Here’s another of my pet peeves: politicians who go on and on about how spending more tax money on government schools and colleges is an “investment” in our economy that North Carolina just can’t do without.
You’ll often hear this argument around budget time, when either state lawmakers or their local counterparts are struggling to reconcile large requests for additional funding from educators with stagnant revenue growth or taxpayer resistance to tax increases. The argument is employed because of its superficial plausibility.
In theory, of course, the education process is a form of investment. In economics terms, it is a kind of “human capital formation,” in the same way that forming a corporation and issuing stock is “financial capital formation” and buying and maintaining plants and equipment for production is “physical capital formation.’ Each is an economic activity that imposes short-term costs in order to build a valuable asset to generate long-term gains.
But the political class uses investment terminology to justify their big-spending appetites in education without attempting seriously to think of the subject as real investors. For one thing, when you invest in stocks, in plants and equipment, or other forms of capital in the private sector, you are presented with competing alternatives offering various risks, terms of service, and payoffs. Furthermore, if you invest in the formation of capital, you get to reap your share of whatever financial returns are forthcoming.
Not so with government education expenditures. While there are competiting markets at all levels of education, from preschool to graduate school, government entities enjoy significant advantages through taxpayer subsidy and favorable regulation. The resulting lack of full and robust competition inevitably means lower returns for educational investors, as quality and productivity suffer. No one could seriously suggest, for example, that because North Carolina spends twice as much today in inflation-adjusted, per-pupil dollars on public schools than it did 20 years ago that our student achievement has doubled. Declining productivity and government dominance go hand in hand, education in no way constituting an exception.
Secondly, when the government rather than students and parents make the investment, there is no guarantee of a return to taxpayers at all. Students educated at taxpayers’ expense may not stay in the state. Indeed, many end up using whatever skills or knowledge they obtain at North Carolina schools in economic enterprises far away from here. Or, facing little of the real cost of their education up front, many students may choose to specialize in low-paying but rewarding subjects, start but not finish educational programs, or otherwise wastefully spend other people’s money.
Finally, the subsidies and competitive advantages enjoyed by government institutions of education help to insulate them not only from private competitors but also from reality itself. It is no exaggeration to say that many undergraduates attending a University of North Carolina campus would likely learn more by independent study and extensive reading than they will ever learn in a class taught by a graduate assistant or a tenured radical with a left-wing ax to grind. This is particularly true in areas of inquiry such as literature and the social sciences, and in any subject related to the current war on terrorism.
Part of the misunderstanding here stems from the widespread adoption of a “labor theory of value” to describe education. Karl Marx and others misguided socialists once alleged that goods and services are worth as much as the work put into producing them. Only children, young adults, and college professors take this position seriously today. Oh, and add many politicians to the list. They believe, in the case of education, that the more years you spend in school, or the more degrees you have, the more “educated” you must be.
No. A ditchdigger knows that Marx was wrong, at least about ditches. If one person spends one hour digging a ditch and another person spends four hours digging, filling in, digging, filling in, and then digging precisely the same ditch, there is no difference in value. The ditch is worth only the value of the service that a potential users expects to derive from it. Similarly, the value of education isn’t determined by how much time or money is spent acquiring it. It is determined by what the “educated” person actually knows how to do, and how well he or she can do it. The only way for such a valuation process to function is if it is based in a competitive market for labor, for information, for marketable research, etc.
I believe that North Carolina could certainly transform much of its current (massive) expenditure on education into a legitimate investment, into the formation of human capital that would boost our society’s economic and social well-being. But simply spending more money on the existing system does not necessarily create any more true investment in North Carolina’s human capital. What we need instead are competitive markets, consumer choice, and fewer quasi-Marxist notions of value floating around state government.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.