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Event Transcript
February 12, 2003

Ideal School Choice Reforms


MR. ROBERT HERTOG: Good afternoon I am Roger Hertog, and it is my pleasure to introduce today our featured speaker Caroline Minter Hoxby.  As you know, Professor Hoxby will be talking about educational reform; and I would like to start out by borrowing an idea I cam across.  I actually do not know the source, but I think it really puts today’s subject in bold relief.

Think about two vastly different aspects of our lives -- education travel and airline travel and education. These days when we fly, and unfortunately this goes ten fold after September 11th I am sure we can all pretty much recite by heart the questions we are asked at the ticket counter -- Have your bags been in your possession every minute?  Did anyone you know give you items to put in your luggage and so on?

Now suppose instead of being asked any of these questions the ticket agent handed you a disclaimer that said the FAA would like to inform you today that there is only a 20 percent chance your flight will land safely. But don't worry, there is an 80 percent chance you will get there safe and sound.  Now what is your preference, do you want an aisle or a window?


MR. ROBERT HERTOG: And do you want to buy the headphones for today’s Brittany Spears movie?


MR. ROBERT HERTOG: The tragic fact is that American children face about the same odds, that they will leave their school system not knowing how to read, write, and calculate anywhere near grade level. By the way Michael is this just loud to me or is it like the loudest thing I have ever heard?


MICHAEL: [OFF MIKE] We hear you very good loud over here.

MR. ROBERT HERTOG: Is it? Well the tragic fact is that the children face the same odds, and as any of these, as these odds that I have just described jokingly about airline travel and that is a national figure.  You know the odds are even worse in our urban core center schools.  This is a problem that is not new.  It has been around a long time. You may remember twenty years ago the federal government report called the nation at risk, warned, and I quote, “that if a foreign power had attempted to impose on America the mediocre educational performance that exists today,” this is in 1982 or 1983, “ . . . we might well might well have viewed it as an act of war.”  End of quote.

And if anything the situation, the situation has gotten worse over the last two decades. So it is no surprise the we at the Manhattan Institute have been so involved in the issue of public school education and reform. Indeed, many of us have joined the debate outside of the Institute as well, privately or in conjunction with other organizations.  Like most critical public policy issues it poses amongst the toughest most probing questions that have generated over the decades thinking and rethinking.  And while passion about the state of our schools should transcend political labels unfortunately it has not, and it has as well given a sense that passions have actually hardened over time rather than softened.

For all of those reasons we really have a full house today, and I am sure that you will not be disappointed because Professor Hoxby is one of those voices that has begun to shape the debate about our schools.  More often than not she has been in a classic David and Goliath confrontation. I do not have to tell you which role she has played. And while you probably will not find a slingshot in the good Professor’s pocket, you will find two graduate degrees in economics, a Master’s from Oxford where she was a road scholar, and a Ph.D. from MIT and an economics Professorship Harvard.  For good measure, she is also serving as Director of Educational . . . of the Educational Program for the National Bureau of Economic Research.

If there is one word you have heard a lot of times today this morning, it is economics; and this may strike you as strange for someone whose topic is ideal school choice reforms, the kind of subject that is usually the province of political scientists or sociologists or education school professors. Without in any way derogating those fields if they were the sole participants in the debate, most of the time we would wind up with much of the same ground; but the rigor of economics brings a new and different dimension to the discussion.

Economists are themselves approaching the topic differently than they used to. For most of history when economists did study education, they focus on quantity -- how long we are in school, what you could expect in terms of human capital output from the number of years you are educated.  What Professor Hoxby is interested in is in the qualitative aspects of education, how we can get our children not only to achieve more, which is obviously a good thing, but also to get them where . . . also to get them where they can get the best possible approaches, the best possible alternatives.

There is a big difference in education between more and better.  Better is actually a more charged concept.  It is why the professors plate is filled with classic hot potatoes, bilingual education, the unionization of teachers, the myths and realities of smaller class size, teacher compensation, and of course school choice.

The conclusions that Professor Hoxby has come up with on these issues she states unequivocally are devoid of ideology.  They are really based on science. Needless to say not everyone agrees; but as I suggested a few minutes ago, I would like to think of Caroline Minter Hoxby as Goliath’s worst nightmare.


MR. ROBERT HERTOG: And with that, I am proud to turn the podium over to the Professor.


PROF. CAROLINE MINTER HOXBY: Well thank you Roger for that introduction.  I did no know I was Goliath’s worst nightmare, but I know it now.  I would also like to just thank the Manhattan Institute for inviting me today, especially Larry Mone and Mabel Weil who helped set up this visit.

Well what I am going to talk about today is school choice because I think it is the most exciting reform that we have on the horizon. And I am going to assume actually that all of you are pretty familiar with the basic concept of school choice because I think that most people are at this point. And I am also going to assume that most of you are at least a little bit familiar with some of the sort of evidence about school choice that comes out in the newspapers, and I am going to structure my talk around some of the tougher questions that I often get asked about school choice.

So let me start with the first question that I get asked, and just for a preview I am going to tell you that as I move to end of the talk, I am going to start talking more and more about ideal school choice programs.  You will see what I mean.

Well the first question is one on which Roger touched in his introduction. People often ask me well okay I can see that school choice is necessary for poor minority kids in inner city schools, but is it really necessary for suburban schools? Aren't they pretty much fine? And I think the answer to this question has to parts.

The first part is yes, school choice is really much more important for our core and minority inner city kids.  And I have to say that I believed that before, but anyone who visits inner city, some inner city schools in the United States will realize that on a very personal level.  I have been to inner city schools in the United States that I consider to be frightening, chaotic, and devoid of any pretense of learning. That is not to say that there are not some good inner city schools, there certainly are; but there are some that are very frightening places, and if I were a parent, I really would not want my child to go there even for a few days let alone for years.

So that group of children I think is particularly under stress, and one of the reasons that economists realized ex-ante [phonetic] that these children would be under stress is that they are the easiest children to exploit.  Inner city parents have the toughest time voting with their feet by moving to another school or another school district when they realize that their school is not succeeding. So their children are very easy to exploit parent, easy to exploit children; and I think that most of the parents there are aware of the fact that their children are being exploited.

The other thing to remember about inner city schools is that there is generally enough money in them to make school choice work.  And let me give you just a few examples of the per pupil revenues of major inner city school systems in the United States. New York and Philadelphia are both around just below the $12,000 mark this year in per pupil revenue. Washington, DC is about $15,000 and Boston, where I live, is around $16,000 per pupil in revenue.

Now if with think about a mom, say, with two kids on welfare in Washington, DC, this mom is receiving about $6,000 a year in welfare payments; but her kids are the subject of revenues of more than four times that, right. Her two kids are getting more than four times that amount spent on their education.  And yet this mom probably is not very happy with where her kids go to school and might even feel that the schools are a frightening, bad place for her kids to go a lot of days.

There is something crazy about the fact that we are willing to spend so much on her children, right, but her children are not going to schools that are going to make them more successful, and we are not very willing to give her the money to spend it on anything else, right.  So the money is there in inner city schools to make school choice work.  Most school choice plans do not cost anything, like $10,000 a year. In fact in inner city schools I would say that school choice has become something of a civil rights issue. Are we really to force children in urban schools to attend, to attend and spend their time in schools that are so bad that none of us would want to send our children there for even a short period of time? And should urban parents really have the right to ensure that the considerable funds that are expended on behalf of their children get used in some reasonable way?

So I think for urban schools there is a special state of emergency, but I do not think that we should be complacent about the rest of American schools.  In America achievement has been flat for about thirty years.  If you look back at 1970, Roger mentioned the Nation At Risk Report, they looked at 1970 and thought gee achievement was too low in the United States then.  They were looking back with a decades worth of wisdom.  We now have three decades worth of wisdom and our achievement is exactly the same as it was in 1970 in suburban and middle class schools in the United States, literally within a few points of where it was in 1970 on the National Assessment of Educational Progress.

The thing that has changed is not achievement but how much we are spending to achieve that level of learning.  We are now spending more than twice as much per pupil in real terms, in inflation adjusted terms than we were spending in 1970.  Now that is not a terrific state of progress.  That means that the productivity of our education sector is actually falling a little bit with every year, but the more troubling thing is that the rest of the world is not paying more every year to stand still.

The rest of the world is actually making pretty substantial progress in education. And we now have the most expensive education in the world in a per pupil basis, but we do pretty mediocre on international tests of achievement in math and science and reading and writing. We are about the middle of the camp, a little below the middle of the camp among the very highly developed nations -- the European nations -- and we are quickly losing ground relative to nations like Korea which are moving up the ladder as we stay in place.

Now the fact is that we have never been all that great at producing high achieving kids in the United States. But what put us ahead for many decades was the fact we had much more universal education than the rest of the world. We had 90 percent of our kids in secondary school when European countries only had 40 or 50 or 60 percent, but that has changed. All the developed world basically has universal education and most of the mid to developed world also is moving toward universal education.  So we need to . . . if we are going to stay ahead, if we are going to have a skills based economy that is the envy of the world, we need to be able to produce education.  We cannot have falling productivity in the sector that is the sector that underlies our skills based economy.

The second question that I am often asked is well look, why do we really need a school choice reform. Isn't accountability enough? We have these tests now in place in my state and that seems like that should be enough to improve schools.  Well there is no doubt that accountability reforms are making a difference, and they are especially making a difference for failing schools in the United States which are now falling under much greater scrutiny than they did before.

But accountability and school choice are fundamentally complementary policies. Parents get some of their information about schools from their own observations, from their neighbors, from people they meet at church or at temple; but it never hurts to have information from a school report card or the state tests as well.

Think about it as sort of like investing, right. An investor when he chooses to invest in a company had better do some of his own observation and make some of his own judgments, but it does not hurt to have accounting data too. You would not want to just have accounting data an no observations, but on the other hand having no accounting data probably is not a terrific way to make investments. And school choice and accountability are very much like that.  There is the accounting data and there are your own observations, and you need to combine the two to produce the best incentives for schools.

The other reason that we cannot rely entirely on accountability as a reform, although as I say it is certainly doing a lot of good in some states, is that fundamentally it is never going to be a very strong source of incentives in the United States for school; and that is because Americans are not that good at taking orders from the top. And accountability systems can only be as strong as our willingness to take orders from above.

What we are good at being as Americans are consumers.  We are best consumers in the world. We are just great at making choices for ourselves. Well if you have a system that relies only on top down orders, it is very difficult to get Americans to buy into it fully. If you have a system that uses some top down information combined with choices made by individuals, you tend to have a much stronger system in the United States.

Finally as many of you will know from hearing about your own children’s state wide tests or some other parent’s child’s state wide test, accountability systems are really geared towards schools that are failing or close to failing.  They are not very helpful for schools that are relatively high achieving schools, and we need to move those schools ahead as well in the United States.

A third question I am often asked is won't school choice just kill public schools? Won't it just demolish our public education system?  I think that the answer to this is no, definitely not.  I think public schools can respond constructively and can improve when they face competition. Now this opinion is based largely on evidence because it is not obvious ex-ante [phonetic] whether they will respond in a constructive fashion or a non-constructive fashion.  But the evidence at this point suggest that they do improve when they are faced with competition.

We have evidenced some of it from Manhattan Institute scholars on the Milwaukee School Choice Program, on charter school programs in Michigan and Arizona and California, and the school voucher program in the states of Florida. So we are beginning to assemble evidence from several states that public schools can respond positively when they are faced with competition.  I think the best example is Milwaukee which has a big school choice program that is publicly funded, and after about 1998 there were schools in Milwaukee that stood to lose 90 to 99 percent of their students to the vouchers.

So all of a sudden schools in Milwaukee woke up to the fact that they might have no students come September if they did not get their act together.  And amazingly enough Milwaukee improved students achievement more in two years than it had in the previous thirty-five years, okay. Now what did they do?  They did not do anything that was mysterious or that they had not known how to do before.  They did things that we know matter.  We know that teachers matter a lot. Good teachers are the core of a good school.

Well principals got rid of their bad teachers. They counseled them out. And in fact they negotiated an agreement with unions to allow them to counsel bad teachers out of their schools. They got more control over the hiring of their teachers. The schools were allowed to pursue policies that parents had been clamoring for years.

These schools campaigned to get out of silly regulations, and they succeeded in getting out of these regulations.  They decided to eliminate programs that they knew were not working even though they were popular with someone in some bureaucracy.  Now these are all things that good superintendents and good principals want to do anyway, right. These are not brand new ideas, but the superintendents and the principals in Milwaukee could not do these things until they were able to say if I do not make these tough decisions, we will lose our students.

The fourth question that I often get asked is doesn’t the evidence suggest that it is really only inner city Black children who benefit from attending charter schools or from taking private school vouchers? And this question is asked because most of the experiments that we have in the United States -- either voucher programs or charter school programs -- are targeted toward very poor inner city children, and many of them are Black.

Now there is mounting, I think, very credible evidence that vouchers and charter schools do help inner city kids; and in fact most of this evidence is based on the very highest quality studies that are ever produced in education research.  And those are studies in which we follow not just the kids who take the voucher and go to charter school, but we also follow a group of students who are randomized out effectively by a lottery at the beginning. So they did not win the voucher in a lottery, and we keep following those kids through the regular public schools. That way we can be sure that both groups of kids have parents who are motivated to try and get them to go to a choice school.

Well we . . . from several experiments, including one in New York City, we know that after a few years the kids who take the vouchers benefit.  But it is a misreading of the evidence to assume that just because we only know that inner city kids are likely to benefit that means that suburban kids would not benefit too if we were to have school choice programs oriented towards them. The fact is that is where the evidence is because that is where the experiments have been done, but I do not think that it is right to say that we know that school choice would not benefit other kids.

Another question that I am often asked is whether within district choice, which some of you may know as magnet schools or decentralization, aren't those plans really enough?  Do we need school choice too in the form of vouchers, or charter schools, or inter-district choice, couldn't we just have decentralization? Well I am going to say firmly on this, no.  Within district choice and decentralization are really never enough.  We really do need real school choice.

There are two key differences between these forms of sort of school choice light and real school choice. The first difference is that in real school choice plans the money follows the student, and the second key difference is that in real school choice plans we allow schools to exit, to disappear and other schools to take over their students whether the new schools that take over their students are schools that decided to expand or schools that decide to enter.  These are two fundamental differences.

I have never seen a within district choice program that did not contain perverse financial incentives for schools, and there is a simple reason why.  Think politically of the situation you are in as a superintendent.  You have two very successful schools, you have eight pretty successful schools, and you have one disastrous school.  Do you decide to take per pupil spending away from your one disastrous school?  Of course not. You cannot do that.  You have to give them more money, right.  Well that creates perverse incentives whereas in school choice that one school would probably disappear and another school would take over its place.

Now are there are a series of what I call engineering questions, and I like these questions especially because economists and engineers have a little bit in common. I don't know whether it is the math or something else, but I call them engineering questions because the right answer to all of them is it depends on the design of the school choice plan.

Now in the recent Supreme Court decision on the Ohio Voucher Program one of the dissenting Justices implied that school choice programs were automatically bad if they are design mattered. And I think this is completely wrong.  It is not bad that some questions about school choice have engineering answers.  It is good because the fact that we can design a school choice plan differently and get somewhat different outcomes means that we can also develop a plan that works for local circumstances and local concerns.

I mean if someone were to ask you the question, you know, does a rocket take us to the moon, you would probably say well it depends on the design of the rocket.  Some of them take us to the moon and some of them launch satellites into outer space and so forth. You would not think it was a bad thing that rockets could be designed either way.  So that is how I am going to think a little bit about school choice.

Now one of the engineering questions is won't school choice just drain money out of the public schools?  On one level this is an odd question even a bizarre question because every school choice plan that we have in the United States actually does something of the opposite.  Every plan that we have raises per pupil spending in the public school that the student leaves when the student leaves it. Let me give you an example from Milwaukee.

Milwaukee spends around $11,000 a year per pupil in its public schools.  The voucher in Milwaukee, which is the most generous voucher in the United States, is just about $5,500, about half of per pupil spending.  So every time a child leaves the Milwaukee public schools he takes $5,500 with him and he leaves $5,500.  That raises per pupil spending in the Milwaukee public schools just automatically. Now every school choice program in the United States has this feature that as the child leaves per pupil spending goes up in the school that is left behind.

So sometimes I am asked a more refined version of this question, and someone will say to me okay I understand that per pupil spending goes up in the school that is left behind; but isn't it problematic because the school that is left behind still has just as many schools, and it has just as many classrooms, and it has just as many teachers? You know it is only losing a few students per classroom or, you know, a few students per school and its budget has shrunk.  So isn't this a problem?

Well if you think about it, that is another bizarre question because that suggests that what we should do is say well school choice plans need to just be bigger, right, because as long as you take a critical mass of students it will be fine, and the school district will be able to shut down some classrooms or be able to get rid of some teachers, or will be able to get rid of some schools. And I have never heard anyone who is opposed to school choice arguing that what we need is really much bigger school choice plans.

On another level though this question about public school . . . school choice draining money from the public schools is a classic engineering problem.  It is clear that we want public schools to lose some money when they lose a student otherwise they are not going to face incentives to improve. On the other hand we do not want them to lose so much money or lose money so quickly that they cannot respond in a competitive way. We want to have the playing field pretty level.  We do not want to tilt the playing field towards them by leaving them with too much money or tilt the playing field against them by not leaving them with enough money to respond competitively.

So you will see that what I am going to suggest in the answer to some of my other little questions is that public schools need to lose money in a way that depends on which students they are losing and the difference in the constraints faced by them and the schools with which they compete. So let me be a little bit more specific.

Should choice schools be allowed to select their students even by informal means, or should they have to take all applicants or perhaps hold a lottery among all applicants?  Well getting to select your students is undoubtedly a competitive advantage in education. It is a small advantage if you do selection by some mild means such as getting applicant parents to show up and go through an orientation.  It is a little bit of an advantage then.  It is a large competitive advantage if you do selection by means of stringent tests, parent and student interviews, et cetera.

However getting to select students is never an infinite competitive advantage. It is worth something. It is not worth infinity.  Therefore a good school choice plan can be designed that gives . . . that makes choice schools pay something for the privilege of getting to select students.

For instance, you can have a school choice plan that gives choices schools the whole of local per pupil spending if they accept all comers, gives them a lesser amount if they use only mild forms of selection like having a parent orientation, and gives them a much smaller amount if they practice very stringent selection like lots of tests and interviews and so forth at the beginning.

The consequence would be that the public schools would always have sufficient funds to respond to competition.  In other words a public school that was facing a choice school that accepted all comers would have to compete on an even playing field of equal per pupil spending but one that faced a choice school that could do some selection would get a little more money to compensate them for the fact that they did not get to do selection.

Now you will want to know how we get these amounts of money right. This is the subject of a paper of mine called “Ideal Vouchers,” which is truly an engineering paper that most of you would hate. It is all about the nitty gritty, but in it I use market responses to difference price menus to figure out what the right amounts are, and I would be glad to talk about this if anyone has detailed questions.

Another question I am asked of an engineering sort is won't disabled, limited English proficient, and other costly to educate children get left behind in the public schools because the voucher or the charter school fee will not be big enough to allow them to be educated at choice schools?  Now this is a perfectly valid question. It is true that if you only allow such students, disabled students et cetera, to take a regular sized voucher with them a lot of their parents will decide that they do not want to exercise choice because they do not think that their children will be able to be . . . will be able to use the special services they currently have in the public schools if they go to a choice school.

Well right now public school students who are disabled, who are limited English proficient et cetera, get extra funds from the state and the federal government, ore their schools get the extra funds -- they do not actually get them -- so that their schools can offer them special services. And one of the first things that you can do is say that the voucher or the charter school fee that follows a disabled student should at least include the state and federal money that was being sent to their school for their education.

Now in practice this has actually worked pretty well.  In Florida there are McKay [phonetic] Scholarships which are for every disabled child in . . . offered to every disabled child in the state of Florida, and the disabled child is allowed to take approximately the local state and federal funds that were associated with him when he goes to a private school.  And this has worked, this has worked very well. There is no reason not to let children who are supposed to be costly to educate to take all of the money that is associated with them because public schools routinely complain about having these children and say that they are being under compensated for educating them.

So if that is the case, then they should be glad to let them leave, go to some school that wants to educate them for the amount of money that is on the table, and as long as the parents are happier with the alternative education.  Why try and prevent these supposedly awful students from leaving your school with their money? Okay.  In the paper I mentioned, I also discuss alternative methods of coming up with the right amount of money for disabled children and limited English proficient children to take with them in the school choice plan, but I will not go through that here.

Another question I am often asked is won't school choice cause school segregation to evince itself in a greater way than it has now?  Again, the answer is it depends on the design.  Now this . . . for me this is not a big worry.  I think most people who worry about increased school segregation in the United States have a rosy view of what public schools are like right now, and they do not realize how incredibly segregated on the basis of race and poverty they are already.  So you know this is not a big worry for me, but let’s say that we want to build in safeguards in a school choice plan to make sure that there is no increase in racial or poverty segregation.

Well there are two ways to do this.  One way is to give larger voucher or charter school amounts to students who are unattractive peers for reasons like minority status and poverty. We do not have to know why it is, okay, that other parents decide that they would prefer not to have their kids go to school with poor kids, or decide that they would prefer not to have their kids go to school with minority kids. We do not have to know that.  We do not . . . their reasons can be silly reasons, they can be wrong reasons.  What we can do is we can say look if you are a school that has a disproportionate share of these kids, we want you to be able to compete for marginal parents as well as any other school.  So we are going to give you some extra funds to make sure that you are just as competitive.

So that is one type of approach, but that is not the only approach.  An alternative for designing a school choice plan is to set targets for choice schools. For instance you could have a school’s target be that it have a population of students that is representative of the locality around the school.  So if the locality is 30 percent poor, the student population target should be about 30 percent poor.

Now if you then give larger vouchers or larger charter school fees to schools that are . . . choice schools that are closer to the target, sort of a sliding scale of vouchers that increase with your closeness to the target, this puts pressure on all schools to move towards the target.  You do not have to insist that they fulfill various quotas, but you can just say look this is the target.  You are helping us with our diversity problem if you move closer to the target, so we are going to give you some reward for doing that.

A final question that I never get asked but I know many people have in their heads is will school choice destroy my property values?  Now the person who wants to ask me this question is the suburban parent who has paid a lot for his house in a school district that is particularly desirable and has been supporting this nice school district for years with high property taxes. And this parent is worried about there being a flood of children from other districts clamoring to get into this nice school without paying their fair share.  But the parent does not actually ever ask me this question.

Now I have to say that as an economist because we are not asked this question very often we do not tend to address it head on, but I am going to say head on that only a very badly designed school choice plan would ignore the basic environment of school finance and school districts in the United States. There is . . . on the one hand there is no reason why a public school district that is successful should not be allowed to turn itself into a choice school and allow students to come from outside the district if it wants to do that, right?

But a public school district that wants to turn itself into a choice school should be allowed to set a price that it feels compensates it for the children it is taking on.  It should not be forced to accept children at one-tenth of what it is charging its own taxpayers or something like that.  If parents from other districts can pay that price with a combination of, say, the voucher they get from their local district and maybe some of their own money, then fine; if not, not.

The emphasis . . . the key thing in school choice is not to get all current public school districts to make themselves over into choice schools but to make sure that if you live in a local district, you have a right to use your money to send your children to a school that works for them. So these are two different things. We can make a local public school district face competition without saying that it needs to turn itself into a choice school itself.

Okay, I am going to stop there because I want to take question, and I know that you have good questions. I know that I have not covered them all, and I am going to let Henry Olsen be our --

MR. HENRY OLSEN: Those of you know me . . . don't know me, I am the Director of the Center for Civic Innovation at the Manhattan Institute and I will be recognizing you for questions. We have a handheld mike co please wait until Michael Barerro [phonetic] comes by and give your name and affiliation if possible. Yes, over here.  Yes.

AUDIENCE MEMBER: You used numbers like 10,000, 13,000 per capita. I was just wondering if there was a rough breakdown of how much actually gets to the school and how much is devoted to special ed? I have a three part --


AUDIENCE MEMBER: The second question is we look at public schools as providing a public good like national defense, and we tax them as a general rule to provide that.  When you go to a money follows the child system, are you worried about making it look like a transfer payment rather than as a common good payment, public good. And finally, do you see any role for faith based organizations which is what I usually ask in this area?

PROF. CAROLINE MINTER HOXBY: Right. Okay, I think I will just try and take those in the order in which they were asked.

The first one is about how much money goes to the classroom and how much of it is spent on special ed. So let me first answer the special ed part because that is easy. Special ed in the United States takes up around 15 percent of the average public school district’s budget, but it is going to be a much higher share in school districts like New York City, or Boston, or Washington, DC in part because they have a higher burden of students who need special education and in part because the laws in these states are much more amenable to being used for parents putting their kids in special education and also schools putting their . . . putting students in special education.

In some states where there is very little financial incentive for schools to put kids in special education, the special education rate is closer to 5 percent or 7 percent. I do not know the figure offhand for New York City, but for Boston right now almost 30 percent of the kids are in special education; but then again the school district is rewarded a lot for putting kids in special education.

So it is a strange incentive system. I . . . you know one of the odd things about school choice is that you sometimes see parents who have their kids in special education in the public schools purposely try to get their kids into a charter school or a voucher school to get them out of special education. They realize, look, the school classified my kid this way because they can get him out of the regular classroom, they can kind of avoid having him tested, they can get more money, but I really want my child to be back in the mainstream; and we do see that quite a lot.

Now the question of where all this money goes is a very tough question.  I mean there is really no right answer.  We can identify how much money shows up in the regular classroom by just looking at the salary of that teacher, the salary of . . . you know any teacher’s aid if there is one, and the cost of classroom supplies, and we can make some reasonable assumptions about the cost of heating the classroom and so forth and so on. But that actually leaves a lot of the money on the table particularly in an inner city school system, and we do not really know where the rest of that money goes.

We know that it goes mainly to salaries, but you know once we have said that we do not know what these people are doing.  So I can tell you some more about why per pupil costs have gone up over time, but I will not go into that. Now let’s see, your next question . . . I know the last one was about faith based initiatives --

AUDIENCE MEMBER: [Interposing]  Transfer payment.

PROF. CAROLINE MINTER HOXBY: Transfer payment, yes; okay. So education is a public good in the United States, and we think of public . . . we think of education as being public in part because it is provided by these public institutions; but I do not think that is necessary. In higher education there are a lot of public universities, and they are out there competing with private universities; and it has not stopped us thinking of them as being public universities.

In health care we have public hospitals and private hospitals, and I the think people have a notion that Medicare is indeed a public program and takes care of the elderly in the United States in a public fashion. And they are not disturbed by the fact that some people are getting their Medicare treatment at the private hospital.

So I think as Americans in general we are able to discern when a public program is a public program.  We are not that bound up with, with institutions. As long as children are getting a good education for their public dollars, I think people will be happier about public education in the US.

Finally a role for faith based programs, well education is a place where private education has mainly been dominated by religiously affiliated schools. It is still about 80 percent of, 80 to 85 percent of private school students in the United States attend schools that are affiliated with a religious organization.  That will probably continue for some time under school choice, although I think frankly in the end it would . . . I do not want to say this if it is going to upset you, but it probably would disappear to a large extent.

If you had a widespread school choice program, many parents just do not want to send their kids to schools associated with religious organizations. So the ones that are there will probably continue and flourish, but that probably we would not get a lot of new choice schools that were associated with religious organizations.

MR. HENRY OLSEN: Mr. Henkels [phonetic].

MR. PAUL HENKELS:  Thank you.  I am Paul Henkels with the REATC Alliance [phonetic], that is the Road to Education Achievement Through Choice.  We are the group that spearheaded getting school choice in Pennsylvania.  And you hinted that the poorer students would not, would not take advantage of school choice; but hasn't it been shown in Milwaukee, and in Cleveland, and in Florida that the good students, the students that succeed in public schools stay where they are, and it is the students that are not succeeding in public schools that go for choice?

PROF. CAROLINE MINTER HOXBY: Yes in fact although . . . I think people . . . first of all I just wanted to say that I hope everyone could hear the question. He is exactly right. What we see in choice schools, is in part because of the design of the programs but in part because of who decides to leave the public schools, is that it is poor children who are not doing well in the public schools who leave.  And this really should not be any surprise.  If you are a parent and your child is doing very well in the public schools, you are not going to yank him out and send him to a relatively untested choice school or a charter school.

And in fact in the research world people used to tell us all the time there is going to be cream skimming, there is going to be cream skimming, you need to look for cream skimming; and now people are starting to say you need to look for reverse cream skimming, you need to look for reverse cream --


PROF. CAROLINE MINTER HOXBY: And so you know we get it coming from both sides. But I think the reality . . . people who worry about cream skimming these days when you look at school choice programs it is just not something you see.

MR. HENRY OLSEN: Dr. Meyers [phonetic].

DR. MICHAEL MEYERS:  A very thoughtful presentation by the way, very good. Speaking or racially segregated neighborhoods, however, my question to you is is there a qualitative educational difference between middle class white neighborhoods, schools and middle class white neighborhoods and schools in middle class black neighborhoods? In that context, is there a possibility for what I would call integrated choice in the sense that you would give money to schools that would provide for racial integration including money for busing?  And what in your view would be the issue of . . . would be the role for antidiscrimination laws so that to prevent one race schools, single sex schools, or do you believe that school choice should include the whole waterfront of all kinds of schools?

PROF. CAROLINE MINTER HOXBY: You know I honestly think that these . . . you asked several good questions, and I think I am not the right person to answer them.  And let me tell you why.

I think that it is the role of the public and legislators to decide what they want to achieve in education.  Now some things we all probably agree should be achieved in education like children should learn to read, write, and do math.  But when it comes to things like how much integration we want to do, whether we are willing to do busing, whether we think that there should be single sex schools or not be single sex schools, I really think that that is up to the voters and their legislators and the courts but I do not think economists have any special knowledge.

What I can do is if you tell me what you want, I can design a program to do it.  That is what my expertise is in, and I do not have any special, you know, moral or political authority to say what I think ought to happen in schools.  But I can promise you that if you want it, we can design it.



MR. JAMES MacGUIRE:  I am Jamie MacGuire, an Institute alumnus.  You were reluctant to get into the question, but I want you to regarding your article, “Ideal Vouchers.” Tell us about the ideal voucher.

PROF. CAROLINE MINTER HOXBY: Right, okay. Well here is the . . . you know here is the idea in a nutshell. One of the things that we are worried about in school choice is how to get the amounts of money right, how to get the amount of money that follows the child to be the right amount of money. What if the child is poor, well you know how much more money should follow a child. If it is a poor child and yet we have a sense that poor children are a little more costly to educate or perhaps a lot more costly to educate, than non-poor children, well one way to answer this question is to think about a market, right.

In a market we understand the supply and the demand for a good or, you know, a firm’s share or something like that by looking at the price.  We say well you know clearly supply is exceeding demand for this sale of bonds because the price of the bonds is much below what we expected it --



PROF. CAROLINE MINTER HOXBY: -- to be or something like that, or you know they had to put the following thing on sale at Wal*Mart because there was not as much demand as they thought.  Well we use market responses to figure what the supply and the demand is for a given characteristic . . . a given good.

Well the same thing can be done in education.  Let me try and give you a simple example the will I think help although frankly the mechanism in my paper is a bit more sophisticated, so we do not get into these problems.

The superintendent of the Seattle Public Schools decided to set a bunch of prices for his schools about, about different types of students.  So if you got a poor student you got one amount, if you got a richer student you got another amount, and in some cases he set the . . . he set the prices just through personal introspection.


PROF. CAROLINE MINTER HOXBY: In some cases he set them right, and in that case what happened was the students were dispersed pretty evenly throughout the public schools in Seattle.  In some cases he set the prices wrong.  For instance he set the price for poor students too high, and than all of the schools were clamoring to get poor students and trying to push richer students out of their schools in Seattle because the price was essentially too high, the amount of money he was giving was too high.

Well a year later he could deduce that he had set the price wrong because he could see from everyone’s responses that that was . . . he had set the amount wrong. So then he lowered the amount that you got associated with the poor student and he raised the amount that you got associated with the middle class student, and you know over the course of a few years he kind of got the amounts right.

Well you can do that by trial and error, or you can try and speed up the process by getting people to participate in a market at the beginning and figuring out what the amounts are. But that is the basic idea of the paper.


MS. DEBORAH McGRIFF: I am Deborah McGriff and I am with Edison Schools, and I also live in the City of Milwaukee; so thanks for talking about our program and I will tell Howard you did.

But my question is although you think that it is the public and legislators who should set standards for programs would there be a set of guidelines that you would say you would not personally participate in designing a program if these basic assumptions were not followed?

PROF. CAROLINE MINTER HOXBY: Well you know . . . you know ultimately what . . . the one thing that I do know about schools is that they really need to be educating American children, so no I would not design a school choice plan that was designed to make sure that some kids only learned how to do sports and did not learn how to do math or reading. And I probably would not design one that I thought was perverse for learning in any other way, or perhaps perverse for American taxpayers. You know that somehow American taxpayers are being hoodwinked into paying for something that they really did not want.

However, once we get beyond things like that, you know, so for instance I would suggest that most school choice plans should include some way in which choice schools should be held accountable.  That does not mean that they all have to participate in a statewide testing.  Maybe they can have alternative testing systems or alternative accountability systems.  We could talk about all of those things, but a program in which there are school that are not held accountable to anyone and do not have to reveal their results to anyone is probably not a terrific system.


AUDIENCE MEMBER: Thank you. We talk about the market as an allocater or resources, and in the American university system which works extremely well by world standards clearly the most resources seem to be allocated to the most able kids. And it seems to me in your formulations here you have sort of accepted the idea that the least able kids and the most troubled kids are going to carry the greatest resources with them and that, let’s say, competitive schools that want to have highly, a high degree of selectivity are going to get less resources.

So haven’t you in your thinking built in a notion that the most able kids are going to get the least resources to work with, and doesn’t that fly in the face of the kinds of choices that in the pure, in a more private sector set of economic choices have in fact been made by the market?

PROF. CAROLINE MINTER HOXBY: Well there . . . this is actually a very complicated question.  So let me try to break it down into some pieces and hopefully I will get at it somewhat.

The first thing to remember is that in higher . . . higher education is a much freer marketplace than anyone really proposes to make K-12 education.  K-12 education is currently guided by school finance laws which set the amounts of money that different children get from the state and from the federal government, and there is nothing like that in higher education.  There is nothing that says if you are disabled you are going to get a large amount from the federal or state government to pursue higher education.  There is nothing like that.

So we have to look at the difference in the environments.  No one is going to . . . school finance laws are not going to disappear when we start . . . if we were to start a school choice program.  It would take place in the environment created by current school finance laws.  I think the point that able students are going to get less, fewer resources is not . . . would not actually happen for two reasons.  One is that although they might attract fewer public dollars, able students tend to be able to attract more private dollars. So part of what we are . . . part of what the public, what government tries to do is it tries to ensure that public dollars are distributed in such a way as to counteract what the private dollars want to do.

The private dollars are attracted towards high ability kids. Even a low income high ability kid is much more likely to get a scholarship than a low income low ability kid, right. So the private dollars are going to be flowing that way and the public dollars are designed to be flowing in the opposite direction, and the is really the way I think school finance laws work in the United States now.

But in addition, one of the key things that we have in the United States is school districts; and school districts have different levels of school spending, and that is not going to disappear.  Yes, there are high spending inner city schools in the United States because they attract lots of money for their disabled, special education, et cetera kids.  But there are also high spending school districts in the suburbs, in affluent suburbs; and those are not going to disappear.  So those kids even if they were to take a voucher . . . if you were to take a voucher from the Darien [phonetic] Connecticut School System you would have a pretty darn big voucher, right, and you know we are not . . . that is not going to disappear.

MR. HENRY OLSEN: Last question. The gentleman in the striped shirt here.

MR. ROBERT FLANIGAN: Hi, I am Bob Flanigan. And when you move discussion from inner city poor school choice to suburban choice, it makes me wonder what is happening in the private sector in education; and why don't we see a more active market in the private sector? Why don't we have better information?

Usually when you go to apply to a school they do not give you test scores or a lot of clear information. You have to rely on innuendo and other information, and we also have not seen that market react very much to supply and demand. We have not seen very many new schools.  So your talk makes me think are there any lessons to be learned from the private sector in terms of how an education market would operate in anything other than the poorest inner city neighborhoods?

PROF. CAROLINE MINTER HOXBY: Well I think our private education sector is not all that helpful for thinking about the future or school choice, and I will tell you why.  It exists largely in response to a public system which is very big and which is very punitive to send your children to private school. So if you live in an affluent public school district where the public schools are pretty good and they are supported by a lot of local tax dollars, you are giving up all of those local tax dollars when you send your kids to private schools; and therefore that is not a very attractive alternative.

And the people who decide to send their kids to private schools now are either people who have very strong preferences about schooling and are usually very well off, or their public schools are disastrously bad; and they will, you know, they would do anything to get out of them, right.

Private schools in the United States spend less money than public schools in the United States spend.  On average they spend around 60 percent of . . . I mean, sorry. Even non-church related private schools spend about 60 percent of what their local public schools spend. So you would say well that is crazy. You know here is the person, he is giving up all of his tax dollars, he is sending his child to a school that does not even spend as much as the school that he is leaving behind and so forth.  My feeling is that they are not that helpful for thinking about the future of school choice.

The future of school choice is about what happens if we say you can take some of that, some of those tax dollars with you and spend them on private school. You are going to attract a completely different set of parents, the market is going to be much more active, supply of private schooling would be much more active, and it would not be this little trickle that we have right now.

MR. HENRY OLSEN: Thank you very much Professor Hoxby.





Manhattan Institute.




Roger Hertog, Chairman of the Board, Manhattan Institute


Caroline Minter Hoxby, Professor of Economics, Harvard University


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