The Economics of School Vouchers

1. The Economics of School Vouchers Daniel Klein, George Mason University, dklein@gmu.edu

2. Fairfax County Public Schools • School (238), pyramid (24), cluster (8), Division (1) • Organizational Chart • Statistics about FCPS • In CA, funding is something like 36% local, 54% state, 8% federal. Not sure what is typical. • About the FCPS Board • VA School Divisions • School (238), pyramid (24), cluster (8), Division (1) • Organizational Chart • Statistics about FCPS • In CA, funding is something like 36% local, 54% state, 8% federal. Not sure what is typical. • About the FCPS Board

3. My judgment of fundamental arrangements • Three broad fundamental arrangements • Laissez-faire • Vouchers • Status quo • This lecture makes the case for vouchers over the status quo.

4. Supremes gave green-light • 5-4 decision in 2002 upholding constitutionality of Cleveland voucher program. • OKed participation by religious schools. • Religious element is a big part of private schooling. The decision seems to have resolved the “separation” contention that voucher opponents had long kept alive.

5. Formulating a voucher policy • Amount of voucher: say $8,000, not means tested. • More for kids with disabilities • How fiscally administrated: Who knows. • The free public school option remains, but would naturally contract • Parents to receive vouchers: All; possible phase in those with children in private schools “now” • What string strings attached to money, on school redeeming the voucher?

6. Possible strings attached • Curriculum • Testing • Diversity/discrimination • Tuition-levels • My plan: No restriction on tuition, other restrictions as minimal as possible.

7. Vouchers vs. Tax Credits • Joe Bast at Heartland Inst favors vouchers. • Mackinac Center and Cato favors tax credits: • Parents paying private school tuition • Individual donation • Corporate donation

8. Strategy for BritainD. Carswell, Economic AffairsMarch 2007 “Rather than seek a universal school voucher scheme, government should simply pass a law giving every parent a legal right to request and receive control over their child’s share of local education funding. The precise mechanism by which that control was exercised within each local authority area, and what ‘their child’s share’ constituted need not been defined by Whitehall. Once a legal right had been enshrined, it could be left to parents, using the courts and judicial fiat to do the rest, to determine how a local authority met that legal obligation.”

9. Vouchers funded by voluntary donations • “Private voucher programs enrolled approximately 50,000 children in 79 programs in 2001.” (Walberg, 36) • Small, but such experiments help to demonstrate the positive effects of vouchers.

10. Arguing for vouchers • Theory • Empirics

11. Econ theory, the broadest planes The status quo is a system of govt production/producer-side subsidy without choice. The voucher plan is a system of user-side subsidies and market choice. • Virtues of the free enterprise system • Market imperfection theories • Government imperfection theories

12. Virtues of the FES in full force • Private ownership of schools: residual claimancy, decisive authority • We hope relative freedom of entry and operation • Voluntary choice by the customer makes schools oriented toward overall consumer satisfaction: community, edification, religion, identity (though not citizenship/nationalism). • Product differentiation, innovation, competition • “Bottom-up” selection of activities and institutions, spontaneous order • The crude blackboard diagram: price goes to long-run efficient cost

13. Market Imperfection arguments? • Externalities/public goods: Positive social spillovers from education. This is a financing issue and vouchers answer it. • Common experience/collectivism/“the people’s romance”/national identity. • This is really the main argument for govt schooling. Vouchers harm this goal, but I regard the goal as invalid. (Indeed, I count its defeat as a plus for vouchers.)

14. Market imperfection arguments? • Other social character issues: integration/diversity by race, income, ability. • Replies: • Probable that the voucher plan would serve these goals better than the status quo • If those goals are good, wouldn’t parents tend to demand them? • Ku Klux Schools: • How plausible? Adam Smith said religious liberty led to “candour and moderation.” Faith in free people. • Strings attached would most likely rule out something like a KKK school

15. Market imperfection arguments? • Declining MU of $: Vouchers answer this. • Myth of Rationality: Protecting the family from hurting itself (by not sending the child to school). This is an issue of compulsory schooling, not vouchers. This can also be interpreted in terms of parents having wrong values, treated above. • Poor Information/“consumer protection”: There is a demand for and supply of assurance. • Natural monopoly: Implausible.

16. Government imperfection • All on display. • If you focus on the median school, you get a picture of stagnant mediocrity. If you focus on the worst schools, you get a picture quite sad.

17. Number of school districts in the United StatesSource: Hoxby SEJ 2004

18. Local share, union shareSource: Hoxby SEJ 2004

19. Aside: The Social Democratic Cultural Reaction • Liberalism • 1880-1914 Progressivism, Collectivism, Democracy, “New Liberalism” • WWI Collectivism • 1930s: Liberalism has utterly collapsed. • Karl Polanyi: The Great Transformation (1944) • 1930s-1980: Social democracy utterly ascendant.

20. Average per pupil in America’s government schoolsSource: Hoxby SEJ 2004

21. Two quotations • 1988 Carnegie Foundation: “The failure to educate adequately urban children is a shortcoming of such magnitude that many people have simply written off city schools as little more than human storehouses to keep young people off the streets.” • Former governor of Minnesota says: “We must come to grips with the fact that our present educational practices are contributing to the creation of a permanent underclass in our society.”

22. Growing disenchantment with govt schools (see handout) • Declining academic results • General breakdown of civility around school • Loss of govt aura: Simpsons, etc.

23. Theory summary • Virtues of the free enterprise system • Market imperfections • Government imperfections • Strong presumption against socialism

24. Thought Experiment • Laurence Iannaccone has shown that the country with the freest market in religion is all the country with the most vibrant churchgoing practices among the population and most successful church “marketplace.” What country? (Possible exceptions: Ireland, Poland.) • “ ... the benefits of religious competition, the burdens of monopoly, and the hazards of government regulation are as real in [in the religion sector] as in any other sector of the economy . . . [C]ompetition will stimulate religious markets just as it does secular markets, [leading] suppliers to efficiently produce a wide range of alternative faiths well adapted to the specific needs of consumers. ... [In contrast], state-sponsored religious monopoly will provide only the appearance of piety -- an ineffective clergy and an apathetic population ...” (Iannaccone, from an article in a Routledge book 1996). • Why not a separation of school and state?

25. Aside: Why not do all subsidies as user-side? • Roads, urban transit, health care, parks, beaches, security, fire fighting, higher ed, etc. • User-side subsidies raise two key questions: • Which users receive them? • Which service providers can redeem them? These two questions are exceptionally straight forward in the case of schooling.

26. Turning to empirics • Private vs. government schools • School choice experiences

27. James Coleman’s research • Coleman and Thomas Hoffer, Public and Private High Schools: The Impact of Communities (Basic Books, 1987) • School as instrument of: • the family • the community • the larger society (esp. govt)

28. The historical shift • From family and community to larger society/state • “For the ethnic, cultural, and religious minorities, however, this choice was choice against schooling as an extension of the family and for schooling as an instrument for bringing the child into the larger society. The larger society was not an extension of the family for them, either religiously or culturally. The public schools were for them an instrument that alienated the child from the family, an instrument that benefited the child by bringing it into the mainstream of American society, but at a cost to the continuity and strength of the family. ... The cost was great . . . for cultural minorities in residential communities that were heterogeneous.” (P. 14)

29. “The Common School” • Tendency of modern public schools: imposing by central administration one system on all students and families. • Dress codes, how much homework, discipline, curriculum, religious element, how traditional, sex education, busing, bilingual, etc. etc.

30. Coleman and Hoffer • “A principal of a school today in which attendance is based on residence has no set of dominant community values to uphold. Instead, there are a number of contending values, each claiming legitimacy, and at least some of them capable of being backed up by suits in court.”

31. Coleman and Hoffer • functional community -- a community that functions to achieve its goals and overcome obstacles • value community -- a group of people with shared values (although they may not function as a community)

32. Coleman and Hoffer empirics • How to assess “the impact of community”? • Public: low on value and functional community • Catholic: high on both • “Other privates”: value but often not functional • They look at gains between 10th and 12th grade. • Findings—see handout

33. Follow-up empirics • Chubb and Moe 1990 book from Brookings (Markets, Politics, and America’s Schools), very hard hitting, bashed bureaucratic structure, using stats • Econ papers like Sander and Krautmann Ec Inq 1995, Evans and Schwab QJE 1995. • Eric Hanushek has been showing in mainstream pubs that more money doesn’t improve public schools.

34. Voucher program results: Hoxby empirics • “Productivity in Education: The Quintessential Upstream Industry” Southern Economic Journal 2004. • “School Choice: The Three Essential Elements and Several Policy Options,” Education Forum, Aug 2006. • She finds that better scholastic results come where school choice is more vibrant.

35. Herbert Walberg overview • Point-in-time academic achievement • Value-added over-time Achievement Gains • Cost efficiency • Parents’/citizens’ satisfaction • Social integration/citizenship • Positives are conclusive or suggestive throughout

36. International Studies • Sweden, Netherlands, Chile, Columbia, New Zealand • Treated by Walberg. • Also, James Tooley and Pauline Dixon done a lot of work about private schooling in less developed countries.

37. Real-life restrictions on private schools • Restrictions on school accreditation and operations (Hammons 2008). • Restrictions from state and local enviro, zoning, parking, and building codes (Seireg 2004)

39. State regs on schools examined: • Accreditation, licensing and approval • Transparency and reporting • Curriculum and academics • Health and safety • Miscellaneous

41. Enviro, zoning, parking, building codes • Seireg paper on California shows “four goliaths”: • State Environmental Quality Act • city zoning requirements • city parking requirements • state and local building codes. • People involved in the debate tend to ignore this stuff . . .