Two Views: Texas Economy and School Choice

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The Texas Economy and School Choice by Arthur Laffer

Arthur Laffer

World-renowned economist Arthur Laffer studies the economic effects of the Taxpayer Savings Grant in his analysis commissioned by Texas Association of Business and Texas Public Policy Foundation. Laffer concludes: “Broad, universal, statewide school choice, as envisioned in the TSG,  would substantially increase economic growth in Texas first by increasing residential and commercial property values, which would, in turn, increase residential and commercial development. More importantly, school choice would raise wages and incomes by reducing dropout rates, and increasing graduation rates, and educational achievement, as measured by standardized test scores, all of which would increase human capital, leading to increased productivity and output.”

Executive Summary

The Taxpayer Savings Grant (TGS) program is a statewide universal school choice program under active consideration by the Texas Legislature. This report is the result of an evaluation to ascertain the effect of such a program on the state’s economy. The survey of the educational benefits of school choice across the nation in this study shows that broad, universal, statewide school choice can achieve similar educational results for Texas. For instance, reducing the 130,000 dropouts statewide by half is achievable by statewide school choice. So is closing the educational achievement gaps between the races, between students from lower income and higher income families, and between the U.S. and the higher achieving countries in education performance. These results would be further enhanced by educational innovation, in a sector that has so far failed grossly to take advantage of modern communication breakthroughs, which can greatly increase productivity, education results and achievement. The competitive market created by broad, nearly universal, statewide school choice would accelerate such badly lagging innovation.

Broad, universal, statewide school choice, as envisioned in the TGS, would substantially increase economic growth in Texas first by increasing residential and commercial property values, which would, in turn, increase residential and commercial development. More importantly, school choice would raise wages and incomes by reducing dropout rates, and increasing graduation rates, and educational achievement, as measured by standardized test scores, all of which would increase human capital, leading to increased productivity and output. Specifically, universal school choice as proposed by the TSG program would increase Texas state GDP up to an estimated 17% to 30% over twenty-five years, meaning an additional roughly $260 billion to $460 billion for the people of the state each year. The improvement in standardized test scores that has already been shown to develop from broad school choice reforms indicates a present value net gain of future GDP increases for Texas alone of $4 trillion to $10 trillion. And the increased economic growth in Texas would produce between 560,000 and 985,000 new jobs. Such an economic boom would draw population in-migration to Texas from the rest of the country of between 650,000 and 1.1 million people.

Click here to download the full text of Laffer’s report.

Response:

Ee-Seul Yoon

Chris Lubienski

This report, “Review of the Texas Economy and School Choice” by Christopher Lubienski and Ee-Seul Yoon University of Illinois, Urbana-Champaign, was originally published by the National Education Policy Center and is available on their website at www.nepc.colorado.edu

Summary:

Laffer is an influential American economist, widely known as the father of supply-side economics ever since he advised President Ronald Reagan to lower taxes as a way to increase government revenues and expand the economy. Laffer evaluated the effect of the TSG program, which is essentially a universal voucher program designed to provide school choice to every student who attended a public school the prior year, or who is entering school in Texas for the first time.

The TSG program would pay tuition at a private school of the student’s choice, “subject to a maximum of 60% of the average per-student cost in public schools.” Laffer concludes that by raising graduation rates, improving education achievement, and consequently, increasing human capital, the TSGP would substantially raises wages and income for working families, and thus improve economic growth in Texas.

In this review, we highlight two profoundly problematic areas of the report. First, Laffer’s assertions about the educational benefits of choice represent a severe overreach and misapplication of the available research. Second, the author’s economic estimations are also over-generalized, and heavily biased towards those families who already have the wealth to choose and relocate.

Findings and Conclusions of the Report

Education benefits: student achievement, teacher benefits, and school innovations In education, Laffer projects a reduction of “the 130,000 dropouts statewide by half” as a direct result of the TSGP. This drastic drop, he asserts, will be achieved through 2 of 8 higher educational achievement by reducing the gaps between different groups. The state is expected to produce education results that approach those of “higher achieving countries.” Increased choice options are also claimed to increase salaries and employment options for teachers.

Finally, he relies on unspecified “economic theory” that ostensibly supports the argument that competition accelerates school innovation. Economic gains: wage increases, employment expansion, property values, and GDP growth A main focus of Laffer’s analysis is to present the potential effects of school choice on the state’s economy.

He projects that increased wages will result from more youths finishing high school while improved education achievement should increase the level of human capital and raise incomes. Overall, higher levels of human capital are suggested to lead to high economic productivity. Laffer speculates that, over the next 25 years, the TSGP will raise the state’s GDP between 17% ($260 billion) and 30% ($460 billion). This estimated economic boom then will generate up to a million new jobs, bringing more people to Texas and thereby driving up residential and commercial property values.

Click here to read the full report.

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