Who Should Control Education?

By Alex Tokarev, Kristin Tokarev, Mitchell Ashley. From The Independent Institute.

"President Jimmy Carter wanted the support of the government teachers’ unions. So, during his reelection campaign, he created the U.S. Department of Education, promising it would improve America’s schools.

Has it?

After more than 45 years, billions of taxpayer dollars, and endless regulations under a bloated and ever-growing education bureaucracy, American students are falling behind many of their peers around the world. Reading scores have declined. Math scores are down. Parents are frustrated. Teachers complain they’re drowning in paperwork.

If the Department of Education hasn’t solved these problems after nearly half a century, why assume giving it more power will?

President Donald Trump says it won’t. His proposal to eliminate the department and return authority to states and ultimately to parents triggered predictable outrage. Critics warn it would “destroy public education.”

That’s nonsense.

The Department of Education doesn’t run America’s schools. States and local districts already do. Closing the department wouldn’t close schools. It would simply reduce Washington’s role. Education Secretary Linda McMahon recently spoke on the necessity to return control to parents and local public servants so that they can better serve the children. And that’s how it should be. Parents know their children better than bureaucrats in Washington ever will. Local communities understand their own needs. A rural district in Wyoming faces different challenges than schools in Chicago. Yet federal rules often treat them as if they’re the same. One-size-fits-all rarely fits anyone well.

Supporters of federal oversight say Washington provides accountability. Accountability to whom? Parents can vote out ineffective school board members. They can attend meetings. They can confront local officials. They can’t fire federal bureaucrats. The farther decisions move from families, the less influence families have.

Then there’s competition. Economist Milton Friedman argued that taxpayers can fund education without having the government manage it. Instead of subsidizing school systems, fund students. Let parents choose among public, charter, private, or other options. Competition changes behavior.

Restaurants compete for patrons. Stores try their best to satisfy shoppers. Businesses that disappoint customers lose them. Most public schools don’t face that pressure. Students are assigned largely by ZIP code. If the local school performs poorly, many parents have only two options: pay private tuition or move.

That’s not much of a choice.

School choice creates incentives that bureaucracy can’t. When families can leave, schools have stronger reasons to improve. Charter schools, education savings accounts, tax-credit scholarships, and vouchers all give parents leverage they otherwise lack.

None of this guarantees success. Eliminating the Department of Education won’t magically improve schools, and states are perfectly capable of making bad decisions. The real reform isn’t simply moving power from Washington to state capitals. It’s moving power to families. Critics raise a fair concern: poorer states and communities may struggle to fund education at the same level as wealthier ones.

But Washington hasn’t solved that problem either. Despite decades of federal involvement, achievement gaps remain stubbornly wide. More bureaucracy has not produced equal outcomes. A better approach is to expand opportunity. Wealthy families already exercise school choice by buying homes in better districts or paying private tuition. Friedman’s ideas and Trump’s policies extend that freedom to families with fewer resources.

The real question isn’t whether we’re “for” or “against” public education. It’s who education is supposed to serve. If a public school offers the best service, parents will choose it. If another institution better meets a child’s needs, parents should be free to choose that instead. Students should not be assigned to schools. Schools should compete for students.

For decades, Washington promised better results. The results are in. It’s time to trust the American parents."

The Hidden Problem With Democrats' $25 Minimum Wage Bill

The legislation would eliminate the tip credit for restaurant workers and other tipped employees—which has not worked out well in the past

By C. Jarrett Dieterle and Kurt Huffman in Reason.

"Across the country, progressive politicians continue to push for an ever-higher minimum wage. Whether it's New York City's Mamdani-led pursuit of $30 by '30, L.A.'s $30 "Olympic wage" for hotel workers, or Seattle's minimum wage for the gig economy, it's clear that the fight to raise the minimum is only escalating. Now, congressional Democrats have waded into the debate with the introduction of the Living Wage for All Act, spearheaded by Sen. Chris Murphy (D–Conn.).

Sen. Murphy's bill has garnered attention for seeking to increase the federal minimum wage from its current level at $7.25 per hour all the way up to a $25 per hour minimum in the coming years. (This would act as a wage floor, applying in any state that had a lower wage than the feds). But overlooked in the reporting so far is another key feature of the bill: its elimination of the tip credit for restaurant workers and other tipped employees.

The tip credit is what allows waiters and others in the hospitality industry to be paid below the statutory minimum wage on a per-hour basis, so long as their tips make up the difference. This legal structure has been a staple of the restaurant industry for over 60 years, and it often allows waiters to make far more than the minimum wage. (The national median wage for waiters is $27 per hour, according to the National Restaurant Association.)

Scrapping the tip credit could hurt both restaurants and tipped workers, especially when considering how customer behavior, tax law, and restaurant payroll decisions interact. First, phasing out the credit has the potential effect of reducing the amount that customers tip in the long term, as our culture could move away from the expectation of diners leaving voluntary gratuities.

Census Bureau research has found that when the tipped minimum wage rises, the employer-paid portion of server compensation rises, but tip income declines by a similar percentage, ultimately offsetting the increase. Tipping has become a cultural norm, which may make it a sticky habit that endures for a time, but in our era of tipping fatigue, it's also possible diners may welcome the opportunity to ditch tips.

A second consideration is how restaurants will likely respond to the tip credit's elimination. In our state-level "laboratories of democracy," we already can find a clue. Kurt Huffman, a co-author of this piece, owns and operates numerous restaurants in Portland, Oregon. Oregon has prohibited a tip credit for years, which has given Huffman firsthand experience with how restaurateurs often react to the tip credit's elimination.

Many restaurants in environments without the tip credit add mandatory service fees to checks or implement what are known as auto-gratuity policies. For instance, the restaurant may automatically tack on an 18–20 percent charge to a customer's bill. While this "auto-grat" ensures that a tip is paid by the customer, the catch is that the tip is no longer the property of the waiter but of the restaurant. The restaurant then usually keeps a portion of that tip (often anywhere from 25–40 percent) before distributing the balance to the employee.

That distinction matters. A mandatory service charge is not a tip under IRS rules. It is employer revenue; if the restaurant later distributes some or all of it to employees, the distributed amount is treated as wages.

This can, and often does, reduce the employee's take-home pay. If a restaurant keeps part of the mandatory service charge, as is customary, the worker may receive less than he or she would have received from a voluntary tip on the same check. The math gets worse under the new qualified-tips deduction, popularly known as "No Taxes on Tips." Qualified voluntary tips may be deductible from federal taxable income up to $25,000, but mandatory service charges and auto-gratuities are not eligible for such treatment.

Restaurants often adopt these service charges because they are afraid to raise menu prices. That is understandable, but it misses how guests process restaurant prices. As Huffman has observed from over thirty years in the restaurant business, customers do not treat all dollars on a check the same.

There are "menu dollars" and "manners dollars." A $20 salad plus a voluntary $4 tip does not feel like a $24 salad. The $20 is the price of the product; the $4 is a customary social payment. But a $20 salad with a mandatory 20 percent service charge collapses those categories. The restaurant has not avoided a price increase. It has moved the price increase to the bottom of the check, where it can feel like a surprise or a confiscated choice.

A final reality is that the locales that have recently moved to ax the tip credit have quickly come to regret the decision. Washington, D.C., prominently scrapped its tip credit in a 2022 ballot initiative. Under the new rules, the statutory minimum wage for waiters would rise from $5.35 per hour to the District's full minimum wage—a seemingly clear win for servers at first blush.

But on cue, D.C. experienced a nearly 5 percent decline in full-service restaurant and bar jobs in the wake of the tip credit's elimination. Tipped worker earnings reportedly dropped by $11.8 million, as many restaurants cut hours and waiters saw reduced tips. The results were so grim that the progressive D.C. Council voted to backtrack on the tip credit's full elimination.

In Chicago, which abolished the tip credit in 2023, 89 percent of restaurants have raised menu prices as a result of the higher labor costs, while 79 percent have cut worker hours, according to the Illinois Restaurant Association. As a result, Chicago's liberal city council also attempted to partially reverse course from its tip credit repeal. The effort was ultimately vetoed by Mayor Brandon Johnson.

The Living Wage for All Act purports to help workers by eliminating the tip credit. But real-world experience shows that the idea is undercooked. Higher mandated wages can look good on a pay stub while still leaving workers worse off if they lose tips, lose hours, or receive service-charge wages instead of qualified voluntary gratuities.

Policymakers should not weaken a compensation model that can deliver more after-tax dollars to workers. And restaurants that face higher wage mandates should not answer with mandatory fees that irritate customers and tax employees more heavily. The goal should be simple: Maximize the share of each guest dollar that reaches workers as after-tax take-home pay.

The best way to do that is to preserve the tip credit system and send the Living Wage for All Act back to the kitchen."

The Macroeconomic Effects of Tariffs

From Jeffrey Miron. 

"A recent study points out the dearth of historical research on the macroeconomic effects of tariffs, especially as a tool to analyze modern-day tariffs. The study

addressed this challenge by analyzing all major US tariff rate changes from 1840 to 2024. Drawing on historical research, congressional records, and statutes, we identified … 21 tariff rate changes, which we used to examine the macroeconomic effects of tariffs.

These examples

reveal that increasing tariff rates contracted the US economy. … tariff increases did not shield domestic industry despite their protective intent. Additionally, trade contracted markedly.

While tariffs might be expected to cause large price increases,

[o]verall prices increased [only] by around 0.5 percent at their peak. … [T]he simultaneous presence of supply-side inflationary pressures and demand-side pressures that slowed price growth could explain the muted overall change in aggregate prices.

To sum up, the

research indicates that tariff increases reduce domestic output and trade. While tariffs may protect some domestic industries, they ultimately reduce aggregate output, manufacturing activity, and the global competitiveness of US goods."

Marian Tupy disabuses American socialists of their economically ignorant belief that successful entrepreneurs steal their wealth from workers and consumers

From Cafe Hayek.

"Marian Tupy disabuses American socialists of their economically ignorant belief that successful entrepreneurs steal their wealth from workers and consumers. Two slices:

Early economists, such as James Mill and David Ricardo, theorized that the physical labor exerted to create a good is the real measure of its value. Karl Marx took the concept to its extreme: If labor creates all value, then profit must require unpaid labor, making every employer an expropriator and every fortune a crime.

Then, beginning in 1871, economists countered the labor theory of value. Carl Menger, William Stanley Jevons and Léon Walras demonstrated independently that value resides not in hours of toil but in the judgments of consumers. Writing a 500-page novel takes the same amount of physical labor as typing out 500 pages of the word “banana” repeatedly. Only the novel commands a price. Value is created whenever someone rearranges the world into a shape that others want. It is measured by the buyer, not the worker.

Entrepreneurs are the arrangers. Economist Israel Kirzner argued that entrepreneurship is alertness — noticing an opportunity that nobody else has found. The entrepreneur sees that resources combined in a certain way and priced at a certain level can be recombined into something consumers will value even more. The gap between the two is profit. Nothing is taken from workers, who are paid the wage they agree to, or from customers, who buy the product only when the purchase leaves them better off.

…..

A movement that believes wealth is stolen will tax it, cap it and make everyone poorer. Ideas drive growth, and ideas come from people who can profit from them. A world that cherishes entrepreneurs will enjoy advanced chips and revolutionary cures. A world that punishes its innovators will at least enjoy plenty of slogans."

Ridley: Why our public sector is so unproductive

The enduring lessons of Jevons and Baumol

By Matt Ridley. 

"Agatha Christie once remarked that she had never expected to grow rich enough to own a car or poor enough not to have servants. The reason this strikes us as bizarre today boils down to two names that you hear invoked a lot in the tech industry: Jevons and Baumol. One is shorthand for the expansion of products or professions with rising efficiency, the other for the shrinkage of products or professions with stagnant efficiency.

There’s a pleasing chronological symmetry between these twin ideas: William Stanley Jevons coined the Jevons paradox in 1865; William Jack Baumol described Baumol’s cost disease exactly a century later in 1965.

In his pessimistic book The Coal Question, Jevons forecast peak coal and consequent economic catastrophe for Britain. Energy efficiency would not come to our rescue, he argued. “It is a confusion of ideas to suppose that the economical use of fuel is equivalent to diminished consumption. The very contrary is the truth.” If you double the efficiency of steam engines, you do not burn less coal, you install more engines and soon burn more coal. He was wrong about peak coal, as later pessimists were wrong about peak oil and peak gas, but right about increased consumption.

A modern example: light-emitting diodes (LEDs) use about 15 per cent as much electricity as incandescent bulbs. Do we save that difference? Only at first, then we install more lights, leave them on longer and build things like the Las Vegas Sphere, which uses as much electricity as 50,000 homes.

The tech guru Erik Brynjolfsson points out that: “Pilots became dramatically more productive and effective once jets were invented. Did that mean that we didn’t need as many pilots because now pilots could do more work? No. We consumers decided that we’re going to fly more than ever. So now a lot more people fly. And there’s more demand for pilots.” If supersonic commercial flight eventually takes off, the falling cost of pilots and flight attendants (in the air for less time) will only increase demand for air travel.

The price of a single transistor has fallen over half a century from about $1 to less than a millionth of a cent. So we not only buy more of them but spend more on them. As Alex Danco puts it: “At $1 per transistor, computers made sense for military calculations and corporate payroll. At a thousandth of a cent, they made sense for word processing and databases. At a millionth of a cent, they made sense in thermostats and greeting cards. At a billionth of a cent, we embed them in disposable shipping tags that transmit their location once and are thrown away.”

Drones, space launches and genome sequencing are being Jevonised right now. As for artificial intelligence, “Jevons paradox strikes again,” says Satya Nadella of Microsoft. “As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can’t get enough of.” Aaron Levie of Box says: “Jevons paradox is coming to knowledge work. By making it far cheaper to take on any type of task that we can possibly imagine, we’re ultimately going to be doing far more.” AI will mean more jobs for lawyers, not fewer.

Marc Andreessen muses that it is “like the Daniel Day Lewis character in There Will Be Blood worrying ‘but what will happen, once we’ve satiated their demand for whale blubber?!’ Well, it turns out that there were a lot more useful ways to consume energy than burning the midnight oil.” As the cost of AI tokens collapses, we will use vastly more of them for vastly more uses.

But here’s where the Baumol twin comes in. For every industry that experiences efficiency gains, there’s another that does not. And this latter industry inevitably becomes less affordable. Baumol’s first example was string quartets: violinists are no more productive but you have to pay them more to prevent them running off to become software engineers. The productive industries drive up the labour costs in the rest of the economy. Andreessen jokes that if a hole appears in the wall of your house in California these days it is probably cheaper to glue a flat-screen television over it than hire a builder to repair it: a Jevons-deflated cost beats a Baumol-inflated one.

The big question of our age is can AI drag Baumol-shaded industries back into the sunlight of Jevons? Can it make things like healthcare, education, or government switch from rising costs to falling costs?

I fear not in the case of government because of a bureaucratic version of the Jevons and Baumol effects. As Cyril Northcote Parkinson put it in an article in the Economist in 1955: “Politicians and taxpayers have assumed (with occasional phases of doubt) that a rising total in the number of civil servants must reflect a growing volume of work to be done. Cynics, in questioning this belief, have imagined that the multiplication of officials must have left some of them idle or all of them able to work for shorter hours. But this is a matter in which faith and doubt seem equally misplaced.”

Since 1997, the British public sector has seen zero increase in productivity. That is to say, the average civil servant generates about the same output today as he did three decades ago. Think about this for a second. Thirty years ago fax machines were high-tech, the internet was in its infancy, emails were new, Wi-Fi was scarce, mobile phones were voice-only. How is it remotely possible to be no more productive today than then?

We know the answer. Each email is now copied to a dozen people, each report is pasted and copied till it is twice as long, each Zoom call has five times as many attendees, each mobile call is followed up by three times as many WhatsApp messages – and each day at the desk is interrupted by a training session on transgender anticolonial sustainability. That’s a sort of Jevons-Baumol effect: a Jevol?

Keeping Cool: The Air Conditioner That Changed America

The time price of air conditioning has fallen 98.6 percent since 1952. That ordinary luxury saves lives every summer.

By Gale L. Pooley. He teaches US economic history at Utah Tech University. Excerpt:

"One of the great triumphs of entrepreneurial capitalism is how quickly air conditioning traveled the familiar path from luxury to necessity. What began as an expensive convenience for a tiny elite became, within a generation, affordable to ordinary families. The market did not merely invent comfort — it democratized it.

In their report Time Well Spent: The Declining Real Cost of Living in America, Michael Cox and Richard Alm found that a 5,500-BTU air-conditioning unit cost about $350 in 1952. At the time, entry-level workers earned roughly 83 cents an hour, putting the time price at 422 hours.

Today, Walmart sells a far more efficient 6,000 BTU air-conditioning unit (with a remote control) for only $115. The current hourly wage for limited-service restaurant workers is around $19 an hour, putting the time price at six hours.

The time price has decreased by 98.6 percent. For the time it took US workers to earn the money to buy one unit in 1952, they get 70 today.

If air conditioning saves lives, why don’t more Europeans have it?

Europe’s electricity prices are typically much higher than the US, driven by higher taxes, network costs, renewable energy mandates, and energy import dependence. Customers in the US pay 17 to 19 cents per kilowatt-hour (kWh) compared to 25 to 32 cents in Europe. This means Europeans pay roughly 47 to 68 percent more per kWh than US customers.

Americans are also much richer than Europeans. According to World Bank data, American gross domestic product (GDP) per capita was $84,809 in 2024, while the European Union’s was 25 percent lower at $63,585. That $21,224 difference could buy a lot of comfortable cooling.

The European Union also prioritizes environmental targets over human comfort by imposing strict regulations for heating and cooling, making these amenities much more costly. The commission encourages citizens to use fans instead of air conditioning. Imagine the government doing that in Phoenix and Atlanta in July. Italy, Greece, and Spain even announced temperature limits in public spaces during the 2022 heatwave in an effort to meet these environmental objectives. Spain limited air conditioners to be set no lower than 80°F. No wonder European productivity is 38 percent lower than the US.

Historic preservation laws and strict landlord rules frequently ban exterior window units to maintain aesthetic uniformity.

While air conditioning ownership increases households’ electricity consumption, it may be a small price to pay for comfort and avoiding death.

The problem is not the climate but the policy mindset. Too many European regulators approach energy and technology through the ideological lens of scarcity rather than creative innovation and human flourishing. One reason such policies persist is that the officials who design them are largely insulated from the consequences of their decisions and rarely experience their costs directly. Instead, those costs are borne by millions of ordinary citizens.

Air conditioning is not ultimately a story about cooling. It is a story about knowledge. It transformed oppressive heat into comfort, inhospitable regions into thriving communities, and summer misery into year-round productivity. Coal, copper, and electricity become valuable only after humans discover how to harness them. The history of air conditioning is the history of knowledge triumphing over nature’s constraints.

The ultimate resource is neither energy nor matter. It is the infinite capacity of human beings to learn, create, and discover."

The Equal Pay Madness Just Got Madder

By Alex Tabarrok. 

"In my post Equality Act 2010 I discussed the UK’s absolutely insane wage policy:

In short, supply and demand have been replaced by judges and labor boards with the authority to deem which jobs are “equal” and therefore should be paid equally….No one is alleging that male and female warehouse workers were paid unequally or that male and female retail workers were paid unequally or that there was any direct or indirect discrimination. The only claim is that warehouse workers, who are less likely to be female than retail workers, earn more than retail workers. And since these jobs have been judged “equal,” the company has violated Equality Act 2010.

…The warehouse workers were almost 50% female (47.25%). So females were not barred from the higher paying jobs. The fact that 77.5% of the retail workers were female suggests that retail work has special appeal to females relative to males and thus that there are compensating differentials. Any of the three female plaintiffs could have taken jobs in the warehouse. If the jobs are equal and the warehouse jobs pay more this is, on the plaintiffs’ theory, “puzzling”. [Or, as Ayn Rand would say, blank out.]

In fact, the court case reveals that Next was struggling to fill the warehouse positions and offered any retail employee—including the plaintiffs—the opportunity to switch to warehouse work. On cross-examination, one of the plaintiffs admitted that, given the unpleasant conditions in the warehouse—described by the court as “the drone of machinery,…vibration, alarm sirens and the screeching of machinery, wheels and rollers, continuously present in all areas”—the warehouse job “did not seem particularly attractive” compared to the greater autonomy and more appealing environment of the retail job. The plaintiff added that she would only have considered the warehouse job if it paid “a lot more money.”

Well, here is the update. The outgoing Keir Starmer government is trying to massively expand these laws. The “equal value” framework previously applied only to sex discrimination; under the proposed law, employees could also bring equal-value claims based on race and disability. Remember, these laws have nothing to do with discrimination—they are about demanding, at the point of a gun, that apples and oranges sell for the same price because they’re both fruit.

The new law would also establish an Equal Pay Regulation and Enforcement Unit. As I said, Orwellian.

See also my post, How Britain Become as Poor as Mississippi."