Senator/scholar Daniel Patrick Moynihan, a liberal Democrat who conservative columnist George Will only half-jokingly noted “wrote more books than most Senators read” has a fascinating discussion about health care reform and Baumol’s cost disease in his book Miles to Go. Moynihan, the original sponsor of the bill that came to be known as “Hillarycare” in the early 1990s, described his friendship with economist William Baumol. Baumol’s insight led DPM to take a leery approach regarding health care reform. After defining Baumol’s cost disease for the reader, DPM offered his own corollary. The Moynihan Cost Corollary reads:
Activities with Baumol’s disease migrate to the public sector.
DPM then explained how this shaped his view of the health-care debate:
It follows that it will be the undoing of modern government if too much migration is allowed. And so I approached universal health care with caution.
How much caution? DPM, the Senate sponsor, eventually declared that we had a welfare crisis not a health care crisis on national television, which was not terribly helpful to say the least. Reading between the lines, one might infer that it possible that Senator Moynihan took up sponsorship of the Clinton health care initiative to leverage it for increased focus on welfare reform and perhaps even to kill it.
Getting back to Baumol’s disease in our K-12 system, recall these two charts from previous posts:
 I can’t prove this point, but it is consistent with both DPM’s actions and implied in Miles to Go. I think that Senator Moynihan was playing chess while others were playing checkers in general.
NAEP Long Term Math Scores, 1971-2008
So despite an increase in public school staff more than ten times greater than enrollment growth (first chart) the increases in student learning modest. The productivity per school employee has therefore fallen substantially. The “good ole days” of American public schools were not so good academically, but they were enormously more efficient at achieving those (bad) results. The international evidence on student achievement reinforces the point: American students lie on the high end of spending but on the low-end of achievement on international exams.
Figure 3: Relationship between performance in mathematics and cumulative expenditure on educational institutions per student between the ages of 6 and 15 years, in US dollars, converted using purchasing power parities (PPPs) (Source: OECD)
The challenge for policymakers and educators is therefore a daunting one: we must reverse the course of the last 40 years by improving learning outcomes substantially while holding the line on cost. In other words: we badly need efficiency gains.
Consider the following chart from economist Eric Hanushek:
The chart shows real dollar cost increases per student along the bottom axis plotted against gains on the Mathematics NAEP exams. Never mind this annual percent of a standard deviation nerd-talk stuff other than to note that the improvement scale is the same for all the states.
Where you don’t want to be on this chart is Wyoming- a six thousand dollar per student increase in spending with a below average learning gain. Paging Dr. Baumol!
Notice that the four states that made the highest gains- Maryland, Florida, Delaware and Massachusetts- all carry the reputation for having an admirable system of student testing. Notice however that Florida stands out with both among the largest academic gain and the smallest increase in cost per student. Florida comes in as the bang-for-buck champion by a wide margin.
Florida lawmakers put new funding into the K-12, but the thrust of the reforms involved getting more value out of funds already in the system. Policymakers and educators repurposed existing funding streams into higher impact priorities. A solid system of academic transparency costs about the same as a poor one and delivers better results. Choice programs like the Step Up for Students Tax Credit and the Florida Virtual School not only improve student outcomes but have also saved taxpayers some money in the process.
This challenge of the future will be to improve outcomes and to lower costs. The only real way to do this is the same way it has always been done in the past: technological innovation that increases the productivity of individual workers.
I believe that the future of American K-12: educators leveraging technology to allow a smaller number of highly effective teachers to teach a larger number of students to a higher level than was previously possible. The charter school sector serves as the skunk works for new school models. The work is vital and young, but people are actively experimenting with new school models to produce better results at lower costs.
Recall the Moynihan Corollary:
Activities with Baumol’s disease migrate to the public sector. It follows that it will be the undoing of modern government if too much migration is allowed.
We discussed earlier that American K-12 is the Mother of All Baumols (MOAB). The main victims of MOAB have been disadvantaged students. Rather than a system that gives the most to the students who start with the least, we have a system that in many important ways gives the least to the students starting with the least.
Unwinding decades of Baumol’s cost disease in K-12 is no small task and will have no single, simple solution. It is however the essential task that lies before us.