This is exactly why I listen to the Freakonomics podcast, which highlights the ways that economics can provide insight to seemingly inexplicable situations. Recently, Freakonomics discussed efforts in Romania to fine witches if their predictions fail to come true. The jail-time punishment being proposed for multiple false predictions could result in six months to up to three years in jail.

I suppose that if you acted on a false prediction, you would want to punish the person who led you astray. But think of all of the people and organizations who make predictions that affect the way our economy runs. We don’t penalize, say, politicians, economic development officials, or coalition groups when the promises they make fail to materialize.

As Steven Dubner, host of the Freakonomics podcast put it, “I don’t care if you’re anti-witch or pro-witch or witch-agnostic. Why should witches be the only people held accountable for bad predictions?”

In Missouri, it isn’t very hard to find evidence of bad economic development predictions. The recent Mamtek scandal is one. The 2006 prediction that the Ballpark Village development in downtown Saint Louis would result in more than $700 million in economic impact looks unlikely, to put it kindly. And, for a recent example, we have the ever-changing job estimates associated with a proposal to dedicate $300 million in state tax credits to construct warehouses and facilities.

Consider also a state audit report that found, among many other problems, that Missouri’s Low Income Housing Tax Credit is much more costly than initially predicted. How about the overly rosy economic growth assumptions used to sell Tax Increment Financing (TIF) projects? An East-West Gateway Council of Government study found that “broad measures of regional economic outcomes strongly suggest that massive tax expenditures to promote development have not resulted in real growth” (emphasis mine).

Of course, I’m not advocating that we throw politicians and economic development officials in jail for making the wrong promises. But I would suggest, for the health of Missouri’s economy, that we start holding these people responsible for their predictions.

As Freakonomics co-host Steve Levitt points out in the podcast, people have every incentive to make absurd predictions:

So, most predictions we remember are ones which were fabulously, wildly, unexpected and then came true. Now, the person who makes that prediction has a strong incentive to remind everyone that they made that crazy prediction which came true. …But if you’re wrong, there’s no person on the other side of the transaction who draws any real benefit from embarrassing you by bringing up the bad prediction over and over.

Levitt’s point reminds me of the St. Louis Regional Chamber and Growth Association’s outlandish predictions. The RCGA frequently issues press releases touting incredible job and investment numbers. Sometimes, the message of one RCGA study (say, that the region needs to build millions more in warehouse space) conflicts with another RCGA press release (that the region has an abundance of cheap warehouse space). The agency clearly isn’t worried about making an unlikely prediction, either.

I also wonder about the Missouri Department of Economic Development, and the state legislature’s propensity to create tax credit programs in the hopes of attracting jobs to the state. Audit reports have shown that these tax credits are more expensive than anticipated, and that the state gets little in return. And yet, in the face of  bad earlier predictions (and even blatant overstatements), state legislators continue to fail to pass substantive tax credit reform.

A solution that Freakonomics proposes is a little unexpected, but elegant. We all are familiar with baseball players’ batting averages. Let’s apply those to people who make economic development predictions.

Consulting organizations should report their track record of success (and failure). What if every estimate of job and investment creation the RCGA publishes had to be accompanied with a percentage showing the accuracy of previous estimates the agency predicted? What if, when contemplating creating new tax credit programs, we considered whether existing programs delivered on the promises used to create them?

If we are considering whether hundreds of millions of taxpayer dollars should be allocated to a particular project, it is not enough to take proponents’ claims for fact, especially if those organizations have a track record of poor prediction. We need to know how frequently those predictions actually become reality.

We wouldn’t throw anyone in jail. We might find that some organizations are really good at making predictions. And, like Romanians burned by a bad prediction from a witch, we could stop relying on organizations and individuals that provide wildly unreliable predictions.

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During the question and answer session afterward, a questioner who identified herself as a longtime teacher took issue with the merit pay suggestion. She argued that teachers do their jobs because they love their work and are passionate about it, and are not motivated by “greed” like people on Wall Street. There is some truth to this. Certainly, no one goes into teaching expecting to become fabulously wealthy. Still, I was reminded of what my cooperating teacher used to say when I was going through student teaching: “I’m doing it for the money … if they stopped paying me, I’d stop showing up.” Unless someone is independently wealthy, the money matters, and if school districts could pay more to the best teachers, they would likely attract and retain more highly skilled individuals to the profession.

In Superfreakonomics, Steven Levitt and Stephen Dubner argued that one of the major factors for America’s falling educational achievement over the last half century is the movement of educated women into fields outside of teaching, such as law and medicine. That is not a reason to lament women entering the wider workforce, but if there were more upward mobility possible in teaching, far more qualified people — both men and women — would have opted for teaching. Teaching can be an inherently satisfying profession, but it would be foolish to pin the hopes of our educational system on pure altruism.

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The most obvious consequence of these closings would be that people formerly employed in that segment of the adult business in Missouri would either seek new lines of work or move to other states that are more accommodating of their current professions. The supply of this good may diminish or even disappear, but the demand for it won’t go anywhere. This situation could easily lead to results that should give pause to the social conservatives who support this bill.

The increased hassle of the legislation might dissuade some people from consuming such lascivious services, but others will seek out substitutes. It would likely lead to an increase in the consumption of pornography and prostitution (and some unemployed strippers would probably enter the world of prostitution, as well). But that still may not be the worst of it.

A 2006 study by Clemson University economist Todd Kendall argued that greater access to Internet pornography helped drive down the incidence of rape during the prior two decades. In a Slate article, fellow economist Steven Landsburg summarized Kendall’s findings:

First, porn. What happens when more people view more of it? The rise of the Internet offers a gigantic natural experiment. Better yet, because Internet usage caught on at different times in different states, it offers 50 natural experiments.

The bottom line on these experiments is, “More Net access, less rape.” A 10 percent increase in Net access yields about a 7.3 percent decrease in reported rapes. States that adopted the Internet quickly saw the biggest declines. And, according to Clemson professor Todd Kendall, the effects remain even after you control for all of the obvious confounding variables, such as alcohol consumption, police presence, poverty and unemployment rates, population density, and so forth.

OK, so we can at least tentatively conclude that Net access reduces rape. But that’s a far cry from proving that porn access reduces rape. Maybe rape is down because the rapists are all indoors reading Slate or vandalizing Wikipedia. But professor Kendall points out that there is no similar effect of Internet access on homicide. It’s hard to see how Wikipedia can deter rape without deterring other violent crimes at the same time. On the other hand, it’s easy to imagine how porn might serve as a substitute for rape.

If not Wikipedia, then what? Maybe rape is down because former rapists have found their true loves on Match.com. But professor Kendall points out that the effects are strongest among 15-year-old to 19-year-old perpetrators—the group least likely to use such dating services.

Moreover, professor Kendall argues that those teenagers are precisely the group that (presumably) relies most heavily on the Internet for access to porn. When you’re living with your parents, it’s a lot easier to close your browser in a hurry than to hide a stash of magazines. So, the auxiliary evidence is all consistent with the hypothesis that Net access reduces rape because Net access makes it easy to find porn.

There are legitimate reasons to question such a strong conclusion on Kendall’s part, some of which were pointed out by Steven Levitt of Freakonomics fame, but it cannot be easily dismissed. Furthermore, it would be inappropriate to draw direct parallels between Kendall’s study and the strip club situation in Missouri, because they are not perfectly analogous. Most obviously, 15-year-old to 19-year-old boys are not likely to be found in strip clubs to begin with. Still, the general idea holds up. People seeking sexual gratification may turn to much worse alternatives in the absence of easy access to common consensual options like pornography and strip clubs.

Let me be very clear: I am not predicting that this law would result in a measureable uptick in rapes in Missouri. In fact, absent a good control group, it would be hard to establish statistical correlation, let alone causation. What we do have is some very suggestive evidence that the law of unintended consequences may apply to this law in a fierce way, and it is something that the law’s supporters should think carefully about.

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Nearly two dozen school supporters camped out in tents overnight on the sidewalk in front of the district’s Loop headquarters. Hundreds of protesters chanted “save our schools” and carried makeshift coffins.

Looking through the Tribune articles on the topic, I don’t see any restrictions in Chicago about selling buildings to charter schools, though. Chicago already has dozens of charter school campuses, though, so it could be that they’re more accepted there.

Speaking of Chicago, maybe Steven Levitt will address school closings along with the other urban problems he’s going to write about in Superfreakonomics.

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In Jefferson County, a hiring freeze is in place. Presiding Commissioner Chuck Banks said the county also is limiting the personal use of county vehicles, has delayed nonemergency maintenance of county buildings and is banning the idling of county vehicles at work sites.

Now, the middle part is the most troubling issue in these difficult times. Deferred maintenance can have serious repercussions. That is why I admit my post title is an exaggeration. Money spent on maintenance of facilities on a proper schedule is good use of taxpayer funds. It is easy to defer maintenance at times such as this, and it’s sometimes necessary, but eventually the money is going to have to be spent to keep facilities up to basic standards. It may cost more the longer you wait to do it, and you have to hope the roof does not cave in at your rec center because you waited two years behind schedule to repair it.

But other than that, the larger question stands. If positions do not need to be filled during difficult economic times, did they ever really need to be filled in the first place? If county departments can cut 8 percent of the budget now, why couldn’t they do that last year?

There are several answers to this, none of them fun to admit. In some places, putting as many people on the public payroll as possible is exactly the goal in the first place. And in just about every government, at every level, the incentives for the average employee to save money just do not exist. It is so much easier just to come in, do your job, and leave at 5:00.

Steven Levitt, at his recent speaking event at SLU, told the story of an IRS worker who came up with the idea to require Social Security numbers on tax forms. When it was finally implemented after years of trying, millions of children disappeared overnight on April 15, 1987. This one employee increased government revenues by hundreds of millions of dollars while reducing tax fraud, and yet it took years for him to get a lousy $25,000 bonus. It was a funny story, but also a pathetic one. If someone who achieved this much in government service had so much difficulty being properly rewarded, what incentives do average local bureaucrats have?

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This is not to say that Feldstein’s column is in full agreement with the health savings account approach favored here at the Show-Me Institute. In fact, she raises some very interesting questions about them:

Research shows patients in these plans, particularly those with low incomes, sometimes avoid cost-effective preventive tests and prescription therapies because of their cost.

There is simply no magic potion to take our health care system and make it perfect. Last night we cosponsored the Steven Levitt (coauthor of Freakonomics) lecture along with St. Louis University, where the event was held. Levitt, in response to a question from a lottery-winning audience member who regularly runs for office, talked about health care. He believes that market pricing has to be put back into the system, and consumers and insurers are going to have to make tough choices about what people can and can not afford.

As Feldstein writes:

Patients should have a financial stake in their health and health care. But plans should encourage, not discourage, the wise use of limited resources.

I see her point perfectly. It is one thing for parents not to take their teenager, who only has a simple cold, to the doctor. That choice allows for more important uses of limited resources. To go further, it is unfortunate — but probably necessary — that dying elderly people do not receive every single expensive treatment possible. Remember when Mickey Mantle got a liver transplant and died soon anyway, after potentially taking away a precious resource (a functioning liver) that someone else may have used to live much longer? (Note: there is no proven evidence that someone other than Mantle died because of that transplant, but the decision to give the liver to him was still very controversial.)

It is another issue entirely for people with treatable conditions not to take their medicine because they are responsible for the first $2,000 of their costs before insurance kicks in, and they can’t afford it. I am not saying HSAs don’t work because of this issue, just that it is a reasonable possibility to consider. The great thing about Feldstein’s column is that it is a well-researched piece about a complicated issue, as opposed to Herbert’s uninformed broadside.

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The survey and the related discussion both point out the easy fact that economists who list themselves as registered Republican or registered Democrat obviously favor the candidate of their party affiliation. But the discussion then goes to note that economists who are registered independent also favor Obama, by a fairly substantial margin. The problem with the party affiliation question is that it does not account for states that do not require, or even allow, voters to register by party. I often hear people in Missouri say while talking politics that they are “registered this-or-that’s.” I always want to say, and sometimes do say, “No, you’re not, we don’t register by party here.” A more accurate way to phrase the question is, “Do you consider yourself a Democrat, Republican, Indepedent, third-party supporter, or non-voter?”

How the hell can this affect the results? Well … if someone, for a poll or survey, asks me whether I am a registered member of a party, it is perfectly legitimate for me to say no. If they instead ask me whether I consider myself a member of a certain party, I would say yes, and any other answer would be lying. We can be sure that some of the responders to this question are from states like Missouri that do not register by party. As such, people from those states with strong political leanings may have very reasonably chosen “registered independent” as the best of the available options, even though they are not truly independents. With a polling universe heavy on people from acadamia, it is likely that many of those not-really-independents favored the obvious candidate.

The results of the poll are not my point. And the overall survey is very interesting. But doing the demographics in a way that assumes all people register by party, or else officially register as an independent, is erroneous.

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Steven D. Levitt is a rock star among economists, a title that would have been an oxymoron a few years ago. The book he co-authored, Freakonomics, has taken economics out from the dark, dusty classroom and into the pop-culture spotlight. To call his work “nontraditional” or “unconventional” would be an understatement. Quite abruptly, Freakonomics has become one of the foundations of an economic education. Repeatedly, I have had professors assign different sections of the book as in-class readings. I cannot recommend this book highly enough to anyone, whether or not they have a background or interest in economics. Then again, I’m posting on a free-market economic think tank blog, so I’m sure those reading this are familiar with Freakonomics.

Since beginning my study of economics at SLU a few years ago, people have suggested I read Freakonomics, but I didn’t take the time to do so till this past summer. Frankly, I wish I had gotten around to reading it sooner. The book analyzes topics I would never have dreamed to associate with economics, such as sumo wrestling results and inner-city gang financing. Levitt successfully shows that there is a transparent economic layer to nearly anything you can imagine. Levitt’s speech on the 23rd promises to be both entertaining and thought-provoking. I could try to predict the topics he will cover, but I believe such an efforts would be in vein. Nothing at this point would surprise me. I would be in a state of euphoria if I heard any official news about the Internet rumors concerning a possible sequel, Superfreakonomics.

If you have not yet read Freakonomics, I highly advise it. Don’t forget to check out the details of the speech, and to register. Be advised that seats are going fast.

The talk will be held Tuesday, September 23rd, an the Anheuser-Busch Auditorium in the lower level of the John Cook School of Business at St. Louis University. I hope to see you there.

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Why do drug dealers still live with their moms? What makes a perfect parent? What do schoolteachers and sumo wrestlers have in common? These are questions that Steven D. Levitt asks in his controversial, critically acclaimed book FREAKONOMICS: A Rogue Economist Explores the Hidden Side of Everything. Levitt will expand on his book’s inquisitive premise during an address on Tuesday, Sept. 23, at Saint Louis University.

Levitt’s speech is part of the economic policy series presented by the Show-Me Institute in conjunction with Saint Louis University and its John Cook School of Business. He will be the third lecturer in the series, which began earlier this year.

If you, or anybody you know, is interested in attending, be sure to register sooner rather than later. Seating is limited, and we expect that demand will likely exceed supply.

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