I woke up at 3:30 a.m. today and, sitting at my kitchen counter with my first pot of coffee brewing, though I’d take a crack at one of the more detailed questions.

Joshua,

I love the site.  I have a question about morality and money and I would appreciate your thoughts if you have the time.

When someone becomes successful and makes a lot of money they invest more in their kids’ education.  This isn’t too surprising but what does surprise me is they become unwilling to look beyond their own school district and appear to actively work to keep out the poor.  How can they accept this or live with themselves especially if they were raised without money themselves?  What happens that causes them to wake up one day and say, “I got mine now your kids can go screw themselves?”  What am I missing?

Please don’t publish my name.

R.M.

When you talk about education funding, particularly property taxes, “the rich” really refers to the top 20% or so in household income.  As of 2010, the last year the data was available, that group – about 1 in 5 families – basically meant any household with a median pre-tax income of $112,800 per annum, or $9,400 per month.  To understand the motivation of the behavior you describe, you need to look at the demographic profile of the people you’re trying to analyze.

Households falling into that upper quintile are overwhelmingly made up of married, highly educated, relatively conservative people who have at least one child.  The men and women in these households emphasize values that are much different than those held by the general population.  They are far less likely to smoke, drink, gamble, or be obese.  They are much more likely to read to their kids at night, pick a neighborhood based on the quality of education in the local school district, spend time reading or listening to non-fiction in audio book format to absorb new skills, and constantly improve themselves by picking up a wide range of hobbies or activities.  In a very real sense, it is because this group of people behaves like this they end up in the upper quintile, not the other way around (look at lottery winners – despite their sudden influx of capital, it doesn’t change their habits so they usually end up back where they started).  By and large, the top 20% of household income flows to the folks who did well in college, went on to become dentists, doctors, accountants, managers, chemists, geologists, or professors; who made sure to research things like the optimal nutrition for their newborn; to read the fine print on their 401(k) enrollment papers.  They were the dependable, smart kids in class who may or may not have been particularly popular or glorious but who ended up winning the race of life.

When people in this demographic group look for a house, they have demonstrated a remarkably consistent willingness to pay premium prices for quality homes in neighborhoods with good school districts, and tolerate relatively high property tax assessment rates to support those school districts.  This makes sense given they, collectively, put a higher emphasis on the value of education than the general population.  They are more likely to view education as an investment rather than an expense.  The money they sacrifice to vote their values is capital they could have used to take vacations, buy new clothing, purchase a new car, or give to their local church or synagogue, but they keep shipping it off to the school board so their local elementary, middle, and high schools have shiny facilities, good teachers, and plenty of extracurricular activities.

The Three Conditions That Lead to the Outcome You Are Describing

With that in mind, it’s easy to see how three conditions and mental models mixed together lead to the outcome you lament:

1. The legal system in the United States makes it so that school districts are overwhelmingly local.  Individual schools, in individual communities, vary greatly by approach, resources, and philosophy so that individual families in that community can create an educational system that appeals to their views.  For example, during my childhood when I lived in a farm town, the elementary school students were taught about farming techniques as there was a good chance a large percentage of the graduates would someday return to run family farms.  I doubt this was going on in New York City.
2. The school system in the United States is overwhelmingly funded with property taxes assessed against residences.  The amount of money available to a school depends upon the market value of the property tax base, meaning richer zip codes enjoy higher revenue.
3. Individuals like being around other people similar to them.  It’s called assortative self-selection and it’s everywhere.  When shopping for a place to live, most people have demonstrated that they value being around people they understand, with whom they fit in, who have the same cultural values, speech patterns, educational backgrounds, and life ambitions they have.  Exceptions exist, of course, but for most this is a demonstrably consistent behavioral pattern that is just as much a part of human evolution as any other trait that naturally arises.  It’s the entire reason business models like “Senior Living Communities” work so well or why strangers of different nationalities waiting on the same flight tend to congregate around each other at international airports despite having never met.  The upper 20% of income in society tends to want to be around other college educated, relatively conservative, family-oriented, education-valuing people, meaning they tend to be around other members of the top 20% as they share common bonds.

It isn’t difficult to do the math.  With the affluent tending to congregate around themselves, and local towns being funded by local property taxes, a wealthy community with relatively fewer students, and far higher assessed values, combined with a population that holds education in high esteem and is willing to pay a higher rate in general on those higher value properties, leads to a situation where per capita resources for the school districts are much higher than a school in a working class neighborhood.

In other words, while there is sometimes intent, I think more often than not this is a naturally occurring by-product of the human condition and the incentive system of parents investing the resources at their disposal into the future of their children.  It’s not some grand Machiavellian scheme, it’s people being people.

Why the Affluent Tend to Fight Property Tax Redistribution to Poorer Districts

Given the emphasis the affluent put on education, and their active decision to seek out neighborhoods where the school districts are well-funded and well-run, any time a government bureaucrat or social activist comes in and demands they take their money, which they are investing in their children, and, instead, invest it in other children, they don’t take it well.  It’s not that they don’t care about the poor students – in fact, they are probably very sympathetic to their plight – it’s that they care more about their own kids and you’re dealing with a zero-sum game.  Every $1 taken from the local schools’ art supplies, tennis courts, and textbooks is gone forever.  It’s real disutility, made even more real by the fact it’s your money they are taking.  It’s one thing to pay local property taxes and drive by the building, seeing where your cash goes; to know and see the local kids in the community, understanding that you’re educating your future neighbors.  It’s another for those funds to be sent off to an area you never visit and that is nothing more than an abstract idea.

I’m not saying it is necessarily right but millions of years of evolution have resulted in this parental bond causing people to want to give their offspring the best chance at a good life they can.  That’s why trying to fight over property tax dollars is a losing game.  If it ever got bad enough, the rich would incorporate their own towns, lower property taxes to nothing, and setup private schools with $20,000+ per year tuition.  The reformers have no chance of winning under the current system.

If I wanted to change it, how would I go about it?  After looking at it for years, the only system I’ve seen that would have any chance of success would be following in Finland’s footsteps and forcing the rich and the poor to attend class together, banning all private schools, and integrating districts along socioeconomic lines.  Why?  It solves a mathematical problem – a mental model you should all know from economics and insurance – called adverse selection that causes school competition to fail under a traditional model because the most capable opt out entirely.  When the children of the rich are in the same boat as everyone else, human nature kicks in and these better educated, more affluent parents begin to invest in the local school for the benefit of their kid, but in a way that happens to provide lots of benefits to poor kids, too.

Would I do it if I had the power?  No.  I can’t get around the terrifying political implications of nationalizing the school system and making opt-out impossible.  I’ve read enough history to know what happens when you give a central government the power to indoctrinate entire generations of students and take away any countermeasures.  Perhaps I spent too much time in case studies of the 20th century but it rarely ends well for a society as large as the United States.  (It could work in a nation such as Finland, where you’re dealing with only 5.4 million people in a relatively small geographic area.)

Some integrated districts like this do exist naturally, though they are often geographic quirks.  Aaron and I attended one in high school.  There were some poorer areas of town, but the school itself was funded with the higher property tax dollars of the richer areas where the doctors, attorneys, and business owners lived.  The other high schools constantly complained about how our school “got” more stuff, and it probably did as it had tennis courts, multiple computer labs, an attached water park that was being constructed toward the end of my time there, and air conditioned annexes.  The only rational course of action fpr a concerned parent would have been to move to the district.  Complaining about the situation wouldn’t do any good.

School Funding Really Doesn’t Solve the Problem

What makes this so interesting from an economic perspective is that school funding is really somewhat meaningless.  Doubling the per student dollars available does not double test scores.  There is a large body of academic evidence that examine the factors that determine how well a child does.  As the economists behind Freakonomics paraphrased it, it’s not so much the fact a parent is spending large amounts of money on books about parenting, designer strollers, and consumer research for car seat reviews, it’s that the type of parent who would do something like that is more likely to be actively involved in his or her child’s life, taking an interest, guiding them, supporting them, and giving them a head start.

In fact, there is a growing body of evidence that I find somewhat compelling showing that a middle class, two-parent, intact household where the children were wanted and cared for do better than a single parent, rich household or a household in which the rich parents are always absent due to work or neglect.  In other words, the researchers had gotten it wrong: It wasn’t income that correlated with better child outcomes, it was the behavior of people who happened to generate a high income that tended to correlate with better child outcomes.

If money alone solved the education problem, the Kansas City school district would be the Harvard of public schools.  Instead, it’s a laughingstock.  Back in 1985, a Federal judge ordered the city to spend a staggering $2 billion to create one of the highest funded per capita districts in the world (PDF).  Yet, decades later, the standards are so bad that the district lost accreditation and now you have a bunch of underperforming students with Olympic swimming pools and top-of-the-line facilities.  Throwing money at the problem doesn’t do any good because money can’t make up for the one variable that matters the most: the level of investment by the parents in terms of time.

How is a parent to behave in the meantime?  Realize that society won’t fix it for you and do whatever you can to move to a good school district, while actively participating in your own child’s education.  It may be difficult, if not impossible, but there is simply no other high-probability way to make sure your kids have a good foundation.  The irony, of course, being that a parent willing to sacrifice everything to go to a better school district is likely going to end up with better kids, anyway, so the mere demonstration of this willingness says more about how much energy you’re putting into your children, which bodes well for them.  It’s a bit of a chicken-or-the-egg problem.