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Thinking
Outside the Box
Alice in Wonderland Economics
Dr. Chuck Ormsby
(06/05/07)
Alice in Wonderland Economics I went shopping last
month for some meat to grill on Memorial Day and was not
surprised to find that prices varied from around $2 per
pound for the lowest grade of hamburger to well over $10
per pound for filet mignon. I guess you get what you pay
for.
The same was true a couple years ago when I went shopping
for a new SUV. I picked out one for about $25,000 but had
choices ranging from $18,000 to well over $50,000. Sizes,
features, and qualities varied, but again, the prices
seemed to generally reflect the overall value received.
Whether you are looking for a new cell phone, a
large-screen TV, a house, or a leather couch, you are
routinely faced with a well-ordered price-value pattern.
OK Alice, are you ready to jump down the rabbit hole of
public monopolies?
With such common sense pricing all around us, it is not
surprising that advocates of greater spending in our
public schools rely on the publics presumption that
you get what you pay for when they advocate
increased taxes. It seems to be a potent argument
until you look at the facts.
At the end of this article I provide data that
definitively shows there is no relationship between the
dollars spent per pupil in our public schools and the
academic outcomes that result from this spending. In
every case, whether you compare countries, states or
towns, academic outcomes are unaffected by per-pupil
spending.
This result seems to defy logic. Is this the work of the
Mad Hatter, or can we make sense of it?
I first investigated the relationship between
spending and academic outcomes in 2002. The data
generated from all school districts in Massachusetts
clearly indicated that there was no correlation. Since
then, I have publicly challenged those who continually
advocate for increased spending to provide contrary
evidence. It has been five years and no-one has responded
to the challenge. Too bad we cant, like the Queen
of Hearts, just say, Off with their heads!
So, what is the explanation for this apparent disconnect
between how much we pay for public education and what we
get?
The answer is surprisingly simple. The relationship
between price and value is forged by competition. Without
competition there is no necessity for value to increase
as price is increased.
Consider two companies that both sell donuts, Frostys
and Crunchys. Assume that Frostys donuts are
always tasty, fresh and inexpensive while Crunchys
donuts are always dull, stale, and very expensive.
Of course you would prefer to buy Frostys donuts,
since they are better than Crunchys donuts and you
can save money at the same time. Unfortunately for you,
Frostys donuts are sold exclusively to residents of
an adjoining town and only Crunchys donuts are
available to residents of your town. You are stuck with a
bad deal.
What if you complain to Crunchys that you are
receiving an inferior product at a higher price and ask
its management to improve quality and lower the price?
Since you have no recourse, they smile and dismiss your
complaint. They have little incentive to improve.
If we considered a large number of towns, each with its
own monopoly donut company, it is not surprising that you
would just end up with a random scattering of donut
prices and quality with no consistent relationship
between the two. This is exactly the situation we see in
public education.
So how would competition re-establish a normal
price-value relationship? Consider ten towns in a region
that exhibit just such a random pattern of public school
performance and prices. What if, all of a sudden,
students in these towns were allowed to go to any of the
ten public schools making up or saving the
difference in cost depending on their choice?
Of course, students would all rush to the schools
offering the best value for their available dollars.
Schools that provided poor quality at a high price would
have to change or go out of business. Magically, after
some time for schools to adjust, the expected
relationship between price and value would emerge.
So, should you vote for the upcoming tax override in
North Andover? What happens if you vote to raise your
taxes and give more money to your local public school? Do
the union and the school administration have any
incentive to use the additional funds to improve quality?
With union negotiations just around the corner, how long
will it take for your extra tax dollars to be flushed
down the rabbit hole?
Come to think of it, this might be a great time to send a
message to the Mad Hatter.
Does Spending Impact Academic Results? Here is the Data,
You Decide.
Figure 1 is a comparison across industrialized countries
of per-pupil spending and math scores (Figure taken from
Impacts of State Accountability on Student
Performance, by Eric A. Hanushek and Margaret E.
Raymond, January 2005; data is from TIMSS: the 2003
Trends in International Mathematics and Science Study).
The countries are ranked from left to right with the
countries having the highest performing math students on
the left. If spending were correlated with achievement,
one would expect the bars to be higher on the left and
lower on the right. Do you see a pattern?
Figure 2 shows a scatter plot of composite state SAT
scores versus per-pupil spending. Did higher spending
increase scores? Do you see any relationship?
If you want to see spending/academic output plots for
communities similar to North Andover (no correlation) or
scatter plots of academic outcomes vs. teacher salaries
(no correlation) or other similar plots (some showing a
positive correlation) go to www.ValleyPatriot.com.
Based on all this data, why does anyone think that
spending more money will have any effect on improving
academic results? It would be a miracle if it did!
Dr. Ormsby is a member of the N. Andover School
Committee. Hes a graduate of Cornell and has a
doctorate from MIT. You can contact Dr. Ormsby via email:
ccormsby@comcast.net
*Send your questions comments to ValleyPatriot@aol.com
The June 2007 Edition of
the Valley Patriot
The Valley Patriot is a Monthly
Publication.
All Contents (C) 2007, Valley Patriot, Inc.
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