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Wednesday, September 22, 2010

Public Schools Through the Public Choice Lens

Regarding the state of government (“public”) schooling in the United States today, two facts stand out. The first is that the average amount of money spent per pupil has dramatically increased during the past 35 years and is now one of the highest in the world, and the second is that student achievement, by both historical and international standards, is among the lowest of industrialized countries. In conjunction with the spending increase, the current situation is surprising.

Why is it that spending larger sums for public education does not lead to better results while a higher price purchases a higher-quality service nearly everywhere in the private sector? And why haven’t fundamental changes to the schools been made through the political system despite long-falling student achievement? Public Choice theory and economic reasoning make it clear that, far from being contradictory, the current state of affairs in American public schools is the logical result of the processes by which they are run and funded, and that the continuance of the status quo is the result of rational choices by voters within the current democratic system.

Just how much is spent on schooling in the United States? In 2004–2005, the average expenditure per pupil was $9,266, the National Center for Education Statistics says, while the average expenditures in 1984 and 1994 were $6,219 and $7,504, respectively. This represents a 23.5 percent increase over ten years and a 49 percent increase over 20. It’s also 52 percent more than what 29 other countries spent in 2003, according to the Organization for Economic Cooperation and Development.

Yet despite the vast spending increases, the average combined SAT score dropped from 1060 in 1967 to 990 in 1980, after which it rose modestly to around 1028 in 2005. Fifteen-year-old U.S. students scored 483 on the 2003 Program of International Student Assessment, 17 points below the average of all the countries that participated. Thus by the dual standard of cost and benefit, the public school system is doing poorly.

One great difference between government-run operations (such as the public schools) and all organizations on a free market, whether for-profit or nonprofit, is that government agencies are allocated funds by political decisions, while free-market organizations must earn their revenue either through voluntary gifts or voluntary exchange. This distinction has important implications for the actions of these two groups. Free-market organizations strive to maximize profit by increasing revenue and reducing costs; these profits are then either distributed to owners or shareholders or are used to further the goals of the organization. Organizations in which costs exceed revenue earned close or go bankrupt. Thus they constantly strive to become more efficient and productive, and the inefficient producers are driven out.

As Public Choice theory tells us, however, the people who run government agencies have no such incentive to decrease costs and increase revenue because they are not subject to market competition and do not stand to benefit from any profits made. In fact, through a perverse process exactly opposite to the market process, failing schools and districts are often given more money in the desperate hope that the problem will be solved. Public Choice theory also demonstrates that for any public school or school system it is rational to waste resources because of the “use it or lose it” phenomenon. If a school were to have a budget surplus, its budget for the next period might be curtailed—something its administrators would abhor. Thus the public education system typically does not provide incentives for cost-cutting and quality-improving measures. In fact, it does the opposite.

Cost and Quality at Private Schools

Based on this reasoning, and other things equal, one would expect to see, on average, private schools providing better-quality education at lower cost (per pupil) than public schools. Indeed this is exactly what we find. Adam Schaeffer of the Cato Institute, in his policy analysis, “They Spend WHAT? The Real Cost of Public Schools,” found that in the five metro areas studied, public schools spend nearly twice the amount of money per pupil (93 percent more) than the estimated median private school does. That students were sent to these tuition-charging schools instead of to “free public” schools is further evidence the private schools were providing a higher-quality education even at lower total cost.

Instead of competing for students and donations, public schools and school systems compete for allocations from legislatures and bureaucracies. One factor in making these allocations is student performance on standardized tests. This artificial substitute for competition creates perverse incentives for all levels of the education apparatus. Individual teachers and schools, for example, knowing that funding is dependent not on general student knowledge and sharp critical thinking skills, but rather on one test, are induced to teach students only those skills which will be tested (a process known as “teaching to the test”). When schools receive money according to how many students enroll in upper-level classes, they have an incentive to spur more students to take those classes, resulting in unqualified students falling behind and advanced students being held back. In addition, states have an incentive to make standardized tests easier rather than harder so that more students will pass. Thus the perverse results are seen at all levels: individual schools, districts, and state governments.

Rational Ignorance and Bundle Purchases

Public Choice also explains why voters don’t show up en masse on election day to vote for candidates who will change the educational system. Although many citizens agree that the schools could and should be run better, few have a detailed plan of how that could best be done, and therefore few have a standard by which to judge the education proposals of candidates. This is a result of rational ignorance. To cast the smartest vote regarding education policy, a parent (for example) would have to devote an enormous amount of time to learning about the various issues related to education: the inner workings of the local school system, the broader laws of economics, Public Choice theory, the structure of the teachers’ unions, the fine print of the No Child Left Behind Act, and more. Yet after all this work, the parent would still only have one vote to cast. Thus the cost to the parent of learning about this political issue far outweighs the potential benefit of one well-informed vote.

Even more, an informed parent might still not vote for the candidate with the better schooling plan because political decisions, unlike market decisions, are “bundle purchases.” While one chooses any variety of individual goods and services on the market, one must choose a single politician with all of his policy positions. Stuck with a choice of two candidates, each of whom has some agreeable and some disagreeable views, voters are very often forced to choose the lesser of two evils. Note that such language is rarely used to describe market purchases.

Even if a parent voted for the politician who advertised the best plan for educational reform, the politician might fail to live up to his campaign promises. Candidates compete for votes and have an incentive to say or promise whatever is necessary to be elected. But dishonest campaigning is not illegal—no politician ever went to jail for breaking a campaign promise. In addition, politicians generally cannot be ejected from office during their terms; thus in the case of a lying candidate, the voter would be stuck with a representative committed to the status quo until the next election, at which time entirely new issues (apart from education) might take priority. This is the opposite of the market, where many goods can be returned immediately for full refunds, and where false advertising is punished both by the law and by consumers who withdraw their patronage. So widespread public dissatisfaction persists but the education system does not change.

A few alternatives to the current public system have been proposed, including school vouchers and charter schools. While both options stimulate a limited sort of competition on the supply side of schooling, they too are fundamentally flawed. First, the requirements and mandates that the government would impose on all schools accepting vouchers (in terms of curricula, standardized tests, and hiring policies) could create even more State control over education than already exists. Second, these proposed solutions would do nothing to address the abnormally large quantity of education that is demanded under a system of taxpayer-financed schooling.

In the final analysis, the only solution that solves all these problems is the complete separation of state and school. Only in this way can a high-quality, low-cost, diverse, and voluntary educational system be achieved.