The Big Three

January 18, 2007 • Commentary
This article appeared on TCS​dai​ly​.com on January 18, 2007.

“We have been inexorably centralizing control over the schools in this country for 150 years. We’ve gone from one‐​room schoolhouses overseen directly by the parents of the children who attended them to sprawling bureaucracies that consume half of the operating budgets of their respective states. We’ve gone from 127,000 school districts in 1932 to fewer than 15,000 today — despite a massive increase in the number of students.”
— Andrew J. Coulson

Education is an example of an issue where free‐​market proponents were betrayed by the Republicans during the Bush Administration. In fact, on the domestic issues that I consider important, my take on the Republican Party in the 2006 elections was, “With friends like you, who needs enemies?” This essay lays out what I would like to see on the agenda, and how I will be keeping score.

I start by taking seriously the forecast of economic historian Robert Fogel, which is that our economy will be increasingly dominated by education, health care and leisure. Therefore, the focus of the free‐​market agenda should be on limiting government’s encroachments into those areas. The encroachment comes from public education, government spending on health care, and government management of retirement savings.

The goals of the free‐​market agenda should be:

  1. Increase the proportion of children who are schooled outside of the public school system.
  2. Increase the proportion of health care spending that is paid for directly by consumers.
  3. Limit the fraction of people’s lives where they collect Social Security.

If the Republicans want to win my enthusiasm, they need to convince me that they will make a difference on these indicators. (For those readers on the Left, I should hasten to add that I am all in favor of education, good health, and retirement security for all Americans. I believe that those goals would be better served by market‐​oriented policies than by government expansion.)


The current state of education is that only 10 percent of children go to private schools, with 2 percent of children home schooled. Thus, K-12 education is dominated by public school systems, which have become less and less responsive to parents, and increasingly under the thumb of (non-)teachers’ unions, which in turn are diverting school budgets away from actual classroom teachers.

For example, in Montgomery County, Maryland, where I live, the local newspaper gave the following figures about the school Budget: total enrollment, 137,798; total employees, 21,840; total budget $1.98 billion; percent of budget devoted to employee compensation, 89%.

Using those numbers, it is easy to calculate that the ratio of students to employees is 6.3, even though the typical class size is probably 4 times that amount. A clear inference is that most of the employees are not classroom teachers. However, these non‐​teaching staff are well compensated, since another exercise in simple arithmetic shows that the average compensation per employee is $80,686.

As a parent, I have observed that the really bad teachers and the really good teachers are destined for administrative positions. For bad teachers, administration is a place where the County can hide them. For good teachers, administrative positions are a reward, offering higher pay along with freedom from the extra workload of classroom teaching (the non‐​class time required to grade papers, prepare lessons plans, and so on) as well as its emotional stresses.

Politically, the teachers’ union towers over our state and our County. The 21,840 employees are organized and focused. Parents and taxpayers are not. We are the victims of the trend, documented by Andrew J. Coulson in the quote with which I began this essay, toward large school districts, with decision‐​making increasingly removed from local schools.

In my view, articulated years ago, the No Child Left Behind Act is a step backwards. It takes power even further away from parents, and locates it in Washington. How did my County react to NCLB? By creating new positions of NCLB testing co‐​ordinators. Just what the union featherbedders needed — another excuse to add non‐​teaching staff.

If I wanted to create an industry with poor performance characteristics, I would set it up like the public school system. I would create a monopoly and set up an institutional structure that entrenches producers while marginalizing consumers. I would locate decision‐​making power at an ever‐​increasing distance from those affected by the decisions.

The only education policies that belong on the free‐​market agendas are those that make it easier for parents to escape the public school system. Examples might include vouchers for parents with low incomes and education tax credits for parents with moderate incomes.

Health Care

The state of health care is that two Republican governors, Mitt Romney and Arnold Schwarzenegger, have proposed major expansions of government involvement. As far as health care in America is concerned, the concept of individual responsibility belongs on the endangered species list.

For the Left, the virtue of socialized medicine is that it causes the healthy to share the burdens of health spending with the sick. If so, then America already has one of the most socialized medical systems in the world. Of our considerable health care expenditures, 85 percent are paid for either by private health insurance or by government. In most other countries, including Canada and many European nations, the fraction of medical bills paid for by consumers out of pocket is higher than in the U.S.

The free‐​market agenda would include health insurance deregulation, elimination of the tax subsidy for employer‐​provided health insurance, and replacing Medicare with remaining‐​lifetime catastrophic health insurance (these proposals are explained in Crisis of Abundance).

Social Security

The state of Social Security is that the portion of life as a government dependent is heading upward. Since Social Security was enacted, the number of years that a 65‐​year‐​old can expect to live has increased by 25 percent. Longevity of 65‐​year‐​olds appears to be increasing at the rate of about one year per decade.

Politicians have been arguing about Social Security reform for years, and the argument is likely to continue. However, with a fixed age of government dependency (the so‐​called “retirement age”), the system defaults to having more and more beneficiaries, paid for by a worker base that is increasing much more slowly. Under a scenario of modest economic growth (a conservative assumption), this results in an actuarial deficit for Social Security, necessitating higher taxes, since no one will want to cut benefits for existing recipients.

The policy that I would like to see is to have the age of government dependency raised for everyone age 50 and younger to a level that brings the expected number of years of government dependency back to what it was in 1935, when Social Security was first enacted (that probably means somewhere around age 70). The age of government dependency would then be indexed to longevity going forward. Incidentally, such a change would eliminate most of the actuarial deficit in Social Security, even under a relatively conservative scenario for productivity growth.

With no adjustment to the age of government dependency, improvements in health result in automatic increases in the amount of income transferred under Social Security. This threatens the financial viability of Social Security. And it has no economic or moral justification.

A Message to Republicans

From a free‐​market perspective, there are plenty of “nice‐​to‐​haves.” These include tax reform, free trade, abolition of farm and energy subsidies, and deregulation in a number of areas. However, the Big Three are education, health care, and Social Security. Over the past six years, we have moved backward on all three, due to a combination of demographic changes and policy moves. My personal message to Republicans is that I care more about what happens on the Big Three than about whether you hold power.

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