Fordham’s Economics Malfunction

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(Guest Post by Jason Bedrick)

Yesterday, Checker Finn and Brandon Wright of the Fordham Institute published an essay highlighting three “market malfunctions” in the charter school sector. What they highlighted instead were primarily government malfunctions.

The first “market” malfunction they identify is the apparent lack of congruence between supply and demand:

As rapidly as it’s grown (6,800+ schools at last count), the supply of charters has not keep up with demand in most places. (Estimates of the total waiting list go as high as a million kids.) All sorts of political, budgetary, and statutory obstacles have limited the number, size, and locations of charter schools.

Political, budgetary, and statutory obstacles… these are market malfunctions?

Skipping number two for a moment, their third supposed “market” malfunction is the problem of what they call “distracted suppliers”:

Many charters are strapped for funds. They feel overregulated by their states, heckled by their authorizers, and politically stressed, so the people running them often struggle to keep their heads above water (which includes keeping enrollments up). They have little energy or resources to expend on becoming more rigorous or investing in stronger curricula and more experienced instructors.

Strapped for funds when the law prevents them from charging their customers anything. Overregulated by their states. Politically stressed.

Again, my Fordham friends, these are market malfunctions?

Their second concern is the closest they come to identifying a market malfunction: weak consumer information.

Even where parents are mindful of school quality and try their best to be discerning, consumer information in this marketplace remains incomplete, hard to access, and difficult to understand. State report cards are ubiquitous yet lacking. Even when they adequately display academic achievement in tested subjects, they cannot begin to convey all the other information that goes into a sound school choice. What, for example, does the school truly value? Are its classrooms quiet and orderly or lively and engaged? How does it handle character development? Discipline? Disabilities? Do students and teachers like it there or flee as soon as possible? The list goes on.

Yes, the market (as well as the government) has failed thus far to provide bountiful, accessible, and high-quality information about most schools. I’ve explained how the market could accomplish this (e.g., a combination of private certification, expert reviews, and consumer reviews) and there are some organizations already trying to fill this gap (e.g., GreatSchools), but there’s still much more to do.

Of course, one reason that there are so few third-party organizations providing such information is that the government crowds them out, both by providing their own scorecards (which Finn and Wright find wanting) and by operating a massive system of “free” district schools that crowd out private alternatives.

So again: you call these market malfunctions?

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9 Responses to Fordham’s Economics Malfunction

  1. Greg Forster says:

    Step one: Create government monopoly.

    Step two: Create artificial simulacrum of a market to placate those crushed by the monopoly’s failure.

    Step three: Blame “market failure” for the (totally government-caused) failures of the simulacrum.

    Rinse and repeat.

    For more details on this process: https://jaypgreene.com/2009/07/21/the-student-loan-lesson-for-health-reform/

  2. Brandon Wright says:

    Thanks for the response. But our essay describes how the charter marketplace isn’t working sufficiently. It assigns no blame to “market theory.” It’s not saying markets don’t or can’t work. Clearly we think markets CAN work. Clearly we believe in markets as a way to improve American education. And, as you point out, much of what we say assigns blame to state and local governments via laws, regs, policies, etc. So I think we actually agree, and I’m puzzled by the aggressive tone of the blog post. I’m not sure you’re arguing against anything we said.

    • Greg Forster says:

      For crying out loud, the title of your post is “Market Malfunctions in the Charter Sector.”

      • Brandon Wright says:

        What? This whole “debate” in which we (I think) actually agree at base is very bizarre. Look, if my car malfunctions, that doesn’t mean that cars in general don’t/can’t work. And if the cause of the malfunction is that someone drained my oil, then my car is still malfunctioning!

        Likewise, the charter market–i.e., the real-life arena in which parents choose schools for their kids to attend–is malfunctioning. This isn’t Markets’ (capital M to indicate, I guess, some pure thing or theory) fault. It’s not a condemnation necessarily of market theory or the “wisdom of markets,” or whatever. It is, in fact, due in part to government malfunction or government failure or however you’d like to phrase it. Those two things are not mutually exclusive. In this scenario, government malfunction would be the cause of the market malfunction (an effect). But in that scenario, the market (the arena in real life where choices are made) is still malfunctioning!

      • Jason Bedrick says:

        Brandon, I think we might be in heated agreement because we’re understanding terms differently.

        When you say “market malfunction” it seems like you’re saying “market failure.” I interpreted it this way because Checker has interpreted the failures of the charter sector to be “market failures” in the past. For example, in National Affairs he wrote of charter schools:

        “…And it illustrates the vexing reality (doubly vexing to school-choice advocates such as ourselves) that market forces alone can’t reliably generate academic effectiveness. Milton Friedman may have gotten this part wrong, at least over the short run.”

        As I noted before, this is nonsense on stilts. The charter sector is highly regulated, lacks a price mechanism, lacks ease-of-entry, etc. etc. It is absolutely nothing like what Milton Friedman called for, so to say that the charter sector means Friedman was wrong demonstrates a severe lack of understanding of both markets and Friedman.

        Now, it seems you (Brandon) didn’t actually intend to mean “market failure” when you wrote “market malfunction” but I still think that term is problematic. What we have in the charter sector is a system of choice, but choice alone does not a market make.

        If I offered you the choice of an apple, a banana, or an orange, that wouldn’t mean we have a market. A real market requires an exchange and prices. The charter sector is, at best, market-lite. But it’s not a real market.

        (And by “real” market I don’t mean an entirely free market with perfect competition or perfect knowledge or anything of the sort — I simply mean a system of exchange with a price mechanism. You can have a market with a price mechanism that is also highly regulated. But the charter sector — due to state regulations — doesn’t even have a price mechanism.)

        You write: “if my car malfunctions, that doesn’t mean that cars in general don’t/can’t work. And if the cause of the malfunction is that someone drained my oil, then my car is still malfunctioning!”

        I think it is inapt to describe that as a “car malfunction.” The car itself is functioning just fine. It just lacks oil because someone took it out. There is no design flaw in the car, no faulty or broken piece, etc. It was the deliberate action of a third party that caused the problem. This was a human error, not a “car malfunction.”

        Likewise, it’s not the market that is malfunctioning here. The failures are the result — as you described — of government regulations. So what we have here is a government or regulatory failure.

        I know it might seem odd that I am arguing so strenuously over what appears to be semantics. But terminology matters. Mislabeling the problem leads to misdiagnosing it, which in turn leads to proposing the wrong solutions.

        Again, Checker has a history of explaining that the failures of the charter sector are failures of “market forces” rather than the failures of government regulations. He then concludes that what is needed is not more market forces, but rather more regulations. His muddled terminology led to misdiagnosing the problem, which in turn led him to propose more of what ails the system.

      • Greg Forster says:

        And it’s not just Checker. If you use “market malfunction” as anything other than a synonym of the familiar bugbear “market failure,” you may well be the first to do so.

  3. […] Charter schools and market malfunctions. Are “markets” the problem? […]

  4. Mike G says:

    As a charter school founder, I’d love to see a price mechanism.

    One semi-plausible way: what if I were allowed to give some of my per-pupil allotment directly to a parent for an Education Savings/Spending account? I.e., if Massachusetts gives me 15k per year per kid, I am allowed to pass, say, 4k directly to the parent….for everything from privately bought piano lessons, computer classes, museum trips to Arkansans, even 529 plan deposits.

    I could even create some charge backs which might create better school discipline (i.e., charge family the cost of an in-school suspension if incurred, versus avoid it and get strength training from a personal trainer).

    Of course, I’d love to work it the other way too – have the government payer pay $X more in exchange for Y amount of achievement gain or other outputs – but I can’t even conjure a semi-plausible path there….

    • matthewladner says:

      I’m just brainstorming here, but how about the government puts money into accounts managed by parents/guardians, weights the amounts to reflect equity concerns and oversees the operation of the accounts. Parents contract with service providers (public and private) in order to educate their child in either a single or a multi provider fashion. Oh plus let them save a portion of the funds for future use in order to create the incentive to use money wisely.

      While we are at it, we could have them rate vendors so that they could provide feedback to other parents when service providers disappoint or provide outstanding value?

      Let’s try that!

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