Monday, March 9, 2015

Raymond Fisman - Education vs Markets

Public services are never better performed than when their reward comes only in consequence of their being performed, and is proportioned to the diligence employed in performing them. - Adam Smith, Wealth of Nations
...the cold, hard calculations of markets aren't necessarily suited to the realm of education. - Raymond Fisman, Sweden’s School Choice Disaster

Just found out about Fisman's article from my second favorite Crooked Timber liberal John Quiggin.  It was pretty impossible not to dedicate a blog entry to highlighting Fisman's crazy conclusion.

What I remember about my high school is that no two teachers were equally effective or enthusiastic.  Yet, despite the distinct disparity in performance... they were all paid the same.  How absolutely nonsensical is that?

This nonsense is easy enough to fix.  Rather than schools paying teachers... parents should pay teachers.  Clearly parents aren't going to want to pay teachers for flunking their kids... so as Fisman correctly pointed out... this would give teachers a perverse incentive to grade leniently.

This nonsense is easy enough to fix as well.  Just separate the testing from the teaching.  Teachers will still be able to test and give grades... but there will be independent institutions responsible for testing a student's grasp of the subjects.  Teaching institutions will teach and testing institutions will test.  Why not have a division of labor?  Isn't this how we increase productivity?

At the end of the year, or whenever, parents would have their kids tested.  And then the parents would pay the teachers accordingly.

Of course I don't see any reason why parents shouldn't be able to administer the tests themselves if they were so inclined.

What's going to happen?  Clearly the best teachers are going to get paid more and the worst teachers are going to get paid less.  This is what "the cold, hard calculations of markets" would actually produce.  How does Fisman not know or understand this?  Oh yeah, it's because his parents couldn't get a refund on his lousy education.

When there's a market in a large enough field, and this market isn't fucked with, then we should see at least a few superstars.  According to a quick Google search... in 2012 there were 3.7 million full-time elementary and secondary school teachers.  How many superstars do we see?  Are any of them earning $1,000,000 per year?  Nope?  Well guess what... the problem isn't the market in education... it's the people who are fucking with the market in education.

But.. but... but... what about inequality?  What about all the poor people who aren't going to be able to afford a teacher who's worth a million a year?  

Let's say Mr. Z earns a million per year.  For sure there's going to be a limit to how many students can be crammed into his physical classroom... but there wouldn't be a limit to how many students could be crammed into his virtual classroom.  Poor parents could either have their kids attend Mr. Z's virtual classes... or they could have their kids attend some regular teacher's physical classes.  Heck, they could have their kids do both.  Then they'd just allocate their payments however they liked.

If Mr. Z has some innovative technique... then other teachers are going to have a strong incentive to adopt it.  This would have a leveling effect on incomes but, more importantly, best practices would be identified and adopted at a much faster rate.  Fisman must have missed the class on value signals.  He must have also missed the class on bundles.

A school is essentially a bundle of different products (teachers).  When a parent decides between two schools... they are deciding between two different bundles of teachers.  From the economic perspective, this is exactly the same as somebody deciding between two cities.  Tiebout made the case that foot voting works well enough at revealing preferences.  For some reason though it's not readily apparent that tax voting is an extremely more efficient mechanism for revealing preferences.

Think of it like this.  If you're a bad teacher... would you prefer parents deciding which school they give their money to?  Or... would you prefer parents deciding which teachers they give their money to?  

Choosing between schools is more monolithic.  Choosing between teachers is more modular.  With monolithic systems... they baby is thrown out with the bath water.  With modular systems... just the bath water is thrown out.

A school would essentially be a market within the education market.  Parents (buyers) would find teachers (sellers) to trade with.

In a pragmatarian system... a school would be a market within the education market... and the education market would be within the public sector market.  And the pubmar would be a market within the country's market... which would be within the global market.  So there would be a market within a market within a market within a market within a market within a market within a market within a market within a market within a market....

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