Andrew J. Coulson | October 5, 2009

Productivity Collapse Staggering

Andrew J. Coulson

To boost the economy out of the recession, President Obama has chosen to spend an additional $100 billion on public schooling over the next two years. His education secretary, Arne Duncan, has been touring the nation to promote this education "stimulus."

The president has committed this new money to the nation's public school systems, and required that states accepting the funds promise not to reduce their own K-12 spending. The official argument for this measure is that higher school spending will accelerate U.S. economic growth. But a July 2008 study in the Journal of Policy Sciences finds that, to the authors' own surprise, higher spending on public schooling is associated with lower subsequent economic growth. Spending more on public schools hurts the U.S. economy.

How is that possible? There is little debate in academic circles that raising human capital-improving the skills and knowledge of workers-boosts productivity. So an obvious interpretation of the JPS study is that raising public school spending must not increase human capital. While this possibility surprised study authors Norman Baldwin and Stephen Borrelli, it is consistent with the data on U.S. educational productivity over the past two generations.

Since 1970, inflation-adjusted public school spending has more than doubled. Over the same period, achievement of students at the end of high school has stagnated, according to the U.S. Department of Education's own long-term National Assessment of Educational Progress. Meanwhile, the high-school graduation rate has declined by four or five percent, according to Nobel laureate economist James Heckman. So the only thing higher public-school spending has accomplished is to raise taxes by about $300 billion annually, without improving outcomes.

The fact that more schooling without more learning is not a recipe for economic growth is confirmed by the independent empirical work of economists Eric Hanushek and Ludger Woessmann. Their key finding is that academic achievement, not schooling per se, is what matters to economic growth.

Based on this body of research, the president's decision to pump $100 billion into existing public school systems is likely slowing the U.S. economic recovery. Far from being an engine of wealth creation, the education system is bleeding the economy to death.

If the efficiency of U.S. public schooling had merely remained at its 1970 level, the country would enjoy the equivalent of an annual $300 billion tax cut.

The productivity collapse in education is more than staggering; it's unparalleled. Can you name any other service or product that has gotten worse and less affordable over the past two generations? The reason you can't is that no other field is organized as a state-run monopoly.

The general argument against monopolies is well understood and accepted. A concrete case study might drive home the point that monopolies are just as harmful in education as in other fields.

Markets vs. Monopolies

Earlier this year, I sifted through the 2008-09 budget for the District of Columbia, summing up all K-12 education spending, not counting charter schools. It comes to just under $1.3 billion. This figure is higher than the one reported by the D.C. Public School district (DCPS), because the DCPS budget omits a wide array of public education expenditures, such as the cost of renovating and constructing the very schools that house its students. The City reports each of these other items in six separate budgets, making the D.C. Public Schools seem far more frugal than they really are. If Mark Twain had lived to see this charade, he no doubt would have extended his famous hierarchy of "lies, damn lies, and statistics," with the most egregious offender of all: public school accountancy.

Dividing total K-12 spending in the nation's capital by its corresponding enrollment figure of 45,858 (which excludes charter school, preschool, and adult education students), per-pupil spending comes in around $28,000. Meanwhile, fewer than half of the students who enter the ninth grade in D.C. go on to graduate four years later.

To put that profligacy in perspective, the private schools serving D.C.'s 1,700 voucher students charge an average tuition of $6,600, according to a recent Education Department study. After three years in the program, voucher students read more than two school years ahead of a randomized control group of their public school peers.

That is, the voucher program yields substantially better results at less than one-quarter the cost.

For those unfamiliar with the D.C. voucher program, it is the one that President Obama has decided to phase out, despite his stated goal of pursuing education reform that's effective and efficient.

The massive productivity advantage of private-sector education is not unique to Washington, D.C.

For the Journal of School Choice, I tabulated the international scientific research comparing public- and private-sector schooling. Across time, countries, and outcome measures, private provision outshines public in the overwhelming majority of cases.

More important, the least-regulated, most market-like education systems show the greatest margin of superiority over monopoly schooling. In literature on education, 59 findings show that markets outperform school monopolies. Not a single study has found a monopoly school system to be as efficient as a market system.

Free the Schools

Once upon a time, America could afford to sustain a parasitic school monopoly, fecklessly throwing billions more dollars at it decade after decade despite its failure to improve. That time has passed. Now that the economy is in a recession, the perpetuation of that monopoly puts our economic future at unacceptable risk.

Many policy proposals are on the table that could inject market forces back into the field of education, bringing to it the same long-term productivity growth that has been the norm in other fields.

Some states already have such programs operating on a tiny scale, such as Illinois' modest tax credits for families' own education costs, and the tax credits in Florida, Arizona, and Pennsylvania for donations to K-12 tuition-assistance organizations serving low-income families.

The first states to combine and expand these programs on a grand scale will become magnets for businesses in search of better-educated workers and lower taxes, leading to an economic and educational boom. The states that don't will continue to burn in the budgetary hell created by monopoly schooling, needlessly jeopardizing their children's economic and educational futures.

It's time to bring the field of education into the fold of the free enterprise system.

Andrew J. Coulson directs the Cato Institute's Center for Educational Freedom and is the author of "Comparing Public, Private and Market Schools" for the Journal of School Choice.

Andrew J. Coulson


Andrew J. Coulson is a senior fellow in the Center for Educational Freedom at the Cato Institute. He serves on the Advisory Council of the E.G. West Centre for Market Solutions in Education at the University of Newcastle, UK, and has contributed to books published by the Fraser Institute and the Hoover Institution. This article first appeared August 23, 2015, on the website of the Cato Institute.

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