Eric Schansberg

By Eric Schansberg

The economist James Gwartney has a thought experiment which illustrates why a system which features socialism and monopoly power is not a good idea. Imagine that government decides to operate all restaurants. Further, your geography determines your restaurant; you will eat at the government (“public”) restaurant in your neighborhood. (To make the analogy more accurate, also assume home cooking — like home schooling, is costly.) What would the incentives be for the person who manages the restaurant? Why does the fact that the clientele is captive make a difference?

Of course, the economic incentives are not at all favorable. Consumers are likely to receive low quality food. In addition, costs (taxes and government spending) are likely to be artificially high and to increase further. But since customers still pay a “price” of zero for the service (government education is “free”), people are less likely to notice the relationship — the subsequent tax increases are much more subtle than price increases in the private sector would be.

In addition, you will be forced to eat the type of food your particular restaurant serves. If it’s Mexican food and you don’t like burritos — too bad. The point is not that Mexican food is “right or wrong” but that by definition, the menu will offend or disappoint someone.

The same is true in the menu of issues provided by government schools — whether to use corporal punishment, when to teach sex education, whether to use phonics, focusing on academics or building self-esteem, etc.

If you decide to eat at a private restaurant to get better quality or because your tastes and preferences differ from what your government school provides, you will have to pay taxes for the government restaurant as well as the prices at the private restaurant.

Clearly, your ability to do this would be a function of your income level. As such, restaurant and educational

choice are restricted, especially for the poor. Many of you are probably wondering how the above can be true if the government (public) school you and your children attended was good. Or maybe you’re thinking that other social factors are the primary explanation of the problems with contemporary schooling, especially in the inner city. While family structure, crime, drug use, etc., are important, they are also more difficult to change. Much can be done by simply changing the structure and incentives in the market for education.

An analogy to marriage is instructive. From a strictly economic perspective, compared to dating, marriage is not a very good institution. The trouble is that marriage limits competition and thus, discourages incentives for good behavior. Often, after the wedding, people gain weight, don’t buy flowers or shave as often, etc. These are behaviors which would probably not be tolerated in a dating relationship. Why the difference? Because when a couple is just dating, there is still substantial competition.

If the incentives are “all wrong,” how does a marriage work? It can still be successful if the spouses behave as if there is competition. To generalize, if a bad institution has “good” people, it can still function well. But if a bad institution has “bad” people, its deficiency will be revealed.

Again, the same is true of government schooling, particularly in the inner cities. With the decline of the family and the increase in crime, illegitimacy, etc., the bad institution (socialistic and monopolistic schools) is revealed. Since those factors have not declined as much in the suburbs, the institution still works fairly well (although at higher costs than necessary, etc.).

Furthermore, anecdotal evidence will never solve this debate. Well into the future, there will be many people who are perfectly satisfied with their government schools. On the basis of their experience, they will be unable to understand why systematic reform is necessary. It is only when the debate moves to discussing institutions that the need for dramatic change becomes evident.

D. Eric Schansberg is an adjunct scholar of the Indiana Policy Review Foundation and professor of economics at Indiana University Southeast. Send comments to [email protected].