Posts Tagged ‘market failure’

Cases In Point

November 16, 2008

One of the fundamental disagreements in American politics is over the marginal roles of the market and the government in determining economic outcomes.  I say “marginal” roles because in America, unlike many European countries, almost nobody favors eliminating either one; the differences are, as the economists say, at the margins.

There are a couple of things in the news a lot lately that point out the challenges faced by both sides in this debate.

The big one, of course, is the financial crisis.  This one points out the problem for free marketeers.  In this case, an insufficiently regulated market ran amok, leading to not only its crash, but horrendous effects on the rest of the economy.  There are some free marketeers who insist that, in fact, this isn’t the result of inadequate regulation, but of too much regulation.  This is exactly what it seems: nonsense.  Even Alan Greenspan, economic wise man and lifelong libertarian, admits it.

The other one is the battle over the Washington, DC, public schools.  In that one, a reform-minded mayor and superintendent are trying to overhaul one of the worst-performing school systems in the nation.  One of the things they’re trying to do toward that end is eliminate teacher tenure.  Teachers unions, of course, don’t love the idea.  The one reasonable objection I’ve seen them make is that, right now, there simply is no good way to measure teacher performance; until there is, they’re not comfortable with the elimination of tenure.  Standardized tests are the standardized answer to this problem, especially now, in the era of No Child Left Behind.  Teachers respond that the tests are already overemphasized to the point that they distort what happens in the classroom, to the detriment of the students.

Without diving off into the details of those arguments, let’s just agree that both sides are right that you can’t manage what you can’t measure.

The public schools are a non-market education system.  Schools are funded by the government, rather than by “consumer” behavior.  With parents and students unable to vote with their dollars, the way they would in a market system, measuring success is a problem.  This is a common failing of non-market systems.  How do you measure what there should be more of, and what less?  How do you determine where further investment dollars should go, and what should be abandoned?

I’ll skip the discussion of those questions for now.  I just thought it was interesting that we had two stories in the news that are textbook examples of the problems with both of the options we debate in America.  I’m not sure how often that happens.