Hey Teachers...leave them kids alone!

A few days ago I went to a meeting sponsored by the club Think. The debate was on privatization. The whole issue with the collapse of many big companies and the subsequent bailout of those companies sparked this debate. Many people see the demise of these corporations and the troubles the financial system is facing as a damning critique of capitalism. Thus, the government needs to step in and help because it can do things better.

For specificity the debate ended up focusing on education and what the outcome of privatization would be. I enjoyed listening to everyone's opinions on the subject and came up with a few thoughts that I wanted to jot down about the subject.

The first idea I had was: What exactly are we hoping to accomplish with public education? I think for most people it boils down to three things. One, some parents may have smart kids that would benefit from an education but are unable to afford the cost of school. Two, some parents are lazy and irresponsible and would not send their kids to a good school or perhaps even to school at all. Three, we want the population to be well educated.

The second idea was: How do we fix these problems? Public education provides a nice base for all kids. It can avoid both the problem since poor parents have a free school for their kids and bad parents are legally obligated to send their kids.

In spite of the benefits of public schooling it does suffer from several problems. First of all, it doesn't do that great a job of educating. According to this article, the US is ranked 18th out of 24 developed countries in terms of K-12 education by UNICEF. I think this stems from the fact that public schools are set up to be little geographic monopolies. Even if you give the parents a choice between schools, they're set up so that they don't compete with each other*. Second, since the government is endorsing the curriculum, it has to pick something that is mildly satisfying for all parents. This means that the government has to pick abstinence only or safe sex, creationism or evolution, etc. No choice is going to make everyone happy. Thirdly, the government doesn't know when a course is valuable or not. At a university, if students are willing to pay for a class they'll provide it. Not so at a public middle school. Kids don't pay for a class so when it's time for budget cuts Arts and Music lose.

Public schools don't really get the feedback from the market like other businesses do and they perform badly because of it. A little competition would help get these schools behaving more like a company which means they'll fight to provide the best education they can at the lowest price. Think about it this way, everybody complains about the DVM but they don't have a choice but to go there. However, if you don't like Wal-Mart, you can go to Target and these companies know it.

And come to think of it, I've often thought about how cool it would be to open a school and in a conversation today someone echoed that desire. I know of plenty of good people who would be interested in opening schools who would be dedicated to the idea. None of them open schools because the public school system is a monopoly. On average, parent already pays around $8,000 to $10,000 in taxes per year to fund public education. For that parent to send their kid to a private school they would have to pay $16,000 (taxes plus the private school tuition) to get an education that is worth around $8,000. Not many people are willing to do that so few private school are ever opened.

I think a voucher system could introduce that competition nicely. It already seems to do well for higher education. Students can receive scholarships (vouchers) and pick the school they think offers the best education. If they want a better education, then they can spend some of their own money on top of the scholarship. Colleges have to compete to attract good students and so they have to provide a good education at a low cost. And as a nice bonus, no one has to agree on what they think a good education means. Some people prefer a conservative education, some prefer a liberal education. Some prefer to focus on math and science others on art and literature.

Vouchers also seem to solve the problem that poor parents can't afford to send their kids to a good school. Scholarships are already set up to give smart, low-income students an opportunity to go to the same schools they rich attend allowing them to get out of poverty based on merit. The taxes that fund the voucher system could be progressive so that the rich help fund the education of the poor**. So if you're worried that the rich will get richer and the poor will get poorer all you need to do is give the poor a scholarship for around what a rich person would pay for education (probably around $12,000 would do it).

Vouchers may even solve the bad parenting issue. I've heard many people argue that a bad parent will just send their kid to the nearest school and not take the time to investigate whether that school is very good. However, if a school is going to stay in business it will probably have to cater to more than just the small group of bad parents. Good parents will keep an eye on school quality and leave if the school starts doing poorly and it will have to close or improve. Thus the bad parents will free ride on the good parent's watchfulness. Bad parents are bad by definition so they could easily find some terrible shack where the teacher just beats the kids all day. I'm not sure that there are many parents that are that deliberately awful, but maybe. So I'd be willing to bend on my free market principles and OK some rating system like you find on restaurants. If a school doesn't meet some level of qualification it gets shut down.

All in all, I think privatization with a voucher system could be a really good thing for education in the country. Certainly, it is contingent on some political factors. Teacher's unions and county school boards would oppose this move and with anything that involves politics there isn't necessarily the incentive to structure the voucher system in way that won't cater to someone's special interests. But hey, even a cynical economist can hope right?


* For example, you never see two elementary school right next to each other even though you see grocery stores right next to each other all the time.

** If you're into that sort of thing.

Aren't People Crazy?

I hear this a lot, "People are crazy." It gets said in a lot of different ways, but the core is people are irrational. They make bad decisions and bad decisions are irrational. For instance, people heavily invest in stock of the company that they work for. A portfolio like that leaves them vulnerable to too much risk of loss. Basically, people think the company that they work for is a safer bet than it is (as the people who worked for Enron found out).

People mis-estimate risk. We are systematically wrong when guessing how risky some activity is due to what many claim are biological factors that were evolved when humans lived in pre-tribe groups. Two researchers, Kahneman and Tversky, won a Nobel prize for their work in demonstrating that people will take a risky bet when it's phased one way, but will reject the bet when it's phrased a little differently. They've also shown that people are consistently wrong when estimating how likely they are to die from various things, like car crashes for instance.

The November 2008 issue of Popular Science had a similar take on how irrational people are. They report that you are 40,000 times more likely to die in a car crash than on a roller coaster and "yet it's the amusement-park rides that scare people." We take things that seem like more immediate threats too seriously. We are afraid of flying but not pollution. There is a one in a million change that you will die in a plane crash but 40% of deaths are caused by pollution.

I think this is a little unfair though. You look at the risks (which are essentially the costs) and say that we should be doing less of the high cost activity. It's like saying, watching TV is cheaper than eating so you should really be watching TV and not eating. To say that a person should rationally be afraid of the risker/costlier activity ignores the relative benefits of the activities.

Going on a roller coaster gets you nothing but an adrenaline surge. Riding in a car allows you to see your family, get food, go to school and an array of other important activities. Even though the risks are higher the rewards are much greater. So we aren't afraid of getting in the car. The same is true of pollution versus planes. There are plenty of substitutes for long distance travel, but if you want to live a city (because of all the fun stuff there) you've got to be okay with the pollution.

Now, if only I could figure out why people are afraid of public speaking.

Revealed Prefereces

I was listening to the radio recently and heard a story about how Wal-mart made lots of contributions to Republican candidates and the Republican party. The story included the opinion that Wal-mart should instead be funding the Democrats because many of their workers rely on publicly funded health care. If more Democrats were elected, Wal-mart would be able to continue not giving its workers health care making it cheaper to hire them. Wal-mart (in all of its evil) must be acting irrationally.

Or is it...

Wal-mart can pay its workers less if it gives them health care. But if the health care it gives them is not worth the reduction in wages then the workers are going to be mad and go work somewhere else. So, if workers and Wal-mart have come to the decision to work together, the people who work at Wal-mart must be happier with the slightly higher wages and no health care than the lower wages and health care.

Wal-mart knows that it will likely to have to pay more in corporate taxes if a national health care system is created. The taxes it pays will be more than what it has to reduce wages by because it knows that its employees won't be willing to work for less. For example, Wal-mart would have to pay $1 million in taxes but since its employees have health care that it doesn't have to provide for them, people will be willing to work for less. The savings in wages would not add up to be $1 million meaning that the employees of Wal-mart do not in fact value the health care they will be getting at $1 million.

How do I know that the employees of Wal-mart do not value the health care more than the wages they would lose to get it? I know thanks to Wake-Up-Walmart.com. The site claims:

"Since the average full-time Wal-Mart employee earned $17,114 in 2005, he or she would have to spend between 7 and 25 percent of his or her income just to cover the premiums and medical deductibles, if electing for single coverage. [Wal-Mart 2006 Associate Guide and UFCW analysis.]."

The people who work for Wal-mart are so poor that they can not afford the health care. They would prefer to take the risk and keep the money. Clearly, that is an unfortunate decision for those people, but forcing Wal-mart to create a health care system does not improve their situation.

A law would only make both Wal-mart and its employees worse off. Whereas, passing laws that allow for Wal-mart to make its employees as producitve as possible actually would increase their wages allowing them to purchase health care when they thought it was better than the alternative.

A Pessimistic Forecast

I'm pretty much tired of politics.

Both parties claim that they're going to make things better for everyone. This is absolutely false. Why? Because there is no such thing as a free lunch.

Essentially, any government policy will have some costs and some benefits. Which means some people will be made better off at the expense of others. No government policy is going to be good for everyone.

If they were really honest with us, they'd be saying, "I promise the 51% of you who vote for me more stuff than I take from you." Look at the tax polices. Hidden in all of the claims and promises will be a different distribution of wealth than we have today. Both candidate are hoping you feel like it redistributes the pie in your favor.

We can only hope that some of the policies a president enacts are at least better for the people they help than they are bad for the people they hurt. Sounds easy enough, but in practice, it's very hard. If you try to give stuff to people they change their behavior so you have to give them more. If you try to take stuff from people then they make sure that they have less to take or spend valuable resources just making sure you can't get it.

Universal health care is great example. It has the capability to help some at the expense of a lot of people. Universal health insurance is not free because we give up all the good things that the market does for innovation in health care. Having universal health care sucks. Not having universal health care sucks.

No president is going to change that. They're just going to change who it sucks worse for.

I hate to burst your bubble on how great the next 4 years are going to be, but it ain't gonna be what you're hoping for. Improvements in just about everything worth having don't get made by governments, especially presidents.

Another View on the Liberal Media

Brilliant writers on economics and law, Becker and Posner, have posted a new entry on their blog on why Hollywood is largely liberal. This isn't a rant against Hollywood, but simply an attempt to explain the observation that there are 50 outspoken liberal actors to every 1 outspoken conservative actor*.

Posner says that it might be that actors prefer extreme political positions and the since the Left is more acceptable than the Right many of them choose that orientation. Another of his possible explanations is that if the population wants movies that offend typically conservative tastes, then conservatives will be less likely to enter into show business. For example, few conservative Christians would probably like to act in Requiem for a Dream even though the moral is largely about the negative effects of drug use.

Becker offers a possibility that since people in Hollywood are more likely to have affairs, get divorced, live alternative lifestyles, and use drugs, it makes sense that they would prefer a more liberal set of political policies.

I'd like to submit my own thoughts to the subject. There are many unions for actors, directors, writers, and crew. The unions are an attempt to raise wages in these industries while simultaneously keeping competitors out. Why keep competitors out? The stars earn huge amounts of money and many new actors are willing to work for very little in order to break into the industry. The competition from these new actors would drive wages down if not for union rules on how much you can pay an actor.

If you're in Hollywood and part of the union, you definitely want liberal pro-union policy makers. If you're outside of the union earning little and trying make it big, you still want liberal social policies like unemployment benefits, minimum wage and free health care.

The next question is, why are the stars are liberal in spite of the fact that they lose a lot of their money to the high tax bracket they're in due to the progressive tax system? Practically everyone they work with wants the benefits of a liberal social policy. During the writer's strike, imagine what would have happened to Conan, Leno or Letterman if they had hired scab writers. The major players must retain pro-union pro-liberal stances in order to have workers in the writer's rooms, in the dressing rooms and behind the camera.

You might even be able to test if this theory is correct. The prediction is that if you look at other industries where there is a lot of competition for entry level positions, but very high earnings for a small group of "stars," then you would find more liberals. Sports is the closest industry I can think of and you don't typically think of athletes as being very liberal. Perhaps this is due to the fact that players can not actually form a union whereas management does form a cartel that is legally protected.

*Potentially an exageration. I do not know what the ratio would really be.

A Metaphor

Imagine a see-saw. We sit at one end look at how high the other end is. If we could just get to the other side, then we could enjoy the view from there. We rush over to the other side only to find when we get there that now, it's just as low as before. The highest point is actually at the fulcrum, but if we chase the moment, we never stay there because it appears that we can do better if we leave our current spot.

I think our economy is like that. We sit at one end and think of all the great laws we can pass which would get us to the high part of the see-saw. But the laws change the incentives and what seemed like a good position doesn't really exist. So we change our laws again. Trying to get to the high part of the see-saw. Even though it seems like we can get better, we're just stuck. Better to just choose the middle and stick with it.

Six of one...

What is worse, only being told what you already believe to be true or only being told what someone else believes to be true?

It seems like a completely free media will do the first. People who are not interested in challenging themselves will choose to listen to reports that interpret the facts of a situation in a way that supports their beliefs. Liberals only read the New York Times. Conservatives only listen to Fox News.

What could be done to prevent that from happening? Place some restrictions on the ownership of the media? Consolidate the media into a government owned monopoly? It doesn't seem like any set of rules could eliminate the problems of the first situation without bringing about the problems of the second.

I suppose people who aren't interested in uncovering the truth will always be a problem. There's no reliable way to enforce the Truth because it is difficult to discover what is true in the first place. Does the marketplace of idea encourage people to find the Truth? Or do some people refuse to buy knowledge because they have too low of a demand for it?

Is the Truth always even valuable to have? Rephrasing, is it harmful to not know the Truth? Let's say communism is right. It would be better for everyone to if we were all oraginized under a communist system of production. Thinking about it in a natural selection sense, would a communist survive any better currently? It seems likely that they wouldn't.

Can we advocate a self-less pursuit of the Truth where all people would spend all of their time and energy attempting to figure out the world? Where would we even start- a scientific or religious approach?

Since many of these questions lack universally appealing answers, I think it is impossible to advocate anything but a free exchange of ideas. Even if rhetoric can sway more people than rational argument. Even if the incentive to find the Truth may not always exists in sufficient enough quantities to always find it. We merely must accept the fact that things aren't perfect, but they also can't get better.