The Real Costs of Education

...If, on the other hand, a district decides to supply students with more (or better) textbooks, or to reduce class sizes by hiring more teachers, or to recruit higher quality teachers by paying salaries above the going "market" rate, the cost of these decisions represents a "real" increase in school spending...

...They call this collection of goods and services a "market basket...

...Using this consumer price index, $687 in "1967 dollars" becomes $2,794 in "1991 dollars...

...This means that elementary and secondary schools, in order to attract the same quality of teacher, would have had to increase teacher salaries even faster than salaries of other professionals increased...

...Because inflation rates vary widely among particular items, we have to select carenifty the appropriate inflation index to use for schools...

...They are based on real economic phenomena that are easily misunderstood...

...Even Clinton's plan to "end welfare as we know it" has floundered because of the political impossibility of raising new taxes for child care, training, and public service jobs...

...Watches are no longer luxuries, while concert tickets are very expensive...

...It seems that over the 1967-1991 period, regular education spending's real growth, adjusted by the NSI, was only about 28 percent...

...It's a much closer question than commonplace complaints allow...

...In contrast, many servicesector firms and institutions cannot easily substitute machinery for labor as manufacturers do...

...Computers permit clerical workers in the Social Security Administration to issue checks more quickly...

...Since 1967, women's opportunities in other fields have expanded...

...Police officers would have to prevent nearly three crimes for every two they stopped in 1979...

...To understand why, we must consider one further aspect of the problem: how differences in industry productivity affect our understanding of inflation...

...In manufacturing, where it is easier to substitute capital for labor, productivity gains come relatively smoothly...

...Baumol's insights help us to understand the public's anger with the presumed failures of our public education system...

...This means that in these 260 years the price of concert tickets must have risen about a hundred times as fast as the price of a watch, if both their costs were to be covered...

...Health care reform was stymied in part because of unreasoning opposition to expansion of any government program—there's a (perhaps apocryphal) story of the senior citizen who protested to President Clinton about his plan for a "government takeover of Medicare...

...Yet schools are not "typical urban consumers," so the market basket we use to calculate elementary and secondary education inflation should be different from the market basket we use to calculate consumer inflation...

...If most government were like sanitation departments, taxes could decline...

...As it turns out, there have been relatively modest improvements in regular education outcomes over this period—lower dropout rates and higher test scores, especially for minority students...

...Yet few Americans realize that over the long run we must pay a greater share of our incomes in taxes simply to maintain a constant level of government services...

...If any of this were to happen (and some has), we'd notice a decline in public service quality...

...Baumol has noted that it now takes as long to play a Scarlatti harpsichord solo as it took two hundred and sixty years ago...

...It is probable, however, that use of the CPIU causes an overstatement of school spending growth...

...In reality, school districts tended not to increase teacher salary scales faster than the general rise in professional salaries, so schools may have had to settle for a lower average quality of teacher, despite apparent salary increases...

...these service organizations (including a disproportionate share of government activities) have had to increase prices faster than average to remain competitive in the national labor market...

...In a study done for EPI, when we adjusted schools' average per pupil spending by the NSI, we found that "real" spending in 1967 was $3,456, not the $2,794 generated by a CPI-U adjustment...

...Anyone who's recently had his or her temperature taken in a hospital can recognize that technology has reduced the time required for some nursing services...

...Because of the productivity growth differences between industries discussed above, the price of education services is likely to rise faster than the price of an urban consumer's average purchases: "inflation" in services like education typically exceeds inflation in manufactured goods because productivity (output per employee-hour worked) is likely to grow more slowly in many services...

...We do pay higher taxes and receive public services whose quality does not improve commensurate with our higher payments...

...Of course not...

...Disparities in inflation mirror differences in productivity growth, and industries (like schools) in which it's hard to achieve productivity growth will have higher-than-average inflation...

...Some part of this growth is attributable to the fact that the teaching force is older now than it was in 1967, and teachers' pay in most districts increases automatically with years of service...

...If we want to understand whether investment in education has paid off, we have to match the investments with the specific programs in which they were made, rather than evaluating the efficacy of all school spending with the outcomes of only the regular academic program...

...When Benno Schmidt resigned Yale's presidency to head Christopher Whittle's "Edison Project," a private school network, he explained in the Wall Street Journal why he'd given up on public schools...

...Real school spending growth is the amount of new money spent in excess of inflationary changes measured by the NSI—or 61 percent real growth, after inflation...

...In those days, artisans manufactured one watch in the time it took to play a hundred solos...

...Perhaps we can't expect most voters to appreciate the subtleties of productivity growth and inflation...

...Schools, for example, rarely rent apartments, and urban consumers rarely hire teachers...

...Was Benno Schmidt being overly conservative in 1992 when he said spending had only doubled...

...The Baumol effect explains, at best, half the public's concern with the rising cost of public education...

...This is considerably less than the conventional view that "real" (that is, CPI-U adjusted) school spending doubled in this period...

...But this adjustment, though conventional, implies assumptions of which few educators or other policy experts, despite seeming familiarity with "inflation," are aware...

...Most cities have adopted automated trash collection vehicles with a single driver, replacing trucks with several workers who manually empty garbage cans...

...Although Americans enjoy complaining about taxes, the truth is that we can afford to pay a growing share of our incomes to government because we save so much of our incomes by paying less for automobiles, computers, VCRs, and groceries...

...Productivity growth in manufacturing has allowed industrial firms to reduce their costs (or at least slow the growth in costs) and therefore increase the prices of manufactured products more slowly or not at all...

...To some extent, schools purchase greater skill and experience with these pay increases, but to a large extent the provision of career paths with escalating salary schedules is necessary simply to attract college graduates to the profession...

...The Bureau of Labor Statistics calculates the CPI-U by tracking the price increases of all goods and services that "typical" urban consumers buy...

...This, it turns out, is a serious distortion...

...Work reorganization may offset some of these pressures—lower paid teacher aides or nursing aides, for example, now perform some of the less skilled tasks once performed by professionals...

...Because of these considerations, Lawrence Mishel, research director of the Economic Policy Institute (EPI), developed an index (the net services index or NSI) to measure inflation in service industries like education...

...Not all government, of course, is immune to productivity improvements...

...Although real increases in per-pupil spending have been smaller than conventionally believed, they have still been considerable...

...If, as in recent years, taxes increase too slowly, public services must deteriorate...

...School classrooms equipped with computers may permit teachers to use their time more efficiently...

...The resulting pressure on school budgets is what we call inflation— paying more for the same resources...

...We expect government to perform many tasks for which productivity improvements are unattainable, so our taxes should increase to maintain the quality of public service, if public servants' salaries are to keep up with those of private-sector workers...

...Real spending per pupil will rise even though more resources per pupil are not being provided...

...To generate productivity increases for teachers like those of autoworkers, we would have to increase class sizes from, say, twentyfive in 1979 to thirty-three—so that "output per worker" could grow as fast as it did in the auto industry...

...For example, more of the real per-pupil spending increase probably went to special education than to regular education...

...For this reason, the CPI-U systematically understates the inflation facing school districts...

...Schmidt relied on a commonplace "adjustment" of the 1967 spending figure for inflation, translating the 1967 "nominal" dollar figure to "1991 dollars," or "real" dollars...

...This apparent paradox has roots in the "Baumol effect," after Princeton (and NYU) economist William Baumol, who has spent much of his career explaining the "cost disease" that afflicts many government services...

...But work reorganization in public services can solve only a small part of the problem...

...Judges who presided over ten trials a month in 1979 would have to hold thirteen to56 • DISSENT Education Spending day, caseloads of probation officers would have to increase, and nurses in our public hospitals would have to care for 32 percent more patients...

...other big chunks went to an expanded school lunch program to offset growing child poverty, and to special programs for non-English speakers, "at-risk" students, and pregnant or parenting teens...

...We must calculate what it would have cost, in 1991, to purchase exactly those inputs (teachers, textbooks, administrators, and so on) schools purchased in 1967...

...Americans' feelings about taxes are fed by our culture's deeply-rooted individualism and anti-collectivist impulses, but they are not entirely irrational...

...In 1967, American schools spent an average of only $687 per pupil...

...Americans are convinced that they are overtaxed, although their tax burden is lower than those of other major industrialized nations...

...In "real" terms, therefore, per pupil expenditures went from $2,794 to $5,566...

...Thus, "real" cost increases, as measured by the NSI, may still understate the cost increases faced by schools, and the increase in 58 • DISSENT Education Spending "real" per-pupil spending may in fact be less than 61 percent...

...If college graduates in other fields get higher starting salaries, schools will have to increase salaries too, just to attract the same quality of teacher...

...Public education has a varied set of expected outcomes...

...It may be the case that even the NSI understates inflation in school costs, because of the unusual role that women play in education employment...

...When we purchase many manufactured products, on the other hand, productivity growth from both automation and work reorganization has been so rapid that we can experience quality improvements while fewer workers are employed and prices simultaneously decline...

...Technology constantly improves factory workers' productivity...

...Over any period, school expenditures may rise solely because of inflation, or because more resources— like teachers, textbooks, aides, and so forth—are purchased, or from a combination of both factors...

...Here, productivity gains may be comparable to those for auto, computer, or VCR manufacturing...

...But we don't blame this on the music industry's "bureaucratic bloat...

...But it is not too much to ask that journalists and politicians (who should know better) restrain their demagogic attacks on a public sector whose costs, inevitably, will continue to rise...

...As Benno Schmidt claimed, we "roughly doubled" real school spending...

...If we want to know whether "real" per pupil spending has doubled, we have to examine whether schools now utilize twice SPRING • 1996 • 57 Education Spending the resources they utilized a quarter-century ago...

...While there may be good reasons for this increased investment in special education and other programs for special populations of students, the public can't expect SAT scores of regular students to rise as a result...

...In more labor-intensive fields, the picture is very different...

...A quarter-century ago, schools had their pick of the most qualified women college graduates, who generally had few other professional opportunities open to them...

...Because taxes as a share of our incomes have jumped relatively little in the last twenty-five years, these services have deteriorated...

...Were these improvements sufficient to justify the modestly higher investments...

...But similar improvements are impossible for many government-provided services...

...q SPRING • 1996 • 59...

...It estimates the "market basket" of goods and services purchased by service industries, a large proportion of which experience relatively slow productivity growth...

...To adjust expenditures for inflation, it is commonplace to use the "consumer price index for all urban consumers," a formula produced by the Bureau of Labor Statistics and referred to as the "CPI-U...

...We have roughly doubled per-pupil spending (after inflation) in public schools since 1965," Schmidt said, but the "nation's investment in educational improvement has produced very little return...

...By 1991, this had climbed to $5,566, a growth of 710 percent...

...What remains, therefore, is relatively modest growth in real regular education spending...

...But today, a watch can be manufactured with less labor time than is consumed by a single performance...

...Most government employees do work that is more like harpsichord playing than like watchmaking...

...For example, if a school district is faced with a 10 percent rise in the price of textbooks, it must increase textbook spending by 10 percent to provide students with the same number of textbooks...

...In the last quarter century, government spending has jumped from 26 percent to 31 percent of our gross national product, while schools are not noticeably better, police protection has apparently declined, mail is delivered less often, streets are dirtier, and roads have deteriorated...

...In my recent study of public education expenditures, I examined these adjusted real increases as well, and found that misconceptions of a different kind characterize the public's understanding of these increases...

...The cause of this "cost disease" is that it is more difficult to improve productivity in some activities than in others...