This week’s “Daily Journal” guest columnist is Dr. Karen Palasek, Director of Educational and Academic Programs for the John Locke Foundation.
In their effort to provide educational access to the people of North Carolina, the framers of the North Carolina Constitution used the word “free” to describe public schools, understanding that taxes or other revenues derived from the general population would be used to support them. Education is neither a free good nor a public good, though, and we would be better off if we stopped treating it as if it were.
Virtually all services and goods that we use are “scarce” goods, according to any good economic definition of scarcity, regardless of what the user actually pays. “Scarce” means that the resources, goods, and services available at any point in time are limited, relative to our desires for them. If something is scarce, you have to use up resources to produce more of it. And since the resources needed to produce education (or anything else) are definitely scarce, with many alternative uses, we are constantly forced to choose and make trade-offs.
Given this, why would we elect to subsidize education in particular (rather than, say automobile purchases), even to the point of creating a zero user price in public education? Education gets special treatment because we believe it creates positive externalities, or beneficial spillover effects in the wider community. The availability of education at all levels benefits each student personally, but it also benefits individuals who do not attend schools themselves. When more knowledgeable individuals interact with those who are less educated, the theory goes, society gains. Further, the view is that it is impossible to keep all of the benefits of your personal education to yourself. There is an unavoidable positive spillover effect on others. If you can’t get full benefit, theoretically you won’t pay full price, either. Enter the “need” for a subsidy.
Unintended consequences can create problems with this education subsidy plan, however. First, let’s say that we deliberately keep the price of public education low or at zero to encourage more people to “buy” it because we like the beneficial educational spillovers. In general, we want the positive value of a well-informed and educated population. But there is a danger in creating the illusion of a free or nearly free good. Once the link between consumption of a product—any product—and payment for that product is severed, it’s easy to predict secondary consequences in the form of overconsumption. Marginally valuable or even frivolous demands for education spending often follow.
A second type of problem arises when we treat public education as if it were a public good. Strictly speaking, public goods are those things that the private sector will not create, due to lack of a profit opportunity. It’s assumed that private producers either could not charge customers enough for their product, or it would be extremely difficult to do so. Classic examples are fireworks displays and lighthouse beacons. In fact, economists assume that consumers would even lie and understate their demand for the good, if they knew they could enjoy it without making any payment at all. If that’s really the case, market pricing is unreliable as a guide to production.
Other characteristics also apply to true public goods. True public goods can service additional customers (up to a point) at zero additional cost. Again, fireworks are a good example of this principle. Finally, with real public goods it is impossible or economically prohibitive to exclude potential consumers from use of the good—payment or not. Standard economics argues that government should produce things that qualify as public goods; if it does not, they will be critically undersupplied, if at all.
Though it doesn’t truly qualify on any count, government-produced education is curiously treated as if it were a public good, though no one now claims that additional students can be absorbed at virtually zero additional cost. Education is obviously supplied privately and can be supplied profitably (though most private schools operate as non-profits). But state law makes it illegal to exclude children from the public system, so it may claim a purely legal public goods characteristic. Though weak, these arguments are often used to explain why, through the secondary years, education is largely supplied by government.
When we combine the effect of divorcing consumption of education from payment for its scarce resources, of zero or subsidized pricing to consumers, and of treating education as though it would not be adequately produced if not produced by government, we get unintended but predictable secondary consequences.
One consequence is an over-commitment of resources to education generally or to specific areas of education. Without a valid price mechanism, we can’t judge opportunity costs and are likely to commit too many resources to education and too little somewhere else. Since the demand for education (particularly the demand from education special interests) can be expanded without user cost, it will be unrestrained. This brings the risk of creating an education budget that tends to spin way out of control. Last, but most important, is accountability for results.
Accountability—an unfortunate and abused buzzword—is key. To the degree that consumers avoid paying the costs for a quality education system, they also lack the leverage necessary to make it a responsive and responsible system. This can amount to irrecoverable years for children in the public schools; that’s far more significant than the mere dollars tossed away. In this sense, our free public education is far too costly to justify the resources it commands and the lost opportunities it has caused.