A Modest Proposal

After years of toiling for unions that protect lazy teachers and allow them to harm innocent children, I’ve finally come to my senses and bought into the neo-liberal agenda.  Privatization, choice, competition and markets….think of this as my reverse Diane Ravitch moment.  If you can’t beat’em, join’em.    This is my ticket to the gravy train and I want to share some great ideas I’ve come up with.

We have a problem.  As taxes on the wealthy approach zero, foundations are no longer going to be necessary to shelter the wealth of the rich from taxation.  Revenues will decline as the middle class (the people who get taxed) shrinks.  How are we going to fund our schools with neither revenue, nor foundations?

The answer lies in the financial markets.  Wall Street has the talent and the capacity to develop innovative investment instruments that can save our schools.  Why did this never occur to me before?  There are so many smart people on Wall Street – I know this is true because they have more money than I do.  If we unlock the genius of Wall Street everything will be OK.

There are a couple of key innovations that make this financial miracle possible.  First of all, thanks to standardized tests, education has become a commodity.  It can be traded just like pork bellies or Brent crude.  Second, when a product becomes a commodity, the efficiency of the market allows the producer to be paid below the rate needed to sustain life, meaning that education costs cannot only be controlled, but radically cut.  The commoditization of education provides a way to quantify costs per unit output (test scores.)

I propose that investors be able to make direct investments schools – in essence, buy shares.  The value of the investment will fluctuate according to the value of the school, which will be a function of test scores and per pupil spending.  Like any good commodities business, schools that can squeeze higher test scores at lower unit costs will be more valuable.  When this occurs, the value of the security will rise.

This market could be part of the Chicago Mercantile Exchange.  Investors will be able to use put and call options so they can bet either for or against student learning.  In addition, a futures market would allow accurate predictions of test scores at individual schools through the price fluctuations of these securities.  With securities pricing information in hand, management could bring resources to bear on problems pro-actively.  The miracle of the invisible hand will improve schools even as everyone gets rich – and all with no messy revenues to raise!

One difficulty this poses for the wealthy investor is exposure to conditions in individual schools.  For example an outbreak of flu, or an inconvenient school shooting during testing could cause an investor to lose money.  Plus, statisticians have warned us of the instability of VAM when applied to the relatively small student populations of individual schools and teachers’ classrooms – what rational investor would want to be exposed to this sort of risk?

Luckily, we can use derivatives to hedge against these risks.  Individual school securities can be sliced up and bundled with other schools with similar characteristics.  These derivatives could be sliced and bundled a second time to allow creative money managers to customize investment portfolios for the risk profiles of their wealthy investors.  Investors would be able to hedge their risks and bet for and against student learning simultaneously, while continuing to make money.  These derivatives could become so divorced from the underlying value of student test scores that they increase in value indefinitely.  This will encourage the wealthy to pour their money into schools, now guaranteed money makers.

I believe that similar mechanisms can be employed on other public goods.  A prime example is infant mortality rates – a candidate for commoditization if there ever was one.  We have a statistic which can float up and down, and a measurable unit cost.  The use of derivatives in this case would create an efficient market that would allow infant mortality rates in a community like East St. Louis to settle to an economically sustainable level.

The miracle of the market is that by removing irrational considerations, like ethics, that distort the economic system and lead to inefficiencies, like doctors and hospitals, we can achieve the best possible rates of infant mortality at the lowest cost.  Self interest flows naturally to the public good, with no sacrifices. 

I am so glad to have discovered the power of unregulated markets.  I’d like to pitch this idea to Goldman Sachs, and the Gates Foundation.  I don’t think I’ll bother with the US Government, since there won’t be much of it left in a few years.