When proponents of ESAs are asked about ongoing funding of education savings accounts, rather than addressing the elephant in the room (increased taxes), they often deflect to the free market as the solution. The logic goes something like this: the government has a monopoly on education and a redirection of some of that funding to ESAs simply provides the means (money) by which competitors (parents, private schools, etc. and education tools) can develop and grow in the marketplace of education and eventually be a competitive, and better, alternative to public education. They are relying on the free market to manage costs and break up the alleged government education monopoly. It sounds logical and in a capitalistic culture it rings true, but there are two fundamental errors in this assertion, both of which are inextricably rooted in the funding source.
Government Funds and the Free Market
Right out of the gate, we must understand that ALL education dollars, no matter how they are allocated (ESAs or public schools), are taxpayer dollars, which are, and must be, controlled and managed by the government, through the Department of Education. Tax dollars, once paid, become public funds and are in premise and practice, government dollars; they no longer belong to individual taxpayers. Wishing it weren’t so doesn’t change reality. In no other sphere of government spending does anyone assert that individuals should receive a portion of their taxes back to spend as they choose, just so long as they use it for its intended purpose.
Absolutely, ESAs do have the ability to funnel public education money into the free market, but there are implications proponents don’t acknowledge: 1) education costs in all markets will go up; and, 2) ESAs will expand the government monopoly over education, not reduce it. There are shocking examples of what government funding has done to other free markets, both in terms of consumer costs in those markets and in terms of the control that can be exerted by the government in those markets. It begs the question, can the free market really counter the damaging effects of government money infused into that same market? Simply put, no.
Let’s take a look at another education model where the injection of government dollars into private education had drastic, though unintended, consequences: higher education. Higher education has always been costly, even when tuition prices were reined in by free market pressures (a finite number of colleges competing for a finite market of students). No single college has held a monopoly over secondary education, private or public. Enter government help in the form of government grants and loans, designed to make college more accessible to more people. The intentions were most certainly altruistic, but what it actually did to the cost of higher education is startling.
Cato Institute’s Policy Analysis concluded that the, “empirical evidence is consistent . . . federal loans, Pell grants, and other assistance programs result in higher tuition for students at our nation’s colleges and universities” (Wolfram, 2005). The dollar-for-dollar impact varies from one state and institution to another, but estimates indicate that for every $1 of government aid, the cost of tuition went up from $0.65 (Lucca et al, 2017) to $3.24 (Wolfram, 2005). Another study conducted by the Federal Reserve Bank of New York draws similar conclusions (Lucca et al, 2017). The Center for College Affordability and Productivity’s report Financial Aid in Theory and Practice, showed that increased government aid resulted directly in increased tuition costs (Gillen, 2009). Finally, in a 2014 study, Harvard’s Stephanie Riegg Cellini and Claudia Goldin found that for-profit schools actually raised tuition specifically to capture increases in federal aid (Cellini & Goldin, 2014). It’s economics 101. Government aid did two things: it increased the demand for higher education, and because colleges are a limited resource, tuition prices went up (Wolfram, 2005). Increased prices demanded the expansion of government aid (which has to be subsidized from somewhere), which created greater demand for limited resources, and so on. Colleges simply responded as free market actors do, by raising their prices as a means of capturing more of those government dollars. Government aid created a vicious cycle that continues to ratchet up the cost of higher education 65%-324%, with no end in sight.
This data begs the question: What will be different for K-12 education; what will the availability of ESAs do to the K-12 market? The simple answer is, exactly what it did in the secondary education market. It raised costs for everyone, pricing huge segments of society right out of the secondary education market. Government money actually manipulated the market, tipping the scale so far the other way that the free market hasn’t been able to keep up and it is still a problem today. The same fate seems likely within the K-12 sector, driven by government funded ESAs.
But the wicket gets even stickier in the K-12 market. These ESAs dollars will be funding a whole lot more than just tuition. With the influx of guaranteed funds, there will be a free market scramble for ESA edu-biz dollars by a bevy of providers, hawking everything from curriculum and teaching tools, to pencils and paper, to computers and ballet lessons, all vying for ESA dollars. And which providers can be paid with ESA dollars? Certainly not just anyone in the free market. The state government will have to control the list of approved providers. Vendors will require a level of rigorous oversight not seen in most ESA bills, to ensure not only that they are legitimate, but that they are serving their stated purpose. What safeguards will be in place to prevent fraud and incompetence? States which have implemented ESAs are dealing with $100,000s of fraudulently spent dollars and limited enforcement funding (Sanchez & O’Dell, 2018). Is there a mechanism for removing providers from the list? And since the government will control the providers, the mechanism is already in place to tell providers exactly what it is that they can (or can’t) provide (or risk losing their place on the list).
But even beyond the nitty gritty of managing providers, there is the actual notion of “approved providers.” It is simply another way by which the government exerts control over the “free market,” narrowing options for all consumers. So now, not only do government funds drive up the cost of private (and homeschool) education itself, the cost of the tools to do the work of education get driven up by a superficially narrowed field of provider options, and just like colleges, providers will raise costs to meet demand and the money available. When this happens, costs will go up for everyone in the market, not just those using ESAs. Based on the studies above, it is not a stretch to assert that when costs for materials reach a certain level, large swaths of the population will be priced right out of their ability to privately educate their children, forcing them to either accept ESA funding or send their children to public schools.
This ability for government funding to exert so much control over the free market, makes many leery of the assertion that the free market will be able to exert any control over this pandora’s box once it’s open. The free market simply is not capable of sustained suppression of costs when there are guaranteed funds steering the ship.
Ending the Government Monopoly
Now, we get to the second assertion of ESA supporters: that ESAs are a means of breaking up the government monopoly over education. First, the thinking that because state-run education has access to government funding, that public education somehow has a monopoly in the education market today, is to turn a blind eye to the expansion of thriving private schools (small and large) and the historic presence of homeschools in the state. In fact, the market today is sustaining more educational opportunities for parents than ever before. Podschools, microschools, and co-ops are becoming commonplace, even in small, rural communities. In the absence of public education options that meet parent’s criteria for a moral, robust and safe learning environment, the free market of ideas has bloomed as never before and communities are developing even more creative ways to capitalize on the state’s current educational freedom. In fact, Idaho’s education laws are some of the most free in the country, allowing for this expansion of education in a free market, unfettered by government funding or regulation.
This drum needs to be beaten again: the government must control and account for all funds that enter the public coffers. If it doesn’t, it isn’t fulfilling its constitutional obligation to run a balanced budget and conduct the business of the state. Simply shifting those public dollars into another funding stream called ESAs does not remove any of these obligations and are still public dollars. So, if the government controls public education with funding, how is that any less the case when the government funds private education with ESA dollars? It isn’t. The government will still control ALL education money. ESAs don’t break up the supposed public education monopoly, they actually represent an expansion of monopolistic control over the education market, but now they can offer two models of education: traditional public or ESA-funded. In essence, they will capture the only truly capitalistic education market in existence today: privately funded education (homeschool or private).
The most obvious cultural example of this dynamic is in social media. You may choose Facebook or you may choose Instagram, but either way you are choosing Meta. You may choose public education or ESA funded private education, but either way you must choose government controlled dollars for your child’s education. This sounds less like the break up of a monopoly and more like a hostile takeover. In fact, the same Cato Institute analysis cited above asserted that we should be concerned, “when large numbers of students begin to rely on the federal government to fund their [sic] education, and the [sic] government uses this financing to affect the behavior of state and private institutions, we should be concerned about how the resulting loss of independence of our colleges and universities (insert private and homeschools right here) affects the ability of voters to form opinions about public policy that are independent of the government’s position (Wolfram, 2005).” Public education may be the largest provider in the market, but it is by no means the only provider. The market is currently replete with alternatives. And further, because those public dollars only fund one of the options, the other options (private and homeschool) are free from the ballooning costs and regulations that hound public money (and the public schools constantly face) and are free to ebb and flow with the demands of the market.
So, can the free market really provide a better education for our children? Yes, it already does. But as soon as government money is injected into it, the market can only produce another version of the current public education model (high costs/regulations and poor outcomes). We can’t just wishfully hope that this time it will be different; that it will all turn out okay in the end. The right answer is to leave the private education market alone. The right answer is not to reduce choices by bringing all choices under one funding umbrella. The right answer is to let the free market do what it does best: thrive through innovation.
Wolfram, Gary (2005). Making College More Expensive, The Unintended Consequences of Federal Tuition Aid. Policy Analysis, (No. 531).
Lucca, et al (2017). Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs. Federal Reserve Bank of New York Staff Reports, (Staff Report No. 733).
Gillen, Andrew (2009). Financial Aid in Theory and Practice: Why it is Ineffective and What Can be Done About It, A Report from the Center for College Affordability and Productivity.
Cellini & Golden (2014). Does Federal Student Aid Raise Tuition? New Evidence on For-Profit Colleges. American Economic Journal: Economic Policy, 6(4), 174–206.
Sanchez & O’Dell (2018, October 29). Parents spent $700K in school voucher money on beauty supplies, apparel; attempted cash withdrawals. The Republic. Retrieved from https://www.azcentral.com/story/news/politics/arizona/2018/10/29/misspent-school-voucher-funds-exceed-700-k-little-recovered/1780495002/
Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs – Federal Reserve Bank of New York – FEDERAL RESERVE BANK of NEW YORK (newyorkfed.org)