The biggest mistake an economist can make when analyzing U.S. public education is to presume that expenditures have anything to do with the necessary costs of educating students.
Economists instinctively presume that costs are developed by cost minimizing producers weighing the productivity of various inputs and choosing an optimal mix. Total expenditures are then built from the bottom up.
In the U.S. public education system, this assumption is dead wrong. There total expenditures are allocated from the top down to mop up available revenues. How much any public school spends depends not on how much it "needs" for efficient operation but on how much it can extract from taxpayers. These revenues are then dissipated among various squabbling constituencies to feed their continuous demand for public funds.
In the topsy-turvy world of public education, the incentive is for efficient, low-cost schools to imitate the less efficient, high-cost schools by spending more. The result is that U.S. public education is greatly over-funded. Public school per-pupil costs are roughly 40 to 45 percent higher than those of private schools. When we take into account the larger number of private elementary schools and further adjust for special ed, the difference narrows to about 36 percent.
Put another way, a minimum of 36 percent of public school expenditures is wasted.
These results are consistent with education in OECD countries where education costs are about 35 to 30 percent lower than those in the U.S. The greater competition between public and private schools abroad makes all schools almost as efficient as private schools in the U.S.
Thus, U.S. public education wastes around $141 billion annually -- about 1.4 percent of 2000 gross domestic product, or about $501 per capita. Add in remedial education and the total comes to at least $157.6 billion annually -- about 1.58 percent of gross domestic product, or about $560 per capita.
The education establishment attributes increased costs to the onerous mandates of state legislatures and federal acts such as No Child Left Behind. To the extent that these mandates raise the cost of public education (and not all do), they simply represent some of the more visible mechanisms by which the waste is generated and dispersed among special interests.
Similarly, the requirement that public schools must admit any student is often cited as a reason for higher costs. But slower students are increasingly shoved into special education, and this program explains only about 10 percent of the cost differential between public and private education. Further, a shocking 25–30 percent of all students are drop-outs. Once dropped out, it is hard to see how non-students can impose increased costs on the public school system. If the diverse student body created by an open admissions policy really produces public school inefficiency, it is an argument for reducing the monopoly enjoyed by the public school system and allowing for smaller, more specialized schools.
Most of the waste in public education is excessive labor costs. Over the period 1980–2000, national student enrollment grew by 15.5 percent, but total school employment grew by 37.4 percent, and teachers grew by 35.2 percent. Public schools now have about one employee for every 6.5 students, and teachers make up only 40 percent of school employees. Our public schools have become vast jobs programs, reminiscent of the Depression era WPA, rather than educational institutions.
On average, individual public school teachers' pay is well above that of both their private school counterparts and those in comparable occupations. Also, public schools employ a more expensive mix of teachers and unions make it virtually impossible to fire even the most incompetent employees.
Wherever competition with or among U.S. public schools is found, the evidence shows better and cheaper public school performance. Abroad, both direct competition and the presence of surrogate competition in the form of curriculum-based external exit exams produce better, cheaper education.