TCS Daily


The Big Three

By Arnold Kling - January 18, 2007 12:00 AM

"We have been inexorably centralizing control over the schools in this country for 150 years. We've gone from one-room schoolhouses overseen directly by the parents of the children who attended them to sprawling bureaucracies that consume half of the operating budgets of their respective states. We've gone from 127,000 school districts in 1932 to fewer than 15,000 today -- despite a massive increase in the number of students."
-- Andrew J. Coulson

Education is an example of an issue where free-market proponents were betrayed by the Republicans during the Bush Administration. In fact, on the domestic issues that I consider important, my take on the Republican Party in the 2006 elections was, "With friends like you, who needs enemies?" This essay lays out what I would like to see on the agenda, and how I will be keeping score.

I start by taking seriously the forecast of economic historian Robert Fogel, which is that our economy will be increasingly dominated by education, health care and leisure. Therefore, the focus of the free-market agenda should be on limiting government's encroachments into those areas. The encroachment comes from public education, government spending on health care, and government management of retirement savings.


The goals of the free-market agenda should be:

1. Increase the proportion of children who are schooled outside of the public school system.

2. Increase the proportion of health care spending that is paid for directly by consumers.

3. Limit the fraction of people's lives where they collect Social Security.

If the Republicans want to win my enthusiasm, they need to convince me that they will make a difference on these indicators. (For those readers on the Left, I should hasten to add that I am all in favor of education, good health, and retirement security for all Americans. I believe that those goals would be better served by market-oriented policies than by government expansion.)

Education

The current state of education is that only 10 percent of children go to private schools, with 2 percent of children home schooled. Thus, K-12 education is dominated by public school systems, which have become less and less responsive to parents, and increasingly under the thumb of (non-)teachers' unions, which in turn are diverting school budgets away from actual classroom teachers.

For example, in Montgomery County, Maryland, where I live, the local newspaper gave the following figures about the school Budget: total enrollment, 137,798; total employees, 21,840; total budget $1.98 billion; percent of budget devoted to employee compensation, 89%.

Using those numbers, it is easy to calculate that the ratio of students to employees is 6.3, even though the typical class size is probably 4 times that amount. A clear inference is that most of the employees are not classroom teachers. However, these non-teaching staff are well compensated, since another exercise in simple arithmetic shows that the average compensation per employee is $80,686.

As a parent, I have observed that the really bad teachers and the really good teachers are destined for administrative positions. For bad teachers, administration is a place where the County can hide them. For good teachers, administrative positions are a reward, offering higher pay along with freedom from the extra workload of classroom teaching (the non-class time required to grade papers, prepare lessons plans, and so on) as well as its emotional stresses.

Politically, the teachers' union towers over our state and our County. The 21,840 employees are organized and focused. Parents and taxpayers are not. We are the victims of the trend, documented by Andrew J. Coulson in the quote with which I began this essay, toward large school districts, with decision-making increasingly removed from local schools.

In my view, articulated years ago, the No Child Left Behind Act is a step backwards. It takes power even further away from parents, and locates it in Washington. How did my County react to NCLB? By creating new positions of NCLB testing co-ordinators. Just what the union featherbedders needed -- another excuse to add non-teaching staff.

If I wanted to create an industry with poor performance characteristics, I would set it up like the public school system. I would create a monopoly and set up an institutional structure that entrenches producers while marginalizing consumers. I would locate decision-making power at an ever-increasing distance from those affected by the decisions.

The only education policies that belong on the free-market agendas are those that make it easier for parents to escape the public school system. Examples might include vouchers for parents with low incomes and education tax credits for parents with moderate incomes.

Health Care

The state of health care is that two Republican governors, Mitt Romney and Arnold Schwarzenegger, have proposed major expansions of government involvement. As far as health care in America is concerned, the concept of individual responsibility belongs on the endangered species list.

For the Left, the virtue of socialized medicine is that it causes the healthy to share the burdens of health spending with the sick. If so, then America already has one of the most socialized medical systems in the world. Of our considerable health care expenditures, 85 percent are paid for either by private health insurance or by government. In most other countries, including Canada and many European nations, the fraction of medical bills paid for by consumers out of pocket is higher than in the U.S.

The free-market agenda would include health insurance deregulation, elimination of the tax subsidy for employer-provided health insurance, and replacing Medicare with remaining-lifetime catastrophic health insurance (these proposals are explained in Crisis of Abundance).

Social Security

The state of Social Security is that the portion of life as a government dependent is heading upward. Since Social Security was enacted, the number of years that a 65-year-old can expect to live has increased by 25 percent. Longevity of 65-year-olds appears to be increasing at the rate of about one year per decade.

Politicians have been arguing about Social Security reform for years, and the argument is likely to continue. However, with a fixed age of government dependency (the so-called "retirement age"), the system defaults to having more and more beneficiaries, paid for by a worker base that is increasing much more slowly. Under a scenario of modest economic growth (a conservative assumption), this results in an actuarial deficit for Social Security, necessitating higher taxes, since no one will want to cut benefits for existing recipients.

The policy that I would like to see is to have the age of government dependency raised for everyone age 50 and younger to a level that brings the expected number of years of government dependency back to what it was in 1935, when Social Security was first enacted (that probably means somewhere around age 70). The age of government dependency would then be indexed to longevity going forward. Incidentally, such a change would eliminate most of the actuarial deficit in Social Security, even under a relatively conservative scenario for productivity growth.

With no adjustment to the age of government dependency, improvements in health result in automatic increases in the amount of income transferred under Social Security. This threatens the financial viability of Social Security. And it has no economic or moral justification.

A Message to Republicans

From a free-market perspective, there are plenty of "nice-to-haves." These include tax reform, free trade, abolition of farm and energy subsidies, and deregulation in a number of areas. However, the Big Three are education, health care, and Social Security. Over the past six years, we have moved backward on all three, due to a combination of demographic changes and policy moves. My personal message to Republicans is that I care more about what happens on the Big Three than about whether you hold power.

Arnold Kling is an adjunct scholar with the Cato Institute.

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29 Comments

Education
I suggest K-12 "public" schools be correctly identified as government schools. Private schools for the most part are public, that is, they're are open to the public. Their primary qualification for entering is the ablility to pay for the service.

The Little Two
Immigration - None of this wall garbage, and quit demonizing Mexico.

Free trade - renewed vigorous support for free trade agreements. If Mexico is such a problem, then how can we encourage more trade to raise its standard of living. Capitalism is our most powerful diplomatic weapon for this century. Strengthen our sphere of influence in the Western Hemisphere via free trade.

Corruption And Mexico
The fact is: the unsecured border with Mexico is a corridor for unamerican illegal migration, and the transport of illegal drugs.

The Mexican government strongly opposes the wall along the border. Latin American groups encourage illegal immigration. The policies of Mexicans are directly related to a cash flow of millions of dollars daily from the sale of illegal drugs. As long as people can get across the border, illegal drugs can get across the border.

build the fence - - - -
Drugs, per se, are not the problem, if people insist on poisoning themselves, against our advice, that's their own regrettable personal medical problem to be dealt with.

The vicious,illegal drug trade corruption, which grows out of misguided anti-drug laws, is a big problem, as it was before we wised up and prohibited prohibition.

We must control our border with walls, machine gun towers, mine fields and moats filled with alligators, if necessary. The commodity we must not let cross the border is the southern culture of corruption and big-government dependence. Guest workers should be welcomed with dignity, and thanked for their contribution to a better life for us all. Their employers should be held financially and legally responsible for their monitoring and managing, according to lenient guest worker laws, keeping them off welfare. They should be able to earn US citizenship (not dual), if they wish, over a long period of demonstrated good behavior. Babies born to illegal aliens should not automatically and magically become citizens.

with all this will come "homeland security" and mutual prosperity. Problem solved.

But then
Really they are both public.

AMERICAN WORKERS FIRST
In my opinion, guest workers don't require the right to become U.S. citizens. It is important that a guest worker is an educated individual who can assimilate into the American mainstream, and guest workers should be chosen from countries around the world with largely educated populations. U.S. businesses SHOULD NOT import uneducated unskilled workers. A segment of the U.S. population expresses the sentiment that uneducated migrants from Central America become guest workers. Those unskilled laborers increase business profits in the short run (performing at a low wage), but they lower the standards for U.S. citizens. Don't overlook the fact a large percentage of American workers sometimes require a job- even when they are overqualified for a position they must except in a rapidly changing national economy.

No Child Left Behind
Many of my Republican friends were aghast that the man they voted for would push such a far left agenda item as NCLB. I responded that they should not have been surprised the Bush was a liberal. I said after all in his family the term “voo doo economics” is used to describe what most economists call “laissez-faire”.

The Republicans have moved far to the left the last 6 years. NCLB is just one example of haw far left the GOP has gone. The move is really dumb in that they have not got much more $ from the teachers unions the last 2 elections than they did when they were a conservative party.

Education is not equal to schooling.
IMO it is important to always make a distinction between education and schooling.

Education is still dominated by non-government organizations like the family companies, friends, churches etc.
Not for profit schools are more an avenue to gain credentials rather than an avenue to gain knowledge and skills.

Since for obvious reasons for profit schools do not like to give anyone bad grade we need find ways to separate credentialing from education. IMO employers should pay for credentialing while individuals should pay for education. Education can generally be done very cheaply like through books, TV, Tutors, apprenticeship and the internet because it does not require much supervision. Schooling which I call “the long test” cost more per time segment but IMO can be done in a relatively short period of time say 6 months to a year max, credentialing for some tasks can be done in hours through a written test some can be done on the job through a trial period.

Welfarize and minimize SS
Welfarize and minimize SS

Make the amount received the same for everyone a little above the current minimum, collect the tax on all income not just on wages below 90K. This will Welfarize and minimize SS.




Excellent essay
Cogent and well-reasoned. Thanks for sharing.

My sister was home-schooled for most of high school, and was able to get a much better education than the public school system would have given her.

I think many people would be surprised how easy, effective and parent-directed home-schooling can be; pre-planned curricula are widely available and home-schooling groups meet often. In many ways it's a throwback to the parent-directed schoolhouses of yore.

In the above post I forgot to say then reduce the SS tax..
...

Security and Immigration
Congress (or the American People directly) should decide who and how many immigrants/guest workers are allowed into the country each year. As things are, the absense of security enables the illegals to make the decisions.

The Prime Directive should be security...then, an ongoing process of selecting, processing and monitoring guest workers and new citizens.

The war on drugs shows that in democracy the majority...
..has far too much power over the minority.

Big Three Fixes
The FIXES that I would support for Education, Health Care and Social Security

Education...Establish standardized testing to validate learning at critical levels, such as entrace to first grade, exit from 5th grade, exit from 8th grade and
graduation from high school. Schools should be seen as one of many tools to aid students in passing the tests. Phase out the public k12 system that is not directly supported by demand from students/parents for educational services. In the case of proven hardship, provide direct voucher support.

HealthCare...
1) Health Insurance
Scrap all current legislation on health care insurance and start over from scratch. Support the establishment of private buyer co-op's for consumers and define health care as interstate commerce covered under the Constitution. These co-op's would provide pricing, vendor and other services to members for a fee. Employers should be encouraged by tax policies to support employee participation in the Co-ops via matching funds. Otherwise, companies and organizations would be out of the health care business. In time, phase Medicare and Medicaid into the co-op marketplace, providing appropriate direct subsidies as needed.
2) FDA
Reform the FDA by re-legislating it as a consumer support organization that evaluates and rates foods, drugs and treatments. Final decisions should be left to the consumer.

Social Security...Eliminating the actuarial SS deficit is an improvement...but falls far short of the optimal alternative. SS is a financially inferior method of funding retirement. My analyis based on very conservative assumptions indicates that a private program would provide at least double the current benefit for the same employee/business constributions. Fixing SS involves a long term plan to phase SS into a required National Savings Plan, with favorable tax rules similar to 401k and IRA plans. A transition period of up to 75 years may be necessary. Those participating in the new plan starting as teenagers, can anticipate being financially independent within 50-100 years (depending on their lifestyle requirements). The goal of the new plan is financially independent Americans, not nearly destitute Americans eking out a living on a $1,200/month.
And finally, establish a separate mandatory insurance program for disability...or spin-off the function to the private sector.

Build a wall around California!
I have a buddy who consults with schools on Indian reservations in Arizona and New Mexico. He lives in Colorado and flies down for a week, then drives from location to location. Last month, in Arizona, he had the misfortune of renting a car with California plates. And he was pulled over 6 times because CA cars on the back roads are "typically" running drugs. Let's assume that's a fairly accurate assessment

So by your logic, we should wall of California from adjoining states, because as long as Californians can get across the border to Arizona, there will be illegal drugs. Maybe you could get illegal Californians to build your wall for you ;-).

Why is the biggest cash crop in the United States marijuana? GM doesn't even make cars that run on it, and the pro-marijuana lobbyists are stoned more often than not. Invoking illegal drugs to support a wall on the Mexican border is a sad, sad excuse for whatever sentiments you harbor about Mexico and its people.

Reforming our social insecurity program - - -
Social security is a government-caused crisis, and a Ponzi Scheme. (Thanks a lot, FDR!!) Our workers are now being robbed, by SS, of 12+ per cent of the wages they earn, which is depriving them of money they could then be saving. This loot is not even saved to help them in their dotage. It is spent, immediately, by our greedy politicians to buy votes to keep themselves in office.

If a worker could just opt-out of SS and have his 12+% placed in an ordinary savings account, conservatively invested, with compounding interest, we'd then be retiring working-class millionaires. Imagine the newly prosperous world we'd all have then. (We have actual examples of this, now, where workers wisely took an opportunity to opt out of social security a few decades ago.) They can retire much more comfortably on just the account's interest payments, than they could grubbing for government social security payments. When they die, their kids can fight over the principal in the account.

I encourage you to look into this and do the math yourself. It's not that hard, and there are web sites that will help you with it, (CATO's, for one). Now, what about the donut holers caught between the systems in the change-over, before the accounts kick in? One thing the government is real good at is borrowing money. We can finance the change-over with debt that will be much less than the debt that will be required to maintain SS.

Individual responsibility
Arnold tells us he's all in favor of good health security for all Americans. Yet he can recommend in the same breath that we "Increase the proportion of health care spending that is paid for directly by consumers".

This obviates the fact that a huge proportion of bankruptcies and crushing debt burdens are precipitated by medical emergencies where our existing coverage is inadequate to keep families from falling into debt that often spirals above a hundred thousand.

Yet simultaneously we want to keep the minimum wage at $5.15 and make people pay more for their health care.

Let's see-- a one hundred thousand dollar hospital bill at $5.15 an hour means that if the debtor stops eating and lives on a park bench, he can pay off his hospital debt in nine and a third years.

What's wrong with that? Plan B, he can choose to die, and save us the trouble of caring.

Public or private
I see. So it would be like a public swimming pool versus a private swimming pool.

Meth
The quickest way to save a lot of money is to decriminalize (NOT legalize and tax) all drugs and enforce harsh penalties for those who injure proterty or person while under the influence. None of this 'it's a disease' cra*.

One big drug problem is 'meth' which is home grown.

And much of the money going south of the border is money being transferred back home. Notice all the Western Union locations with forms in Spanish or other languages depending upon where you live.

US could tax that but the big banks make a lot of money on those transfers.

I still believe if we let all with valid passports into the country, and let them work for whomever they want for up to five years, there would be an initial surge of immigration to the USA. But I would submit there would be a significant backlash by those countries who are losing their best and brightest to the USA. They just might start to clean up their acts to attract all their expats to return home and invest and build an economy.

The Real Big Three: Life, Liberty and Health...
It is interesting that Education, Health Care and Social Security drop so neatly into the government's fundamental agenda. Indeed the former Department of Health, Education and Welfare covered a lot of this same ground. This list created by Dr. Kling pretty much defines and embodies the sovereign's domestic obligations.

It is hard to argue that these matters are not the business of the government. Life, Liberty, Health and Property are mankind's unalienable natural rights, appropriated by the sovereign and bound to be protected by each government...or its people have the right of rebellion. (Easier to say in the 17th century.)

Now comes Dr. Kling to say that the Republicans will be measured (by him) and judged harshly if they do not:

1. Increase the proportion of children who are schooled outside of the public school system.

Rather than to do a better job with education, to simply do less of it.

2. Increase the proportion of health care spending that is paid for directly by consumers.

Rather than to make improvements in health insurance, health care costs and Medicare, to simply throw this immense, crushing burden onto individual households.

3. Limit the fraction of people's lives where they collect Social Security.

Rather than to reduce government spending for pure consumption such as the Defense Budget now that the Social Security Tax surplus will (sometime this century) no longer be available to sweep into the general fund, rather than to simply suck it up and make good on its obligations, to simply renege.

Life. Take away meagre social security benefits from some people and you take away their ability to pay for their day to day survival.

Liberty. Give up on public education and you force a substantial number of our people deeper into the slavery of low paying jobs and hopelessness in this land of great wealth.

Health. Health Care! Health Care Costs! Is it the fault of our people that the Health Care Industry has priced routine (as well as extraordinary) services so far out of the reach of virtually all American households with the assumption that the Health Care Insurance Industry stood ready to make their small fortune bleeding our economy month after month? No. Financial economics did that while financial capitalism made all of us rich. It is simply too late for the government to burden us with these costs and to destroy the Health Care Industry at the same time because we, indeed, could not pay and we, therefore, must abandon our medicines, our surgical procedures and, thereby, die. A return to the fundamentals of supply and demand at this point, with healthcare, is unthinkable.

Life, Liberty and Health, Dr. Kling. These are the Big Three. You would have the government fail to keep its part of this bargain because they have not done a great job of it up to now? No. Let's make them keep doing it until they get it right.

If we want to step away and take care of these things for ourselves, then we should and some of us will do just that. But not because the American government has stopped trying to live up to its obligations to the American people.

Government Obligation
Education, healthcare and retirement are consumer products...like water, hamburger, pillows, 42" HD TV's and Hummers. They are NOT the responsibility of governement under the US Constitution. Congress (with court complicity) has added seemingly endless "rights" via legislation over the years. While their legislative goals are understandable, their choice of Government as provider/guaranteer of consumer product is inefficient and must fail in the long run.

This error can only be fixed by spinning off the functionality of the welfare state to the market. Healthcare, Education and Retirement services will be optimized when consumers are in charge.

My Plan
A summary of my proposal to improve Social Security is at http://tabonfils.com/20050313.htm.

Forest what about food it is very important to life..
... for that matter so are shelter and clothing.

There is no end govenments role in life liberty and health as you define it.

Also I find your arguments very shallow. IE you write "Take away meagre social security benefits from some people and you take away their ability to pay for their day to day survival. " Arnold does not even propose to take away social security from the needy.







No Subject
Good points, Flocie & taB. forest is stuck in a previous, unenlightened era. He does not understand that the government cannot 'give' us anything. It has no resources of its own that it does not first rob from us in order to 'give' to us. Communism and socialism have failed, and for good reason. That's why there is manifestly such a strong corelation between freedom (from taxation) and prosperity, internationally. forest should immediately decamp for the socialist workers' paradise of Cuba, where he'll feel right at home, before it also becomes liberated and free.

I'll vote for that!
so would a lot of Californians. In the 70s and 80s we were calling for the fencing of California and declaring it criminally insane. BUILD THE WALL!!

If you want to socialize SS right
You must also deny SS to those who have more than, say, $1 million in investments and savings or those who mode more than, say $10M lifetime (they should have put some away). If you begin with a base payout of around $3K a month and then increase it 2% annually, you would also bring those who lived in, or near, poverty all their lives into the vaunted middle-class in their "golden years".

If you think you can get all that to fly here, let alone in Washington, go for it. Somehow I doubt it.

The implied contract...
In America the reasonable expectations of our citizens now include Health, Education and Social Security. If we had been living under a government (all along) that was not taking such a large portion (30%) of our immense GDP then we should not have come to expect such domestic programs (as promised) at this point and as a result of our hard work for the past 200 years.

I agree that many of us would rather take responsibility for these matters ourselves. Eventually all of us might be wealthy enough to do this and I would like nothing better than to see the government get out of our personal business. The government programs are not better, faster or cheaper, regarding many of these matters, than we might provide for ourselves.

Nevertheless, as unincorporated individual households with all of the adults working as much as possible just to cover cashflow obligations here in America, typical workers cannot pay extra amounts to educate their children, pay their own medical expenses (without affordable health insurance) and save enough for retirement or disability after the job market no longer has work for them.

If, however, we are able to restructure society so that individual households incorporate as partners into larger, sustainable economic and social entities, then direct labor workers should be less dependent on the government and our government might be able to get along without all this tax revenue.

But we cannot throw these people out onto the market two years from now if Dr. Kling decides that the Republicans are not moving fast enough.

And, healthcare is not anything like a Hummer.

Let me not get too much deeper, then...
Fortunately, Floccina, we did not get into any of the details, here, because you missed the simple points entirely.

If some people have virtually no income because they are either disabled or have retired before Dr. Kling's Social Security thresholds are reached then they will not be able to afford food, clothing and shelter during those years. Survival! Floccina.

Dr. Kling proposes that Social Security benefits should not engage until age 70, as of now, and even later if life expenctancies continue to increase. So that the number of years old people are projected to survive on Social Security will remain the same. How should these people survive past the time they are forced into retirement from the workforce until they reach the age of 70? Deep enough for you?

Don...you are such a moron...(I mean that in a nice way)...
OK. Mr. Vandervelde...you come to power and then you stop taking all these tax revenues from us and we will take responsibility for our own health, education and social security. Until then, Mr. President, live up to your part of the bargain. We have been paying for it. You better figure out a way to deliver your end of this deal.

And, Don, just in case you have some sort of illusion about who owns you and everything you think you have a title to, just try not paying those taxes and see what happens to you.

Oh. Right. You can vote for someone who will change all that. Because we have a really super, free democracy here. Well, Don, make sure that this mytical politician of yours is already in office, that the tax laws have been revoked and that there has been an appropriate period of judicial review before you thumb your nose at the sovereign.

Communism failed because it did not enjoy the mechanisms (money and banking) of financial capitalism. Not because they had high taxes. On the other hand they did have a Gulag for any morons who thought that they were particularly free. Here, we call it Federal Prison.

And exactly which nation are you talking about where there is "a strong correlation between freedom (from taxation) and prosperity"? Don? Here in America? How about the Philippines? Where is that? We want to know. Because we will all move there, won't we?

Are you prosperous enough here in America that you feel free from taxation? What in the world are you talking about? Who are you comparing us to? Denmark? Yea. Denmark's a great example, there. Don.

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