the $264,000 question patrick m. byrne, ph.d. chairman and ceo, o.co western region captive...
TRANSCRIPT
The $264,000 Question
Patrick M. Byrne, Ph.D.Chairman and CEO, O.co
Western Region Captive Insurance ConferenceSalt Lake City, Utah
September 28, 2011
What’s wrong with monopolies?PRICE
QUANTITY
supply
demand
Market clearing price
At market clearing price, supply & demand balance
How much stuff society gets
What’s wrong with monopolies?PRICE
QUANTITY
supply
demand
Market clearing price
At market clearing price, supply & demand balance
How much society gets
monopolist’s pricemonopolist’s
rent
How much society gets
now
That’s what wrong with monopolies.
Demand at monopolist’s price
Society gets this much less stuff…
… and pays this
much more for it.
7 Questions & Answers About US Education & Spending
1. How much do state & local governments spend?
2. How big are the combined fiscal deficits of the 50 states?
3. How big are the deficits versus the state budgets?
4. How much does the US spend on K-12 schools?
5. How many students go to K-12 schools?
6. How much does the US spend per student?
7. What is US spending/student vs. the OECD?
7 Questions & Answers About US Education & Spending
1. How much do state & local governments spend? $2 Trillion
2. How big are the combined fiscal deficits of the 50 states?
7 Questions & Answers About US Education & Spending
1. How much do state & local governments spend? $2 Trillion
2. How big is the US “state fiscal crisis”? ≈$60 Billion
3. How big is the crisis vs. the budgets?
4. How much does the US spend on K-12 education?
5. How many students go to K-12 government schools?
6. How much does the US spend per K-12 student?
7. What is US spending/student vs. the OECD?
7 Questions & Answers About US Education & Spending
1. How much do state & local governments spend? $2 Trillion
2. How big is the US “state fiscal crisis”? ≈$60 Billion
3. How big is the crisis vs. the budgets? ≈ $60b/$2T = 3%
4. How much does the US spend on K-12 education?
5. How many students go to K-12 government schools?
6. How much does the US spend per K-12 student?
7. What is US spending/student vs. the OECD?
U.S. Department of Education(nces.ed.gov)
Education Expenditures: State + Local + Fed (Fiscal ‘06-’07)
$275 b + $258 b + $50 b = $583 billion (2006-2007)+ 5%/year X 4 years = 1.2 X $583 billion = $700 billion
7 Questions & Answers About US Education & Spending
1. How much do state & local governments spend? $2 Trillion
2. How big is the US “state fiscal crisis”? ≈$60 Billion
3. How big is the crisis vs. the budgets? ≈ $60b/$2T = 3%
4. How much do we spend on K-12 education? ≈$700 Billion
5. How many students go to K-12 government schools?
6. How much does the US spend per K-12 student?
7. What is US spending/student vs. the OECD?
U.S. Public School Enrollment
U.S. Public School Enrollment (2010)
7 Questions & Answers About US Education & Spending
1. How much do state & local governments spend? $2 Trillion
2. How big is the US “state fiscal crisis”? ≈$60 Billion
3. How big is the crisis vs. the budgets? ≈ $60b/$2T = 3%
4. How much do we spend on K-12 education? ≈$700 Billion
5. How many students go to K-12 schools? 50 Million
6. How much does the US spend per K-12 student?
7. What is US spending/student vs. the OECD?
7 Questions & Answers About US Education & Spending
1. How much do state & local governments spend? $2 Trillion
2. How big is the US “state fiscal crisis”? ≈$60 Billion
3. How big is the crisis vs. the budgets? ≈ $60b/$2T = 3%
4. How much do we spend on K-12 education? ≈$700 Billion
5. How many students go to K-12 schools? 50 Million
6. How much do we spend per K-12 student? ≈$700b/50m
7. What is US spending/student vs. the OECD?
7 Questions & Answers About US Education & Spending
1. How much do state & local governments spend? $2 Trillion
2. How big is the US “state fiscal crisis”? ≈$60 Billion
3. How big is the crisis vs. the budgets? ≈ $60b/$2T = 3%
4. How much do we spend on K-12 education? ≈$700 Billion
5. How many students go to K-12 schools? 50 Million
6. How much do we spend per K-12 student? ≈$700b/50m ≈ $14,000/student7. What is US spending/student vs. the OECD?
7 Questions & Answers About US Education & Spending
1. How much do state & local governments spend? $2 Trillion
2. How big is the US “state fiscal crisis”? ≈$60 Billion
3. How big is the crisis vs. the budgets? ≈ $60b/$2T = 3%
4. How much do we spend on K-12 education? ≈$700 Billion
5. How many students go to K-12 schools? 50 Million
6. How much do we spend per K-12 student? ≈$700b/50m ≈ $14,000/student7. What is US spending/student vs. the OECD? 41% higher
School Spending: 4 Arithmetic Problems
1. Expenditure ≈ $14,000/child
2. How many children are in the average classroom?
School Spending: 4 Arithmetic Problems
1. Expenditure ≈ $14,000/child
2. The average government classroom has 24.60 children
Expenditures per classroom
$14,000 expenditures per childX 24.60 children per classroom$344,400 expenditures per
classroom
≈ $ 344,400 per classroom
School Spending: 4 Arithmetic Problems
1. Expenditure ≈ $14,000/child
2. The average US classroom has 24.60 children
3. Expenditure/Classroom ≈ $ 344,400
4. How much do a teacher + classroom cost?
Teacher compensation
Average teacher compensation
$47,208 average wages (per BLS) X 1.27 benefit load (per NEA)
$59,954 total compensation costs
“Rent” + Heating, lighting, cleaning + Common Space
25’ X 40’ = 1,000 square feet X $20 rent + CAM
$20,000
$59,954 + $20,000 ≈ $80,000 total direct costs
School Spending: 4 Arithmetic Problems
1. Expenditure ≈ $14,000/child
2. The average US classroom has 24.60 children
3. Expenditure/Classroom ≈ $ 344,400
4. Teacher comp + direct classroom costs ≈ $80,000Question:
Where does the other $344,400 - $80,000 = $264,400 go?
PRICE
QUANTITY
supply
demand
marketing clearing price
At market clearing price, supply & demand balance
monopolist’s pricemonopolist’s
rent
How much society gets
now
Here’s my guess:
Demand at monopolist’s price
Society gets this much less stuff…
… and pays this
much more for it.
A better idea:
Let children withdraw from government schools.
Save the $14,000.
Give them each a scholarship for $6,000.
Net savings = $14,000 - $6,000 = $8,000.
The Fiscal Effect of Saving $8,000/Child
Assume 20% take the deal:20% X 50 million kids = 10 million
$8,000 X 10 million = $80 billion savings
If 30% take the deal…. 30% X 50 million = 15 million
15 million X $8,000 = $120 billion savings
School Spending: 4 Arithmetic Problems
1. Expenditure ≈ $14,000/child
2. The average US classroom has 24.60 children
3. Expenditure/Classroom ≈ $ 344,400
4. Teacher comp + direct classroom costs ≈ $80,000Question:
Where does the other $344,400 - $80,000 = $264,400 go?