While on the Ron Smith show today, one caller asked, “So, where would you cut spending?”? Given my recent piece, The Virtue of a Big Bang, I was ready.? My view is that in a crisis, pain should be shared as evenly and broadly as possible.? Thus when someone claims that the schools or hospitals must be exempt, you come back with “No one is exempt.? There are lower priority projects and functions everywhere inside government.”
An aside: I live in Howard County, Maryland, which has the best school district in the state.? We homeschool anyway.? Unlike most places in the US where homeschoolers tend to be evangelical Christians, here most homeschoolers are purely secular.? We hear tales of those who have left the public schools decrying the sloppiness and waste in the system.? Also, we experience that the system demands more of homeschoolers than it asks of those that go to the public schools.
Earlier in my life, I have been on school boards — as a homeschooler, of course not now, that would be impossible.? No one would elect someone who homeschools to the school board.? But from my earlier work, and what I know from a basic understanding of the economics of public school systems, when counting in the fair value of pension accruals, teachers are very well paid.? We can freeze their pay, and freeze their benefits.
And, that is true for all government programs.? Cut an even amount everywhere; freeze them in nominal dollars at least.? Yes, that’s painful.? Pain needs to be shared as we cut back after years of growth beyond our ability to sustain it without additional debt.
Governors and mayors, ignore the screams.? People need to learn to make do with less.? If you lead, they will follow.? People love politicians that flout pandering, and stand for something, particularly during times of crisis.
The Same Idea on the Federal Level
Okay, much as I am not in favor of Obama’s plan for national health care, let me propose something like it.? It is time to tame Medicare.? The concept of a safety net means basic care, not extraordinary care.? News bulletin: every one of us will die, regardless of how much medical care we receive.? Too much money is spent in the last six months of life, for too little good.? If people want to spend their own money for extraordinary care to extend life, that is their own business, but it should not be the way the government spends, if it spends at all on health care.
Away from health care, let’s consider “Defense.”? To any who think me a slave of living near DC, pleazzze get it, even though if implemented, most of my friends would be hurt by what I am about to say, I will say it anyway.
There are bases overseas where soldiers face no real possibility of combat.? There is no real reason for the bases, aside from the US acting like an empire over the rest of the world.? We need to close bases in the US, and even more overseas.? They don’t benefit US interests.? We do not need to be the global policeman.
Also, many weapons programs fail.? They don’t produce anything useful, and yet a huge bureaucracy gorges on the cash from the US Government.
We need to focus on defense.? Defense, not dominating the rest of the world.? We don’t need a large military.? We don’t need to be in Iraq, and maybe not Afghanistan, and we don’t need legacy bases all over the world.? Cut “defense” spending, it is useless to the US.
If we didn’t try to dominate the Mid-East, we would not face many terror threats.? We get what we deserve.? Would we like it if outsiders tried to influence our leaders, and our selection of leaders?
Everything Must Be Cut
Fairness is paramount.? Americans have a strong sense of fairness.? If everything is being cut, then the sense of shared pain will reduce support for riots and demonstrations where people plead for their special interests.? Let the students that want lower tuition at the state University pay more.? Much more, but in rough proportion to the cuts in the rest of society.
If we cut Medicare by reducing our willingness to pay in the last six months of life, even so, let us make other cuts, such as reducing or eliminating Medicare Part D.? There is no good reason to have a Medicare drug benefit.? Please end this signature program created by George W. Bush.
I will say it again, cut everything.? Get your head around the idea that preserving the nation, state, or municipality is worth a lot more than preserving the stupid programs that venal ideologues are ranting must be kept.? There is nothing that must be kept, aside from police, fire, justice, and public health.? Even they should have wage cuts — the pain must be shared everywhere.
David,
I fully agree, especially on the big one — medicare. Implementing a restriction on end-of-life care, though, seems very hard to get right; it requires some small set of rules that strikes people as tough but not capricious. How to do that?
For myself, I’m perfectly willing to set a dollar limit — dignity and quality of life, and not being overly selfish, are much more important to me than just extending life. But in most cases, the family of the patient will always feel that one more try, just beyond the limit, might bring the cure.
The best I can come up with is to cover standard and not-too-expensive treatments but not, for example, $25k-per-injection cancer drugs. Or to have an ROI table somewhere that determines what’s covered or not. Do you have a cleaner solution?
Jim
ClearOnMoney.com
Fairness is paramount? Conspicuously you don’t mention cutting salaries at financial institutions dependent on the taxpayers largesse. Those are the cause of the holes that you are trying to close by raiding the service common people receive. That said, like you it seems, I am all for modest deflation. It appears to me that the easiest way to cut “everything” is by cutting income. This can be trivially implemented by raising taxes. Which is something you don’t like. Denying to raise taxes you still won’t keep the federal government from spending what it feels entitled to spend as long as it has the printing press. So, what is worse, printing dollars or raising taxes? As a good German I’d say printing dollars.
I am surprised you say ‘most of your friends will be hurt’. I am english and upset that we will not join fully into Europe, which in my view is a far better way of reducing world conflict. I would prefer to see America standing proud as a strong democracy, setting an example to other countries and inviting them to join their successes. Instead I see a country trying to impose it’s values on the rest of the world. I wish your friends would see it that way too.
Ian, if you live near DC (I am on the DC-side of Baltimore), a large proportion of those you know will work directly or indirectly for the government. In my case, just looking over my contacts book, 75% of my friends work for the US Government in one way shape or form.
IF — Fairness with the tax structure is paramount as well, and I have my own view of how to do it, which would hit the rich (including me) hardest.
http://alephblog.com/2008/04/12/problems-with-tax-reform/
Thank you David; That needed saying.
Thanks for your post, David. You allude to the pension benefits for teachers. Perhaps in another post you can give us some more details from your actuarial perspective.
It stunned me to learn that teachers in my district can retire at 55 and collect $60,000 a year (up here, $200k can get you a nice 2000 sq ft house in a nice neighborhood). The rules have been changed, so new teachers don’t have those kinds of benefits anymore, but wow! And I thought summer vacation was the best teacher benefit!
“It stunned me to learn that teachers in my district can retire at 55 and collect $60,000 a year”
Where I live teachers can’t start collecting until 65 even if the “retire” at 55.
Just try cutting teacher salaries. It will be a miserable experience, given the organization of teachers, the numerous other problems with schools, and the local nature of school politics/budgeting. Even if you’re right that teachers deserve less or could function with less, pay cuts are such a slap in the face in our society that people will lose motivation or quit the profession. You will also see even greater disparities between districts with different property values and ability to pay. Then even more of the rich will flee the urban/troubled suburban public school systems for home-schooling, moving to nicer suburbs, or private school. Coming from New Hampshire I grew up in this reality. Perhaps as someone who home-schools you don’t mind, but the fact is that many people need a functional public school system because their economic position allows no alternative. Smart and capable kids get left behind in bad public schools (I have some disagreements with the NCLBA, but the title was spot-on).
I’m not a pure teacher apologist who says “Raise salaries and quality will improve” – it’s very easy to waste money in a school system without improving outcomes. What I would say we need is to get away from the individualist model of teacher as classroom dictator and principal as schoolwide dictator and start actually generating an effective national educational policy. Right now you have millions of people reinventing the wheel in their own tiny bailiwicks all across the country. The ones who are successful do not see their successes transmitted to a larger scale. The ones who are unsuccessful are not stopped or redirected.
Smart centralization and more teamwork at all levels would be huge improvements over the current mishmash. A tiny percentage of people have the talent to run an effective classroom on their own with the vague training they currently receive. Most of them aren’t tempted to work with difficult students for $40k and a pension that may or may not exist as promised. The compensation should probably be lifted moderately in exchange for more responsibility for performance, while you balance the budget by cutting capex, firing people who don’t do anything, and reducing spending on non-core functions like football teams.
Vote David Merkel for philosopher-king!
I agree that most citizens would recognize the need, and support broad based cuts.
najdorf,
Consider that private/homeschool folks pay taxes and receive no service. About 10% of students are private/home schooled. If the the state had to educate them, it would be an even greater burden. So they are sharing the pain already, at least financially.
Also, if all the districts freeze salaries, people won’t feel abused. If they renegotiate pensions for people who are more than x years from retirement, they will have time to plan and adjust. You just can’t pay it if you don’t have it. Better to be honest with the employees and taxpayers.
You wrote:
‘If people want to spend their own money for extraordinary care to extend life, ….’
I agree with this but find the devil is in the details as Jim Fickett wrote it is hard to get right and what is extraordinary care to me may well be ordinary to you or others. It is plain though that our ability to extend life is currently far beyond our ability to cope with some of the moral issues raised.
sg: People pay all sorts of taxes for services they don’t use. If people only paid for the aspects of government they directly used, the payments wouldn’t be taxes and the government wouldn’t be a government. It’s this mentality that has crippled public education in many small districts where most people don’t have school-age kids or use private schools/home schools. If you want to live in a society where the whole population doesn’t take some responsibility for educating children in order to make a better future, I invite you to move to any of a number of fine third-world nations.
The idea that teachers are overpaid and that you can make meaningful progress by cutting or freezing their salaries in a country that spends billions on foreign wars and bailing out bondholders of aggressive financial holding companies is insane. Humans respond to incentives, and when you tell people with an important and difficult job “Sorry, we’re sticking it to you because politicians and bankers screwed up”, you don’t get positive outcomes. All the money that you pay to teachers gets recirculated back into the economy, mostly on basic consumption, since the teacher salary does not provide for a huge surplus over basic living expenses. There are also huge positive externalities from having motivated, competent teachers.
Fire ineffective teachers? Sure. Cut waste on pointless programs that have no impact? Sure. But a bad economy doesn’t lead rationally to the idea that we should do blunt, across-the-board cuts with no detailed analysis of costs and benefits. That’s not how you craft smart policy.
We have no idea when the last six months of life will be, nor do we have any idea what extraordinary efforts really are…and as mentioned above, that definition will change patient to patient. The most realistic way to cut Medicare is through health care reform, specifically comparative effectiveness research (so we apply the care that actually is proven to work), bundled payments (so we stop reimbursing fee-for service). The issue with Medicare is not the Part D benefit…..one could argue without it we have more patient noncompliance and worse medical expenses. The issue with Medicare (and all healthcare) is inappropriate treatment. Too many studies have proven this. You are not a fan of the health care reform (hence inappropriately calling it national health care), but the reality is some way of reforming the system, not hacking at benefits, is the answer.
As for defense…hear hear!!
But as najdorf says, across the board cuts with no detailed cost benefit analysis is bad policy. Particularly in this fragile economy.
I am all in favor of benefit-cost analysis, if it is done fairly. Trouble is, people bring different assumptions to the table and you can end up with competing interests alleging unfairness.
I took benefit-cost analysis from Dr. Steve Hanke of JHU — he felt you had to learn it, if for no other reason than to see how it can be manipulated.
How can you really reform health care when non-paying consumers are growing both as a percentage and in absolute numbers?
Right now, hospitals and doctors use cost shifting, which at least saves admin costs. If these non-payers were insured, the costs would still be shifted, but there would also be admin costs as their “coverage” would be administered through bureaucracy and an insurer.
News March 7, 2010:
Iceland just held a referendum and voters soundly rejected the idea of a bailout of the bankrupt banks as proposed, see here:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a79L24mIpisI
I will be watching to see how many headlines this makes here. It should. Frankfurter Allgemeine FAZ.net asked a few good “what If’s”(what if voters actually could hold referendums on bank bailouts, or the debts that politicians incur?
Good questions.
Below is the excerpt and link:
….Der Test im isl?ndischen Krisenlabor regt zu Spekulationen an. Was w?re, wenn ein Volk tats?chlich dar?ber abstimmen d?rfte, ob es die Verluste seiner Banken tragen will? Oder die Schulden, die seine Politiker machen? Der Gedanke ist nicht so verwegen, wie er klingt: Die demokratische Kontrolle von Steuergeldern geh?rt zu den Wurzeln der Demokratie. Banker und Politiker haben sich in der Vergangenheit jedoch so wenig darum bem?ht, der Gesellschaft das vielbeschworene Systemrisiko zu erkl?ren, dessentwegen sie das Geld anderer Leute und anderer Generationen ausgeben, dass sie sich nun davor f?rchten m?ssen. B?rger und Verbraucher m?ssen sich ihrerseits aber auch vorwerfen lassen, dass sie dieses Wegducken viel zu lange geduldet haben.
Full story here:
http://www.faz.net/s/Rub4D8A76D29ABA43699D9E59C0413A582C/Doc~E1E689F20FA154D9B9BF80747113340EC~ATpl~Ecommon~Scontent.html
Oregon did it right, in my opinion. First they had a commission which went through every medical procedure, and evaluated it on a cost basis (how many years of life it added per dollar). It then ranked the procedures from first to last. And then said, we have enough money to fund everything down to HERE. And that was the cut-off point.
The only way to accomplish this is to go from a ‘as much as it costs’ world view, to a ‘we have this much money’ world view.
Until Congress has a firm upper limit on the amount they can spend, (ie, a hard balanced budget amendment) there will be no willingness to face hard costs.
In fact, even with a hard balanced budget amendment, they will still be in there fiddling the books, giving ‘loan guarantees’ and pretending this is costless.
According to John Stossel the US is currently spending about $10,000 per student per year on public education. Most parents would jump at the chance to educate their kids outside the public school system. Hoards of them begin moving their kids to a private school as soon as vouchers of a couple of thousand bucks are available. Which being the case, I would strongly suggest that the real solution to out of control education costs isn’t freezing teachers pay and benefits, it giving each and every parent who wants it a $5,000 voucher to help pay for private school.
Time to privatize the public schools.
I agree with you entirely about the wasteful defense budget. We could easily cut half of our spending on defense, and end up being MORE safe, and MORE secure.
I have another suggestion for cost savings, which is reining in the Federal Reserve and the Treasury on their bailouts of financial institutions. I don’t think you are going to achieve a sense of community and a belief in shared sacrifices until AIG, and Fannie Mae, and Freddie Mac, and Citibank, and Bank of America, have been dismembered, with all of the pain borne by their shareholders and bondholders. Until that happens, I wouldn’t believe anything I heard from Washington DC about shared sacrifice, either in terms of lower benefits, or higher taxes. As far as I am concerned, the on-going bailout of the big banks has breached the social contract. Until proven otherwise, by the positive action of breaking those institutions up, we don’t have a democracy, or a republic, we have a kleptocracy—-
“a government that takes advantage of governmental corruption to extend the personal wealth and political power of government officials and the ruling class (collectively, kleptocrats), via the embezzlement of state funds at the expense of the wider population”
dlr: I am shocked at your amazing discovery that schools which can pick the students most likely to succeed and fund them at 2x or 3x the rate of public schools are achieving more desirable outcomes than schools which must educate every child who happens to reside in their district, no matter how hapless or unmotivated.
Public schools currently educate about 50 million students PK-12. Private schools have about 6 million. Most private schools run at capacity or even turn away large number of students. Please propose to us how you will transfer any large fraction of 50 million students into a system that currently holds 6 million without importing all the problems that currently afflict the public school system.
Private schools are a niche product. Many serve parochial, class or race interests that have nothing to do with higher-quality education. The ones that do offer a higher-quality education are often purposefully small and regularly over-subscribed. Also whenever you drop a lot of federal subsidy into an unregulated marketplace with limited existing capacity, fraud and waste follow (see for-profit higher education). On your plan, the benefits will accrue to those families who are savvy/talented/connected enough to secure their place. The rest will be left behind in a floundering, ever-worsening public education system.
If you were talking about a mature proposal like importing some of what works in private schools into the public school system, or supporting the further growth of successful private schools, I might listen. But throwing more advantages at people who already have them, which is what vouchers amount to, is no solution.
I can’t help but agree with dlr about kleptocracy though. The general counsel who quit AIG when they cut her salary from $900,000 to $500,000 was simultaneously amazing and horrifying. I’m thrilled that Ken Feinberg’s work is proceeding successfully – I’d much rather pay her $0 than either of the higher amounts – but I’m horrified that a $500,000 salary in one of the worst-hit companies in the worst-economic crisis of our lifetimes struck someone as an insult. It’s also fun to watch all the others who talk a big game about quitting take the pay cuts and like it. But the bottom line is that most of them should be cut down a lot further – AIG should be taken apart immediately, and those who can prove their worth to the new owners can then be paid whatever they deserve. While they’re a ward of the state they ought to be paid according to government pay grades – I think a government lawyer with 10 years experience can probably earn up to $150,000, which ought to be enough.
najdorf, As I understand it, most private schools have fees considerably lower than $10,000/year/child, which is what the public schools cost per child per year. I’ve heard $6,000 to $8,000 per child per year, although I suppose that varies with location.
I don’t know where you are coming up with 2x and 3x. That would put the average price of private schools at $20,000 to $30,000 /year/child.
As for how, well, if I were a school teacher, or interested in becoming a school teacher, I would be thrilled to get a salary and benefit package of $120,000/year. Add in $30,000 for textbooks, materials, and rent for a ‘one room school house’ (maybe one of those foreclosed houses sitting empty?). That would work out to $6,000 per pupil per year for 25 kids. I’m sure entrepreneurs would come up with much more profitable approaches than that, with computer learning, etc, instead of the labor intensive practices we currently use.
Or, sell every public school to the highest bidder on June 1st, with all the playground equipment, libraries, and desks, and then let the new owners hire teachers and get started.
Sure there would be some waste and fraud, but there are plenty of schools in the public school system that are terrible too. The difference is, with private enterprise, if your child is so unfortunate as to get into a bad school YOU CAN MOVE HIM TO A DIFFERENT SCHOOL, and try again. The bad schools would go out of business, after a while, for lack of customers, and be replaced by new schools. Chain schools would get started (Walmart-for-Kids? Harvard-in-a-Box? Why not?) Guaranteed there would be COMPETITION for all of those education dollars.
I don’t have any trouble believing the free market would fail here and there – for kids with serious problems, or in neighborhoods with serious problems. And I could see pouring some extra taxpayer money into those areas. But private DAY CARE works, why shouldn’t private SCHOOLS?
dlr,
I don’t know specifics about most schools, but private Jewish schools have a listed cost from $10k-$20k/year. Private Catholic schools are subsidized by the church – this describes half of all private schools in this country. I looked here: http://www.capenet.org/facts.html, and it seems that this is standard: schools are subsidized by communities of a given faith in most cases. (No endorsement implied. I just found it on Google.) From my experience (my sister teaches at a Jewish school,) teachers there are paid less than those at public schools. (I have friends that teach at public schools as well.) Why?
Good question. Schools are different from daycare (at least, private schools are. Some public schools barely qualify as daycare.) There are overhead costs you ignored, mostly. It’s illegal to just grab a bunch of kids and “start teaching them.” You need to be accredited, or on the way to being accredited. There are a lot of regulations involved in this. A high school needs qualified teachers for a variety of subjects. Again, for a high school, to be accredited, you need a certain number of books, and a certain type of library system in place. There are laws that require subject like chemistry, and laws regulating the use of chemicals. (Feel free to say we should do away with either or both, but it’s not as simple as you made it out to be.)
For profit schools have no real motive to compete, since so much of education has no good metrics anyways. Cheating the system would be easier than teaching, and much more lucrative. There is nothing in place to prevent this, because there aren’t dollars chasing education yet – it’s a complex system, and you had better think long and hard before saying you can simply scrap it. There is significant difficulty in making a transition like this. And you can tell a decade of kids that you’re sorry they were screwed because you wanted to overhaul education and it was ruined in the mean time, but I wouldn’t want to.
Private schools compete on performance, activities and prestige. Private schools will tell you their averages on standardized tests like Iowa tests and SAT tests.
The main failure of public schools is not their low achievement test scores because those are mostly a function of student ability. Rather their greatest failure is not providing sufficient vocational training and apprenticeships for the majority of students who don’t go to college and need practical jobs skills and a career.
Funding levels are adequate, but vocational opportunities are not.
In the end, the most important part of a school is the parenting culture. Money and teachers can do a few things, but if parents don’t do their jobs, no school can clean up the mess.
A few notes from a public HS teacher in SE PA:
1) public school funding is largely local. As such, it varies wildly from district to district. My district spends ~$10k per student per year. A neighboring district spends ~$25k per student per year.
2) My district is under the state’s thumb for repeatedly “failing” the state’s standardized tests while said neighboring district isn’t. What those tests don’t take into account for passing / failing schools are:
a) transient kids
b) kids that enter the district late and then are counted for that district’s total on the comprehensive tests the following year (ie: Philadelphia doesn’t educate the kids for K-10 and we’re supposed to get them caught up in 1 year and get hammered when they aren’t?)
c) immigrants that don’t speak English
d) the parents who either don’t care or can’t around enough to show that they care
e) Biggest Problem: wild variations in the talent / ability / studiousness of student populations year-over-year in the test scoring (it’s always this year vs last year and both of those vs a supposedly objective set-point)
3) Our economy increasingly rewards those who are capable of thinking abstractly. However, a large part of our population just isn’t ready for abstract thinking. AND, we still need people to do the vo-tech jobs. My HS is one of the few in the area that actually has both programs within it to prepare students for each “world”. Unfortunately, those that choose the vo-tech route have their economic options severely limited, while those who try for the college-route but can’t foot the bill end up in a deep hole. (make the vo-tech jobs economically viable or the college education more affordable or a combo of both, or my current students will be permanently in debt)
4) Private schools get to pick their students and can kick out kids for minor infractions. Public schools have to go through the ringer to get rid of major troublemakers. I’d love to see our local private schools educate our “average” student…
5) Exactly, Mr. Merkel. If a student isn’t homeschooled, he can’t be schooled. Unless parents take up the burden of being parents, not even the most persistent teacher can put the pieces together.
and 6) Thank you Mr. Merkel for writing this blog. I love reading it and have learned much.
Alex, thanks for your erudite comment. My thanks to your wise father as well, from whom I learned so much.
David Manheim,
Well, I’m completely willing to leave the dangerous chemicals out of the mix. =]
But for the rest, I think the state should be focusing on RESULTS, not PROCESS. I don’t think, the state should be passing laws specifying things how many books have to be in a schools library, or what accreditation a teacher requires to teach 1st grade or High School English. That’s telling people HOW to do the job. The state should focus on WHAT, specifically, WHAT do children need to know, at each grade level, to demonstrate minimum competency. They should test the students periodically, on these core subjects, say once a year or once a quarter, or however often as they do for homeschooling students. And put schools on notice, and shut them down if the kids aren’t making steady progress.
As for the rest of it, let each school decide if the kids would be better off with more books, or more teachers, or more computers, or whatever.
Yes, I agree, some schools would be substandard, and some teachers would be substandard. But, some schools and some teachers are substandard NOW.
As my comment has disappeared, just a short summary: I find your tax suggestions very harsh, difficult to implement due to expected non-linearity, but fair.