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Tuesday, January 31, 2006

Adding Insult To Injury

In my home state of Vermont, Governor Jim Douglas has proposed that a supermajority of 60 percent be required to increase a local school budget by more than 3.5 percent.

In "Boilers, pressures and budgets" (http://www.rutlandherald.com/apps/pbcs.dll/article?AID=/20060129/
NEWS/601290303), William J. Mathis, superintendent of the Rutland Northeast Supervisory Union, writes that

. . . education cost increases are driven by factors outside of local school's control.

As examples of these cost increases, Mathis cites inflation, the increased costs of fuel and healthcare, and the costs of unfunded federal and state mandates (e.g., special education, No Child Left Behind).

Mathis himself acknowledges that many of these problems are caused by government:

. . . the cost increases are primarily driven by state and federal laws and policies.

So, since most of the cost increases have been caused by government intervention, what does Mathis propose as the solution to the problem? You guessed it: Mathis proposes to solve the problem by piling on even more government intervention!

. . . if the governor and our state and national leaders addressed health care, energy policy, special education, unfunded mandates, inflation and skyrocketing real estate values, school costs would be less and the benefits would multiply across all elements of our society.

The solution to cost increases that have been driven by government intervention is to undo those government interventions, rather than to add insult to injury by introducing new interventions on top of the old.

In the meantime, schools could live with cost increases under a 3.5% cap by using less of whatever products and services have increased in price. After all, isn't this how we're supposed to respond to price signals? E.g., if the price of gasoline increases, isn't that supposed to be a signal to consumers to use less gasoline (i.e., that consumers should economize on their use of gasoline) and a concurrent signal to producers to produce more gasoline?

If healthcare costs more, buy less of it by eliminating unnecessary staff. If fuel costs more, buy less of it by turning down the thermostat, taking advantage of passive solar as much as possible, etc. Or substitute cheaper fuels where possible. And figure out ways to substitute products and services that have not increased in price (e.g., information technology) for those that have.

Businesses deal with many of the same cost drivers. Businesses, however, do not have the luxury of passing on 100% of their cost increases to customers. In the market economy, the price paid by the consumer is not identical to the sum of the costs borne by the producer. Instead, the price paid by the consumer represents the value the consumer sees in the product or service in question. If a business's costs go up by 5%, it might not be able to increase its prices at all because the consumer most likely will see no increase in value. If some of the products and services that a business uses increase in cost, the business must use less of them (economize) or reduce costs elsewhere if the business wants to preserve its margins and stay in business.

Mathis is asking the public to pay a higher price for a service that has not increased in value. In fact, the value of this service is actually declining because, as Mathis himself acknowledges, "Vermont student numbers are going down".

If anything, Governor Douglas is being too timid by asking for a supermajority to approve any increase in a local school budget of more than 3.5 percent. The supermajority rule should apply to any increase at all. After all, with student numbers decreasing, even a constant school budget represents, in effect, an increase in spending.

But there is a more fundamental question lurking in the shadows: What is the correct price for K-12 education? Is it the sum of the costs borne by the schools, as Superintendent Mathis would have it? Or is it no more than 3.5% higher than last year's cost (unless approved by a 60% supermajority), as Governor Douglas would have it? Or is the correct price a lot less than last year's cost?

The answer to this question is as follows: Without a truly free market in education, we can't answer the question! Until government gets completely out of the business of running and financing K-12 education and parents are free to choose from among a large number of competing, privately owned schools, we'll never know what the price ought to be.

Of course, families are not identical and will not be looking for the same K-12 "product", so there will be more than one "product" and more than one price. In other words, once the government gets completely out of the education business, there will be a much larger variety of K-12 "products". Each will be priced correctly because parents will voluntarily pay the price charged for a given "product" only if they see that the value of the product meets or exceeds that price. Competition among schools will encourage educational entrepreneurs to find ways to cut costs while maintaining or increasing the value of their products.


Blogger Harp Maven said...

This comment has been removed by a blog administrator.

1/2/06 04:43  
Blogger Harp Maven said...

This comment has been removed by a blog administrator.

1/2/06 04:45  
Blogger Harp Maven said...

Number 12 - too much faith in the market. Also, I don't think that a solution to increasing health care costs is to cut staff. Doesn't it depend upon whether or not there is excess staff? Given your views on public education, I can understand where any staff in a public school is excessive! However, given that the schools exist, the number of staff should be determined by the needs of the school, not health care costs. Passing on some of the cost of health care to the staff would seem like a more doable solution. Also, turning down the thermostat is reasonable to a point. I do not support public education. However, knowing that it's not going to go away over night, I would propose solutions that will not have every parent who supports public education responding to your comments as the product of irrational thought. Rather, continue with the question of the decreasing number of students, and how that can save money in some areas which can be transferred to those areas like fuel and health care that are rising precipitously. Then you might suggest that public funding of education may not be able to support the education that parents want for their kids, and that privatizing the educational system would, in fact, give parents more control. Don't we all like to feel we have some control over our kids' education, and the the quality shouldn't have to be linked to healthcare costs for staff and the price of fuel? Because as more money is needed for the peripheral costs, the kids' education will inevitably suffer. I'll continue to think about what you wrote. Thanks!

1/2/06 04:48  

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