Education Spending Has Increased With Little Improvement In Output

See For the Nation's Sake, Cut Education Spending by Neal McCluskey of the Cato Institute.

"Federal elementary and secondary education spending has risen mightily since the early 1970s, when Washington first started immersing itself in education. In 1970, according to the federal Digest of Education Statistics, Uncle Sam spent an inflation-adjusted $31.5 billion on public K-12 education. By 2009 that had ballooned to $82.9 billion.

On a per-pupil basis, in 1970 the feds spent $435 per student. By 2006 — the latest year with available data — it was $1,015, a 133 percent increase. And it's not like state and local spending was dropping: Real, overall, per-pupil spending rose from $5,593 in 1970 to $12,463 in 2006, and today we beat almost every other industrialized nation in education funding.

What do we have to show for this?

Certainly more public school employees: Between 1969 and 2007, pupil-to-staff ratios were close to halved. Not coincidentally, these same people politick powerfully for ever more spending and against reforms that will challenge their bloated monopoly. They also routinely defeat efforts to hold them accountable for results.

This constant feeding of special interests is why we've gotten zilch in the outcome that really matters — learning. Since the early 1970s, scores on the National Assessment of Educational Progress — the "Nation's Report Card" — have been utterly stagnant for 17-year-olds, our schools' "final products." In 1973 the average math score was 304 (out of 500). In 2008 it was just 306. In reading, the 1971 average was 285. In 2008 it was up a single point, hitting 286.

The higher education tale is much the same, especially for student aid, the primary college dumping ground for federal dollars. According to the College Board, in 1971 Washington provided $3,814 in inflation-adjusted aid per full-time equivalent student. By 2009-10 that figure had more than tripled, hitting $12,894.

By most available indicators this has been money down the drain. For instance, only about 58 percent of bachelor's seekers finish their programs within six years, if at all. Literacy levels among people with degrees are low and falling. And colleges have raised their prices at astronomical rates to capture ever-growing aid."

Donald Boudreaux On The "Decline" Of Manufacturing In The U.S.

See On Fletcher and the False Assumption of U.S. Manufacturing Decline at Cafe Hayek.

Here is Boudreau's letter to the Huffington Post:

Ian Fletcher’s column on U.S. manufacturing is a stew of misunderstandings, non sequiturs, half-truths, and false presumptions (“Manufacturing in Decline; Establishment in Denial,” Feb. 1). For example, about the fact that U.S. manufacturing output remains the highest among all countries in the world today, Mr. Fletcher – after expressing surprise that anyone bothers even to mention this fact – dismissively says “This statistic proves nothing about improvement or decline.”

America’s continuing high manufacturing output deserves to be mentioned simply because so very many people today – such as prominent anti-trade pundit Harold Meyerson – ceaselessly and ominously repeat the falsehood that American manufacturing is in decline.

As for the “statistic prov[ing] nothing about improvement or decline,” a scholar so well versed with the data as is Mr. Fletcher surely must know that, measured in inflation-adjusted dollars, U.S. manufacturing output in 2009 was about ten percent higher than it was in 2000, 47 percent higher than in 1990, 83 percent higher than in 1980, and 120 percent higher than in 1970.

Sincerely,
Donald J. Boudreaux

Don’t miss this new report on the current state of manufacturing in America. (HT Craig Kohtz)

For the record, there would be nothing inherently wrong with, or worrisome about, the U.S. economy if U.S. manufacturing output were declining by whatever metric you choose to measure it.

HUD ‘Failing the Taxpayers'

Click here to read this post from the Cato Blog by Tad DeHaven. Here is most of it:

"That’s what the Department of Housing and Urban Development’s recently retired inspector general had to say in response to rampant malfeasance and mismanagement at public housing authorities uncovered by a joint investigation by ABC News and The Center for Public Integrity.

From the report:

The problems are widespread, from an executive in New Orleans convicted of embezzling more than $900,000 in housing money around the time he bought a lavish Florida mansion to federal funds wrongly being spent to provide housing for sex offenders or to pay vouchers to residents long since dead.

Despite red flags from its own internal watchdog, HUD has continued to plow fresh federal dollars into these troubled agencies, including $218 million in stimulus funds since 2009, the joint investigation found.

The report singles out Philadelphia’s public housing authority, which HUD reportedly considers to be a “model agency.” The Philadelphia Housing Authority’s outgoing executive director, who was paid $300,000 a year, had “spent lavishly on parties that included belly dancers, and had used more than $500,000 in housing authority funds to secretly settle claims accusing him of inappropriate sexual advances with female employees.”

Sen. Charles Grassley (R-IA) doesn’t understand how HUD could have missed the problems:

“We expect that the agency in Washington, D.C. ought to be making sure that every taxpayer dollar is spent in a responsible way. And it seems to me that we have not had that proper oversight,” Grassley said.

Really, Senator? As a Cato essay on HUD scandals illustrates, the agency has been plagued by mismanagement and corruption since its inception. HUD has never made sure every taxpayer dollar was “spent in a responsible way.” And it never will for the simple fact that a government agency has little incentive to ensure that money coerced from taxpayers isn’t wasted. In contrast, a private charity with a record like HUD would see its voluntary donations dry up."

DeHaven's earlier report, HUD Scandals, said that under Samuel Pierce, 1981-1989, Ronald Reagan's only HUD secretary, "losses from this abuse ranged from $2 billion to $6 billion." There is much more in the report.

Peter Wallison On The Role The Government Played In The Financial Crisis

See DI S S E N T from the MA J O R I T Y R E P O RT of the F I NA N C I A L CR I S I S INQU I RY CO M M I S S I O N. Wallison works at The American Enterprise Institute. Here are some key excerpts:

"In 1992, Congress enacted Title XIII of the Housing and Community Development Act of 19923 ( the GSE Act), legislation intended to give low- and moderate-income borrowers better access to mortgage credit through Fannie Mae and Freddie Mac. This effort, probably stimulated by a desire to increase home ownership, ultimately became a set of regulations that required Fannie and Freddie to reduce the mortgage underwriting standards they used when acquiring loans from originators. As the Senate Committee report said at the time: “The purpose of [the affordable housing] goals is to facilitate the development in both Fannie Mae and Freddie Mac of an ongoing business effort that will be fully integrated in their products, cultures and day-to-day operations to service the mortgage finance needs of low-and-moderate income persons, racial minorities and inner-city residents.”"

"The GSE Act, however, created a new “mission” for Fannie Mae and Freddie Mac—a responsibility to support affordable housing—and authorized HUD to establish and administer what was in effect a mortgage quota system in which a certain percentage of all Fannie and Freddie mortgage purchases had to be loans to low- and moderate-income (LMI) borrowers—defined as persons with income at or below the median income in a particular area—or to borrowers living in certain low-income communities."

"In the GSE Act, Congress had initially specified that 30 percent of the GSEs’ mortgage purchases meet the AH goals. This was increased to 42 percent in 1995 and 50 percent in 2000."

"Pinto estimates the total value of these purchases at approximately $4.1 trillion. [as of] June 30, 2008, immediately prior to the onset of the financial crisis, the GSEs held or had guaranteed 12 million subprime and Alt-A loans. This was 37 percent of their total mortgage exposure of 32 million loans, which, in turn, was approximately 58 percent of the 55 million mortgages outstanding in the United States on that date. Fannie and Freddie, accordingly, were by far the dominant players in the U.S. mortgage market before the financial crisis,"

"In 1994, HUD added another group to this list when it set up a Best Practices Initiative, to which 117 members of the Mortgage Bankers Association eventually adhered. As shown later, this program was explicitly intended to encourage a reduction in underwriting standards so as to increase access by low-income borrowers to mortgage credit."

"it appears that Congress set out deliberately in the GSE Act not only to change the culture of the GSEs, but also to set up a mechanism that would reduce traditional underwriting standards over time, so that home ownership would be more accessible to LMI borrowers."

"For example, the legislation directed the GSEs to study “the implications of implementing underwriting standards that—(A) establish a downpayment requirement for mortgagors of 5 percent or less;11 (B) allow the use of cash on hand as a source of downpayments; and (C) approve borrowers who have a credit history of delinquencies if the borrower can demonstrate a satisfactory credit history for at least the 12-month period ending on the date of the application for the mortgage.”"

"By 2008, the result of these government programs was an unprecedented number of subprime and other high-risk mortgages in the U.S. financial system. ... government agencies, or private institutions acting under government direction, either held or had guaranteed 19.2 million of the NTM loans that were outstanding at that point. By contrast, about 7.8 million NTMs had been distributed to investors through the issuance of private mortgage-backed securities, or PMBS"

Donald Boudreaux On The Sugar Subsidy

From Cafe Hayek. It is a letter he wrote to the NY Times.

"American Sugar Alliance economist Jack Roney asserts that “Sugar policy operates at no cost to taxpayers” (Letters, Jan. 23). This assertion is true only if taxpayers never use sugar or sugar substitutes: sugar tariffs force Americans to pay an extra $2.5 billion annually for cane sugar, plus more for sugar substitutes, such as corn syrup, whose prices are driven up by the artificially high demand that sugar tariffs create for these substitutes.

Mr. Roney is correct that the higher prices caused by these tariffs don’t appear in Uncle Sam’s budget. But so what? It’s as ludicrous to imply that these tariffs are costless as it would be to imply that a government policy forcing persons whose home addresses end in an odd number to write checks for $10 to their neighbors directly across the street is costless. In both cases, the benefits that government commandeers for some are paid for by others."

Economic Freedom and Income per Capita

Here is a nice chart from Steven Landsburg, author of The Armchair Economist.

See Freedom, Prosperity, and the Future of Egypt. (from Landsburg's blog "The Big Questions")

Maybe Freer Markets Would Help Greece

See What’s Broken in Greece? Ask an Entrepreneur from the NY Times, 1-30-11, business section page 1 (or BU1). Excerpts:

"For decades, Greece has been a wonderful place to be a lawyer, a pharmacist, an architect, a university president or even a truck driver— all occupations protected by an array of laws that have shielded them from local and foreign competitors. Greek pharmacists are guaranteed a minimum profit on their sales and charge some of the highest prices in Europe. And because they have fixed minimum fees, the 40,000 or so lawyers in Greece receive more for their time than their peers in many other European countries."

"The Greek economy is riddled with distortions — the number of trucking licenses has remained unchanged in Greece since 1971, for example, and the country is among the world’s leaders in lawyers per capita. It has one lawyer for every 250 people, compared with about one for 272 in the United States."

"The cost of labor in Greece from 2005 to 2010 has been, on average, 25 percent higher than in Germany,..."

"Quite simply, Greece has had trouble producing goods and services that people want to buy..."

"The International Monetary Fund and the Greek government agree that lasting progress can be made only by instituting reforms that would make it easier for Greek companies to produce export-quality goods. Such measures include cutting taxes, easing the path for companies to win investment permits and — as entrepreneurs like Mr. Politopoulos hope — scrapping outdated laws that restrict business production."

"George P. Zanias, the top economic adviser to Greece’s finance minister, George Papaconstantinou, said: “Historically, the supply side of the economy has been neglected — it was just a question of increasing demand. Vested interests built up and economic distortions increased.”

Companies in Greece had grown fat and lazy by selling their products in a protected local economy that was forever stimulated by government deficit spending, Mr. Zanias said. Over the years, Greek companies felt little need to emphasize exports, and the country became one of Europe’s most closed economies, with exports accounting for just 20 percent of economic output — about half the average for the euro zone."

"“Greece has never been an easy place to do business,” he [Zanias] conceded with a sigh."

These thoughts were echoed by Nobel Prize winner Christopher Pissarides. See Greece Needs Growth Policies: Alongside Cuts, Nobel Winner Pissarides Says. Excerpts are:

"...the country should cut corporate taxes and reduce the number of state workers to revive the economy."

"...taxes on companies should be cut to 10 percent to help boost foreign direct investment, while the introduction of Individual Retirement Accounts could attract savings equivalent to 5 percent of gross domestic product within a decade,..."

"Public payrolls should be cut to 700,000 by 2015 from 1.1 million through the sale of state companies, which would reduce the wage bill by 8.6 billion euros (11.9 billion), according to the article. Giving companies the right to build and maintain infrastructure such as roads and airports tax free for 30 years would lift productivity by as much as 40 percent..."