Federal Reserve Focuses On Education Economics

Scholars and policy makers from England, Brazil and throughout the United States convened in Cape Cod last week for a conference sponsored by the Federal Reserve Bank of Boston entitled "Education in the 21st Century: Meeting the Challenges of a Changing World." Focusing on uncertainties stemming from the shifting global economy and the evolving nature of employment, the Federal Reserve Bank sponsored this conference in order to review efforts in the United States to reform elementary and secondary schooling in light of the widening income inequalities of the past quarter century.

One of the major presentations was an overview of the changing role of states in financing public education, which was presented by Thomas A. Downes, Associate Professor of Economics, Tufts University, and Visiting Scholar at the Federal Reserve Bank of Boston. Downes canvassed the literature on both the impact of court challenges to State education Finance systems and newly emerging studies of the impact of tax limitations on student achievement. Past national level studies of the impact of court suits have tended to conclude that court interventions result in higher levels of overall education spending, modest reductions in inter-district disparities, and greater state assumptions of education financing. Recent studies have also attempted to correlate court-induced changes in education finance systems with student achievement indices such as their impact on drop-out rates and performance on SAT exams. (Thus far these studies are at a very preliminary stage and their conclusions regarding the impact of major finance reforms have been inconclusive.) Studies of the impact of tax limits have however indicated drops in service quality, although their impact on student achievement have not been as clearly confirmed.

Commenting on Downes' findings, Michael A. Rebell, Executive Director and Counsel for the Campaign for Fiscal Equity (and ACCESS) argued that most national level studies of court impact tend to minimize the reform potential of these litigations because they lump together court decrees that actively promote reforms with cases that invalidate existing State education finance decisions but do not require specific follow-up by legislatures. State level case studies, which focus on reforms in states where courts have articulated productive guidelines for follow-up remedial activities, provide a more useful data base for court induced reforms in this area, he said.

An overview of the status of test-based assessment and accountability systems was provided by Eric A. Hanushek and Margaret Raymond of Stanford University. They reported that 31 states currently calculate school level achievement testing for accountability purposes and that in only 4 of these states is that data evaluated by tracking progress of the same cohorts of students and determining the "value added" by the education provided at the schools. In 27 states the data is evaluated on a "status/status" basis as, for example comparing scores of this years 4th graders with last years 4th graders. Thomas J. Kane, Professor of Policy Studies in Economics at UCLA in responding to the accountability overview, pointed out that many of the major evaluations of accountability devices, based on the federal government NAEP scores, are misleading, because in some states---and he pointed out North Carolina in particular---there have been large increases in the number of special education students who are excluded from the tests.

John H. Bishop, Associate Professor of Human Resource Studies at Cornell University, provided insightful arguments for standards-based reform and high-stakes testing. He argued that the peer culture in most American high schools (and not just in African American communities as has been reported in some of the literature) is hostile to academic performance. He cited a recent study, which indicated that less than 5% of students nationwide see themselves as being in groups that define themselves as high achieving. According to Bishop, external standards and externals exams are necessary to counter these peer trends and related pressures on teachers to lower standards and support grade inflation.

Prepared: June 27, 2002