[This post was originally published at the Parentonomics blog at Forbes on 22nd April 2012]
It is common fodder these days to take a look at what the super-rich are doing and frown. Sometimes, it is easy like this account of a day living like a billionaire. Other times it is a little harder like the $180,000 nanny; after all, a nanny is getting a great income as a result. In today's New York Times, economist Robert Frank takes aim at pre-school.
In education, the problem is that a quality is inherently relative. A good school is one that compares favorably with other schools in the area. Although a school’s quality depends on much more than the size of its budget, additional resources can obviously help. And given the vast sums of money that some parents now have at their disposal, an explosive — and largely unproductive — arms race is inevitable.
Tuition at elite preschools has been soaring, sometimes to much more than $30,000 a year and occasionally within sight of $40,000 — or above that of some prestigious colleges. Yet excess demand persists, and jockeying for acceptance is the subject of much New York lore.
Frank suggests that capping fees can stop this problem or at the very least, more taxes on the wealthy to curb such spending. And maybe that is just his point: the rich should have less because they spend irresponsibly. But as the article mostly deals with the pre-school problem I thought I'd focus on that.
If you have the means, is spending an inordinate amount on pre-school a bad thing? Well, it isn't clear that it is bad for children. Study after study has demonstrated that if you are going to put your money somewhere in the education system, pre-school is the best place. Getting children resources early is better than trying to correct mistakes later. To be sure, these studies are aimed at getting more resources better placed for children in poor families and so cannot easily translate to situations where parents are wealthy. But it stands to reason that it is possible this expenditure could be doing some good. At the very least, Frank's entire argument is premised on that: unless early childhood education is doing good why spend $40,000 a year on it, if it isn't going to translate into good outcomes later on?
But let's assume for the moment that the expenditure is as frivolous as having a luxury good or any other good designed to "show off." Is there harm in the expenditure? If parents are racing to spend more of their own money on education, that surely alleviates the budget issues of public education. Of course, that extra money may be going somewhere in particular, perhaps to higher teacher salaries. Once again, it is usually the case these days that we want teachers to be paid more. This is not something to frown about.
Perhaps it is more subtle. Higher pay for teachers at elite pre-schools filter down to upward wage pressure for teachers elsewhere. The good teachers end up with the wealthy children. If that is the case, it is an issue of equity -- good teachers do matter. But there is also a longer-run issue. Even if public teacher pay remains low, the upside possibility of elite pre-school pay may cause more college students to consider that career path. So in the long-run we may end up with better teachers. But I'll admit, this is a possibility. If so, it is a measurable one: we can look at the New York situation and see if the change in teacher mix is causing an issue for the non-wealthy.
Another possibility is that there is a selection effect on the children side. The elite pre-schools aren't just caring about money but also, as part of that, about the type of kids they are admitting. If they are selecting on academic potential, so be it. If they are selecting on behavior, then where are the poorly behaved children ending up? This could be stretching the resources of other schools more but it is also the case that being wealthy does not translate automatically into well-behaved kids so it isn't necessarily an issue with the amount spent on schools but the notion that schools are free to select whom they want.
My point here is that the notion that what the wealthy are doing with their money is spending it on their kid's education seems way down the list of things that we should be concerned with regarding income inequality. Indeed, it represents an opportunity. The wealthy want to spend more to ensure that their kids get a good education. That is great news. What that means is that we can delve into the system to ensure that some of the potential side-effects of that don't arise. For instance, in order to receive government accreditation, pre-schools may have to admit some share of students from different backgrounds or some other selection device. I will not pretend to know here how precisely that could be done. The point is that there is money going to education and if there was required to be a little more in order to improve outcomes for others, there is scope here. This all sounds like more of an opportunity than a huge concern.