Friday, April 3, 2015

Visualizing The Economics of Education

Our education system sucks.  In order to understand why... it helps to look at education from the perspective of economics.  Unfortunately, because our education system sucks... we should probably first take a quick look at some basic economics...

In this drawing I'm buying the book Toleration from the author... Andrew Cohen.  In reality I didn't buy it from Cohen in person... I bought his book on Amazon.  Amazon made it stupid easy for Cohen and I to trade with each other.

Most people tend to think of payment as compensation.  But in reality, it's actually a form of communication.  Money is one way that we communicate with each other.  It's an extremely effective means of communication because actions speak louder than words.  When we give somebody a dollar, we're giving them a unit of volume.  This is why in the drawing there's a megaphone near the dollars that I'm giving to Cohen.

So Amazon isn't just facilitating trades... it's facilitating communication.  The more people who buy Cohen's book... the larger his megaphone...

This drawing should give you an idea why J.K. Rowling's megaphone is larger than Cohen's megaphone.  Because Rowling's megaphone is larger, she has more power/control/influence over society's limited resources.

Now let's take a look at the economics of education...

Any given elementary/middle/high school consists of parents (consumers), producers (teachers) and an intermediary (principal).  Because parents don't all pay the same amount of taxes... they don't all give the same amount of money to the school.  The school, however, gives more or less the same amount of money to each of its teachers.  This means that every teacher has the same size megaphone.

The problem with this system is that not all teachers are equally effective.  As you can see in the diagram, they don't all produce the same amount of value for parents.  They aren't all Jaime Escalante.

The solution is to unbundle teachers...

This diagram isn't as pretty but you should get the idea that more dollars/volume would be given to the teachers who produce more value.  The best teachers would have significantly larger megaphones than the worst teachers.

Can you guess which system a terrible teacher would prefer?  The many-one-many system?  Or the many-many system?  Would terrible teachers prefer it if teachers were "sold" in a bundle or "sold" individually?

These diagrams also clearly show us why school vouchers really aren't that effective.  

With the many-one-many system a school is one product within a market.  But with the many-many system a school becomes a market with many products.  Each school would become a market within a market.  Schools would facilitate trades between consumers (parents) and teachers (producers).  This means that schools would facilitate communication between parents and teachers.

We can also think of a many-one-many system as monolithic and a many-many system as modular.  The benefit of a modular system is that you don't have to throw the baby out with the bath water.  For example, if your computer monitor breaks then you simply replace your monitor.  You're not forced to replace all the other fully functional components.  You just replace an inferior (broken) component with a superior component.  So not only do modular systems minimize waste, but they also facilitate marginal improvements.  Modular systems are a precise instrument while monolithic systems are a blunt instrument.

Let's get back to J.K. Rowling.  It should be pretty straightforward that her megaphone wouldn't be as large as it is if she could only trade with people in the UK.  Would it make sense to limit literary exchanges by geography?  Nope.  So we really wouldn't want to limit educational exchanges by geography either.  Parents in America should be able to trade with teachers in the UK.  This probably doesn't mean that they'd send their kids to the UK.  It just means that exceptional UK teachers would have megaphones that were large enough for their voices/lessons to reach students around the world.  Which is easy enough to accomplish with live or recorded videos.

With a monolithic education system... if a parent isn't happy with one or more of the teachers... then they have two options...

1. they can voice their concerns
2. they can foot vote for a different school

These two options would still be available in a modular education system.  However, a third option would also be available...

1. they can voice their concerns
2. they can foot vote for a different school
3. they can dollar vote for different teachers

Moving your child to a different school should always be an option.  But foot voting is a very blunt instrument.  It requires that you throw the baby out with the bath water.  When you "exit" the old school you discard both the good and bad teachers.  When you "enter" a new school you gain both good and bad teachers.  Dollar voting, on the other hand, is a very precise instrument.  The amount of dollars that you give to teachers accurately communicates your assessment of their effectiveness.  So not only is it much easier to move your dollars than it is to move your feet... but dollar voting allows you to communicate more clearly.  Society works better with clearer communication.

Does it matter if some parents would have far more dollar votes to spend than other parents?  Well, if it doesn't make sense for teachers to all have the same sized megaphones... then why would it make sense for parents to all have the same sized megaphones?

It's important to understand that a wealthy parent being able to give more dollar votes to a teacher really wouldn't mean that only their child would have access to the teacher's product.  This is because these dollar votes aren't private dollars... they are public dollars.  A wealthy parent would be voting with their tax dollars.   Clearly it wouldn't be permitted for wealthy parents to spend their tax dollars on private tutors for their children.  Wealthy parents would only have the option to spend their tax dollars on teachers who freely share their lessons.

For example... here's a Youtube video on opportunity cost...

Everybody can watch and learn from this video.  Nobody is excluded.  This means that, in a modular education system, parents would have the option to use their taxes to dollar vote for Khan Academy.  Parents could help make Khan Academy's megaphone larger.

Of course Khan Academy now has numerous teachers.  Would they be unbundled with a modular system?  That would be up to Khan Academy.  Just like it would be up to private schools whether they unbundled their teachers.

If you're a truly exceptional teacher... where are you going to want to work?  At a private school where the size of your megaphone doesn't accurately reflect your talent?  Or at a public school where parents all over the world can dollar vote for you?  It's not going to be a difficult choice.  So it's pretty much guaranteed that private schools will unbundle their teachers.  This means that parents who send their kids to private schools will be able to dollar vote for education using both their private and public dollars.  Actually, it really means that all schools will be public schools.

With the current monolithic education system... pay doesn't accurately reflect society's valuation...

How can students make informed career decisions when the information that we provide them with is fundamentally wrong?

We can greatly improve education by facilitating trading/communication between teachers and parents.  Let's make it stupid easy for parents to give the best teachers, wherever they are, the largest megaphones.

See also...

iPads < Teachers
Thumbs Up vs Quarters Up

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