Topic: General

Broadband Bad News Is Good News … but It’s Bad News

Headlines are meant to draw readers in, and this one did me: Broadband’s Double-Digit Growth Coming to an End.

Something’s gone wrong with broadband! Quick! To the BroadbandMobile!

In the next instant, I realized that something had actually gone right. You see, double-digit change in percentage-based figures can’t keep going forever. In fact, it can’t last more than about ten time-periods. (Because then you’d have 110% of something, which only makes sense in rock ‘n’ roll, where the loudest speakers go to 11.)

Adoption of broadband is slowing as people who want it have already got it and people who don’t want it persist in not having it. (Bizarrely to people who live every minute of every day online, some people live no minute of every day online - ever. That is perfectly acceptable.)

There is undoubtedly a tiny margin of poor people who can’t afford broadband. But “can’t afford” is subjective. Many prioritize things other than broadband to buy with their limited resources (which is fine - remember, sans broadband is an acceptable way to live).

But the news report says this is all bad news:

One of the goals of US public policy when it comes to broadband is to ensure all US residents have access to broadband. President Bush said in 2004 that he wanted universal access to broadband in 2007, an achievement that appears unlikely at this point.

But, but … if people who want it are getting it, and people who don’t are not, isn’t that universal access to broadband? Apparently not. Affordability has been added to the metric, moving the goal posts so that federal subsidies for telecommunications seem important once again. Our news report continues:

The Democrats think it’s a great idea too—one plank in their platform for the 2006 mid-term elections is universal access. The telecom law rewrite which may or may not emerge from Congress this year intends to further that goal by funding broadband in areas currently unserved via the Universal Service Fund.

That’s the Universal Service Fund about which Daniel Berninger asks: What have we gotten for our $50 billion dollars?

In the end, this report amounts to an argument that satiation is a basis for subsidy.


Premium Medicine vs. Watchful Waiting

In a response to my defense of health savings accounts, Dr. Hébert makes a thoughtful case for the value added by primary care physicians. One way that PCPs add value is through “watchful waiting”:

It used to be that observation was one of the mainstays of medicine. Now everything is scanned, biopsied, and aggressively worked up because specialists find it easier to bill for expensive procedures than for recurring office visits. This shift away from observation towards aggression runs the risk of hurting patients, and is one of the casualties of the microspecialist system.

The (over-) use of such “premium medicine” is one of the main themes of Crisis of Abundance, a new book by Cato adjunct scholar Arnold Kling. As an illustration, Kling writes about a blogger named Quixote who received intensive treatment for her swollen eye:

My guess is that 30 years ago, a patient with similar symptoms would have been treated “empirically,” a term doctors use to describe a situation for which they do not have a precise diagnosis and treatment, so that instead they must use guesswork. A layman’s synonym for treated empirically would be “trial and error.” In this case, the patient might have been sent home with an antibiotic and perhaps a prescription for Prednisone, a steroid used to reduce inflammation. There would have been nothing else to do. In 1975, computerized medical imaging technology was new and exotic, with limited applications.

In contrast, in 2005, over the course of a few days Quixote was given a computed tomography (CT) scan, referred to a specialist, sent to a different hospital, referred to a specialty clinic, seen by a battery of specialists there, and given yet another CT scan. Ultimately, however, she was sent home, as she might have been 30 years ago, with an antibiotic, Prednisone, and no firm diagnosis.

Compared with 30 years ago, Quixote received more services, in the form of specialist consultations and high-tech diagnostics. However, the ultimate treatment and outcome were no different. This does not mean that medicine is no better today than it was a generation ago. The CT scans and specialist consultations could have turned out differently. They might have been critically important, depending on her actual condition. Under some circumstances, treating Quixote empirically with an antibiotic and Prednisone could have been a mistake, perhaps costing some or all of her sight in one eye.

Such is modern medicine in the United States. Doctors are able to take extra precautions. They can use more specialized knowledge and better technology to try to pin down the diagnosis. They can perform tests to rule out improbable but dangerous conditions. But only in a minority of cases does the outcome deviate from what would have been the case 30 years ago.

That’s from chapter one. The remaining chapters wrestle with the question of when we should make use of premium medicine.

(The Cato Institute will host a book forum for Crisis of Abundance from 12-2pm at Cato on Tuesday, August 29. Kling will present, and the Washington Post’s Sebastian Mallaby and NYU’s Jason Furman will comment on the book. Keep watching for more details.)

“Pelosi Promises Fiscal Restraint If Democrats Win”

That’s the headline House Minority Leader Nancy Pelosi managed to get the Wall Street Journal to run after an exclusive interview. She told the Journal’s reporters that if Democrats take control of the House next year and raise taxes, they would use the money to reduce the federal deficit. And she promised to reduce the use of earmarks: “Personally, myself, I’d get rid of all of them,” she said. “None of them is worth the skepticism, the cynicism the public has… and the fiscal irresponsibility of it.”

If Republicans are going to spend like Democrats, it would be nice to think that Democrats might save like Republicans. But let’s take a reality check.

According to the National Taxpayers Union, in the first seven months of this Congress Nancy Pelosi introduced 22 bills that would increase spending and only one that would cut spending. Admittedly a better record than some Democrats: Rep. Charles Rangel (D-NY), who would be chairman of the Ways and Means Committee in a Pelosi-led Congress, introduced 80 spending bills and three cuts, for a net budget impact of $1.6 trillion. Even the misnamed Rep. Adam Smith (D-WA) introduced 44 spending bills and one cut. Another NTU report showed that Pelosi voted in the interests of taxpayers only 11 percent of the time on tax and budget votes. And her fiscal conservatism has been declining the longer she has been in Congress. In her early years in the House she sometimes voted for taxpayers as much as 25 percent of the time. But not recently.

For taxpayers, it looks like the fall election will be a choice between the devil we know … and another devil we know.

The School Choice Movement’s Greatest Failure

Both the Wall Street Journal and the New York Times jumped on the release of a new study by the National Center for Education Statistics this weekend. The WSJ’s headline was particularly dramatic: “Long-Delayed Education Study Casts Doubt on Value of Vouchers.”

No, it doesn’t.

And it is a failure on my part, as well as a failure of the school choice movement as a whole, that the media don’t understand why.

Taking the study entirely at face value, what it says is this: private school students consistently score better in math and reading on the National Assessment of Educational Progress (NAEP) than public school students, but their advantage essentially goes away if you apply a particular set of controls for the differing student characteristics between the two sectors (things such as wealth, race, etc.)

Okay, you say, but if private schools don’t significantly outscore public schools, what’s the point of school voucher programs or other reforms that would give all parents access to the public or private school of their choice? Why, in other words, is the Journal’s headline wrong?

It’s wrong because the point of voucher programs is to create a competitive education industry, and the existing population of U.S. private schools does not constitute such an industry.

A vigorous free market in education requires that all families have easy access to the schools of their choice (whether public or private); that schools are not burdened with extensive regulations on what they can teach, whom they can hire, and what they can charge, etc.; that consumers directly pay at least some of the cost of the service; that private schools not be discriminated against financially by the state in the distribution of education funding, and that at least a substantial minority of private schools be operated for profit.

This set of conditions does not exist in any state in the nation. Instead, American education is dominated by a 90 percent government monopoly that is funded entirely through taxation. The private sector occupies the remaining 10 percent niche, is almost exclusively operated on a non-profit basis, and is forced to charge thousands of dollars in tuition in the face of the “free” monopoly schools that spend an average of $10,000 per pupil per year.

This is not a market.

No study was necessary to point this out.

Competitive markets are characterized by innovation, inexorable improvements in cost effectiveness and the quality of goods and services, and the rapid growth of the most successful providers. None of this has occurred in the U.S. private education sector, precisely because that sector does not constitute a competitive market.

The last great innovation to transform classroom instruction occurred during the presidency of Thomas Jefferson: the invention of the chalkboard, around 1801. Since that time, the pace of innovation has been so slow that a student from the mid-1800’s would immediately recognize a modern classroom setting. The most sought-after private schools enroll only about a thousand more students today than they did a century ago. This degree of stagnation is unheard of outside of the education sector, because it is only in the education sector (at least in liberal democracies) that market activity has been so thoroughly extinguished by government monopoly provision.

Hence, this study of our current small, non-market niche of private schools does not allow any generalization to the sort of outcomes to be expected from a true free market in education—and the creation of such a market is the primary justification for voucher and other school choice policies.

If I were better at my job, and if the school choice movement as a whole had a more effective media machine, this fact would be widely understood and we wouldn’t see fallacious headlines like the one cited above.

A closer look at the findings

That major point having been made, let’s take a look at the study’s findings on their own merits, as an examination of the current crop of public versus private schools.

The first problem with the study is that it collects no data on per-pupil spending in public versus private schools. Private school tuition, according to the NCES itself, is about half of the average public school expenditure per pupil. While private schools have some other sources of revenue, they still spend thousands of dollars less per pupil than public schools even after taking these other revenues into account, and so may be dramatically more efficient even if their absolute achievement levels are comparable to those in public schools. Hence it is possible that, if spending were equalized, private schools would raise student learning substantially compared to current levels (while it has been shown that spending and achievement are largely unrelated in the public sector, this has not been demonstrated in the private sector. In fact, evidence from developing countries suggests that higher spending in private schools DOES increase student achievement).

Next, it is worth observing the specifics of the study’s findings. It reports that there is a small advantage to public schools in 4th grade math, but that this advantage is not present at the 8th grade. It further says that, at the 8th grade, private school students have a small advantage over public school students in reading. One possible interpretation of these findings is that public school students fall behind their peers in private schools the longer they spend in the classroom.

That, of course, is only one possibility. At any rate, it is clear that parents are most concerned with what their children know and are able to do at the end of their k-12 education, so if, by the later grades, private schools confer a significant advantage, this would definitely seem to favor them.

Methodological and Data Problems

All of the above discussion takes the study’s findings at face value. This may be ill-advised, since a preliminary review suggests that there may be real methodological problems and potentially serious data problems. Several of the control variables used in the model seem problematic, including the following.

The rate of student absenteeism

It is entirely possible that sectoral differences in the feeling of community or level of personal attention, ability of school staff to motivate students, etc., could affect student absenteeism. So it is erroneous to treat this as exogenous (i.e., as independent of school sector) and to control for it.

School size

This variable is clearly endogenous (i.e., affected by school sector). Parents tend to prefer schools in which teachers know all the students by name and which create a friendly, community atmosphere. This is much easier in smaller schools, and hence there is a competitive pressure not to get too large in the private education sector. No such pressure exists in the public sector, where contrary bureaucratic incentives encourage large school size. As a result, the average public school is roughly three times the size of the average private school: 521 students versus 182. It is thus unjustifiable to pretend that school size is independent of school sector.

The percentage of students in the Title I program

A report by the Congressional Budget Office notes that “About 97 percent of public schools and 45 percent of private schools participate in the school lunch program.” This vast difference in level of participation by schools may have a significant effect on the share of eligible students who are in fact being served by the program.

Sample specification problems

Between a fifth and a quarter of the private schools selected for the study did not participate. The authors make no serious attempt to analyze non-participants to determine how and to what extent they might differ from participating schools in ways related to student performance. This could bias their results in unknown ways.

It seems likely that public and private sector schools apply the federal Specific Learning Disability label differentially. This label states that children are disabled if they perform at a level below what would be expected for students of their age and intelligence. It does not account for the possibility that poor performance may be the result of poor instruction. Roughly six percent of all public school students are placed in this category, making up nearly half (43%) of all students classified as disabled in the public sector. Among private schools participating in this study, a total of 3 to 4 percent of students are classified as suffering from ANY disability, mental or physical. Because students classified as SLD can be excluded from the test taking pool or given extra time or other accommodations, differential SLD classification rates between the sectors may affect sectoral mean scores (because these students, by definition, perform below the average of their peers).

Instrument selection

Tom Loveless has pointed out in a paper for the Brookings Institution that the NAEP mathematics test does a poor job of measuring the skills that it is purported to measure. Calculator use is allowed throughout, so it does not measure basic arithmetic ability. More advanced topics such as algebra with fractions, are also all but absent, making it a poor test of these more advanced skills. If there are differences in either of these important areas between the sectors, the NAEP will not pick it up. It is natural for scholars to want to analyze the data they have, but readers should be aware of the shortcomings of those data as a measure of both basic and advanced mathematical ability.


Taking all of the above analysis together, this study’s findings would have little bearing on market-based reforms such as vouchers and tax credits even if it were methodologically flawless. Even as a comparison of public schools and the existing (non-market) crop of private schools, it leaves much to be desired because it neglects to consider the substantially higher per-pupil spending of public schools.

But the study, as noted above, is not methodologically flawless. Several of its control variables appear to be misspecified, and so its adjusted test score averages may be significantly biased. It makes no attempt to assess the impact of the non-participation by between a fifth and a quarter of all the private schools selected for participation in the study – another probable source of bias. And it uses a mathematics test (the NAEP) that has been shown to do a poor job of assessing both basic arithmetic and more advanced mathematical skills, thus obfuscating possible differences in performance in these (rather important) areas among the students tested.

In a nutshell: this study does not say what some reporters think it says, and it may not even say what its own authors think it says.

Charged with Second-Degree Innovating

Here’s a clever idea:

They’ve been described as Minnesota’s Tupperware parties for wine tasters.

For the past two years, a consultant with the Traveling Vineyard, a Massachusetts company operating in nearly 30 states, would come to your home. Along with friends, you’d sample a pinot or chardonnay, and then fill out a form if you wanted to buy some.

And here’s how the regulators are going to kill it:

On Tuesday, state authorities raided a landmark Minneapolis liquor store, Surdyk’s, seizing about 40 cases of wine in an effort to shut down the Traveling Vineyard. Surdyk’s ships prepackaged and prepaid orders from the company to its customers.

The state alcohol enforcement division says the Traveling Vineyard can’t legally sell wine without a license.


Texas, Washington and Massachusetts will be taking some form of regulatory action against Geerlings & Wade, which owns the Traveling Vineyard, to change or stop how it does business in those states because it is violating licensing laws, according to a search warrant filed Tuesday.

Minnesota would be the first state to attempt to present a criminal case against the company. Misdemeanor and gross misdemeanor charges are expected to be filed by the Minneapolis city attorney’s office today, Kjelsberg said.

“We aren’t aware of any other business in the state that operates like the Traveling Vineyard,” she said. “They are taking sales away from legitimate retailers.”


“I hope this will be the end of the company, but that remains to be seen,” she said.

The alcohol industry deserves a heap of scorn for its position on these types of issues. I regularly get industry publications where an article defending “personal responsibility” runs next to an article defending the three-tiered wholesaler system because, the argument goes, alcohol is special and deserves that extra layer of regulation. Consumers can’t be trusted to buy direct from wholesalers, Internet proprietors, or companies like the Traveling Vineyard, alcohol executives say. It’s just too cheap! We’ll drink too much.

In truth, of course, the retailers just like the fact that most states have laws in place that protect them from competing business models. The three-tiered system is a racket that protects antiquated business models from wholesalers like Costco and Sam’s Club, and from innovators like Traveling Vineyard.

Hollywood’s Last Great Villain

It’s the businessman. From today’s Wall Street Journal:

Everybody knows that television plays a powerful role in shaping social attitudes. So it’s no surprise when groups of people who sense that they are being harmfully stereotyped in the medium lodge complaints. The “Frito bandito” is long gone as a result, and a show like “Amos ‘n’ Andy” would be unthinkable now. Even religion can get some respect if the yelps of outrage are loud enough: NBC’s “The Book of Daniel,” about a drug-addicted Episcopal minister with a pipeline to a hipster Jesus, was quickly canceled this year after protests that it was offensive to people of faith.

But there’s one group we never hear a peep from, even though its members may be the most routinely maligned of all. According to a study published last month by the Business & Media Institute, in the world of TV entertainment, “businessmen [are] a greater threat to society than terrorists, gangs or the mob.”

The study, titled “Bad Company,” looked at the top 12 TV dramas during May and November in 2005, ranging from crime shows like “CSI” to the goofy “Desperate Housewives.” Out of 39 episodes that featured business-related plots, the study found, 77% advanced a negative view of the world of commerce and its practitioners.

Emily Chamlee-Wright and the late Don Lavoie covered similar ground in chapter five of their terrific book Culture and Enterprise.

On a related note, Deirdre McCloskey defended the virtues [pdf] of the bourgeois in a recent issue of Cato Policy Report.