Kaya Henderson has gotten great reviews for her work as chancellor of D.C. Public Schools. Test scores are up during her tenure, though not as much as the hype. But take a look at this vision in an article on her departure:
Henderson cautions that improving schools that had long struggled does not happen quickly. And even with the school reform efforts over the the past decade, it may still be another decade — or more — before anyone can declare something approaching victory.
"There will be a day when every school in the city is doing amazing work and you won’t have to enter a lottery, you literally could drop your kid off at any school and have them an amazing experience. I believe we’re within reach of that, probably sometime in the next 10 or 20 years," she says.
Good schools "sometime in the next 10 or 20 years" -- "probably"? Can you imagine a private-company CEO promising that his company would be good at its core business "probably sometime in the next 10 or 20 years," after his retirement?
No wonder Albert Shanker, the first head of the American Federation of Teachers, said back in 1989:
It’s time to admit that public education operates like a planned economy, a bureaucratic system in which everybody’s role is spelled out in advance and there are few incentives for innovation and productivity. It’s no surprise that our school system doesn’t improve: it more resembles the communist economy than our own market economy.
Indeed, we have in each city in the United States an essentially centralized, monopoly, uncompetitive, one-size-fits-all school system that has been stagnating for more than a century. As I wrote in the book Liberating Schools,
The problem of the government schools is the problem inherent in all government institutions. In the private sector, firms must attract voluntary customers or they fail; and if they fail, investors lose their money, and managers and employees lose their jobs. The possibility of failure, therefore, is a powerful incentive to find out what customers want and to deliver it efficiently. But in the government sector, failures are not punished, they are rewarded. If a government agency is set up to deal with a problem and the problem gets worse, the agency is rewarded with more money and more staff — because, after all, its task is now bigger. An agency that fails year after year, that does not simply fail to solve the problem but actually makes it worse, will be rewarded with an ever-increasing budget. What kind of incentive system is this?
This is ridiculous. Every form of communication and information technology is changing before our eyes, except the schools and the post office. It's time to give families a choice. Free them from the monopoly school system. Give families education tax credits or education savings accounts. Make homeschooling easier. Let them opt out of the big-box school -- and get their money back -- and watch Khan Academy videos.
Children spend 12 years in government monopoly schools. If they don't get started right in the first couple of years, they're running behind for life. It's just not right to tell parents to wait 10 to 20 years for the tax-supported monopoly schools to start educating decently.
The U.S. Postal Service (USPS) has lost more than $50 billion since 2007, even though it enjoys legal monopolies over letters, bulk mail, and access to mailboxes. The USPS has a unionized, bureaucratic, and overpaid workforce. And as a government entity, it pays no income or property taxes, allowing it to compete unfairly with private firms in the package and express delivery businesses.
As we discussed yesterday at a Cato forum on Capitol Hill, the USPS needs a major overhaul. It should be privatized and opened to competition.
But instead of reform, congressional Republicans are moving forward with legislation that tinkers around the edges. Their bill adjusts retiree health care, hikes stamp prices, and retains six-day delivery despite a 40 percent drop in letter volume since 2000. The bill would also create “new authority to offer non-postal products,” thus threatening to increase the tax-free entity’s unfair competition against private firms.
The Democrats overseeing postal issues are happy as larks with the GOP bill, which appears to be a victory for unionized postal workers. You might wonder what the point of electing Republicans to Congress is if they are just going to let Democrats run the show in defense of unions and monopolies.
Republicans see their party as the one favoring free enterprise and competition. Yet those pro-growth goals are obliterated in America’s tightly regulated postal monopoly. When it comes to the postal industry, federal law defends bureaucracy and bans entrepreneurship, and the GOP seems to have no problem with that.
Why are Republicans so timid in advancing free market postal reforms? Their timidity is particularly striking when you compare their no-reform bill to the dramatic postal reforms in Europe. The European Union released a detailed report last year on the postal landscape in its 28 member countries. The report is written in the EU’s bureaucratic language, but it nonetheless reveals some impressive changes:
- Since 2012 all EU countries have opened their postal industries to competition for all types of mail.
- A growing number of countries have privatized their postal systems, including Britain, Germany, Portugal, and the Netherlands. Other countries, such as Italy, are moving in that direction.
- EU countries have narrower and less burdensome “universal service” requirements than we do. And, crucially, the EU does not view such requirements as barriers to open competition and privatization, as American policymakers and USPS defenders do.
- On-the-ground competition is small but growing in Europe. In a dozen countries, new competitors have carved out more than five percent of the letter market, and in a handful of countries the share is more than ten percent.
- Dozens of competitors have entered the fray in numerous countries, although many are focused on niche markets, such as business-to-business mail. Dominant firms in some countries are launching subsidiaries in other countries to gain market share.
It remains to be seen how successful the new entrants will be against dominant national postal firms. But at least the Europeans are giving entrepreneurs a chance. In response to even the modest competition that has developed so far, major European postal companies have “increased their efficiency and restructured their operations to reduce costs,” according to the EU report.
Meanwhile, political leaders in this country aren’t letting anybody challenge our inefficient postal monopoly. But they should heed what current member of Congress Jared Polis said in a thoughtful article back in 2001: we should “end all monopolistic protections and special treatment enjoyed by USPS [and] transfer the capital stock of USPS to private hands.” Since then, the case for privatization and open competition has only become stronger.
Yesterday, the New York Times ran a front-page story purporting to show that "betting big" on charters has produced "chaos" and a "glut of schools competing for some of the nation’s poorest students." (One wonders how many of those low-income families are upset that they have "too many" options.). However, the article's central claim about charter school performance rests on a distorted reading of the data.
The piece claims that "half the charters perform only as well, or worse than, Detroit’s traditional public schools." This is a distortion of the research from Stanford University's Center for Research on Education Outcomes (CREDO). Although the article actually cites this research -- noting that it is "considered the gold standard of measurement by charter school supporters across the country" -- it only does so to show that one particular charter chain in Detroit is low performing. (For the record, the "gold standard" is actually a random-assignment study. CREDO used a matching approach, which is more like a silver standard. But I digress.) The NYT article fails to mention that the same study found that "on average, charter students in Michigan gain an additional two months of learning in reading and math over their [traditional public school] counterparts. The charter students in Detroit gain over three months per year more than their counterparts at traditional public schools."
As shown in this table from page 44 of the CREDO report, nearly half of Detroit's charter schools outperformed the city's traditional district schools in reading and math scores, while only one percent of charter schools performed worse in reading and only seven percent performed worse in math.
Grouping the very few underperforming charters with the approximately half of schools that perform at roughly the same level as the district schools distorts the picture. It's just as fair to say that more than nine out of ten Detroit charters performed as well or better than their district school counterparts. The most accurate description would note that about half of Detroit's charters outperform their district school counterparts, about half perform roughly the same, and a very small number underperform.
According to CREDO's 2015 nationwide study, 60 percent of charter schools outperform their district school competition in math and 51 percent outperform the district schools in reading. By contrast, the district schools outperform only 8 percent and 4 percent of Detroit charters in math and reading, respectively. The following two charts from pages 29 and 31 of the report show comparisons of charter school performance in various cities against "the alternative schooling options their students face" (i.e., the nearby district schools to which students would otherwise be assigned).
In other words, the best available research on Detroit's charter school sector shows almost exactly the opposite of what the NYT piece portrayed. Indeed, as Professor Jay P. Greene of the University of Arkansas noted:
To claim that half the charters perform the same or worse than traditional public schools is a grotesque distortion of the study’s findings. [...] [I]f the reporter cites that research to demonstrate that one charter management organization has sub-par performance, it is journalistic malpractice not to mention the positive overall results. And those positive overall results contradict the very foundation of the entire article.
The NYT reporter, Kate Zernike, took to Twitter to defend her reporting against Greene’s takedown, citing data from Excellent Schools Detroit. However, as Greene explained, those data do not allow for direct comparisons. Zernike is right that the data show the citywide averages in each sector, but looking at the averages is misleading.
The charter schools tend to be mission-based schools that open in the toughest areas and serve the most at-risk students. Comparing city-wide averages fails to take that into account. It would be like comparing the New England Patriots against a championship high school team and concluding that the teenagers are superior athletes because they scored more touchdowns per game.
The appropriate comparison is between the charters and the district schools that serve the same or similar student populations. That is what the CREDO study attempted to do by matching students with similar characteristics and initial test scores in each sector, then tracking and comparing them.
Zernike is still claiming that the CREDO study "does not consider Detroit['s charter sector] stellar," even though both the 2013 CREDO study of Michigan's charter sector and the 2015 CREDO study of charters nationwide found that, on average, Detroit's charter schools outperformed the district schools that their students would otherwise have attended. Indeed, one even called Detroit's charter sector "a model to other communities."
Zernike is simply wrong.
For an even more detailed critique of the article, read Tom Gantert of the Mackinac Center for Public Policy here.
Earlier this week, the Financial Stability Oversight Council (FSOC) removed GE Capital from its list of systemically important financial institutions (or SIFIs). How big a deal is this? Big. And not so big. And a little bit scary. Let’s back up a bit to see why.
FSOC is a new entity created by Dodd-Frank. Its members are the heads of the federal financial agencies, with the Secretary of the Treasury serving as Chair. In comparison to other similar bodies, which only advise the president, FSOC has broad authority to act. Chief among its tools is the ability to designate an entity as a SIFI, and to impose stringent oversight and regulatory requirements on it thereafter.
The SIFI designation and attendant oversight have been promoted as a means to end Too Big to Fail. Many people, myself among them, have questioned how labeling entities as systemically important and putting them under greater oversight can possibly end Too Big to Fail. Isn’t a SIFI designation essentially the same as slapping a big “TBTF” label on the thing? Well, here’s where GE Capital’s story gets scary.
Aside from concerns about having a SIFI designation at all, the greatest critique of the designation has been the process itself. Dubbed the “modern day Star Chamber” by SEC Commissioner Michael Piwowar, its deliberations and the criteria it uses to decide if an entity is a SIFI have been notoriously opaque. FSOC has defended its processes by asserting that “much of the discussion in a designation process involves reviewing internal information.” FSOC has issued some guidance on how it makes its decisions, but it has had difficulty even sticking to those very minimal guidelines. The insurance company MetLife was designated a SIFI in 2014 and filed suit to challenge the designation. It won at the trial court level, garnering a scathing opinion from District Court judge Rosemary Collyer who found that FSOC “focused exclusively on the presumed benefits of [MetLife’s] designation and ignored the attendant costs.” Until GE Capital’s de-designation this week, MetLife was the only company to have escaped SIFI status.
This is unsurprising. Because entities don’t know why they have been designated SIFIs, it’s been very hard for them to get de-designated. There is no roadmap for a company to follow. As others have pointed out, this makes no sense if we want to end Too Big to Fail. The TBTF concept assumes that there are companies that are so big that their demise could bring down the whole economy because they are, in short, systemically important. If you want to end TBTF, don’t you want to help companies understand how to become less systemically important? To help them get de-designated as SIFIs?
Apparently, this is not what FSOC wants. And so companies like GE Capital who want to shed the SIFI label have had to cast about and find by trial and error what will satisfy FSOC. This is what is scary. Instead of providing companies with a clear plan for how to eliminate just those things that make them SIFIs, retaining everything else, including any efficiencies gained by being a large company, it encourages them to shed everything. GE Capital shed about $260 billion of assets since 2014, including $160 billion in commercial loans and a $26.5 billion portfolio of commercial real estate investments, as part of a massive downsizing project it has named “Project Hubble.” And now it has been de-designated as a SIFI.
Does this mean that other companies can simply follow GE Capital’s lead? is this now a roadmap? No. First, GE Capital is unlike many other companies in that it has GE itself standing behind it. Most other companies with SIFI status do not have such a wealthy and powerful parent to act as backstop. Second, and most important, GE Capital had strong business-based incentives to shed these assets. According to Wharton Professor of Management Emeritus, Lawrence Hrebiniak, GE CEO Jeff Immelt is “betting on the future of industrials with greater margins and greater returns. This will increase the valuation of the company.” GE Capital was fortunate in that what was good for business was also good for SIFI de-designation. For other companies, such downsizing would not be advantageous.
It’s important that at least one company has achieved de-designation. This shows that designation is not a life sentence and that, under certain circumstances, FSOC is willing to remove a company from the list. That’s all to the good. But because GE Capital downsized so substantially, it is impossible to tell which of its actions convinced FSOC to de-designate it. There is no roadmap. The only thing we know is that, when it comes to SIFI designation, smaller is better. But there is no reason to think that this is universally true for our economy as a whole. There are in many cases great efficiencies to be gained from consolidation and increased size. Unfortunately, FSOC’s current tack simply encourages downsizing for the sake of downsizing without any consideration for what such downsizing may do to productivity and growth.
In this post, I will stray a bit from monetary issues but not too far. The British people voted last Thursday (June 23rd ) to exit the European Union. How should that decision be viewed by classical liberals? Do Americans have a stake in the outcome?
The political classes on both sides of the Atlantic are appalled at the voters’ decision. The peasants have risen up in revolt and their decision cannot be allowed to stand. There are already calls for a political mulligan in the form of a second referendum. Others have called for the British Parliament to nullify the vote. Both suggestions reveal the low regard for democratic decision making among Britain’s and Europe’s political elites. No one can predict the outcome at this point.
Let us pause for a moment and consider what the vote’s outcome says about the prescience of the ruling class in Britain, on the Continent and, yes, over here. (President Obama interjected himself into the vote and appeared dumbstruck last Friday when British voters rejected his advice.) Political leaders pretend to be wiser and better able to look into the future and discern what is best for the people. But almost to a person, they were unprepared for the referendum’s outcome. That speaks both to their distance from the people they claim to represent and their ability to forecast events even 24 hours in advance. So much for the wisdom of the elites.
(I am perplexed by just how surprised political and business leaders were. I was in Europe the weekend before and was briefed by a veteran British MP, who was firmly in the Remain camp. He called the election too close to call. He said that victory by the Leave side was entirely possible.)
What was at stake in the election? The leaders of the European Union portray it as promoting free trade and economic liberalism. It is far from that. The bureaucracy in Brussels has created an overbearing regulatory super-state, against which the British voters rose up. To classical liberals, since the demise of the Soviet Union, the European Union is the last bastion of central planning.
As is always true, there were multiple motivations to those wanting to breakaway. One group certainly felt that Britain could be more economically free out than in.
Immigration was an important issue there, as it has become here. Voters opposed an immigration policy imposed from afar. Additionally, Britain as an island had heretofore been largely immune from the mass migration from the Middle East, North Africa and elsewhere. It appeared that would no longer be true. Again, there is an echo in the United States in the debate over accepting Syrian refugees. Being emotion-laden, immigration can be the leading edge of popular discontent.
One thing not at stake in the election was the hoary issue of the currency. That issue had already been decided soon after the euro’s introduction as a currency on January 1, 1999. There was a move for Britain to adopt the euro, but it was strongly rebuffed. I am not usually an advocate of floating currencies. Faced with a monetary straightjacket of the euro, however, Britain wisely chose the flexibility of keeping the pound sterling. I helped make that case in Britain, and history has shown it to be a good decision. The pound was a monetary safety valve for Britain. But the political differences remained and eventually boiled over in this vote.
The core monetary issue is that no monetary policy could be the correct one for countries as economically diverse as those comprising the European Union (now numbering 28). The area did not meet the criteria of being an optimal currency area. Given those facts, Britain was better off conducting its own monetary policy. There are now a total of nine countries within the EU that do not use the euro.
Prime Minister Cameron was the architect of the referendum and, hence, his own demise. He advocated remaining in the EU but wanted to end the debate over the issue within the Conservative Party. He did not even consult his own Cabinet over the decision. For Cameron, it was a massive political blunder. He compounded that blunder by announcing his resignation, effective in October, at a news conference the day after the referendum. That rendered him the lamest of political ducks.
But the method by which the referendum got on the ballot put supporters of an EU exit at a profound disadvantage. They had no strategic economic plan in the event the referendum passed. That is why there is such extreme political and economic uncertainty. No one has exited the EU before. Neither the yet-undecided new British Prime Minister nor the EU leaders know what comes next. That is a situation of extreme economic uncertainty, which markets hate. We see this in the volatility in financial markets. Blame not British voters, however, but Cameron’s political stunt.
Fifteen years ago, two colleagues and I first proposed a global free trade association. It would be a coalition of the willing, the most free-trading countries in the world. Some, but not all members of the EU would have qualified. That created the very problem now facing Britain: how can it trade more freely with the rest of the world and also trade preferentially with EU countries. The answer we eventually hit on was that Britain (and other qualifying EU members) could move from membership in the EU to membership in the broader European Economic Area (as Iceland, Liechtenstein and Norway are today).
The key point was that Britain would have had a plan and first have negotiated with the EU. Only then would it (and possibly other countries) have exited as members of the EU. Had it been done in that fashion, we would not be facing the global turmoil we are right now. It would have been Brexit with a plan.
We are where we are, however, and Britain’s new leadership must make the best of it. Assuming they honor the vote, they need to try to negotiate the best possible deal with the EU. It would be in Europe’s economic interests to negotiate the closest possible economic relationship. Financial markets have signaled that Continental European countries have more potentially to lose than does Britain. Some EU leaders have suggested, in effect, that Britain be punished for leaving. German Chancellor Merkel has called for calm and a sensible negotiating position. One hopes her good counsel prevails.
If the EU hotheads prevail, they will be cutting off their noses to spite their faces. As with all trade barriers, Britain’s “punishment” will inure to the harm of their own citizens as much as Britain’s. I personally believe that Britain will prosper with or without a special relationship with the EU.
The divisions within the United Kingdom of England, Wales, Scotland and Northern Ireland were not created by the Brexit vote, but have been exacerbated by it. Scotland voted heavily to Remain, and Northern Ireland somewhat less heavily so. There is a move afoot for Scotland to hold a second referendum on its independence so it can join the EU on its own. I offer no opinion on whether Scotland will or should enter into disunion with the rest of the United Kingdom. If the union no longer benefits the British peoples, I wish them peace and prosperity as they chart their own courses. It would be difficult for an American of Irish heritage to say otherwise.
I conclude by answering my three questions. First, classical liberals should always applaud when a people chooses its own political future. This is especially so when they do so peacefully. Second, the United States has a special relationship with Britain, and it is in our interest to maintain that whether Britain is inside or outside the EU. Doing that may be complicated, and I only wish that the Obama administration had drawn up contingency plans for a Brexit vote. Finally, Britain’s choice to retain the pound is a test case for advocates of floating currencies. There are some problems they can address, but they are not a panacea.
 The Bank of England always had the option to track the monetary policy of the European Central Bank. Some countries outside the euro effectively peg to it, which means they are importing ECB monetary policy.
 Besides the United Kingdom, they are Bulgaria, Croatia, the Czech Republic, Denmark, Hungary, Poland, Romania and Sweden.
 See Chapter 3, "The Free Trade Association: A Trade Agenda for the New Global Economy" by John C. Hulsman, Gerald P. O’Driscoll, Jr., and Denise H. Froning in 2001 Index of Economic Freedom, Gerald P. O’Driscoll, Jr., Kim R. Holmes and Melanie Kirkpatrick, eds.,(Washington, D.C. The Heritage Foundation and The Wall Street Journal, 2001): 43-62.
 One argument to punish Britain is to make it an example to others who might exit the EU. It is a curious position to take by those claiming the EU is a good deal for its members.
[Cross-posted from Alt-M.org]
Despite a constant barrage of stories portraying rising atmospheric carbon dioxide (CO2) as a danger and threat to the planet, more and more scientific evidence is accruing showing that the opposite is true. The latest is in a paper recently published in the journal Scientific Reports, where Lu et al. (2016) investigated the role of atmospheric CO2 in causing the satellite-observed vegetative greening of the planet that has been observed since their launch in 1978.
It has long been known that rising CO2 boosts plant productivity and growth, and it is equally well-established that increased levels of atmospheric CO2 reduce plant water needs/requirements, thereby improving their water use efficiency. In consequence of these two benefits, Lu et al. hypothesized that rising atmospheric CO2 is playing a significant role in the observed greening, especially in moisture-limited areas where soil water content is a limiting factor in vegetative growth and function. To test their hypothesis, the three scientists conducted a meta-analysis that included 1705 field measurements from 21 distinct sites from which they evaluated the effects of atmospheric CO2 enrichment on soil water content in both dryland and non-dryland systems.
According to the authors, the meta-analysis revealed that “increasing atmospheric CO2 to between 1.2 to 2.0 times the ambient CO2 level has a positive effect on soil water content” (Panel A, figure below). What is more, the CO2-induced increase in soil water content was found to be greater in drylands (17%) than non-drylands (9%) (Panel B, figure below). Lu et al. also note their analysis showed “no evidence for any significant effects” of soil texture, vegetation type, land management practices or climate regime on soil water content under elevated CO2 conditions. Given as much, they conclude that considering the inherent water limitation in drylands, the additional soil water availability brought about by rising atmospheric CO2 concentrations over the past half-century is “a likely driver of observed increases in vegetation greenness” during this period.
Figure 1. (Panel A) Sensitivity of the soil water response ratio to CO2 enrichment for the entire data set, calculated as the soil water content under elevated CO2 divided by the soil water content under ambient CO2. The closed circles are the observations, with the solid black line providing a linear regression. The red lines represent the 95% confidence intervals of the observations and the dashed grey lines represent the 95% confidence interval of the model. (Panel B) Enhancement of soil water content under elevated CO2 for dryland versus non-dryland regimes. Adapted from Lu et al. (2016).
Here is yet another study indicating rising atmospheric CO2 is benefiting the biosphere, rather than harming it.
Lu, X., Wang, L. and McCabe, M.F. 2016. Elevated CO2 as a driver of global dryland greening. Scientific Reports 6: 20716, doi:10.1038/srep20716.
A recent Washington Post analysis has argued that political events as diverse as the Brexit and the rise of Donald Trump can be explained by a “revolt” of the world’s economic “losers.”
Before proceeding, it is important to keep in mind that all income groups in the world have seen gains in real income over the last few decades. That said, some have gained more than others. Between 1988 and 2008, for example, the lowest gains were made by people whose incomes fit beteen the world’s 75th to 90th income percentiles. That includes much of the middle and working class in rich countries.
The Washington Post calls the people in this group the bitter “losers” of globalization. But, are they?
There are at least two problems with characterizing such people as “losers.” First, it seems to suggest that income growth rate matters more than absolute income level. Yet a person in the 80th income percentile globally would not want to trade places with or envy someone in the bottom 10th percentile, despite the latter’s much higher income growth rate.
Consider real GDP per person, adjusted for differences in purchasing power, in China and the United States. Between 1988 and 2008, China’s per person GDP grew by over 340 percent. America’s per person GDP, in contrast, grew by “only” 40 percent. China may be making gains more quickly, but it would be wrong to argue that the United States was a “loser,” for American GDP per person in 2008 was $52,704 and China’s $8,104.
Poor countries are seeing faster income gains partially because their starting point is so much lower—it’s a lot easier to double per person GDP from $1,000 to $2,000 than from $40,000 to $80,000.
The second problem is that the Washington Post piece suggests that the incredible escape from poverty that has occurred in poor countries during my lifetime has come at the expense of the middle classes in the developed world. (This is a fascinating reversal of the more popular, but equally inaccurate, opinion that the Western riches came at the expense of poor countries).
Thus, the Washington Post piece claims, “global capitalism didn't always work so well for workers in the United States and Europe even as—or, in some cases, because [emphasis mine]—it pulled hundreds of millions of people out of poverty everywhere else.”
Fortunately, prosperity is not a zero sum game.
When trying to understand the “winners” and “losers” of globalization, it is important that we do not compare income growth rates over the last few decades with some imagined ideal. Instead, we should compare income growth to what would have happened in a world without globalized trade. In such a world, hundreds of millions of people would have remained in extreme poverty. And the middle class of the developed world would also have made fewer gains. Just look at the amazing reduction in price of consumer goods that we have collected at HumanProgress.
A few individuals in select industries would benefit from protectionism, like the U.S. sugar industry does now. But on average everyone would be poorer, just as in 2013 Americans collectively paid 1.4 billion dollars more for sugar than they would have without protectionism. (The U.S. manufacturing industry, it may be worth noting, would not be among the “select industries” to benefit—most manufacturing job losses have come from mechanization rather than outsourcing, and have been offset by new jobs in other sectors).
Thanks to trade and exchange, people in all income percentiles have made real gains, and living standards for the middle class in advanced economies have soared in ways not captured by looking at income alone. America’s middle class is getting richer, and the people in the world’s 75th to 90th income percentiles are also winners.