Comment by mixmax | Hacker News Reader

Comment by mixmax | Hacker News Reader

Public economic policy is a hard problem, and with all Respect to Philip there are a couple of points from the list of promises to business managers that are somewhat contradictory.

1) world's lowest percentage of GDP (among developed nations) spent on government; only with a low spend will investors have faith that taxes will stay low - This has the consequence of bad infrastructure, an uneducated workforce, less investment in basic sciense which lays the ground for innovation and high-tech industries, etc. A country like Sweden has a high percentage of GDP spent on government, and yet it has managed to create companies such as Saab, Ikea, Ericsson, Electrolux, Hasselblad, Hennez and Maurtitz, Mysql, Volvo, etc.

2) corporate governance that relieves investors from worry that profits will be siphoned off by management - This is one of those things that sound easy but turn out to be extremely hard. History shows that when you try to protect investors from fraud, mismanagement, etc. all you get is more red tape and, bigger government and make things harder for small companies. Sarbannes Oxley (http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act) was an attempt to solve this very problem and it turned out to be a disaster.

3) world's best school system and best educated workers - America has a long way to go here. The problem is that it takes many years to get educated workers: You start in kindergarten and get educated workers 15 years later. Besides empirical studies show that a good education system requires considerable public investment, and thus a larger percentage of GDP spent on government.

4) world's cheapest transportation system and one that is virtually free from uncertainty caused by congestion - again this requires substantial public investment, and is a long term commitment. You will have to spend a good amount of GDP on infrastructure and will only reap the rewards after a decade.

I have to admit that this reads a bit like when you hear politicians talk about technology - it is apparent that their understanding of the domain is not very deep.

Good analysis. One point though about Sweden. Almost all of Sweden's large successful companies were created and grew during a period of very small government.

Sweden's current face of big government didn't start until the 60s when all the companies except Mysql were already large.

For more see Johan Norberg's writings on this: http://www.johannorberg.net/?page=articles&articleid=45

Interesting comment that points to why economics is such a hard disciplline: Almost all of Sweden's large successful companies were created and grew during a period of very small government. - So does this indicate that small government is a cause for successful Swedish companies? It might, but since you can't recreate the experiment you will never know for sure, all you know is that there is a correlation. There are probably many other things that could have caused these particular companies to be successful. The Swedish system of education is one.

Agreed. It's a complex issue. However historically the combination of small government, trust and openness has proved to cause growth throughout the world.

The economist Mauricio Rojas wrote a very detailed analysis of the Swedish Economy and the Welfare State throughout history, which is available here: http://www.timbro.se/bokhandel/pdf/9175665891.pdf

I haven't read the full report yet, but it looks very interesting.

We have to be careful about the education as being treated as the golden ticket for growth. I believe a combination of good primary education and a strong research culture is of vital importance to growth, but without the right infrastructure for entrepreneurs it wont do anything.

Just look at all the people educated to the nth degree in failed communist economies to see what I mean. Also see the reoccurring debates here about the value of higher education for an additional counter point to education.

Sweden by the way were pioneers in using School Vouchers, something that the Democratic party in the US is heavily against.

I don't think it matters as much how great a percentage of the GDP government spends, so much as how it is spent. Is the government spending money in ways that produce net positive social return? This becomes much harder as the absolute size of the bureaucracy grows. It is harder to manage a multi-trillion dollar budget than it is to manage Sweden.

The United States has a large amount of military spending and redundant bureaucracy, so we have high taxes and low social benefit. For example, the US is usually either #1 or #2 in the world in the amount of money spent per pupil in public schools, and yet the results are not good.

You're hinting at a very interesting problem here: The absolute size of bureaucracy.

It seems ( I have no data to back this up) that the efficiency of bureaucracy decreases exponentially with it's size. This is obviously a bigger problem for large countries such as the US. There are advantages to size (setting the global agenda, advantages in areas where absolute amounts of money matter (for instance military - your military is twice as good if you spend twice the money no matter how large your population. Roughly...) . , etc.). Whether these advantages outweigh the disadvantage of a large bureaucracy I don't know.

I don't have any empirical studies to back up my point, either, but the way spending is allocated by the US government is anything but rational. I have severe doubts that adding $1 more of revenue into the system will produce greater than $1 of benefits.

There is something to be said for the design choice of federalism; pushing all possible decisions down to the smallest unit of population effected. However, our government has moved away from this since the Roosevelts time in power.

"The bureaucracy is expanding to meet the needs of the ever expanding bureaucracy." -- Quoted from Civ 4 (and google didn't find me a source straight away)

It's possible to have very efficient bureaucracy.

European Commission that basically runs European Union (500M people) has just around 25,000 employees [1].

This is tiny. Just to get an idea about the scale: New York City (8M people) government employs 250,000 people (though to be fair, I have no idea who is included in this total) [2].

EC seems to be doing something very right. They offer very good working conditions (pay, holidays, benefits, security), so they are able to attract good people. There is a tough competition for these civil servant jobs.

[1] http://en.wikipedia.org/wiki/European_Commission

[2] http://en.wikipedia.org/wiki/Government_of_New_York_City

The EC is only the inter-government stuff. To be fair, you'd have to include all the employees of all the member states' governments too; or alternatively, compare e.g. London governmental employees, though scaled to population and leaving out actual England and UK administration.

For example, http://www.tfl.gov.uk/corporate/about-tfl/investorrelations/... shows that Transport for London (buses, trains and underground) alone employs about 18,000 people (and probably quite a bit higher now).

There is a tough competition for these civil servant jobs

Because they are massively, massively corrupt.

http://www.timesonline.co.uk/tol/comment/columnists/guest_co...

"For nine consecutive years the EU court of auditors has refused to sign off the budget. The numbers are huge. The annual EC budget is around ¤100 billion (£65 billion). The auditors cannot clear 95 per cent of that. We simply cannot tell what is happening to that money"

Do you really believe that they could get away with 95% fraudulent spending? That nobody would notice 95 billion Euro corruption?

Or to put it another way, if this is true, it means that they are able to run real EC functions with just 5 billion Euro budget. That would quite efficient indeed.

Nah, it just means (for example) instead of putting function X out to tender, they just gave it to a friend or a family member. The work still gets done, it just could just be done quicker/cheaper/better with more transparency. I don't believe it's literally the case that Neil Kinnock is socking away a billion Euros a year into his Swiss bank account. Interesting to note that practically his entire family are EC employees tho'.

Well, I have zero illusions about top dogs that got their positions by political means/connections.

My whole point was about low ranking civil servants that do the bulk of the nitty-gritty administration work and that all must pass through a highly selective competitive exams (1 in 29 applicants [1] cf. Harvard's 1 in 14 [2]).

And for these people, from my limited anecdotal evidence I got impression that they are indeed efficient, at least for bureaucracy standards.

[1] http://en.wikipedia.org/wiki/EPSO

[2] http://en.wikipedia.org/wiki/Harvard#Admissions

The solution to this problem is federalism, but we've drifted a ways from the balance of state and federal power that used to exist. Constituents don't care about where the things they want are coming from, and they will vote for the people who give them those things. The end result is a federal government that is ever increasing in size. It would take a massive civic education effort to fix this problem.

I agree with your first point, but I'm having trouble seeing the "advantages to size" you speak of, at least on that scale. Things like "setting the global agenda" or "military is twice as good" sound like advantages to the bureaucracy itself, not to the people it consists of. (Per your examples: at no point during my lifetime did I feel that any President spoke for me, nor did I feel our gigantic military made me any safer.)

I've seen this commercially, too: large company buys small-medium company because it's good for both companies, even though it's demonstrably bad for employees and products of both. It's a tail-wags-dog situation.

Sorry, rereading the comment I see that it could have been clearer.

What I was talking about is what economists call a true public service. This is a service that doesn't diminish in value when you add more users - a light tower is the classic example: The lighttower is as good a service to a ship whether it is the only one using it or there are a thousand others. Webpages are another good example.

Large countries have an advantage here: It costs the same to build a lighttower whether you are the US or Lichtenstein.

The military might have been a bad example though...

Spot on. Many of Greenspun's points make intuitive sense and thus seem like a good argument on their own, but they are quite incompatible. You can't have your cake and eat it too.

I really like your point #1, and it's the most important. I'm not sure if there are empirical analyses to support this, but I believe that investing in education has the greatest returns (up to the limit when your whole population is educated maximally--but that's a far ways off from where we are right now). It lifts the whole economy up on its own, and makes it more competitive in the world, which is very important re: Greenspun's comment about today's globalized world being very different compared to the 1930s.

As for the rest... those are nice to haves, but I think that lowering taxes to encourage foreign investment is an asinine comment. There will be low investment in the next few years, as he comments, if there is a poor political and economic environment for it, not if there are unfavorable tax conditions. Investors are sitting on mountains of cash right now; if the government creates policies and programs that incentivize people to put that cash to work (i.e. government/private sector co-sponsored infrastructure projects) then they will.

>"I'm not sure if there are empirical analyses to support this, but I believe that investing in education has the greatest returns (up to the limit when your whole population is educated maximally--but that's a far ways off from where we are right now). "

Most people don't get this point, but the US spends A LOT of money on education, more than most countries. "More money" is the easy answer, the one that politicians like to use. But I don't think the returns of spending more federal money on the current educational system are positive.

Here is a chart comparing US education spending with the performance of its students on international math tests. I don't think you can look at stats like this and say "more money" is the answer.

http://www.heritage.org/Research/features/issues/charts/Ed_K...

The US may spend a lot of money on education, but there is an underlying problem that isn't addressed in either your comment or Phil Greenspun's argument. K-12 education is primarily funded through property tax. This results in wealthy communities having great schools with tons of resources and poor communities that are using decades old resources and schools that are falling apart. So maybe you are correct in saying that "more money" isn't the answer. The tax system that we use for education is not equal and is failing us as a country. If we want to maximize the ability of people we should give the most people the best opportunity that we can.

DC is regularly one of the top 3 school districts in the country in terms of per pupil spending. I don't think you would want to send your children there.

There are fundamental incentive problems with public monopolies. When you have a group of dedicated, wealthy, involved parents, these negative incentives can be overcome. However, the system fails your average person, and it surely fails those who need the most help even when a lot of money is spent on them.

Those of us who advocate market reforms simply want the incentives of the system to be a help, rather than a hindrance. But we're radical right-wing nazis who hate children and eat puppies, so I don't think our plans are going to be implemented any time soon.

Also, it's funny that we are characterized that way in the United States, when such right-wing countries as Sweden and the Netherlands already have universal school vouchers that can be spent on private schools.

DC spends more on administrative costs and less in the actual classroom than most other school districts.

The fact that DC's money is misspent does not automatically mean that the problem isn't money. And sure, one good way to raise money for the DC school system would be to streamline their administration.

I agree that DC public schools misspends its money. But I am not very interested in how can we fix the problem in just this particular time and place. I am more concerned about what incentives of the system cause this problem, and what new incentives would keep this problem from recurring in other times and places.

It is easier to look at a particular district and point out what they are doing wrong (cronyism, graft, etc.) than to build universal policy that improves the system as a whole. "There are a thousand people cutting branches for every one striking at the root", and all that.

So, that makes sense, but your original argument appeared to be something to the effect of, "money isn't the solution; we've tried money, for instance in DC, and it hasn't worked". That argument is wrong. It's akin to saying, "penicillin isn't the answer to infection; we've tried it, for instance by putting it on an altar and praying to it, and it hasn't worked".

I'm not engaging with the rest of your argument.

The evidence that I've seen suggests the correlation between school spending and educational achievement is weak. There may be specific districts that we can target as being underfunded, and money might help those districts. But untargeted increases in education spending seem unlikely to help. After all, there are very well funded districts in the United States that are horrible.

That would be my main argument. Then I wandered a bit.

I guess I'm asking for evidence of school districts that are both well-funded and well-managed, using (for instance) the Charity Navigator definition of well-managed (admin and fundraising costs kept to under N% of program expenditures). If there are a bunch of them, maybe I'd give more weight to your argument.

For the time being, I just think about the fact that teachers in these supposedly-overfunded school districts are teaching overcrowded classes in doublewide trailers and spending their own money on books and classroom supplies. And then I think your argument is awfully abstract, counterintuitive, and unpersuasive.

Well, going back to the original argument that we need to spend a greater percentage of GDP to achieve higher educational achievement, I think we could both agree that the problem is less straightforward than that, that the United States spends more money per student than other countries even in some of its worst schools, and that unnamed structural reforms that encourage schools to be better managed can increase educational performance in the United States without necessarily spending more money.

Sure, although the same logic doesn't preclude simply spending more top-line dollars and sucking up the fact that there's too much overhead.

If anything, it's almost obvious that almost all American public schools are, in general, "underfunded".

Part of having a free market in labor (such as we have) means that, if you're trying to attract people to take on a particular position, you need to offer enough to lure them away from their other options.

Public school teachers have good job security and benefits (after awhile), but the starting salary is usually very uncompetitive with most skilled private sector work and it takes a long time to obtain enough seniority to catch up.

For a lot of folks who might make good teachers, switching to teaching in public school is asking them to take a paycut in the 50-100k+ range.

If you don't have starting salaries for teachers in the 60-90k range you lose a lot of people to law school, medicine, technical fields, grad school, finance, and even other public sector work like police and fire and so on.

So rather than asking "is school underfunded or overfunded?", a better starting point is:

(A) what would it cost to get the people we'd want to be teachers doing the job at a level we'd be happy with? We don't have to resort to guesswork and rhetoric here: think of people you know, and figure out what the pay would have to be to get them to take up teaching instead. That's your answer.

(B) Once you've figured out what it'd cost, then you can start figuring out "is it worth it?" Most people jump in with a particular agenda to push and never do the gut check "would anyone I know who's capable of being a good teacher work for 45k starting?".

There's certainly a lot of bureaucratic overhead that could be reduced, if the political-economic cost of reducing it was outweighed by the benefits of doing so; that's another fact-based question you could derive answers to with some real legwork.

If anything, though, the above highlights one of the less-discussed issues with "rising income inequality": as the best "attainable" private sector outcomes become increasingly more attractive than the best public sector outcomes, you either have to spend a ton of money to get anyone to take a public sector job or you have to settle for only incompetents and failures going for public sector work; witness also, eg, the SEC or FDA.

> Once you've figured out what it'd cost, then you can start figuring out "is it worth it?"

There's more to it than money. Public school teaching is currently a lousy job for a number of reasons:

* very large amounts of work to take home

* having to deal with complaints from parents and administrators if you raise the rigor of your classes

* if you're male, the possibility of losing your career if a female student decides to lie and say you did something wrong

* the monotony of only a small portion of your work being actually academic-related. Most of the work is babysitting-style work or else administrative work. For people who like to work with their minds, this is a big deal and a reason against going into teaching.

Also, I don't know where you're getting your numbers from. Who (non-teachers) is making these enormous salaries you quote? Those are big numbers.

I checked, and I was a bit off on the numbers.

My basic assumption is that there's a minimal amount of smarts you'd need to have to be capable of being an effective teacher.

I then looked @ people I know who I think have at least that minimal amount of smarts, took their job titles, than was going off of the local salaries for those kinds of jobs.

My mistake was comparing local salaries for those kinds of jobs to the nationwide median for k-12 teachers; since "local" for me means "expensive eastern seaboard city", I'm comparing expensive apples to median oranges, and thus I'm a bit off.

For reference:

http://www.payscale.com/research/US/All_K-12_Teachers/Salary...

That said, I do think people's expectations are off for how much teachers "ought" to be getting paid.

We can probably agree that there's some N for which "you probably have to have been in -- or have been capable of being in -- the top N% of your high school class to be capable of being a good teacher".

We might not agree on that N -- 5%? 15%? 25%? -- but let's look at what each N means if do a naive mapping to individual income levels:

top 5% -> 100k+ top 10% -> ~75k+ top 15% -> ~62.5k+ (I'm ballparking this from the table)

etc., via http://en.wikipedia.org/wiki/Personal_income_in_the_United_S...

So pick your top N% and pick a salary range and you've got a ballpark range for what it'd take to staff a school with teachers culled from the top N% of achievers (and note that I'm actually lowballing it: the $ for each N is the minimum amount to put you into the top-N%, not the average or median income of the top N% of earners).

I'll happily admit that the above is a horribly inaccurate ballpark, but it's a place to start from instead of handwaving as to why teachers are/are not paid that much.

As a side note: one of the things that isn't mentioned when looking @ how much school costs in, say, South Korea is that relative salaries are usually higher for teachers than their domestic counterparts, and on top of that due to cultural reasons they're more "respected" by their fellow adults than they are in the USA, which makes it cheaper to attract quality people to be teachers.

"I guess I'm asking for evidence of school districts that are both well-funded and well-managed, using (for instance) the Charity Navigator definition of well-managed (admin and fundraising costs kept to under N% of program expenditures)."

That criterion has the same problem with education as it does with charitable organizations: it decouples money spent from results achieved. Maybe the answer to more effective schools and charitable organizations is better administrators who can only be recruited with competitive salaries. If that's the case, using that criterion would force schools and charitable organizations to hire less capable administrators in order to get enough funding.

I get that "money spent" does not equal "results achieved". But: in many of the worst cases where money hasn't equalled results, the cause has been money misspent on administration: bloated staff, unreasonable compensation, new buildings. So while the Charity Navigator definition may not be perfect, it's a very solid heuristic. For instance, it detects the DC school system.

I can completely agree with you here. A more universal policy that improves the system is better than pointing out particular problems of a particular district. I think ultimately though property tax is the wrong way to fund the school system and that needs to change.

I'm not really familiar with the DC school district, but LA Unified gets a bad rap for being an awful school district. If you take it on a whole maybe it is, but the wealthy neighborhoods produce very good schools because they are outspending neighborhoods in say South Central Los Angeles or East Los Angeles. Do you think that this is solely because in the richer neighborhoods the parents have more time to spend assisting the students or in the classroom? Also it would be interesting to know how much more the richer schools receive in funding than the poorer schools. It seems like they are getting a two fold advantage. They have more funding available and parents who have more time and/or more involved.

Edit: just to clarify I didn't want to come across as calling you a right-wing Nazi baby killer and hope that I didn't in the original post.

>"Edit: just to clarify I didn't want to come across as calling you a right-wing Nazi baby killer and hope that I didn't in the original post."

Just to clarify, I wasn't saying that you did. I was just commenting on my frustration with the general state of public debate in the United States. People who support market-based policies are generally vilified right now. I think it is just a hangover from the Bush presidency, since he is widely disliked and supports market policy in his speeches. Debate will probably become more reasonable when he is gone.

> When you have a group of dedicated, wealthy, involved parents, these negative incentives can be overcome.

I'd go further and say you don't even need the wealth -- just dedicated and involved parents. Success will flow from that. Trouble is, it's a vicious cycle: the kids who need the most help often have the least dedicated and involved parents.

People claim that private schools are better than public for all sorts of reasons, but I think the main reason probably is that the parents who care enough to put their kids in private school usually also care enough to be dedicated to and involved in their child's education.

In California the public schools are funded mostly by the state with some additional money for wealthy districts grandfathered in. Still we have the disparity. Wealth districts have volunteer parents, fund raising, and voters willing to approve special bond issues. The poorer districts tend to be poorly run, wasting more money. They have less community support, fewer volunteers, etc., etc. There are individual schools in poorer districts that do extraordinary things, but usually it's the case of an extraordinary principal.

Ok, so it's probably not a money problem, although perhaps it's not allocated well. And while we may agree that the unions are sort of a hindrance, many other countries have heavily unionized teaching systems, and still do better, so I think it would be wrong to pin everything on that.

So what is it? I wonder if it's a cultural thing. I remember how important it was during high school to not be seen as a "nerd". In Italy, my friends can't really relate to that sort of mentality - it doesn't really exist there like it does in the US. Doing well in school is basically seen as a good thing. Maybe it's not foremost in everyone's minds, but it's not something to be derided either.

I'm not sure if there are empirical analysis to support this, but I believe that investing in education has the greatest returns (up to the limit when your whole population is educated maximally--but that's a far ways off from where we are right now).

The empirical analysis is all decidedly negative. The U.S. dramatically increased education spending in the past thirty years with nothing to show for it. On a local level, pretty much every study of increased school funding has shown no impact. From my experience, formal schooling has very little value add on top of what kids learn from their parents, on their own, and on the job.

Again: there's more to the funding situation than this factoid. It remains entirely likely that our schools are underfunded, in which case all you're pointing out is one of the causes of that underfunding (that school administration is sapping funds needed for teachers and classrooms).

"Besides empirical studies show that a good education system requires considerable public investment, and thus a larger percentage of GDP spent on government."

Citations to the studies, please?

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