As we watch California struggle with a budget deficit larger than the entire Iranian government’s budget, it’s worth exploring how the state got there. The biggest contributing factor: a staggering collapse in educational productivity.

In 1974-75, California spent $1,373 per pupil on k-12 public schooling. By 2006-07, it was spending $10,937. Adjusting the earlier figure for inflation (to $5,286 in 2007 dollars), that still represents a more than doubling in real spending per pupil.

Of course, if California public schools had doubled student achievement and eliminated dropouts, that might justify their staggering increase in cost. They haven’t.  On the most reliable available measure of state academic achievement trends, the NAEP, California public school students have seen their scores go up by about 0.2% per year at the 4th and 8th grades since state-level data became available in 1990.  In other words, the state’s scores have barely budged from the low position they have long occupied. As a 2005 RAND paper observes:

California placed 48th out of 50 states on the average NAEP score across all tests, just above Louisiana and Mississippi… California’s low scores cannot be accounted for by the high percentage of minority students. California’s scores for students from families with similar characteristics are the lowest in the nation: It ranks 47th out of 47 states when we compare scores for these students.

California is in budgetary hell because of a massive collapse in the productivity of its public schools. If the public schools had just maintained the productivity level they enjoyed in 1974-75, taxpayers would now be saving $36 billion annually. That’s $10 billion more than the deficit the state is currently facing.

It’s not hard to understand why: public schooling is a monopoly. There is no field within the free enterprise sector of the economy that has had a similarly horrendous productivity collapse over the past 35 years.

California can work its way back to fiscal sanity, and jump-start educational improvement, by encouraging entrepreneurship in education via k-12 education tax credits like this one.