First, I realize that the caller suffers from “make-work bias,” a concept developed by Bryan Caplan, a professor of economics at George Mason University, in his book The Myth of the Rational Voter: Why Democracies Choose Bad Policies. In an excerpt published in Reason, “The 4 Boneheaded Biases of Stupid Voters,” Caplan writes (emphasis mine):

The public often literally believes that labor is better to use than conserve. Saving labor, producing more goods with fewer man-hours, is widely perceived not as progress but as a danger. I call this the make-work bias, a tendency to underestimate the economic benefits of conserving labor. Where noneconomists see the destruction of jobs, economists see the essence of economic growth: the production of more with less.

Second, I failed to point out that the caller focuses on the needs of a select group rather than those of everybody in the economy. This is a common error that people make when evaluating policies, as Frédéric Bastiat discussed in “What Is Seen and What Is Not Seen.” On the subject of subsidizing employment, Bastiat writes (emphasis mine):

[I]t is clear that the taxpayer who will have been taxed one franc will no longer have this franc at his disposal. It is clear that he will be deprived of a satisfaction to the tune of one franc, and that the worker, whoever he is, who would have procured this satisfaction for him, will be deprived of wages in the same amount.

Let us not, then, yield to the childish illusion of believing that [a vote in favor of subsidy] adds anything whatever to national well-being and employment. It reallocates possessions, it reallocates wages, and that is all.

When arguing in favor of tax incentives for the Claycomo plant, the radio caller considered only the benefit to the 3,700 plant workers who will keep their jobs. He doesn’t consider the unseen cost that, if the state legislature approves the proposal to provide $150 million in tax credits, the rest of the tax base (a much larger group) will be $150 million poorer. This policy doesn’t increase income; it merely displaces it. As a related unintended negative consequence, the organizations that may have employed these factory workers, had they been laid off, will be restricted in their growth because they would face a smaller supply of labor.

This brings me to my third point. Subsidizing the Claycomo plant would contribute to a higher level of unemployment in the long run, negatively affecting all of the workers in the Claycomo region. Caplan explains this too:

The hard lesson to learn is that giving people “rights to their jobs” is a drain on productivity—and makes employers think twice about hiring people in the first place.

The fact that Claycomo Ford plant will close if unsubsidized indicates that the area no longer has a comparative advantage in manufacturing Ford cars. The area would be better off if its resources — human and otherwise — were employed in activities that do not require subsidies. As a direct consequence, the region would have the capacity to produce more, and the individuals in the market would be able to keep a greater percentage of their income.

The post Why Closing Ford’s Claycomo Plant Would Be Good for the Economy appeared first on Show-Me Institute.

Early in this year’s legislative session, members of the General Assembly asked me to offer testimony on the Health Care Freedom Act, which was proposed as a constitutional amendment that would recognize the fundamental right of citizens of Missouri to decide for themselves how they will pay for their health care, and that no government could rightfully interfere with that decision. In my testimony, I pointed out that if courts decided that nothing in the U.S. Constitution prevented the government from mandating the purchase of government-approved insurance policies, a constitutional amendment of the sort contemplated in the Health Care Freedom Act could offer a legal “Hail Mary” — a last line of defense that might prevent further congressional intrusion into citizens’ lives.

Despite overwhelming support in both the House and Senate, the Missouri General Assembly did not agree to let citizens vote on this constitutional amendment. Instead, the legislature placed the original bill’s language into House Bill 1764, which would allow voters an August referendum on adopting a new statute. Many of the legislators and citizen groups who had worked to pass the original bill are now hailing the passage of HB 1764, implying that if the people vote to adopt this statute, it will have the same effect as the proposed constitutional amendment might have. Unfortunately, this is simply not true. Missouri voters may well use this referendum as a political statement through which they can express their opinions about the federal health care reform law, but the text that might have been legally useful as a constitutional amendment will have zero legal effect as a statute.

The text that will be presented at the referendum states, in part: “No law or rule shall compel, directly or indirectly, any person, employer, or health care provider to participate in any health care system.” A court called upon to evaluate whether this provision would be effective against any federal enforcement of the health insurance mandate will first point out that because the language makes no reference to any particular government, it must be assumed to apply only to law- or rule-making subdivisions of the state of Missouri. Not only is it virtually unheard of (and generally futile) for a state statute to attempt to bind the federal government or one of its agencies, the plain text of the bill says nothing to suggest that is its purpose. A court looking at this provision as a statute will almost certainly end its analysis there.

However, even if the court infers that the General Assembly intended to prevent the enforcement of certain federal laws, the statute will fail. In order for the Health Care Freedom Act to have any hope of being effective, it would have to give citizens the basis to argue that health care freedom is a fundamental right beyond any government’s rightful authority to transgress. If the citizen could make that argument, there would be a very slight chance that the U.S. Supreme Court might consider such a fundamental right sufficient to prevent the government from punishing those who chose not to abide by the individual insurance mandate. A statute, however, is not the mechanism by with citizens establish fundamental rights or liberties — they put those in their constitutions, where they are insulated from repeal or avoidance by future legislation. Thus, even if HB 1764 had purported to establish a fundamental right or liberty, courts would have been unlikely to take them seriously. It just so happens that HB 1764 does not even make such an effort, further diminishing any legal usefulness it otherwise might have had.

To be clear, I do not mean to suggest that proponents of the Health Care Freedom Act are intentionally misleading people as to the likely effect of HB 1764. But Missouri’s citizens deserve to know that the bill and the upcoming referendum it authorizes can only be considered a political statement. Even if the people adopt this statute at the August referendum, their rights and liberties will be no more secure than if the bill had been defeated.

The post Truth in Advertising appeared first on Show-Me Institute.

Brian R.: Urban decay and poverty is a problem that has been ignored in Missouri for far too long. As governor, what will you do to stimulate positive economic activity and lift people out of homelesness and poverty in North St. Louis and Kansas City? Additionally, how do you plan to address rural poverty?

Sarah Steelman: That is a very good question. I believe that any economy, including local economies, have to be allowed to grow themselves. One of the main problems in both Kansas City and St. Louis is the earnings tax. This 1% tax is levied nowhere else in Missouri. In St. Louis, you need look no further than the hole next to Busch Stadium to know that the status quo is not working. In addition, no major corporate headquarters has moved to downtown St. Louis in 50 years. The state should support economic growth in our cities.

She is just on fire this afternoon, isn’t she? The earnings tax is a terrible idea, and should be eliminated in both Kansas City and St. Louis. As Steelman notes, the earnings tax deters businesses, as well as people, from moving into affected areas. If tax revenue is needed, there are much less distortionary means to raise it, such as through a tax on sales or on the value of land.

The post More Steelman appeared first on Show-Me Institute.

Joe Hodes, St. Louis: Ms. Steelman,

I was inclined to vote for you until I saw your ad on the ethanol mandate. While corn ethanol has been shown to play a tiny part in driving up food prices (far less than foreign demand, oil prices and speculation), it has driven DOWN the cost of gas by 10 cents or more a gallon.

There have been over a dozen studies by universities, economists, researchers and even the energy industry showing that ethanol REDUCES the cost of gasoline–Missouri’s E10 mandate leads MO to have the CHEAPEST GAS in the nation.

Yet you say in your ad that the ethanol mandate has caused gas prices to rise. No one–even ethanol’s other critics–has been foolish enough to make such a counter-factual statement.

How could you get your facts so wrong?

Thanks,

Joe Hodes
St. Louis, MO

The mandate may be keeping the price of gas 10 cents lower than otherwise, but this gain is lost once you take into account the decreased efficiency of ethanol. E-10 fuel is 2.5 percent less efficient than regular gas, meaning it takes more fuel to go the same distance that normal gasoline would allow. If you want to drive 100 miles with a car that gets 20 miles per gallon, with ordinary gas costing $4 per gallon at the pump, it will cost you $20 for 5 gallons.

With E-10, fuel only costs $3.90 per gallon at the pump, but you now need 5.125 gallons to travel 100 miles, costing you $19.99. A paltry savings of one cent. But this analysis so far doesn’t even take into account the ethanol subsidy that Missouri taxpayers pay. That subsidy is currently 51 cents per gallon, and will fall to 45 cents when the new farm bill takes effect. So, it would actually cost you an additional $2.61 to drive 100 miles, but that cost is paid in taxes instead of at the pump. So, it comes to $22.60 for the same trip. If all actual costs were shown at the pump, E-10 would be priced at 41 cents per gallon more than normal gasoline.

Here is Steelman’s response:

Sarah Steelman: The facts speak for themselves. The studies from the Missouri Corn Growers and others don’t take into account the subsidies that we pay on our tax bills for ethanol. Secondly, they don’t take into account the decreased fuel efficiency of ethanol, meaning that you have to fill up your tank more times to go the same distance. I would invite you to read the Show-Me Institute’s recent study on the topic. The Show-Me Institute, unlike other groups, does not have a financial interest in ethanol. The Show-Me Institute study states that the ethanol mandate will cost Missourians over $1 billion over the next decade. This figure doesn’t even take into account the increased price of food caused by the mandate. I am the only candidate willing to stand up against the special interests who forced the ethanol mandate on our state. If ethanol can stand on its own two feet, let it do so in the free market.

Check and mate. The study in question, detailing the real costs involved with Missouri’s ethanol mandate, can be found on the Show-Me Institute website.

The post Show Me Sarah Steelman appeared first on Show-Me Institute.

Yesterday, Steelman held a press conference calling for an end to the notoriously bad ethanol mandate. She cited the mandate as one of the reasons that food and gas prices are at all-time highs, and that it must be repealed because of these unintended consequences. As many of you know, the Show-Me Institute recently produced a case study highlighting the negative effects of the mandate and its cost to Missourians. Initially, Steelman supported the mandate, but thanks to our study (at least, I’d like to think so) Steelman is among the growing list of officials who realize that the mandate was a mistake and have lobbied for its repeal.

Although our study does not focus on food prices, this effect is mentioned — along with the additional taxpayer costs that government subsidies bring. I commend Ms. Steelman for recognizing that the ethanol mandate is a bad deal for taxpayers, and I hope that her fellow politicians follow suit.

The failure of this regulation provides further evidence that such mandates are almost never a good deal for taxpayers, and shouldn’t be implemented in the first place. However, that’s a broader topic for a different day.

The post What Has Ears But Can’t Hear? appeared first on Show-Me Institute.

Young focused on a $4 million housing project in Springfield that
was financed with $11 million in state and federal tax credits for
historic buildings and low-income housing.
After doing the math, Young concluded taxpayers were providing more
than $300,000 for each of the 32 apartments in the rental housing
project.

Young saw this as a waste of tax dollars and looked into why the MHDC was appropriating so much money. He discovered that the state does not audit much of the money received by housing developers, outside of independent audits paid for by developers.

Young has begun studying economics on his own, and requesting MHDC documents through the Sunshine Law. He goes to their meetings and asks questions about why the commission’s ineffective largesse. The state could use more of this type of active citizenship.

State Treasurer Sarah Steelman, an MHDC member, appreiciates what he is doing:

He is a citizen who has taken an interest in the commission and who
hopefully wants to make it a better program, said state Treasurer
Sarah Steelman, who was MHDC chairwoman when Young made his statement. I’ve always had the opinion you never want to deter people from taking
an interest in what government is doing.

There should be more citizens like Young, Steelman said.

The political system needs people like Greg Young. Taxpayers often don’t know where their money is being spent, and even when they do, many just complain and move on. Young went a step further and decided to take action. If more citizens did that, government would be more responsive to citizens’ needs. I congratulate Mr. Young and hope he keeps up the good fight.

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