School Choice and Vouchers

Great Debates
161

And they would be wrong.

But rather than get into a little hissy match here, I’ll post a few links below from the Austrian School that try and summarize how mismanagement of fiat money, and associated bank credit expansion (via a fractional reserve system), is always at the root of extended bubbles and the pain afterwards.

There is no other possibility. When people put their own capital at risk, with the threat of bankruptcy, downturns are much shorter and recovery is quicker, because capital quickly flows to the point of maximum returns.

When the government mismanages a fiat currency and bank credit, it creates huge, artificial distortions in the price/(cost) of capital which then flows to assets that become detached from their underlying value (determined by fundamental human preferences for deferring consumption vs. investing for the future…but let’s not get into that right now).

Those assets can be stock values, housing, or credit default swaps. When the fiat expansion collapses, as it always does, the value of those assets needs to return to their previous, underlying value. And those people holding those assets, as well those who hold fiat money as a store of value, have just seen their real wealth decline and have suffered from the hidden tax of inflation.

Read them and come to your own conclusion. At least you will have a broader perspective. Be sure to read the parts about the prelude to the Great Depression, which began in the 1920’s as the US tried to match its exchange rate, artificially via fiat money, with Great Britain after WWI.

What I find so enjoyable about the articles from the Austrian school is that you can cut-and-paste dates, names of government officials, and actions taken in response to public demands, and keep re-printing the same article over and over and over again. From 1930. From 1970. And again, from now.

Murray Rothbard’s ‘Americas Great Depression’ is also free at mises.org. It’s a whopper at 400 pages of .PDF, but you can print it out in chunks and take it with you on airplane trips, like I do. You might enjoy it.

162

So, all we have to do is return to the gold standard and shut down the Federal Reserve system and prosperity is ours!

163

That would be a start, wouldn’t it?

It’s amazing how this country progressed from its inception, up to 1913, without a Federal Reserve. How in the world did that happen? How was that even possible? How did things get so much better, without the Federal government at the tiller of the money supply?

Life expectancy dramatically increased. People didn’t routinely die on operating tables, like they did just a few decades before. Airplanes, automobiles, and the telephone were invented. The cost and time for a human being to travel a 1000 miles decreased by orders of magnitude. We went from ships under sail, to coal-fired paddlewheel thumpers, to diesel-powered ocean liners and rapid locomotives. Steel production increased by orders of magnitude. The United States drew 10s of millions of immigrants who came here by their own volition to seek a better life.

The reason a government needs to create a central bank, and to detach a currency from a commodity standard, is that it wants to create a facility through which to borrow that is unconstrained by the requirement to hold gold to back its paper. If the government doesn’t need to borrow beyond its capacity to repay, there is no need for a central bank and fiat currency.

The bank credit expansion part is essentially the opposite side of the same coin, but it’s more subtle. If you have some time I suggest you read some of the links I posted above to get a different perspective.

164

Oh dear. You’re serious.

165

Of course I am. Aren’t you? Or are you doing the hand-waving dismissal thing?

Do you honestly believe that voluntary transactions between consenting parties, who put their own capital at risk, can cause a depression? If so, please explain to me how that is possible. Because that is what a free market is.

166

So you don’t think that subprime lending between willing borrowers and willing lenders had anything to do with the current recession? Some people would say that they were THE precipitating factor in the current recession.

The problem with laissez faire policies is not that it allows too much freedom, the problem with laissez faire policies is that it allows for too much market failure.

167

[quote=“DanBlather, post:140, topic:500908”]

I agree that funding education through real property taxes is a bit contrary to the notion of public education as the great equalizer. I think we can do a lot more with the dept. of education than we have been doing and say what you will about government generally, I think it is generally fair to say that the federal government generally handles things much better than the majority of state governments.

I don’t think we are ever going to be able to pay teachers the way we teach doctors and lawyers. The level of training you need to be a great elementary school teacher just isn’t as high as the level of training you need to be a great lawyer or doctor. That’s not to say that we shouldn’t pay them more (in fact I would support significantly higher pay in exchange for the ability to fire them if they suck).

My biggest problem with with the shole “school choice” concept is when people want to be able to use their school vouchers at places like Andover. If charter schools can do a better job with the same money and same obligations to take all comers as public schools, then I am all for it. If a charter school wants the parents to kick in extra money or wants to pick and choose who they accept, then I am against it.

168

Wait a minute, you said “innovation is dead” and I said “why won’t charter schools fix that”

Now you are pointing out a specific type of innovation (segregating children into different schools according to their aptitude or motivation). Sounds a bit “Brave New World” doesn’t it?

Why not give kids IQ tests in Kindergarden and place them in different school based on those scores? Then you can weed out the disruptive kids and throw them in some special school for troublemakers with a scared straight program.

There are a bunch of really good private schools around here, they cost about 25K/year and are probably cheap at that price but the entrance criteria is based on an IQ test, a personality test, and they interview the parents. Is it any wonder that these schools consistently send their students to great colleges? Is that sort of cherrypicking consistent with the ideals of public education?

169

Of course I do.

The banks were lending with who’s money?

Hint: It was yours… both directly (via taxes to subsidize their losses, and the losses of Freddie and Fannie) and indirectly, via the use of fiat money and bank credit expansion.

It doesn’t have to be this way. That’s the encouraging part.

The discouraging part? Most people accept the politician’s line that ‘it’s the bankers fault’, and swallow the next line hook, line and sinker…that the government can fix the problem via more regulation, when it was the government’s fault in the first place.

170

So you think that its OK to just give the crack addict single dad a wad of cash for their kid’s education without any regard to how that money is spent? Amazing.

171

Please explain why it isn’t.

I don’t think of schools as the universal babysitter.

172

I think that a pretty good example would be the “free market” charter schools in DC. The average test scores in DC have gone up, the graduation rate has gone up, the percentage of students going to college has gone up. You can argue that we are leaving some students behind and that is something we have to deal with but the evidence seems to show that the performance in the bottom quartile of the student population is not being significantly adversely affected by the presence of charter schools.

The only real arguments against these schools seems to be based on union supported theories about how charter schools are the death knell for public education in America. I would even take Charter schools off the table AND give teachers a 20% raise if unions would drop their nearly bulletproof job security.

173

Hedge funds are not regulated. Its kinda the point behind hedge funds. that is why you see so much of the fraud being uncovered in hedge funds instead of mutual funds.

Besides I thought the whole point was that we haven’t had regulation for a while now.

174

What is the problem you are trying to solve? I’ve listed two possibilities below, but you should feel free to add another

  1. Poor people don’t have the resources to educate their children

  2. Children are not being educated in the appropriate way

Pick one. Or define another one, if you want.

175

You’re actually proving my point.

Has the collapse of hedge fund investment, and associated frauds, caused the recession? Has the $50 billion that Bernie Madoff lost, caused the recession?

176

So you would say that Hayek and Mises are absolutely right and Keynes and the majority of mainstream econmists are absolutely wrong? The Austrian school thinks we should go back to using gold coins as currency. They’re a bit on the radical edge of economic thought aren’t they?

I don’t think Hayek would even agree with that one.

At this point half the world is has heard of the Austrian school and it is still considered a bit of a fringe econonomic theory. Mostly because they think we live in a highly stylized world filled with homo-economicus who only make rational decision based on increasing economic wealth.

177

I believe we had a central bank for much of that period. 30 years without a central banking system, 40 years with a central bank (the first one created by Alexander Hamilton two years after the Constitution was ratified), 50 years under a web of national banks before we created the current central bank.

During the free banking era, the average lifespan of a bank was 5 years and people stored value in gold instead of in the bank.

http://en.wikipedia.org/wiki/Free_Banking_Era#1837.E2.80.931862:_Free_Banking_Era

And yet the economic growth in the period between 1913 and 2009 is several times the growth that we saw between 1789 and 1913.

Why do Austrian school types all act like they have stumbled onto some sort of undiscovered truth? People have read and are familiar with the Austrian economists and while they make some very valid points that doesn’t mean that all their points are valid.

178

[quote=“IdahoMauleMan, post:169, topic:500908”]

Of course I do.

The banks were lending with who’s money?

The vast majority of subprime loans were backed by non-agency paper. IOW, the vast majority was issued and floated by investment banks and mortgage companies. Fannie Mae did not underwrite negative amortization, no-doc, no income verification loans with sketchy appraisals.

The vast majority of those mortgages were securitized and resecuritized and sold to banks and pensions and hedge funds. That is where the money came from.

It was the government’s fault for not regulating enough. I’m not saying that we couldn’t use a little reform at FNMA and FHLMC but they were just about the most responsible large lenders during the real estate bubble.

179

The public education system isn’t doing as good a job as I think it can to provide a good education to all children regardless of ability to pay.

I am one of those people who think that people don’t always make the best choices and if you give some people money for food they may spend it on something that will leave them hungry. If we feel that noone in this country should go hungry, I am going to support food stamps that MUSt be used on food rather than passing out cash that COULD be used on food.

I think that we (as a nation) have decided that every child deserves an education regardless of ability to pay. They don’t deserve enough money to pay for an education, they deserve the education itself. That is why people are talking about vouchers and cahrter schools not a check in the mail.

180

It not that we think we’ve stumbled onto some undiscovered truth.

I appreciate the method because it’s so simple that anyone can understand it, whether they are learned in economics, public policy, foreign relations, or whatever.

Rubes like me can understand it. Your basic truck driver from Teaneck NJ can understand it, appreciate the arguments of the Austrian school, decide for himself (when he casts his vote) whether he feels his elected officials will push the needle in the right direction, or wrong direction.

Most of the arguments for ‘the free market caused a depression’ are extremely shallow correlational arguments (like your economic growth argument above…which I would dispute, but let’s save that for another day), or mere assertions. Usually repeated assertions, from a politician with whom the asserter has fallen in love with, and therefore will believe anything that comes out of his mouth.

They usually stem from emotional arguments, or contempt for the rich, or a need to find a villain whom to punish.

But the Austrian school of thinking blows them up in a matter of seconds.

Shall we try again?

How can voluntary transactions, between consenting parties who put their own capital at risk, cause a depression?

They can’t. It’s impossible.

Oh yes, we can dig for hours into all the little complexities of that argument, pull out data, discuss FDR and Morgenthau’s quotes from the 1930’s, track unemployment, etc. It’s fun to do. I like it. But it misses the point. Once you’ve created a fiat money supply you have tipped the pyramid upside-down on its tip, and all further efforts to regulate and control are just pulling and tugging at the guy-wires around the edges.