Financing Education in a Climate of Change 10

Financing Education in a Climate of Change 10 th edition Vern Brimley, Jr. & Rulon R. Garfield Power Point Presentation: Lora Knutson, Ph. D. This multimedia product and its contents are protected under copyright law. The following are prohibited by law: any public performance or display, including transmission of any image over a network; preparation of any derivative work, including the extraction, in whole or in part, of any images; any rental, lease, or lending of the program. Copyright © Allyn & Bacon 2008

Chapter 1 The Economics of Education This multimedia product and its contents are protected under copyright law. The following are prohibited by law: any public performance or display, including transmission of any image over a network; preparation of any derivative work, including the extraction, in whole or in part, of any images; any rental, lease, or lending of the program. Copyright © Allyn & Bacon 2008

Education as Human Capital • Education = Investment in human capital & Investment = Risk • Education is responsible for social and economic development • Capital deteriorates with inactivity Copyright © Allyn & Bacon 2008

Creation of Wealth and Education • Elements in the creation of wealth (labor, physical capital, technology), are enhanced through education • Educated workers are more productive • All areas of resources are refined through education • Human capital—greater productivity in management Human Capital Public sector Private sector Education • Copyright © Allyn & Bacon 2008

Education: An Important Industry • Education is the country’s largest industry • There is a positive relationship between education and economic growth • Economic philosophies affect fiscal matters and the educational program Marx Keynes Galbraith Friedman Smith Communist Government Intervention Liberal Conservative Capitalist Copyright © Allyn & Bacon 2008

A Public Sector Responsibility • Government through taxation produces education services • Private sector organizations respond to consumer demand • Education--a political responsibility at three levels of government through taxation • Federal system-public education designed to produce equity Private sector $$$ Public sector Taxation Copyright © Allyn & Bacon 2008

• Low end—human effort devoted to essential material goods • High end—human effort devoted to education and nonessential goods and services • As educational services increases, economic productivity and wealth increases • Educational system—result and determinant of social and economic progress • Education produces nonfree services Øproducer’s good—human capital Øconsumer’s good—purchaser of education and wants as a consumer Copyright © Allyn & Bacon 2008

Stimulates Economic Growth • Education is important to increases in economic productivity • The scope of educational services are determined by Øgovernment officials Øvoters’ experiences Øschool community Øtaxpayers Øthose with no direct relationship to education interest group Copyright © Allyn & Bacon 2008

• Marginal dollar principle Ømarginal utility—pleasure or satisfaction consumer achieves Ødiminishing marginal utility—utility of additional units of a good services decreases as additional units consumed Ømarginal dollar—dollars better spent for some other goods or services • Point of diminishing returns Øadditional expenditures yield very little or no additional educational returns Copyright © Allyn & Bacon 2008

Economic Benefits of Education • Benefits Ørange of job opportunities Øjob security Øtaxes paid to state Ølife expectancy Øaverages earnings Copyright © Allyn & Bacon 2008

• Increasing expenditures and the economy Øhuman capital more important than natural resources in wealth creation Øhigh education development overcomes lack of natural resources Øpoor education system—lower individual economic productivity • Expenditures benefit individuals and society Øsocial mobility, higher status, increased appreciation for arts and culture, increased participation in democratic process Øfamily, neighborhood, business, society and culture benefit Copyright © Allyn & Bacon 2008

Noneconomic Benefits of Education • Free democratic society—well-informed and responsible citizens • Schools--source of moral and ethical values • Preservation of nation’s culture and people’s sense of identify • External benefits—justify taxation to finance education Øhealthier society Ømore informed electorate Ømore productive labor force Øraised standard of living Øenhanced economic growth Copyright © Allyn & Bacon 2008

• Exclusion or free rider principle Øexclusion principle—ability of consumer to enjoy exclusively a good or service Øfree riders—garnering benefits without spending income • Externalities justify ability principle Øcosts of education paid by all, based on ability to pay Øwealthier pay more Copyright © Allyn & Bacon 2008

Taxation and Education • Benefit system—tax based on benefits received • Ability principle—taxes based on ability to pay Copyright © Allyn & Bacon 2008

Cost-Quality Relationship to Education • Problems with establishing this relationship Ølack a definition of high quality that is measurable and acceptable to all concerned Øgoals of education vary from time to time and place to place • Research limitations Ømany variables contribute to student achievement, not just spending Copyright © Allyn & Bacon 2008