How Large Is the Opportunity Cost of Government Schooling?

The case that it is very, very large

Schooling is one function that is almost universally dominated by government managed institutions around the world. The belief that governments should provide “public schools” and that those schools were an “investment in human capital” and that they were “vital” for democratic citizenship are among the most deeply embedded beliefs around the world. Many people would be shocked that anyone would question it. There are mountains of research purporting to show the value of public schools.

But one of the most valuable concepts in economics is that of “opportunity costs.” What might have been if governments had not come to dominate K12 education in the 20th century?

A Skeptical History of “Public Schools”

Thomas Jefferson is often regarded as the father of public schooling because of his 1781 proposal in “Notes on the State of Virginia”,

This bill proposes to lay off every county into small districts of five or six miles square, called hundreds, and in each of them to establish a school for teaching reading, writing, and arithmetic. The tutor to be supported by the hundred, and every person in it entitled to send their children three years gratis, and as much longer as they please, paying for it. These schools to be under a visitor [i.e., superintendent], who is annually to choose the boy of best genius in the school, of those whose parents are too poor to give them further education, and to send him forward to one of the grammar schools [high schools, in effect] of which twenty are proposed to be erected in different parts of [Virginia], for teaching Greek, Latin, geography, and the higher branches of numerical arithmetic. Of the boys thus sent in any one year, trial is to be made at the grammar schools one or two years, and the best genius of the whole selected, and continued six years, and the residue dismissed. By this means twenty of the best geniuses will be raked from the rubbish annually, and be instructed, at the public expence, so far as the grammar schools go.

George H. Smith, summarizes Jefferson’s later views on education,

Throughout most of his life Jefferson favored providing three years of free education to all (free) children, rich and poor alike. By 1820, however, Jefferson had changed his mind. Only pauper children should receive free schooling; those parents able to pay tuition should be required to do so. Jefferson believed that the fees of parents who could afford to pay would cover much of the cost of educating pauper children. The remaining expenses would be minimal: “To a county, this addition would be of about one-​fifth of the taxes we now pay to the State, or about one-​fifth of one per cent.”

He was also against compulsory attendance laws,

“It is better to tolerate the rare instance of a parent refusing to let his child be educated, than to shock the common feelings and ideas by the forcible transportation and education of the infant against the will of the father.”

Jefferson’s model was much more similar to a system of voluntary private schools, with a modest state subsidy for “paupers” (plus scholarships for the super elite) than anything remotely similar to contemporary public schools.

Horace Mann is the real father of public schooling. He was influenced by the statist Prussian system,

The Prussian system of state-controlled education extended from the lower grades through the university levels. Schools were established, supported, and administered by a central authority: The state supervised the training of teachers, attendance was compulsory, parents were punished for withholding their children from school, and efforts were made to make curricula and instruction uniform.

While Mann was not fully able to implement the Prussian system in the US, his successors were largely able to do so.

Though most of us were raised on a celebratory version of the subsequent history of public education, E.G. West’s Education and the State shows how the constant lobbying of the education establishment gradually extended schooling from a few hours a day, a few months a year, for a few years (as in Jefferson’s three year model) to the entirety of what is now a K12 system, roughly six hours per day, nine months per year, for 13 years. As West noted, a voluntary system of home education, tutoring, private and religious schools, and apprenticeships was gradually replaced over the course of a century by an immense bureaucratic system that dominated the lives of children from ages 5-18.

It was only in the 1930s that a majority of students in the US began attending high school and only in the 1950s that a majority began graduating from high school. In the meantime, most schools were still small and local in the 1920s, often one room schoolhouses. But the mid-century school consolidation movement reduced the number of districts from more than 200,000 in 1920 to fewer than 20,000 in 1970. Finally, while most education was controlled at the state level before the 1960s, gradually the federal government has take ever greater controls. About the same time teachers unions begin restricting the system even more through their union contracts. What had still been a largely flexible, local system gradually became more rigid. The accountability movement of the 00s, exemplified by “No Child Left Behind” mandating high stakes testing has finally resulted in a system in which teachers have less autonomy than ever before. The “public education system” of 2024 bears little resemblance to that of decades earlier.

What Might Have Been

Cole Summers, who died at 14 in a kayak accident, never attended school:

At age 6, his parents handed him the reins to his own education, giving him the freedom to choose what to study. (He chose Warren Buffet videos on YouTube, because he wanted to learn how to get rich).

At age 7, he started his own business, breeding meat rabbits and selling them to restaurants. He set up a corporation and became the majority shareholder, just like a Silicon Valley startup.

At age 8, he got his first truck through trade with a neighbor—and discovered that an 8-year-old can in fact get a vehicle titled in their name.

At age 9, he bought a 350-acre ranch for $130 per acre to expand his business into breeding meat goats.

At age 10, he bought a house, which he then renovated and sold for a profit. He learned flooring, roofing, cabinet making, painting, and electrical work – again, from YouTube.

At age 14, he wrote an autobiography about his education called Don’t Tell Me I Can’t, a fitting title for what is essentially an ode to kids pushing the limits of what adults think is possible.

Both Cole and his dad believe that Cole was only of average intelligence - but exceptionally motivated.

Prior to the rise of compulsory schooling, it was common for young people to take on adult level responsibilities at puberty. Indeed, in indigenous cultures, a right of passage around puberty led to a transition to adulthood. Thomas Hine’s The Rise and Fall of the American Teenager documents just how common it was for teens in the US to take on significant responsibilities prior to the rise of compulsory high school. Ben Franklin, Thomas Edison, and Andrew Carnegie are among the many who began their working lives at puberty. Henry Kaiser left school at 13 and went on to build shipbuilding, aluminum, engineering, automotive, steel, chemical, and real estate businesses into the 1960s with no more than a middle school education.

The terms “teen” and “adolescence” were created in the early 20th century. This wasn’t even a recognized category before then. John Taylor Gatto’s provocative thesis in The Seven Lesson School Teacher, that schooling trains us to be passive and dependent, is not even controversial for those who know much about the history of young people. Robert Epstein, former editor-in-chief of Psychology Today, wrote The Case Against Adolescence which makes the case that the infantilization of young people has been tremendously harmful. Human beings should take on significant responsibilities at puberty for healthy, normal development.

What Might Have Happened if We Had Evolved Market Alternatives to K12?

The Lancaster System, started by Joseph Lancaster, an 18 year old working class boy in Britain in 1800, was designed so that students were teaching students, scaling it up so that one could have an effective teacher:student ratio of 1:100, 1:500, even 1:1000. This system created a private system that was affordable to working class people at the time. It spread around the world until it was gradually defeated by Horace Mann’s Prussian alternative.

From a modern perspective, it is easy to criticize the rote learning of an incredibly cheap form of private mass education from 1800. But the principle of peers teaching peers, under the supervision of adults, remains powerful. Had Mann’s system not come to dominate the world, and had Lancaster-like systems had continued to evolve alongside home education, tutoring, private and religious schools, and apprenticeships, we would have seen hybrids of all of these systems that were completely unlike the Prussian system.

Silicon Valley was created with math, sand, and freedom. The Soviet Union had the best mathematicians in the world and plenty of sand, but without freedom it was unable to create the diverse tech industry we have today. Each step along the road there were countless incremental steps. The early 20th century experiments with electronic devices had little immediate impact on society. But gradually electronics have transformed everything about the modern world. Likewise we should regard the rather dull world of education we see today as the equivalent of a Soviet dominated education industry. Enforced homogeneity at scale has neutered creative possibilities in education for more than a hundred years. In order to understand the opportunity cost of compulsory public education, we need to envision an alternative history in which tiny changes a hundred years ago would have been amplified over the course of the century by millions of incremental decisions by parents, educators, and children.

Parents, of younger children, and adolescents, for themselves, would have chosen more relevant learning experiences, healthier learning experiences and communities, with greater agency and fewer harmful outcomes. Today 75% of high school students are unhappy at school, 66% are not engaged in learning, and we have a massive adolescent mental health crisis on our hands as behavioral health costs explode. The opportunity costs of adopting the Prussian system have been extraordinary.

With access to information free and AI tutors accelerating opportunities for learning, subcultures of extraordinarily motivated teens would expand in all sorts of directions. Some would be learning guitar, some coding, some construction, some mathematics, etc. A market of adult mentors, guides, teachers, would evolve, as would technology to help match up great adult advisors with communities of young people interested in what particular adults had to offer. The cost of all of this would be potentially very low - again, a motivated human being can learn anything for free right now.

What is in short supply is not academic content (or any content). What is in short supply are the subcultures of inspiring, motivated human beings. In voluntary communities, one typically finds peers and mentors. In coercive environments in which one has little agency and one’s attention is controlled in ways that are not desirable, we have designed institutions that are exceptionally effective at killing inspiration and motivation.

At The Socratic Experience, I’ve worked with students who have raised venture capital as a teen, several who have earned hundreds of thousands of dollars in their business ventures as teens, and many who have launched some kind of revenue positive business. In the right environment, young people crave the opportunity to take initiative and be responsible for making things happen in the real world. Alpha School and Acton Academies often see similar outcomes. There is an entire movement of high agency microschools developing post-COVID which have left the traditional schooling paradigm behind (as Montessori did a 100 years ago).

As a motivated autodidact, I regard my own schooling experiences as the bottom 1% of lifelong learning experiences. I’ve never wasted so much time nor learned as ineffectively as when I have been in school. When learning is voluntary in a subculture that supports positive habits and attitudes, it happens quickly and well (this is why Utah has the highest rate of social mobility and the lowest per capita spending on education).

All of us must fight the dominant operating system of the conventional paradigm established by public schools. If this system had not controlled the lives of most teens over the last century, we would have seen a remarkably different, highly pluralistic set of institutions that would have led to much better outcomes with respect to the things that really matter to human beings: Creating a foundation for lifelong happiness and well-being.

Whereas due to the long term dominance of the state led education system most people equate “school” and “education,” my belief is that the most important role of an evolved alternative system would be the creation of subcultures featuring agency, inquiry, self-mastery, purpose, and so forth rather than content transmission (content is learned so much faster by motivated students). Ultimately we’ll see a market in innovative subcultures to optimize lifelong happiness and well-being among future generations. In effect, I see this as a matter of legalizing markets in happiness and well-being.

What Costs Might Be Attributed to the Prussian System?

I have made the case that schooling is a damaging evolutionary mismatch that is a causal factor in much of (most of?) adolescent dysfunction and mental illness. Does anyone believe that paleolithic teens, with young males and females eager to play an adult role in their tribes, exhibited the kinds of behaviors we see today? As behavioral health disorders (functional mental illness and substance abuse) surpass physical disorders as the largest causes of disability, it appears as if the opportunity cost of government schooling is quite high and getting higher. A 2024 study puts the annual cost of mental illness at $280 billion. A 2008 study puts the annual cost of substance abuse at $510 billion. With inflation alone, not assuming that the annual cost increased, that would be $750 billion. Together we are at roughly $1 trillion.

Let’s grant advocates of public schools that Jefferson’s original vision, optional local tuition-financed schooling with state subsidies for the low income for three years was legitimate. The cost of that would be a negligible fraction of our current $1 trillion dollar annual spending.

We don’t know how much of the $1 trillion in behavioral health costs would not exist if we had evolved healthier institutions, organizations, work, and other opportunities for young people, but if we take the evolutionary mismatch theory seriously along with Epstein’s The Case Against Adolescence, the amount is significant. We might be paying $1 trillion per year to cause $1 trillion in damage.

But doesn’t education add significant human capital? Evidence that more educated people earn more is solidly established:

This sort of evidence is usually taken as evidence that governments should pay for education. Of course, the counterargument, as provided by economist Bryan Caplan, is that 80% of the wage premium for post-secondary education consists of signaling rather than human capital improvements. In addition, if one corrects for mathematical ability, the education premium drops by 40-50% for men and 30-40% for women. Jason Collins argues that if you control for math, reading, vocabulary, and “the kitchen sink” it comes down to 50% generally. While there is no doubt some positive remainder for actual human capital development through education, it is likely a much smaller percentage of earnings increases than is represented in data as in the table above.

The reason why a Franklin, Carnegie, Edison, or Kaiser can be a leader without formal education is that people with sufficient motivation and ability can learn what they need to learn without schooling. Cole Summers shows that it is just as possible today (read his autobiography to the age of 14 to see how he learns without any schooling at all). Laura Deming, unschooled by her father, got into MIT at 14. Cliff Spradlin is a self-taught software developer who left school in high school and has been a software engineer at Tesla, Space X, and Waymo. Mikkel Thorup left school after middle school and has developed a highly successful business relocating expats. I’ve known hundreds of people with little formal schooling who have been highly successful in the 21st century. In careers open to merit, rather than credentialing, motivated people can learn what they need without formal education.

Ivan Illich became convinced in the 1970s that institutionalized education led to a loss of independence and initiative. Given that most of the value currently attributed to formal education is due to signaling and ability, and that the human capital element (skills learned) can be learned without formal schooling (or with much less), then the net gains from formal schooling are much smaller than typically believed. Moreover, insofar as our counterfactual hypothesis for evaluating the opportunity costs of government schooling is NOT no schooling at all, but rather a voluntary market including home education, tutoring, private and religious schools, and apprenticeships, there would be abundant opportunities for acquiring the human capital component currently attributed to public schools. With the march of technology, from books to radio to films to TV to computers to the internet to AI, skill development through some combination of human transmission, technological assistance, and personal initiative is easier than ever.

But what about the squashed entrepreneurial initiative while learning to be passive and dependent, and thereby not create as much value as young people? And what about the anti-capitalist and victim-hood ideologies taught in schools? And the negative habits many (most) students learn in public schools? Are the net outcomes from these characteristics more debilitating in a coerced K12 system than the marginal value of a human capital additions through government schooling over voluntary schooling?

While much harder to quantify, government schooling’s active efforts to undermine value creation while imposing the debilitating attitude of victim-hood and developing bad habits surely has negative value. No parent (or vanishingly few) would choose schools or other learning experiences with these negative consequences in a voluntary educational system.

Separately, many of those who are not on the college track experience schooling as some combination of daily boredom and humiliation, some of which develops into the public-school-to-prison pipeline. A couple of studies have shown a dramatic difference in arrest and incarceration rates of those who went to private or charter schools rather than public schools. A voluntary, pluralistic system of education that did not damage young people in this way would save a significant amount of money, with roughly $100 billion annually being spent on incarceration (not to mention the damage to families).

Of course, these figures don’t include the tragedies of teen suicide, which increase about 30% during the school year, and the untold years of human misery from depression, anxiety, substance abuse, passivity, dependence, and victim-hood rather than lives of agency, meaning, and purpose.

Let’s generously call the tradeoff between some human capital increase due to compulsory public education and the various harms it causes a wash, and leave the net cost at $1 trillion in direct costs and another $1 trillion in behavioral health costs annually due to compulsory public schooling.

I recently spoke with a father who was in tears about how is son had been bullied in school. He pulled him out to home school and found it to be one of the most rewarding things he had ever done. At school his son had had multiple diagnoses and was SPED. At home he was learning at a rapid clip and having a blast doing it. Take experiences like this times 1000 and you’ll see why I regard schooling as fraudulent and abusive. This father absolutely agreed with that description.

When I promote “entrepreneurial solutions to world problems” I envision first and foremost reducing the massive invisible damage being done to us at present by unnecessary coercive institutions - and then the counterfactual world in which voluntary, incremental innovations occur over time at scale through entrepreneurial initiative.

The ultimate goal is the realization of Strong’s Law,

Ceteris paribus, properly structured free enterprise always results over time in higher quality, lower cost, and more customized products and services.

Strong’s Corollary:

This theorem applies just as forcefully to the entrepreneurial supply of law, governance, community, housing, education, health care, happiness, and well being as it does to technology. Our world suffers because we have not allowed entrepreneurial initiative to fully address the most important issues facing humanity.

The opportunity cost of government schooling is very large indeed.