Monday, September 23, 2013

How crop-insurance subsidies are like student loans

Student loans get a lot of (deserved) attention for being much more expensive than the federal government claims. In effect, the government treats expected loan repayments as guaranteed assets rather than as risky ones, leading the government to consider them more valuable than the private sector would.

FCRA = government valuation; Fair-Value = market cost

But student loans are just one example of misleading accounting. Virtually all government credit and insurance programs receive budgetary treatment that ignores market risk. The example most in the news lately is the federal subsidy for crop insurance. As I wrote for National Review today:
The federal government not only pays most of the farmers’ premiums to private insurance companies, it also reinsures those companies against large payouts to farmers. Most egregiously, the future cost to the taxpayers of the reinsurance is systematically low-balled by the government, using accounting practices that ignore the risk that payouts may be larger than expected.

Admittedly, projecting the future cost of insurance is no easy task, but voters need at least ballpark estimates to make informed decisions. Right now, the cost of almost every government credit or insurance program – from crop insurance, to student loans, to public pensions – is underestimated. The movement for “fair value” accounting is intended to fix that problem.
Read the whole thing here. Also, see my Forbes article that goes into more detail about fair value accounting.

Saturday, September 21, 2013

Teacher pensions offer the wrong incentives

Public school teacher pensions are too generous, pushing overall compensation above fair market levels. But teacher pensions have structural issues as well. Rather than steadily accruing each year teachers work, future pension benefits will "spike" in mid-career, and then actually go down if veteran teachers continue to work.

Pensions effectively incentivize teachers to "hang on" mid-career even if they would otherwise prefer to leave the profession. At the same time, veteran teachers can feel pushed out of their jobs even if they love what they do. I spoke about this problem in an interview with Choice Media TV:


In contrast to the defined benefit (DB) pensions teachers currently receive, a 401k-style defined contribution (DC) plan would offer steady accrual of retirement benefits, leaving teachers' retirement decisions unaffected. Switching from DB to DC plans is one of five recommendations in my "A Better Way to Pay" backgrounder on teacher compensation.

Update: The embedded video uses Flash and so isn't viewable on iOS. Apple users can watch the video here.

Friday, September 13, 2013

The "denominator problem" in assessing teacher compensation

Do public school teachers receive compensation in line with the market value of their skills? To answer that question, we have to know how much teachers work relative to other professions. Andrew Biggs and I call this the "denominator problem" in pay comparisons. The hourly wage is total salary divided by work hours, with the numerator determined easily enough using teacher contracts or survey data. But what goes in the denominator?

How much time do teachers work?
Andrew and I have an upcoming academic article that addresses the denominator problem using some detailed time-use data. Without it, researchers are stuck with using either "contract hours," which tend to understate teacher work time, or self-report data, which overstates work time.

On the Corner yesterday, I wrote about how the OECD not only uses these less reliable data, but also mixes and matches methods when comparing countries:
OECD studies are sometimes just too ambitious. The truth is that large-scale international comparisons are almost inevitably plagued by inconsistent and unreliable data. The most recent example: The OECD’s Education at a Glance 2013 shows American teachers working more hours than teachers in every OECD country except Chile (see table D4.1 in the study). Sounds impressive!

But consider how the data are collected. For many countries, the OECD appears to measure teacher work time based on statutory or contractual work hours. For the U.S., however, the OECD relies on the federal government’s School and Staffing Survey, which directly asks American teachers how much time they work.

That’s an inconsistency likely to inflate U.S. hours relative to the rest of the world.
Read the whole thing here. And for a discussion of other methodological challenges to assessing teacher compensation, try this longer backgrounder.

Wednesday, September 4, 2013

Evidence should matter, even for Head Start

For those of us who have long advocated randomized experiments in education research, yesterday's supportive New York Times article was encouraging. But the Times, all too typically, does not question why the Obama administration has dismissed experimental evidence on Head Start and universal preschool. I noted this strange omission on The Corner today:
As good as it is, though, the Times article omits a crucial fact: The Obama administration has ignored rigorous evaluations when the results are politically inconvenient.

Take Head Start. Experimental evidence has repeatedly shown that Head Start has essentially no impact on children’s cognitive or social development by the time they reach first grade. But right after last fall’s third-grade follow-up again showed no impact, the administration proposed to increase funding for Head Start, citing the “success” of the program!
Read the rest here. And I strongly recommend my coauthored essay in Real Clear Politics, which details the disconnect between rhetoric and evidence in the education policy world.