Subsidize consumers, not producers (if you must subsidize)

August 15th, 2008 | by Brian |

People who think government has a role in making sure everyone has access to health care or education often conclude the the only way to do this is to force taxpayers to fund government-controlled insurance (Medicare, Medicaid, SCHIP) and government schools.  But this does not follow from their stated concern.

It only follows if, say, the person either

  • wants government to define what education and health care are,
  • wants to make sure friends of politicians get government jobs managing the programs that control health care and education.
  • wants to empower teachers unions that contract with government schools and donate to the political party that generally opposes school choice measures.  (For example, see here.)

But it does not follow if you care about children getting educated and people having access to health care.

What follows is to subsidize consumers rather than producers, and hence maintain a competitive marketplace for the production of the good.  Food is also important, but government doesn’t run grocery stores.  It taxes people to pay for food vouchers, or food stamps.

As Milton Friedman said:

If you want to subsidize the production of a product, there are two ways you can do it. You can subsidize the producer or you can subsidize the consumer. In education, we subsidize the producer—the school. If you subsidize the student instead—the consumer—you will have competition. The student could choose the school he attends and that would force schools to improve and to meet the demands of their students.

…education ought to be a parental matter. The responsibility for educating children is with parents. But in order to make it a parental matter, we must have a situation in which parents are Free to Choose the schools their children attend. They aren’t free to do that now. Today the schools pick the children. Children are assigned to schools by geography—by where they live. By contrast, I would argue that if the government is going to spend money on education, the money ought to travel with the children. The objective of such an expenditure ought to be educate children, not beautiful buildings. The way to accomplish this is to have a universal voucher.

The only point I’d disagree with him on is that a tax credit would be better.   With a voucher, there are strings attached to the government check, which will empower government to controls schools.

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  • nub
    I understand your larger point about subsidizing consumers, but I still think the food stamps analogy is oranges-to-apples.

    Also, a 10 mile radius is a little much - you're essentially including an entire metropolitan area with that search, which is not realistic, imo. A personal anecdote: in 6th grade I open-enrolled to a different middle school that was about 2 1/2 miles away from home as opposed to the one that was within closer walking distance. (This had nothing to do with it being a "better" school, btw, it's just where some of my friends happened to be.) There were no buses. My mom drove me most mornings and this was, in fact, somewhat of a hardship for her. In rush hour traffic it added a good 20 minutes to her commute, and hers was the kind of low-paying job where there wasn't much flexibility given to being late.

    Point being: people don't like to add significant daily travel time for their children's schooling. I know you'll probably dismiss this argument as us being lazy or whatever, but it's true.
  • nub
    But of course one's choice in schools is going to be limited by geography. And the less resources one has, the more geographically-limited they are. This fact alone means K-12 education is never going to be the idealistic free-market that you desire. Seems to me you're arguing against one flawed system in favor of another equally flawed system.

    Brian replies: (As the saying goes, the following would be shorter if I took more time.)

    In the current method of funding schools, schools receive revenue from local property taxes, and that schools are government-run institutions. The main point of my post is that current system does not follow from the argument that government should make sure that kids have access to education. It does follow if one wants the people in power to control the content of education, and for teachers unions to have a lot of power.

    A secondary point is that if government funded students and not schools, there would be a more competitive market for eduction, and since parents would have more choice as to where to send their kids. This is certainly less flawed, and hence better than the current arrangement, where monopolistic schools pick the children, instead of the children (through their parents) picking the schools. Schools might actually see parents as customers, and try to innovate to satisfy their needs.

    Colorado currently has open enrollment, which provides some school choice. What do you consider to be "limited choice"?

    According to the table on page 4 of this report, the Adams 14 school district had zero schools rated "excellent" or "high." A Google search for Adams 14 connected it with the zip code 80022. Using the search tool at SchoolChoiceForKids.org, I found 49 schools within 10 miles of this zipcode at the 6th grade level. That seems like plenty.

    Also, under a voucher or tax-credit system, parents will be empowered to choose their school, which could create a market for schools to open in locations where they are lacking.

    Here's a thought experiment: What if we funded grocery stores the way schools are funded? That is, you prepay for your groceries through your real-estate taxes or rent, and can go to one local grocery store for "free." (Unless you're can afford to go to others.) And then someone suggests a more free-market approach. Is the following a good objection?

    Governments have food stamp programs. They do not operate their own grocery stores. And I've never heard anyone say they this would be better than food stamps. Would government-run grocery stores and food stamps be "equally flawed"?

    "But of course one's choice in grocers is going to be limited by geography. And the less resources one has, the more geographically-limited they are. This fact alone means food markets are never going to be the idealistic free-market that you desire."

    In any case, the point of my post is for people to be aware of the distinction between subsidizing producers vs. funding consumers. If someone claims government should be responsible for parents being able to afford to educate their kids (if though I'd say that's the responsibility of parents...), then they should support vouchers or tax credits. If someone knows about this option and still supports government-run schools, I suspect that there's another reason hiding behind the facade of making it affordable.
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