Terry Moe on Educational Reform, Katrina, and Hidden Power
Dec 9 2019

Politics-of-Inst-Reform-198x300.jpg Political Scientist and author Terry Moe of Stanford University talks about his book, The Politics of Institutional Reform with EconTalk host Russ Roberts. Moe explores the politics and effectiveness of educational reform in the New Orleans public school system in the aftermath of Hurricane Katrina. Moe finds that policy-makers turned to charter schools for pragmatic reasons and students enjoyed dramatic improvements in educational outcomes as a result. Moe uses this experience to draw lessons about political reforms generally and the power of vested interests to preserve the status quo in the absence of catastrophic events like Katrina.

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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.


Nick Ronalds
Dec 9 2019 at 11:50am

This gets my vote for best episode of the year. Not because the topic is sexy or exciting. Hardly; the topic of education reform is boring precisely because it has proven to be ineffective and hopeless, for reasons we now understand much better from the podcast. It was a great episode because the topic is so important and the implications so clear because of the extremity of the conditions—the destruction of the education status quo after Katrina. To top it off, the New Orleans experience with education reform has universal lessons: to wit, vested interests are ubiquitous, they are powerful, and their interests are rarely the same as those of the rest of us. A capsule lesson in real political science!

Joe D
Dec 9 2019 at 3:59pm

I always wonder from the taxpayer point of view, why I should favor charter schools. I’m already financing one public school system, why should I think it’s acceptable to finance another public school system. As a taxpayer I think, if you want to send your kid to a private school, send him or her to a private school.

Bruce Haas
Dec 9 2019 at 7:56pm

It is a societal strength question.  I apparently agree that I must help fund education to protect my family from being surrounded by dangerously ignorant persons with a power to vote.   If that goal is best achieved by my money going to a private instruction house, or a “charter choice” or a Government Common core indoctrination center for young Communists, I should be given at least that decision authority.  The entrenched interests are failing (US Dept of Education with its mandates and Common Core dictatorship tied to Federal tax “funding” strings, Teacher Unions, Ritalin pushers!).   Time for real change!!! Hope!  Action!

Doug Iliff
Dec 9 2019 at 9:18pm

Joe, the systems differ, but usually charters take money which would otherwise have gone to public schools, so it wouldn’t be coming out of your pocket.

dave b
Dec 10 2019 at 2:39am

There are no two systems to finance in parallel:  the money is dished per student.  As was stated in the podcast, that’s why unions and especially districts don’t like charters: charters take away their money.

Richard Rider
Dec 27 2019 at 3:15pm

Actually charter schools give students and parents a CHOICE.  NO charter school can FORCE a student to attend.  So when the money goes with a student to a charter or private school, that’s not TAKING AWAY money from the unions.  That’s ultimately what America is about — choice.

The unions’ complaint would be like Von’s complaining that choice allows “their” food stamp”customers (SNAP recipients) to spend their subsidy at Safeway or Trader Joe’s.

Terry Moe
Dec 12 2019 at 5:13pm

Thanks for your comments, Joe.  I’ll just add a bit to what others have already said.  Charters provide alternatives for the kids who are already in the system , but the number of kids stays the same and the total costs (and taxes) stay the same.  You are not paying more because charters are being introduced.  More kids in charters simply means fewer kids in the regular public schools–more money spent on charters, less money spent on the regular schools.  The point is to give parents and kids new choices so that they don’t get stuck in bad schools–which happens all too often–and they can seek out alternatives more to their liking.

Dec 13 2019 at 4:26pm

Your taxes fund a road system, too. But all roads aren’t built by the same contractor or by a public roads department.

You wouldn’t be funding separate ‘systems’. The $’s would just be going to more than one contractor.

Steve Hardy
Dec 10 2019 at 10:19am

Charter schools are a good first step but not the final solution.  I can’t think of a government monopoly anywhere in the world that has provided a good product or service, yet that is what we have in education even though it is probably our most important industry.  Once you put the money for education back in the hands of the consumers (parents), whether that be in the form of vouchers, tax credits or educational savings accounts then you will have a 700 billion dollar market that will attract entrepreneurs and create the kind of innovation, competition, and scale we see in most other industries.

Dec 10 2019 at 11:04am

Good episode.

For a detailed case study of how incumbents and vested interests maintain power in the face of educational reform efforts, I highly recommend “The Prize” by Dale Russakoff.  It describes the largely ineffective reform efforts in Newark schools following a huge donation by Mark Zuckerberg and others.  Russakoff make a great guest on this topic!

My summary of the book here:


The documentary film “Street Fight” presents similar obstacles to reform in politics more generally:


Another relevant book on the topic of institutional inertia is Eliezer Yudkowski’s “Inadequate Equilibria”.  It argues that many status quo problems are the result of unplanned emergence: never attribute to conspiracy that which can be attributed to emergent equilibria.


Matt Sauer
Dec 10 2019 at 3:08pm

Vested interests are ubiquitous. Left unexamined is the fact that low-performing urban school districts often abut high-performing suburban districts. Why not reinstate busing? Despite the educational advantages integrated schools would afford all students, the vested interests of property owners and suburban school boards maintain these segregated and closed districts. Charter schools in many urban districts merely replicate the performance of the public schools. Real change is more likely through county-wide districts that remove the “school district of last resort” through integration and a more diverse student population. Ironically, this would also challenge the power of local boards and teachers’ unions. Enough to satisfy Professor Moe?

Nick R
Dec 11 2019 at 7:54am

Matt, I moved to a suburb with “great schools” for the sake of my kids and was shocked to discover that the vaunted “quality” of the schools was due largely to the qualities of the students. Some teachers were good, some were mediocre, some were awful, and nothing could be done about the latter. In other words, busing wouldn’t solve the problem because it wouldn’t change its underlying cause. And by the way, busing has been tried. It was ineffective and very disruptive to all involved.

Dec 12 2019 at 1:08pm

I went to a highly rated school, Classical High School in Providence RI, and a low rated high school Mount Pleasant High School also in Providence RI. As far as I could tell the teachers were better in the low rated high school. I assumed that was because a bad teacher could more easily last with the Classical High school student body than with the Mount Pleasant High School body.

BTW the 2 worst teacher that I had in k-12, my mother also had 30 years earlier, one of them could not control a class, my mother confirmed that it was the same 30 years earlier.

Matt Sauer
Dec 13 2019 at 12:18pm

Nick R & Floccina, our kids attend a failing public district (granted, in magnet schools) and I’m a Gen-X urban public school grad from the tail end of busing. I’ve seen the quality of teaching in urban districts close up and doubt that accounts for much of the district-to-district disparities. Your anecdotes confirm my biases. Also, Nikole Hannah-Jones’ writing on school integration resonates with me for personal reasons, and would be my focus of school reform in this country. Busing of some sort would seem to be needed to counteract residential segregation patterns.

Terry Moe
Dec 12 2019 at 5:49pm

Hi Matt–On the whole, disadvantaged kids in urban areas clearly don’t get the kinds of schools and educational opportunities that are available to kids in the suburbs.   The great challenge of education reform is to provide high quality education for ALL kids–but that laudable goals is powerfully resisted, not only by vested interests in the suburbs, but also by vested interests in the cities (teachers unions, school boards), because major change is threatening to jobs, money, and all the rest.  It seems to me that, as a matter of practical politics (and history), busing is not a solution.  Charters and vouchers are attractive, in my view, because they empower those who currently have no choice–those without money–and give them new alternatives.  That may not promote greater integration (which I support), but it is hugely promising as a way of liberating people from  bad schools and shaking up the status quo.  Your own reform proposal, county-wide districts, is another way of shaking up the status quo–good!–but, while it does promote integration (good again), it will create new vested interests (county school boards and unions) and keep the same top-down structure of bureaucracy and politics in place.  Better, in my view, to let a thousand flowers bloom and give disadvantaged parents more choice (as long as the new system is properly regulated to ensure that all kids have equal access, that spending is audited, that horrible schools are shut down, etc.).

Matt Sauer
Dec 13 2019 at 11:59am

Terry Moe, Thanks very much for the extensive reply. We have vouchers here in our urban Ohio district and many families take those credits to parochial schools, which they see as a good alternative to public. The home school district is still responsible for student transportation, however, so they lose slightly more than the face value of the voucher. I tend to think public schooling is fine in this country (even urban districts have good teachers; also see recently-released PISA scores). My reform agenda would be more focused on regional school inequality and the way it has impacted the urban real estate market (I’m in Ohio, mind). Open enrollment should be a requirement for all public schools in the state and we should continue to push for policies that integrate rather than reinforce underlying homeownership patterns.

Dec 30 2019 at 4:48pm

I have often thought about that but not doing it on race or school performance. Low performing schools are mostly related to really one thing. Single parent kids (wedlock). Minority races just happen to have more of that so racial averages perform worse. All races perform about the same in school when you take parental status into consideration.


Studies show single parent kids have a positive effect when they are around a plurality of two parent families.

So I would be against busing based on race however due it on parental status. Their is good evidence this would uplift the disadvantaged without really bringing down anything other than the schools average performance.

The problem becomes when you have an area that has almost the same or more single parent kids. There is not a big enough population for the busing to be effective. You need to have a big enough population in each school of intact families for it to matter (to low a % and their is no effect).

Harry Robinson
Dec 10 2019 at 3:56pm

Great discussion.  It’s why term limits, campaign reform, cutting the Federal budget, no child left behind and I love Wikileaks are such great campaign slogans.

Neal Kozsuch
Dec 10 2019 at 7:27pm

Great episode, but Terry avoided the most important question Russ asked: “What were the demographics of the students who returned to New Orleans?”

Like Russ conjectured when he asked the question, I think it’s likely that the students who returned were, on average, better than the previous standard. To return to New Orleans, your family needs to have money. If your family has money, then it’s likely there is some financial security, emotional stability, and/or educational background in the parents.

Because this was not answered, I’m going to assume this is just a loose narrative.

Dr Golabki
Dec 11 2019 at 1:23pm


I agree – in addition to changing from traditional districts to charter schools, the following also changed: who the kids are, who the parents are, who the teachers are, what the culture is, what the physical buildings are like, who is on the school broad, how involved external parties are in planning. Obviously these are interrelated, but it’s not all obvious that school choice was the key factor here.

Additionally, I don’t think Terry or Russ really explained how the system works. How do parents choose? To what extent can schools choose kids? What if the most desired school is full? What if the least desired school is needed to have enough capacity for all kids? I was left pretty confused about how this system actually works.

Terry Moe
Dec 12 2019 at 6:02pm

Hi Neal–Your question about demographics is one of the first things that would occur to any decent researcher,  and those who have studied New Orleans have been aware from the start of the possibility that, if the demographics of the city improved post-Katrina, that might be responsible for higher test scores.  It turns out, however, that the demographics are comparable to what they were pre-Katrina–the vast majority of the kids are minority and disadvantaged.  Also, Douglas Harris of Tulane University, who has done the major studies on the New Orleans reforms, controls for demographics in statistical analysis of educational outcomes.

Skip Franklin
Dec 11 2019 at 11:27am

This whole episode seemed to say nothing about charter vs public schools, or free market vs govt-run systems. It was all about removing corruption. Living in Michigan, I know from local experience that charters can do a really poor job just like public schools. Largely due to profit-seeking corruption in the management. Now, removing corruption is a good thing in just about all cases, but let’s not try to use an example of corruption removal as an argument for free market in schools or charters.

Nick R
Dec 11 2019 at 11:19pm

Surely a doubling in achievement rates is a sufficient argument. No system will eradicate all corruption, so that’s not a realistic goal or standard. It’s an empirical question whether corruption is lower or less common in charter schools than public schools.

Terry Moe
Dec 12 2019 at 6:20pm

Hi Skip–My book is not about how wonderful the free market is.  It is about how power and vested interests make it very difficult, often impossible, for us to fix bad institutions.  And it uses the New Orleans case–a remarkable situation, in which Katrina destroyed public education’s vested interests–to explore what ordinary decision makers are capable of doing when there is no power to block their reform efforts.   Big picture, this is a study that tries to shed light on the role of power in shaping our efforts to build well-working institutions.

John P.
Dec 11 2019 at 12:25pm

When I Googled “New Orleans charter schools after Katrina,” a lot of articles came up claiming, based on various assumptions, that the charter schools have actually been bad for New Orleans. It would have been interesting to hear more about the most common challenges to the interpretation that Terry Moe offers and why they can be discounted.

Russ Roberts
Dec 11 2019 at 9:12pm

More on this issue and from a different perspective coming soon, I hope, to EconTalk.

Dec 12 2019 at 1:11pm


Terry Moe
Dec 12 2019 at 7:20pm

Hi John–Thanks for bringing this up.  The New Orleans all-charter system is the most revolutionary education reform in the country, and as such it has lots of enemies.  They contend that schools are properly run by locally elected school boards, and that charter schools–which allegedly “privatize” public education, and are pushed by “corporate” types and right wingers–are bad because they are not democratically controlled by the local community and thus are not responsive to its needs.  Along the same lines, many of these critics see the New Orleans reform as a racist attack on the city’s black community.  The key reformers were white, and most charter teachers were white (often from Teach for America); but under the old school-board-run system, the vast majority of the teachers and administrators were black, and the school system had been the major avenue of black advancement into the middle class.   Obviously, I can’t launch into a lengthy response to these criticisms here. I do deal with them in the book, which I invite you to read.  Briefly, let me just make a few points.  (1) Much of this criticism is ideological and vitriolic, portraying the charter reform as a right-wing conspiracy foisted on the people of New Orleans–which simply isn’t true.  (2) The critics don’t seem to care much that the old system was corrupt, disorganized, and did a terrible job of teaching children.  They also don’t care, or want to admit, that the new charter system is a vast improvement on all these scores; and when they deal with performance evidence at all, they often distort it to make charters look bad.  The fact is, New Orleans parents are big supporters of school choice, and their kids are learning a good bit more than they did under the original system.  See the studies by Douglas Harris, and also by Stanford’s CREDO.  (3)  Personally, I would say that the mission of a school system is to provide kids with a quality education–not to provide community members with jobs.  The old system was all about patronage and contracts.  The new system is about learning.  (4)  Finally, let me just emphasize that my book is NOT an attempt to convince readers to support charters!  It is an attempt to understand the role of power and vested interests in the politics of institutional reform–and I studied New Orleans because, with Katrina’s destruction of vested interest power, we get a rare chance to see what reform looks like, and what ordinary decision makers can do, when there is no vested interest power to block their efforts to fix bad institutions.


Brian Clendinen
Dec 30 2019 at 4:58pm

When parents and not politicians are in charge of kids education, its always going to be better. Parents choosing what is best for the kids is why Charter schools work.

We seem to forget traditionally in America its a parents job to educate their kids not the governments. When parents outsource the job or the cost to due the job increases because of politics, education on average is going to suck with a few exceptions.

So the clash is a clash of underlying political/religious ideology.  When you believe its the states or only the experts should have any say in a societies education of kids. You are going to hate charter schools. If you believe education starts and ends with parents. You are going to be for anything that gives more power (if you don’t want to pay for it) into parents hands, Charter schools are the best.

Bob Steger
Dec 11 2019 at 7:02pm

There is unlikely to be any real school reform until the pension system is destroyed. Teachers (CA, here) don’t contribute to FICA, and they are required to contribute to CalSTRs. Typically only 6~8 years of service credit transfer out of a district, so once you’re in for maybe 10 years, you’re trapped in the system, in that district, because it’s to costly to exit. THAT’s why the teachers are so adamant about avoiding accountability — they don’t want any risk of getting forced out at, say, age 50. The pension benefits are very back-end loaded, such that a lot is left “on the table” if you don’t hang in there for at least 20 years, and 30 years means a much larger pension.

But most people put a very high value on a pension over a 401k, even though the latter is a far better deal, generally. It might be interesting to have a discussion on the merits of annuities, which basically what a pension is.

And then there is the fact that they only work maybe 1,100 hours a year — teaching is in fact a part-time job. Teachers with 10 years of service in CA are paid over $70/hr. So the claim that they’re “underpaid” is a sham. And many companies (insurance, etc.) offer substantial teacher discounts. Will we ever see 8-hour days, 12 months a year? I’ll be dead before it happens in CA.

Dec 12 2019 at 12:55pm

This one of those issues where people on either side are saying the opposite. I listened to a radio documentary that followed a parent and child who made the New Orleans system sound quite bad. I don’t know who to believe I tend to favor parents choice anyway.

Kevin Ryan
Dec 12 2019 at 7:11pm

I would like to volunteer a reflection  on Vested Interests more generally.

Namely that for a lot of people who do not want to start their own business, what they are looking for is a ‘Good Job’.  But it is the Vested Interests that underpin the existence of many of these Good Jobs – teaching in public schools in pre-Katrina New Orleans seemed to be an example of this.

Of course, as a long time Econtalk listener, I am well aware of the arguments that it is largely the incumbents that benefit from Vested Interests, and that ‘everyone’ benefits from the better outcomes if these inefficiencies are overcome by new entrants/processes etc.

However I suspect that a lot of people are happier with a world in which they are optimistic (even if unrealistically so) they will be able to get one of these Good Jobs;  than one in which these jobs disappear but they benefit instead from a large number of not easily identified items of consequent progress

Duncan E
Dec 13 2019 at 12:38am

Other countries have vested interests. We have teachers unions in Australia and the UK, but they don’t have the same power. Why does it seem so much worse in the US I wonder? Something about your political system seems to make vested interests more powerful I think.

Dec 16 2019 at 1:50am

Assuming all of the data presented is accurate, doesn’t this natural experiment show only that changing the system produced better results? It shows that it was possible to improve education, but it doesn’t prove what works best and what does not.

I don’t see how this success with charter schools proves that public schools could not be successful with different leadership, less corruption, etc.  It also does not prove that the charter schools as implemented are the best solution. In complex systems there are many possible solutions with varying degrees of success depending on the evaluation metrics. Perhaps the “best” solution is a public education system with a different structure. Or perhaps not.  Perhaps we could find another city with a bad charter system that was replaced by a better public system. That still does tell us which form of education is better.

In this experiment we have seen how two specific solutions performed. It’s not clear to me how we can draw more general conclusions from these two data points. Am I missing something?

Terry Moe
Dec 16 2019 at 11:53pm

Hi Craig–Yes,you are missing something.  The point of the book (and the podcast) is that, with the Katrina natural experiment, we are able to observe–for the first time in modern history–what education reform looks like when the power of the usual vested interests is swept away and ordinary decision makers are free to try to fix failing institutions in ways that seem to make sense.  In a problem-solving process that took years, New Orleans wound up with an all-charter system–and a revolution.  The point is not that all revolutionary change is good.  Nor is it that charter schools are always better than regular public schools.  Nor is it that the regular public school system couldn’t be much improved without relying on school choice.  It is simply that, when institutions are failing, they are almost always protected anyway by powerful vested interests–and major change of any kind is virtually impossible.  Not all major change is good.  But major change is necessary if bad institutions are to be seriously improved.   Power is what stands in the way.   My book is really about power, not charter schools.

Richard Fulmer
Dec 27 2019 at 2:28pm

One of Terry Moe’s points seemed to be that pragmatic politicians drove the changes.  But the more details he gave, the more it seemed that they were driven by necessity – charter schools were the only choice they had.  The charter schools were the only institutions that could bring in the needed funds and get up and running in time.

Jan 6 2020 at 6:52pm

I’m uncomfortable drawing parallel conclusions, but as a long-time practitioner in the community college environment, the slow pace of change to the calls for similar reform hasn’t been the resistance from unions (though that is in play). Rather, it’s been an inability to bring promising and successful local innovations to scale. Innovation has been occurring at a healthy pace at many community colleges, but they have typically taken one of two forms: innovations that have had a small impact on large numbers of students or those having a large impact on a small number of students. To the later, the solution to bringing innovations to scale has been illusive – but not for lack of effort or due to institution-wide resistance by faculty or other stakeholders. Successful classroom innovations are routinely celebrated collegewide and the underlying pedagogy widely shared in multiple venues. The slow pace of change appears to be more a consequence of the governance structures and decision-making policies embedded in system – which aren’t overtly hampered by union agendas. If true, the slow pace of change would appear to be less a consequence of a lack of innovation in pedagogy, but a lack of innovation in system governance and decision-making conventions. Is it possible that some of this same challenge is playing out in the public K-12 system?

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TimePodcast Episode Highlights

Intro. [Recording date: November 1, 2019.]

Russ Roberts: Today is November 1st, 2019 and my guest is Political Scientist and author Terry Moe, the William Bennett Monroe Professor of Political Science at Stanford University and a senior fellow and colleague of mine at Stanford's Hoover Institution. His latest book and the subject of today's conversation is The Politics of Institutional Reform: Katrina, Education and the Second Face of Power. This is Terry's second appearance on the program. He was here in September of 2016 to discuss the Constitution and the Presidency. Terry, welcome back to EconTalk.

Terry Moe: Yeah, great to be with you.

Russ Roberts: This is a really a--it's a very short book. I love short books that I learn a lot from, and that was the case with this book. It taught me a lot of insights into not just what happened in New Orleans, which I knew a little about, but not so much, but a much broader set of issues that we're going to get into in the of course of our conversation.

But I want to start with public education generally. A lot of people are dissatisfied with the state of public schools in the United States, particularly in urban areas. You argue that despite what appears to be a lot of activity--charters and vouchers and all kinds of experiments going on around the country--actually the real impact of reform has been minimal. Why do you say that?

Terry Moe: Well we've been, as a nation, trying to reform the public schools since 1983 when A Nation at Risk came out and set off reform efforts in every state in the union. And this has been going on ever since.

And where are we? We haven't achieved very much. The reason is that there has been huge resistance from the teachers' unions and from other establishment groups like the school boards. And so here we are: you know, it's 2019. How many kids are in charter schools? About 6% nationwide. How many kids have vouchers or use tax credits? Less than 1% nationwide. What about accountability? Well, accountability has basically run into a buzzsaw with the unions hating accountability and being threatened by it. And, the Republicans, getting back to their local government roots and getting all teary eyed about how important it is to have state and local governments run everything, have basically put accountability in the hands of state and local governments where it's basically going to be dead. So I think here we are, after all this time, and we've made very, very little progress. There's just been so much resistance that the reformers have been unable to overcome it.

Russ Roberts: Why is that? What is the nature of the barriers? Given the level of dissatisfaction on the part of a lot of parents, and for me, personally, I think it's the single most depressing with healthcare and real estate. Those are the zoning issues. Those are the three biggest dysfunctional areas of public policy in my view. And education is probably the most important of the three. Why can't we do that? I mean, it's so obviously a crummy system, again, mostly for poor families in urban areas. Why can't we fix it? Or try something even? I mean, like you say, we've had so little success in trying it.

Terry Moe: I think when the average American thinks about this, it's so obvious. If we have an education system that doesn't work very well and that's not educating kids, then we need to do something about it. Right? It's good for the nation, it's good for children. It's a no brainer. But that's not the way politics works.

In education, there are powerful vested interests that have a stake in the system regardless of how well it's performing. The two most important vested interests are the teachers' unions and the school boards. The teachers' unions simply have a vested interest in jobs. I don't say that to demonize the teachers' unions. It's just a straight forward fact. They represent teachers who have a vested interest in their jobs. They want job protections, they want better wages, they want better benefits, and they want seniority rights, and all the rest. And, a lot of these things that they're demanding are either irrelevant to or come at the expense of what's best for children.

What we need to do is to organize the schools and organize the school system in ways that are the absolute best for educating children. But that's not what happens. If anything is threatening to the job interests of the unions, they will oppose it. And if the system is performing badly, it doesn't matter to them. They will still oppose reforms that are attempting to improve the situation.

And the same goes for school boards. School boards are concerned with keeping their enrollments up, keeping the money coming in, keeping their own control over schools. And so if you come along and say, 'Look, maybe kids could do better in charter schools if we had more charter schools, or if we let some of these kids go to private schools.' Their response is, 'Absolutely not.' Because they don't want to lose kids, they don't want to lose the money, etc, etc. It has nothing to do with whether the kids would be better off.

So this is what the politics of education is really about. It's about reformers trying to find some ways of improving the system. It turns out that a lot of those ways, the most basic ones--choice and accountability--are threatening to the vested interests. And they are the real powerful forces in education. And what they do is they use their power to block fundamental reforms. And that's been the story for the past 35 years.


Russ Roberts: So, that's a very depressing story. Of course the teachers' unions don't see it that way. And, you know, as you said, you don't want to demonize them and there are a lot of wonderful teachers in the public school system. That's not what we're talking about. Many of you out there maybe have parents who work in that system, or you attended that system as I did and had a good education. I was in a fairly well off suburban area of Boston, which is a different situation than what we're going to be talking about, which is more urban areas.

But the defense against that would be, 'Well, all those reforms you're talking about, we don't think those would work. All we need is a little more money for the school system. You are demonizing them.' So what's your defense against that claim?

Terry Moe: I think it's just factual. They favor reforms that are good for them. They want more money because they want teachers to be paid more and they want better benefits and so on. There's no solid evidence that more money is the key to this problem. And they are opposed to reforms that are threatening to their interests. It's as simple as that.

Let me just take a step back and say: Vested interests are universal. Every institution in every policy area generates vested interests. And these are interests of people who get the services of those institutions but also who get the jobs that those institutions generate or the business contracts that those institutions generate. And, this is true in agriculture; it's true in defense; it's true in the environment--you name it. And it's not just true in this country: it's true in every country; and it's been true throughout time. This is a universal thing. All institutions generate vested interests, and those vested interests have a stake in protecting their institutions from change because those institutions are the source of their benefits. And in many cases, those benefits, like jobs and profits, have absolutely nothing to do with whether the institutions are performing well.

And so these vested interests, which have a stake in investing in political power, will use their political power in order to stop reforms even when the institutions are performing very badly. And that is the problem that all societies face, and that our society faces, in trying to have a healthy democracy in which our institutions actually work. When we have institutions that are failing, the vested interests will still protect them and make it virtually impossible for us to reform them.


Russ Roberts: Now, reasonable people or at least somewhat reasonable people could disagree about whether charter schools are better, or whether vouchers are helpful, or accountability. But what you can't--so, I wouldn't say that's a factual question. I think there's evidence--

Terry Moe: No, it is a factual question.

Russ Roberts: No, there's evidence about it, but I want to make a different point. I want to make a different point. I mean, because that evidence both sides could argue about it.

But here's the part I think that is inarguable: when these type of reforms are put on the table or pushed forward, it is true that the teachers' unions spend money and time to stop them. That's clear. Now, they may be nobly motivated, or they may be selfishly motivated, as you are implying--or, just--self-interested would be a better phrase.

I often make the joke on this program that around election time, there are election signs in people's yards that have a sign for candidate and there's an apple on the poster and it says, 'Teacher approved' about that candidate. And I always want to go up to the person who has put that sign up and say, 'Wouldn't you want a teacher [candidate?--Econlib Ed.] that's Parent-approved, or Student-approved? Why would you think Teacher-approved is a selling point?'

But we do. We have a lot of romance, perhaps correct--I don't think so, but perhaps correct--that teachers love and care about their students; and I think many individual teachers do, of course.

But regardless of whether these reforms are effective or not or would be effective, what is undeniable is that the teachers' unions and sometimes others are very in favor of the status quo and put their money where their mouth is.

Terry Moe: Well, that's true. That is what they do. And they're protecting jobs. You have to remember that teachers don't join unions in order to promote the best interests of children. Teachers join unions to protect their jobs. That's what unions do. In any industry, that's what unions are for, right?

Russ Roberts: But a lot of people would say, 'That's okay. What's wrong with that? Why does that have to be in conflict with helping students? It should be the same. They should be working together. Shouldn't they?'

Terry Moe: They aren't necessarily consistent with one another.

The teachers are going to want to spend money on wages and on benefits rather than, say, on new curriculum materials that might help children, on, say, new technology that might help children learn, on reforms like, say, charter schools that would allow kids to get out of horrible public schools--and there are plenty of those--and into better schools. Something really simple like that, like, 'Hey, these kids are trapped in bad schools. Let's get them out.' The union's response is, 'Absolutely not.'

Russ Roberts: So, I just want to make a distinction. I mean, I agree with your course, 100%, Terry.

The distinction I want to make is that the unions don't just want to save jobs. They want to save the jobs of the people currently in the system. And--and this is important--and keep the kind of job that they have: the style of job, the amount of effort that's required, etc. So, it's not just that they want to preserve the jobs of the teachers.

Terry Moe: Well, I think you're right. But it's all job-related. Right?

Russ Roberts: Correct.

Terry Moe: For instance, with accountability, they don't like the additional burdens that are placed upon them by an accountability system--right?--which insists on certain standards and is going to be evaluating the school and maybe even teachers based upon whether students are actually learning anything. The history of this is that teachers were never evaluated based on whether their kids are actually learning anything. Nobody even knew that. Right? And teachers just always got satisfactory evaluations and they just cruised through a career even if their kids were learning nothing. Right?

And with the accountability movement, there was a demand that, for spending $700 billion on the education system, we needed to know that the money was well spent--that kids were actually learning something. And we needed to just start measuring things, measuring outcomes, and linking them to what the schools were doing so that we could get a sense of the productivity of these organizations. And do something about it. That's very simple and straightforward.

Russ Roberts: Yeah. Well, I have mixed feelings about accountability, but that's another story. But in general, this issue of, I would just call it, dynamism--trial and error. All the ways that in the rest of the economy, things get better. And ratings; all kinds of different choice--exit, competition. These are the ways things have gotten better in every part of the economy. But for some reason in education we don't allow that to have sway.

Terry Moe: Can I just make a comment on that?

Russ Roberts: Yeah, sure.

Terry Moe: I think that's a very good point to make. No one has silver bullets here. We don't know whether these reforms are the perfect answer to our education problems. But, the key to progress is being able to try things and experiment and make adjustments over time. And then you move toward something that is better and better and better. And the problem with a political system that's structured by power is that the power holders--the vested interests--won't let you do that. They won't let problem solvers simply engage in this problem solving process where they're just willing to do whatever works. Because a lot of these things are threatening to the vested interests and they simply block all experimentation and stop the process in its tracks.


Russ Roberts: So most people who understand that basic dynamic, they may disagree with it in this particular case, think that, well, these reforms wouldn't work anyway; it's not important.

But, you make a second point that really underlies the whole book, which I think is unusually deep and insightful idea from a paper by--or is it a book?--by Bachrach and Baratz, which you call it, or they call it, "The Second Face to Power." ["The Two Faces of Power"--Econlib Ed.] And this is a really interesting idea. Tell us about that.

Terry Moe: Yeah, it's really profound. So, what we see in politics is struggles among groups where you have one side say pushing for reform and another side pushing to stop reform. And, you get some sense of who wins and who loses and who has how much power and how that power is exercised. That is what's called the First Face of Power. It's part of normal politics. It's what we observe.

Back in the old days in Political Science, when Political Science was becoming scientific--this was back in the 1950s and '60s and '1970s--there were political scientists like Robert Dahl who argued that, 'Look, if you're going to understand power and study power, you have to be able to observe the exercise of power and therefore you have to observe conflict situations.' And Bachrach and Baratz, and some others came along and said, 'Actually, this is completely wrong because much of what power does is unobserved. Because, for instance, if one side has superior power and the other side knows that if they try to do anything about that--if they try to launch a conflict--they're going to lose and they're going to suffer all the costs that go along with losing. And so most of the time what the people who want reform will do is nothing.

And so the great consequence of power is not that the power holders win in conflict situations. The great consequence is that nothing happens--that the reformers voluntarily, based on anticipated reactions, decide to do nothing.

And what that does is to stifle all potential efforts to really act on dissatisfaction and try to transform our institutions and our policies. That's the Second Face of Power. And we can't see it because its principle consequence is: nothing. And we can't observe nothing. But it's there. And so, our assessments of power are all based on the First Face of Power, which we can see, but power is actually having much more profound and negative consequences on our efforts to actually fix things and make our institutions better.

Russ Roberts: So most of the action, the iceberg is below the surface. That's one metaphor to think about it.

Terry Moe: Yes.

Russ Roberts: The second, and it's part of this, that I found interesting and it just comes to me now as you're talking about it, is that it could lead you to miss a mistake and conclude that 'Well, people aren't really that exercised about it; they're not really working hard to change it. It must be pretty good.'

Terry Moe: That's right.

Russ Roberts: In fact, they've just given up. And that's a profoundly important insight into how this particular area, how it works.

And I just have to add for listeners, because I can't help myself: When you said political science became a science in the 1950s, I would argue very few social sciences are actually sciences. And what you've just illustrated is the reason it's not even necessarily a good idea to try to become one, because it tends to focus you on what's a measurable. And here's something that's unobserved that turns out perhaps to be the most important part; and it gets ignored because you can't write a regression analysis out of it or have a chart or a table with the data.

Terry Moe: That's right. But I guess I would argue that what it sets up for social scientists is a challenge. If we recognize that these things are profoundly important, at least potentially, then our challenge is to try to get at them, to try to observe them, and recognize their true importance.


Russ Roberts: And of course it goes well beyond political science--a big debate in economics right now about the tech companies. It is tempting to say, and I've said it myself, that people seem to like the status quo. They love that Google sells their data and that other places like Facebook do the same, and they don't care about their privacy. That's one interpretation. It could be true.

The second interpretation is: Well, it's really hard to start an alternative right now. Now, it's not as hard, I think, as it is to change a school board's political power, as we'll see in a minute. I think there are entrants into the tech world right now that will test that question of whether people really care or not. There are going to be alternatives to Google and alternatives to Facebook and Twitter and others that have different incentives and structures, and pay-offs. So we'll see about that.

But, I want to get back to our story, your story, which is--so that's all background. And here's what's fascinating: In 2005, I think August, a hurricane hits New Orleans with devastating, horrific impact, Katrina, and wipes out, physically, an enormous amount of infrastructure of New Orleans, a huge number of schools. People have to leave the city. And it creates an incredible natural experiment in political science.

Terry Moe: Yes. It's a remarkable thing. Because, what Katrina did was not only to destroy the schools, but, because it did, it actually destroyed the power of the school board, which had no control over schools anymore--there weren't any--and no money. And, it wasn't able to hire teachers anymore, had to let them all go. And because it had them let them all go, the union had virtually no members and no money and no power.

Russ Roberts: Why did it have no money? Explain that.

Terry Moe: Because they had no members.

Russ Roberts: No, but why did the--

Terry Moe: It had very few members in it. It relied on dues.

Russ Roberts: But why did the school board have to let all the teachers go?

Terry Moe: Because there were no kids in the schools: everybody left the city.

Russ Roberts: And there's no property taxes collected, there's no--right?

Terry Moe: Yeah. So, it gets money from enrollments. Right? And it can only float bonds if it's able to back them up with all these enrollments that are going to provide money in the future. And so there it was, it wasn't able to--also, it was too incompetent to get the schools up and running in the short term. So it had no solution to this. And as a result there were no kids, there were no schools and operation, and it had to let the teachers go.

And so, when it let the teachers go, the union became powerless. And so the result was that Katrina not only destroyed the schools, it destroyed the power of the vested interests. And for the first time in modern American history, it made it possible for us to observe a reform process, a rebuilding process, in which the power was gone. The power of the vested interests is gone.

And in every other reform effort around this country for the past 35 years, there are vested interests that are sitting there resisting the reform efforts. But in New Orleans, in New Orleans alone, there were no vested interests. And we have a chance to see what reform looks like when the power is gone.

Russ Roberts: And as you point out, that natural impulse is just to, 'Well, let's just get things back to where they were.' I mean, when a building gets destroyed, usually you just rebuild it. You might rebuild it a little differently as we did after the tragedy of the World Trade Center bombings--attacks. But, in general, you get back to work, you put the schools back up, you bring the kids--the water goes down, you put the kids back in the schools. Why didn't that happen?

Terry Moe: Well, that's the story. Right?

So, basically you have these decision makers who were in charge before Katrina, and they were Kathleen Blanco, who was the Governor; two advisors--Leslie Jacobs and Paul Pastorek; and the Superintendent of Schools, Cecil Picard, who was appointed by Kathleen Blanco. And they were in charge of the major education decisions before Katrina. And these were the ultimate pragmatists, incrementalists, problem solvers, working within the system--bringing about almost no change. But, of course, they wanted change; but they weren't able to do much. And so, you know, they're just classic politicians working within the system to do what little they could. Okay. So then--

Russ Roberts: But before you go on, Terry, it's really important to mention: These are not free market ideologues, they're not intellectual theorists. When you say 'pragmatists,' that sounds like a sort of, 'Well, I'm a pragmatist, too.' But what you mean by that is: They don't come with any pre-determined agenda that they'd been pushing in the past that this suddenly opened up a possibility. They were just trying to do their jobs. Is that correct or am I making it too strong?

Terry Moe: No, that's correct. And it's really crucial to this story, because they were not charter fanatics or big supporters of charters. They were not supporters of the free market. They weren't ideologues. They were just very pragmatic problem solvers doing the best they could within the system to make things a little bit better and making very little progress. That was the story before Katrina.

Russ Roberts: And they struggled. But the bottom line--let's get to the bottom line so that listeners have an idea of what we're talking about here. The bottom line is: we go from a world of a very status quo public school system in this very poor city that's performing very badly--

Terry Moe: Very badly--

Russ Roberts: And we'll get to that in a second. But the thing I want to emphasize before we even get started is that: Somehow, we end up in a world where almost every kid in the New Orleans school system is in a charter school instead of a public school run either by the local system or some state authority or some special board. But, it totally changed the institutional structure of the New Orleans school system.

Terry Moe: Right. What happened was a revolution. The most profound change that's been brought about in any city, in the entire country, during the entire reform era.

So, not to jump ahead, let's talk about what actually happened. So, okay, after Katrina hit, the same decision makers were in charge. And the normal thing for them to do would've been to say, 'Okay, the school buildings have been destroyed. Let's rebuild them. And let's reconstitute this traditional system,' you know, 'Hopefully it'll perform better than it performed in the past. And that's the path of least resistance.'

But they didn't do that. And right away they knew they weren't going to do that. Right after Katrina hit, these decision makers looked at one another and said, 'This is the opportunity of a lifetime.'

They became radicals. And, they were willing to do whatever worked to transform this system. But they knew that that system was a bad system, and they did not want to recreate it.

Russ Roberts: How bad was it? You need to give us some data on that. How bad was it in 2006, in 2005? How bad was that performance level, at least in those schools?

Terry Moe: Okay. Well, the student performance was terrible. About a quarter of the kids were scoring Basic or above on state tests. That's very abysmal. The school district was corrupt. You know: They were giving out contracts to their friends. They were hiring, as teachers and principals, their friends and their relatives instead of people who were competent. The district was so corrupt that the FBI [Federal Bureau of Investigation] actually opened up a unit within the district's own school buildings, and they ultimately put 30 people in the district in prison, including the President of the School Board.

So, there was no emphasis on actually teaching kids anything. Only 6 out of 10 high school students actually graduated. And, the valedictorian of one of the high schools actually failed the graduation exam five times and couldn't graduate. She was the valedictorian. Right?

So, this is a really, really bad system. And, everybody knew it was bad. And yet, for a long time they were unable to do anything about it, unable to reform the thing, because there was resistance from the union and the school board, all that time, that was successful. Right? They're powerful.


Russ Roberts: So in your book, you talk in some detail, which we won't go into here, about the ways that they stumbled toward trying to--it didn't happen quickly, they may have overnight looked at each other and said, 'This is a chance to do something different.' But they weren't sure what that was. And your book details that journey and the different people that played a role in it, in part of the book.

But the bottom line is that, at the end, we ended up with a Charter School system.

And I want you to give us two pieces of information. One is why should Charter Schools, which are run by the government still--they're still public schools--why should they be any different than the schools they replaced? And, what kind of results did they get when they did this revolution? Because it did go from almost no charter schools--a handful--to almost all charter schools. And as a result, performance changed.

Terry Moe: Yeah. Okay.

So, the traditional system was run by the local school board, which was corrupt and was unconcerned with how much students were learning, and was incapable of running a high-level school system. Okay. So, what these decision-makers knew--they didn't know what the perfect system was going to look like. They didn't have an ideology; they weren't charter supporters, etc., etc. But they knew that they could not put control back in the hands of the School Board because the School Board had a tradition of failure, and it would just revert to that.

And so what they felt they needed to do was to move toward schools that would be autonomous--right?--that could run themselves. And charter schools offered them that opportunity.

And also, charter schools, because they were individual units, could get up and running. And what they--the problem that they faced was kids were coming back, you know, to New Orleans and they needed a place to put these kids. You know? And here the School Board is bumbling around trying to get a few regular schools up and running. They could get these charter schools going. And they did.

Russ Roberts: Why? Why did they get going so much more quickly than the traditional schools that had been there, public schools that had been in place before?

Terry Moe: Because the school board wasn't in charge of it. There were individual sort of teams of people, entrepreneurial groups of people.

Plus there were outsiders like KIPP, and other organizations that had run systems of Charter Schools who were applying to the State School Board to get charters to set up one or more charter schools in the system. There were local organizations that knew something about schooling that were ready to roll.

And they were able to do this on their own initiative and get money on their own initiative from philanthropists who became very, very interested in New Orleans, precisely because the power was gone. They could come in and they could have a real impact on this city.

And that's a second part of this story. You know, that in the past, philanthropists like Gates [Bill Gates--Econlib Ed.] and Eli Broad and others knew that New Orleans was a basket case ; but they wouldn't come in and really try to help these schools because the power structure was so corrupt that the money would be wasted. And so once the power was gone, these philanthropists came in and said, 'Okay, we want to help.' You know, 'What can we do?' Well, they could help fund these charter schools and--go ahead.

Russ Roberts: Well, you mentioned that they're autonomous or at least not under the control of the School Board in the way that the public schools perceiving them were. But there's also this general idea I hear all the time about Charters is they 'Don't have the same rules'. That the unions don't have the ability to set the way the school is run or the way teachers are treated or how they're paid. Was that important also?

Terry Moe: It was crucial . Because, in the district, prior to Katrina, there was one collective bargaining contract--filled with rules, like seniority rules--that heavily constrained what principals and others can do to set up a team of people within the school that actually care about kids and teaching them something.

Charter schools don't have to be unionized. They're not covered by the district wide contract. The union can still organize them but it has to do it school, by school, by school--which is a very difficult thing for them. Also, the teachers in a charter school tend to be recruited to the school because they agree with the school mission: they're on the same page with the school principal, they work together, there's a small number of them. And they're not really good candidates for union membership and for collective bargaining.

And it also gives the Principal a lot of flexibility, and the Board to hire the kinds of people who are on the same page, who agree with the school's mission. Who work well together. And when people don't work well together--when there's some people who don't get along with their colleagues or don't get along with the Principal, those people can be let go. And so what you wind up with is a much more sort of organic team that can work together.

Well, you don't have that in the public, regular public schools. Because whoever is there you're stuck with, because the collective bargaining contract doesn't allow you to move people out like that and doesn't give you that kind of flexibility.

Russ Roberts: So, I love that, but I'm going to play the other side for a minute. So what we had here is a chance for a bunch of super-wealthy foundations with their own vested interests to run a set of schools that should have been run through the democratic process of what we had before. This gave authority to principals to indulge their preferences, to mistreat and abuse teachers without the protection of the union, etc, etc. So, that's a very--that's what the union would say in response to your claims, right? You just painted a really lovely picture of how charters could work, but that's the other side. What's your response to that?

Terry Moe: Look. First of all, the philanthropists that were in the background of all this, they're not making a profit on anything. You know, these are basically do-gooders who are trying to create a better school system and trying to fund the kinds of reforms that might bring that about. They don't make a nickel on any of this.

And each school floats on its own bottom. Nobody has to go to these schools. They're all schools of choice. And so these schools have to be good enough, and responsive enough to parents to attract parents and kids.

Russ Roberts: So that's a really important point we didn't mention before.

Terry Moe: Absolutely, huge.

Russ Roberts: You didn't just go to your neighborhood school under the current system: You could choose.

Terry Moe: That's right. In fact, as the system developed, all kids had to choose a school.

Meantime, I think that people who talk about, you know, with tears in their eyes, really, how democratic controlled by the local school board is, are really exaggerating the quality of that democracy.

As I said, that school board was corrupt. And school board elections don't really correct for that, because what you get in a school board election is phenomenally low turnout. And the unions--the union, local union--plays a huge role in supporting candidates and getting their own members and neighbors and friends out to vote. It doesn't take that much. And they can have a huge impact on who sits on that school board. Usually their allies are sitting on the school board.

So, in that case, and in many cases around the country, you get a school board that is not fundamentally concerned with what's best for kids. Right? Whereas the charter schools have to be concerned with that or they're going to lose kids.

Russ Roberts: First, I don't want to forget, I want to thank Plantronics for providing Terry's headset today.


Russ Roberts: So we can debate back and forth whether we're right, whether charter schools matter or not, or the fact that parents can choose. We could debate whether it gave too much power to local principals rather than the school board, which is democratically elected, and so on and so forth. You could say they're corrupt. Other people could say, 'But at least they have to get reelected,' and so on.

But we do have some data. It's imperfect. We'll talk about the imperfections, but it's pretty dramatic data. So once this change happened, once we went from a world where almost no children were in charter schools, to where we're--what? 90%, how many percent? 90 what?

Terry Moe: Well, it's virtually all children now: Let's say 95%.

Russ Roberts: Okay. I want to make a comparison, say, between 2010 and 2005. Five years go by. Did the students in those schools do better in that new system that had been created from scratch, from what was essentially a blank slate with those political and power changes that you've outlined? What happened?

Terry Moe: Oh, they did a lot better. I said that in 2006, 25% of the kids were scoring Basic or above on state tests--

Russ Roberts: Which means 75% were not.

Terry Moe: Yeah, were not. And in 2010, 48% were. So there was a huge increase in school quality here. Now , you also have to take into account the demographics of the kids and all the disadvantages that these kids bring with them into the school system. And so this is a very, very difficult population of kids to educate. And I think it's always a struggle to get them even up to the state average.

And so , New Orleans is--they have a tough challenge here. But, they managed through their reforms of this process and the proliferation of charter schools and getting these kids into schools that actually cared about them, to increase student performance dramatically.

Russ Roberts: They roughly doubled the number of students who reached that standard. Now, did the standard change over that time period?

Terry Moe: To my knowledge, not over that time period ; but later on starting, I don't know, around 2014, 2015, 2016, the state began changing the tests and changing the standards. And, for the following, like, three, four years they've been pretty much in flux but moving toward what they consider to be tougher standards, but creating a lot of uncertainty in the schools about how to teach these things and what kinds of curriculum would be appropriate and so on.

And so , in recent years test scores have stalled in New Orleans. So, they made dramatic progress, but since then that dramatic progress has sort of stalled out. And that's concerning. But, I think the thing to underline is for the people who are running these schools, the charter schools, and also the people on the school board who are reformers now, it is concerning, right? They're all over this. It's like, 'Oh my God, our test scores are stalling out. What are we doing wrong? Let's get on this, let's change things, let's do things.' Because they're focused on student performance. This was never true before. Right? Under the old school board, performance was not a priority, and now it is. And that is the fundamental difference.


Russ Roberts: So let me give two possible explanations of this change. It's always nice to say we had a natural experiment and couch it, again, in what sounds like scientific terms, like we're in a lab with a beaker and a pipette, and we've got something under a microscope. But there's two possibilities that at least come to my mind right off the bat that might explain this improvement that have nothing to do with charter schools.

The first is : people under hardship pull together. There was the new culture in New Orleans of trying to improve things in the aftermath of this horrible tragedy. So that would be one possible reason for why the scores and performance improved.

Second, which I think is more important, is that they're not the same students. Not everybody came back. Some people left New Orleans to go live with their cousin in Oklahoma and stayed. So, I assume we know a little bit about the overlap between the pre-Katrina and post-Katrina population. Obviously, as you say, terrible demographic challenges, very poor, a lot of single-parent homes. It's not an easy environment for kids to come to school and learn in necessarily, but those are probably similar. But how similar are they before and after? And do we know anything about the characteristics of the people who came back? Because it could be, the ones that came back are the ones who are more motivated, they're better parents. Who knows?

Terry Moe: Okay. So , your first explanation was that a new culture has developed.

Russ Roberts: It's called storytelling. I like that. You can always explain. And you can always get your narrative confirmed if you have to, by some out of the box trick if you need to. I don't believe that, but it could be.

Terry Moe: Yeah. Okay. Well, I would say that to the extent that there is any new culture that's been created, it's been created because of the proliferation of charter schools and the emergence of choice as the means of getting kids into schools. Because the parents of New Orleans love choice. And it's something like 90% of parents are very positive about being able to choose their kids' schools. Also, the schools go out and try to recruit parents. Parents are suddenly the target of a lot of attention by these schools. Everything is different, right?

So I think that there is something of a new culture, but it's been driven by these reforms.

Okay. The flip side of that is that the old culture didn't go away, and a big part of that was that the people who initiated these reforms in New Orleans and, like, the Teach for America Kids that came in and taught in a lot of the schools, were white. And almost all of the teachers who lost their jobs after Katrina were black, and same with the central office there. And this school system had always been perhaps the major avenue for blacks into the middle class. Right? And so they viewed the school board as their means of gaining African-American control over the schools. And this school system had always been perhaps the major avenue for blacks into the middle class. Right? And so they viewed the school board as their means of gaining African-American control over the schools.

This had nothing to do with the quality of the school system. It had to do with race and with promoting the economic interests of the African-American population. And after Katrina, the school board and the teacher's union did everything that they could to fan the flames of that discontent and to bring that old culture to bear on the new reforms. And to bring those reforms down. So I don't think that suddenly New Orleans emerged out of this with a brand new culture--

Russ Roberts: Kumbaya--

Terry Moe: It was still alive and dangerous, I think, to the reforms. So, that's an answer to the culture issue.

With regard to not the same students, I think that these issues have been explored and discussed in depth by Douglas Harris, who is an economist who's done the principal studies on student performance, and is very well aware of the controls that need to be taken into account in trying to think about whether these changes make sense in light of the student population. So I don't think the student population has been dramatically different. That's my understanding. But I would just refer you to Harris's studies, which are very, very positive about the progress of the New Orleans system.

Russ Roberts: The stagnation is a little bit disturbing, although you don't expect it to go to 120% of the students who are scoring above grade level or whatever, at or above grade level. But in 48, you could argue 48 is better that 25. Again, that number was 25% of students were at or above some standard, pitifully low number. It went up to 48%, five years later. 48% is not very good. It is a lot higher than 25, which means that thousands of students have a chance to get a decent--got a decent education and to have a chance to get more. But I could still argue it's not a very effective system.

Terry Moe: It's all relative. I think it's very important to recognize that probably half or more of student performance is due to student background characteristics--to poverty and one-parent households and all the rest. And the schools contribute the rest. So, the schools are really up against it. In any community: in Detroit or Philadelphia or Chicago, any community with lots of minority kids in almost every urban area has exactly that. It is going to find it very difficult to get really high test scores. So, that's something that I think we all need to keep in mind in evaluating how the New Orleans system is doing.

Russ Roberts: I don't agree with that. Well certainly there's racism and there's challenges that students in those systems face, particularly the poverty and the single parenting. But there are many, many schools systems--many meaning more than zero--suggesting that it can be done. And I'm thinking of Doug Lemov, who has been a guest on the program before: the system of charter schools he's involved in, in the Northeast, has worked with very challenging populations on the same dimensions of poverty and home life, and they've thrived.

And so, I guess I would say it in a different way--see if you agree with me or disagree. As you said in the beginning, there's no silver bullet. It would be great to have a set of reforms that could lead to 100% of the students achieving at grade level or better, but 48% is a glorious step in the right direction. And as you say, people are desperately trying to figure out how do we keep this improvement continuing? How do we keep it from going back to what it was before? And that makes all the difference, even though it may not be ideal. The perfect is often the enemy of the good; and in this case that would be what I would worry about.

Terry Moe: I think actually we're on the same page. I mean, I think all children can learn and that has to be the way that top educators approach this. But, if social science has shown anything, it's that student background is enormously important in shaping how much kids learn, over and above how much the schools can contribute.

Russ Roberts: Absolutely.

Terry Moe: So, that is a fundamental part of evaluating all this. Now it's also true that KIPP [Knowledge Is Power Program] and a number of other charter school systems have been able to show that they can take these disadvantaged kids and really teach them and get them to perform at very high levels. This is a really powerful thing. But, what percentage of kids are going to KIPP schools? It's a very tiny percentage. So the problem is: how do we get these things to scale? And, our whole system, the structure of power, makes it very difficult to do that because the unions and others don't want KIPP and other models to spread, because they're going to take students away from the regular public schools where the unionized teachers work.


Russ Roberts: So I want to move to the question of what we learn from this beyond education. And I want to start with a quote that you didn't use in the book. I wish you had. But it summarizes what I think is the most important lesson. And then I want to see if you agree and then we'll see what else it applies to. The way I would describe one of your summaries of what changed is that this cast of political players--the Governor, other people within the political system--they went from being defenders of the status quo to what you call problem solvers. And I think that's an important phrase, 'problem solvers.' Again, they were not ideologues. They didn't do what I would've done if I'd been in charge, which is to say, 'Let's get rid of the public school system and let's let things grow and let's see what emerges. And there'll be trial and error and competition. And I'm confident that that process will lead to good results, even though I will not be in charge of them.'

That's not the way politicians normally behave. And these didn't either. But they did try to make things better. That's what I mean by problem solvers. Because they didn't literally solve the problem, but they did struggle in the darkness, as you, I think a metaphor you used, to figure out what might make things better.

And so the fundamental question is: what's the implication of that for--that's extraordinary. And the quote I want to bring in is from Milton Friedman, which has always been one of my--this quote has always been my essential understanding of politics. It might not be correct, but this particular episode that you've highlighted in American history illustrates it beautifully. Friedman said the following:

It's nice to elect the right people, but that isn't the way you solve things. The way you solve things is to make it politically profitable for the wrong people to do the right things. [--Milton Friedman]

And what Friedman means by that is simply the economist's obsession with incentives. So, if politicians don't have the incentive to do the right thing, I don't care how noble they are, they become driven by those incentives. There are exceptions, of course, throughout history. But most politicians follow the incentives. And if they don't, they usually lose office, and it doesn't matter how right they are or how noble they are or how reform-minded they are.

Here's a case where it's literally the same people. It's such a fantastic little mini-piece of this laboratory experiment that you've highlighted--these people who before said, 'Yeah, it's fine. It's not great, but it's fine,' all of a sudden became zealots, because the incentives have changed. I think it's an extraordinary thing.

Terry Moe: Right. Right. I agree with that. Power shapes incentives, right?

And so before Katrina, these people, they were incrementalists. They were responding to their context, responding to the incentives of that context. And when the power was taken away, their incentives were completely different. They didn't have to worry about reprisals from the power holders.

And what was not apparent was that these people were not just like problem solvers, but they were problem solvers who were just--they were willing to do whatever works. That's like a completely pragmatic approach, right? 'We'll do anything. Whatever works.' In the past, they could never do that. But, because the power wasn't there, they were able to do whatever works.

And what no one recognizes is that 'whatever works' is revolutionary. Because, what it means is: they don't care that the traditional system is what has always been followed. They're willing to completely up-end the thing and do something completely different. And they're free to do that because there's no power in that situation to stop them, to stand in their way, and to change their incentives.

And the second part of this is they didn't know what they were doing. Right? And it's a beautiful thing, right? Because: What do people who want to, like, completely up-end the system and do something really dramatic do when they don't know what they're doing?

And it turns out that ultimately they were able to put this in the hands of Paul Pastorek and Paul Vallas who were real leader-types. They also didn't know what they were doing. But they were going to create good schools, come hell or high water--

Russ Roberts: To claim the phrase--

Terry Moe: Yeah. And so they had charter schools that they could put kids in right away. And they also had a lot of direct-run schools. And what they found out was that the direct-run schools--

Russ Roberts: Explain what that is, Terry.

Terry Moe: Those are--well, there was a unit called the Recovery School District [RSD] that had been created by the state to take all of the New Orleans schools, just about, and run them. And the idea was: Okay, well, they'll charter them. And the reason was the RSD didn't know how to run schools. Right? They didn't really know how to do this well. But it turned out there were so many kids coming back, there weren't enough charter schools to put kids in. And so, in the beginning, most kids were in schools that were directly run by the recovery school district. And what Pastorek and Vallas found out, in trying to run these schools and run them well, was: they couldn't run them well. It just wasn't working out.

And so as pragmatists, they said, 'Look, we just got to start putting more kids into charter schools. Let's just put them all into charter schools,' eventually. And so, that's how this all-charter system evolved. You know, when people on the outside look at this, they say, 'Yeah, this is a case where a bunch of right-wingers: they wanted to bring the free market system'--

Russ Roberts: Neo-liberals--

Terry Moe: Yeah. 'And here they had this opportunity because the city had been destroyed and they rushed in, and the Heritage Foundation and Milton Friedman and all of these people, you know, they came in and they're responsible for this free market thing.' And nothing could be further from the truth. This was a bunch of problem solvers who were just thinking, 'We've got to do something that works for these kids.' And they were led, step by step, to this all-charter system.

And, this is where the Second Face of Power comes in, because what we're seeing here is what power was preventing before Katrina. Right? We could see that there were battles and there were winners and losers. What we couldn't see is that all of these problem solvers--Kathleen Blanco and Pastorek and all the rest--were not behaving like radicals. They gave no indication that they had this potential to upend the traditional system. They didn't even think about it. So that was the Second Face of Power stifling: Any activity that they could have engaged in, they knew they would lose. And causing them basically to just play inside the box. But as soon as the power was taken away, they had this radical potential that just came out, that was completely hidden and snuffed out. And that's the part of power that we never see; we can't observe what that power is doing to people all the time, every day, in every school district. Right?

There are these problem solvers who have this potential to really do big things, but they're not doing them, they're not talking about them, they're not proposing them, they're not pursuing them because of the Second Face of Power. And the Katrina natural experiment allows us to see what power has been preventing all this time and what is preventing everywhere else. Because the conditions there are normal, the schools are protected by vested interests, and the Second Face of Power is stifling these kinds of major reforms.

Russ Roberts: And we see this in the economy, of course, elsewhere. Obvious example would be the innovation of Uber and Lyft disintermediating or destroying the taxi system. Now, they're not making a living--they're not making money yet--so it's not clear that this is going to be an effective way of changing the way people catch rides in American cities. But, just the technology alone and the opportunity to see where you're going and to not use cash out of pocket but rather pay for it with a credit card--these are innovations that could have been done--well, they couldn't have been done terribly long ago, but as soon as that technology came along, essentially it was an end-around. And in a lot of areas where the government has made it hard to compete, end-arounds are the only way you can change things, which is why a lot of people put a lot of hope into online education as a way to get around the stasis in the school system we're talking about. It hasn't succeeded at all yet.


Russ Roberts: But I want to close with this Second Face of Power and all these examples of where there is potential for change, we just don't see it. And as an economist, I love that; it reminds me of Bastiat's essay, the seen and the unseen and the broken window fallacy. And we'll put a link up to that for those of you who don't know that essay.

But, I want to think about other areas. First, I want to think about other cities. In the movie version of this, these people whose names you've mentioned, they would be carried off stage on the shoulders of parents in joy and happiness that their children were finally getting a decent education. They would be feted. At their funerals, they would get long eulogies of gratitude and weeping. And, other leaders around the country would then say, 'Well, we could do that, too.' And suddenly charter schools would take over the country. Children would be liberated from corrupt and ineffective public school systems in urban America.

But that's not happening, according to what I've learned from your book. Not literally, but I know that the incentives aren't there for that to happen. And similarly, the pharmaceutical industry, or the real estate industry, or whatever it is, which has a set of vested interests in the current system--very hard to change those. Very difficult. They do wonderful things by the way; I don't want to criticize: I shouldn't pick on the pharmaceutical industry, but the natural incentives they face are to extend their patents when they can to keep out generics. And we've talked about this many times on the program: there are ways to make that better; they don't happen. The bills don't get proposed. If they do get proposed, they lose. People get discouraged.

And what I see EconTalk as doing is trying to change a little bit of the political sentiment from the bottom up for some of these ideas that might make the world a better place and leave things in place that do work well. But that's a long, quixotic approach.

Is there any grounds for optimism? Is there anything we can learn from this other than in all these other areas of frustration, whether it's zoning and high rent in a handful of American cities, or other areas where public policy is still dysfunctional--our current healthcare system, where all we do, it seems relentlessly, is subsidize demand and restrain supply, which just depresses the heck out of me--what do we learn? For anything else? Or is this just a one off: 'Without a hurricane, it's just the way it is'?

Terry Moe: I think what it highlights is that the normal situation for all institutions across all policy realms in all countries at all times, is that institutions give rise to vested interests. And those vested interests tend to be powerful and they will protect those institutions from change. And, while they're doing that, they're not only stopping reformers in political conflicts, they are also suppressing all kinds of reformist activity that could be taking place and all kinds of sort of powerful reformist ideas and willingness to engage in really radical reforms. And all of these things go unobserved. But they're out there.

And so, for those of us who want big change in institutions and who want to fix institutions that aren't working, it's important to recognize that the vested interests are at the core of this problem. That's number one. And we need to focus on them and see them as the core of the problem.

And number two, we need to recognize that a lot of the players who seem like they're just incrementalists and pragmatists who are operating within the system and who "accept the system,"--right? are just trying to tinker with it--those people have the potential, many of them, to be radicals, and to upend the traditional system if they just have half a chance to do it by removing the power of the vested interests.

Russ Roberts: I just have to make one more point. I apologize for my rant a minute ago: I was rambling and incoherent to some extent. I want to try to say it slightly differently.

We had an episode recently on the program with Mike Munger, where he talked about whether--Mike and I, who are both big fans of free markets--whether cronyism, what we call crony capitalism, is an inevitable evolution of capitalism. Whether it's inevitable that economically powerful actors will use the political system to protect themselves from competitors and will use the political system to increase their profits. And we didn't come to an answer. Obviously, it's an unanswerable question. But I think it's something that free market people should worry about that: that there's some inherent tendency toward this.

What is fascinating about our conversation today with you, Terry, is that it seems to me that cronyism is ubiquitous. It's not a capitalism problem. It's a human problem: that when people get things they like, whether it's a firm that's making profits and wants to keep out competitors, or whether it's a school board that likes the fact that they don't have to compete for students in their region, they're going to naturally turn to the political system to keep that going.

And I think that's an important parallel, an important point. And again, I think the way to--if you have any idealism out there, folks, and you want to try to make the world a better place, I think, you've got to start by understanding that. You've got to start by understanding how incentives work. And you have to believe, as I do, that in a world where lots of people eventually come to believe and understand these impacts, that maybe that's a way to get a slightly different set of incentives through the political system that would restrain these kinds of cronyism that hurt people generally.

Terry Moe: I think that's very well put. This is a universal phenomenon across all institutions. It's not just about markets. It's not just about capitalism. This is about all institutions of all types. Vested interests are everywhere. They're unavoidable. They have incentives to become politically powerful. And they will use it in order to protect institutions that may be performing very badly. And that is a real threat to democracy.

Russ Roberts: My guest today has been Terry Moe. His book is The Politics of Institutional Reform. It's short and sweet. Terry, thanks for being part of EconTalk.

Terry Moe: Thanks for having me.