Rent-Seeking

Iowa was not selected as a finalist in Round 2 of the Race to the Top competition.  However, we are apparently going to push forward with adopting the CCSSI standards anyway and continue with the project to align the CCSSI with the Iowa Core (see agenda item 9 and Tab J).

In Rent Seek and You Will Find, Duke Professor Michael Munger discusses the problem of city governments competing for federal grants.  This problem also applies to states seeking federal grants, as in the Race to the Top program.

[Y]ou have to pay for free money twice: first you have to collect the money, out of tax revenues. And then you have to pay for the money again, because the benefits are dissipated by what economists call “rent-seeking.” Let me explain.

The technical definition of rent is any return to investment, or effort, that exceeds the opportunity cost rate of return. So, Alex Rodriguez of the New York Yankees earns a large rent, or premium, because of his scarce talents as a baseball player. He could earn a living as a banker, or a waiter, or something else. But it is unlikely that he could earn anything close to the $25 million per year he makes as a baseball player. Those rents encourage competition. And in most economic situations, that competition for profits produces benefits. But in politics, competition for those rents is often destructive.

The greater the rent, the greater the costs people are willing to incur to win it. When government hands out what appears to be free money, people are going to scramble to get some of it, incurring costs as long as those costs raise the chances of winning the “free” money sufficiently.

Unfortunately, in Iowa the costs of competing for Race to the Top funds are not easily seen.  How many dollars have been spent on consultants?  How many dollars have been spent on public employees to draft legislation, draft two rounds of Race to the Top applications, and now to align the CCSSI to the Iowa Core?  What opportunities have been lost to pursue other avenues of school reform that might actually raise student achievement instead of committing ourselves to the ones that are favored by the current Washington D.C. political elite?  How many hours and how many dollars already dedicated to implementing the Iowa Core will have been wasted as we scramble to adopt a new set of standards, even as we have already lost out on the funding they were supposed to help us win?  Are the costs incurred less than the amount we had hoped to win, which would have been at best, less than 1% of the current K-12 education budget (and is in fact, now, zero)?  Professor Munger continues:

[S]pending city money to win pretty much the same amount of federal money makes little sense economically. But it makes a lot of sense politically. As long as politicians are able to claim credit for bringing new federal spending to their state, district, or city, it doesn’t matter that each dollar “won” actually cost 30 cents, or even $1.20.

Remember that, as Senate Republican Leader Paul McKinley attacks the Democrats for not doing more to pursue Race to the Top funding:

It should come as no surprise that Iowa was not selected as a finalist for the national “Race to the Top” grant program considering Governor Culver and legislative Democrats submitted an application that failed to meet the essential guidelines laid out by the Obama Administration. Senate Republicans attempted to improve Iowa’s chances by advancing key areas regarding pay for performance, student achievement and charter schools among others but Culver and his allies chose to listen to their union bosses and instead ignore the needs of our students.

Would our students be served by a pay for performance program?  How would one even work?  Are there any school districts successfully using a pay for performance plan to boost student achievement?  Would designing and implementing a pay for performance plan cost more than the Race to the Top grant award Iowa might have won?  Who cares when there is federal money on the table?  Arguably, the only potential winners here are the politicians.

Update: The Iowa Board of Education has adopted the Common Core State Standards.

Hat tip: Division of Labour.

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