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Government spending - investment in our future or squandering of resources?

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I have a close friend who is a mother of a preschooler and a strong supporter of good, free public education. A few days ago we were talking about the city and the school budget and she said something that struck me as odd. She said we should spend more money on education. Obviously that part isn’t unusual. Lot’s of people are under that impression. What followed though was the unusual part. She said it didn’t matter how much it cost. “The future of our children was too important” according to her.

In a world with no constraints or trade-offs that certainly seems reasonable. I would not want my kids to go to school with drugs and gangs. The schools my kids attend should be clean and conducive to learning with an athletic center and a big library. My hypothetical child should get world class education, be inspired every day and do their linear algebra homework on time.

This is not the world we live in though. The world we live in has limited resources. We have a fixed amount of land, steel, concrete and hours in a day. Over time we figure out more efficient uses for these resources. We allocate them to more productive uses that let us do more with less. We refer to that as economic growth. But that takes years. The concrete that we have today is more than likely to be poured just as efficiently today as it will tomorrow — not withstanding some overnight innovation I haven’t heard of.

So what does that have to do with schools?

Think of schools — or education — as a consumer product. In many aspects not all that different from Yoga pants or La Croix. If I want to drink more La Croix, I must trade my money in exchange for additional cans. That same money could have been spent at lululemon. What I’m describing here is a trade off.

What happens with education? Each dollar we spend on education is a dollar we didn’t spend on healthcare, or police, or libraries or one of the other myriad of things governments do these days. We cannot keep spending on schools indefinitely because we will run out of money (some would say we already have) for much more basic needs. Therefore; the statement “it doesn’t matter how much it costs” is simply false. The real question should be this: am I getting a good deal? But how do you figure that out?

Let’s do a couple of fun exercises.

Since we are on the topic of education, what do you think is the school budget for the city of Seattle? Take a guess. Don’t cheat.

Whatever you thought, it’s meaningless unless you know the size of the city or the number of students enrolled in the system. It’s exactly the same as asking someone to buy shares of a company for $18 a share. You just don’t have enough information. At the very least, you have to know how many shares are outstanding and what the profit of the company is.

With that in mind, what if I told you the budget is a little over a billion dollars. Your next question should be, how many students does it serve?

Seattle Public Schools (SPS) serves around 50,000 students. Now you have enough information to answer “am I getting a good deal?”. And the answer is unequivocally no. At a billion dollars a year spent over 50,000 students, we spend roughly $20,000 per student. That’s an absurd amount. Think about it this way: [if] I could open a school tomorrow, I could have a single class of 15 students, paying a total of $300,000. I would get the very best teacher by paying them a very generous $120,000 a year salary. I would pay a very philanthropic $65,000 a year for rent and utilities. And I would even give each student $1000 allowance for books and kindles and other educational supplies.

I would still be left with a massive $100,000 profit.

Where is all the money going? Why is the education board always short on money?

Let’s do another one. How about the homeless emergency we are experiencing in Seattle? How much do you think we should spend on that? If you said it depends on the number of people currently homeless, you are right. There are roughly 7000 people living without shelter in Seattle. That’s shockingly high at 1 in 100 residents. How much should we spend on it?

Seattle’s latest budget proposal pegs it at around 100 million dollars. That’s roughly $14,000 per person experiencing homelessness. In other words, the city could eliminate all homelessness over night by renting out units for them at market price. I have friends who pay less than that for rent. And yet, here we are, still with thousands of people on the street.

I don’t want you to think this is some Seattle problem and your city is a benevolent entity making spending decision in a calculated, focused and rigorous manner. This problem is endemic to most government spending. And if citizens are not vigilant, it is bound to grow out of control.

As a final example let’s take New York. The union responsible for administering public transportation in the city is planning on building wheelchair accessible elevators in 70 of the subway stations. How much do you think it should cost?

Honestly, I don’t know the first thing about elevators and I couldn’t tell you how to build one. But I have a strong suspicion it shouldn’t be 80 million dollars. That’s per elevator.

There’s a common theme here on how to think about government spending. A billion dollars is a lot. It is hard to fathom. But so is a million people. Thinking about government spending in those terms becomes abstract and disconnected. That’s why the first thing you should do is think about it on a cost per unit. It usually brings the number down to earth.

But it still may not tell you the whole story. The next thing you should do — if possible — is examine how you could solve these problems through other means. Could you brute force the problem — like I proposed? Could you let the private sector handle it? That should establish and absolute top on how much we should spend.

Finally, compare the costs you came up with to what is being spent right now. In many cases you will find the amount of money being spent is unreasonable. The examples I selected were used to demonstrate relatively extreme cases. Although I didn’t have to venture very far to find them.

You may disagree with me about limiting the role of the government and that’s fine. But what I do ask from my fellow voters is to be more vigilant when it comes to government spending. Watch what they do. It’s your money after all. Make sure you’re getting a good deal.

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