Category: Education

Tyler is concerned that a voucher system for education might end up looking like our health care market – “a crazy-quilt mix of bad incentives, high costs, and increasing levels of intervention.” But our health care system is not a voucher system – much more relevant is the existing voucher system for housing. Public housing has been a disaster in this country, low quality, dangerous and expensive (to the taxpayer). The Section 8 voucher and similar certificate programs have been far superior on all measures. What would you rather have – an apartment in a public housing project, costing the taxpayer $1000 a month, or a voucher worth $500 a month that you could spend on private housing?

The economic studies on the superiority of vouchers are unanimous. Here is Ed Olsen, one of the country’s leading researchers:

Five major studies have estimated both the cost per unit and the mean market rent of units provided by housing certificates and vouchers and important production programs, namely Public Housing, Section 236, and Section 8 New Construction.1 These studies are based on data from a wide variety of housing markets and for projects built in many different years. Three were multi-million dollar studies conducted for HUD by respected research firms during the Nixon, Ford, Carter, and Reagan administrations. They are unanimous in finding that housing certificates and vouchers provide equally desirable housing at a much lower total cost than any project-based assistance that has been studied, even though all of these studies are biased in favor of project-based assistance to some extent by the omission of certain indirect costs.

As with housing, the market for education would be very competitive so we would not see price rises due to monopoly problems (as Tyler fears might be the case). There has been a big debate about whether private schools result in better outcomes that public schools. Put aside this debate and focus on what is undeniable – private schools have achieved at least as good outcomes as have public schools but at about half the cost (similar to the cost savings of vouchers over public housing). Thus we are starving the most productive sector of the educational market and throwing money at the least productive sector. Prices might rise in a voucher market but only as a rational response to the lower price of quality in private schools.

I have often wondered what an educational voucher will buy. How large need vouchers be to give students access to decent education? A recent Cato study, by David Salisbury, attempts to answer this question.

Here is part of the Executive Summary:

“Government figures indicate that the average private elementary school tuition in the United States is less than $3,500 and the average private secondary school tuition is $6,052. Therefore, a voucher amount of $5,000 would give students access to most private schools. Since average per pupil spending for public schools is now $8,830, most states could offer a voucher amount even greater than $5,000 and still realize substantial savings. A survey of private schools in New Orleans; Houston; Denver; Charleston, S.C.; Washington, D.C.; and Philadelphia shows that there are many options available to families with $5,000 to spend on a child’s education. Even more options would be available if all parents were armed with a voucher or tax credit of that amount.”

Salisbury admits that the cost figures do not include all capital outlays or pension liabilities. On the other hand, vouchers could introduce more competition, lowering costs.

I worry about how vouchers themselves will affect prices and costs. Private schools for poor urban students are cheap, in part, because the school knows the parents cannot afford much more. If the first $5000 is free, the price could go up considerably. In addition, if the schools can somehow coordinate on yet higher prices, there will be political pressures to raise the voucher amount.

Mixed public-private systems are not always cheaper than more public systems, in part because private firms are often skilled in extracting resources from the public sector. The American health care system, for instance, has considerably higher administrative costs than does the “single-payer” Canadian system, read here for a recent comparison. I don’t favor national health insurance by any means, but these figures should give pause to voucher advocates.

The research of Harvard professor Caroline Hoxby suggests that increased school competition brings increased school quality. But her work does not clear up the most difficult questions about vouchers. If you imagine the system in place, on a large scale, for lengthy periods of time, and subject to pressures for rent-seeking and regulation, what would it look like? Would it truly serve parent demands for good education, or would it look more like the American system of health care, a crazy-quilt mix of bad incentives, high costs, and increasing levels of intervention?