Archive for May, 2009
A Dialogue on School Choice, Part 2
The South Carolina legislature is currently considering a tax credit bill intended to give parents an easier choice between public and private schools. It would do this by cutting taxes on parents who pay for their own children’s education, and by cutting taxes on anyone who donates to a non-profit Scholarship Granting Organization (SGO). The SGOs would subsidize tuition for low income families (who owe little in taxes and so couldn’t benefit substantially from the direct tax credit). Charleston minister Rev. Joseph Darby opposes such programs, and I support them. We’ve decided to have this dialogue to explain why. Our initial comments were posted Tuesday. The next installment is here.
Rev. Joe DarbyFirst Response
Since this is a “dialogue,” let me focus on something that Andrew said in his first installment — that public education “…has failed because it lacks the freedoms and incentives that drive progress in every other field.” I take that as a defense of the “free market,” where competition allegedly leads to quality and success. I don’t think that the “free market” is the best model for education. To quote African Methodist Episcopal Church Bishop John Hurst Adams, one of my mentors, “the free market has limitations when it comes to the human condition, because it’s an amoral concept that ‘lets the market decide’ who swims and who gets swept away.” That’s applicable to the standard argument that private school choice would improve public schools through “competition.”
The first schools established for African-Americans following the Civil War were private schools. They sometimes, however, exclusively accepted the children of the black upper and middle economic classes while excluding the children of former slaves who struggled economically to survive. Public schools for African-Americans were decidedly and intentionally inferior, and the irony is that the opponents of quality public education in Charleston, South Carolina in that era included affluent African-Americans who saw good public schools as a threat to their private schools.
Public funds going to private schools would revive that tradition, for every tax dollar that “follows” a child to private schools in tough economic times will lead to understaffed and under-equipped public schools. Public school funding is set by legislators who are well aware that their constituents without children in the schools are loathe to fund them, and who’ve catered to those constituents by cutting funding for public education. There can be no true “competition” between public schools that only receive public funds and private schools that would have public and private funds at their disposal, for the free market turns on available capital.
The economic crisis now rocking markets in our nation and the world is also instructive. That crisis was, at least in part, created by policies that deregulated the free market and promoted not only innovation, but sheer greed which crafted a shaky, “house of cards” economy that has collapsed and taken people down with it. The lesson now, as it was during the Great Depression, is that unregulated free market activity can have disastrous results. I believe that the current financial crisis is also an element in the push for Private School Tuition Tax Credits. Many private schools are hurting because parents who can no longer afford high tuition are considering public school alternatives — private schools are hungry for the “bailout” that the pending South Carolina legislation would provide.
America makes the lofty claim in our Pledge of Allegiance to be “one nation under God.” If we’re serious about that, then we should heed the words of the Jesus who is seen as the Messiah by Christians and as God’s prophet by Jews and Muslims. He said that the Creator’s standard for right behavior includes equitable treatment for all people. That equity is at the heart of public education but is not a factor in free market competition, where the vagaries of the market decide outcomes and impact success in life. I said so six years ago in one of my conversations with my friend Mark Sanford, the Governor of South Carolina. He laid out his argument for private school choice over more funding for public schools in familiar, logical and compellingly Libertarian free market terms, but he never answered one question that I asked — why can’t we provide good public schools because it’s simply the right thing to do?
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The Rev. Darby is senior pastor of the AME Morris Brown Church in Charleston, and First Vice President of the Charleston Branch of the NAACP.
Andrew CoulsonFirst Response
Glad you brought up the objective studies, Joe, but you only mentioned one of them. I recently collected every scientific study I could find comparing outcomes between public and private schools (Journal of School Choice, vol. 3, no. 1). I came up with 65 studies that compare student achievement, cost-effectiveness, parental satisfaction and other measures. The results overwhelmingly favor private schooling. What’s more, the least regulated, most-market-like school systems stand out as the best of all (here’s an earlier version of the paper).
Interestingly, there’s one study I couldn’t include because it wasn’t released ’til a few weeks ago. It’s the 3rd year DC voucher study (the successor to the one you mentioned), and it shows that students who’d been attending private schools for the full 3 years are 2 school-years ahead of their public school peers in reading! Even including the kids who’ve only been in the program for 1 year, the vouchers are now producing significant gains.
And there’s no evidence that school choice weakens the public schools. Professor Jay Greene looks at this question in his book Education Myths. He finds that public schools either improve under school choice programs, or are unaffected. So even the families that don’t choose to attend private schools will likely be better off, and certainly no worse off, than they are now.
Who would be the biggest beneficiaries of the SC education tax credit bill? Low-income kids. As noted in the preamble at the top of this column, only low-income families would be eligible for tuition aid from Scholarship Granting Organizations (SGOs). The amount of aid each family could receive from an SGO is not capped, so that assistance can be allocated based on individual need. Pennsylvania already has such a tuition-assistance program, serving over 40,000 students with bi-partisan support.
Parents who earn enough to owe state taxes would be eligible for direct tax credits to offset their own kids’ education costs, but those credits are explicitly capped (at around $2,800, if their kids are not zoned to attend a “failing” public school — more if they are).
It’s certainly reasonable to wonder how poor families would cope with transportation and any non-tuition costs, but we can just look at how scholarship tax credit programs are working in states like Pennsylvania and Florida: some schools provide transportation, some are within walking distance, some families form carpools, and others use public transportation. Tens of thousands of poor children manage to get to their private schools under these programs every day, and to obtain uniforms for the schools that require them. Many others do so even without scholarships.
As for wanting to start by fully funding public schools… we’re already there. The 2007-08 budget for Charleston public schools lists total expenditures at over $548 million (p. 21) for 40,202 students (p. 4). That’s $13,650 per pupil — more than the state and national averages, which are both about $12,000. These numbers are vastly higher than the median U.S. private school tuition, which the Department of Education reported as $3,500 in 2003-04 [the most recent year available]. And only about a fifth of private school revenue comes from sources other than tuition. Even if tuitions have doubled since then, they’d still be barely half of Charleston’s per pupil spending.
I’ll have to wait ’til next time to address your concern about the history of school choice, since I’ve run out of word count. In the meantime, here’s a thought:
There’s nothing wrong with trying to fix the public schools. But you don’t lock kids in a burning building while you try to put out the fire.
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Andrew Coulson is director of the Cato Institute’s Center for Educational Freedom, and author of Market Education: The Unknown History.
Full of Sound and Fury, Signifying Nothing
That’s an apt way to describe this week’s health-care-reform media blitz by the White House.
It’s probably also a good way to describe this debate over that media blitz:
School Choice Going, Going, Gone Bipartisan (In Some States)
The USA Today takes note of the fact that support for school choice is growing among Democratic, often black, politicians:
While vouchers will likely never be the clarion call of Democrats, they’re beginning to make inroads among a group of young black lawmakers, mayors and school officials who have split with party and teachers union orthodoxy on school reform. The group includes Sacramento Mayor Kevin Johnson, Newark Mayor Cory Booker and former Washington, D.C., mayor Anthony Williams.
I’d only add that this broadening support is hardly limited to black Democrats, and that support for education tax credits is spreading even more quickly among Democrats. And while choice might never become a Democratic “clarion call,” it just might become the new consensus among serious education reformers in both parties.
For instance, a Democrat-controlled and, I assume, mostly white legislature in Rhode Island passed a donation tax credit. And Democratic governor and legislature in Iowa raised their tax credit dollar cap by 50 percent in 2007. The paper mentions black mayor Corey Booker’s support for school choice in New Jersey, but the white, former Democratic state party chair, and current state Senator Ray Lesniak is also pushing for a donation tax credit bill.
The model case is Florida. When the Florida legislature passed its education tax credit program to fund private school choice in 2001, only one Democrat supported the measure. Last year, the state legislature expanded the program with the votes of one third of statehouse Democrats, half the black caucus and the entire Hispanic caucus.
In the past few weeks, nearly a third of Senate Democrats and half of House Democrats voted to significantly expand the program’s revenue base. Virtually all Republicans did the same, and Republican Governor Crist is expected to sign the bill soon. In all, 43 percent of state Democratic legislators in Florida voted in favor of education tax credits.
The toothpaste is out, and the teachers unions can’t put it back in with all the dues money in the world.
Obama’s Broken Toaster
Recently on Leno, President Obama compared some financial products to an exploding toaster. His words:
When you buy a toaster, if it explodes in your face there’s a law that says your toasters need to be safe. But when you get a credit card, or you get a mortgage, there’s no law on the books that says if that explodes in your face financially, somehow you’re going to be protected.
So this is — the need for getting back to some common sense regulations — there’s nothing wrong with innovation in the financial markets. We want people to be successful; we want people to be able to make a profit. Banks are critical to our economy and we want credit to flow again. But we just want to make sure that there’s enough regulatory common sense in place that ordinary Americans aren’t taken advantage of, and taxpayers, after the fact, aren’t taken advantage of.
While I think we would all like to get to “common sense” regulation – arriving at such is unlikely if one’s understanding of the very problem is flawed, as seems to be the president’s.
Unlike broken toasters, mortgages and credit cards do not fail to pay themselves – borrowers fail to pay, almost always for a reason that has little to do with the characteristics of the loan itself. There is a wealth of empirical data documenting the causes of bankruptcy, mortgage and credit card default – much of which has been assembled by those on the left (take a look at any of Professor Elizabeth Warren’s work on bankruptcy). The fact is that the number one cause of all of these events is job loss. If the president has a plan for a mortgage that protects you from losing your job, I would love to see how that’s going to work. After job loss, comes unexpected health bills and divorce.
My hope had been that Obama’s talk about broken toasters was just a little pandering and could be safely ignored. However, judging from the structure of his foreclosure relief plan, he appears to believe that if we just lower the borrower’s rate, all would be saved. The sad truth is that his foreclosure plan does nothing for those really in need – who have lost their job for instance – they are simply out of luck. But then helping people who have lost their job would undermine the argument that it is all the fault of the product.
Handicapping the Justicial Horserace
The increase in chatter in Washington about Justice Souter’s replacement is a clear signal that pundits have gotten about as much mileage as they can over speculation and want to have an actual nominee to dissect.
Even though the administration has been evaluating candidates since the inauguration (and before), there’s no real reason for President Obama to announce a replacement before the Court’s term ends in late June.
The only limiting factor is that the president needs to have a new justice in place by the time the Court resumes hearing cases in October. So, clearly, this politically savvy president will be weighing his legislative priorities against the relative amount of political capital he’ll have to spend to confirm possible nominees. Similarly, Republicans seem to be keeping their powder dry, hopefully in preparation for a serious public debate of competing judicial philosophies and theories of constitutional interpretation.
As far as handicapping goes, the smart money is now on Solicitor General Elena Kagan—because she was recently confirmed by a comfortable margin, has significant support in the conservative legal establishment, and is young (49)—but don’t count out either Judge Diane Wood or Judge Sonia Sotomayor. Or dark horse candidates like Senator Claire McCaskill. It’s really any woman’s ballgame at this point, and will be until Barack Obama—who famously holds his cards close to his vest—announces his pick, on his time.
For a geometric discussion (X-axis = desirable criteria; Y-axis = confirmability) of the above political calculus, see here.
Do I Agree with Secretary of Education Arne Duncan?
Well, sort of. From today’s USA Today:
Duncan recently acknowledged D.C.’s woes, calling its public schools “a national disgrace.” But he added: “We have to be much more ambitious for ourselves and have higher expectations — we have to help every child in D.C. The answer is not vouchers for a few. It’s massive change, massive reform for all, absolutely as quickly as possible.”
Yes! They are a disgrace, and we do need quick, massive change from the current government-run system!
So Secretary of Education Arne Duncan supports broad-based education tax credits or a massive expansion of the DC voucher program, right? What radical change! He is the heroic reformer everyone says he is!
Oh . . . wait . . . by “massive reform for all, absolutely as quickly as possible,” he means another pipe-dream 5-year plan to brow-beat a huge, unwieldy, and ossified government school bureaucracy into thriving mediocrity while killing a voucher program that actually brings immediate improvements to the more than 1,700 students who won the lottery for educational opportunity in the District.
Way to set your ambitions so high, Arne!
We’re Not Talking about Socialized Medicine — I Swear
According to an unnamed “top White House official”:
It’s hard to talk about socialized medicine when the hospitals, doctors, insurers, the private sector players are working with us at the White House.
Let me get this straight. A president who is ideologically committed to socialized medicine is negotiating with an industry that’s committed to making as much money as possible off of socialized medicine.
But don’t worry. If there’s one thing they’re not discussing, it’s socialized medicine.
McChrystal and Direct Action
Fred Kaplan and the New York Times say that the decision to replace General David McKiernan with Lt. General Stan McChrystal as the principle US commander in Afghanistan is another step in the COINification of the Pentagon under Robert Gates. They say we’ve replaced a conventional warfare guy with an unconventional warfare guy.
That’s too simple. McChrystal is known for his mastery of the sharp or kinetic end of the counterinsurgency mission. The command he headed from 2003 to 2008 – Joint Special Operations Command — is essentially the operational component of Special Operations Command, which has really become a fifth service. JSOC organizes special operations missions in war zones. According to many officers, JSOC has also become enraptured with direct action. That means using intelligence from various sources to plan raids, often kicking down doors in the dead of night, interrogating people to generate more intelligence, doing it again immediately, and eventually capturing or killing insurgent leaders with the intelligence gleaned.
Bob Woodward’s latest book argues that JSOC’s role in employing these tactics in Iraq was crucial to the supposed success of the surge. But some informed observers beg to differ, arguing that standard counterinsurgency tactics and the contributions of Iraqis themselves mattered far more. Some complain that JSOC’s aggressive tactics and limited coordination with those in the regular chain of command undermined pacification efforts in Iraq and Afghanistan.
In the (recently released!) book on the post Cold War evolution of the US military that I co-edited, Colin Jackson and Austin Long have a chapter discussing the politics of special operations command. They argue that the direct action theory of victory in counterinsurgency is a close relative to the air force’s theory of decapitation, which says you can defeat a nation by attacking its leaders from the air. They explain that direct action has long been the favored tactic of secret or “black” SOF organizations like Delta Force, but that the wars made it the dominant mission in SOCOM as a whole, crowding traditional “white” counterinsurgency missions like population protection, force training, and civil affairs. To them, that is a problem, because the direct action theory of victory is badly flawed. You can’t kill your way to victory in these sorts of wars, they argue. That’s particularly true in Afghanistan, I’d add, where distance and poor roads make the exploitation of intelligence far more time-consuming.
I don’t know to what extent McChrystal shares the black SOF worldview. He would probably say that direct action is just part of the toolkit. It is possible, however, that his appointment reflects a decision to downplay nation-building in Afghanistan and focus more on killing raids and training Afghan soldiers.
It is also interesting to speculate about what Michael Vickers (the Assistant Secretary of Defense for Special Operations, Low Intensity Conflict and Interdependent Capabilities) had to say about this. Vickers — a key advisor to Gates and a carry-over from the Bush administration — is said to be skeptical about troop surges in counterinsurgency, preferring to train local forces.
According to Greg Grant of DoD Buzz:
In a speech before a defense industry gathering last month, Vickers said he foresees a shift over time from the manpower intensive counterinsurgency campaigns in Iraq and Afghanistan to more “distributed operations across the world,” relying on close to 100 small teams of special operations forces to hunt down terrorist networks, part of a “global radical Islamist insurgency.”
I don’t like the across the world part, but if this appointment means more limited objectives in Afghanistan, it’s good news.
A final note on McChrystal: he reportedly runs many miles a day, sleeps only a few hours, and avoids eating until evening to avoid sluggishness. Apparently the iron-man thing goes over well with Rangers, but I think commanders, whose job is mostly thinking, should get a good night’s sleep and three square.
Shocking News: Fannie Mae Is Losing More Money
Yes, I know. It’s hard to believe. Fannie Mae continues to lose money and, even more surprisingly, isn’t likely to ever pay taxpayers back for all of the billions that it already has squandered. Rather, it says it will need more bail-out funds — probably another $110 billion this year alone.
Fannie Mae reported yesterday that it lost $23.2 billion in the first three months of the year as mortgage defaults increasingly spread from risky loans to the far-larger portfolio of loans to borrowers who have been considered safe.
The massive loss prompts a $19 billion investment from the government to keep the firm solvent, on top of a $15 billion investment of taxpayer money earlier this year.
The sobering earnings report was a reminder of the far-reaching implications of the government’s takeover in September of Fannie Mae and the smaller Freddie Mac. Losses have proved unrelenting; the firms’ appetite for tens of billions of dollars in taxpayer aid hasn’t subsided; and taxpayer money invested in the companies, analysts said, is probably lost forever because the prospects for repayment are slim.
But the government remains committed to keeping the companies afloat, because it is relying on them to help reverse the continuing slide in the housing market and keep mortgage rates low.
Even as the government bailout of banks appears to be leveling off, the federal rescue of Fannie and Freddie is rapidly growing more expensive. Fannie Mae said that the losses will continue through at least much of the year and that it “therefore will be required to obtain additional funding from the Treasury.” Analysts are estimating that the company could need at least $110 billion.
Freddie Mac, which has been in worse financial shape than Fannie Mae and has obtained $45 billion in taxpayer funding, will report earnings in coming days.
The response of policymakers in the administration and Congress to this fiscal debacle? Silence. No surprise there, since many of them helped create the very programs that continue to bleed taxpayers dry.
Alas, this isn’t the first time that the federal government has promoted a housing boom and bust. Instead, writes Steven Malanga in Investor’s Business Daily:
This cycle goes back nearly 100 years. In 1922, Commerce Secretary Herbert Hoover launched the “Own Your Own Home” campaign, hailed as unique in the nation’s history.
Responding to a small dip in homeownership rates, Hoover urged “the great lending institutions, the construction industry, the great real estate men … to counteract the growing menace” of tenancy.
He pressed builders to turn to residential construction. He called for new rules that would let nationally chartered banks devote a greater share of their lending to residential properties.
Congress responded in 1927, and the freed-up banks dived into the market, despite signs that it was overheating.
The great national effort seemed to pay off. From mid-1927 to mid-1929, national banks’ mortgage lending increased 45%. The country was becoming “a nation of homeowners,” the Times exulted.
But as homeownership grew, so did the rate of foreclosures, from just 2% of commercial bank mortgages in 1922 to 11% in 1927.
This happened just as the stock market bubble of the late ’20s was inflating dangerously. Soon after the October 1929 Wall Street crash, the housing market began to collapse. Defaults exploded; by 1933, some 1,000 homes were foreclosing every day.
The “Own Your Own Home” campaign had trapped many Americans in mortgages beyond their reach.
Financial institutions were exposed as well. Their mortgage loans outstanding more than doubled from the early 1920s to 1930 — $9.2 billion to $22.6 billion — one reason that about 750 financial institutions failed in 1930 alone.
The only serious option is to close down all of the money-wasting federal programs and laws designed to subsidize home ownership. A stake through the hearts of Fannie Mae, Freddie Mac, Federal Housing Administration, and Community Reinvestment Act, to start. Otherwise the cycle is bound to be repeated, again to great cost for the ever-suffering taxpayers.
The Social Security Trustees Report
Editors’ Note: The post below is an expanded version of Tanner’s initial post at this URL.
The Social Security system’s trustees have released their annual report on the system’s finances and announced that — surprise — the program’s looming financial crisis hasn’t gone away.
Social Security will begin running a deficit by 2016, meaning that just seven years from now the program will begin spending more money on benefits than it takes in through taxes. That’s a year sooner than last year’s report.
Of course, in theory, the Social Security Trust Fund will pay benefits until 2037. But even that figure is misleading, because the Trust Fund contains no actual assets. Instead, it contains government bonds that are simply IOUs, a measure of how much money the government owes the system.
Even if Congress can find a way to redeem the bonds, the Trust Fund surplus will be completely exhausted by 2037. At that point, Social Security will have to rely solely on revenue from the payroll tax — and that revenue will not be sufficient to pay all promised benefits. Overall, the system’s unfunded liabilities — the amount it has promised beyond what it can actually pay — now total $17.5 trillion. Yes, that’s trillion with a ‘T.’ That’s $1.7 trillion worse than last year.
Critics of personal accounts for Social Security have pointed to the decline in the stock market over the last few years as an argument against allowing younger workers to privately invest a portion of their Social Security taxes. Yet studies [more here and here] have shown that long-term investment remains remarkably safe. If workers retiring today had been allowed to start privately investing their taxes 40 years ago, they would obviously have less money than those who retired a couple of years ago.But they would still have more than Social Security promises. And, as the Trustee’s Report shows, a poor economy hurts Social Security’s ability to pay benefits just as it hurts the stock market.
In the end, there are only three possible solutions to Social Security’s problems: raise taxes (and the Social Security payroll tax would have to be nearly doubled to keep the program afloat), cut benefits, or allow younger workers to invest privately.
We can have an honest debate about which of those options is the best choice. But, as the Trustee’s Report makes clear, Congress and the Obama administration cannot continue to duck the issue.
AEI Tax Forum
Photo by Peter Holden Photography for AEI
I was a panelist at an American Enterprise Institute forum today discussing the proliferation of federal tax credits, particularly for low-income families.
AEI scholars Kevin Hassett, Larry Lindsey, and Aparna Mathur have a draft paper that looks at the idea of consolidating current individual credits into one supercredit. The idea would be to simplify the system and reduce the economic distortions created by these credits, which are valued at about $170 billion in 2009.
My observations included:
- Obama’s Make Work Pay credit is valued at about $60 billion per year, much of which is ”refundable.” (That means it is partly a spending increase not a tax cut). Coincidentally, Obama’s proposed tax hikes for higher-income individuals are also about $60 billion per year. So Obama is damaging the economy with “Make Work Not Pay” tax increases at the top in order to fund dubious work incentives at the bottom. It makes no economic sense.
- The AEI scholars provide interesting calculations about how we could make the $170 billion of redistribution in these credits simpler. That’s fine as far as it goes, but I’d like to end the redistribution altogether. Let’s provide a large basic exemption in the tax code for folks at the bottom, but we don’t need any complex credits. Instead, let’s repeal federal policies that damage the budgets of struggling families at the bottom, such as import barriers that raise the price of clothing and federal milk cartels that raise the price of dairy products.
- Here’s my compromise redistribution plan. Let’s chop the $170 billion in tax credits in half and use the extra funds to cut the corporate income tax rate. With a purely static calculation, that would allow cutting the corporate rate from 35% to 25%. Assuming some behaviorial feedbacks, the $85 billion in credit savings would easily allow us to reduce the corporate rate to 20% or so.
- What do corporate taxes have to do with the workers who currently get all these tax credits? As Hassett and Mathur explained in a 2006 paper, corporate tax cuts would increase investment, improve productivity, and that in turn would raise wages of average American workers. We don’t need President Obama’s fancy new Make Work Pay credits. Instead, we need to cut the corporate tax rate to make the economy boom and raise worker’s wages and incomes in the private marketplace.
What’s Government Good For?
Those of us who are critical of government usually admit that there are a few tasks that government must perform. Run the roads, for instance. Yes, toll roads can work well, but it’s hard to figure out a truly private system of , say, city streets. I realize that some people might view me as being a hopelessly antiquated “policy libertarian” unable to see the possibilities of creative and entrepreneurial people. But that’s just the way I am.
Still, I’m starting to wonder. At least, it looks like maybe anarchy on the roads might be better than strict government regulation. Reports the Times of London:
What would happen if traffic lights were suddenly switched off? Would there be gridlock or would the queues of frustrated drivers miraculously disappear?
People in London are about to find out the answer in Britain’s first test of the theory that removing lights will cure congestion.
For six months, lights at up to seven junctions in Ealing will be concealed by bags and drivers will be left to negotiate their way across by establishing eye contact with pedestrians and other motorists.
Ealing Council believes that, far from improving the flow of traffic, lights cause delays and may even increase road danger. Drivers race towards green lights to make it across before they turn red. Confidence that they have right of way lulls them into a false sense of security, meaning that they fail to anticipate hazards coming from the side. The council hopes that drivers will learn to co-operate, crossing junctions on a first-come first-served basis rather than obeying robotic signals that have no sense of where people are waiting.
Westminster City Council is also considering a trial but has yet to identify likely junctions.
Ealing found evidence to support its theory when the lights failed one day at a busy junction and traffic flowed better than before. Councillors have approved a report which recommended that they “experimentally remove signals since experience of signal failure showed that junction worked well”.
The Conservative-controlled council has won the support of Boris Johnson, the Mayor of London, who is responsible for all 5,000 sets of lights in the capital through Transport for London.
One shouldn’t take Ealing’s lesson too far. However, the experience suggests that one should never assume that the way things are done are the way they must be done. We should always be willing to take a fresh look and rethink the status quo, even if we end up deciding that the status quo really is the best approach.
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