Trust The Children

Friday, December 01, 2006

May I Mention MIlton Freedman?

In past posts, I have mentioned key people who touched our life when we were in the deciding place about educating our children. I forgot to mention Milton Freedman. His book, "Free to Choose" had a huge impact on me. Even if I didn't get government to give me back my portion of taxes allocated to education to use as I saw fit, I could still choose to remove my children from the system and vote that way. I, for one, do believe that even this small group has had a positive effect on the education dialog in America.

Here is the text of an interview with Milton Freedman weeks before his passing. He covers a variety of subjects with wonderful and refreshing clarity. I had to republish here this section about education and freedom. Please read it. Please read it and think about what it means. Have a good weekend.

-----Begin Interview----------

By David Asman
Fox News

DA: Let’s talk about specific policies that affect our freedom to choose. Education. You have advocated vouchers since the mid-1950s. Now, briefly, vouchers would give you back that portion of your taxes that the government spends on education and let you spend it the way you feel it should be spent. It appears that experiments in vouchers in places like Milwaukee and Washington, D.C. are now being rolled out. Does this give you hope that at long last vouchers will play a part in our educational process?

MF: Vouchers are a means, not an end. The end and the objective is to get an effective educational system. The state of our educational system is a disgrace to our country. We have an elementary and secondary school system in which close to half of the youngsters never graduate properly. It’s a disgrace that there is more illiteracy today than there was 100 years ago.

DA: Whom do you blame for that?

MF: I blame the existence of a governmental, monopolistic school system. I also blame the teacher’s union, and the control they have over the school system.

DA: Is that control tightening?

MF: That control has tightened very much. In the 1960s, The National Education Association changed its character. Prior to that point it had been a professional association, similar to the American Medical Association or the American Bar Association. But then the NEA changed into a union. And from that point on you can see deterioration in the quality of schooling in the United States.

DA: How would vouchers improve education?

MF: All governments—federal, state and local—are spending about $9,000 per year on each pupil. That’s the money that goes to the education system. The voucher system rearranges this payment system radically. Instead of that money going to the schools, vouchers would direct that money to the kids, for them to use the way they and their parents think is appropriate. And you wouldn’t have to make it $9,000, because private education would be much more efficient than government. Is there anything that government does that doesn’t cost twice as much as it needs to? So if you had a voucher of $5,000 for each of your children—provided you used it for nothing other than education—and you could choose what school you want your child to go to, the competition would force individual schools to operate more efficiently. The real power that a consumer has is in deciding what to buy. And right now you don’t have that power with respect to schools.

DA: But is there evidence that what happens in the market place, with respect to competition making better products more efficiently, would also improve the quality of education?

MF: Yes, if you compare private schools with government schools. You can also see evidence of this under the experimental voucher plans. Now, the problem with the voucher experiments is that so far most of them are restricted to families below a certain income. They are largely welfare measures and not educational measures. For the purpose of having the maximum degree of competition, you would like the voucher program to be unrestricted for all of the parents to have, because that way you get the largest market within which competition would work. But even within these restricted cases, in every place where you have had a voucher, children who had vouchers to choose the school they felt would be better actually did better than children without vouchers. Moreover, in every one of those experiments, the public schools have improved, because competition forced them to become more efficient. So the competition from the private schools, enhanced by the vouchers, led to improvement in the public schools.

Health Care

DA: Another area in which government efficiency has been questioned is health care. Just to put things in perspective, I remember the days when I was sick and the doctor would come over to make a house call. My father would follow him to the door, pull a bill out of his wallet, pay the doctor, and that was it—-no papers, no government, no fuss. Will we ever get back to that?

MF: It’s very hard to believe we will. But we have to move in that direction.

DA: How?

MF: The best instrument at the moment is a health savings account—it used to be called a medical savings account. It works as follows: First of all, you buy for yourself a catastrophic insurance policy, so that in case of a major adverse medical event, you’re covered. Then you have an account, in which you or your employer deposits a certain sum of money. Let’s say there’s a deductible limit of $5,000. So you deposit $2,500 in the account, and you can use that any way you want for medical purposes. You choose the doctor, and you pay the doctor. You get the test, you pay for the test. And then if you go over $2,500, you have to pay that out of your pocket. But the maximum it can cost you is $2,500 plus the cost of the catastrophic insurance premium. And this way you have an incentive to save money. Right now, you as a customer have no incentive to save money on medicine.

DA: And the doctor has no incentive to lower his costs.

MF: And the doctor has no incentive to serve you. You are not employing the doctor. He’s being employed by the insurance company, or by the hospital.

DA: Or by the government, if he’s being paid by Medicaid or Medicare.

MF: But let me note one thing that’s interesting. We’ve been talking about education and medicine. The problem with both of them is exactly the same. The problem with both of them is third party payments. You do not have a transaction between a willing buyer and a willing seller. What you have is Mr. A, getting service from Mr. B, who is paid by Mr. C. The common feature is that you as an individual do not make the deal, do not suffer the consequence or pay the cost. Some third party pays for you.

DA: People defending the system would say that it’s become a more complex world. Now we have all this complex equipment and tests and medical specialists and with all that complication, you need somebody extra to sort things out.

MF: But the government has introduced the major complication. The major complication is caused by third party payments. The fact that you have more complexity in medicine is a good thing. During the whole of the past 100 years, life expectancy has been going up. It was going up before there were these government programs, it’s been going up since. But life expectancy actually went up faster before these programs were introduced than since.

In 1946, just after World War 2, total medical expenditures was about 5 percent of national income. Today, it’s 17 percent. And life expectancy increased far more rapidly in the 50 years before World War 2 than it is increasing today. I believe that the progress and the quality of medical care has increased independent of the amount we spend on it through government. The relationship between your father and the doctor he paid at the door could work well in our time. It doesn’t work well when your father doesn’t pay the doctor directly but calls in a third party, and some third party has to judge whether that medical procedure is necessary. That’s what causes the complication.

There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money.

Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost.

Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch!

Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40 percent of our national income.

DA: The politicians who defend this system would say that if you leave it up to the market, inevitably, there will be people left out. There will be a minority who can not take care of themselves. In order to create an equalized system of care, whether it’s education or health or social security, you need the government to come in and equalize.

MF: But do we want an equalized level of care? We can always have an equalized level at a low level. Where does progress come from? If we go back and look at the history of our country, what is behind our progress? It’s not equalizing. It’s differentiating. It’s that somebody gets a bright idea about how you can have a telegraph line. And who buys that first? Is it the poor people? No. Or look at television. How did we get the television and all its related products? We didn’t get progress in television technology by immediately demanding that every American get a television set. We got it by someone starting the venture and rich people buying it to begin with. Rich people are the experimental ground for every new development. The nature of progress is that what begins as a luxury for the rich becomes a necessity for the poor as it’s developed and passed on.

-----End Interview----------


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