Arnold Kling  

Market Failure in Education

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Bill Gates writes,


So far technology has hardly changed formal education at all. But a lot of people, including me, think this is the next place where the Internet will surprise people in how it can improve things--especially in combination with face-to-face learning. With the escalating costs of education, an advance here would be very timely.

What Nick Schulz and I call "Economics 2.0" leads to a different measure of market effectiveness than the static efficiency criterion used in standard economics. Instead, I would describe market failure as the ability of incumbents to block innovation. Market effectiveness would be the ability of upstarts to disrupt a market, making goods and services better and cheaper.

The World Wide Web has been available for more than sixteen years now. It provides an interesting context in which to evaluate market effectiveness according to our criterion of adaptive efficiency.

Examples of market effectiveness, with cheaper and better goods and services penetrating the market as a result of the Web: encyclopedias, music distribution, and newspapers.

Examples of market failures, with very little change relative to the potential for improvement: real estate sales, academic publishing, and education.

I will speak more on this topic when Nick and I talk about our new book at Cato on February 4th, at noon.


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COMMENTS (8 to date)
Dorian Taylor writes:

Market failure defined as the ability of incumbents to block innovation reminds me of the second law of thermodynamics. In social systems, however, the entropy seems to be information entropy, measured in the accumulation of side channels and back-room deals, special-case rules and the gaming thereof.

The fortification of incumbents is a sign of sclerosis, and sclerosis is a sign of senescence. It is a good thing that social systems, being ultimately made of information (in the form of rules and deals made between people), have a geometric relationship to the physical world. If one system fails, it is often possible to begin another one effectively woven through, or overlapping the first.

mattmc writes:

On real estate, www.redfin.com is changing markets by joining the information cartel.

For education, the status effect is going to have to be there, and that is going to have to come from making things really hard, which isn't a good sales pitch. I am acquainted with a high school principal who was checking out the place that many of his teachers were using to meet their own educational requirements. When he called, acting as a potential student, they stressed how easy all of the classes were. While this may appear to be in the student's interest and attract customers, it is missing the selectivity function that allows educational attainment to serve as a good filter for hiring people without a detailed evaluation.

Snorri Godhi writes:

WRT real estate: when I moved to Denmark in late 2000, it was impossible to find a place for rent without connections, especially for somebody who does not speak Danish (and it was practically impossible to learn to speak Danish). When I moved to Estonia in early 2007, I could find a place for rent on the web, without understanding a word of Estonian, and with minimal time and effort.

Arthur_500 writes:

Just as it took years for electricity to become a useful part of factories and offices, the computer revolution has also been stymied. The problem is no one knows how to use them.

The average student knows all about texting, e-mail and surfing the web but is incapable of doing an efficient report in Microsoft Word. They might be a little better able to use Apple's version of word processing but it matters little.

Spreadsheets and database files are the backbone of business and economics. However, students don't know how to use them and most schools do not care if work is done with these common tools.

The problem is students don't learn how to use these programs and schools are loathe to support private software companies by teaching one program over another. What makes the Internet any different?

Teaching is not as easy as many might portray it. Many internet based learning situation I have come accross so far have been poor at best. Teachers haven't figured out how to present the material and no one has figured out how to get answers to questions in a timely manner from human instructors.

It amazes me that 30 years after the introduction of Lotus 1-2-3 people can't use spreadsheets. How long do you think it will be before you see quality Internet education?

eugene cantera writes:

Academia is the LAST place to adopt anything new - in my profession (music education) there have been little to zero advances since the electronic metronome. However, today's (and tomorrow's) students have little time or interest in printed pages or old school styles of learning. Smart content and curriculum 'providers' will design for new technologies and users by the millions will follow. I'm not certain exactly how long it will take, but I feel that time it is rushing quickly towards us all!

kevin writes:

This is a fascinating subject. I disagree with Arthur above. I took an econ class a couple years ago that made heavy use of Computer Based Learning stuff. The programs were highly interactive, and I found that I learned the material very rapidly. Every time I failed to get a question right it explained the correct answer in real time.

Almost everything I learned in that class was from the CBL and not the boring 8 AM lecture.

Against the Grain writes:

I think Education certifications by universities have been rather stable. I would like to see a change. I think that there are huge inefficiencies of students' tutition bank roling prof research and demanding monopoly provision of classes, and refusal to embrace value of learning from the internet makes the University system ripe for a bubble.

I also know that signaling and other vested interests are out to hold on, but when an efficient upstart breaks in University will need to reform as much as newspapers need to now.

John "Soap" MacTavish writes:

Kevin, I completely agree with your idea of this subject. In my case, I’m a hands-on learner. I learn better when I am actively doing something, rather than sitting on a computer and taking online classes or whatever it may be. I do agree that schools everywhere could save money by taking advantage of this technology, but in the long run I think that it will hurt the student s when the don’t get the social aspect of formal education.

Arthur, you statements are very opinion based an extremist. Just because electricity took a long time to catch up to, does not mean that technology will take long to catch up with students. You also claim that, quote, “The average student knows all about texting, e-mail and surfing the web but is incapable of doing an efficient report in Microsoft Word.” I am a 10th grade student at one of the best schools in Maine, and I am very capable of typing a paper using Microsoft word, or giving a report using any of the Microsoft office tools. When you make statements like saying that schools or teachers don’t care that we don’t know how to use office tools (when we do) I expect some backup information to support that statement. And I can almost guarantee that you won’t find anything.

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