The Wisdom of the Market

July 17, 2015

Design vs Experience

(Guest Post by Jason Bedrick)

I’m humbled that Andy Smarick thinks I “offered the most compelling philosophical explanation for a system of choice” among the recent Fordham Institute Wonkathon participants. However, he misreads me when he states that my “professed ‘humility’ (we don’t know everything) came across as agnosticism (we can’t know anything) given that we’ve learned gobs about choice over twenty-five years.”

Nowhere do I claim “we can’t know anything.” Of course we do, and of course we can learn more. But questions remain: who are “we,” what do “we” know, and is that knowledge sufficient to achieve “our” ends?

By “we” Smarick seems to have in mind “policymakers and wonks” and the “what” that “we” supposedly know is that markets alone just don’t cut it so some very, very smart people must bend schools to their will impose government regulations to ensure accountability. To bolster his case, Smarick cites a recent article in National Affairs by Chester Finn and Bruno Manno on the lessons they’ve learned from their decades of experience studying charter schools:

Both strongly support school choice, but they concede the “vexing reality” that “market forces alone can’t reliably generate academic effectiveness.” Overconfidence led to accountability getting short shrift early. “Those present at the creation of the charter bargain (ourselves included) paid too little attention to how authorizing would work.”

Throughout the article, the [Finn and Manno] explain how events played out differently than expected. Because they assumed “a barely regulated marketplace would provide more quality control than it has…we focused on quantity rather than quality.” They were excited by policies that would spur “infusions of capital and entrepreneurialism,” but “we didn’t take seriously enough the risk of profiteering.”

Smarick claims that my Wonkathon entry’s “sanguine title, ‘Let the market work,’ runs headlong into Finn and Manno’s reflections.” As Justice Scalia might say: pure applesauce.

It may or may not be true that “market forces alone can’t reliably generate academic effectiveness” but Finn and Manno cannot draw that conclusion from experience in the charter sector because charters are not operating in a free market, never mind a “barely regulated” one. Charters are secular public schools that can’t charge families tuition, can’t devise their own criteria for admission, they have to meet certain state standards, and they can be shut down by their “authorizers” even if a sufficient number of students and parents prefer the charter to make it financially viable.

In other words, charters provide more choice and competition than the status quo, but charters are not operating in a market. The lack of a price mechanism alone should make that apparent. Drawing any conclusions about what an actual market in education would or would not produce based on the charter experience is ludicrous.

There’s some truth to Smarick’s contention that “theory without experience is [mere] intellectual play,” but he’s drawing the wrong lessons from Finn and Manno’s experience. Although it’s impossible to draw solid conclusions about a market from a non-market, the charter sector has much to teach policymakers about the chasm between policy intentions and policy results.

For example, Finn and Manno lament that “charters in many places are hobbled by many operational constraints, too little money, and, often, insufficient attention both to the delicate balance between quantity and quality.” These constraints often stem from the very regulatory framework that was intended to ensure quality. A 2010 Fordham study found that “state laws were the primary sources of constraint on charter school autonomy, accounting for three-quarters of the infringement that these schools experience.” This year, an American Enterprise Institute study found that “one-fourth of average charter application contains inappropriate and onerous requirements,” and that authorizes “sometimes mistake length for rigor” and “often prize innovation less than they say they do.”

The fatal conceit of the charter school agenda was that granting schools a bit more autonomy and granting parents a bit more choice in a controlled environment would create a true “market” in education. But a market requires a price mechanism, a means of channeling dispersed knowledge. Smarick accuses me of believing that “we can’t know anything” but that’s not so. Policymakers can’t possibly ever know enough to design the education system from the top down but the market can channel dispersed knowledge to produce higher quality through experimentation, evaluation, and evolution.

Smarick confuses the technical knowledge of experts for the dispersed knowledge of the entire system. Sure, technocrats have learned “gobs about choice” in a quarter-century, but they can’t possibly know enough to design the most effective possible education system. Likewise, a panel of a dozen Nobel-prize winning economists certainly knows “gobs” about how markets function, but they cannot possibly know enough to effectively set the price of tin on any given day.

The technocrats’ approach is attempt to define quality, measure it, and shut down any school that doesn’t live up to it — even against the will of parents. As Finn and Manno wrote:

Charter doctrine is clear: Bad schools should be closed (or “non-renewed”) by their authorizer. Yet it turns out to be as hard to close bad charters as traditional district schools. Hundreds of kids are affected, and the alternatives for them are often no better than the troubled charter. Furthermore, parents are almost universally hostile to the demise of their children’s current schools.

First, why are those parents “almost universally hostile” to closing down their chosen school? Could it be because “the alternatives for them are often no better” and probably worse? Could it be that the schools are effectively providing some things–safety, discipline, good values, a love of learning–that the parents legitimately prioritize over test scores in a few subjects?

Attempts to define and measure quality too often come at the cost of innovation. At present, states’ standardized testing regimes assume that all students should progress at the same pace across all subjects — a system that is anathema to reforms like competency-based learning which dispense with Carnegie units. Moreover, the focus on a few subjects both creates a perverse incentive for schools to focus on those subjects to the exclusion of others and overlooks the other, often more important areas where a school may be performing quite well. As AEI’s Michael McShane wrote:

Recently, I have been influenced by the work of Northwestern University economist Kirabo Jackson, whose fascinating NBER working paper calls into serious question policy’s recent overreliance on math and reading scores as the primary measure of the “goodness” of schools and teachers. As it turns out, teachers have important and measurable impacts on both the cognitive and non-cognitive development of students. While it’s certainly true that test scores can tell us something important about a teacher, what is troubling for the test-score types is that it looks like (1) non-cognitive scores are better predictors of later life success (completing high school, taking the SAT, and going to college) and (2) that it is not the same set of teachers that is good at raising both cognitive and non-cognitive measures.

Such has to be the same for schools, right? If there are teachers that are increasing non-cognitive, but not cognitive skills, surely there are schools that are doing the same. As a result, trying to assess if a school is “good” or “bad” relies on a complex web of preferences and objective measures that, quite frankly, cannot be taken into account in a centralized accountability system. We need something more sophisticated, and something that can respect a diverse conception of what “good” and “bad” means.

This is not to say that there should be no standards or accountability. The question is who imposes the accountability on whom. As I’ve noted previously, the absence of a government-imposed standard does not imply the lack of any standards. Rather, it leaves space for competing standards, which in turn fosters innovation and diversity. Parents can then evaluate the quality of education providers based on their own experience and the expert evaluations of appropriate external providers, and the entire system evolves as parents select the providers that best meet their children’s needs.

So yes, policymakers should be humble about what they know or think they know, but we can have greater confidence in a system that channels dispersed knowledge to produce greater quality and innovation. This is more than mere “intellectual play.” It’s the process by which we’ve seen enormous gains in productivity and quality in nearly every other sector in the last century — not top-down technocratic tinkering but bottom-up experimentation, evaluation, and evolution in a free market.


School Choice Movement Checkup

July 10, 2015

(Guest Post by Matthew Ladner)

Veteran school choice warrior Bob Holland landed a nice overview of the school choice movement in the Orlando Sentinel. One of the money quotes:

This past school year, more than 350,000 students used a conventional voucher, a tax-credit scholarship, or an Education Savings Account via 58 school-choice programs in 28 states and the District of Columbia. Ten years ago, there were only 10 voucher and tax-credit scholarship programs supporting 106,456 students.

Watch those savings accounts. An ESA is the next-generation voucher, much as Uber is the next-generation taxi service. It works like this: Parents may have a sizable percentage of their child’s share of state education dollars deposited into an ESA from which they can draw to pay for educational products, providers or services of their choosing.

This has the potential to individualize education as much as it is now bureaucratized. Families could seek and pay for courses or programs that meet a child’s particular needs — tutoring if math is tough, or advanced math in an elite private school if that is the student’s bent; a home-school co-op for a reading round table; or even an early credit literature course at an area university. Possibilities abound.

Bob’s tally of the last decade adds emphasis to a point I raised earlier on JPGB- lawmakers have passed 48 private choice programs in the last decade (which is awesome) and the number of participants has more than tripled (could be better). Many of these programs, like the new special needs program that passed in the Wisconsin budget last night, remain newborns or infants and will begin adding students soon. Still…

Nevada’s new ESA program sets a new bar for the movement. The law has what we should all recognize at this point as a highly desirable broad pool of eligibility-we don’t means test public schools, charter schools or virtual schooling programs. We should not means test private choice programs either. NVESA deals with equity issues through varied funding rather than eligibility and allows multiple uses for funds. Nevada lawmakers can improve NVESA over time by including funding weights as policymakers develop for them for the public system. NVESA is not your father’s Oldsmobile and that’s a good thing.

Nevada lawmakers passed the best school choice program to date this year, but they can improve upon it over time and we can surpass it in other states.

 

 

 

 


The Rich Get Richer under Tax Credits-Public School Tax Credits that is

May 4, 2015

(Guest Post by Matthew Ladner)

Arizona passed individual scholarship tax credit donations for children to attend private schools, and for public school extracurricular activities, in 1997. Since that time the newspapers have felled many trees and spilled much ink printing columns and letters bewailing the injustice of the private side credits- they are destroying public education, they are going to help rich people send their kids to private school, they are engaged in dark rites to bring Cthulu back into our plane to wreak his horrible revenge on all living things, etc.

This is all nonsense of course– but I think I see now the origin of the “mostly benefiting the rich” narrative- projection. Benefiting the rich far more than the poor is in fact precisely how the public school credit operates. The public school credit goes to support sports, arts, field trips and all of the various things that Jay has been researching lately. The Center for Student Achievement very helpfully crunched the numbers in Arizona Department of Revenue reports and found the following:

So if you are having to squint at your Ipad, the chart has data from both 2005 and 2013, and calculates tax credit revenue by quartile of public school- from the poorest schools (75% and up FRL) to the lowest (< 25% FRL). In 2005, the poorest schools raised a meager $14 per child in tax credit donations, while the wealthiest raised more than 4 times as much at $57 per child.

By 2013, the poorest schools raised a smidge more per student ($16) which is not enough to keep up with inflation. Meanwhile, out in the leafy suburbs, schools collected $96 per pupil. Thus the gap went from $4 for rich kids for every $1 for poor kids, to $6 for rich kids for every $1 for poor kids.

Hmmmm…so the public credit gives to the most to the kids who have the most, gives the least to the kids who have the least.

Well the private school credit might be even worse! Except, it isn’t. All of the corporate scholarship tax credit money is means-tested in Arizona, and some of the individual credit is as well. Even among the individual tax credit money that is not means tested de jure is means tested de facto by the Scholarship Tuition Organizations (STOs). Page 49 of this Arizona Department of Revenue report shows that 70.4% of the original individual tax credit funds (the non-means tested program) go to students with a family income (family of four) of less than $79,000 and 38% of that goes to families making less than $45,000. All of the rest of the money goes to either low/middle income or kids with disabilities.

In fiscal year 2013 STOs raised about $108m from all credits, and we can safely estimate that between 80% to 90% of scholarship funds went to low and middle-income children, which beats not only the stuffing out of the public school credit, but also out of AZ public school system’s spending overall.

 

Go down or I’ll put you in Expendables 4!

 


Indiana Allows Greg to Once Again Put Mathews on the Canvass

April 30, 2015

(Guest Post by Matthew Ladner)

Indiana session has ended with both an increase in the size of the tax credit and separately an increase in the voucher program amounts. For those scoring at home:

AR: New special needs voucher

AZ corporate tax credit improvement

AZ expansion of ESA to tribal areas

Indiana- increase in corporate scholarship credit cap

Indiana-increase in voucher amounts

MS New ESA for special needs students

NV New corporate tax credit

TN New ESA for special needs students

Down goes Frazier Mathews!

P.S.

 


Nevada Joins School Choice Family

April 7, 2015

(Guest Post by Matthew Ladner)

The Nevada Senate approved a scholarship tax credit today, initially capped at $5m with annual cap increases of 10%, sending the measure to Governor Sandoval. This puts the enactments from out West at 3 (corporate tax credit expansion in AZ, ESA expansion in AZ, new corporate credit in NV). Down south I’m aware of the Arkansas legislature passing a special needs voucher bill and Alabama increasing the tax credit cap.

Greg 5, Mathews 0

 


Raising the Bar on the Forster-Mathews Bet

April 1, 2015

(Guest Post by Matthew Ladner)

Thus far I am aware of a tax-credit improvements in Alabama and Arizona, new special education scholarship programs in Arkansas and Mississippi, and many other measures pending in many other states. I think it is safe to say that Greg will once again defeat Jay Mathews in the over/under of 7 enactments.

WSJ choice

 

While we celebrate yet another Greg victory, it may be a good time to pose a different question for ourselves: how many states have enacted a choice program or a combination of choice programs sufficiently robust to see a growth in private education in the face of a strong charter school law? A Rand Corp study found private schools will lose one student for every three gained by charter schools in Michigan.  We would not expect to find an exact match for this nationwide, but charter schools do by definition draw upon the universe of would-be choosers: parents who are looking for alternatives outside of their zoned district school. It makes sense that they would have a larger impact on private education.

If we assume the Michigan finding to be roughly equivalent to a national average, then we can proceed to check the tape. First charter school enrollment by state:

Charters school enrollment

Next private choice program enrollment by state (from the Alliance for School Choice Yearbook):

Private choice students 1

 

And…

Private choice students 2

So how many states have one-third or more as many private choice students as charter school students? Indiana is matching private choice students with charter school students despite a strong charter law thus far, and so is the leader in the clubhouse. Florida barely met the 1 private choice for 3 charter school students standard between the combination of the corporate tax credit program and the McKay Scholarship program. Without new revenue sources however growth in the Florida tax credit will stall in the next few years even as statewide student growth continues. Moreover Florida charter schools have almost certainly drawn a relatively advantaged group of students from private schools (charter schools have universal eligibility). The private choice programs have been aiding only low-income and children with disabilities and providing significantly fewer resources than those students receive in public schools (smaller tax credit scholarships in the case of low-income children, no local top-up funds in the case of McKay students).

Florida lawmakers have been busy improving the ability for high quality charter operators to open new schools (as they should) but balked last year at providing new tax credit revenue sources. Absent some large policy changes Florida will soon slip below the 1 to 3 ratio.

Iowa met the standard because of a healthy and growing tax credit program and a weak charter school law (3 total schools), so give them an *. Wisconsin meets the bar with the combination of private choice programs and a charter school program that (last I heard) is still bottled up in Milwaukee, so kind of an * too.

The Illinois and PA programs would require some sort of estimate regarding the price elasticity of demand for private schooling, but I’ll just heroically guess that charter schools have the better end of the deal in those states. Arizona and Ohio have more than three charter students for every private choice student. Other states like California, Michigan, New York and Texas seem content to watch their charter school sector batter their private school sectors into gravel.

Bear in mind that this comparison would look even more lopsided if we counted dollars rather than students. For instance the average tax credit scholarship in Arizona runs around $2,000 while the average charter school receives around $7,000 per pupil. Very few of the private choice programs come near to matching the per pupil level of subsidy provided to charter, much less district schools. Emblematic of this failure was the choice of 12 Catholic schools in Washington D.C. to give up the ghost and convert to charter schools after a (poorly designed) voucher bill had passed.

The goal of the private choice movement should not be to preserve a preexisting stock of private schools per se, but rather to allow parental demand to drive the supply of school seats. Those District of Columbia Catholic schools did not convert to charters because the parents were clamoring for it, but rather because the Congress had offered almost twice as much money per pupil to do it. States like Texas invest hundreds of millions of dollars per year into a charter sector that draws disproportionately from private schools while providing parents who would prefer a private education for their child nothing but the prospect of struggling to pay their school taxes and private school costs simultaneously.

Seen in this context, many private choice victories seem worthy but incremental. Incremental change is the equilibrium point of American politics, but the choice movement needs more Indiana style successes. Once more unto the breach dear friends…


The New School Choice

March 31, 2015

schoolchoiceweek

(Guest Post by Greg Forster)

The new issue of OCPA’s Perspective carries my article on how more recent school choice programs are moving us slowly but surely closer to universal school choice:

The huge wave of new school choice programs enacted in 2011-13 went far beyond earlier programs in expanding student eligibility pools, providing larger vouchers, and reducing unnecessary regulations on participating schools. Education savings accounts, probably the best program design yet devised, have been enacted in Arizona and Florida; as I write, new programs have just been approved by legislative chambers in Virginia and Mississippi. These programs, while still limited in eligibility, give parents much more control over education dollars than traditional school choice.

I argue there are both educational and civic reasons to embrace universal choice:

Two of the great pillars of our country are equal rights and freedom for diverse beliefs. Neither of these pillars is consistent with a government school monopoly, nor with the educational oligopoly of limited school choice.

A monopoly or oligopoly exists by stamping out the rights of challengers in order to protect the privileges of the powerful. When educational entrepreneurs are denied the right to start new schools on equal terms with dominant providers, all of us lose. A society where the education of children is controlled by the few is a society that doesn’t respect equal rights.

And the education of our children is at the very heart of how we all live out our most central beliefs about life and the universe. Our country can never fully live up to its commitment to freedom for diversity until we undo the monopolization of education. Part of the reason we created the government school monopoly in the 19th century was bigotry and a childish fear of religious diversity. It’s long past time we, as a nation, grew up. Let’s leave those fears behind us, in the nursery of our national history.


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