So why is President Donald Trump taking Harley-Davidson—another U.S.-based global super-brand—to task?

A day after the company announced plans to serve the European market with motorcycles built in Europe, the president thundered: “A Harley-Davidson should never be built in another country—never!” He accused the company of hoisting the “white flag” of surrender and predicted “If they move, watch, it will be the beginning of the end.”

Harley-Davidson, Inc., made its announcement after the European Union raised tariffs on U.S.-made motorcycles by 25 percent—in retaliation to the 25 percent tariff on European exports of steel to the U.S. imposed by the Trump administration. Noting that the higher EU tariff would add approximately $2,200 to the average cost of a motorcycle exported from the U.S. to Europe, the company said:

Increasing international production to alleviate the EU tariff burden is not the company’s preference, but it represents the only sustainable option. Europe is a critical market for Harley-Davidson. In 2017, nearly 40,000 riders bought new Harley-Davidson motorcycles in Europe, and revenue generated from the EU countries is second only to the U.S.

The president said that he had “chided” Harley-Davidson executives on an earlier occasion for moving production to India as a way around high motorcycle tariffs in that country. But is it reasonable to expect a profit-seeking enterprise to keep all production and employment in the U.S., regardless of the cost in lost sales, profit, and overall competitiveness?

Certainly, the Trump Organization has not followed such a policy. Under licensing or other arrangements, it has fancy hotels bearing the Trump name in four different cities in India (Mumbai, Delhi, Pune, and Kolkata). Apart from Chicago, however, the Trump Organization has no luxurious hotels anywhere in the great American heartland. Why not?

Presumably, it made more sense from a business perspective to build hotels for the super-rich in India—though other cities in the American Midwest would have welcomed the same investment.

The president faulted Harley-Davidson for not being more “patient”—suggesting that his deliberately provocative approach to trade negotiations would force other nations to bend to his will for fear of losing access to the rich U.S. marketplace. As he said a couple of months ago— “Trade wars are good, and easy to win.”

But as Joe Haslag, the chief economist for the Show-Me Institute, notes, the president is playing “a very dangerous game,” because “the size, scale, and scope of the products that we are now talking about in increasingly acrimonious trade negotiations are staggering—a potentially U.S.-GDP-changing event.”

A grand strategy? Maybe, but early results are not promising. Mid Continent Nail in Poplar Bluff says its orders have dropped in half as a result of having to raise prices to make up for the higher cost of importing steel from Mexico. It has laid off 60 workers and says it may have to dismiss all of its 440 remaining workers by Labor Day.

In 2017, the Trump administration withdrew from the Trans Pacific Partnership—an agreement that would have reduced tariffs in Asian markets on motorcycles made in the U.S. That seems to have prompted Harley-Davidson’s earlier decision to build a manufacturing plant in Thailand. It may also have been a factor in the company’s decision to close its Kansas City manufacturing facility by 2019.

What caused the world-famous company with the “HOG” stock exchange symbol to make those choices? Surely it was rising tariffs on manufactured goods—a problem that does not exist in the luxury hotel business.

The post Trump vs. Harley-and the World appeared first on Show-Me Institute.

Rate proposals released Friday by the Missouri Department of Insurance are on average 36 percent to 42 percent higher than rates for similar 2017 plans….

Both Cigna and Anthem Blue Cross Blue Shield, the two companies returning to sell on the marketplace, listed the uncertainty about cost-sharing payments that help consumers cover the cost of insurance as justifications for their proposed rates.

Cigna has reportedly asked for up to a 73% price hike on at least some of its plans. Meanwhile Anthem will be dropping out of at least 17 counties in the state where the company marketed plans just this year. KCUR has a good national map of the number of insurers in each county in 2018. Particularly in Missouri, the map tells a story of an individual insurance market that for hundreds of thousands is less a market and more a monopoly, duopoly, or oligopoly. 

American health care reforms should be based on good policy that empowers people, not government. And these rate hikes are just the latest example of what happens when the center of a health care system is government and its cronies rather than patients themselves. We need change, and we need it sooner rather than later.

The post Ouch–Missouri Individual Health Insurance Premiums To Rise by Double Digits in 2018 appeared first on Show-Me Institute.

It’s a two-part idea – beginning with the proposition that the robots are coming and they are about to change all of our lives – mostly for the better. Think of having a machine that can respond to the command, “Hey, Robot, build me a house.” The upside will be greater ease and prosperity; the only downside will be massive unemployment. Says Tesla CEO Elon Musk, “There will be fewer and fewer jobs that robots can’t do better.”

The 19th-century Luddites had the same fear of automation. During the Industrial Revolution, with mechanization replacing manual labor on an unprecedented scale, their proposed solution was to smash the new machines that were taking jobs away from some people (even as they were creating new jobs for many more people).

The 21st-century Luddites – Musk, Facebook founder Mark Zuckerberg, and other big names in Silicon Valley – have a different solution. Rather than smash their own machines, they are promoting a “universal basic income” (UBI, for short) to take care of people unable to find work because of the job-destroying robots.

A UBI of, say, a couple thousand dollars a month for unemployed yet able-bodied adults would create a whole new “safe space” – freeing millions of people from the nasty necessity of having to go out and find work in order to enjoy life unencumbered by financial difficulty.

“We should have a society that measures progress not just by economic metrics like GDP, but how many of us have a role that we find meaningful,” said Zuckerberg in a recent speech at Harvard. “We should explore ideas like universal basic income to give everyone a cushion to try new things.”

Musk argues that unemployment and economic output will both rise as a result of greater automation, leaving society with “no choice but to distribute a portion of the money to everyone equally.”

Let’s try to talk a little sense here. Who is to pay the vast sum of money needed to create a new leisure class of non-workers if not the people who continue to work? And in the long history of automation, has there ever been a time when a rapid expansion in unemployment (as happened in the Great Depression) was accompanied by a still more rapid expansion in GDP. The answer is never.

More importantly, automation creates more employment than it destroys. During the Industrial Revolution, for instance, automation made weavers who worked on ancient looms obsolete. But the number of people working in textiles exploded. That is because capital investment in labor-saving devices raised productivity, lowered prices, improved quality, and left more money in people’s pockets to spend on things besides the bare necessities.

The Silicon Valley superstars promoting a UBI display an incomplete understanding of how free-market capitalism works. It depends upon human motivation no less than technological innovation. Under free-market capitalism, people compete with one another to satisfy the needs of others. Rather than living off the sweat from the brows of other people, they have the satisfaction that comes from earning their own way and living useful, purposeful lives.

On this Labor Day, let us celebrate the enduring value of work. There may be other motivations for a basic income, but a fear of robots destroying all the jobs absolutely shouldn’t be one of them.

The post The Utopian Apocalypse: Silicon Valley Freaks Out over Automation appeared first on Show-Me Institute.

On this Labor Day weekend, think of the great labor that Missouri’s official state animal—the plucky, hard-working mule (not to be confused with the donkey, the symbol of the Democratic Party)—performed for our nation in the opening of the west.

Setting out in covered wagons from Saint Joseph, Independence, and other Missouri cities, more than 400,000 pioneers made their way to the Pacific during the 1840s and 50s. Most people have a mental picture of horses pulling the load. But mules did most of the work, even if horses got most of the credit, thanks to later Hollywood westerns. Movie-makers repeated the mistake in their depiction of stagecoach travel in the 1860s and 70s. In reality, once again, the indefatigable mule, not the more fragile and easily tired horse, was the draft animal of choice.

The above-quoted Rinker Buck tells these stories (and many more) in his book The Oregon Trail: A New American Journey. In 2011, Rinker and his brother Nick stopped in Jamesport, Missouri, to purchase three Missouri mules. Having also acquired a rig (a genuine prairie schooner), they then hit the trail—travelling the whole 2,100-mile length of the Oregon Trail from St. Joe to the Willamette Valley. The two brothers were the first in more than a century to complete the journey.

Just over the Kansas border into Nebraska, a fierce storm forced the brothers to camp in the equipment shed of an abandoned farm. In a book filled with hair-raising (and often hilarious) adventures, this was a fairly commonplace occurrence. It might have gone unremarked except that the same storm system that passed over their heads levelled Joplin, Missouri, a few hours later.

I have my own tenuous connection with mules. In his 16th summer, my brother Harry worked in the Bootheel—driving a team of mules in clearing tree stumps from a field. He was mule-struck upon returning home . . . telling stories that filled me, the younger brother, with a mixture of envy and awe. For his 71st birthday this June, I gave Harry the Oregon trail book. He returned it to me no more than a week later—saying it was wonderful. He wanted to be sure that I read it as well.

A cross between a female horse (mare) and a donkey (jack), mules combine the greater size and strength of the mother with the lighter weight, agility, and more feral instincts of the father. Mules require only half the feed of horses. They can travel long distances without water. Most of all, as Rinker Buck writes, “They love to work.”

With a keen sense of smell, they are uncommonly alert to danger. On the trail they saved countless lives in picking up the scent of buffalo herds and packs of coyotes long before they became visible to people. At the approach of predators, mules sounded the alarm, perking their long ears forward, staring in the direction of the threat.

As for their supposedly difficult behavior, or “mulishness,” that too, is a product of superior instincts. Unlike the happy dog or the pliant horse, the clever and independent-minded mule will not plunge willy-nilly into a rushing stream. It prompts the muleteer to show that the next step is safe by riding a horse across or wading in himself. “Mules ponder matters a lot,” Buck writes.

This Labor Day, let’s thank the mule for its super-human (and super-smart) efforts on our behalf. It played a critical role in uniting our country from sea to shining sea.

The post A Labor-Day Salute to the Missouri Mule appeared first on Show-Me Institute.

Even the research literature is pretty positive about the benefits of recess. For starters, recess increases physical activity, which we know has many positive effects on a child’s health and well-being. Yet, recess is more than simply physical activity. It is a time of unstructured play, which helps children develop socially and emotionally. Moreover, numerous studies have found students are more on-task in the classroom when they have had recess.

With so much love for recess, it is puzzling that Rhode Island lawmakers recently felt compelled to pass legislation requiring 20 minutes of recess a day. Where had recess gone?

In fairness, recess hasn't completely been eradicated from schools. In fact, almost all elementary students in public schools have at least one recess a day. The minutes spent at recess, however, seem to be shrinking—thanks in large part to government policies. In an effort to improve public schools, lawmakers saddle them with rules and regulations.

First, states severely micromanage the calendar of schools. Some states stipulate the start and end dates and the required number of minutes in the school year (in Virginia, the law regulating the starting and ending dates even has an informal name—“The King’s Dominion Law”—after the mega-amusement park that fights to keep kids out of school until after Labor Day). With these regulations in mind, most school funding systems ensure that schools will not go above and beyond the minimum requirements, because they will not get additional dollars to support their efforts. In effect, the state has defined the length of the school year down to the minute.

Second, government agencies have placed an inordinate amount of pressure on schools and students to perform in tested subject areas. Following the infamous A Nation at Risk report of 1983, states began developing accountability systems based on academic learning standards, and schools were assessed via standardized tests. The accountability movement leapt to the national stage with No Child Left Behind in 2001. Tests give us valuable information, but they simply cannot capture everything we care about in education. Moreover, we don’t (and wouldn't want to) test students in every subject. As a result, things like art, music, and recess become “less important” in accountability systems.

With a fixed amount of time in the school year and increased pressures to perform on standardized tests, many school administrators have been motivated to shift instructional time to tested subjects, such as math and English language arts, and reduce minutes for recess.

Fortunately, there is a better way. Rather than build a system of rules and compliance, where we must regulate everything—including recess—we could build a public education system of choice. A system that provides administrators with the power to lead their schools and offers parents the ability to choose would be much more conducive to good decision-making. Just take a look at recess: the average third-grade student in a private school spends roughly 30 more minutes a week at recess than their public school counterparts.

Fewer regulations, more choice, more recess—now that's sound policy.

The post Recess-Something So Loved, Only Bureaucrats Could Kill It appeared first on Show-Me Institute.

Though I never met the man, I feel a debt of gratitude to Ronald Coase, the Nobel Prize-winning economist who died on Labor Day at age 102. Reading his “Nature of the Firm” – one of the most cited essays in all of economic literature – encouraged me to start my own business.

Two decades ago, I persuaded John McDonnell, the CEO of McDonnell Douglas, then the nation’s 23nd largest industrial company, to outsource the biggest part of my job (writing his speeches) back to me as an independent writer. I left the company with an annual contract that paid me no less money than I was making before and that allowed me to pursue other clients. But as I told John McDonnell, I also knew that I had to perform at a high level – being painfully aware of the fact that the company could cancel my contract at any time if I did less well as an independent contractor than I had as a “salary-man” (to use the Japanese expression) or employee.

Anyone familiar with Ronald Coase’s work will recognize that I had struck a classic “Coasian” bargain – finding an efficient free-market solution to a particular problem (my unhappiness with the corporate environment and desire for independence) that worked for both parties: The CEO accepted the notion that I would be a hyper-motivated non-employee, and I became my own boss.

Coase was the first to ask – and provide a plausible answer to – the question of why companies exist . . . and why a critical part of their success comes from getting large numbers of people to submit to a form of voluntary servitude – punching a time clock and giving employers the right to direct their performance in exchange for predetermined wages or salaries and protection from sudden or arbitrary dismissal.

His answer was that companies exist for the purpose of reducing “transactions costs” – meaning all the costs of trying to order economic activity through voluntary exchange. That includes the costs of searching out and evaluating other parties; negotiating contracts; maintaining communication; and policing and enforcing the terms of those contracts.

Imagine the extraordinary difficulty that a Henry Ford or a William Boeing would have faced in trying to contract out for every part and every task going into the assembly of a car or airplane. Hence the need for the visible hand of management in coordinating the allocation of resources.

At the same time, Coase fully appreciated the disciplines and rewards of free enterprise, and he was acutely aware of the tendency of corporate (or government) bureaucracies to stifle individual initiative and kill any sense of real ownership that people have over the quality of their own work. Within a large, publicly owned corporation, no one, including the CEO, is spending his own money.

Citing the picturesque words of another economist (D. H. Robertson), the British-born Coase, who spent most of his working life in the United States, described companies as “islands of conscious power” – or central planning – in an “ocean of unconscious (i.e., spontaneous free-market) cooperation . . . like lumps of butter in a pail of coagulating buttermilk.”

The “lump of butter” of which I was a part in the early 1990s was a shrinking rather than a growing mass: In just three years, the company shed more than 50,000 jobs, or 42 percent of the workforce. In the midst of all the downsizing, people were angry and confused – not knowing where the axe would fall next and bitterly resenting a sudden loss of the personal security that they had gained (and felt entitled to) through years of fealty to the same company. What they didn’t see was that a whole way of life was disappearing.

And now it is gone. Today, no one – not even someone graduating from a top business school – expects to spend his or her entire adult life with a single company. Everyone accepts that big companies really aren’t built to last. More like lumps of butter than castles of perpetual growth and stability, they may dissolve at any moment and disappear into the liquid churn.

One may think of the quarter of a century from 1955 (the first year of the Fortune 500) to 1980 as a golden age for big business in America. During that time, Fortune 500 companies ruled the roost – growing at about twice the rate of GDP growth and enjoying robust profitability from one year to the next – even during recessions. In 1975, the last year of the virulent recession touched off by the Arab oil embargo, only 15 Fortune 500 companies, or 3 percent of the total, reported losses, and all of the top 50 companies were solidly in the black.

Compare that to 1993 – which happened to be my last year as an employee at McDonnell Douglas. This was a brutal year for many big companies. Even though the 1990-91 recession was officially over, no fewer than 151 Fortune 500 companies – or just more than 30 percent – lost money in 1993, and that included 4 out of the top 10 (GM, Ford, IBM, and DuPont) and 22 out of the top 50 ranked by revenues.

To add just one more statistic gleaned from sifting through old issues of the Fortune annual survey, it is worth noting that Fortune 500 companies shed close to 3 million jobs in the 10-year period ending in 1993.

So what happened to bring the era of big business dominance to a close and set the stage for a new era of entrepreneurship and greater dispersal as opposed to centralization of economic activity?

We may turn to Ronald Coase for what I believe is the key insight. In his essay on the nature of the firm – published in 1937, when he was a young professor at the London School of Economics – he addressed the different ways in which technological advancements could affect the size of companies:

It should be noted that most inventions will change both the costs of organizing and the costs of using the price mechanism. In such cases, whether the invention tends to make firms larger or smaller will depend upon the relative effect on these two sets of costs. For instance, if the telephone reduces the costs of using the price mechanism more than it reduces the costs of organizing, then it will have the effect of reducing the size of the firm.

But of course, I thought, when I read those words for the first time. This was a year before John McDonnell and I struck our Coasian bargain. With his encouragement, I had agreed to take part in a research project by the Center for the Study of American Business at Washington University in St. Louis examining how U.S. firms (including McDonnell Douglas) were responding to the twin challenges of the information revolution and globalization . . . and to write sections of a book (The Dynamic American Firm) summarizing the findings.

Coase’s thinking loomed large in the book and in my own subsequent decision to go out on my own.

The mainframe computers that came into existence in the 1950s were so big and expensive that only the biggest companies could use them. With the help of these early computers in reducing the costs of organizing production and marketing, Fortune 500 companies became bigger and more prosperous throughout the sixties and seventies.

Then came the information revolution – which (even before the Internet) had the opposite effect of reducing the size of firms. It reduced the need for corporate bureaucracy. Still more, it caused many big companies to disassemble their carefully constructed vertical empires and to contract out for just about everything outside of their own core competencies. I knew that writing was not one McDonnell Douglas’s core competencies, and I reasoned that I should set a price for my work as an outside contractor that would be equal to the cost that the company would incur in having to hire a full-time speechwriter to replace me. Because the drafting of speeches and annual reports took maybe 50 percent of my time at McDonnell Douglas, I figured I would free up many hours that would go into serving other clients.

The Dynamic American Firm did not become a best-seller, but in re-reading some passages of the book, I can relive some of the excitement that I felt in pondering the next step in my own life:

Like “de-industrialization,” the rapid rise in business services and self-employment over the past several years has set alarm bells ringing in enlightened centers of thought. “In the future,” one displaced executive told Time magazine, “we are going to be moving from job to job in the same way that migrant workers move from crop to crop.”

Perhaps. But unlike the migrant worker, today’s corporate refugee, equipped with a personal computer, printer, copier and fax machine – all purchased for about $7,000 – can earn a good living toiling in the comfort of his, or her, home. That is so because the information revolution has greatly reduced transactions costs – for big firms and small contractors alike.

Coase may have done more to extend our understanding of business and commerce than any thinker since Adam Smith. But his influence did not stop there. He also had a profound influence in challenging the belief that government regulations, taxes, or subsidies were the best and, indeed, the only way of dealing with actions of business firms that have harmful effects on others, with a commonly cited example being the emission of sparks from a train that causes damage to a farmer’s crops along the railroad’s right-of-way.

In a “The Problem of Social Cost,” his second most famous essay, published in 1960, Coase argued that most disputes of this nature are best resolved by negotiation, rather than regulation or imposing strict penalties on the damaging party.

As Coase pointed out, both the railroad and the farmer would be better off if the latter agreed not to cultivate the vulnerable portion of his land in exchange for a payment that would equal or exceed the opportunity cost incurred in foregoing its cultivation. In other words, without regulation, the two sides could easily reach a mutually beneficial solution.

“The Problem of Social Cost” gave rise to a whole new body of literature in the field of “economics and the law.”

In awarding him the 1991 prize in economics, the Nobel committee observed that “Coase may be said to have identified a new set of ‘elementary particles’ in the economic systems.” Coase himself made no such claims, saying in a 2012 interview, “I’ve never done anything that wasn’t obvious and I didn’t know why other people didn’t do it.”

Andrew B. Wilson is a resident fellow and senior writer at the Show-Me Institute, which promotes market solutions for public policy in Missouri.

The post The Best Bargain I Ever Made appeared first on Show-Me Institute.

I ask because of this article in today’s Kansas City Star about snow-removal efforts in Kansas City. The short answer for why snow removal is taking a long time in Kansas City is simply that there are too many roads and too little staff:

For example, Kansas City plows more than 4,200 lane-miles of main arterials and residential roads, compared with 1,800 lane-miles in Overland Park. During the last round of storms, Overland Park had 125 people involved in snow operations, compared with about 200 to 250 in Kansas City.

Staffing cuts and shortages haven’t helped. Since 1998, Kansas City’s street maintenance staff has dropped from 174 to about 110.

For the record, the reasons they give are entirely acceptable to me, and I have no reason to believe they are not all doing the best they can. Anyone who loves political history like I do knows how much local officials can be judged by these things, though. Just ask Jane Byrne.

This leads me to an open question about local government staffing. Cities and counties in Missouri could have at least a few workers who are trained in multiple fields, and can move from department to department as the needs change. Here is a possible schedule:

1. December–February of each year: Streets/highways, primarily as snow plow and salt truck drivers.
2. February–August of odd-numbered years: Assessment divisions, though not as primary assessors. (This has been done by St. Louis County in the past, although mostly just to get lots of people to physically eyeball properties that computers determined rose in value by more than 15 percent.)
3. Memorial Day to Labor Day every year: Parks Department, while the pools are open and the parks and golf courses are busy. 
4. November–December every year: Revenue Department, collecting checks as everyone pays their property taxes.
5. Other potential opportunities include working for the Revenue Department on the delinquent tax sale day, the Police Department for parades, protests, etc., and the Health Department for emergency preparedness procedures.

I predict everyone will hate this idea. Libertarians and unions would finally agree on something. I don’t actually support it, because it would be turned into an excuse just to hire more government employees in total, but it would not be a bad thing if we could have a small number of government employees able to assist in multiple fields as seasons and needs change.

The post Is There Such a Thing as a “Utility Player” in Government Service? appeared first on Show-Me Institute.

As your intrepid blogger has been playing fantasy football much longer than anybody who reads this (since 1991, way before most people had ever heard of it), and as I furthermore spent six years as an aide in the St. Louis County Council, I am uniquely qualified to comment here. I shall put on my best Captain Renault mask and clearly state that I find the thought of managing one’s fantasy football team while using taxpayer computers and while on taxpayer time to be something I did almost every day between August and December each year a blatant misuse of trust and one that I would never even have considered doing. I assure you all that the management of the Mid-County Mounties, the only three-time champion of the HBFL (Half-Baked Football League) at no time ever changed players, proposed trades, bid on free agents, or did any such things while I was at work. Oh yeah, I also never read a football season preview magazine in my office. Not once right around Labor Day each year. Never.

Although, let’s be honest here — 44 sports web sites in one day is an awful lot:

That same day, [Cline] visited 44 sports related sites including his fantasy football team called the Vegas Midget Pimps.

As a taxpayer, I find this very troubling. Perhaps Cline is the living embodiment of this classic Onion article, which you will note is set right here in The Lou. When I worked for the county, I am certain that I never visited more than 20 sports sites in one day. You have to have some standards.

The post I’m Shocked – Shocked! – to Find That Fantasy Football Is Going On in St. Louis County Government! appeared first on Show-Me Institute.

School districts will have to do more work if they want to start school in mid-August next year. At a ceremony in Branson on Monday, Lt. Gov. Peter Kinder signed a bill
requiring schools to begin their school year no sooner than 10 days
before Labor Day.

The caveat to this new law is that school districts who want to start earlier would have to have a public meeting and voter approval every year to set the start date of schools before the 10-day requirement. Again, the state is taking local decisionmaking outside of the school districts, which would know better than the state of Missouri when to start school to make sure their students receive the best educations.

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