New York State and Crony Socialism

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Don’t ask me why, but my high-powered brain turned toward education this week, and I decided to compare my birth state to my adoptive state. Check out the following tables:

New York spends a lot more than North Carolina on public education—$14,663 more per pupil, to be precise.

But New York doesn’t allocate its education dollars as efficiently as North Carolina. The most important education variable controlled by the state is the teacher. New York, however, only devotes 20.01 percent of its classroom resources to compensating its teachers. North Carolina devotes 31.91 percent.

And that inefficiency exacts a terrible toll. New York spends a lot more than North Carolina but basically gets the same results. New York has a slightly higher percentage of students scoring 1400 or higher on the SAT (about a third of a percent more), but North Carolina has a slightly higher average SAT score (about three percent more).

A Plea to New York State

You’re spinning your wheels when it comes to education, New York. Try something different. Here’s a suggestion.

• Keep your per pupil spending the same.
• But give your students the option, starting in the 7th grade, of choosing a pared-down education that spends $5000 less per pupil than the standard education. In other words, students selecting this option would get the best education New York can provide for a per-pupil cost of $19,040.Quick aside: This amount of per-pupil spending would still be more than double what North Carolina spends.
• For each student choosing a pared-down education, set up a custodial account with a discount brokerage firm for him or her and deposit the $5,000 saved from providing a pared-down education into that account. The money placed in the brokerage account would be used to buy shares of an S&P 500 index fund. The student would take full ownership of the custodial account when he or she turns 18. He or she could then use whatever money’s in that account to tickle whatever fancy he or she may have—pay for college, start a business, use for a downpayment on a house, buy a car, etc., etc.
• Bonus suggestion: Chuck Schumer is the leader of the senate, and he’s from your state. Have him use his clout to amend Roth IRA rules so schools can open and fund Roth IRAs for their students once their students reach the 7th grade.

What the Groovy Plea to New York State Could Accomplish

If New York State embraced the Groovy Plea and gave students the option of a pared-down education coupled with a brokerage account, here’s what the 7th-graders who choose this option would have in their brokerage accounts once they finished high school.

$37,150 ($416.67 per month invested in an S&P 500 index fund earning seven percent annually over the course of six years)

Now let’s suppose that Senator Schumer is able to amend the Roth IRA rules and instead of a brokerage account, New York schools are able to put the pared-down education savings into a Roth IRA for each student choosing a pared-down education. Here’s what the 7th-graders who choose this option would have in their Roth IRAs once they reached the age of 59.

$649,773 ($37,150 invested in an S&P 500 index fund earning seven percent annually over the course of 41 years)

And if the 7th graders who choose the pared-down education invested $100 a month into their Roth IRAs once they turned 18 and began working, here’s how much money they would have in their Roth IRAs when they turned 59.

$932,469 (assuming a seven percent annual return on average)

And here’s what their Roth IRAs would be worth at 59 if we upped the monthly contribution to the following amounts (again, assuming a seven percent annual return on average):

$200: $1,215,164
$300: $1,497,860
$400: $1,780,555
$500: $2,063,251

Crony Socialism

On the surface, my Groovy Plea to New York State is a no-brainer. Education wouldn’t suffer. With at least $19,020 to spend per pupil for junior and senior high school students, New York would still be able to provide its secondary students—whether they chose the pared-down education or not—with all the math and English instruction they need for success. The teachers needn’t suffer a pay cut either. But with a revenue base of $19,020 per pupil, teachers teaching pared-down education students would need to get 25 percent of classroom spending rather than 20 percent. And, finally, my Groovy Plea would not only set students up for success in adulthood and possibly retirement but it would also get kids excited about saving, investing, and personal finance.

But my Groovy Plea will never see the light of day. And the reason is simple. There are roughly 2.6 million public school students in New York State. If half of those students are in junior and senior high, and all these students opted for a pared-down education, New York’s education bureaucracy would be denied $6.5 billion annually ($5000 x 1.3 million students). That adds up to a lot of jobs, programs, and egos being put in harm’s way. And New York’s education bureaucracy would never tolerate such a threat. It would fight tooth and nail to squash my Groovy Plea. It would help primary any incumbent politician who supported it, it would donate lavishly to any incumbent politician who opposed it, and it would use its toadies in the media to deride it as a sop to Wall Street and a blow to education. “How can we divert billions of education dollars to those rascals on Wall Street,” an indignant New York Times editorial would no doubt ask, “when our students are already being shortchanged—especially our students of color?” And the effect of such intense lobbying would be all too familiar. The majority of New Yorkers would be against my Groovy Plea—since New Yorkers pride themselves on being “pro-education”—and no politician would touch it.

And this is what I mean by crony socialism. We know well the scourge of crony capitalism. Established, well-heeled private businesses lobby for favoritism that suppresses competition and punishes the consumer, and our lovely politicians oblige them. Well, our large public bureaucracies are no different. They lobby just as fiercely as our private businesses do. And they are just as hostile to the dictates of fair play, the overall health of our society, and the wallets of the consumers (i.e., the taxpayers).

Final Thoughts

Okay, groovy freedomist, that’s all I got. What say you? I say our public education business model is a joke—whether we’re focused on New York, North Carolina, or any other state—and it needs to be disrupted with extreme prejudice. I also say that such disruption will never happen because crony socialism is just as ubiquitous and troublesome as crony capitalism. But, hey, maybe I’m missing something. Let me know what you think when you get a chance. Peace.