More Money Alone Will Not Improve Public Education

Before concluding that parental choice in education is the best improvement to the system, we should at least consider one alternative: that simply devoting more resources to traditional public schools will dramatically improve their performance. That question has been conclusively answered. Indeed, now even mainstream economists accept that simply spending more money on traditional government schools will not significantly improve education. Edward Gramlich, the Dean of the Public Policy School at the University of Michigan, and a former Acting Director of the Congressional Budget Office, has long been concerned about lagging national investment in human and physical capital. He notes in his 1992 Brookings Distinguished Lecture on National Priorities:

Two types of public consumption seem especially in need of attention—education and health care. In both cases, aggregate measures of performance are lagging badly. In both cases, this lag is in the face of big increases devoted to the problem.

Take first education. There John Chubb and Eric Hanushek make a powerful argument that further resources devoted to the problem without structural reform will simply make the nation’s schools more expensive, not better. Their macro argument is that over the last 30 years real expenditures per pupil have tripled but most measures of test performance have dropped sharply. Their micro argument is that most careful research studies have simply not found any relationship between resource inputs and output measures such as achievement test scores. Presumably the missing ingredient here is some form of performance incentive, but even this is not very clear.45

Gramlich confirms what free-market advocates have been saying for some time: simply putting money into the current system has not worked in the past and will not in the future.46 More recent work, including a comprehensive analysis of Michigan schools by Dr. Allen, again finds a weak relationship between increased expenditures and improved school performance.47

Gramlich, writing in 1992, was not yet convinced performance incentives were the answer. Today, the case for performance incentives is clear and compelling. Indeed, more aggressive reformers go well beyond the parental choice plan proposed herein. They argue that the government school system has completely outlived its usefulness and should be totally replaced. Lewis J. Perelman, in School’s Out, argues that choice is essential, but does not go far enough:

However, the need not merely for "choice" but for commercialization of education has been overlooked by most would-be reformers. We need commercial choice and competition in schools first to goad technological innovation—the profit motive is essential to reward the creation and provision of productive technologies.48

While Perelman argues for outright commercialization, Dr. Allen argues for a new framework of public ownership of schools, in which competition on price and quality would drive the system:

We advocate provisions by which all K through 12 education will be non-governmentally operated. We propose to eliminate all jurisdictional barriers to school selection. No single structure of educational governance would be imposed by the State, even as the State preserves its commitment to equitable funding for Michigan students. Schools will be owned by individual shareholders, who will operate each school acting through their respective boards of directors.49

Thus, we need to change the incentives if we hope to change the outcome.

Even though it is not in the best interests of parents and students, the typical politician responds to the powerful calls for more money for a system that is protected from outside competition. Mainstream economists now accept that simply spending more money on traditional government schools will not significantly improve education.

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