Brilliant Health Care Solution Discovered!

April 3, 2014

20140403-175448.jpg

(Guest post by Greg Forster)

Shorter Yuval Levin: The Feds couldn’t make the Obamacare website in three years, then they outsourced the job to the private sector, which did it in six weeks, and are now bragging this proves Big Government can do the big jobs after all. So the obvious thing to do is outsource the actual provision of the health care to the private sector, declare victory and go home. The Gordian Knot of Big Government, cut at last!


Refuting Rauch and EPI on the Economics of Productivity

December 12, 2012

Hard Work U 3

(Guest post by Greg Forster)

Many readers of JPGB will be familiar with the hard-left, union-friendly Economic Policy Institute. A recent article by Jonthan Rauch uses some EPI graphs to argue that the U.S. economy no longer rewards working-class employees for productivity. Over on Hang Together, I say the graphs are deceptive. The problem is a decline in productivity in the workers, caused by – JPGB readers will be shocked – lousy K-12 schools (and also a loss of the older religious work ethic).

If you’re familiar with EPI’s work, you won’t be surprised – Jay, Marcus and I took on some very shoddy work they did on teacher pay back in Education Myths.


Jordan Increased Income Inequality on the Bulls while Making All the Players Wealthier

July 11, 2012

(Guest Post by Matthew Ladner)

Fun piece by Matthew Schonfield in the Journal today. Strangely the guys riding the pine on the Bulls in 1998 making four times as much as their equivalents in 1984 did not feel the need to bang on drums to protest income inequality. Also read Iowahawk’s particle physics/health care mashup.


Excellence in Failure

October 18, 2011

It’s long been a goal of mine to be so awful at a job that they have to pay me to leave.  Unfortunately, excellence in failure is something that has escaped me — even though I normally seek excellence in all things.

But you’ll be happy to know that football coaches, superintendents, CEOs, and even large corporations have all too often perfected the art of sucking so bad that people pay them for that failure.

These large severance packages are generally a problem when the people offering the package are doing so with OPM — Other People’s Money.  Athletic directors, school boards, boards of directors, and the government find it so much easier to be generous when the money they are offering to their failed coaches, superintendents, CEOs, and large corporations is not their own money.

The Occupy Wall Street folks have (rightly) highlighted the sweet deals offered to failed CEOs and corporations from tax funds, but they tend not to mention the frequency with which superintendents are given large severance packages with OPM.  Yes, the average size of the superintendent packages tends to be much smaller, but there are so many more of them that it adds up to real money.

A Chicago Tribune analysis last summer found:

The newspaper’s review of more than 100 superintendent contracts, financial records and severance agreements over a decade revealed that boards have handed out six-figure separation checks; district-paid health care; cash or retirement credit for hundreds of sick days; and, in one case, a Mercedes — all to be rid of superintendents….

“Boards have not been held responsible because they do not care about taxpayers, period. … They do not care about how much money they spend,” said Kenneth Williams, board president in Thornton Township High School District 205, which recently approved a $350,000-plus severance package for J. Kamala Buckner, a veteran superintendent. Williams tried unsuccessfully to rescind the package in May….

Using available state data, the Tribune tracked the number of superintendents in Illinois school districts from 2000 to 2010, finding nearly half had gone through three or more superintendents.  That turnover not only fuels buyout deals but can take a toll on issues ranging from policy to student achievement….

Changeover also means some superintendents get multiple severance payouts.

Rosemary Hendricks got a $132,000 settlement in 2009 after filing a lawsuit against Hoover-Schrum District 157, where she had served as superintendent about a year. Earlier, she had gotten a $75,000 settlement in Bellwood District 88, where she had a short stint as superintendent, records show. She is back as Bellwood superintendent.

Of course, sometimes these generous severance packages are the fault of boards, not the departing executive.  Boards sometimes choose to get rid of someone on a whim or simply because the majority composition of the board changes.  These reckless changes by boards to get rid of someone under contract or who could justly sue for wrongful termination, force boards to fork over large sums of OPM to avoid litigation.

My point is the irresponsibility that OPM encourages.  OPM encourages organizations to write contracts that are excessively long and generous and then require large severance packages to get out of them.  OPM encourages changing leadership without cause and at great cost.  OPM makes it so much easier to justify the bailout to avoid “systemic risk” or to promote “stability.”  And of course OPM facilitates coaches, superintendents, CEOs, and corporations to make unreasonable demands, take unreasonable risks, and fail catastrophically.

OPM encourages excellence in failure.


Classic: Milton Friedman Versus…”Michael Moore”

August 3, 2011

(Guest post by Greg Forster)

Do not, I beg you, do not go another day without watching this:

The young man asking the question, and persistently coming back time and again for more punishment, is Michael Moore someone who reminded the original YouTube poster of a young Michael Moore. This is circa 1977-78.

[Update: Below, commenter Alsadius reports this isn't Michael Moore after all. Sure enough, the original YouTube poster has changed the video description to clarify: "I thought the metaphor would be obvious, seeing as how the kid is a skinny redhead, while Michael Moore... well, isn't a skinny redhead. I apologize for the confusion." It was too good to check! ;) I've amended the post title. FWIW, the video's worth your time even if only one of the interlocutors is an intellectual titan of the 20th century.]

Milton does not have the world’s most highly polished interpersonal skills, but he cares deeply about ideas and he desperately, desperately wants this highly motivated young man to broaden his horizons and begin to understand the buried assumptions in his thinking and the real stakes involved in these issues. Too bad he didn’t take the opportunity.

HT Outside the Beltway


Build New, Don’t Reform Old

August 2, 2011

When I wrote my two part critique of the Gates Foundation strategy, one of our frequent comment-writers, GGW, asked: “What would you do if asked by Gates how to better donate his (and Warren Buffett’s) billions?”

Here is a brief answer to that question: Philanthropists with billions of dollars to devote to education reform should build new institutions and stop trying to fix old ones.

In general, existing institutions don’t want to be fixed.  There are reasons why current public schools operate as they do and the people who benefit from that will resist any effort to change it.  Those who benefit from status quo arrangements also tend to be better positioned than reformers to repel attempts by outsiders to make significant changes.  The history of education reform is littered with failed efforts by philanthropists.

Instead, private donors have had much better success addressing problems by building new institutions.  And competition from newly built institutions can have a greater positive impact on existing institutions than trying to reform them directly.

Let’s consider one of the greatest accomplishments in American education philanthropy.  In the late 19th century, America’s leading universities (Harvard, Yale, Princeton) were badly in need of reform.  They were still operated primarily as religious seminaries and not as modern, scientific institutions.  Rather than trying to reform them directly, major philanthropists built new universities modeled after German scientific institutions.  John D. Rockefeller and Marshall Field helped found the University of Chicago.  Leland Stanford built Stanford University.  A group of private donors built Johns Hopkins.  Cornelius Vanderbilt founded Vanderbilt.  All of these universities imitated German universities with their emphasis on the scientific method and research and were enormously successful at it.  Eventually Harvard, Yale, and Princeton recognized the competitive threat from these German-modeled upstarts and made their own transition from a seminary-focus to a scientific focus.

The reform of the U.S. higher education system did not come from a government mandate or “incentives.”  It did not happen by philanthropists giving money directly to the leading universities of the time to convince them to change their ways.  It happened by philanthropists building new institutions to compete with the old ones.

The same could be done for K-12 education.  Matt Ladner has written a series of posts on “The Way of the Future.”  He, along with Terry Moe, Clay Christensen, Paul Peterson, and others, envision large numbers of  hybrid virtual schools offering higher quality customized education at dramatically lower costs.  Students would attend school buildings, but the bulk of their instruction would be delivered by interactive software.  The school would need significantly fewer staff, who would concentrate mostly on assisting students with the technology and managing behavior.

Obviously, this kind of school would not be good for everybody.  But it could appeal to large numbers of students and be offered at such a low cost that it could be affordable even to low-income families without needing public subsidy or adoption by the public school system.

Gates or someone else with billions to devote to education could build a national chain of these virtual hybrid schools to compete with existing public and private schools.  It’s true that Gates is already investing in the development and refinement of the virtual hybrid school model, but a complete commitment to building new rather than reforming old would give him the potential to do what Rockefeller, Stanford, and others did to higher education.  Virtual hybrid schools could be the disruptive technology, as Christensen calls it, to produce real reform in education.

Another benefit of the “building new” strategy for philanthropists is that it avoids the Emperor’s New Clothes problem, where philanthropists are encouraged to pursue flawed strategies to reform existing institutions because everyone is afraid to criticize the wealthy donor from whose largess they benefit.  With the “build new” strategy there is ultimately a market test of the wisdom of the strategy.  If the new institutions are not better, people won’t choose them.  If the University of Chicago had been a flawed model, it wouldn’t have attracted enrollment and would have failed to apply competitive pressure to Harvard, Yale, and Princeton.  Similarly, if the virtual hybrid school is a bad model, then it won’t attract students and compete with existing public and private schools.

Edison Schools is an example of a “build new” strategy that failed the market test.  They failed to develop technologies or other efficiencies to bring down the costs of operating private schools.  And their revised strategy of operating public schools under contract with public school districts was flawed by an underestimation of the political resistance they would face and their inability to control costs or quality within the public system.

But we also have successful examples of the “build new” strategy adopted by philanthropists.  In addition to the string of scientific universities built in the latter half of the 19th century, we also have the example of Andrew Carnegie and public libraries.  Carnegie helped promote literacy and cultural knowledge by supporting the construction of hundreds of new libraries around the country.  He didn’t try to reform existing book-sellers, he just built new.  Another example (outside of education) can be seen in John D. Rockefeller’s role in the development of a national park system.  Rockefeller privately acquired large chunks of what are now the Acadia, Grand Teton, Great Smoky Mountains and Yellowstone national parks.  Rockefeller didn’t try to reform the operations of the existing Interior Department.  Instead, he effectively privately built nature reserves and then donated them to the U.S. to become national parks.

Of course, this “build new” strategy has limited potential for smaller-scale philanthropy.  But for the very wealthy, like Gates, the path to making a significant and lasting difference is to build new rather than reform old.  The lasting benefits of what Rockefeller did in higher education and national parks and Carnegie did with libraries are still noticeable today.  If Gates and others with billions to devote to education continue to focus on reforming the old rather than building new, I fear their efforts will soon be forgotten after the Emperor’s New Clothes adulation fades when they stop having large sums to give.


The Limits and Dangers of Philanthropy in Education

June 6, 2011

It’s hard to criticize people who generously give away money in the hopes of improving outcomes for other people.  But it is also important to recognize the limits and dangers of philanthropic activity.  Non-profits can help alleviate particular suffering and they can help promote beneficial ideas, but they cannot effectively substitute for markets.  Foundations, like the government, may try to engage in central planning, picking winners and losers in the market, but quite often they may end up perpetually subsidizing losers.  The only difference is that at least foundations do not back losers with money they have forcibly taken from others. Even so, a common pitfall for foundations is to fantasize that they know what works and what doesn’t rather than encouraging market forces to sort that out.  

This point is nicely illustrated by a new report released by Andrew Coulson at Cato today.  Andrew examines academic progress by students in different charter school networks in California.  He then looks at which charter networks receive the most financial backing from philanthropies.  He finds:

The results are discouraging. There is effectively no correlation between grant funding and charter network performance, after controlling for individual student characteristics and peer effects, and addressing the problem of selection bias.

For example, the three highest-performing charter school networks perform dramatically above the level of conventional public schools on the California Standards Tests, but rank 21st, 27th, and 39th in terms of the grant funding they have received, out of 68 charter networks. The AP results are worse; the correlations between charter networks’ AP performance and their grant funding are negative, though negligible in magnitude.

The problem is not that foundations need to be smarter in their giving, although I have written a book chapter on how they could be smarter.  The problem is that foundations are no substitute for market forces in identifying what works and what doesn’t for kids.  Rather than focusing on picking winners and losers, foundations should focus on pushing the idea that we need stronger market forces.  In particular, foundations could back the idea that we need a broader set of options for students (including charters); that whatever public subsidies exist for schools should be equal across all schools in this market; and that schools should be allowed to compete on price as well as quality.  The last item could be achieved with something like educational savings accounts that were recently passed in Arizona, where families could keep any savings between the state subsidy and school costs in an account to be used for future educational needs.  Another option is to allow families to top-off the state subsidy with their own funds.

The point is that foundations need to beware of the corruption that frequently follows the concentration of wealth and power, just like governments.  There is a danger that foundation officials will begin to imagine that they know what people should want, just like government officials, academics, and D.C. pundicrats often do, rather than allowing people to figure out what works for them.  Foundations, like government, can play a useful role by trying to create sensible rules for markets so that they can function efficiently.  They can also alleviate particular suffering and misfortune.  But if they start focusing the bulk of their money on picking winners and losers in the educational marketplace, they are very likely to get it wrong.  Central planning doesn’t work any better for foundations than it does for governments.

I should add that profit-seeking corporations are as prone to corruption as they concentrate wealth and power as are non-profits and governments.  The difference is that, absent government protection, corporations suffer the consequences of this hubris.  If they stray from their mission and become swollen with power-seeking administrative bloat, they tend to lose in the marketplace to leaner, more focused organizations.

The danger for non-profits (and governments) is that there is no similar mechanism of accountability.  If they back foolish ideas or suffer from administrative bloat, they never have to stop as long as they can continue to extract funds without demonstrating effectiveness.

Gigantism in the foundation world is a real problem.  Organizations, including Gates, Ford, Carnegie have the funds to keep foisting foolish ideas on people for a long, long time without any accountability.  And as they get big financially, they get even bigger in their staffing so that they become a self-perpetuating power-seeking bureaucracy, much like the government (except without taking funds by force).

For example, it is interesting to note that over the last decade the Gates Foundation doubled its assets, but it increased its staffing by almost ten-fold.  Empire building afflicts the non-profit and university world almost as much as government.  Wise foundations avoid building empires and focus on promoting sensible rules for efficient market operation as well as the alleviation of misfortune that occurs within markets.


Walmart Shareholder Meeting 2011

June 3, 2011

Today is the Walmart shareholder meeting.  I’ll blog later today about the event, as I have done in the past.

In the meantime you can read some of those posts:

Walmart Shareholder Meeting 2009

Union Busting — Good for the NYT, Bad for Everyone Else

The People’s Front of Judea Merges with the Judean People’s Front

You Mean Wal-Mart Isn’t Evil?

Walmart Shareholder Meeting

When All Politics is Personal

P.S.  Thanks to Eduwonkette for the photo.  I miss her sock-puppetry in the blogoshpere as well as her deficient photo-shopping skills.  But discredited bloggers don’t go away (I’m looking at you Diane), they continue as university professors and NYT op-ed writers.

You can pay African-American ministers not to encourage their parishioners to vote, like Ed Rollins, and then come back as the campaign manager for Mike Huckabee.  You can serially cheat on your spouses, like New Gingrich and then run for president.  And you can make false allegations against public officials, like Diane Ravitch, or use your anonymous blog to promote your own research, like Jennifer Jennings, and nothing happens. Oh well.


Creative Destruction in Education

June 2, 2011

I don’t have time to write a post as long as the topic deserves, so let me just start a discussion by making a claim…

For the most part, organizations are incapable of innovating.  Most organizations are founded with a particular mission and method for pursuing that mission.  If circumstances require that the mission or method be changed, organizations generally can’t do it.  They’ll just keep doing what they were initially established to do until they can no longer continue operating.

Progress occurs not by turning around failing institutions, but by replacing those organizations with new ones that have a better mission and/or method.  Of the original 500 companies included in the S&P 500 in 1957 only 74 (15%) exist today as independent companies.  In the private sector, innovation primarily occurs by replacing or fundamentally re-organizing organizations and not by “reforming” them.

And while U.S. real GDP has nearly quintupled since 1970, education achievement of 17 year-olds and high school graduation rates have remained basically unchanged over the same time period.  Perhaps the reason for progress in the economy but not in education stems from our willingness to allow new organizations to replace old ones in the private sector, but not in education.

Public school systems almost never close and the creation of new ones is highly constrained.  Plenty of our public schools are failing, but we almost never admit that they have failed and allow that organization to be replaced with new ones.

Let’s stop trying to fix Detroit, LA, or Chicago public schools.  Let’s let the reality of their failure become official.  They, like most organizations, cannot innovate.  They need to be replaced with new organizations with new missions and new methods of education.  That’s how we can reform schools — by replacing them.


Texas and the Lesser 49

May 27, 2011

(Guest Post by Matthew Ladner)

The Business Journals has some rather startling numbers on the past decade in private sector job growth.

Yes it has been an unusual decade with lots of private sector job destruction, and you could come up with a few other caveats, but this is looking like the 1970s all over again: the rest of the country is in the tank while Texas booms. This didn’t end well for Texas in the 1980s, when an oil bust led to an S&L/Real Estate collapse that spun Texas into a deep recession while most of the rest of the country recovered.

That said, that’s a mighty impressive chart for Texas residents, depressing for the rest of us.


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