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Bankruptcy for Detroit schools?

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-Jarrett Skorup

“Bankruptcy may be next for Detroit schools” screams the Detroit Free Press headline.

Robert Bobb (how’s that for a name?), the state-appointed emergency financial manager called the Detroit Public Schools budget “ground zero” and the worst he’s ever seen, saying that bankruptcy for the district is an option.  DPS has a deficit of over $250 million and will have to jump its job cuts from 1,766 to 2,451.  Also, teachers have to agree to a bunch of cost-saving practices; like unpaid furloughs, health benefit cuts and larger class sizes.  Things are so grim that even The Detroit News has editorialized in favor of bankruptcy.

The tragedy here is that the sad state the district was run means a lot of teachers will lose their jobs.  Not the tenured teachers of course, just the new ones.  It’s extremely difficult here in Michigan to fire a tenured teacher, as West Ottawa found out when they attempted to fire a tenured teacher for the first time in the district’s 50-year history.  How many tenured teachers has DPS fired?  No on seems to know, but most districts agree to buyouts with the teacher in order to avoid the court costs.  Because of how hard unions have made it to fire teachers in New York City, over 700 sit in “rubber rooms” in order to keep them away from children.  A lot of non-tenured teachers have been fired in the last few months in Detroit and things are only going to get worse.

In response to these problems, Bobb said, “We need revenues.”  No Mr. Bobb, like Washington, you need to cut spending.   

This leads us to the good that may come from these problems. 

Other than bankruptcy, DPS may also have to expand its number of charter schools, liquidate assets and privatize major departments such as transportation, technology, maintenance, custodial and security services.

These are all good things that save money and increase service.  If DPS had done a better job with its enormous budget, this would not have happened.  After all, you shouldn’t have to be a ghost to have a job in Detroit.

Taxpayer Dollars Advocating For More Taxpayer Dollars

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-Jarrett Skorup

As I’ve gone through the school districts here in Michigan, I’ve noticed a very disturbing trend:  School districts advocating on their websites for more money.  Some examples:

Saulte Area Public School Districts has a link on their website that reads, “Contact Your Legislators“.  It takes you to a page that gives you some “key points” about what to say.  The points are as follows:

  • The State of Michigan’s investment in our children is critical
  • You value your local public schools
  • You know that strong public schools are a key to economic development
  • Funding our public schools should be their top priority
  • You want the state to provide adequate and equitable funding for all public school students
  • You want to retain the high quality educational programs provided for your children

Another district, White Cloud Public Schools, asks people to “Share your views on school funding with your elected legislators in Lansing.”  It then lists the contact information.  Do you think White Cloud is suggesting people call legislators to voice their opinion that schools are overfunded?

The last example is probably the worst.  Mesick Consolidated Schools has a “Message from the Superintendent“.  This links to a letter that outlines the following positions:

They are against cutting state aid/funding and amend the act “such that reductions cannot occur midyear.”  They support stimulus funds being used “equitably” for schools.  It calls for a reduction in the number of Charter Schools by “reviewing their performance and revoking charters for those that are failing our students.”  (What about the public schools that are failing our students?).  It also calls for rolling back term limits to twelve years, which would seem to have little to do with schools. 

This letter is signed by:

Scott Crosby, Superintendent, Wexford-Missaukee ISD

Paul Liabenow, Superintendent, Cadillac Area Public Schools

Bud Ashton, Superintendent, Lake City Area Schools

J. Mark Parsons, Superintendent, Manton Consolidated Schools

Charles Chase, Superintendent, Marion Public Schools

Michael Harris, Superintendent, McBain Rural Agricultural Schools

Dennis Stratton, Superintendent, Mesick Consolidated Schools

Jim Ganger, Superintendent, Pine Rive Area Schools

Dr. Robert VanDellen, President, Baker College of Cadillac

 Why do we find this acceptable?  I remember being told in Junior High that my favorite teachers would be fired if a tax hike didn’t pass (even though my father was president of the Board of Education).

The funding of schools is a controversial political issue, so why are schools allowed to advocate for one position or the other?  We don’t allow public institutions to rally on behalf of candidates with tax dollars and we shouldn’t allow them to advocate for more of their own funding.

You Can’t Have It Both Ways

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-Jarrett Skorup

From the Free Press:

The Detroit Federation of Teachers today called 394 layoff notices the Detroit Public Schools sent to teachers in June a contract violation and demanded the district rescind them or face a lawsuit.

On the one hand, as pointed out in an excellent recent article from the Mackinac Center, the DFT fights for constant higher wages, more benefits, better health care, longer lunch breaks, less classroom time, and more members; on the other, they want to ignore that these things lead to unemployment.  To believe otherwise disregards economic reality.

To be fair, the DFT was arguing against the firings based on a technicality (allegedly the paperwork wasn’t done on time).  However, the union has opposed nearly every teacher firing at any time.  Millions around Michigan are tightening their belts and a stagnant bureaucracy doesn’t have to? 

The tragedy here is that some very good teachers are undoubtedly being fired (or will eventually, something has to happen to close that deficit).  Are all of them really worse than every single tenured teacher in the district?  As a result of the near-impossibility of firing tenured teachers (even bad ones) the district may save money, but also make itself worse in the process.

Paying the Dead

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-Jarrett Skorup

The Social Security Administration has continued to pay millions of dollars in benefits to dead Americans, and other elderly U.S. residents are at risk of losing badly needed aid because they’re improperly recorded as deceased, federal investigators warn in a new report.

At this point, most Americans are no longer outraged at this waste.  In the history of the world, has the government ever run anything efficiently?

And in the most overrated comment of the year, the article says, “The consequences of…bureaucratic error can be severe.”

Yet we keep putting up with it.

Obamacare Myths

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-Jarrett Skorup

Lately I’ve been hearing the same statement from President Obama and his administration and I’d like to clear up this myth.  The statement revolves around the idea that the president’s health care bill will merely give consumers more options with no detriment to private insurance companies.  The following exchange took place on the ABC news special with President Obama and is the latest example of this myth:

The president [argued] that in a Health Insurance Exchange, the public plan would be “one option among multiple options.”

The concern, Gibson articulated, is that such a plan wouldn’t be offered on a level playing field.

The president rebuffed that, arguing that “we can set up a public option where they’re collecting premiums just like any private insurer and doctors can collect rates,” but because the public plan will have lower administrative costs “we can keep them [private insurance companies] honest.”

Obama said he didn’t understand those advocates of the free market who constantly say the private sector can do things better and are yet worried about this plan.

“If that’s the case, no one will choose the public option,” the president said. He also suggested, however, that the private sector might not necessarily be better, point out that users of Medicare and Veterans Administration hospitals constantly rate “pretty high satisfaction.”

With all due respect Mr. President…you’re wrong.

It is an unlevel playing field because the government sets prices…at taxpayer expense.  Take the example of the post office: It’s true that UPS and Fed Ex can “compete”, and they’ve done so.  But recently, the Postal Service has instituted reforms like introducing a box with a flat fee to ship a certain amount anywhere.  This came in response to people almost exclusively shipping with private companies.  Cheaper prices  sound good, but undercutting UPS and Fed Ex prices while not being profitable means that taxpayers are the ones who pay the difference. 

If we have a government option “competing” with the private sector we are told this will make everyone better.  This only holds true, however, if the government option is run as a private company, i.e. with a profit incentive.  If the government could be run with a profit incentive (which is unlikely) this would all make more sense.

But if it was the case  that the government competed, made money, cut out bad programs, evaluated costs, etc., one must ask, why do we need to introduce it?  The private sector does all of those things on its own. 

It doesn’t take a PhD in economics to figure out what will happen.  The government will set prices below market value, we will pick up the difference in profit with our tax dollars and private companies won’t be able to compete and will go out of business.  The government will be the last remaining option for health care.

Could that be the plan from the beginning?

Mark Sanford: Our Best Hope?

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-Jarrett Skorup

South Carolina Governor Mark Sanford took off a few days ago to go hiking in the Appalachians without telling anyone.  Apparently only his wife knew he was gone, and even she didn’t know where.  His spokesperson was in the dark as well.

When he first went missing, I was in a cold sweat.  Sanford is as near-perfect on free-market issues as we have seen this side of Ron Paul.  I didn’t think he was hurt or anything, rather I thought he was pulling a John Galt and going on strike.

In any case, I’m glad he’s back.

Detroit: The Triumph of Progressive Public Policy

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-Jarrett Skorup

Imagine a city where all the major economic planks of the statist or “progressive” platform have been enacted:

  • A “living wage” ordinance, far above the federal minimum wage, for all public employees and private contractors.
  • A school system that spends significantly more per pupil than the national average.
  • A powerful school employee union that militantly defends the exceptional pay, benefits and job security it has won for its members.
  • A powerful government employee union that does the same for its members.
  • A tax system that aggressively redistributes income from businesses and the wealthy to the poor and to government bureaucracies.

Would this be a shining city on a hill, exciting the admiration of all? We don’t have to guess, because there is such a city right here in our state: Detroit

Detroit has been dubbed “the most liberal city in America” and each of these “progressive” policies is alive and well there. How have they worked out?

In 1950, Detroit was the wealthiest city in America on a per capita income basis. Today, the Census Bureau reports that it is the nation’s 2nd poorest major city, just “edging out” Cleveland.

Could it be pure coincidence that the decline occurred over the same period in which union power, the city government bureaucracy, taxes and business regulations all multiplied? While correlation is not causation, it is striking that the decline in per capita income is exactly what classical economists predict would occur when wage controls are imposed and taxes are increased.

Specifically, “price theory” predicts that artificially high business costs caused by excessive regulation and above-market labor compensation rates imposed by so-called “living wages” will lead to an increase in unemployment. Detroit’s minimum wage is a whopping $7.40 an hour, more than $2 above the federal minimum wage when it was enacted; and pressure groups are pushing for more. Additionally, any company contracting with the city must pay its employees $8.23 an hour if they offer benefits or $10.28 an hour if they do not offer benefits.

Such high wage mandates are especially hard on individuals with a poor education and low skills. If struggling and heavily taxed businesses cannot pay such high wages, then they are more selective about the few workers they do hire or go out of business altogether. Those who have promulgated these polices may be well intentioned, but mainstream economists have warned for decades that such policies were very likely to bring about the abject poverty and unemployment that characterize Detroit today. The city has the highest unemployment rate among all large U.S. cities. (On a side note, Michigan is home to eight of the 20 cities overall with the highest unemployment and has the highest state unemployment in the country.)

A similar pattern has played out in public education. It is now conventional wisdom among the political class that higher pay for teachers and increased spending per student lead to improvements in teacher quality and student performance. Again, correlation is not causation, but Detroit Public Schools strongly suggests that this theory must be rejected. It has chronically underperformed state averages, yet reforms are vehemently opposed by the system’s powerful school employee union.

At the same time that union, the Detroit Federation of Teachers, has won rich salary and benefits packages for its members. Median compensation for a DPS teacher is $76,000 and Detroit spends the third highest amount of money per student among 76 large cities nationwide. Statewide, Detroit’s spending per pupil is in the 91st percentile and DPS teachers are paid at the 96th percentile. For all that, by almost any measure Detroit schools have for decades failed their students: test scores, safety, drop out rates, etc. For example, Detroit’s public school students perform at the 3rd percentile in the state – that is, they are in the lowest 3 percent, and the district is in its second state takeover in a decade.

In the private sector such failure would result in mass firings for unsatisfactory performance. No doubt such a response would be condemned by the progressives who support the school employee unions that have made similar actions impossible in their institutions, and have opposed major transformation at every turn.

For example, in 2003 philanthropist Bob Thompson offered $200 million to build 15 charter public schools in the city in which he would guarantee a 90 percent graduation rate. In response, the DFT balked because charter schools are not unionized. The outcome was that the union jobs trumped better outcomes for children.

People vote with their feet, and all the above suggests why, over the past decade, DPS has lost about 10,000 students each year to charter, independent and suburban schools.

Of course it would be unfair to place all the blame for the city’s decline on public employee unions. Detroit is home to the Big Three, whose contracts with their own powerful unions provided the model for those public employee arrangements. The UAW successfully extracted wages and benefits estimated at $71 per hour before the recent shake-ups began.

This is about $25 more per hour than the amount foreign-owned U.S. auto manufacturing plants pay their non-unionized American workers. Due to this disparity, Japanese car companies earn some $1,000 to $2,000 more on each car sold than their American counterparts. The outcome has been a relentless loss of market share that, among other things, has devastated the economic engine that once powered Motor City prosperity.

In addition to being a model of progressive economic, labor and education policy, Detroit is also a case study in welfare statism. Tom Bray, former editorial page editor for The Detroit News, has made the following observation:

“Detroit, remember, was going to be the ‘Model City’ of Lyndon Johnson’s Great Society, the shining example of what the ‘fairness’ of the welfare state can produce. Billions of dollars later, Detroit instead has become the model of everything that can go wrong when you hook people on the idea of something for nothing – a once-middle class city of nearly 2 million that is now a poverty-stricken city of less than 900,000.”

Progressives will complain that this portrait oversimplifies the factors involved in a great city’s decline. Perhaps it does, but with this question in mind: At what point does the weight of evidence and logic make it impossible to avoid concluding that in the case of Detroit, correlation is causation?

Grandma Annie Oakley

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-Jarrett Skorup

According to the AP, after being told by her daughter that there was an armed intruded in their home, 77-year-old Doris Gatchell pulled out her gun and sent the man running.  The suspect faces 30 years in prison and heavy fines for armed burglary in different parts of Maine.

This crime, we can guess, would never have been prevented in any of the big cities in America as a result of their stringent gun laws.  Allowing people the freedom to carry guns doesn’t mean they will necessarily do so, but at least criminals would have to consider the possibility. 

The ironic thing about anti-gun legislation is that they make the weakest of those the most vulnerable to crimes (when given the choice, grown fit men aren’t typically targeted).  As the saying goes:  “God created man and woman. Sam Colt made them equal.” 

And granny can speak to that.

Detroit: A Glimpse into America’s Future?

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-Jarrett Skorup

Detroit was arguably the most prosperous city in the world in the 1920s. Today, however, whole neighborhoods are abandoned; still-occupied neighborhoods are in a frightful state of decay; some of the streets are so rough you would think that the military used them for target practice. Most startling is that the median sale price for a house in the once-thriving city of Detroit this January was $7,500. Yes, 75 HUNDRED, not “thousand.” You can buy two or three houses in Detroit today for the price of one new car.

So writes Professor Mark Hendrickson of Grove City College.  He explains how the unions and government took over most of the industry of his hometown much earlier than in many other cities in America.  The mayor and city council began to see government as a mechanism for redistributing wealth and the city became known for corruption (“rife with nepotism and favoritism”).

Taxes were raised causing people to leave Detroit.  And when they moved out and had to commute to work, taxes were put on income commuters made in the city limits.  Businesses uprooted, leaving the once-prosperous city.  Education became more and more unionized and soured.  Crime soared.  The downward spiral continued.

We should keep these self-inflicted tragedies in mind in considering whether to assent to the massive expansion of government that President Obama and his congressional allies are seeking. We don’t want the whole country to share the fate of Detroit.

Gravel Roads and Budget Cuts

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As a Classical Liberal, I have long been accused of wanting to send America (and the world) back to the olden days of the 19th Century and earlier.  Apparently a civilized society and limited government cannot go hand-in-hand.  Ironically, as a result of too much government spending, some Michigan counties have had to give up what are normally a basic government provision:  roads.

As a result of lowering tax revenues, some Michigan counties are turning once-paved streets into gravel roads in order to save money.  A normal paved road costs $100,000 per mile to pave whereas a gravel one is one-tenth that.  So far 20 of our 83 counties have gone with gravel instead of pavement.

- Jarrett Skorup

Health-Care the Safeway

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-Jarrett Skorup

The news the past week has been heavy on health care.  President Obama delivered a speech in Green Bay, Wisconsin partially outlining his plan to force private insurance companies to compete with the government (still not sure how that works) and demonizing those on the side of free-markets.  He has also issued statements that his new plan will include more taxes; Max Baucus, senator from Oregon, hints that Congress may tax health benefits, something Obama specifically chided McCain for on the campaign trail saying,

Apparently, Senator McCain doesn’t think it’s enough that your health premiums have doubled. He thinks you should have to pay taxes on them, too.

The AP reports that Obama is also open to borrowing in order to pay for the plan, though I’m not exactly sure how that fits with his “paygo” idea.  But what the hey, I’m just a lowly intern, much to inexperienced to understand that politicians rarely mean what they say.

So what is the free-market response?  Has anybody solved the problem?

There are several examples of companies who have found ways to better their insurance while decreasing costs, and all have done so by using the free-maket ideas of incentives and competition.  The two major examples are Whole Foods (led by the libertarian-leaning CEO, John Mackey) and, more recently, Safeway.

Writing in the Wall Street Journal today, CEO Steven Burd lays out his plan for how the federal government could save 40% on its health care by adopting some easy Safeway initiatives.  So how has his company been able to cut costs and yet manage to keep good service?  By relying on the free-market.

As much as we would like to take credit for being a health-care innovator, Safeway has done nothing more than borrow from the well-tested automobile insurance model. For decades, driving behavior has been correlated with accident risk and has therefore translated into premium differences among drivers. Stated somewhat differently, the auto-insurance industry has long recognized the role of personal responsibility. As a result, bad behaviors (like speeding, tickets for failure to follow the rules of the road, and frequency of accidents) are considered when establishing insurance premiums. Bad driver premiums are not subsidized by the good driver premiums.

The program also provide incentives to those who get healthy on their own; doing things like quitting smoking, losing weight and decreasing blood pressure and cholesterol levels.  Employees are provided with lower premiums for improving in these areas, much in the same way that car companies reward good drivers, women (who, it pains me to say, tend to be safer) and those who avoid tickets.  This voluntary program (done by those in Safeway’s non-unionized work force) has a rating of “very good” or “excellent” by 78% of those participating; and Mr. Burd believes that things could be even better if laws were repealed that currently constrain the incentives his company is allowed to offer.

Using the free-market to increase competition, lower costs, and provide better care?  What a novel concept.

Free-Market Educators

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-Jarrett Skorup

“Multi-cultural specialists, ultra liberal zealots, and college-tainted oppression liberators need not apply.”

These are just a few of the requirements in order to teach at the American Indian Charter School in Oakland, CA.  AIC is a public charter that takes a non-nonsense approach to education.  Despite the vast majority of students being from minority and low-income backgrounds, the school outscores all of the regular Oakland public schools. 

What else do they want?  “We are looking for hard working people who believe in free market capitalism to join our family at AIPHS.”  You must also believe that “hard work is the key to success.”

Though the school has been repeatedly maligned by the public schools, the unions don’t really know what to do about it…simply because it scores so well and wins award after award for excellence.  Let us hope that our administrators here in Michigan and all over country will take note.

Five Ways to Make American Schools Worse

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Writing in the New York Times, the former chancellor of New York City schools, Harold O. Levy, shares his ideas on “Five Ways to Fix American Schools”.    To paraphrase, they are:

1.  Raise the age of compulsory education from 18 to 19.

“If the federal government ultimately pays for the extra year, it would be a turning point at least as important as the passage of the 1862 Morrill Act that gave rise to the state universities or the 1944 G.I. Bill that made college affordable to our returning service personnel after World War II.”

2.  Use high-pressure sales tactics to curb truancy. 

“This includes making “repeated home visits and early morning phone calls” as well as securing written and oral commitments from parents.

3.  Advertise creatively to increase college enrollment.

He urges public universities to be more like the University of Phoenix when advertising.

4.  Allow the Department of Education to take over accreditation.

Self-explanatory.

5.  Produce better students!

“Better teachers, smaller classes and more modern schools are all part of the solution.  But improving parenting skills and providing struggling parents with assistance are part of the solution too.”

So to really sum this up:  1.  Spend more money.  2.  Spend more money.  3.  Spend more money.  4.  Spend more money.  5.  Spend more money.  And encourage parents to spend more time with their kids…but doing so may require the government spending more money.

The amount that the federal government has spent on education has (inflation adjusted) more than quadrupled since 1965 and the passage of the Elementary and Secondary Education Act.  At what point do we realize that increasing the money in education is not the solution?

-Jarrett Skorup

School Choice On the Move

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-Jarrett Skorup

Not to long ago, actually choosing where you could go to school was a pipe dream for poor children. The unions pumped in money, people kept electing politicians friendly to the public school monopoly and the public school system stayed terrible.

Well today, the unions are still pumping in money, the people are still voting for those friendly to the NEA and the schools are still terrible.

But there is hope.

Backed by a majority of people (and a huge majority of minority parents), school choice is on the move. As the Wall Street Journal reports today, even in liberal cities like Cleveland and New York City, vouchers and charters schools are denting the public school monopoly.

Just a few stats reported by the Journal: 85% of students in the Milwaukee choice program graduate compared to 58% of the rest. In New York City, the students grades three through eight scoring at or above their grade level has risen 10% or more each of the last three years. Even more amazing, in Harlem, where 19 of the 23 elementary and intermediate schools are failing, all of the third graders at the Harlem Success Academy passed the state math exam and 95% passed in english.

Recently, even USA Today endorsed vouchers.

Despite the popularity and success of these programs, Congress (along with the Obama Administration) allowed the D.C. Opportunity Scholarship to end starting the beginning of next year, all the while nearly half of Congress has children in private schools.  So will our elected politicians jump on the bandwagon?  Or will they continue to leave our children behind?

A Nobel Prize for Stupidity?

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So-called economist Paul Krugman is at it again. Writing in the New York Times today, in the subtly-titled “Reagan Did It“, he says,

“For the more one looks into the origins of the current disaster, the clearer it becomes that the key wrong turn — the turn that made crisis inevitable — took place in the early 1980s, during the Reagan years.”

He then goes on to blame the Garn-St. Germain Depository Institutions Act for causing a rise in “private debt”, and thus leading to today’s crisis. AEI’s Pete Wallison explains the fallacy of this argument,

“The Garn-St. Germain Act was an effort to save the S&L industry from the consequences of government regulation. During the inflation of the late 1970s (note to Krugman: thanks in part to the policies of Ronald Reagan’s political opponents) interest rates rose above the 5.25 percent cap federal regulations placed on what S&Ls could pay for deposits. As a result, deposits poured out of S&Ls into investments that paid higher market-based rates. This was the genesis of money market mutual funds, which were able to offer shareholders higher rates on their money than banks and S&Ls, with virtually equivalent safety. The loss of deposits threatened the survival of S&Ls. The first step authorized by Congress was the Depository Institutions Deregulation Monetary Control Act of 1980 (another note to Krugman: this was a Democratic Congress, before Reagan took office), which authorized the cap on deposit interest rates be lifted gradually, and this was accomplished over the next three years by the Depository Institutions Deregulation Committee, consisting of the major bank and S&L regulators, chaired by the secretary of the treasury.”

Now, we realize that Krugman abhors all things conservative; but aren’t economists at least supposed to try and look at the facts?

We don’t expect you to take his columns too seriously, afterall, Krugman was the one who made the case just days after 9/11 that at least the tragedy would help the city economically, “…the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I’ve already indicated, the destruction isn’t big compared with the economy, but rebuilding will generate at least some increase in business spending.”

Do they not teach the broken window fallacy at Princeton, professor?

-JS