More on Cost-Benefit in Education

Here's another example where the education establishment ignores cost-benefit analysis.

A new study from CATO and the University of Arkansas examines student performance at charter schools and traditional schools in eight major U.S. cities, Washington D.C., Indianapolis, Boston, Denver, San Antonio, New York City, Atlanta, and Houston. These researchers also conducted a return-on-investment (ROI) analysis, comparing projected lifetime earnings of charter school students with those of traditional school students, relative to the cost to taxpayers. Their conclusion? They show public charter schools are delivering better results for students at significantly lower costs to taxpayers.

Yet the education establishment routinely opposes charter schools. Not surprising if your objective has more to do with employing people than educating students. 

Education is Exempted From Cost-Benefit Analysis

Most people grasp the idea of cost-benefit analysis. for instance, you wouldn't spend $100,000 on improvements to your home if it added only $10,000 to the selling price. And you wouldn't spend a million dollars on advertising your business if it only increased sales by $100,000.

However, when it comes to education, people seem to be living in a different universe. They are spending huge amounts of money and getting no benefit from it. If your local supermarket doubled your grocery bill so they could hire more people, but gave you the same amount of food at the same service level, would you continue to do business with them? Of course not. What if government forced you to pay that store even if you went elsewhere to shop? They would have no incentive to stop spending money for no benefit, would they?

International Trade=Lower Prices

Questions for today.
1. Do you think it's a coincidence that the categories with the lowest price changes are the ones that are traded internationally?
2. Do you think it's a coincidence that the categories with the highest rate of price change are the ones with the most regulation and government subsidy?
3. What do you think will happen if we adopt more protectionist policies?

Inflation Fears?

Some perspective on the media's sudden concern about inflation. 

Watching the Stock Market Work

Over the last 14 months, we have had a compressed demonstration of how the stock market works. At any given point in time, the intrinsic value of equity investments roughly reflects two factors.

1. A discounted present value of expected future earnings.

2. The expected returns from competing investments.

When Donald Trump was elected President the expectations of future earnings rose dramatically because he promised, then delivered on, reduced taxes and government regulation. Both of these actions greatly increased expectations of future corporate earnings versus what they had been under the Obama administration and what could be expected from another Clinton administration. Hence the significant market run-up immediately following his election.

The second factor we've seen play out in the last week. The Federal Reserve has made it pretty clear that we can expect higher interest rates in the future. This affects expectations for bonds, the primary alternative to equity investments.

Traders trying to guess which of these two factors will be dominant create a lot of day-to-day volatility, but over the longer run, it is the battle between these two expectations that counts. If corporate earnings continue to grow faster than expected, Factor #1 will prevail. Otherwise, you can expect a major correction in 2018. 

The MIddle Class IS Shrinking

Thanks to Mark Perry for updating this important chart.

So the next time you hear someone say, "the middle class is disappearing", you can respond, "Good!".

Government Involvement=Higher Prices. Imports=Lower prices

Gee, it almost looks as if the more government involvement in an industry, the faster prices rise. Who would have predicted that?
And (dare I say it?), prices also seem inversely related to the level of imports in the industry.