What this covers
Eric Hanushek of Stanford's Hoover Institution speaks with EconTalk host Russ Roberts about why four decades of court-ordered increases in school spending have failed to raise student achievement. The conversation traces how courts became central players in education finance after interpreting vague state constitutional education clauses to mandate funding changes, starting with cases like California's Serrano v. Priest in the late 1960s. Eric Hanushek argues that money itself is not the binding constraint; rather, the education system lacks the incentive mechanisms that would channel additional resources toward productive uses. The discussion centers on why more spending so often fails despite the intuitive appeal of that logic, and what structural changes would actually improve outcomes.
Hanushek documents the track record across major litigation: Kansas City's transformation into the nation's highest-spending large district in the 1990s, which produced lavish facilities but no achievement gains; Wyoming and New Jersey cases where courts mandated spending increases with no subsequent evidence of improvement; and Campaign for Fiscal Equity in New York, which demanded a 50% increase even as the city already spent well above the national average. He identifies the root problem as the near-total absence of performance incentives—teacher and principal compensation rise with experience and degrees, not student outcomes—so additional money tends toward higher salaries rather than more effective teaching. The conversation then turns to solutions: accountability systems that measure school value-added, combined with parental choice and competition. Charter schools illustrate the mechanism: faced with exit options and information, parents pull their children from failing schools at higher rates than they do from traditional public schools, though Hanushek notes that market signals alone do not immediately shut down poor performers. He emphasizes that accountability and choice must operate together, since each fails without the other.
Hanushek argues that court-mandated increases in school funding have failed to improve student achievement because the education system lacks incentives to direct money toward productive uses; reform requires accountability that measures school value-added combined with parental choice and competition.
- In 40+ years of school finance lawsuits, plaintiffs have never presented evidence that funding rulings produced achievement gains (e.g., Kansas City, Wyoming, New Jersey).
- Teacher salaries are tied to experience and degrees, not student outcomes, so more money raises satisfaction without raising performance.
- Charter schools show that choice plus information lets parents exit bad schools and reward good ones, the mechanism missing in the monopoly public system.
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Hanushek's policy prescription is a short list: (1) build strong accountability systems that measure student performance and attribute schools' value-added; (2) provide direct incentives—including competition and choice so parents help decide which schools are rewarded; and (3) restructure school funding to reward performance—providing extra resources for higher-need students for equity, but otherwise sending money toward high value-added and not toward failure, reversing the current tendency to give failing districts more resources.
“first we want to have very good systems of accountability that measure student performance in attribute the value-added of schools”
The most satisfying economic explanation for why more spending fails to raise achievement is the near-total absence of incentives: teachers' and principals' salaries and careers are virtually independent of student performance—pay rises with experience and graduate degrees, neither of which much affects achievement—so additional money tends to be spent on other interests (e.g., higher salaries) rather than the most productive uses.
“there are very few incentives to improve an increase in achievement if you get more funding”
In the Kansas City desegregation case, a federal judge tried to attract white students back by making the schools so attractive that it told the district to 'dream your biggest dream and the state will pay for it,' making Kansas City the highest-spending large district in the nation in the 1990s—yet the money went into lavish facilities (Olympic pools, a zoo) rather than better teachers, and produced no gains in student achievement.
“the federal judge who was in charge of the desegregation order literally told the Kansas City Schools dream your biggest dream in the state will pay for it”
In 40+ years of school finance lawsuits, plaintiffs have never presented evidence that a state with a favorable money ruling subsequently achieved achievement gains; the case rests entirely on the unexamined assumption that 'everybody knows more money will help schools,' and courts have not demanded evidence that funding leads to improvement.
“no lawsuit on school finance has ever presented evidence at some other state that had a favorable money ruling also got achievement gains”
Charter schools—publicly funded public schools freed from many regulations (including union teacher requirements) in exchange for charting their own program and depending on attracting enough students—represent a 'semi-market' innovation; some are terrible and some excellent, but unlike regular public schools they face at least some market signal, since bad ones struggle to keep students.
“charter schools are public schools that are publicly funded they operate under state regulation and state scrutiny but they're allowed to chart their own plan”
Accountability and choice must be combined because each fails alone: an accountability system without choice gets eroded by the public schools eliminating information, while a choice system without good information prevents people from sorting into the best schools—so meaningful reform requires both better information and more choice together.
“if you have an accountability system without much choice eventually the public schools eat away at it to eliminate any accountability or information similarly if you have a choice system with all good information then you don't get people sorting out in the best ways”
Paying all teachers a uniformly higher salary will not improve student performance because bad teachers value more money as much as good teachers; raising pay uniformly makes everyone happier without changing outcomes, since improvement would require changing who enters teaching and principals having incentives to select better people.
“bad teachers like more money as much as good teachers”
Equity lawsuits, intended to equalize spending across districts, often backfired on advocates: in many states courts upheld existing funding, and where they didn't, some states equalized by taking money from high-spending districts and giving it to low-spending ones (leveling down) rather than raising overall spending as advocates wanted.
“some states actually started taking money from high spending districts and giving it the low spending districts and equalizing rather than putting more money into the system which was not the goal of that your suspected goal the advocates of these behind these lawsuits”
Although the US Supreme Court ruled education funding was not a federal matter, this effectively opened every state court to school finance lawsuits because each state constitution contains a vague education clause (e.g., requiring a 'thorough and efficient system of public schools'), which courts could interpret expansively.
“The US Supreme Court ruled that education funding was not a federal matter but what this did was open up every state in every state court to lawsuits because every state has prominently in education clause and state constitution and these are fairly vague”
In the late 1980s advocates pivoted to 'adequacy' lawsuits—arguing not that spending was unequal but that it was simply insufficient to provide a good education—which put courts on thin constitutional ice by having them effectively appropriate funds, a power traditionally reserved for legislatures and executives.
“we developed a new kind of lawsuit that has been labeled with adequacy lawsuits the argument there is well the money might be equitably spin across districts but there's just not enough to provide a good education for everybody”
The statement 'if money is spent well we will get higher achievement' is tautologically true, but the actual education system doesn't direct money toward productive, achievement-raising uses, so on average more money does not produce more achievement; advocates often cite a scientific study showing a program worked, but schools given extra funding frequently don't adopt that program or implement it poorly.
“if money is spent well we will get a higher achievement in that tautological statement he is in fact true”
Across developed and developing nations, those whose adults and children achieve higher cognitive skills—more math and science skills—do better economically, grow faster, and are more innovative, establishing that higher cognitive skills are important both for individuals' own rewards and for national prosperity.
“nations with higher cognitive skills do better economically other things being equal”
Over roughly 40 years, school finance has shifted dramatically in both who funds schools and who makes the decisions, with courts—starting from Serrano v. Priest in California in the late 1960s—becoming central players by interpreting vague state constitutional education clauses to mandate funding changes.
“starting in the late 1960s in California there was a lawsuit that directly attacked the use of property taxes and local funding in schools this was a case called Serrano versus priest”
There is a fundamental accountability problem: courts have limited power to judge what happens inside schools yet mandate spending levels with no reason to believe achievement will improve, and a judge who makes a poor funding decision faces no feedback loop—informational, financial, or otherwise—and thus no incentive to correct mistakes.
“a judge who makes a moronic decision about a funding level or various other things there's no recourse there's no feedback loop there's no informational feedback loop there's no financial feedback loop there's nothing”
The argument that vouchers would harm schools by draining their money is logically equivalent to claiming that allowing foreign cars to be sold harms American automakers—true holding everything constant, but missing that competition forces incumbents to improve quality; taken to extreme, it would absurdly imply one monopoly car company (or one school provider) makes the best product, when in fact a monopoly with all the money has little incentive to be good.
“it's like arguing that if we allow foreign cars to be sold the United States American car makers will have less money which is true holding everything else constant”
The largest court influence on schools historically came through racial desegregation following Brown v. Board of Education (1954), which evolved from addressing de jure segregation in the South to de facto segregation in the North, until the recent Supreme Court ruling that race-based assignment policies (including busing) were unconstitutional.
“This is all an outgrowth of Brown versus the Board of Education 1954 Brown versus the Board of Education was about the jure segregation of schools in the south”
In Campaign for Fiscal Equity v. State of New York (~2002), the courts initially ordered $5.8 billion in additional spending on top of $13-14 billion—nearly a 50% increase mandated on the legislature—implying about $19,000 per student in New York City versus a national average under $8,000, even though NYC already spent above average and had students performing well.
“the courts originally decided that the state should put another five point eight billion dollars into the schools on top of the thirteen or fourteen billion dollars already there”
In Texas charter-school research, parents pulled their children out of bad charter schools at significantly higher rates than out of regular public schools or good charters—good charters retained students while poor ones had high exit and turnover—providing evidence that parents can make good decisions in education markets, though the market didn't shut bad schools down immediately because new students kept arriving.
“parents did in fact pull their kids out of bad charter schools at a significantly higher rate than out of good pub charter schools”
Teachers' unions are the largest spending political body in the nation and have systematically been less interested in innovation and more interested in their own personal interests, which constrains education reform because educational outcomes are decided through a political process rather than by experts or parents.
“we also know that the teachers unions are the largest spending political body in the nation they have systematically and less interested in innovation and more interested in their own personal interest”
Parents tolerate failing schools partly because they lack good comparative information—schools tell them they're doing well and judging quality requires expertise—and partly because Americans have a strong cultural predisposition favoring the common public school, where most attended themselves and turned out fine, making it take substantial (and unavailable) evidence to convince them their public schools are failing.
“as a nation we like public school we like the idea absolutely having everybody go to a common school”
Cross-state studies using national tests show no evidence that simply putting more money into the current system leads to higher outcomes—the effect is essentially zero—though Hanushek carefully distinguishes that this does not mean money never matters; money can and does matter in certain instances, but the public-policy problem is ensuring it happens systematically rather than occasionally.
“there is no evidence from these studies that just putting more money into the current system will in fact lead to higher outcomes”
Hanushek argues much of the creativity and innovation seen in the US (e.g., Silicon Valley) results not from schooling but from how the US labor market rewards creative ideas instantly, whereas in places like Korea a low-level worker proposing a new idea is as likely to be fired as rewarded, so people don't volunteer better ways of doing things—incentives, not schooling differences, drive the creativity gap.
“much of this creativity we see and much of innovation that is created in California... in fact as a result of the way the labor market responds to people in the United States”
Silicon Valley's innovative firms regularly hire engineers from East Asian countries trained in skills and problem-solving, displacing California-educated workers, because California schools aren't producing skills at the level of other states and nations—evidence of a domestic skills deficit.
“they're displacing California educated people because the California schools just aren't producing skills at the same level that other states and other nations are”
KIPP academies—charter schools targeting disadvantaged students with a structured nationwide program emphasizing both socialization and achievement outcomes—appear to be doing much better than alternative public schools, though they remain only a handful (around 150 schools).
“what we've seen is that these schools seem to be doing much better than the alternative public's public schools but there's still only a handful of them”
The New York Court of Appeals reduced the mandated increase (to about $2 billion per year) partly because the figure was so large and partly because being explicit about a dollar amount risked overstepping judicial authority under constitutional separation of powers—yet it preserved the principle that courts could appropriate funds if outcomes were deemed inadequate.
“they realized first that it was a large number and secondly that if they were so explicit about the amount of money that they might in fact be overstepping their authority under the constitutional separation of powers”
In New Jersey's Abbott v. Burke litigation, 28 'special need' districts were allowed to spend as much as the highest-spending district—reaching roughly $19,000 per student versus under $10,000 elsewhere—and after 35 years of court involvement, despite preschool, smaller classes, summer and after-school programs, there is essentially no evidence of rising student achievement attributable to funding (only a single 2007 4th-grade reading uptick).
“the judges said that these districts should be able to spend as much as the highest spending district in the entire state”
Wyoming, after a 1996 court case funded by natural gas revenue, became one of the top five spending states per pupil, yet on the National Assessment of Educational Progress it retrogressed relative to the rest of the nation over the period of the lawsuit—students did relatively worse despite dramatic funding increases.
“Wyoming has retrogressed Russell relative to the rest of the nation over the period of this lawsuit”
Roberts speculates that the relatively unregimented, 'happy-go-lucky' American school system, while weaker on test scores than highly drilled countries (e.g., East Asia), may have an unintended advantage of leaving students' minds open to non-traditional thinking, helping explain why American students grow up to found great companies and create great products.
“Our system is is a little too happy-go-lucky for my tastes... and yet I suspect that one of the advantages probably unintended of that system is people are just open to doing different stuff”
Hanushek positions himself as sympathetic to the plaintiffs' premise—that US student achievement is low relative to other nations and achievement gaps are too large—while interpreting the judges' motivation as a belief that the legislature isn't doing enough and that, since they cannot directly mandate test outcomes, they fall back on ordering more spending under the consumer intuition that paying more yields more or higher quality.
“I think that achievement of us students is low relative to other nations of the world and I think that the achievement gaps are too large for my view of what our society should be doing”
The proportion of students attending private schools has declined, largely due to the continuing collapse of US Catholic schools (from about 8% to roughly 4%), while other religious schools grew and non-sectarian private schools held steady at about 2%; meanwhile homeschooling has risen to roughly 1.5% of students, though data on homeschoolers and their learning is poor.
“the proportion going to private schools has gone down largely because of the continuing collapse of the Catholic schools in the United States their share has has gone from it used to be 8 percent down to I think about 4 percent now”
Roberts notes that there are many school districts where the public schools are phenomenal and do a great job, so not everything in public education is bad.
“there are many many school districts where the public schools are phenomenal and do a great job so I don't want listeners to think that everything is bad”
Many important things people understand in life were not learned in school, and formal schooling remains a 'black box' that is poorly understood even if some parts (like cognitive skills) are better understood.
“formal schooling is a bit of a mystery it's a bit of a black box”