Klarinet Archive - Posting 000347.txt from 2004/05

From: "Kevin Fay" <kevinfay@-----.com>
Subj: RE: [kl] Re: re: no one left behind (long wonk response, please ignore if not interested)
Date: Mon, 17 May 2004 14:18:32 -0400

R. Williams posted:

<<<I will have to disagree with Kevin Fay's analysis on several points. The

issue isn't taxation, it is education. To the best of my knowledge we can
characterize US education by saying it is the worst of any industrialized
nation in the world in regards to student achievement "AND" the United
States spends more per student than virtually any industrialized nation to
achieve these results.>>>

Your characterization is to the best of your knowledge, which you then
demonstrate to be scant at best. There is a crisis in local taxation in the
US right now. Playing an ostrich doesn't make that crisis go away. Perhaps
the news in California over the last year or so escaped y'all - Gov.
Schwarzenegger and all that?

One of the primary expenditures of local tax revenue is primary/secondary
education; as tax revenues wither, the amount available for education is put
in crisis as well. Note that the current crisis is *not* the result of
runaway expenditure, but the withering of revenue, mostly revenue sharing
from the Federal level. The image of fat, sloppy and inefficient public
educators wasting away valuable tax revenues is a neoconservative canard; it
is simply not true.

Also not true is the assertion that the US public school education system is
the "worst" - or even "bad." On average, it certainly needs improvement;
but looking at "average" is extremely misleading. US public schools in
affluent suburbs are in fact extraordinarily good, unless enrichment
programs (like music) get gutted for lack of funding.

One of the reasons for the lack of funding is that US school districts have
been saddled with the responsibility of being the delivery system for all
means of social benefits. It is extraordinarily expensive to offer special
education for special-needs students, which local districts are required to
provide by law. Neoconservatives love to trot out statistics showing how
private schools are more "efficient" by showing higher test scores with
lower per-pupil expenditures; these schools, however, are not required to
provide special education to all comers, and can deal with discipline
problems (and non-payment of tuition) by expulsion. If you back out the
expenses of special education and other programs, the per-pupil expenditures
of the "normal" public school education are very much in the same ballpark.

Schools in inner cities, OTOH, suck, and not surprisingly so. The number of
kids with special needs is much higher, as are the costs of providing
education in a depressed area. Property tax revenues, OTOH, are less given
the lower tax base, leading to a gross inequality of education funding.

If you "average" the performance of all public-school students, you'll get a
depressing gauge of how the US public school system performs v. private
schools. This is not an apples-to-apples comparison, however, because of
the breadth of student population in the public schools. If make a relevant
comparison of private school students with the suburban public school,
backing out the special-needs kids that the private school wouldn't take,
you'll find that the public schools "on average" do very well indeed. See,
e.g., http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2002115.

There's another effect at work as well - private schools consciously adjust
their tuition and enrollments to favor more able kids who will make them
look good. See http://papers.nber.org/papers/w7956. Public schools don't
get to do that - it's illegal.

If you add in a fiscal crisis and increase the number of special-needs kids,
the public school will suffer. The problem isn't that the public schools
stink, but that there's no accounting and provision for the additional
expenses of special needs. Playing ostrich doesn't help.

Back in 1954 Darrell Huff wrote a charming little book titled "How to Lie
with Statistics." It should be required reading for anyone that's asked to
make an informed evaluation based on numbers (like voters).

I crunch a lot of numbers for a living - I do corporate work and tax
planning for a very large, very profitable corporation. I'm appalled at
statistical arguments I see over education from both sides.

Mr. Williams goes on:

<<<Secondarily, Mr. Fay's statement that US citizens are under taxed makes
some assumptions not in general agreement by any means. What exactly does
it mean to say we are under taxed compared to our European neighbors and
what are the economic consequences of that?>>>

A fairly fundamental evaluation of tax policy compares expenditures against
revenues. Americans steadfastly refuse to have their benefits taken away,
but at the same time require their politicians to lower tax receipts. This
doesn't work very well in the long run. If we want to maintain the level of
benefits, at some point taxes must be raised to pay for them. There is no
such thing as a free lunch.

Further,

<<<The consequences are that government delivery of
services are historically "always" less efficient and more expensive. One
cost is the absorption of money into the delivery of those services, such
as Medicare/Medicaid where only 16 cents on the tax dollar goes to the
delivery of medical service, the other 84 cents gets eaten up by the
government burden and overhead compared to the private sector which does it
for 15 cents.>>>

This is simply not true.

No one has to convince me about the efficiency of the American corporation.
(Like I said above, forming and running corporations is what I do.) The
corporation is a superb tool for organizing groups of people to get things
done, like make products for general consumption. No question in my mind
that the private corporation is more - and indeed is ruthlessly - efficient
for a broad range of tasks than a government agency or any other
instrumentality would be.

The efficiency of the business corporation is not axiomatic, however,
particularly when you ask it to do things like deliver social programs. The
farther you get from making widgets at a profit, the less efficient
corporations get. If you've ever spent time working with the human
resources department of a Fortune-500 company - and I've spent two decades
doing so - you might change your mind as to relative efficiency.

The given "statistics" on the administrative costs to deliver Medicare
services are buffoonery. While there are inefficiencies in Medicare, to be
sure, they're caused much more by the covered pool (old people) and the fact
that it picks up a very disproportionate share of end-stage treatment.
There's very few private insurers that can match the administrative
efficiency of the US Medicare program, which takes only 2 to 3% of premiums
in administrative costs. The average health insurance company eats about
9%; HMOs eat about 15%. See, e.g.,
http://www.medicarewatch.org/2001Basic/Whats_Right-5.html for quick
reference; an in-depth study is "Medicare Administrative Expenditures as a
Percentage of Medicare Benefit Payments, 1979-2000," Medicare Chartbook, 2nd
ed., Kaiser Family Foundation, Fall 2001." If you're going to bandy numbers
about, it would be good to get them on the right planet.

Relying on business corporations to deliver social services isn't efficient.
Corporations fail on a regular basis, health care shouldn't. It also
burdens the corporation with costs that their competitors don't have. If
you were to do a cost accounting of a Buick, you'd find that about $1K of
the cost of producing the car is the payment of retired employee health
benefits. Toyota and Volkswagen don't have that cost, as Japan and Germany
both have single-payer healthcare systems that take that burden.

Then,

<<<Also, our properly taxed European friends live in economies which on
average have grown at a rate of between 0.2-0.5 percent, that's one half of
one percent this century compared to our 2.0-4.6 percent this century,
during a major recession! A fundamental issue is who keeps and gets to
use the money generated by a person? The person themselves or the
government?>>>

Folly, superficial analysis. This view sees a "tax" only in what the
"government" takes, which is but a part of the whole picture.

Who pays for health costs in the US? We all do - it's a shared societal
expense. (Very few of us own our own hospitals). Here in the US, most of
the costs are shared through private industry and insurance instead of
governmental taxes, but the expenditures don't go away just because it's not
the government handling the money. The costs are instead buried in the
price of goods and services.

Another effect is a gross inequality in the distribution of healthcare
benefits, of course. If you don't work for a company with healthcare
benefits, or are of enough personal resources to afford an individual
policy, you don't get health care coverage in the US. In the end, that's
less efficient as public hospital emergency rooms become the concurrent
first and last healthcare stop for millions of the disenfranchised.

Finally,

<<<Saying that our children aren't being properly educated
because we are under taxed is just not supported by the dollars per
students we spend in this country compared to every other country. It is
obvious that money isn't the solution to this issue.>>>

Really? In the US, we spend more than peer countries, but that's to be
expected - our teachers make more money here. (So do our doctors and
garbage collectors). Anyone who thinks teachers in the US are overpaid
hasn't lived on their salary. As a percentage of GDP, primary/secondary
education expenditure in the US is squarely in the middle of the pack; see
http://nces.ed.gov/pubs2003/2003026.pdf at Indicator 21, as are the results
of that level of expenditure.

The results of the tests are also skewed by other societal factors.
Japanese students do indeed "do better" in mathematics and science. How
much of this is the result of superior schools - or the result of the wads
of money spent on supplemental tutoring, which is relatively unknown here in
the U.S.? Whenever I'm in Tokyo, I'm flabbergasted by the throngs of school
kids in the Shinjuku station at 11:00 at night just returning home from
their post-school tutoring class. Little wonder that Japanese pupils test
better - and little wonder that our schools compare unfavorably when you
don't account for the expense of the extra education.

The US spends more - considerably more - on post-secondary education.
Because of this, our colleges and universities are chock-full of students on
education visas, voting with their feet over quality of *that* education.
But that's a different subject.

All of this no doubt will lead some folks to brand me a hopeless "liberal"
(as defined by the "fair and balanced" Fox News Channel). Not so; I'm
actually fairly conservative politically. Like I said in my earlier post,
however, most people who argue about tax policy don't really understand
taxation, which in the end is just the collective sharing of societal costs.
Here in the US, we like to hide our societal expenditures in the form of
mandates to businesses (health care), and mask other expenditures as
"education" (special needs delivery through local school districts). We try
to fool ourselves that we spend less on these things because the money
doesn't run through a government.

How we pay for this stuff is a matter of choice. We choose how much to
spend, and whether to run the money through corporations, government, or a
combination. The choice is made mostly through inertia and superficial
media bamboozling, however, not a studied analysis of what's actually going
on.

kjf

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