Median annual tuition charged by private, Baltimore schools attended by Children’s Scholarship Fund Baltimore students, 2010-2011: _________?
Annual spending per child in the Baltimore City Public Schools, 2010-2011: ________?
The actual figures are $5,050 and $15,464. These aren’t directly comparable because many of the CSF schools include only grades K-8 while the Baltimore City schools include high schools, which are more expensive; nevertheless, the numbers suggest that in Baltimore we could get better schooling for our children for less than half of what’s spent in the government schools. These numbers square with those found in a Cato Institute study that contrasts total spending per child in government and private schools in six major American cities. The authors “find that, in the areas studied, public schools are spending [per pupil] 93 percent more than the estimated median private school.”
In short, we could get better schooling for about half what we spend today. And those numbers are from today, when most kids go to government schools, so private schools lack the vigorous competition that would bring prices down. If all schools had to compete for students, tuitions would come down still more.
How Might the Needy Get Schooling Without Taxes to Pay for It?
Now let us address a main concern many good people have with getting the government out of education. That is the all-important question of how very low-income families would afford schooling for their children without money from taxpayers. There are many ways. Let me ask you to brainstorm on this for a minute: How many different ways can you come up with in which the schooling of the very poor could be paid for?
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One way some of it might be paid for is by the investments Bill Gates and Google and many others are making in Khan Academy, so that high-quality instruction in a growing list of subjects is now free to anyone with a computer and Internet connection. We can’t tell yet how many different subjects and skills might be taught with that kind of technology, and how much learning requires face-to-face interaction with a knowledgeable teacher, but technology certainly is dropping the cost of education.
Next, what about having children who are old enough—high school kids—pay for their own schooling, by working part of the time for their tuition? Would that work? In fact it does work. In the network of Cristo Rey schools, founded by Father John Foley and the Jesuit order, students earn nearly seventy percent of the cost of their schooling by working five days a month in entry-level jobs at a major company in their city. They initially tried out the idea simply as a way to pay the bills, but they discovered that the experience of working in the business world is itself a valuable and empowering part of the children’s education. The concept has worked so well that there are now Cristo Rey schools in twenty-four cities.
What other innovative, entrepreneurial approaches to paying for schooling might emerge if governments bowed out of schooling and left all that tax money in the private sector? I surely hope we get a chance to find out.
The second most important reason why even the poorest would get schooling—even if no tax money were available—is that most people really care that all children get a decent education. And most of those who care will donate money and time for the purpose. If the government just got out of the way, generous individuals, religious institutions, charitable foundations and corporations would do the job in any or all of the following ways:
They would donate funds for scholarships at particular schools.
They would support organizations like Children’s Scholarship Fund, which makes scholarships usable wherever a child is admitted.
They would donate to schools that charge little or no tuition. In this respect I think of Mother Seton Academy in Baltimore, a tuition-free Catholic school I admire and support, whose explicit goal is to “break the cycle of poverty through education.” The Bill and Melinda Gates Foundation has given millions for the founding of new Cristo Rey schools.
Individuals would donate their time teaching, tutoring, fundraising for, and doing upkeep on their children’s schools. The popularity of Teach for America shows the willingness of young people to work for less than they’d be paid elsewhere. Teaching is rewarding. (It would be more rewarding still in functional schools.)
If the government withdrew from education, we would expect all of these options to increase dramatically in amount and number from what they are today, both because generous people see the need and because the repeal of school taxes would leave them with more money to donate.
Now I can’t prove that this voluntary giving would be enough to get all kids decent schooling; nothing truly innovative can be proven in advance, but I’m confident that it would. A main reason why I’m confident is that for decades, as I have lectured to various audiences and advocated for free markets for schooling, the number one concern people respond with is how poor children would be educated. If so many people are so concerned, I reason, we have nothing to worry about: Enough of them would put their money or their time where their mouths are to make sure poor children get educated.
There is one other main source of funding for schooling for low-income families we must not forget, and this is the main reason for confidence that even the poorest would get schooling, even if no tax money were available to them: Low-income families themselves work hard and save to send their children to good schools. The poor are not helpless; they are resourceful and intelligent. They want their children educated. Most would sacrifice to pay for their children’s education, as poor families have struggled and managed to do for generations. Here is a relevant quotation from the Edinburgh Review in 1813:
Even around London, in a circle of fifty miles, which is far from the most instructed and virtuous part of the kingdom, there is hardly a village that has not something of a school; and not many children of either sex who are not taught, more or less, reading and writing. We have met with families in which, for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.
My experience has shown me this is true today, too. I recall again that evening I mentioned at the beginning of the chapter. Parents gathered to learn about CSF scholarships all nodded their willingness to pay at least $500 per child. Poor people in America will find a way—even if help from others like CSF Baltimore should disappear, which it won’t—to pay for their children’s schooling, as long as they are offered schooling worth paying for.
And remember, they will find it much easier when they do not have to pay property taxes to support schools that are failing them. And when free market competition among schools drives down tuitions.
As I imagine the schooling options that would emerge for the poor in a free market, I have great confidence in the ability of entrepreneurs to offer affordable schooling for profit. While I cannot forecast the variety of options that would emerge, I believe that in the mix of offerings there would be some free schools in the lowest-income areas, and increasing numbers of both non-profit and for-profit schools charging tuition, but offering free or reduced-tuition enrollments to those who had trouble paying the whole tuition.
What about adequacy? Would it be enough? If there were no taxes to support education, would low-income people really have enough decent schools? Well, do they have enough decent churches? There are no taxes supporting religion, and the poor seem to cover that for themselves pretty well. Would schooling be different in any decisive way? I don’t see why it would.
Evidence and Inspiration
I have argued that we should free our schooling markets for all of the reasons I have presented throughout this book:
We need free market prices to coordinate our various activities, including schooling. We need profit and loss to guide innovation in education. We need private ownership and free exchange to connect the performance of schools and teachers to the funding they receive, and thereby give them strong incentives to pay attention to the children’s needs. We need
regulation by market forces so that every parent is a regulator and so that the teachers’ unions and school bureaucracies don’t capture the regulation and turn it to their benefit at the expense of the children. I have claimed that free markets in education would produce schooling that is much better and much more affordable.
Let’s close this discussion with some supportive evidence for this claim from an unexpected locale, the slums of poor countries.
Professor James Tooley of Newcastle University has done remarkable research on private schooling in some of the poorest areas in the world, in India, China, Nigeria, Ghana, and Kenya. His team of researchers mapped populated areas and then walked through them, street by street, counting schools in three categories: government schools, private schools that are “recognized” by the education authorities, and private schools that are “unrecognized,” operating illegally, completely off the radar screen of the education authorities. The government schools are free of charge; the private schools charge fees. Tooley’s team made unannounced visits to the schools, noted the facilities and student-teacher ratios, interviewed parents and teachers, and tested a large sample of both private and government schools students in English and math.
What do you suppose Tooley found? How numerous are the private schools in these very poor areas, and what percentage of children in them go to private schools? What do you suppose they charge per month (or per day)? How well do the private school children do when tested in math and English (parents around the world are evidently eager for their children to learn English), as compared with the government school children? Think about it a moment before I summarize for you the results.
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Tooley found that in the poorest areas, the slums of India, Nigeria, Ghana, and Kenya:
Between sixty and seventy percent of all schools are fee-charging private schools, and between sixty and seventy percent of all children living there attend them.
The schools are for-profit, commercial operations. Nevertheless, nearly all the proprietors, who also care about their communities, offer free places for the poorest children.
In tests of academic achievement administered to large numbers of randomly selected children in both government and private schools, the private school children performed much better across the board.
Facilities such as drinking water were more commonly available in private schools than in government schools.
The private schools cost far less, with their teachers being paid a third to a quarter the salaries of teachers in the government schools.
In short, just as in America, the private sector provides better quality schooling for lower cost. These results, along with the whole remarkable story of how Tooley stumbled on these schools, whose very existence is widely denied by many Third World development “experts” and decried by many others, are written up in Tooley’s charming, illuminating book on the subject, The Beautiful Tree. I recommend it highly.
To conclude, then, schooling in America, and everywhere else, needs liberty. Let governments just get out of the way. Schools should be privately-owned and run; payment should be by free exchange between parents and schools, not by taxation. Schooling should be improved steadily through entrepreneurial innovation with profit and loss guiding discovery. School quality should be regulated by market forces. Freedom works. Let’s free our schooling markets.
While we are at it, let’s free all our markets, as far and as fast as we can. Pencils get made without anyone in charge because ever-adjusting market prices let us coordinate our myriad activities, with no help from government except protection of our rights. Let us leave other activities free to be ordered the same way. Let the Sharissas of the world dress the hair of willing customers at low prices without a license. Let local villagers and ranchers manage the elephants on their land. Let the US Postal Service operate without subsidies and face competition as Iridium faced it. Let doctors and their patients decide whether or not to use new medicines, based on testing from competing third-party certifiers such as Underwriters Laboratories. Let the dairy and housing industries operate without subsidies, so that market prices can tell farmers and builders how much milk and housing to supply, given the need for scarce resources in other areas, too. Let us end the Fed, so that profit and loss signals can tell free banks how much money to supply. Let us stop bailing out banks, insuring their depositors with other people’s money, and centrally planning their capital ratios. Banks’ depositors, competitors, and clearinghouse association partners will regulate them better from the bottom up than the Basel Committee on Banking Supervision can regulate them from the top down.
Let us have done with government intervention in the peaceful exchanges among individuals that are a free economy. Let organized force, in Jefferson’s words, “restrain [us] from injuring one another,” but “leave [us] otherwise free to regulate [our] own pursuits of industry and improvement .… This is the sum of good government.”
Hayek wrote, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” With humility to recognize our inability to design top-down even pencil-making, much less a country’s health care or financial or education systems, let us embrace the marvelous spontaneous order that arises from individual liberty. Let us establish what Adam Smith called “the obvious and simple system of natural liberty.” In Einstein’s words, “God does not play dice with the universe.” To institute in practice the moral principle that decent people allow one another to do “anything that’s peaceful,” would improve standards of living for people of every condition. We should free our markets because to do so frees human creativity, the most powerful force of all, and disciplines that creativity to serve others.
How should we go about freeing our markets, we who believe in doing so? Each in his or her own way. Each using his or her own special knowledge and talents. Some may write books or letters to the editor; some may teach and some preach. In our time there seems no limit to the scope of persuasive communication by blogs and video on the Internet. Some even may accomplish some good in politics, though I am skeptical of that route because power tends to corrupt.
All of us can make our principles known, respectfully and appropriately, to friends and family members who are willing to listen. One way or another, however best suits our individual aptitudes and opportunities, we must make the case for economic liberty. The outcome is uncertain, of course, but the effort is a joy.
Appendix A
How the Fed Alters the Money Supply and Thereby Interest Rates
The primary means by which the Fed seeks to manage the money supply and thereby affect interest rates is buying U.S. Treasury securities from, or selling them to, individuals and institutions in the public at large.
U. S. Treasury securities—bills, notes, and bonds depending on the length of the payback period—are essentially interest-paying IOUs from the U.S. Treasury to the holder of the security. The U.S. Treasury uses them to borrow money: it borrows $10,000 from your bank, for example, by selling your bank a $10,000 bond. Once sold to the general public, these securities are freely bought and sold in the huge secondary market for them, called “the bond market.” Treasury securities are popular investments for banks and investment funds of all kinds, because they are relatively low in risk and “liquid”—easy to sell.
Days, weeks, or years after the Treasury has initially sold them to the general public, the Fed may buy some of these T-bills, T-notes, and T-bonds from individuals, banks, and other institutions that hold them as investments. Such purchases are called “open market purchases.” Alternatively, having already bought lots (and lots!) of Treasury securities, the Fed may sell back some of those it owns to the general public (called “open market sales”).
To see how an open market purchase works, suppose your bank has bought a $10,000 Treasury note, thereby loaning $10,000 to the federal government; it receives interest on the note from the U.S. Treasury every six mo
nths, and it is entitled to repayment of its $10,000 at the note’s maturity (in one to ten years). When the Fed wants to create new money, it can buy that Treasury note from your bank at the market price. (The day’s market price will usually be a bit more or less than $10,000 depending on whether market interest rates have fallen or risen since the T-note was first created by the Treasury and sold to its first purchaser.) Let’s suppose, for example, the day’s price is $10,400, so the Fed pays your bank $10,400. Now the Fed owns the T-note, so now the Fed is entitled to the interest on the note and the principle when it matures. What’s key for the money supply is that the Fed buys the T-note from your bank with $10,400 of brand new money. This is how new money is created. It is perhaps easiest to think of this as money newly printed, and that would be the case if your bank asked for $10,400 cash in payment. More usually, the new money is created by “the magic of the bookkeeper’s pen”: the Fed simply writes a brand new credit of $10,400 to your bank’s account on its books.
This new money immediately affects the fed funds rate, the interest rate in the market where banks borrow reserves (cash on hand) from one another for very short periods. (I don’t know why this market is called “the federal funds market” as it appears to have nothing to do with the Fed.) The Fed is the 500 pound gorilla in the fed funds market because through open market operations it intentionally changes the amount of reserves available to be borrowed and loaned. In our example, that $10,400 of new money becomes part of your bank’s reserves as soon as the computers that keep track of the exchanges credit your bank’s account. Because it is brand new reserves, if your bank wants to lend it out in the fed funds market, if other things remain equal, your bank will have to offer it at an interest rate slightly lower than the going rate in order to induce another bank to borrow it. Hence the creation of new money via open market purchases tends to lower the fed funds rate. For those familiar with supply and demand analysis, the increase in the supply of reserves leads to a lower price—a lower interest rate—for reserves.
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