Eric Hanushek on Education and School Finance
Jul 14 2008

Eric Hanushek of Stanford University's Hoover Institution talks with EconTalk host Russ Roberts about the strange evolution of school finance in the last four decades. In particular, the courts have played an important role in recent years in mandating expenditure increases for public school systems. Hanushek talks about why this has come about and the lack of effect these expenditures have had in affecting student achievement.

Eric Hanushek on Test-based Accountability, Federal Funding, and School Finance
Eric Hanushek of Stanford University's Hoover Institution talks with EconTalk host Russ Roberts about the current state of education and education policy. Hanushek summarizes the impact of No Child Left Behind and the current state of the charter school movement....
Eric Hanushek on Education and Prosperity
Eric Hanushek of Stanford University's Hoover Institution talks with EconTalk host Russ Roberts about his new book, Endangering Prosperity (co-authored with Paul Peterson and Ludger Woessmann). Hanushek argues that America's educational system is mediocre relative to other school systems around...
Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


R. S. Cox
Jul 14 2008 at 8:15am

Russ Roberts states that there some school systems out there doing a phenomenal job.

Can he cite one?

Jul 14 2008 at 10:40am

The test to become a teacher is to be able to graduate with a degree in education from and accredited college. IMO this is a very poor analog for teaching. IMO one can be a great student and a very poor teacher and vive versa. (BTW I would bet money that drama students would do getter at teaching children.) So I think you need to be able to fire more teachers and have more leverage in hiring (non-ed majors, non-degreed ect.). And it should be the parents who pick the teachers.
IMO one of the big problems is that the schools serve as much to grade people as they do to teach people. This means that often choose testing over teaching.

Sarcasm follows:
Don’t teach them too good or they will all get and A’s and that would mean that your class is not rigorous enough and then how would we know who is college and job worthy?

I also think that WHAT we teach children is way out of line with what would benefit them most and much of that is do to the grading function of schooling. We may not be able to make people smatter so perhaps we should focus on teaching more practical stuff. Tongue half in cheek: If we could teach them how bad the state lottery odds are perhaps we could improve lives. And oh my gosh it might border on teaching morality!
But no! Factoring quadratic equations which is essentially a parlor trick to show you are smarter than other is more important than probability or the laws of thermo dynamics (people with college degrees lately have told me of schemes that they evidently believe in that break the laws of thermo dynamics let alone the Carnot limits).
Instead let’s spend more money teaching them useless stuff so we can score higher on tests than other countries.

Jul 14 2008 at 12:28pm

Fantastic discussion. As far as the statists and unions are concerned, it’s never enough money.

Scott Anderson
Jul 14 2008 at 4:11pm

Thank you for a great podcast! I personally believe that best way to positive change in the world is for children to be equipped with life skills so that they can develop positive values and when as adults can live those positve values in a free and peaceful world.

I would like to make a comment about education effectiveness. A lot of comments are made about the effectiveness of teachers or how much is being spent in one school district versus another. With personal experience (backed with some data), I have become convinced that a significant factor in the success of learning environments is the philosophy and methods of a school.

It seems that their must be some systematic reason why a significant portion of children in a given geography consistently do less well at learning as measured by tests on other studied measures. Milwaukee, WI schools come to mind. It must not be the particular students and it must not be the teachers because it happens year after year even as the teacher body and students change. I believe its the methodology partly from personal experience and from some academic studies.

I have my three children enrolled in a small private Montessori school in Madison, WI. All three of my children are learning well by traditional measures. I visit the school occasionally for plays, forum projects and other student/parent events and am amazed at the consistency of high level of learning among most of the students. The learning is not only displayed in the areas of math, science and language skills but also in the areas of creativity, social skills and poise in front of larger groups. Another indication of the success is that many of the students who leave the school for other private or public schools are graded extremely well by traditional methods and graduate near the top of their class.

My experience is not from one data point. Prior to moving to Madison, my children were enrolled in a Montessori program in Hudson, OH. I had the same observations there. In Madison, many of the parents, but not all, are professors, doctors and professionals. In Hudson, the parent composition is different. Another data point is a study of a Montessori school in Milwaukee. A group of public students were split into two groups, one learned with traditional methods, another at the Montessori school. The Montesorri students performed better not only in academic measures but also much better in social attribute measures (I agree measuring this might be difficult).

What makes this method better? The general method uses the mind and body to learn in a semi-self directed environment. The comnbination of a dose of freedom, better material to learn subject matter with critical thinking and feeling (multi-sensory materials) and dedictated teachers to help the whole student learn. The motto is: Follow the student. For those who like celebrity endorsements – Jeff Bezos (Amazon founder), Lary Page and Sergy Brin (Google founders) credit a Montessori education, not their university educations or college professor parents, as giving them a head start in the world of business.

I am not trying to create a lot of hyperbole about Montessori but rather point out that the philosphy and methods of teaching are more important than dollars and just teachers. I pay a significant property tax in Madison but choose to send my children to this school. (Madison has very good public schools but in my opinion are not as good as the Montessori schools are for my children). By the way, the cost per student at this school is less than the public cost per student (granted, there are many factors).

Jul 14 2008 at 8:31pm

To follow up on the first question asked (from “R.S. Cox”), define a good public school? Where I live the school district next to us is considered one of the worst in the county, but ours is considered one of the best in the state. Is one school doing something or teaching in a certain way or using methods that are vastly superior to the “inferior” school? No. The difference is that the kids in “good” public school – like the Madison, WI, example of one of the commenters – have a disproportionate number of college educated parents (lots of professors kids too) while the “bad” school doesn’t. The “good” schools are the ones where the parents expect more out of their kids and push their kids harder or get them tutors, and so forth. It’s the parents that make all the difference when it comes to good or bad public schools.

Scott Anderson
Jul 14 2008 at 9:02pm


I have to admit that I also believe that parents have an extremly important role in good education. Not just ensuring homework gets done but also helping instill certain character early that is conducive to good learning – discipline, pride, quality, self sufficiency etc.

Children are not able to choose their parents and are not able to provide for themselves economically (in most cases) before ages of maturity. Can we think of parents as externalities positive or negetive? It would be great for some solutions to be generated here like mentoring programs etc.

It seems that very good parenting can over come not so good schools but I also believe that very good schools can do a better job of educating children whether their parents are ok, average or very good. I spend a lot of effort helping develop my children but the school that they attend provides an environment, teachers and a method to learn that we (my wife and I) believe is better than we could provide with home schooling.

I think that the Milwaukee school study that I mentioned in recent post is some evidence of the impact of a school method and philosophy regardless of parenting.

Wacky Hermit
Jul 14 2008 at 10:13pm

Russ asked why parents tend to keep sending their children to failing public schools. As a parent who’s done that, I can answer that. First, we DO see parents pulling their children out– we see it reflected in the higher prices of homes in neighborhoods with better schools.

Second, since parents are required by law to send their children to some school, if the price of schooling alternatives is too high, they HAVE to send the child to the failing school; if they don’t want to go to jail, they have no alternative. So if the parent(s) can’t afford private school, can’t afford the opportunity cost for homeschooling or starting a charter school, and can’t change houses, what are their alternatives to continuing to send the child to the failing school?

Third and last, many parents (at least here in Utah) choose an “invisible” alternative to failing schools: helping their child themselves and/or hiring tutors. Many parents do summer homeschool or give extensive “homework help”; some hire tutors like me to step in where the school has fallen short of the mark. (Of course the school gets credit for the student’s learning when they take their end-of-year tests; this makes failing schools look better than they actually are.)

Jul 15 2008 at 12:44am

Silver lining? Since the courts now seem to be in the business of forcing legislatures to raise taxes and give out subsidies, maybe this could be a precedent for courts ordering tax and spending-cuts?

Formal schooling might indeed be over-rated, after all the eighteenth century produced thinkers like Adam Smith, the American revolutionaries etc…on the other hand, asking students to understand the quadratic formula does not seem to me to be so outlandish.

Mark Selden
Jul 15 2008 at 1:13pm

High Schools Doing a Good Job

As a high school physics teacher, my view of the role of high school became cynical. Because my subject was physics, I served mainly college-bound students. Of course our role as science teachers is to inspire future engineers/scientists, and prepare kids for college; but frankly, our central role is to serve the system of ranking students (or creating data for ranking) for Universities. The focus on grades, SAT preparation, and eye-catching extra-curricular activities is all encompassing. In math and science, it is the grade, not the subject matter is relevant. Open a high school geometry book. Read a chapter of a high school chemistry book. The lack of utility of the curriculum will stagger you. It is useful only because it will be on the SAT and because the students may see the same material in college. The curriculum’s lack of relevance persists because it accomplishes its main function: it does serve to rank students for universities.

So I reject any notion that schools are failing our college-bound students, they are quite adequately performing the job that students, parents and universities demand of them. (BTW; these are bright kids, and they will do just fine.)

High Schools Doing a Poor Job

For non-college-bound students there is definite room for improvement. There is a charter school model that I believe would serve ALL students very well. The charter, hinging on an absence of a teacher’s union, is simple: The well-compensated principal has complete discretion on how to run the school, including hiring, firing, pay, curriculum, and facilities management. To incentivize the principal, perhaps make her/his job beholden to a board of parents and some district people (maybe someone else has a better idea on this point).

Oliver Seidel
Jul 16 2008 at 3:41pm

I liked the recommendation on how to make it better: produce accountability and produce information on who is making a good contribution.

On an entirely different topic (that Econtalk also likes a lot), the healthcare system in Germany (and I suspect elsewhere) to me appears tobe actively destroying information on accountability (which redistribution institution — called “insurance” here — is managing well, which patients behave with an outcome of lower health care costs, which doctors are making bad decisions).

What are effective ways for private individuals to encourage the publication of accountability information?



Jul 17 2008 at 3:48pm

When someone brings a lawsuit challenging the adequacy of public school funding in a particular district, who defends the suit? If it’s the schools that would be getting the money if they lose, that would certainly help explain why these suits have been so successful.

Jul 17 2008 at 8:43pm

As an economics and government teacher in a high school in the mean streets of los angeles, I have some strong views on the subject.

My main issue with the podcast: it was often referred to the fact that parents can make decisions. What about the parentless child? In my school, the numbers, although difficult to quantify, are extremely high. What choice can these kids have, if there are no family members willing, able, or caring enough to participate in the kids’ education?

If charter school proliferate, the traditional public schools will become the repository for parentless children and special education students.

How can this be constitutional under the “equal protection” interpretation?

Note: by parentless child, I mean a child coming from an unsupportative and/or uncaring family, a child in foster care, or a child in the group home criminal justice system.

My second comment is the issue of teacher’s unions. For all the negatives, they are totally necessary to protect a teacher from incompetent administrators. There seems to be a general assumption that school administrators are more competent than the teachers. Not true in my experiences – not even close. I have had such a high turnover of incompetent administrators that it is absurd. Consquently, thank god for the union.

Russ Roberts
Jul 18 2008 at 11:42am


Here is Rick’s reply:

“Almost always the state defends the case. The state tends to be the named defendant that has the constitutional requirement to provide an “adequate” education. Individual districts are not sued. On the contrary they tend to be plaintiffs — often creating a coalition of districts that use tax payer funds to support a lawsuit against the state.”

Jul 18 2008 at 4:28pm

Russ —

WRT school choice, I think you glossed over major difference in your comparison to the auto industry. If you had a competitive environment where money followed the student, everybody who has opted out of the public education system would be the first ones in line for their money. In effect, they are subsidizing the public school system by paying for their own kids’ education.

Where I live now, Wake County NC, the district has ~120,000 public school students, with ~30,000 in private or home schools. If the district doled out vouchers to all 150,000 students, there would have to be a huge tax increase to pay that voucher those 30,000 already outside the school system.

R.S. Cox: Upper St. Clair school district in suburban Pittsburgh. That’s just one I happen to be familiar with — I’m sure there are a number of others.

Richard Sprague
Jul 19 2008 at 8:55pm

Actually, Chris, I think Russ’ analogy still works. Remember that public school costs drop roughly in proportion to income when a student using a voucher leaves the public school system. One fewer kid in class brings down the costs in the same way that one fewer auto to produce brings down costs for a car company.

Of course this is not terribly noticable when you talk about one or two kids–the fixed costs of operating the school usually outweigh the marginal costs–but this would become much more obvious if a full-blown voucher program enabled many more parents to flee the public school system.

Or not. The whole point of vouchers is to introduce a competitive incentive so public schools raise their quality enough that people won’t feel compelled to leave.

Jul 21 2008 at 11:10am

Hanushek comments on the correlation between cognitive skills and economic development. An important twist in this relationship is the difference between verbal ability and quantitative ability. High verbal achievement is exemplified by the legions of Jewish geniuses peppered throughout history, while high quantitative achievement is commonplace in East Asian economies today. The verbal/quant imbalance in East Asian populations goes a long way towards explaining their very different economic development. (see for more details.)
Many commentators are puzzled by US superiority despite lackluster test scores, part of the reason is that they are looking at the wrong scores. Science, math, or nonverbal IQ scores are often used. If you look at verbal IQ scores, the US looks much better. As a developer of IQ tests, I can tell you that while verbal and quant/nonverbal ability are highly correlated within a population, they are nonetheless very different abilities and do display lower cross-population correlations. For a quick summary, verbal ability is more closely related to world knowledge, comprehension, and intellectual development; while quant/nonverbal ability is more related to working memory capacity and metacognitive skills such as planning and concentration. Ultimately the verbal skills are more relevant to independent leadership roles, while the quant skills are more about competent execution and rule-following.

I won’t pretend this explains the entire US advantage, it certainly doesn’t. There is no doubt some sort of creativity/openness advantage as well as other cultural skills we possess. However this does show that current psychometrics can explain more of what is going on that is commonly supposed.

Aug 22 2008 at 1:53pm

Good discussion. More money doesn’t always mean better results if the same education bureaucrats are in charge.

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Podcast Episode Highlights
0:36Intro. School finance: changes in America in last quarter century, particularly in the courts. Presumption: Most schools get their money from property taxes: wealthier districts spend more, poorer districts spend less. More revolutionary lately. Over some 40 years changes. State pays for some parts of school finance and localities other parts. States also provide extra money for kids who may be more difficult to educate: poorer areas, special education kids. Get a lot of variation after that from property tax. Late 1960s in California, lawsuit, Serrano v. Priest, challenging property tax method of funding. Made originally under the 14th Amendment of the Constitution, equal protection clause, disadvantaged kids treated unequally. Ruled to not be a Federal matter; devolved to be a State matter. Typical State Constitutions have clauses such as the State should provide a thorough and efficient system of public schools, or free and open schools, perhaps up to a certain age.
4:29How did this open the door and what happened? Lawsuit went back to the State courts which ruled it was a real issue: Beverly Hills spending a lot more than Baldwin Park was unconstitutional by the State Constitution. Led to large number of other States emulating the CA policy. All but 4-5 States had lawsuits. Originally started out as equity cases: districts should provide equal educational opportunities; courts immediately defined this as equal amounts spent in different districts, usually by the State picking up a larger share, usually through State income taxes which are redistributed back to various localities. Lawsuits wanted more money spent on education, used constitutions to lever more spending; aimed to bring the bottom up to the level of the top and get more total spending. After about 15-20 years it turned out that States divided fairly evenly between those that said the existing State spending was unconstitutional and those that said it was constitutional. Where it was unconstitutional, some States started taking money from high-spending districts and giving it to low-spending districts--which was not the goal of the original promoters. In the late 1980s new kind of lawsuit: "adequacy lawsuits," money might be equitably spent but there is just not enough to provide a good education for everybody. Courts are on slightly thin ice from a Constitutional standpoint: courts started to appropriate funds explicitly or implicitly, which is a role reserved for legislative and executive branches of these States. In 1990s several cases found inadequate spending, kids not doing well enough, so courts should step in and force the States to put more money into the schools. NY City lawsuit stands out: lawsuit went on for a number of years, decided 2002 or so, campaign for fiscal equity, funding in NYC was above the national average by a fair amount but had kids who weren't performing very well. It was decided that the State should put in a nearly 50% increase. Legislature not likely to go along with that; courts are making decisions on this one area and not considering other uses of government funds or even private funds. Amounts to $19,000/student per year in NY City as opposed to a national average of $8000/student. Got reduced by NYS Court of Appeals but left on the table the idea that the courts could appropriate funds if they didn't think the outcomes were good enough. Brought down to a mere $2 billion dollars per year. Elliot Spitzer campaigned on idea that he would get the State to put more money into NY City schools. Constitutionality has been left unchallenged.
14:03Russ, Lexington, MA, busing program, inner city African American students bused to the suburbs. In some cities courts took over the schools. Outgrowth of 1954 Brown v. the Board of Education, de jure segregation in the South; went on to consider de facto segregation in the North. Those cases have pretty much died out because either the schools have shown they have done what was required; or because it has been ruled that such racially-based busing is unconstitutional. St. Louis and Kansas City: courts did more than just bus kids. Realized that people could avoid racial balancing by moving out of these districts, labeled white flight. Courts didn't enter in on forcing Lexington-Boston busing. Some voluntary programs used. In Kansas City, the plaintiffs argued that the only way to get true racial balance was to attract white students back into the districts--had to make the Kansas City schools so good that you would attract them there. For a while, Kansas City was the highest spending district in the nation. Dream your biggest dream and the State will pay for it. Took the funding opportunity to build magnificent facilities--swimming pools, zoological parks; put little into better teachers; got no gains in student achievement. Courts have limited power to judge student achievement making arguments about how much should be spent. Accountability: no feedback loop. No incentive to fix it.
21:11Best understood by sketch of how these court cases go. Standard: plaintiffs come in and present data on how a portion of each State's kids are not learning what we'd hope for. No Child Left Behind aids. Then say: the only way to solve this is to provide more funding. But no lawsuit on school finance has ever presented evidence that some other State that had a favorable ruling had experienced achievement gains. You would think the courts would ask for this evidence. Instead rely on simple assumption that more money will help the schools. Some classic stories: Kansas City; also St. Louis, large additional funding but no evidence that kids were doing better. Wyoming and New Jersey. Wyoming: now one of the top five spending States, court case in 1996, plus had natural gas money so nobody was hurt too much. National testing indicates that Wyoming has retrogressed relative to the rest of the nation. Bad harvest excuse like that given by the Soviet Union. New Jersey: poster child for school finance cases. Courts have been involved there for some 35 years now. Abbott v. Burke, judge declared 28 districts to be special need, these districts should be able to spend as much as the highest spending districts in the entire State. Huge jump, to $19,000 per student in the Abbott districts. Fourth grade reading scores were up relative to previous levels for one year. No evidence that these kids have otherwise improved. Pre-school education, after-school programs, smaller class sizes.
28:19What are the judges thinking? Emotionally attracted to the idea that more is better? Teachers and administrators benefit from higher salaries, so they must like it. Must be some other voices who like it. Achievement of U.S. students is low relative to the world; persuasive part of these court cases is that achievement is not what is hoped. Court cases don't say what they are thinking, but interpretation is that the legislature just isn't doing enough. Our state should have a better education system and if the legislature can't do it, I'm going to do it. Reality is that they do not have many levers. Can't enforce achievement so they fall back on general argument that we believe if we spend more we get higher quality. If we invest more we will do better. Seems reasonable: more spending on education should mean more education. Easterly podcast: overseas, sometimes teacher doesn't show up. What's going on the U.S. system? Simplest answer: few incentives to improve achievement if you get the increase in funding. If students improve, a teacher doesn't get a pay increase, just personal satisfaction. Teacher salaries are unrelated to student performance. We know teachers are important, so we should pay them more. Straightforward; but bad teachers want more money just as much as good teachers. Incentive is to spend time getting higher salaries, which does not come from more achievement. Majority of people who argue for more funding for the schools start with statement: If money is spent well we will get better achievement. Tautological. Money is not directed toward being spent well in this sense. Scientific evidence that a program put in place leads to higher achievement, use that as justification for more funding. Reality is that States often don't choose the program used to justify the funding or don't implement it the same way.
37:12Differences across States: Wyoming, what about other States or over time? Zero effect. There have been a number of studies. More money hasn't led to better outcomes. This is not to say that it cannot or doesn't do so. Problem is for it to happen systematically or occasionally. Argument against vouchers is that if parents were free to leave the school system they'd take money with them, and the outcome will be worse. Like saying that if you allow foreign cars to be sold in the U.S., U.S. carmakers will have less money--true; but if you then go on to argue that because they have less money they will make worse cars, you ignore the effect of competition. Ford and Chrysler also keep money away from GM. The most money for the one entity kills all the incentives. Has there been other kinds of flight--home schooling, private schools? Private school proportion has gone down largely because of the collapse of the Catholic schools in the U.S. Increase in other religious schools and sectarian schools. What has happened is first, home schooling--about 1 and a half percent now. Spelling bees. Introduction of charter schools: public schools allowed to chart their own plan, apply to State to be allowed to do something else. Buys them out of some things like having to hire union teachers. Semi-market. Complaint is that we have to provide a level playing field for the public schools! One guy's allowed to get out from under the burden. If one guy's got a broken in a race, you have to break the other guy's leg. Mississippi, Washington, D.C. Fairly new, hard to know how it will work out. Innovative ways to deal with disadvantaged students. Kipp Academies, pretty set program involving socialization of students with real emphasis on outcomes. Under 150 of them. A number of one-off schools and groups. Some terrible, some very good, some excellent. Terrible ones get market signal--probably have trouble keeping their students. Charter schools tend to close down more frequently--may not be run well, may have financial problems; fairly new. Parental role: why do parents dutifully, religiously, regularly send their kids back to schools that fail their children? You don't know what the alternatives are; there may not be any alternatives.
48:56Empirical work: quality of charter schools in Texas. Parents did in fact pull their kids out of bad charter schools at a significantly higher rate than bad public schools. Market didn't shut the schools down because new students came in. Hard because the schools tell the parents that they are doing well. Hard for a parent to know what Algebra II should look like. Some information from testing but imperfect information. As a nation we like public schooling. We like the idea of everyone going to a common school, learning about our history and culture. Takes a lot to convince parents that the public schools are not doing a good job. Romance about the public school system. Many public schools that are phenomenal and are doing a great job. American public schools do foster creativity, less regimented about what students learn. American system is a little happy-go-lucky but it may open students' brains to non-traditional stuff relative to being drilled as in many foreign schools. Increased attention recently to non-cognitive skills, creativity. In firms we want employees to be skillful, come to work on time, and to have good ideas, identify with the goals of the firm. Absolves the school system in part. We don't know how to measure things like creativity much less how to structure schools to create more of that. No evidence that putting more money into the schools will create more creativity; don't want to create less cognitive skills in the process. Classic East Asian example: preps and tests starting in kindergarten. U.S. might simply have a different way that the labor market responds to people. New firms reward ideas in an instant for creative ideas. In Korea if a person is at a low level in a firm has a new idea he's as likely to be fired as promoted. Incentives to be creative aren't there. More math and science skills in some less developed countries correlates to faster growth.
58:13Many cultural factors affect creativity. Interesting that schools haven't killed it off. John McCutcheon song, learn to sit at desk all day. David Henderson, Joy of Freedom. Quadratic equation may not be used by most. California [July 11, 2008 is taping date, Hoover Institution] regularly hires East Asian engineers. Displacing California-educated people.
1:00:07Policy recommendations that might improve achievement: want to have very good systems of accountability, measure value-added of schools through achievement. Want to provide direct incentives to reward people in institutions that provide more value added. Choice, because parents enter into decisions. Want to use the funding system in a way that rewards performance. Tricky. Want to provide equity in funding to ensure that kids that come to school less prepared are given the resources to succeed. That means that the funding system should in part provide extra resources to kids that come in with greater needs. But at the same time want to provide greater performance. Money should go with performance, not with failure. First reaction now is that the worse a school does the more resources it gets. If you improve you might lose this aid. Semantic quibble with word "we." There is no "we." Optimism for real change: Better information and accountability; and more choice. Either fails by itself; need both. Teachers unions systematically less interested in innovation.

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