’re going to be the great equalizer; everyone’s going to have the same kind of school; 20 kids and a chalkboard and teacher; separate kids by age, not ability; common standards; and we’re going to be in charge of it.
Anyone who disagrees with what’s being taught there is seen as a radical who wants to break the system and doesn’t understand the importance of it. That’s what I feel has been happening lately, where any parent—my own experience: I homeschooled one of my kids and was considered a radical because why wouldn’t I accept that the public school to which he was assigned would be best for him? The idea that uniformity is what we need.
I still think there are a lot of people within the public education establishment who say uniformity is the key. We are clearly seeing a backlash, but the uniformity principle—maybe 75 years, maybe the 1950s—would you say?

Neal McCluskey (14:15)
It depends. In the early republican period, people like Benjamin Rush said we need schooling for everybody to make them into good citizens—into “republican machines,” his term. Horace Mann certainly wants to standardize people. Not because of Catholics at the beginning—they hadn’t come in at great numbers—but because he saw people coming in from the countryside.
New England industrialized first—relatively poor farming area, but lots of rivers to run factories. These early factories with big water wheels. Mann saw parents coming from the countryside and thought they were all idiots. He thought we needed to take their kids away from them and standardize them. So we started it even at the very beginning.
It gets even more standardized as more immigrants arrive and people get scared of them. One overarching theme of the history of school choice: it’s about people who do not fit into whatever mold the elites decide. Catholics didn’t fit the Protestant mold. In my research, Germans were most disturbing for people because they spoke German—people said, they really need to speak English. We have a thread of fear of Germans going back to colonial Pennsylvania.
The chapter on African Americans is particularly powerful: it talks about a system that never wanted to incorporate them. They needed freedom to get the education people were denying them. That’s the big theme—people who don’t want to be standardized or who are refused help need school choice to get something out of education.

Susan Pendergrass (16:13)
I’ll only say that’s true today. It’s ironic that the kids with the least options—the most disadvantaged kids in the worst schools—are the ones people openly talk about denying options to. Even in Missouri, when public school choice is considered, some of the lowest-performing districts say, okay, but not us. We can’t let kids out of our district because we’re one of the worst in the state and everyone will leave and take money.
They want to draw a line and say, whatever unfortunate child got assigned to this school, we cannot let them leave. That’s flipped on its head. That child needs choices as much as every other kid. They say, no, we have to lock those kids in and strap them to the deck of a Titanic. Why do you think that is, James?

James Shuls (17:07)
I’d say Ron Matus’s chapter on the progressive movement toward school choice is terrific for the points you’re making. There was a tremendous progressive move for school choice in the ’70s and ’80s that culminated in the early voucher programs.
They were making exactly the cases you’re making: we should not assign students to failing schools; school choice was progressive in that it allowed disadvantaged students to opt out and get the type of school that would meet their needs, and to bring competition into the marketplace. The progressives were making the case for school choice exactly because the most disadvantaged students needed it the most.
That’s why the recent idea that school choice is a MAGA movement is off. The progressives got there first, as Ron and others explain.

Susan Pendergrass (18:12)
One last thing. I have a hard time articulating to folks who believe there’s an ironclad connection between property taxes and school assignment that goes back to the beginning of time and must continue until the end of time: if you pay property taxes here, your kid goes to school here; if you don’t, your child doesn’t get to go to school there. I don’t want any kids coming into my kid’s school if their parents didn’t pay property taxes.
I think that is particularly strong in Missouri. In St. Louis County we have dozens of school districts within one county. People feel very strongly—even supporters of school choice—about this property tax/school assignment idea. They can’t get past it. What would you say to that? You lived in St. Louis, James; what do you say?

James Shuls (19:13)
We didn’t write the book through this specific lens, but if you read closely you see this: the system evolved over time. You had a radically decentralized system. Horace Mann and the common school movement advocated for state structures and more organization. Over time it evolved to the system we have today.
From the founding, the idea of residential assignment where local property taxes only follow the kids—and the high level of state and federal regulation—was not anyone’s early vision. It’s not the system most people would advocate if they could design it from scratch. We get wedded to the structures we have.
What we have to do is step back and ask, is this the way it should be? I think the answer is no. We shouldn’t have systems that restrict resources to small local communities and assign students, because we get the problems we all see: high-poverty districts with struggling schools and students assigned to terrible schools with little opportunity for the types of coursework and experiences that lead to success. The system we have isn’t inherently good just because it’s the system we have.

Neal McCluskey (20:57)
We probably needed a chapter on the history of taxation to answer this directly. My suspicion is that for a lot of our history we didn’t have a lot of income tax or other taxes, and drawing on the English tradition, we probably funded things at the community level with property taxes—very local and democratically controlled.
It’s not until the industrial era, with consolidation, that communities stopped running their own schools. My guess is that’s the history of a lot of this property-tax and local-tax funding. But things have obviously changed.
My colleague Colleen Hroncich always points out: it might have made sense to have local public schools when nobody had a car and most people walked places. You couldn’t travel 10 or 20 miles every morning to drop your kid off. That doesn’t make sense now—we have modern transportation—so we don’t have to be shackled to the school a mile or two away.

Susan Pendergrass (22:04)
See you next time. I also think that starting in the 1950s—partly because of Brown v. Board—states and then the federal government started tinkering with the distribution of tax dollars to districts to give more money to poorer districts and less to wealthier districts. That’s been going on with funding formulas. I’m not sure any of them have had an impact on poor kids or reducing achievement gaps, but they thought that moving levers at the state and federal level would get a different outcome.
In my opinion, wealthier districts with higher property tax bases and more local funding aren’t really impacted by those. Now they say, you can move kids around—but not from us—because we’re not part of that system where you move money around. We’re happy with what we’ve got. If you can afford to live here, fine; but they want to be left out of it.

James Shuls (23:10)
Sorry to interrupt you. I wanted to weigh in on that last point, because—reason to listen to the podcast and get the book—this is not in the book, but Virgil Blum had some correspondence with Milton Friedman back in the ’50s and ’60s. They weren’t closely associated; they were operating in different circles. But Blum sent Friedman something he had written and asked for feedback. Friedman responded.
One thing he said was, when it comes to the voucher idea, he thought it should start at the higher education level, not K–12. Then he said it should be at the level where the taxation or the money is supplied. So in K–12, that probably means vouchers should come from the local community, not from the state or the federal government.
So to your point: we had a system that relied more on local tax dollars, and Friedman was saying the vouchers should be local. But we’ve shifted over time to a system that provides a lot more money from the state and federal government than it used to. If you look across the country, every school choice program is a state system—very rarely do you have a district creating a voucher system. It almost always comes at the state level. Even Friedman was wrong from time to time.

Susan Pendergrass (24:44)
On that note, I know you have a chapter on this, but what about this explosion of school choice? Now it feels unstoppable. We have more than a dozen states with universal-ish programs. At least five states have truly universal school choice systems. Why now? Why has it picked up steam so fast after barely making progress through the ’90s and early 2000s?

Neal McCluskey (25:17)
Jason Bedrick has a particular take on it—which I think is probably right—but I think it has deeper roots. Generally, the idea is people are unhappy and increasingly unhappy with how they’re being served by public schools.
My theory—and I think a lot of people hold this—is that COVID made people realize that in a public school system, if a powerful minority or majority wants X and you want Y, someone loses. Many parents who wanted in-person school—generally well-heeled and used to getting what they want—suddenly couldn’t get it. They realized the system didn’t work for them even if they liked it in theory.
Anecdotally, in rich places like Montclair, New Jersey, people were at each other’s throats because many wanted mutually exclusive things. Then you had ideological battles over vaccination and mask requirements. Many say that virtual school let parents see what their kids were learning, and they didn’t like it—books like Gender Queer, how African American history is taught, etc. We haven’t shown concretely that anger was because of peeking into the classroom via Zoom, but it certainly coincided. People were angry.
Jason argues that, yes, people were unhappy, but it wasn’t really COVID; it was the strategy of reaching out to red-state parents in environments where you could get school choice, saying: public schools are teaching stuff you don’t like; you don’t want your kids trapped in that. All the big school-choice gains were in red states—the red-state strategy worked. Now the future is moving into purple and blue states. I think that’s right too, but the underlying driver is people realizing one system can’t fit everyone.

James Shuls (28:32)
I’ll weigh in here too. Friedman made the free-market case for school choice in the ’50s, and that case continued to today—choice, competition, rising tides lift boats. You also had the progressive case in the ’70s and ’80s—students shouldn’t be trapped in failing schools; create programs to help the most disadvantaged. Those arguments kept creating small, targeted programs, but not a wider audience.
A third element—cultural, right-leaning values—added a new coalition. It layered on top of the free-market and progressive cases. I wouldn’t say the movement is completely going to the right; it’s making arguments that appeal to those individuals.
If you go to a rural Missouri voter and say “choice and competition,” with one local public high school and one elementary school, that doesn’t land. If you say the most disadvantaged students in St. Louis and Kansas City need choice, the rural voter may not care. But if you weigh in on some conservative values, you reach a new audience. Maybe that’s part of what’s happened.

Susan Pendergrass (30:24)
Just a bigger tent. It’s clear we’ve only scratched the surface of your book—this is only a 30-minute podcast and there’s so much more in there. A lot of it is so intriguing—going back to the history of this country and realizing the system we have now is relatively new compared to the various systems we’ve had.
Parents don’t really care what the name is on the outside of the school. They care about how their kids come home at the end of the day—how much they appear to be learning. They want them challenged; they want them safe. That’s universal. Whatever system gets them there, they don’t care what it’s called or what it looks like. If they thought they’d get it out of a uniform system and now they don’t…
There’s so much in this book. You picked a lot of great authors—12 leading education scholars. When will folks be able to buy this book and read it themselves, and where?

Neal McCluskey (31:37)
It comes out November 11th. I think it’s available online—online bookstores everywhere—as well as the Cato website, Cato.org.

Susan Pendergrass (31:43)
And can folks reach out to you guys if they have any comments or questions?

Neal McCluskey (31:53)
As long as it’s nice stuff, they can reach out to me.

Susan Pendergrass (31:55)
I can’t promise them.

James Shuls (31:55)
The nice stuff can reach out to me; the negative comments go to Neal.

Susan Pendergrass (32:00)
Well, it’s great. Thank you so much for coming on and talking about it. It’s a fantastic book, and I highly recommend folks get it and read it themselves.

James Shuls (32:09)
Thank you.

Neal McCluskey (32:09)
Great, thanks.

Produced by Show-Me Opportunity

The post The Long Fight for Educational Freedom with Neal McCluskey and James Shuls appeared first on Show-Me Institute.

Each state has already promised every student a free public education. This includes every student currently enrolled in private schools or currently homeschooled. If tomorrow those students decide to go to public schools, public schools would be required to accept them and to educate them. This means states and local communities would be required to fund the education of those students. In other words, the state currently has an obligation to provide funding for every single eligible student in the state.

The only way a parent loses access to the funding for education is by expressing choice. We discriminate on the basis of choice. Parents of school children have the opportunity to receive public funding, but only if they sacrifice their ability to choose the school they want their children to attend.

I cannot think of another public entitlement program that removes the benefit when an individual expresses choice. Poor students can use Pell grants at the school of their choice. Veterans can use the G.I. Bill at the school of their choice, public or private. Welfare recipients who receive food subsidies can choose the place where they will use those funds.

Critics of school choice might point to healthcare programs as an example of government funding with limited choice. Some doctors or hospitals do not not accept certain government funding sources, such as Medicare or Medicaid. That is true, but notice the difference. In that case, it is the provider who doesn’t accept the funds—it is not the individual who loses it based on their choice. Many private schools would like to accept funds but are not eligible to. That is a key distinction.

When we tell families they are no longer eligible to receive funding because they choose to send their children to a school that aligns with their values or provides the type of education that they want, then we are discriminating against them based solely on their choice.

This is not a system designed to meet the needs of every child, but a system designed for control. It is a system designed to force people into accepting the education that the government provides.

It would undoubtedly cost a lot of money to provide the public subsidy to those individuals who are presently in private schools. But the only reason it will cost new money is because we have been discriminating against families who use alternatives to public schools for decades. We have denied them access to the public funding that they should receive. It is time to end the discrimination against choice in our public education system. It is time to end the discrimination against parental power and educational opportunity.

The post Public Dollars for Public School Students: Discrimination of Choice appeared first on Show-Me Institute.

When?Janus vs. AFSCME?was decided earlier this summer, its immediate effect was on the 22 states that allowed government unions to collect agency fees from workers. Thanks to?Janus, those government workers can no longer be compelled to support a union as a condition of employment. But fortunately, workers in Missouri had those rights already by statute, namely Missouri Revised Statute §105.510. That section makes clear a number of things, but relevant to the agency fee discussion?is this?(emphasis mine): 

For instance, Crystal City in Jefferson County appears to have amended an existing agreement on March 26 of this year to add a provision requiring employees to pay and become union members, to pay the union the amount of union dues but not be a member, or be fired.?Page 13:

Meanwhile in a contract agreed to this past June, the City of Grandview also included in its contract with Grandview Firefighters, Local No. 42, a provision compelling non–union members to support the union’s activities through a “modified agency shop.” Page 2 of the agreement: 

The post Agency Fees in Government Aren’t Allowed in Missouri, But That Didn’t Stop Some Local Governments appeared first on Show-Me Institute.

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In occupational licensing, the government, usually in combination with a board or commission it establishes, sets standards and requirements as to who can practice a certain occupation. These standards can take the form of educational requirements, training hours, practice standards, continuing education classes, work documentation, background checks, etc. Licensure usually adds significant costs to becoming a member of the occupation, which is generally the whole point of it from the perspective of current practitioners who are grandfathered in when licensing is enacted.

Read the full House testimony (Feb 13, 2014): 

Read the full Senate testimony (Feb 18, 2014): 

The post Electrician Licensing In Missouri appeared first on Show-Me Institute.

The post All This for 20 People? And You Paid for It! appeared first on Show-Me Institute.

Why? Because governments are terrible at figuring out how development dollars should be allocated — to entertainment? to bars? to factories? to homes? — and simply do not have the knowledge that is embedded in the marketplace to make many developments successful. The decisions of individuals, maximizing their own well-being, are why most cities came to be. They are why good cities became great, and great cities became world-class. It is why cities that have fallen on hard times can be great again, if the government will stop meddling.

On a personal note, I was raised in the Northeast area of Kansas City, which for the last 100 or so years has been a heavily immigrant community. It is not necessarily “hip,” but it is real. Inexpensive housing plus ready employment made it an ideal place for a newcomer to the States to, sometimes literally, set up shop and grow a family. It is why my mother’s Italian family came there, why Jewish families came before them, and why Hispanic and Vietnamese families came after them.

“Old Northeast,” as it is often called, has a meaningful and enduring story, I think, because its history emerged naturally. Its story is a story of people, not of government or government-sponsored “big ideas.” It is a story about authenticity, not artificiality — about the uniqueness of the Kansas City experience. One chapter closes, another opens, and the story continues, but it is a story built by people, not by development experts that the city or state enlist to “revive” an area’s fortunes. Part of the problem that Missouri and her cities have is that instead of harnessing the potential of all their citizens and diversifying their growth opportunities, they are too often just tinkering with one government-subsidized development after another.

Check back later this week for Part Three. Rest assured, we will be adding meat to these broad philosophical bones.

The post Part Two: The Smallness Of The Potentially ‘Hip’ Core appeared first on Show-Me Institute.

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New Transit-Oriented Development (TOD) in Saint Louis is a tool the government uses as an attempt to design where and how we live. They want to make more people ride the Metro, reduce car trips, and increase economic development in the area. There is nothing wrong with wanting economic development, but the government cannot see into the future. I used to work for the government, so trust me — they know just as much as you or I do. They cannot prove that Transit-Oriented Development will achieve their goals.

Just because the government creates shops and housing around a Metro station, it does not mean that more people will want to ride the Metro. Those who already used the Metro will continue to ride it, but those of us who prefer to drive our cars will continue to drive our cars.

Surveys suggest that four out of five Americans prefer a home with a yard as opposed to living near shops, transit, or jobs. It is a waste of resources to create TODs because they simply are not capable of achieving the intended goals. If the government really wants us to ride the Metro, they will have to do something more drastic, such as shutting down all the roads, or making it illegal to drive. But I think it is safe to say those things will not happen.

The post We Like the ‘burbs: TOD Problems (Part 2 of 3) appeared first on Show-Me Institute.

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In the example of gasoline, which I do believe is unique, the demand could be high due to events not directly related to the price of gas, such as 9/11. Many bought gasoline on that day or the day after for fear that prices would rise in the future. What happened, however, is that some gas stations took advantage of the increased demand and jacked up their prices. […]

But gasoline is unique for many reasons: (a) demand is usually very high and relatively constant/predictable (b) practically speaking, one can only buy so much gasoline at one time (c) gasoline is a dangerous substance (d) gasoline is absolutely vital to the national economy (e) gasoline is product derived from an internationally traded commodity at which level prices already reflect speculation of higher/lower demand and supply.

None of these reasons is call for government intervention in gasoline markets. When the government intervenes in the market for a good by controlling the price, it causes artificial shortages and surpluses, and it also obstructs resources from being put to their highest use. Overall welfare is maximized when prices are allowed to represent relative values accurately.

1. If the level of demand is high and constant already, then why should the government focus on protecting it from volatility? Price “gouging” is simply a misleading term for supply and demand. By increasing their prices in response to higher demand, gas station owners are simply capturing excess consumer surplus.
2. All resources are scarce and finite. This is not an attribute that is unique to gasoline.
3. The role of government doesn’t entail protecting individuals from products that they consume voluntarily. Practically every activity or product can be potentially harmful — smoking cigarettes, consuming raw milk, crossing the street — and individuals weigh the risks against their associated benefits. There is a risk that the gas station will ignite when I am filling my car with gas, but if I don’t fill it up, I can’t easily get places.
4. Gasoline may be an important source of energy in the status quo, but substitutes exist (e.g., electricity, ethanol, geothermal, etc.). If the price of gasoline increases in the future, this will provide an incentive for entrepreneurs to seek other substitutes and to improve relevant processes.
5. This is another attribute that is not unique to gasoline. A considerable percentage of the goods and services that people consume are internationally traded. Should the federal government protect the price of bananas or wine from volatility? It would not be feasible for the federal government to regulate prices in all of these markets.

Prices coordinate individual action efficiently by communicating relative scarcities and preferences, as I have discussed previously. However, government officials knock the price system out of equilibrium whenever they decide to subsidize or restrict an economic activity. When the government knocks the price of a good or service out of equilibrium, it results in a misallocation of resources. In other words, resources no longer go toward their highest use.

Changes in price are important for allocating scarce resources. This is why the price for plywood increases during hurricanes — individuals living in disaster-ridden areas have a higher demand for plywood than, say, a person building a treehouse elsewhere in the country. Because the former individual has a more critical need for the resource, he or she is willing to pay more for it. Those who think that the price has grown too high will refrain from buying the product, which leaves more available to be purchased by those with a higher willingness to buy. In the absence of externalities, a sudden rise in price levels does not represent market failure, so even theoretical economic rationales for government intervention don’t apply.

The post Government Should Not Be in the Business of Preventing Price Gouging appeared first on Show-Me Institute.

So it would be better to not subsidize these programs and allow them to not exist? It’s not worth it to let them become proven while working toward the longer-term goal of eliminating the subsidies?

The writer introduces infant industry argument, which supporters of subsidies commonly use. The argument implies that emerging industries need to be protected temporarily in order to develop the economies of scale that established companies and industries possess.

My answer is an emphatic yes. For reasons that I am about to describe, it would be better if the state did not subsidize these programs.

If these subsidies were eliminated, many groups would be better off. Consumers represent one group that would certainly benefit. Protecting industries hurts consumers because it: (1) restricts new suppliers from entering the market (which restricts supply and increases the price to the consumer); (2) removes the incentive for existing suppliers to innovate (which decreases product quality); and, (3) restricts their access to consume non-protected competitive products. Furthermore, eliminating subsidies to particular industries will not restrict the variety of goods and services available to consumers. When industries focus production according to their comparative advantage and then trade with others, Missourians will still be able to consume in the absence of subsidy.

Taxpayers would be better off in the absence of such subsidies, as well. The subsidies distort relative prices, which consequently distorts the mix of goods and services available for consumption. A firm that receives a subsidy from the government can charge a lower price to consumers, who consequently have an incentive to consume a greater quantity of it. Additionally, if the subsidies were eliminated, taxpayers would be able to keep a greater percentage of their earnings that they can save, invest, and/or spend on the goods and services that they naturally prefer in the private sector, rather than the goods or services that happen to have artificially lower subsidized prices.

Another group that would benefit from the elimination of subsidies is businesses and industries that do not currently receive subsidies. The government places this group at an artificial competitive disadvantage by dispensing political favors to its competitors.

Milton and Rose Friedman disputed the infant industries argument in their book Free to Choose: A Personal Statement. They wrote:

[T]he “infant industry” argument [is] advanced, for example, by Alexander Hamilton in his Report on Manufactures. There is, it is said, a potential industry that, if once established and assisted during its growing pains, could compete on equal terms in the world market. A temporary tariff is said to be justified in order to shelter the potential industry in its infancy and enable it to grow to maturity, when it can stand on its own feet. Even if the industry could compete successfully once established, that does not of itself justify an initial tariff. It is worthwhile for consumers to subsidize the industry initially–which is what they in effect do by levying a tariff–only if they will subsequently get back at least that subsidy in some other way, through prices lower than the world price or through some other advantages of having the industry. But in that case is a subsidy needed? Will it then not pay the original entrants into the industry to suffer initial losses in the expectation of being able to recoup them later? After all, most firms experience losses in their early years, when they are getting established. That is true if they enter a new industry or if they enter an existing one. Perhaps there may be some special reason why the original entrants cannot recoup their initial losses even though it may be worthwhile for the community at large to make the initial investment. But surely the presumption is the other way.

Additionally, subsidized industries have difficulty weaning themselves off government assistance. I have previously discussed this in the context of film tax credits. When a state protects a particular industry and/or provides financial aid, the industry tends to remain dependent on that protection or subsidy. Furthermore, industries that are subsidized do not have an incentive to innovate because they are not subject to the same competitive pressures as those that are unsubsidized.

More often than not, when an industry refers to itself with the “infant” term, it’s simply seeking rent through legislative favoritism. Milton and Rose Friedman also discussed this concept in Free to Choose: A Personal Statement. They wrote:

The infant industry argument is a smoke screen. The so-called infants never grow up. Once imposed, tariffs are seldom eliminated. Moreover, the argument is seldom used on behalf of true unborn infants that might conceivably be born and survive if given temporary protection; they have no spokesmen. It is used to justify tariffs for rather aged infants that can mount political pressure.

The post The Case for Eliminating Subsidies to Industries appeared first on Show-Me Institute.

But did you know that there is an entire journal devoted to explaining what tax credits are and how to get them? And, yes, you can subscribe to the print version.

The existence of this journal makes sense. After all, if governments are giving away relatively easy-to-obtain public money, we would expect businesses to crop up in order to make a profit by helping others access taxpayer money. This journal, and all the other companies and websites dedicated to encouraging others to apply for public tax incentives are illustrative of the strange activity that is a byproduct of government-manufactured incentives.

(special thanks to Christine Harbin for suggesting that I shamelessly copy Tyler Cowen.)

The post Fake Markets in Everything appeared first on Show-Me Institute.

After reading my editorial about tax credits that ran yesterday in the Springfield News-Leader, a software entrepreneur based in Springfield emailed me. He wrote the following, which I particularly like:

I have directly created 320 new jobs over a 27 year period and none of these jobs were created because of tax credits. With or without tax credits we would still have created the jobs. The jobs were created because of the much larger business opportunity and return realized and expected, not because of tax credits.

If the state and local government facilitated a tax environment that was low and broadly based (i.e., didn’t favor certain parties over others), then more businesses would be able to achieve this same kind of success. As a positive consequence of such policy, businesses wouldn’t need to seek the favor of the government because they would be successful and viable on their own merits, not because they were propped up by government incentives.

There are several reasons why the government can’t identify business opportunities and future successes as reliably as the unrestricted free market. In particular, the government is slow to react to changes in the economic environment because it is so bogged down in bureaucracy. Additionally, the government is influenced by special interests that have an incentive to maintain the status quo and to tilt the playing field in their favor. Plus, the government does not have special access to perfect information. Just as government officials do not know the socially optimal mix of any set of products and services, they do not have special predictive power.

Examples like this demonstrate that incentives like tax credits are not a necessary criterion for economic development. Quite the contrary — true economic development occurs independent of subsidy.

The post Tax Incentives Are Not Necessary for Economic Development: An Example appeared first on Show-Me Institute.

First, the author villainized businesses:

Businesses, unlike government, like to make profits and many of them are not reluctant to increase their rates or their retail prices.

In the private sector, the act of raising prices is not malicious. Companies incur costs that they have to cover, and they have customers whose willingnesses to pay is largely dependent on price. If a company raises its price too high, then individuals will stop voluntarily buying its product or service. As a consequence, the company will not be able to cover its costs, and then it will go out of business.

Next, the author provided several examples of companies that tend to go out of business when they raise their prices:

Detroit says the new model of car will cost $200 more; the dealer doesn’t like to hold his sales price at last year’s level. More uninsured people show up in hospital emergency rooms; hospitals increase costs to those with insurance. Utilities have to pay more for natural gas and coal to keep the generators spinning; they get a fuel adjustment rate increase and pass along the costs to consumers.

The problem with these examples, however, is that the government has already intervened in these particular markets to an enormous extent. As a consequence of this government intervention, private businesses have much less control over the price they charge to consumers, or the costs of their materials and labor, which causes them to go out of business. These particular examples showcase government-created problems, and the solution is less government — not more.

The auto industry is a prime example of high government intervention. Remember last year’s auto bailout? We don’t refer to GM as “Government Motors” for no reason.

The health care industry is another example of how government intervention has impeded private business. That’s because the government has mandated that hospitals treat everybody who walks through the emergency room doors, regardless of their ability to pay. This level of intervention doesn’t occur in most other industries. If a person shows up at a restaurant and is unable to pay, the government doesn’t mandate that he is served a meal. If a person walks into a clothing store and can’t afford to buy anything, the government doesn’t mandate that she walk out with a new jacket. Quite on the contrary, somebody who tried to walk out with a product without paying for it would get thrown in jail for shoplifting.

Furthermore, the fact that hospitals increase costs to those with insurance is a consequence of this government intervention — and the solution is less government, not more. As I have discussed previously on Show-Me Daily, in order to stay in business, hospitals have to make up for those patients who cannot afford to pay more than the government-mandated price.

The author’s gas station example provides a third illustration of how government intervention can restrict a business. He wrote:

When wholesale prices go up, business often pass on those higher prices to the consumers. We don’t know of many gas stations that are paying higher wholesale prices for fuel this year than last year that are still selling gas at last year’s prices, or the year before. We’ve seen old prices on some pumps in a few gas stations. But weeds are growing around those pumps and the sign doesn’t light up anymore, and the convenience store is empty.

He leaves out the fact that the government levies taxes on gasoline that can greatly affect the price at the pump, and also limit the control that a gas station owner would otherwise have to set a price that will cover his costs and that consumers will be willing to pay.

The gasoline tax in Missouri is 35.7 cents per gallon (including the federal tax of 18.4 cents per gallon). Because the tax rate applies per gallon, rather than as a percentage of the price, it means that the amount of taxes paid as a percentage of price is higher when the price at the pump is low. For example, if the price at the pump were $1.75, the percentage paid to the government would be 20.4 percent. If the price at the pump were $3.35, then the percentage paid to the government would be 10.7 percent. The price at the pump in Saint Louis is $2.65 right now, which means that more than 13 percent of that price constitutes taxes paid to the government.

The post “Government Should Be Operated Like a Business,” Part Two of Two appeared first on Show-Me Institute.

On a high level, running government like a business is a good principle. Government should be as efficient, accountable, and transparent as possible because taxpayer monies are at stake. However, the statement “Government should be operated like a business” is a gross oversimplification. I agree with the author that there are many differences between businesses and government that make it nearly impossible for the government to operate like a business — but they are not the differences that the author describes.

He writes:

Here’s one big, really big, difference. When income slows, or when expenses rise, businesses can and often do increase their prices. Businesses, unlike government, like to make profits and many of them are not reluctant to increase their rates or their retail prices.

I think that the converse statement has more truthiness: Governments, unlike businesses, like to run a deficit and are not reluctant to increase taxes.

Here’s a different difference that the author overlooks: In the private sector, consumers decide to patronize businesses voluntarily, whereas they are required by law to pay money to government. If a person thinks that a price of a good or service is too high in the private sector, then she will choose not to pay. If a person thinks that taxes are too high, well, too bad, she has to keep paying them or get thrown in prison.

Here’s another difference: Because businesses face competitive pressures, they have an incentive to innovate their products, improve their services, drive down prices, become more efficient, etc. Government doesn’t experience this kind of competitive pressure, so it does not have an incentive to do those things.

The post “Government Should Be Operated Like a Business,” Part One of Two appeared first on Show-Me Institute.

By offering a rebate, the government distorts the market for energy-efficient appliances, resulting in a loss to the economy. I made the following graph to demonstrate how this happens. (Please keep in mind that I was an economics major, not an art major!) The critical error that many make when evaluating this policy is ignoring this loss.

Graph of Supply and Demand for Energy-Efficient Appliances

Let’s assume that the price of an energy-efficient appliance is $500. At this price, a certain number of people will buy one. For the sake of this example, lets assume that 1,000 individuals will buy one appliance at $500. Next, the government provides a rebate of $175 to incite additional people to buy them. At this lower price, a greater number of people will buy one.

Let’s say that 1,200 people are willing to buy them at this price. Now, these individuals consume a product that the economy-wide equilibrium values at $500, but which the individual values at $325. This means that there is a cost to the economy of $175 (the amount of the rebate) for each appliance sold under the new program. This number, multiplied by the number of additional of appliances sold, roughly equals the dead-weight loss to the economy. In this example, the dead-weight loss equals $175 * 200 = $35,000. In this simplified example, this represents the goods and services that would have been bought in the absence of the rebate, which constitutes destroyed wealth.

Another factor that contributes to the economic loss is the amount of the old appliances that are destroyed despite still being operable. This, too, is represented in the graph.

What’s more, this distortion does not increase the number of energy-efficient appliances sold in the long run. This is because the rebate incites transactions that would have occurred anyway in the future. As old appliances break down, individuals will replace them with new appliances that use improved technology.

Ultimately, the rebate program will destroy wealth and fail to hold down energy prices in the long term. Missourians would be better off if the state and federal governments considered the long-term negative consequences of this policy and let the price system work its magic without this kind of short-sighted intervention.

The post How Rebates for Energy-Efficient Appliances Destroy Wealth appeared first on Show-Me Institute.