An Education in Market Failure Morgan Rose
March 11, 2002 The U.S. Supreme Court is currently deliberating Zelman v. Simmons-Harris, a case involving a state-funded school voucher program allowing low-income kids in Cleveland to attend private or parochial schools. A summary of the oral arguments for what may become a landmark case for American education appears in a WashingtonPost.com article from last month, when the oral arguments were presented. The case raises a series of economic issues concerning state funding and education, issues ranging from the need for government provision of services in general and education in particular to the most favorable ways to organize government expenditures on education. The Scope of Public Services The most fundamental question raised by the school choice controversy is broader than education itself. Before we can confront the subject of the state's role in education, we first ought to address the proper role and justification for government intervention in market activities in general. Most people (although exceptions do exist) believe that there are at least some circumstances in which the state should become involved in economic decision-making, but if we are to get a handle on what the government's role, if any, should be in education, we ought to start by establishing a rationale for government intervention in any arena. One rationale that economists often use involves externalities and the problems that markets can have in coping with them. It might be clearer to explain what externalities are by first explaining why they sometimes cause problems for markets.
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