Just in time for the Christmas baking season, Norwegians are facing an acute butter shortage. Last Friday, customs officials detained a Russian trying to smuggle 90 kilos of the creamy goodness into the country by car.

Wait. What?!? Isn’t Norway that rich Scandinavian country with all the oil ?

Yup, that’s the one.

Wow… This European debt crisis is already causing shortages of staples?

No, that’s not it.

Huh. I feel silly asking this, but are they at war with someone?

Not as far as we know.

Well what gives then?

The story linked above claims bad weather hurt crops and milk production while demand has risen due to a high fat fad diet.

Well why don’t they just, you know, import more?

That’s what Sweden’s doing—they’ve had similar weather and they’ve got the same diet fad, but their stores (and soon their arteries) are chocked full of butter. But the Norwegians couldn’t do that.

Why on earth not?

Norway has a butter monopolist called “Tine” that is deliberately protected from foreign competitors by government-imposed import tariffs.

Well, with all due respect: duh! We’ve only known the damaging effects of monopolies and protectionism for, like a couple of hundred years. You’d think the Norwegian people would have wised up and ditched them by now. Americans would never stand for that sort of thing.

Norwegians seem pretty angry right now, and it sounds as though they may do just that. But I wouldn’t be too smug about the United States. Turns out, it’s got its own $600 billion per year government protected monopoly that makes Tine look like small potatoes indeed. Here’s a hint:

From Russia with Butter is a post from Cato @ Liberty - Cato Institute Blog

Yesterday the First Lady addressed high school students visiting Georgetown University for a day. Her message was to encourage students to strive for academic success and college degrees, but her answer to one question said a whole lot more. Here’s the question:

about the community, like, about this violence and teen pregnancy that’s going on…. What could you and your husband do to change or help out us young people?  Because it’s like someone dying every day.  Like, it’s just crazy.

Mrs. Obama answered at length, stressing the need for every individual to take responsibility for his own life and his own destiny, going so far as to add that

there’s all this stuff the President and Congress can do, but trust me, they can’t fix that.  No matter what, they can’t get in your head and change that.  You have to do that.

The First Lady is right that people must take responsibility for themselves, but what she seems not to realize is that government programs often stifle that kind of behavior. Responsibility is like a muscle: use it or lose it. The only way you learn how to behave responsibly is to actually have real responsibilities. Government has gotten in the way of that process in a host of ways, but nowhere so perniciously as in education. Today, the only educational responsibilities most parents have is to get their kids up in the morning and point them in the direction of the school or the school bus. They don’t decide where their kids go to school, who teaches them, or what they’ll be taught. The natural result—the inevitable result—is the atrophy of parental responsibility towards their children’s education and the horrendous cascade of social ills that flows from it.

Most of this is the fault of our state school monopolies that automatically assign children to schools based on where they live. But the federal government has exacerbated that problem by centralizing control over schooling even further. By abolishing their failed k-12 education programs alone, Congress would save the nation’s taxpayers roughly $70 billion annually. And by encouraging states to return power over education to parents instead of leaving it with bureaucrats, they would dramatically increase the exact kind of responsible behavior that Mrs. Obama knows is essential to solving so many of our social and economic problems.

Consider that the state of Florida has a program that cuts taxes on businesses that donate to non-profit k-12 scholarship funds. Those scholarship organizations subsidize private school tuition for low-income families. According to two separate studies, this program improves achievement in public schools, by virtue of the new competitive pressures it introduces, and it improves the achievement of the students who participate. And by requiring parents to make the difficult decisions as to where to send their children to school, and by requiring most parents to contribute at least a small co-payment, this program builds exactly the kind of responsibility and exactly the kind of social capital that Mrs. Obama so rightly yearns for.

Oh, and, by the way, it saves taxpayers $1.49 for every dollar it reduces state revenue, so it makes economic sense in the immediate term as well as in the long term.

But there’s a catch: This practical and proven solution does not seem to fit well with Mrs. Obama’s political ideology—or, more damagingly, with her husband’s. So instead of ending failed federal education programs and encouraging parental choice, power, and responsibility, the president will keep pursuing federal programs that even his own wife recognizes are doomed to fail.

But while it’s hard for a person to change his ideology, it’s easy for a country to change its president.

Michelle Obama on Personal Responsibility and the Limits of Federal Programs is a post from Cato @ Liberty - Cato Institute Blog

I don’t have to prove my bona fides when it comes to opposing top-down, standards-based education reforms. I’ve been highly critical of the No Child Left Behind Act; very aggressive in attacking the reckless drive for national curriculum standards; and have repeatedly noted the importance of educator autonomy. So when you read the following, keep in mind that it is definitely not coming from a command-and-control aficionado: The weakest position in today’s big education war is the one opposed to both standards-based reforms and school choice. It’s the one enunciated yesterday by the Washington Post’ s Valerie Strauss, but which is most firmly staked out by historian Diane Ravitch.  It’s the position that essentially boils down to “don’t touch my local, teacher-dominated monopoly!”

Why is this so weak? Because it gives parents and taxpayers — the people who pay for public education and whom the system is supposed to serve — the fewest avenues to get what they want out of the schools.

Outraged over your neighborhood school because it is dangerous, the staff apathetic, and the building crumbling? Too bad — you get what you’re given and can’t even appeal to a higher level of government. And as we’ve seen in far too many places where the residents aren’t rich enough to exercise choice by buying expensive homes in better districts — the District of Columbia, Compton, Detroit, etc. — Ravitch’s utopian vision of school districts as places where “people congregate and mobilize to solve local problems, where individuals learn to speak up and debate and engage in democratic give-and-take with their neighbors” is just so much gauzy rhapsodizing. Reality is much harsher.

Of course, there are gigantic, fatal flaws with the standards-and-accountability movement, and people like Ravitch and Strauss have very compelling reasons for concern.

The standards movement, for one thing, is completely reliant on standardized testing. Indeed, it is heading for a single, national test, despite well-established evidence that tests are highly constrained in what they can tell us about learning.

In addition, as Ravitch and others regularly lament, the standards movement seems to be dominated by present and former business leaders who have tended to treat education as just another uniform-widget production problem. But children are not uniform; they are individual human beings with widely varied interests, rates of maturity, educational starting points, and life goals. But that never seems to enter into the standards equation, rendering it wrong from the start. Add to this that standards-based reformers tend to treat the education system as a single entity to be engineered, rather than an industry in which schools are the firms and competition is essential for sustained innovation and improvement, and standards-based reforms are as hopeless as teacher-dominated mini monopolies.

Unfortunately, top-down standardizers seem unlikely to join the fold of the one reform that includes both necessary educator autonomy and powerful accountability to parents: educational freedom. Yes, they often like school choice as long as government dictates what chosen schools teach, but they don’t embrace real freedom. Perhaps, though, the Ravitches and Strausses of the world can be brought on board. They won’t be able to keep the local monopolies they cherish, but they’ll be able to get most of what they want: much less stultifying uniformity; considerably more freedom for teachers; and the flourishing of communities, though communities based on shared norms and values, not mere physical proximity.

The flimsiest position in our great education debate is the one held by opponents of both top-down accountability and educational freedom. But if they’ll  remove the rose-tinted glasses through which they see local public schooling, there is an option that should appeal to them, one that injects essential parent power and competition into education while giving educators the professional autonomy they crave. It is school choice — educational freedom — and it is the reform that wins the great education debate.

All You Have to Do Is Let Go of the Monopoly is a post from Cato @ Liberty - Cato Institute Blog

Postmaster General John Potter has announced that he is stepping down. The Washington Post speculates on the reason for Potter’s departure:

It is not immediately clear why Potter decided to step down, though USPS staffers and others in the postal community — a wide fraternity including the shipping industry, labor unions and large retailers — signaled recently that he was likely to go after another record year of financial losses and failing to earn greater management flexibilities from Congress.

When Potter testified before a Senate Appropriations subcommittee hearing in March on the USPS’s desire to drop Saturday delivery, I noted that his comments indicated the need to privatize the U.S. Postal Service.

In his testimony, Potter stated:

If the Postal Service were provided with the flexibilities used by businesses in the marketplace to streamline their operations and reduce costs, we would become a more efficient and effective organization. Such a change would also allow us to more quickly adapt to meet the evolving needs, demands, and activities of our customers, now and in the future.

Of course, Congress has shown virtually no interest in giving the USPS, which is bleeding red ink, the greater flexibility it needs. This makes me wonder if Potter will reach the same conclusion that his predecessor, William Henderson, reached following his departure from the USPS.

Three short months after Henderson stepped down as postmaster general in June 2001, he penned an op-ed in the Washington Post that called for the USPS to be privatized.

Henderson wrote:

But for all the ways in which the Postal Service already resembles a private company, it lacks the advantages of any other corporation, such as being able to turn on a dime when it comes to rate changes, perhaps raising prices at times of high demand and lowering prices to entice customers during traditionally slow times, which for the Postal Service means summer. Today, a price change requires the permission of the Postal Rate Commission — a yearlong process.

And unlike a private company, the Postal Service has a universal service obligation, meaning it must deliver everywhere, six days a week, at a regularly scheduled time, making the delivery even for a single piece of mail, which is not cost-effective. And it means delivering in the Grand Canyon and in rural Alaska and in high-risk neighborhoods and lots of other places where delivery is not cost-effective.

The trade-off is that the Postal Service gets monopoly protection; no private company is allowed to compete with it head to head by carrying letter mail or using the mailbox. It should give up that protection for the greater benefits of privatization.

Henderson’s conclusion still rings true almost ten years later:

I can’t believe that 25 years from now the Postal Service will still be owned by the federal government. But the point is that, as with any government asset, this one needs to be maximized. And that means we need to free ourselves from the usual discussion about controlling costs or keeping rates stable or mailing more, all of which is simply a form of denial about the real issue. The model itself is not going to work for the long haul: It must be changed.

Unfortunately, Congress is still in denial. In commenting on Potter’s departure, Sen. Susan Collins (R-ME) offered the vacuous statement that his successor “must strengthen the Postal Service by cutting costs, enticing more customers and putting this vital institution on a sound financial footing.” Instead, Sen. Collins and her colleagues need to recognize that the USPS model “is not going to work for the long haul” so long as politicians ultimately remain in charge.

Postmaster General Stepping Down is a post from Cato @ Liberty - Cato Institute Blog

In the Washington Post, columnist Courtland Milloy praises the “profound egalitarian insights” and “radical oneness” of D.C. Schools Chancellor Michelle Rhee (and billionaire Warren Buffett):

“I believe we can solve the problems of urban education in our lifetimes and actualize education’s power to reverse generational poverty,” Rhee wrote. “But I am learning that it is a radical concept to even suggest this. Warren Buffett [the billionaire investor] framed the problem for me once in a way that clarified how basic our most stubborn obstacles are. He said it would be easy to solve today’s problems in urban education. ‘Make private schools illegal,’ he said, ‘and assign every child to a public school by random lottery.’ “

Milloy’s not satisfied that Rhee is taking on entrenched interests, firing principals and teachers who aren’t doing a good job, and apparently actually improving the schools in the District of Columbia. No, he’s attracted to the “radical concept” of outlawing private schools and forcing everyone in the District into the same schools, with no hope of escape. There would be one method of escape, of course: moving to the suburbs.  And you can bet that lots more people would do that if Milloy and Rhee got their way.

I wonder what a total government monopoly on education would look like. Are Buffett and Rhee right that a government monopoly forced on every citizen would work well? Would work so well that it would “solve the problems of urban education . . . and reverse generational poverty”?

Well, one answer might be glimpsed on the same page B3 where part of Milloy’s column appeared. In an adjacent column, columnist John Kelly discussed his “Kafkaesque” five-hour visit to the state of Maryland’s Motor Vehicle Administration:

I was at the MVA. I was in Hell.

I know that complaining about the MVA or the DMV is the last refuge of a scoundrel columnist, but I don’t care. You don’t know what it was like. You weren’t there, man. I spent five hours at the Beltsville MVA on Thursday. Five hours. I could have driven to New York in that time….

I thought: Can this really be happening? Can I really have stepped into a Kafka story? Shouldn’t every counter be filled with employees working as fast as possible? Shouldn’t management be out there helping, and Maryland state troopers, too? This is the Katrina of waiting, people.

The MVA, of course, is a monopoly government bureaucracy. Everyone must go there — CEOs, diplomats, even Washington Post columnists. And yet, somehow, that has not led to the MVA equivalent of solving problems and reversing poverty. Five hours to get a drivers’ license just might be worse performance than that of the public schools.

It’s the system, Mr. Milloy and Ms. Rhee. Monopolies don’t have much incentive to improve. Give everyone the chance to go to a different supplier, and then you’ll see improvement. Giant Food wouldn’t last long if it took five hours to buy your groceries — because it has competitors. But as long as the schools are a near-monopoly, and the MVA or DMV is a total monopoly, don’t expect real improvement.

Would the Schools Work Better If They Outlawed All Competitors? is a post from Cato @ Liberty - Cato Institute Blog

Moody’s has announced that it will change its methods for rating debt issued by state and local governments.  Politicians have argued that its current ratings ignore the historically low default rate of municipal bonds, resulting in higher interest rates being paid on muni debt, or so argue the politicians.

First this argument ignores that the market determines the cost of borrowing, not the rating.  And while ratings are considered by market participants, one can easily find similarly rated bonds that trade at different yields.

Second, while ratings should give some weight to historical performance, far more weight should be given to expected future performance.  Regardless of how say California-issued debt has performed in the past, does anyone doubt that California, or many other municipalities, are in fiscal straights right now?

Last and not least, politicians have no business telling rating agencies how to handle different types of investments.  We’ve been down this road before with Fannie Mae and Freddie Mac.  During drafting of GSE reform bills in the past, politicians put constant pressure on the rating agencies to maintain Fannie and Freddie’s AAA status.

The gaming over muni ratings illustrates all the more why we need to end the rating agencies govt created monopoly.  As long as govt has imposed a system protecting the rating agencies from market pressures, those agencies will bend to the will of politicians in order to protect that status.  As Fannie and Freddie have demonstrated, it ends up being the taxpayers and the investors who ultimately pay for this political meddling.

Moody’s Caves In to Political Pressure on Municipal Bonds is a post from Cato @ Liberty - Cato Institute Blog

Tomorrow night at 8:00pm, Fox Business News will air a John Stossel special on the failures of state-run schooling and the merits of parental choice and competition in education. I make an appearance, as do Jeanne Allen and James Tooley.

News of the show is already making the rounds, and over at DemocraticUnderground.com, one poster is very upset about it, writing:

When will these TRAITORS stop trying to ruin this country?

HOW can AMERICANS be AGAINST public education?

Stossel is throwing out every right-wing argument possible in his namby pamby singsong way while he “interviews” a “panel” of people (who I suspect are plants) saying things like preschool is a waste of money and why invest in an already-failing system….

I hate Stossel and I hate all of those who think the way he does.

This poster goes by the screen name “Live Love Laugh.” I guess there wasn’t enough space to tack “Hate” onto the end.

What this poster–and many good people on the American left–have yet to grasp is that critics of state monopoly schooling are NOT against public education. On the contrary, it is our commitment to the ideals of public education that compels us to pursue them by the most effective means possible, and to abandon the system that has proven itself, over many many generations, incapable of fulfilling them. I wrote about this crucial point more than a decade ago in Education Week, in a piece titled: “Are Public Schools Hazardous to Public Education.”

Fortunately, a small but steadily growing number of American liberals have already grasped this pivotal difference between means and ends, as the growing Democratic support for Florida’s school choice tax credit program evinces. Giving all families, particularly low income families, an easier choice between state-run and independent schools is the best way to advance the ideals of public education.

A Severe Irony Deficiency is a post from Cato @ Liberty - Cato Institute Blog

The U.S. Postal Service reported that it lost $3.8 billion last fiscal year and that it expects to lose $7.8 billion this year. The loss occurred despite cost-cutting measures and legislation that allowed the USPS to forgo $4 billion in required payments to pre-fund retiree health benefits.

From the Associated Press:

The post office has been struggling to cope with a decline in mail volume caused by the shift to the Internet as well as the recession that resulted in a drop in advertising and other mail. Total mail volume was 177.1 billion pieces, compared to 202.7 billion pieces in 2008, a decline of almost 13 percent. For the fiscal year that ended Sept. 30 the agency had income of $68.1 billion, $6.8 billion less than in 2008. Expenditures were down $5.9 billion to $71.8 billion.

The recession and the rise in electronic communications are generating huge financial problems for the lumbering government monopoly. Despite its efforts to reduce headcount, the USPS remains overburdened by a costly and heavily unionized workforce. As I noted previously:

The average USPS worker earns $83,000 per year in compensation, which is considerably more than the average U.S. worker. And the Government Accountability Office recently noted that ‘compensation and benefits constitute close to 80 percent of USPS’s costs — a percentage that has remained similar over the years despite major advances in technology and the automation of postal operations.’

Radical reform is needed, but I suspect that Congress will just paper over the problems for now and also continue allowing the agency to defer funding its retirement obligations:

The post office is required to make an annual contribution of about $5 billion to pay in advance for medical benefits for future retirees. Congress reduced that by $4 billion for 2009, but that change was for one year only. The agency’s independent auditor, Ernst & Young, questioned whether the post office would have enough money to make the next payment on Sept. 30, 2010, when $5.5 billion will be due.

This will just kick the can down the road. It shows that even when Congress gets something right — as it did with making the USPS pre-fund its retiree health benefits — it lacks the will to see it through when the going gets tough. Meanwhile, the Europeans continue to make progress toward deregulating their national postal services and allowing for competition. Unfortunately, it seems that Congress only looks to Europe for guidance on expanding the welfare state.

Government Mail Loses $3.8 Billion is a post from Cato @ Liberty - Cato Institute Blog

The Democrats who still control the Virginia State Senate (which wasn’t on the ballot this week) say they want to work with the new Republican governor.

“I won’t be like the House Republicans were, where anything they propose is bad,” said Senate Majority Leader Richard L. Saslaw (D-Fairfax), who like many Democrats says the GOP-led House obstructed the agenda of Gov. Timothy M. Kaine (D). “If there are areas where we can work things out, I’m ready, willing and able, and so is my caucus.”

But not so fast:

But asked about certain key pieces of McDonnell’s agenda, Saslaw demurred. Selling state-run liquor stores to raise money for transportation, for instance, would sacrifice the annual revenue the stores provide to schools and other purposes, Saslaw said. The Senate’s education committee remains opposed to changing state laws to allow more charter schools, another McDonnell proposal, he said.

No to bipartisan cooperation, no to competition, yes to hoary monopolies. Is that really the rock on which the Democrats want to make their stand as the country’s “implicit libertarian synthesis” yields a “libertarian moment”?

Just Say “No” to Competition is a post from Cato @ Liberty - Cato Institute Blog

I’m surprised anyone was surprised by the recent flat-lining of scores on the NAEP 4th grade math test. The rate of improvement in NAEP scores has been declining since No Child Left Behind was passed, and the recent results are consistent with that trend.

But what really amazes me is that so many people think the solution is just to tweak NCLB! The unstated assumption here is that federal policy is a key determinant of educational achievement. That’s rubbish.

We’ve spent $1.8 trillion on hundreds of different federal education programs since 1965, and guess what: at the end of high school, test scores are flat in both reading and math since 1970, and have actually declined slightly in science. (Charted for your viewing pleasure here).

If we’ve proved anything in the past 40 years, it is that federal involvement in education is a staggering waste of money.

Meanwhile, education economists have spent the last several decades finding out what actually does work in education. They’ve compared different kinds of school systems and it turns out that parent-driven, competitive education markets consistently outperform state monopoly school systems like ours. I tabulated the results in a recent peer-reviewed paper and they favor education markets over monopolies by a margin of 15 to 1.

So policymakers who actually care about improving educational outcomes should be spending their time and resources enacting laws that will bring free and competitive education markets within reach of all families. And they should be ignoring the education technocrats who — like Soviet central planners — just want to keep spending other people’s money tweaking their fruitless five year plans.

NAEP Math Scores, NCLB, and the Federal Government is a post from Cato @ Liberty - Cato Institute Blog

In a response to my post this morning, Charles Murray remains unconvinced that changes to our school system could result in dramatic improvements in educational outcomes.

He asks to see the scholarly study showing that a school has miraculously boosted achievement above the norm. In one way, this hurdle is too low, and in another it’s too high.

If we could only point to a single study of a single school, it wouldn’t instill much confidence in the generalizability of the phenomenon. A consistent pattern of scholarly results is necessary for that. On the other hand, asking for “miraculous” improvement is a needlessly high standard. My disagreement is with Murray’s earlier, lower threshold claim that:  ”reforms of the schools can never do more than produce score improvements at the margin.”

Let’s call a marginal improvement an increase of less than .15  standard deviations above the current mean (typically considered a “small” effect in the social sciences). Taking that as our litmus test, is there a consistent pattern of scholarly evidence that better school system design can boost achievement by more than .15 standard deviations? Yes.

That pattern is presented in the figure above, drawn from my recent review of the global econometric literature comparing educational outcomes across different types of school systems. The figure relates the number of statistically significant findings favoring free education markets over state school monopolies (in white), significant findings of the reverse (in light grey), and insignificant findings (in dark grey). Markets beat monopolies by a ratio of 15 significant findings to 1, across the seven educational measures for which data are available.

While a few of these findings have small effect sizes, many are above .15 standard deviations — some of them well above it. A paper by Tooley, Dixon, Bao, and Merrifield (under consideration by the journal Economics of Education Review), for instance, finds that in Nigeria private schools outscore public schools by double that amount, after controls, while ”in Delhi and Hyderabad private unrecognized schools top state-run schools in math instruction by about 2/3 of a standard deviation.” A recent randomized assignment study of the DC voucher program finds that voucher students who’ve been in the program for three years are reading two grade levels ahead of their public school peers (.42 std deviations), though the average voucher is worth only a quarter of what DC spends per pupil on public k-12 education.

These are more than marginal improvements, and they are part of a consistent pattern. That pattern strongly suggests that moving from our current monopoly school system to a free and competitive education marketplace would shift the bell curve of academic achievement significantly to the right, raising the mean achievement substantially above its current level.

No one should be surprised by that. Imagine how far the bell curve for median income across modern nations would shift to the left if all free markets were supplanted with centrally planned monopolies such as have ruined the economies of Cuba, North Korea, and until recently many other nations.

Throwdown with Charles Murray is a post from Cato @ Liberty - Cato Institute Blog

Cognitive scientist Dan Willingham has a helpful column on the WaPo‘s “Answer Sheet” blog. In it, he notes that DC Public Schools advises its employees to teach to students’ ”diverse learning styles” (e.g. “auditory learners,” “visual learners,” etc.) despite the fact that research shows these categories are pedagogically meaningless.

But what really grabbed my attention was this comment: “a misunderstanding of a pretty basic issue of cognition is a mistake that one does not expect from a major school system. It indicates that the people running the show at DCPS are getting bad advice about the science on which to base policy.”

As cognitive scientists have been collecting and analyzing evidence on “learning styles” for generations, social scientists and education historians been doing the same for school systems. What these latter groups find is that it is perfectly normal for public school districts to be unaware of or even indifferent to relevant research and to make major pedagogical errors as a result. Furthermore, there is no evidence that large districts are any better at avoiding these pitfalls than smaller ones. If anything, the reverse is true.

Not only are such errors to be expected of public school systems, we can actually say why that is the case with a good degree of confidence: public schooling lacks the freedoms and incentives that, in other fields, both allow and encourage institutions to acquire and effectively exploit expert knowledge.

Districts such as Washington DC can persist year after year with abysmal test scores, abysmal graduation rates, and astronomical costs. That is because they have a monopoly on a vast trove of  government k-12 spending. In the free enterprise system, behavior like that usually results in the failure of a business and its disappearance from the marketplace. So, in the free enterprise sector, it is indeed rare to see large institutions behaving in such a dysfunctional manner, because it would be difficult if not impossible for them to grow that big in the first place. Long before they could scale up on that level, they would lose their customers to more efficient, higher quality competitors.

So if we want to see the adoption and effective implementation of the best research become the norm in education, we have to organize schooling the same way we organize other fields: as a parent-driven competitive marketplace.

Actually, Big Mistakes Are to Be Expected… is a post from Cato @ Liberty - Cato Institute Blog

Earlier this week, SEC Chair Mary Shapiro appeared before Congress to suggest ways to fix the failings in our credit rating agencies.   Sadly her proposals miss the market, although that shouldn’t be so surprising as her suggestions appear to rest upon a misunderstanding of the problem.

The thrust of the SEC’s current approach is more disclosure, such as releasing “pre-ratings” that debt issuers may get before final issuance.  Additional disclosure of ratings methodology and assumptions is likely to be useless.  Almost all that information was available during the building housing bubble.  The problem is that the rating agencies had little incentive to go beyond the consensus forecasts of increasing to at most modest declines in home prices.  These same assumptions were the foundation of almost all government economic forecasting as well, yet few believe that forcing CBO or OMB to disclosure more of their forecasts will cure our budget imbalances.  What is needed is a change in incentives.

Here again the SEC seems to misunderstand the incentives at work, but then recognizing such would force the SEC to admit its own role in creating those some perverse incentives.  The SEC’s notion that agencies issue favorable ratings in order to gain business misses the most basic fact of the ratings business – they don’t have to compete for business, any debt issuer wanting to place “investment grade” debt has to use the agencies, and often has to use more than one of them.  Due to a variety of SEC and bank regulations, there is almost no competition among the rating agencies.  They have been given a government created monopoly.  If the rating agencies were, as the SEC proposes, competing strongly for business, then they wouldn’t have been earning huge profits on that business.  Competition erodes a business’ profits.  During the housing boom, the rating agencies continued to make ever more profits – more the sign of a monopoly than one of competition.

The truth is not that the agencies were captive to the debt issuers, but the other way around.  And like any monopolist, the agencies became lazy, slow and fat.  The real fix for the failure of the credit raters is to reduce the excessive reliance on their judgements inherent in most securities, banking and insurance regulations.  An investment grade rating should never serve as a substitute for appropriate due diligence on the part of investors (especially pension fund managers) or regulators.

End the Credit Rating Monopoly is a post from Cato @ Liberty - Cato Institute Blog

It seems U.S. education secretary Arne Duncan and British schools secretary Ed Balls disagree on the merits of national standards. While Duncan has said that homogenizing educational standards nationwide is his single most important goal while in office, Balls has just pulled the plug on the U.K.’s 10 year experiment with national reading and math strategies. He told the media:

I think the right thing for us to do now is to move away from what has historically been a rather central view of school improvement through national strategies to something which is essentially being commissioned not from the centre but by schools themselves.

The problem with saying that every 5th grader in the nation should learn the same things at the same time is that all 5th graders are not created equal. Some are better at math than reading. Some the reverse. Some are quick learners across the board. Some are slower. To deny this is ridiculous, but to acknowledge it is to admit that homogenized standards in a system that groups students rigidly by age is educational malpractice.

Even if kids were all identical automatons, national standards wouldn’t drive excellence. It is the incentive structure of the free enterprise system that has driven progress in all the fields that have actually progressed — not externally-imposed standards.

What America needs for an educational renaissance is to release schools and families from the shackles of monopoly, and re-inject the freedom and incentives that kindle innovation and efficiency. Sitting 50 million Jills and Johnnies down on a conveyor belt that drags them all through their studies at the same pace makes no sense.

Duncan Balls is a post from Cato @ Liberty - Cato Institute Blog

The Obama Administration is presenting a misguided, ill-informed remake of our financial regulatory system that will likely increase the frequency and severity of future financial crises. While our financial system, particularly our mortgage finance system, is broken, the Obama plan ignores the real flaws in our current structure, instead focusing on convenient targets.

Shockingly, the Obama plan makes no mention of those institutions at the very heart of the mortgage market meltdown – Fannie Mae and Freddie Mac. These two entities were the single largest source of liquidity for the subprime market during its height. In all likelihood, their ultimate cost to the taxpayer will exceed that of TARP, once TARP repayments have begun. Any reform plan that leaves out Fannie and Freddie does not merit being taken seriously.

Instead of addressing our destructive federal policies aimed at extending homeownership to households that cannot sustain it, the Obama plan calls for increased “consumer protections” in the mortgage industry. Sadly, the Administration misses the basic fact that the most important mortgage characteristic that is determinate of mortgage default is the borrower’s equity. However, such recognition would also require admitting that the government’s own programs, such as the Federal Housing Administration, have been at the forefront of pushing unsustainable mortgage lending.

While the Administration plan recognizes the failure of the credit rating agencies, it appears to misunderstand the source of that failure: the rating agencies’ government-created monopoly. Additional disclosure will not solve that problem. What is needed is an end to the exclusive government privileges that have been granted to the rating agencies. In addition, financial regulators should end the outsourcing of their own due diligence to the rating agencies.

The Administration’s inability to admit the failures of government regulation will only guarantee that the next failures will be even bigger than the current ones.

Administration Reform Plan Misses the Mark is a post from Cato @ Liberty - Cato Institute Blog

A tax credit bill was recently proposed in South Carolina 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 closing comments appear below, and the previous installments are here and here and here.

Rev. Joe Darby

Closing Comment

Thanks for the research and references, Andrew, but I don’t live in Milwaukee, Africa or India – I live and grew up in South Carolina, and I remember when my state resisted desegregation. I remember the news reports, white protests and rhetoric about new private schools, where white children would be "safe." Attorney Tom Turnipseed, a repentant racist in Columbia, SC, fought to create those schools and now willingly admits his prejudiced motivation for doing so. That legacy needs to be acknowledged and those schools need to demonstrate that they’ve changed before many citizens will be comfortable with them.

Many white parents who didn’t send their children to private schools in those days simply couldn’t afford to do so without governmental assistance. An irony of American racism is that poor whites have also suffered, but have been culturally conditioned to not collaborate with or trust those of other colors who have common interests.

Having said that, let me keep my promise from my last installment of our dialogue. You noted that some private school parents of modest means have found ways to augment government funding for things like transportation and uniforms. I said that I wasn’t surprised, because good parents will go to great lengths for their children’s well being – and have done so for years without public funding of private schools. My wife and I did so when we were young, struggling parents.

Our sons attended V.V. Reid Kindergarten and Day Care in Columbia, SC – a 54 year old private facility sponsored by Reid Chapel AME Church. That predominately black school has a reputation for excellence and a long waiting list, and now includes an elementary school. The tuition was – and still is – considerable, but we paid it as a matter of parental choice. They also attended and graduated from public elementary, middle and high schools – now labeled as "failing" – and are now very successful men. They attended V.V. Reid with the children of physicians and attorneys and the children of janitors and cooks, but all of those children had one thing in common – their parents paid – and still pay – the full tuition. V.V. Reid does not accept any government funds and the current pastor, Rev. Norvell Goff, says that they aren’t seeking governmental funding and don’t support tuition tax credits and scholarships. As Rev. Goff said, "Parents who care will pay the price."

That points to what most puzzles me about the fight to give private schools public money, allegedly to educate needy children. The idea’s most consistently strident uncompensated supporters in South Carolina are not those of modest means or progressive political mind set, but conservative legislators and interest groups who usually tell the needy to pull themselves up by their "bootstraps" and consistently oppose what they call "handouts" or "pork" for struggling communities. From health care to infrastructure to housing, they condemn governmental involvement in the private sector, but they make a remarkable exception for education. Could they have had a miraculous social epiphany on education, or could they possibly see a financial and social benefit for their constituents and neighbors that wouldn’t be rhetorically prudent in "selling" privatization to struggling families?

I’ll conclude our dialogue with that question, with thanksgiving that a bipartisan, biracial majority of our Senators killed South Carolina’s current privatization legislation last week, and with the wise and true words of SC Education Secretary Jim Rex – when businesses consider locating in South Carolina, they never ask, "How are your private schools." Public education does matter. I’m also sure the issue isn’t entirely dead, so be blessed, take care, and we’ll chat next year.

***

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 Coulson

Closing Comment

You wrote that "dangerous buildings can… be expeditiously made excellent and secure while occupied and before they catch fire…. The chronic inequities in public education can be expeditiously addressed with will and commitment."

"Before they catch fire"? Nearly half of all children in South Carolina drop out before finishing high school. Nearly HALF! Public schooling is burning NOW. It’s been ablaze for decades, reducing countless children’s dreams to ashes. Having another meeting to discuss fire codes would be madness. We need to get a ladder to these kids today.

And "fixed expeditiously with will and commitment"? Spending per pupil has more than doubled in real terms over the past forty years. Two generations of would-be reformers have worked feverishly to improve the system, passing one education bill after another at the state and federal levels, and introducing countless revisions to the curriculum and teacher training policies. Class sizes have been reduced, teachers’ salaries have been raised. Short of ritual sacrifices, there is nothing that has not already been tried, repeatedly, to fix the public schools.
You wrote that "studies on the success of privatization… are a ‘wash’ — each of us can find support for our positions." This is simply not true. As I’ve noted, the research findings comparing market to monopoly schooling all over the world favor markets by a margin of 15 to 1. That’s based on the most comprehensive literature review to date. Social science, while imperfect, is science. And on this point, it is unambiguous.

As for your statement that South Carolina significantly and systematically underfunds rural black districts along the I-95 corridor, I decided to check it out. Using this year’s data from South Carolina’s General Appropriations spending bill, I calculated the average expenditure per pupil: $11,815. For rural districts along the I-95 corridor, it comes to $11,743 — a difference of $72.

You’ve said that, in the wake of the civil war, some middle-class blacks excluded lower-class blacks from their private schools. If that’s true, I would certainly join you in lamenting their behavior. But who is guilty of this cruelty today? Who is currently trying to keep poor young blacks from getting easier access to private schools? The NAACP supports scholarships for low-income students to attend private colleges, but fiercely opposes the same practice at the elementary and high school levels. Who’s blocking the schoolhouse door now?

Fortunately, school choice is advancing despite such misguided opposition. There are dozens of choice programs around the nation, and the best among them are growing rapidly and with bi-partisan support. Some black leaders of your own generation, such as South Carolina Senator Robert Ford, have gotten on board. Even more of the next generation of black leaders, from Corey Booker in New Jersey to Kevin Johnson in Sacramento, are on board as well. And some of the most eloquent voices in support of educational freedom are beneficiaries of school choice.

Perhaps, if you talk with some of the tens of thousands of families benefitting from school choice around the country, you’ll be convinced to join them aboard the educational freedom train. It’s pulling out of the station regardless.

In closing, I’d like to thank you for participating in this exchange. I hope people on all sides of the debate have found it useful.

***

Andrew Coulson is director of the Cato Institute’s Center for Educational Freedom, and author of Market Education: The Unknown History.

A Dialogue on School Choice, Part 4 is a post from Cato @ Liberty - Cato Institute Blog

A tax credit bill was recently proposed in South Carolina 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. The previous installments are here and here. The final installment is here.

Rev. Joe Darby

Second Response

We agree on something, Andrew — you don’t lock kids in a burning building while you try to put out the fire. Dangerous buildings can, however, be expeditiously made excellent and secure while occupied and before they catch fire, as was the case with the first church I pastored – all it took was will and commitment. The chronic inequities in public education can be expeditiously addressed with will and commitment. The most shameful thing about my state’s five year fight for scholarships and tax credits is that our legislators have spent time, energy and resources debating privatization, but haven’t taken a single step toward improving public education. They’ve simply chosen to argue over the merits of a new house while the old, still occupied house deteriorates.

I commend your zeal in gathering and noting studies, but like Biblical Scriptures, scholarly studies can be carefully chosen, subjectively interpreted and tactically presented to gain one’s desired result. At the end of the day, studies on the success of privatization and its impact on public schools are a “wash” — each of us can find support for our positions.

I remain convinced that privatization in South Carolina would not benefit low income families. Struggling parents who could claim tax credits would still have to pay tuition “up front,” and those tax credits would not cover the tuition for most quality private schools in South Carolina. Scholarships might help, but they aren’t guaranteed. I recently learned, however, of another troubling alternative beyond the proposed law from a parent in a state where privatization is a reality. She wrote me a letter telling how she received mailings touting private schools, noting that only bad parents leave their children in public schools, and offering to put her in touch with helpful tuition lenders. She took the bait, and is now in greater debt because of predatory lenders who preyed on a mother who simply wanted the best for her child.

You also said, based on expenditures in Charleston, that we’re already adequately funding our public schools — although Charleston is now facing a $10 million shortfall for the coming school year. Look beyond Charleston, Andrew, for South Carolina’s public schools are funded with a mix of state and local revenue. We have excellent schools along our state’s urban, businesses rich, predominately white and politically conservative I-85 corridor. The I-95 corridor, however, is rural, has a limited tax base, is predominately African-American, is politically progressive to liberal, and is bordered by some of the most underfunded and needy schools in our nation.

The I-95 corridor, however, was the site of a recent blessing. A mid-western businessman was so touched by the story of the J.V. Martin School in Dillon, SC, that he donated new desks and equipment to the school and paid for their installation and for campus painting. His voluntary and genuine generosity is a reminder that businesses with conscience and good motives don’t have to wait for statutory privatization to make a difference — they can make a difference in the public schools right now.

You also noted that resourceful parents have found ways to augment government funds for their children in private schools for things like providing transportation and buying uniforms. I’m not surprised by that, because good parents will go to great lengths for their children’s well being. They’ve been doing so for years — without public funds going to private schools. I can testify to that, because my wife and I did so when our sons were young and we were struggling parents, but I’ll save that story for my last installment in our dialogue.

***

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 Coulson

Second Response

You’ve cited two historical examples to suggest that school choice might hurt kids who remain in public schools. But as I noted last time, the evidence from actual choice programs shows that doesn’t happen.

Still, let’s take a closer look at the historical record. Public schools discriminated against and segregated black children for more than a century. Worse yet, an 1850 Massachusetts supreme court ruling upholding segregation in public schools was a key precedent cited by the U.S. Supreme Court to establish the “separate but equal” doctrine in Plessy v. Ferguson (1896). Jim Crow laws rested, in part, on a legacy of racist public schools.

It was common in the 19th century for public schools to require reading of the Protestant King James version of the Bible, and Catholic children who refused were sometimes whipped or beaten for the offense. Such punishments were upheld by the Maine supreme court.

And while it is true that some racist whites tried to use private schools to flee integration, their more common tactic was to move to areas where the public schools remained overwhelmingly white. As I wrote in Market Education, “during the height of white flight… total private school enrollment actually decreased by 17 percent (public enrollment also decreased, but only by 3 percent).”

Public schools today may be somewhat more racially integrated than private schools in the earliest grades, but private schools are more integrated at the end of high school — no doubt in part because public school dropout rates for black students are astronomical. Private schools have repeatedly been shown to significantly raise graduation rates over those found in public schools, even after controlling for other factors, especially for minority children. And when it comes to truly meaningful, voluntary integration — the peers kids choose to sit with in school lunchrooms — private schools are significantly more integrated than public schools.

A few years ago, a friend of mine was seeking support for school choice among community leaders in the rural south. At one home, the man asked my friend: “So, black kids would be able to attend private schools like the one my kids go to?” My friend answered yes. “And they’d be prepared for the same kinds of jobs as my kids?” Again, my friend said yes. “Well now, I don’t think I can support that,” was the man’s reply.

That was an uncommon reaction, but it offers a glimpse into the mind of the modern racist. They see the upward mobility offered by school choice as a threat.

And there’s no need to make dubious analogies to the banking industry to understand how markets work in education. We can simply look at real education markets in action. Consider the new book The Beautiful Tree: A Personal Journey into How the World’s Poorest People are Educating Themselves. From the shanty towns and fishing villages of Africa, to the slums of India, to the rural farming villages of China, the poor are already abandoning public schools that have failed them and setting up their own private schools. These entrepreneurial schools outperform the local public schools at a tiny fraction of the cost, and the parents love them.

The higher labor costs in this country put private schooling out of reach of many poor families, but an education tax credit bill would change that.

You asked why we can’t fix the public schools before offering parents such a choice. The answer is simple: the way you “fix” a monopoly like public schooling is to inject consumer choice and competition. In other words, school choice IS the solution. We can’t fix public education without it.

 ***

Andrew Coulson is director of the Cato Institute’s Center for Educational Freedom, and author of Market Education: The Unknown History.

A Dialogue on School Choice, Part 3 is a post from Cato @ Liberty - Cato Institute Blog

The AP reports today that president Obama wants the nation’s school districts to close 5,000 failing schools and re-open them with new principals and teachers. Here is why this won’t work:

• Typically, public schools only dismiss teachers when they are forced to reduce their workforce for budget reasons, but the president has just infused the system with $100 billion to prevent such dismissals. And when teachers are let go, it is done starting with those with the least seniority, not the lowest performance. So the hundreds of thousands of teachers displaced from failing schools will simply move to other schools rather than being replaced by better teachers. This has been going on for decades. It is called “the parade of the lemons.” Overall, it achieves nothing.
• The new principals who take over the formerly failing schools have to come from somewhere. So for every school that gets one of the system’s “good” principals, there will be another school that loses one. Public schooling has no incentive structure to ensure that it can identify, hire, and retain competent administrators to strengthen its ranks.

What the president is trying to do in education — as in the auto industry — is to replace the web of market forces that close failing businesses in the private sector with his own personal diktat. This is Hayek’s Fatal Conceit.

The market solves the problem of failing schools by allowing consumers to chose the ones that serve them best, which simultaneously accomplishes two things: it drives failing schools to either improve or go out of business, and it provides incentives for the expansion of successful schools and the hiring of effective teachers and administrators.

As I wrote here, and in expanded and updated form in vol. 3, no. 1, of the Journal of School Choice, the international scientific evidence reveals the overwhelming superiority of market over monopoly schooling. President Obama’s educational dirigism will fail.

Barack Obama “Fatally Conceited” on Education is a post from Cato @ Liberty - Cato Institute Blog

Many people would agree that modern-day Somalia represents a Hobbesian state of nature. But could anarchy strengthen Somalia’s private sector? This article is certainly very old, but I came across it yesterday and thought the argument would be of interest to political theorists and classical liberals:

…local businesspeople find it easier to do business in a country where there is no government. “There is no need to obtain licences and, in contrast with many other parts of Africa, there is no state-run monopoly that prevents new competitors setting up. Keeping price low is helped by the absence of any need to pay taxes.”

Of course, the absence of a stable and legitimate political and judicial system, compounded by unyielding internecine violence, means individual and private property rights can never be fully protected and we aren’t likely to see foreign businesses flocking to this chaotic country in the foreseeable future. Generally speaking, the proper role of government is to protect individual rights. But the proper role of our government — abroad — should be limited to instances when our national sovereignty or territorial integrity is at risk.  As exemplified in Somalia, America’s attempts to stabilize failed states or pacify foreign populations usually fail, exacerbate already disastrous situations, and are, in principle, gratuitous abuses of American power [See: the calamitous U.S.-backed Ethiopian invasion of Somalia].

Adam Smith Goes to Somalia: “Competition Keeps Prices Low” is a post from Cato @ Liberty - Cato Institute Blog