Tuesday, March 24, 2015

Debugging Education Economics - Robert Reich, Robert Murphy and Donald Boudreaux

Robert Reich recently posted the following to Facebook...

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A wealthy businessman told me recently that American teachers were paid too much. I said the truth was the opposite. They’re paid far too little. I asked him: “Which is more important, the nation’s financial capital or our human capital?” He said it was our human capital. Then I asked him: “what’s the average pay for those who guide and develop our financial capital, investment bankers and portfolio managers?” He guessed $1,200,000 a year, which isn’t far off. I then asked: “What’s the average pay of those who guide and develop our human capital, America’s teachers?” He guessed $120,000 per year. I told him that, in fact, high school teachers earn an average of $56,260; elementary school teachers, $56,320; and middle school teachers, $56,630.

In other words, investment bankers and portfolio managers are earning about 20 times what teachers are earning. Yet if the nation’s human capital is more important than its financial capital, that ratio is absurd. The law of supply and demand isn’t repealed at the classroom door. If we want talented men and women to become teachers rather than bankers, we need to pay them far more. He nodded, caught in the net of his own logic.

What do you think?

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Robert Murphy's response... Robert Reich Literally Doesn’t Understand the First Thing About Price of Labor

Donald Boudreaux's response... An Open Letter to Robert Reich

Murphy and Boudreaux are both excellent economists... but evidently they never saw the movie Stand and Deliver.  While there might be a surplus of teachers... there's always going to be a shortage of exceptional teachers.  If we had a truly free-market in education... then we'd expect to see roughly the same income inequality that we see in other fields.

Right now there around 3.7 million full-time elementary and secondary school teachers in the US.  There's a bell curve with a small percentage of below average teachers, a large percentage of average teachers, and a small percentage of above average teachers.  With 3.7 million teachers... it's a given that there's going to be significant disparity in talent.
Individuals differ, one from another, in important and meaningful respects.  They differ in physical strength, in courage, in imagination, in artistic skills and appreciation, in basic intelligence, in preferences, in attitudes toward others, in personal life-styles, in ability to deal socially with others, in Weltanschauung, in power to control others, and in command over nonhuman resources.  No one can deny the elementary validity of this statement, which is of course amply supported by empirical evidence.  We live in a society of individuals, not a society of equals.  We can make little or no progress in analyzing the former as if it were the latter. - James M. Buchanan, The Limits of Liberty
The fact that all teachers are paid roughly the same really doesn't mean that there aren't any exceptional teachers.

As I explained here... Raymond Fisman - Education vs Markets... the problem with schools is that, even with a voucher system, parents are paying for a bundle of teachers.  If all the teachers in a bundle were equally talented then there wouldn't be a problem.  But we've all endured more than a few lousy teachers.

The solution to our educational problems is to unbundle teachers.  This can easily be accomplished by allowing parents to choose which teachers, rather than schools, they give their money to.  The below average teachers will receive below average pay.  The average teachers will receive average pay.  The above average teachers will receive above average pay.  And the small handful of one in a million teachers will receive one in a million pay.

Unfortunately for all of us, the law of supply and demand truly is repealed at the classroom door.  Just like it's repealed in the entire public sector.  But it really shouldn't be.

See also...

Superstar Theory: J.K. Rowling vs Elizabeth Warren
Deirdre McCloskey - Revealing The Unseen

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