Governor Joe Lombardo has proposed record funding for Nevada education: billions of dollars in increases. He also did two other important things. First, he said our PK-12 public-school monopoly would be held to measurable improvements in student achievement or their funding increases will be reconsidered. Thus, we won’t repeat the key mistake of the past: throwing money wantonly at the predatory teacher unions and ignoring the actual education of students. Second, he made a point that the standard public-school monopoly is not the only platform on which education happens, and the state will foster further development of a wide range of alternatives (online, home, micro and charter schools, etc.) with new funding.
This latter point will promote the innovation and meaningful diversification we need away from a stagnating and increasingly dysfunctional system. It’s as important as shifting the focus from pandering to the provider bureaucracy to educating students. Three sectors of our economy long have had a problem that competitive market sectors don’t have: cost disease. As discussed below, this concept was analyzed by Nobel economist William Baumol nearly sixty years ago. The important point about it is that we now know the problem characterizes government and sectors it dominates (education and healthcare), not competitive markets.
Consider the results for consumers and the public interest from sectors that operate in market competition. A century ago, a three-minute Nevada-to-New-York telephone call cost hugely: about two weeks’ average wages. And it had to be made from one telephone office to another, not between homes or from cars. Today, a call can be made from almost any location to another, including on the roads, is not limited to three minutes, and either costs nothing (included in the monthly fee) or is almost free. Telecommunications has benefited from great technological advancement. But consider a standard mattress and box spring. Although there’s been only modest technological change in the production and makeup of these items in the last century, their cost today is less than 15 percent of that a century ago in average-wage work hours.
This kind of innovation and technological change has been fostered in essentially all market sectors and via private property rights. Markets and private property are the keys to economic growth and thus to increasing human wellbeing. Government, with its increasing focus on process and regulations and its ever-increasing time frames for them, has continuously thrown wrenches in the gears of progress and thereby slowed economic growth. Over 250 years ago, Britain and America led the economic revolution (classical liberalism) that lifted mankind from eons of nearly no growth into a world where each generation is significantly better off than the previous one. The rise of progressivism and other leftist practices about 150 years ago has slowed economic growth ever more, especially in the last quarter century.
Baumol thought cost disease also applied to some private sectors, but revisiting his key example shows his err. He said that to enjoy great classical music today requires the same number of musicians, chairs and instruments, plus a similar concert hall as two centuries ago. The problem: He drew the boundaries of production and consumption too narrowly. With improvements in communications technology, one can now enjoy the fourth (choral) movement of Beethoven’s Ninth Symphony in the living room, on a car trip or under a brilliant sun and blue sky while skiing a beautiful mountain and eating delicious chocolate. The point is human utility, and sometimes it’s greater in those settings than in having to drive at a particular time to the concert hall.
Instead, government lives on stasis, the preservation of traditional production methods and of the roles of incumbent producers, especially with the rise of public employee unions. Hence, we need a teacher in front of a classroom, with a desk for each student, etc. and we avoid real diversification and education reform. Governor Lombardo has a better idea.
Ron Knecht is Senior Policy Fellow at Nevada Policy Research Institute.