Monthly Archives: April 2010

Some data on the earning tax

I was curious about the debate over the earnings tax in St. Louis and Kansas City, so I did what people naturally do when they don’t know things; I looked at the data. More particularly, I looked at census data on metropolitican statistical areas (MSA) for the change in population between 2008 and 2009 and matched it to this data set on American cities with an earnings tax of some kind. I didn’t have time to do anything sophisticated here, but the cities with earnings taxes seem to be at the lower end of population growth across the country. I coded for all the MSAs listed in the TaxFoundation data, excluding the larger multi-state MSAs like NYC or DC that have differing income tax restrictions depending on where you are. I also selected all the MSAs listed in states that have some earnings tax wherever you live.

There ended up being 57 MSAs listed in the population data that I identified as having earning taxes. They range from Flint, Michigan with a  -1.12% growth rate in 2008-2009, to Denver, Colorado, who experienced a 2.1% growth rate over the same period. Of these 57 MSAs, 45 are in the bottom half of cities ranked by population grown (the average MSA  in 2008-2009 had a population growth rate of roughly .87%) and 9 were in the upper 50%.

This of course is not the whole story. The data only gives us an incomplete glimpse into what’s happening at a specific moment in time and doesn’t give us any information about trends. I would assume that young cities with high rates of growth might implement an earnings tax but that the tipping point isn’t reached for a while, but without controlling for how long each of these earning taxes have been in place I can’t make that conclusion. There are also many other idiosyncratic determinants of population growth that the data doesn’t allow me to engage. There is also a substantial risk that my data selection is incomplete. Regardless, it is suggestive that close to 90% of identified MSAs with earnings taxes are below the average MSA population growth rate; it suggests that earnings taxes has a dampening if not negative effect on population growth, particularly in cities hit hard by the recession.

If I have time this week I’ll try to expand on this, but no promises. Here is Dr. Haslag from the Show-Me Institute with a more sophisticated analysis and I quote in part:

How much of this phenomenon can actually be attributed to the city earnings tax? Saint Louis and Kansas City are hardly the only earnings-tax-enforcing cities that are losing economic power from their base state. Cities such as Philadelphia, Pennsylvania, and Cincinnati have also seen losses in employment to neighboring states. In fact, from 1998 to 2006, every MSA that includes counties from two or more states, in which one enforces a city income tax, has seen a decline in the ratio of employment within the area subject to an earnings tax relative to total MSA employment, even while similar multistate MSAs without earning taxes have experienced, on average, a modest increase in that ratio during the same period

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On war, soldiers, and honor

I remember the days and weeks and months after September 11th pretty clearly. Almost immediately after the towers fell conservatives (and particularly the Bush Administration) became instant advocates of sending the US military abroad to counter the threat of Islamic extremism. Iraq quickly raced to the topic of Bush’s policy agenda and an invasion was planned and executed with impressive speed.

But America, and the right in particular, have severe cognitive blinders when it comes to the topic of war. War is sold to us under the branding of liberty and defending freedom. But I think it is demonstrably true that when we go to war we systematically underestimate the costs of war and overestimate the benefits.

Part of the hidden costs of war are found in the broken men and women who return from the battlefield with severe physical or psychological trauma. It is well documented how poorly the military’s own infrastructure is equipped to deal with these problems; indeed, one of the fundamental problems is that the military ethos is expressed in ways that deny soldiers the ability to approach and confront their own injuries, particularly the ones that aren’t understood well. There are huge asymmetries in power and knowledge inherent in military structure that leave veterans to suffer with little recourse. Is it any surprise then that suicide rates are so high amongst veterans?

Moreover, the right fails to understand that war is like any of the other government programs they criticize. War is functionally an entitlement program for the military-industrial complex, and for all the posturing the right engages in against health care or financial reform, I think you would be hard pressed to find a coherent group of conservatives who are serious about cutting defense spending.

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Tom Wolfe on Mark Twain

In the NYT:

Twain outdid them all with a Victorian palace whose many turrets were over the top, even for the Gilded Age. Outside, a coachman and a footman stood at the ready. The palace’s interior, with its posh toff’s furnishings and six retainers, was even more extravagant. Twain bought a hellishly expensive bed from a Venetian palace, featuring a headboard carved into a bas-relief of cupids, nymphs and seraphs, the six-wing angels who guard God’s throne. He claimed he found it so sublime he had put the pillows down at the foot of the bed and slept backward so that this heavenly vision of worldly success would be the first thing he saw every day when he awoke.

Life among the Nook Farmers was a ceaseless round of dinners and entertainment for one another — and for every celebrity who came to town, from William Dean Howells to Henry Morton Stanley of “Dr. Livingstone, I presume” fame. The money, not to mention the time, his palace cost him, eventually drove Twain into bankruptcy in 1891, just as another folly, Abbotsford House, had sunk Sir Walter Scott in the early part of the century.

But just think of it — 20 years! For 20 years, Mark Twain had actually lived, in the flesh, as that heroic figure every American writer, except one (no use igniting angry letters to the editor), dreams of being: Big Spender from the East.

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Individual decisions, aggregate problems. My brother.

My brother, George, is a superbly accomplished, brilliant person. In 2000, he won the National Spelling Bee and took 2nd place at the National Geography Bee. His high school career included him becoming an Eagle Scout and valedictorian. He was accepted to Harvard and to my knowledge graduated with degrees in Chemistry and Russian, presumably with honors.

His intention was to eventually end up in medical school and follow my father into the medical profession. My father, also named George, is a Ph.D. biochemist who went to medical school at 42 and currently practices endocrinology in St. Louis. My father and I have deep differences in personality and ideology but beyond that I have a deep and profound respect for his work. As a physician, his work is profoundly and immediately meaningful in the lives of many, many people. Many have lived where they might have died and learned to live well because of his choice to practice medicine.

My father is well compensated, of course. He works 14-hour days even as he approaches 70. If in my life I am capable of doing a tenth of the good he has done, I will be surprised. A good physician is one of our world’s most valuable real assets.

My brother and I have never really gotten along, but I was proud that he went to Harvard hoping to be a physician. When he graduated, however, he’d lost that dream. He is now an investment banker, working for William Blair, a Chicago-based investment company.

This I think is one part of the story of this economic recession. Brilliant minds converged at the world’s best educational institutions and got blinded by the money they could find in the financial sector. Here is Joseph Stiglitz, the recipient of the 2001 Nobel Memorial Prize in Economics, whose words ring all too true for me:

Finally, I have emphasized how our financial sector failed in its essential societal roles, especially with respect to the allocation of capital, and how the sector’s’ incentive structures may have contributed to that failure. But there is another misallocation of resources that resulted from the sector’s compensation policies, one whose effects are graver and longer lasting, and one which, as a teacher, I have felt intensely. There was a misallocation of scarce human capital, as some of America’s most talented young succumbed to the lure of easy money—brilliant minds that, in another era might have made real discoveries that enhanced our knowledge or real innovations—that would have enhanced societal well being. In earlier decades, our best students went into a variety of areas—some into medicine, many into research, still others into public service, and some into business. Each found fulfillment of their potential at the same time they served their communities in one way or another. At Amherst College, where I serve as a trustee, we talk of helping our youth live lives of consequence. In this modern era of a finance-dominated economy, unfortunately, a disproportionate share of our most talented youth went into finance, lured by the outsized compensation. The costs to our society of this misallocation are incalculable.


On energy efficiency, conservation, and the behavioral economics of Republicans

I’ve been working on a response to Christine Harbin’s op-ed on Missouri’s green energy sales tax holiday over at the Show-Me Institute. This paragraph particularly stood out to me:

…Acquiring a more fuel-efficient new appliance could also encourage the purchaser to wash dishes and laundry more frequently than before, which means that the overall decrease in energy usage may be much smaller than anticipated — or could even increase. If usage does drop as a result of sanctioned purchases, however, the reduction in overall Missouri energy usage will still be minimal at best unless every Missouri resident purchases a new appliance during the week that rebates are offered.

The assertion that the consumers might respond to increased energy efficiency of course is not a new one, and there is some empirical backing for that claim. This study conducted with Opower suggests that political affiliation may play a role in how consumers respond to these programs. Specifically, conservatives seem to be the single group that increases their energy consumption in spite of (or maybe to spite) efforts to increase the conservation of energy:

In a study evaluating the program’s effectiveness, Opower researchers compared power use before and after the HER reports began arriving, and further compared this change with a group of control households that never received the reports. On average, the HER households reduced their consumption in the months that followed by a little less than 2 percent. Not bad, but probably not enough to save the planet.

Working with the same utility as Opower, Costa and Kahn matched up information on the households in the pilot study to data on political affiliations and a database of past charitable giving to environmental organizations. The economists found that the 2 percent average decline in energy use obscured significant differences in the responsiveness of different types of households to the conservation message. Registered Democrats who give to environmental organizations and live near other liberals reduced their consumption by 3 percent. For liberals who started out as heavier-than-average consumers, the reduction was almost 6 percent. Republicans who live in conservative neighborhoods (and hence had no neighborly pressure to conserve) and had no record of giving to environmental organizations actually increased their consumption by 1 percent.

Why would some energy-conscious Republicans all of a sudden become power hogs? One explanation is that many conservatives don’t believe that burning energy harms the planet, so when they learn that they’re better than average, they become less vigilant about turning the lights off. That is, they’re simply moving closer to what they now know is the norm (what psychologists call the boomerang effect). Costa and Kahn also look for guidance from the patron saint of right-wing fundamentalists, Rush Limbaugh, who encouraged his listeners to turn on all their lights during Earth Hour. Costa and Kahn suggest that ardently right-wing electricity customers might respond to paternalistic nudges by burning more energy, just to thumb their noses at Big Brother.

H/T: MarginalRevolution.

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Markets in North Korea

Horrifying. From the Chosun Ilbo:

Rare footage of markets and other scenes of North Korean society offers vivid testimony of the major changes that have happened in the reclusive country since a botched currency reform in December last year. The Chosun Ilbo and the Caleb Mission unveiled the footage Tuesday.

It shows an open-air market and train station on Onsong, North Hamgyong Province in October 2009, just before the currency revaluation, and in March this year. Onsong boasted a relatively developed market due to its thriving trade with China, which is just across the border over the Duman (or Tumen) River.

Footage taken in October shows a bustling market, but the same place in March is almost deserted, with only a few traders selling goods. In October, the market was overflowing with food, clothes, shoes, cooking oils, squid and other goods. But three months after the currency debacle, only a few bags of corn are visible in the stalls. Products that were part of South Korean aid shipments to North Korea can also be spotted.

I’m unable to embed the video for some reason, but the clickthrough is worth it. Consider how much human suffering must have accompanied closing this market. For instance:

Violence is growing in North Korea amid a worsening food shortage after the disastrous currency revaluation last December, according to sources in the hermit country.

One person was killed by armed guards on Feb. 16 when a group of people attempted to rob a food train at Komusan Railway Station in Puryong-gun, North Hamgyong Province, defector group North Korea Intellectuals Solidarity said. The attack came on North Korean leader Kim Jong-il’s birthday after a disastrous currency reform sent food prices skyrocketing.

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The job market for economists

From Chessbase:

Richárd’s parents are both economists. His father, Tamas, has built up a successful wood and parquetry business. A few years ago he moved from Szombathely to Sé, where his large young family could thrive better in the quiet village life. He has a strong amateur interest in history, a love that has passed on to Richárd. Richárd’s website,, as designed by his father, opens with scenes from King Richard’s crusades.

Via MarginalRevolution, who excerpts some insightful portions on how chess theory is evolving in response to computer-trained players.

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Missouri Attorney General Chris Koster speaks to #YDMO2010

I got this footage from a meet and greet with Missouri Attorney General Chris Koster at a Young Democrats of Missouri convention held last weekend in Springfield, Missouri. He discusses the impact the recession has had on hirings at the Attorney General’s office (since high end law firms aren’t hiring, the AG is now able to hire law grads from Harvard and other Tier 1 law schools) and also the efforts of Lieutenant Governor Peter Kinder to sue the federal government over healthcare reform. Koster makes the argument that Kinder doesn’t have standing to represent Missouri in the first place and that allowing random state officials to sue on behalf of the state leads to  anarchy in the courts, since there’s no mechanism to prevent different state officials from suing each other on behalf of the state of Missouri, which is what these kinds of lawsuits would turn into.

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On Farmville and social capital

A. J. Patrick Liszkiewicz writes:

One wonders if this is a good thing. It is difficult to imagine Aristotle or Caillois celebrating Farmville as essential to citizenship. Indeed, when one measures Farmville against Roger Caillois’ six criteria for defining games, Farmville fails to satisfy each and every one. Caillois stated that games must be free from obligation, separate from ‘real life,’ uncertain in outcome, an unproductive activity, governed by rules, and make-believe.[12] In comparison:

(1) Farmville is defined by obligation, routine, and responsibility;
(2) Farmville encroaches and depends upon real life, and is never entirely separate from it;
(3) Farmville is always certain in outcome, and involves neither chance nor skill;
(4) Farmville is a productive activity, in that it adds to the social capital upon which Facebook and Zynga depend for their wealth;
(5) Farmville is governed not by rules, but by habits, and simple cause-and-effect;
(6) Farmville is not make-believe, in that it requires neither immersion nor suspension of disbelief.

Of these points, the fourth is the most troubling. While playing Farmville might not qualify as work or labor, it is certainly a productive activity, as playing Farmville serves to enlarge and strengthen social capital. Capital is defined as “any form of wealth employed or capable of being employed in the production of more wealth.”[13] New media companies like Zynga and Facebook depend upon such wealth in generating revenue, just as President Obama depends on social capital to raise money, to organize, and to communicate. Unlike President Obama, though, Zynga is not an elected official, and is not obligated to act with the public’s interests in mind.

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On food safety

One of the arguments I’ve made in defense of schools choosing to buy local agricultural products is that when you deal with someone you know, you’re able to verify the safety and quality of the products you’re getting fairly easily. This is diametrically opposed to the other option: buying agricultural products that are made by industrial agriculture operations, which means relying on an inefficient and functionally useless federal regulatory mechanism. Some people (particularly Sarah Brodsky at the Show-Me Institute) defend the broken system of industrial agriculture without ever considering the dangers implicit in this system. In this vein, here is Helena Bottemiller describing how federal regulatory mechanisms are woefully inadequate in ensuring basic food safey:

Veterinary drugs, pesticides, and heavy metals are making it onto our plates via meat, according to a federal audit released this week.

The U.S. Department of Agriculture (USDA) Office of the Inspector General (OIG) report concludes that the agencies responsible for monitoring harmful residues are “not accomplishing” their mission.

“Together, [USDA’s Food Safety Inspection Service], FDA, and EPA have not established thresholds for many dangerous substances (e.g., copper or dioxin), which has resulted in meat with these substances being distributed in commerce,” says the audit, which identifies lack of agency commitment and poor interagency coordination as key issues.

The OIG also found that FSIS does not attempt to recall meat, even when its tests have confirmed the “excessive presence of veterinary drugs.”

“Not only does overuse of antibiotics help create antibiotic-resistant strains of diseases, but the residues of certain drugs and heavy metals can have potentially adverse health consequences if they are consumed in meat,” OIG reported. The audit offers the following table, which lists five drugs and substances found in meat and their potential health effects (click to enlarge):


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On rights and healthcare re: Pileus

I caught this discussion of rights over at Pileus. The writer is James Otteson:

By contrast, granting people a right to health care means imposing positive duties on some for the benefit of others. That is precisely the sort of liberty-impinging exploitation that the Declaration meant to rule out. Congressional action declaring it legal does not change its essential character, just as the legality of slavery at one time in this country did not alter its essential character. Using some for the benefit of others has an intrinsic moral repugnance that is not erased by congressional action or by closing our eyes to the actual source of or the full costs of the proposed benefits.

Take one other case. A measure in the recently passed ObamaCare bill prohibits private companies from offering federally guaranteed student loans, leaving the federal government itself as the only lender. Part of the rationale for this is that people have a “right” to education that should, therefore, be guaranteed and provided by the government.

I want to talk about the second case first. While I agree nominally with Otteson’s discussion of ‘rights’ here in the positive and normative sense, I think that the scenario has more to offer. Specifically: why do private companies have the right to offer federally-guaranteed loans? The federal government as an entity who chooses to act in a market for loans is not obligated to commit to any stipulation regarding who can offer loans backed with their money. Sure you can criticize the rationale that people have a right to an education, but the rationale is a different thing from the policy itself.

The rights discussion on healthcare is far more compelling of an argument. But I don’t evaluate these policies in a vaccuum. I think if we are intellectually honest then we admit that for a long time these sensible libertarian ideas have been lip candy for the right wing, who uses the discussion on rights as a way to distract from larger inequities that their policies perpetuate (for instance, opposition to same sex marriages). So yes, Otteson is correct in a world where there is an equal playing field. But in this world the content of the message is a tool, whether for good or for bad, and there are many different playing fields, dominated by many different players.

Healthcare in particular is too broad of a topic to make these simple generalizations about. How do libertarians respond to the many instances where someone’s insurance coverage is revoked right after they fall sick and begin making claims? The obvious answer is that there should be some kind of perfect third party to facilitate arbitration. Libertarians think that the market is that perfect third party. But while that theory is true in theory, in practice markets are subject to constraints that make them vastly more imperfect mechanisms.

Extend my counter-example. I have insurance, I get cancer, my insurance company cancels my coverage as a pre-existing condition…and there is no good market actor to redress this dispute because no one has an incentive to. At every step of the way, I, the consumer, am hobbled by the asymmetries of power and information that exist. To fight this claim, I have to find a lawyer (a costly process) who has to navigate a costly process for resolution of my complaint. By its nature, this system acts as if it were bound by the laws of inertia. In a nutshell, the structure is one that is biased towards the status quo.

Here I want to step back and make an argument about something we don’t talk enough about. That thing is common pool resources. A good example of a common pool resource might be a fishing ground. No particular person can own the sea where the fish are, nor can they own the fish prior to catch. In this world you’d expect the tragedy of the commons; everyone overfishes to maximize their short term profits. But of course this is absurd. In real life, you find that people tend to set up formal or informal governance mechanisms to allocate the fishery resources to optimize its production over time.

I think of healthcare in a sense as mechanism to optimize the most important common pool resource we have: ourselves. Think about it this way. A government’s function is to provide those goods and services that the private sector cannot. There are disagreements on where the line lies but generally, providing for the public safety is one of them. In this regard we have a national defense program that is the third largest line on the budget. We spend between 38-44% of tax revenues on national defense. To this day, I cannot recall a single conservative I know who says we need to cut military spending (I’m sure they exist, but they don’t get the headlines). No one is giving the President credit for what might be one of the more significant and unprecedented events in Presidential history: cutting defense spending in the last budget.

But ultimately, our most meaningful resource is not our guns or nuclear weapons or aircraft carriers. Our most important resource is our people. In a world where so many people are hobbled by a market structure that maximizes producer surplus at the expense of consumer surplus, I think there is a strong argument for the government to provide healthcare.

I agree with many people who say the bill that actually passed is badly written and contains too much, etc, etc. But let’s be honest and say that the world does not admit of the easy solutions that follow from a naive interpretation of classical liberal/libertarian thinking.

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Anti-Mankiw: What’s Wrong with the Most Popular Economics Textbook

Here I am reproducing in its entirety a post over on Facebook from my old college roommate and current TFA teacher, Jack Soltysik. Jack remains a friend, of course, and is the most motivated smart person I know. Since leaving college, we have kept in contact and my respect for his intellectual faculties and integrity has only grown.

On a side note, my 2000 National Spelling Bee winning brother went to Harvard to become a doctor ([sarcasm]and of course is now getting into finance [/sarcasm]) and as recently as 2007 told me that he sometimes had dinner with professors including Mankiw.

In any case, I agree with Jack on Mankiw. But here I’ll let him speak for himself. The entire post is worth reading:

Greg Mankiw writes the most widely used econ text in the country and I thought it was cool that he linked to some recent protests ( What follows, I guess, is my 2 cents.

A few years back, Mankiw wrote:

“Some students may view the economic mainstream as right of center. That assessment is probably correct, at least as judged by the universe of college professors. But the job of an introductory course is to present, as honestly as possible, the consensus of the profession. If the typical economist is more market-friendly than the typical literature professor, then that point of view will likely be reflected in the leading textbooks.”

I think that I’m *generally* satisfied with this approach to academic openness and freedom. Sociologists are to the left of political scientists which are to the left of economists (please keep in mind that something like 80-90% of economists identify as Democrats and the the numbers for journal editors are higher). I don’t think any discipline is crazy; I think most ideas in college curricula are reasonable and to the extent that you disagree with models of thinking, don’t take the course; and if you can’t avoid the course, it will probably do good for you to be exposed to contrarian ideas; and you will have plenty of opportunities to study and read about whatever the hell you want.

But I think a bigger issue is that the foundations of economics, by the beginning of the 20th century, were divorced from ethics, rewedded to calculus, and there has been very little looking back. When Keynes weaved together his General Theory to get a trodden world out of the depression, the entire “trick” was analytical; it was done on pen and paper with maths. He opens up his book by saying:

The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight—as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to thro over the axiom of parallels and to work out a non-Euclidean geometry.”
Continue reading

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Missouri State Auditor Susan Montee on civil asset forfeiture

I sat down with Missouri State Auditor Susan Montee last night and talked to her about her 2009 report on civil asset forfeitures in the state of Missouri. I’ll have more to blog about soon, but wanted to highlight a couple things I learned.

The reports she received from prosecutors around the state detailing the extent of civil forfeiture activities were a ‘mess’. Often the records are misplaced or lost or ineptly kept, making her job compiling the the information necessary for a report difficult. There also appears to be little or no oversight of ‘adoptive’ or ‘equitable’ forfeiture, a mechanism that state and local police in Missouri have used in the past to dodge state requirement that proceeds from forfeited assets be turned over to the general fund. The current law requires judicial approval when assets are transferred between state and federal authorities in equitable forfeiture and I think is limited to assets seized with help from the federal government, but I am unable to find evidence that this law is being properly followed or enforced. Indeed, the large amounts of money moved around in this way by Boone County, Laclede County, Butler County, and New Madrid suggest to me that police agencies around the state continue to use adoptive forfeiture to retain control of the proceeds from seized assets for their own purposes.

Missouri law also mandates that civil forfeiture also be accompanied by ‘criminal action’ to prevent innocent people from having their property seized. Unfortunately I don’t know if the descriptor of ‘criminal action’ is equivalent to a conviction; it is still possible to seize and keep property and file charges that are dropped while satisfying the requirement for ‘criminal action’. Of course, this is problematic.

I’ll have more soon; I’ll be meeting Montee again next week to cover the subject in more detail.

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On grassroots political activism

This is scary: in Missouri failure to properly disclose grassroots lobbying activity is punishable by a fine of up to $5,000 and 4 years in jail, a punishment comparable to the sentence you would expect to receive for sexual misconduct with a minor. Other states are harsher; Alabama can fine you $30,000 and send you to jail for 20 years.

For more, check out this paper from the Institute for Justice titled ‘Mowing Down the Grassroots: How Grassroots Lobbying Disclosure Suppresses Political Participation‘ by University of Missouri economist Jeffrey Milyo.

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I’m here in Springfield, Missouri, at the Young Democrats of Missouri 2010 convention with MU College Democrats Brian Roach, Iavora Vlaytcheva, Cassie Gray, Alanna Bauer, and Doug Cowing. I’ve had a number of very interesting conversations so far on the earnings tax debate in St. Louis and KC, unions, healthcare, financial system reform, and what incentivizes citizens to vote. The name Rex Sinquefield has come up more than once (I encourage people who are interested in his advocacy to read the wiki for Dimensional Funds Advisors, which I think contains many valuable insights). Tomorrow holds interviews with Missouri State Auditor Susan Montee, Missouri State Treasurer Clint Zweifel, as well as a couple other elected/electable people.

I hope to share some of these insights with readers soon in posts here. For now, I will remind my friends who have taken a  ‘hard science’ approach towards economics and the social sciences that there is much unexplored ground and my friends who have taken different educational routes that there is much to be gained from the rigorous (read: mathematical/statistical) study of systems and institutions.

For now, here is Missouri Democratic Party Chairman Craig Hosmer welcoming delegates.

Here is Dr. Michael Hoeman; he is running for Missouri’s 30th Senatorial District here in Springfield.