0:33 Intro. [Recording date: November 1, 2019.] Russ Roberts: Today is November 1st, 2019 and my guest is Political Scientist and author Terry Moe, the William Bennett Monroe Professor of Political Science at Stanford University and a senior fellow and colleague of mine at Stanford's Hoover Institution. His latest book and the subject of today's conversation is The Politics of Institutional Reform: Katrina, Education and the Second Face of Power. This is Terry's second appearance on the program. He was here in September of 2016 to discuss the Constitution and the Presidency. Terry, welcome back to EconTalk. Terry Moe: Yeah, great to be with you. Russ Roberts: This is a really a--it's a very short book. I love short books that I learn a lot from, and that was the case with this book. It taught me a lot of insights into not just what happened in New Orleans, which I knew a little about, but not so much, but a much broader set of issues that we're going to get into in the of course of our conversation. But I want to start with public education generally. A lot of people are dissatisfied with the state of public schools in the United States, particularly in urban areas. You argue that despite what appears to be a lot of activity--charters and vouchers and all kinds of experiments going on around the country--actually the real impact of reform has been minimal. Why do you say that? Terry Moe: Well we've been, as a nation, trying to reform the public schools since 1983 when A Nation at Risk came out and set off reform efforts in every state in the union. And this has been going on ever since. And where are we? We haven't achieved very much. The reason is that there has been huge resistance from the teachers' unions and from other establishment groups like the school boards. And so here we are: you know, it's 2019. How many kids are in charter schools? About 6% nationwide. How many kids have vouchers or use tax credits? Less than 1% nationwide. What about accountability? Well, accountability has basically run into a buzzsaw with the unions hating accountability and being threatened by it. And, the Republicans, getting back to their local government roots and getting all teary eyed about how important it is to have state and local governments run everything, have basically put accountability in the hands of state and local governments where it's basically going to be dead. So I think here we are, after all this time, and we've made very, very little progress. There's just been so much resistance that the reformers have been unable to overcome it. Russ Roberts: Why is that? What is the nature of the barriers? Given the level of dissatisfaction on the part of a lot of parents, and for me, personally, I think it's the single most depressing with healthcare and real estate. Those are the zoning issues. Those are the three biggest dysfunctional areas of public policy in my view. And education is probably the most important of the three. Why can't we do that? I mean, it's so obviously a crummy system, again, mostly for poor families in urban areas. Why can't we fix it? Or try something even? I mean, like you say, we've had so little success in trying it. Terry Moe: I think when the average American thinks about this, it's so obvious. If we have an education system that doesn't work very well and that's not educating kids, then we need to do something about it. Right? It's good for the nation, it's good for children. It's a no brainer. But that's not the way politics works. In education, there are powerful vested interests that have a stake in the system regardless of how well it's performing. The two most important vested interests are the teachers' unions and the school boards. The teachers' unions simply have a vested interest in jobs. I don't say that to demonize the teachers' unions. It's just a straight forward fact. They represent teachers who have a vested interest in their jobs. They want job protections, they want better wages, they want better benefits, and they want seniority rights, and all the rest. And, a lot of these things that they're demanding are either irrelevant to or come at the expense of what's best for children. What we need to do is to organize the schools and organize the school system in ways that are the absolute best for educating children. But that's not what happens. If anything is threatening to the job interests of the unions, they will oppose it. And if the system is performing badly, it doesn't matter to them. They will still oppose reforms that are attempting to improve the situation. And the same goes for school boards. School boards are concerned with keeping their enrollments up, keeping the money coming in, keeping their own control over schools. And so if you come along and say, 'Look, maybe kids could do better in charter schools if we had more charter schools, or if we let some of these kids go to private schools.' Their response is, 'Absolutely not.' Because they don't want to lose kids, they don't want to lose the money, etc, etc. It has nothing to do with whether the kids would be better off. So this is what the politics of education is really about. It's about reformers trying to find some ways of improving the system. It turns out that a lot of those ways, the most basic ones--choice and accountability--are threatening to the vested interests. And they are the real powerful forces in education. And what they do is they use their power to block fundamental reforms. And that's been the story for the past 35 years.

6:53 Russ Roberts: So, that's a very depressing story. Of course the teachers' unions don't see it that way. And, you know, as you said, you don't want to demonize them and there are a lot of wonderful teachers in the public school system. That's not what we're talking about. Many of you out there maybe have parents who work in that system, or you attended that system as I did and had a good education. I was in a fairly well off suburban area of Boston, which is a different situation than what we're going to be talking about, which is more urban areas. But the defense against that would be, 'Well, all those reforms you're talking about, we don't think those would work. All we need is a little more money for the school system. You are demonizing them.' So what's your defense against that claim? Terry Moe: I think it's just factual. They favor reforms that are good for them. They want more money because they want teachers to be paid more and they want better benefits and so on. There's no solid evidence that more money is the key to this problem. And they are opposed to reforms that are threatening to their interests. It's as simple as that. Let me just take a step back and say: Vested interests are universal. Every institution in every policy area generates vested interests. And these are interests of people who get the services of those institutions but also who get the jobs that those institutions generate or the business contracts that those institutions generate. And, this is true in agriculture; it's true in defense; it's true in the environment--you name it. And it's not just true in this country: it's true in every country; and it's been true throughout time. This is a universal thing. All institutions generate vested interests, and those vested interests have a stake in protecting their institutions from change because those institutions are the source of their benefits. And in many cases, those benefits, like jobs and profits, have absolutely nothing to do with whether the institutions are performing well. And so these vested interests, which have a stake in investing in political power, will use their political power in order to stop reforms even when the institutions are performing very badly. And that is the problem that all societies face, and that our society faces, in trying to have a healthy democracy in which our institutions actually work. When we have institutions that are failing, the vested interests will still protect them and make it virtually impossible for us to reform them.

9:46 Russ Roberts: Now, reasonable people or at least somewhat reasonable people could disagree about whether charter schools are better, or whether vouchers are helpful, or accountability. But what you can't--so, I wouldn't say that's a factual question. I think there's evidence-- Terry Moe: No, it is a factual question. Russ Roberts: No, there's evidence about it, but I want to make a different point. I want to make a different point. I mean, because that evidence both sides could argue about it. But here's the part I think that is inarguable: when these type of reforms are put on the table or pushed forward, it is true that the teachers' unions spend money and time to stop them. That's clear. Now, they may be nobly motivated, or they may be selfishly motivated, as you are implying--or, just--self-interested would be a better phrase. I often make the joke on this program that around election time, there are election signs in people's yards that have a sign for candidate and there's an apple on the poster and it says, 'Teacher approved' about that candidate. And I always want to go up to the person who has put that sign up and say, 'Wouldn't you want a teacher [candidate?--Econlib Ed.] that's Parent-approved, or Student-approved? Why would you think Teacher-approved is a selling point?' But we do. We have a lot of romance, perhaps correct--I don't think so, but perhaps correct--that teachers love and care about their students; and I think many individual teachers do, of course. But regardless of whether these reforms are effective or not or would be effective, what is undeniable is that the teachers' unions and sometimes others are very in favor of the status quo and put their money where their mouth is. Terry Moe: Well, that's true. That is what they do. And they're protecting jobs. You have to remember that teachers don't join unions in order to promote the best interests of children. Teachers join unions to protect their jobs. That's what unions do. In any industry, that's what unions are for, right? Russ Roberts: But a lot of people would say, 'That's okay. What's wrong with that? Why does that have to be in conflict with helping students? It should be the same. They should be working together. Shouldn't they?' Terry Moe: They aren't necessarily consistent with one another. The teachers are going to want to spend money on wages and on benefits rather than, say, on new curriculum materials that might help children, on, say, new technology that might help children learn, on reforms like, say, charter schools that would allow kids to get out of horrible public schools--and there are plenty of those--and into better schools. Something really simple like that, like, 'Hey, these kids are trapped in bad schools. Let's get them out.' The union's response is, 'Absolutely not.' Russ Roberts: So, I just want to make a distinction. I mean, I agree with your course, 100%, Terry. The distinction I want to make is that the unions don't just want to save jobs. They want to save the jobs of the people currently in the system. And--and this is important--and keep the kind of job that they have: the style of job, the amount of effort that's required, etc. So, it's not just that they want to preserve the jobs of the teachers. Terry Moe: Well, I think you're right. But it's all job-related. Right? Russ Roberts: Correct. Terry Moe: For instance, with accountability, they don't like the additional burdens that are placed upon them by an accountability system--right?--which insists on certain standards and is going to be evaluating the school and maybe even teachers based upon whether students are actually learning anything. The history of this is that teachers were never evaluated based on whether their kids are actually learning anything. Nobody even knew that. Right? And teachers just always got satisfactory evaluations and they just cruised through a career even if their kids were learning nothing. Right? And with the accountability movement, there was a demand that, for spending $700 billion on the education system, we needed to know that the money was well spent--that kids were actually learning something. And we needed to just start measuring things, measuring outcomes, and linking them to what the schools were doing so that we could get a sense of the productivity of these organizations. And do something about it. That's very simple and straightforward. Russ Roberts: Yeah. Well, I have mixed feelings about accountability, but that's another story. But in general, this issue of, I would just call it, dynamism--trial and error. All the ways that in the rest of the economy, things get better. And ratings; all kinds of different choice--exit, competition. These are the ways things have gotten better in every part of the economy. But for some reason in education we don't allow that to have sway. Terry Moe: Can I just make a comment on that? Russ Roberts: Yeah, sure. Terry Moe: I think that's a very good point to make. No one has silver bullets here. We don't know whether these reforms are the perfect answer to our education problems. But, the key to progress is being able to try things and experiment and make adjustments over time. And then you move toward something that is better and better and better. And the problem with a political system that's structured by power is that the power holders--the vested interests--won't let you do that. They won't let problem solvers simply engage in this problem solving process where they're just willing to do whatever works. Because a lot of these things are threatening to the vested interests and they simply block all experimentation and stop the process in its tracks.

15:55 Russ Roberts: So most people who understand that basic dynamic, they may disagree with it in this particular case, think that, well, these reforms wouldn't work anyway; it's not important. But, you make a second point that really underlies the whole book, which I think is unusually deep and insightful idea from a paper by--or is it a book?--by Bachrach and Baratz, which you call it, or they call it, "The Second Face to Power." ["The Two Faces of Power"--Econlib Ed.] And this is a really interesting idea. Tell us about that. Terry Moe: Yeah, it's really profound. So, what we see in politics is struggles among groups where you have one side say pushing for reform and another side pushing to stop reform. And, you get some sense of who wins and who loses and who has how much power and how that power is exercised. That is what's called the First Face of Power. It's part of normal politics. It's what we observe. Back in the old days in Political Science, when Political Science was becoming scientific--this was back in the 1950s and '60s and '1970s--there were political scientists like Robert Dahl who argued that, 'Look, if you're going to understand power and study power, you have to be able to observe the exercise of power and therefore you have to observe conflict situations.' And Bachrach and Baratz, and some others came along and said, 'Actually, this is completely wrong because much of what power does is unobserved. Because, for instance, if one side has superior power and the other side knows that if they try to do anything about that--if they try to launch a conflict--they're going to lose and they're going to suffer all the costs that go along with losing. And so most of the time what the people who want reform will do is nothing. And so the great consequence of power is not that the power holders win in conflict situations. The great consequence is that nothing happens--that the reformers voluntarily, based on anticipated reactions, decide to do nothing. And what that does is to stifle all potential efforts to really act on dissatisfaction and try to transform our institutions and our policies. That's the Second Face of Power. And we can't see it because its principle consequence is: nothing. And we can't observe nothing. But it's there. And so, our assessments of power are all based on the First Face of Power, which we can see, but power is actually having much more profound and negative consequences on our efforts to actually fix things and make our institutions better. Russ Roberts: So most of the action, the iceberg is below the surface. That's one metaphor to think about it. Terry Moe: Yes. Russ Roberts: The second, and it's part of this, that I found interesting and it just comes to me now as you're talking about it, is that it could lead you to miss a mistake and conclude that 'Well, people aren't really that exercised about it; they're not really working hard to change it. It must be pretty good.' Terry Moe: That's right. Russ Roberts: In fact, they've just given up. And that's a profoundly important insight into how this particular area, how it works. And I just have to add for listeners, because I can't help myself: When you said political science became a science in the 1950s, I would argue very few social sciences are actually sciences. And what you've just illustrated is the reason it's not even necessarily a good idea to try to become one, because it tends to focus you on what's a measurable. And here's something that's unobserved that turns out perhaps to be the most important part; and it gets ignored because you can't write a regression analysis out of it or have a chart or a table with the data. Terry Moe: That's right. But I guess I would argue that what it sets up for social scientists is a challenge. If we recognize that these things are profoundly important, at least potentially, then our challenge is to try to get at them, to try to observe them, and recognize their true importance.

20:34 Russ Roberts: And of course it goes well beyond political science--a big debate in economics right now about the tech companies. It is tempting to say, and I've said it myself, that people seem to like the status quo. They love that Google sells their data and that other places like Facebook do the same, and they don't care about their privacy. That's one interpretation. It could be true. The second interpretation is: Well, it's really hard to start an alternative right now. Now, it's not as hard, I think, as it is to change a school board's political power, as we'll see in a minute. I think there are entrants into the tech world right now that will test that question of whether people really care or not. There are going to be alternatives to Google and alternatives to Facebook and Twitter and others that have different incentives and structures, and pay-offs. So we'll see about that. But, I want to get back to our story, your story, which is--so that's all background. And here's what's fascinating: In 2005, I think August, a hurricane hits New Orleans with devastating, horrific impact, Katrina, and wipes out, physically, an enormous amount of infrastructure of New Orleans, a huge number of schools. People have to leave the city. And it creates an incredible natural experiment in political science. Terry Moe: Yes. It's a remarkable thing. Because, what Katrina did was not only to destroy the schools, but, because it did, it actually destroyed the power of the school board, which had no control over schools anymore--there weren't any--and no money. And, it wasn't able to hire teachers anymore, had to let them all go. And because it had them let them all go, the union had virtually no members and no money and no power. Russ Roberts: Why did it have no money? Explain that. Terry Moe: Because they had no members. Russ Roberts: No, but why did the-- Terry Moe: It had very few members in it. It relied on dues. Russ Roberts: But why did the school board have to let all the teachers go? Terry Moe: Because there were no kids in the schools: everybody left the city. Russ Roberts: And there's no property taxes collected, there's no--right? Terry Moe: Yeah. So, it gets money from enrollments. Right? And it can only float bonds if it's able to back them up with all these enrollments that are going to provide money in the future. And so there it was, it wasn't able to--also, it was too incompetent to get the schools up and running in the short term. So it had no solution to this. And as a result there were no kids, there were no schools and operation, and it had to let the teachers go. And so, when it let the teachers go, the union became powerless. And so the result was that Katrina not only destroyed the schools, it destroyed the power of the vested interests. And for the first time in modern American history, it made it possible for us to observe a reform process, a rebuilding process, in which the power was gone. The power of the vested interests is gone. And in every other reform effort around this country for the past 35 years, there are vested interests that are sitting there resisting the reform efforts. But in New Orleans, in New Orleans alone, there were no vested interests. And we have a chance to see what reform looks like when the power is gone. Russ Roberts: And as you point out, that natural impulse is just to, 'Well, let's just get things back to where they were.' I mean, when a building gets destroyed, usually you just rebuild it. You might rebuild it a little differently as we did after the tragedy of the World Trade Center bombings--attacks. But, in general, you get back to work, you put the schools back up, you bring the kids--the water goes down, you put the kids back in the schools. Why didn't that happen? Terry Moe: Well, that's the story. Right? So, basically you have these decision makers who were in charge before Katrina, and they were Kathleen Blanco, who was the Governor; two advisors--Leslie Jacobs and Paul Pastorek; and the Superintendent of Schools, Cecil Picard, who was appointed by Kathleen Blanco. And they were in charge of the major education decisions before Katrina. And these were the ultimate pragmatists, incrementalists, problem solvers, working within the system--bringing about almost no change. But, of course, they wanted change; but they weren't able to do much. And so, you know, they're just classic politicians working within the system to do what little they could. Okay. So then-- Russ Roberts: But before you go on, Terry, it's really important to mention: These are not free market ideologues, they're not intellectual theorists. When you say 'pragmatists,' that sounds like a sort of, 'Well, I'm a pragmatist, too.' But what you mean by that is: They don't come with any pre-determined agenda that they'd been pushing in the past that this suddenly opened up a possibility. They were just trying to do their jobs. Is that correct or am I making it too strong? Terry Moe: No, that's correct. And it's really crucial to this story, because they were not charter fanatics or big supporters of charters. They were not supporters of the free market. They weren't ideologues. They were just very pragmatic problem solvers doing the best they could within the system to make things a little bit better and making very little progress. That was the story before Katrina. Russ Roberts: And they struggled. But the bottom line--let's get to the bottom line so that listeners have an idea of what we're talking about here. The bottom line is: we go from a world of a very status quo public school system in this very poor city that's performing very badly-- Terry Moe: Very badly-- Russ Roberts: And we'll get to that in a second. But the thing I want to emphasize before we even get started is that: Somehow, we end up in a world where almost every kid in the New Orleans school system is in a charter school instead of a public school run either by the local system or some state authority or some special board. But, it totally changed the institutional structure of the New Orleans school system. Terry Moe: Right. What happened was a revolution. The most profound change that's been brought about in any city, in the entire country, during the entire reform era. So, not to jump ahead, let's talk about what actually happened. So, okay, after Katrina hit, the same decision makers were in charge. And the normal thing for them to do would've been to say, 'Okay, the school buildings have been destroyed. Let's rebuild them. And let's reconstitute this traditional system,' you know, 'Hopefully it'll perform better than it performed in the past. And that's the path of least resistance.' But they didn't do that. And right away they knew they weren't going to do that. Right after Katrina hit, these decision makers looked at one another and said, 'This is the opportunity of a lifetime.' They became radicals. And, they were willing to do whatever worked to transform this system. But they knew that that system was a bad system, and they did not want to recreate it. Russ Roberts: How bad was it? You need to give us some data on that. How bad was it in 2006, in 2005? How bad was that performance level, at least in those schools? Terry Moe: Okay. Well, the student performance was terrible. About a quarter of the kids were scoring Basic or above on state tests. That's very abysmal. The school district was corrupt. You know: They were giving out contracts to their friends. They were hiring, as teachers and principals, their friends and their relatives instead of people who were competent. The district was so corrupt that the FBI [Federal Bureau of Investigation] actually opened up a unit within the district's own school buildings, and they ultimately put 30 people in the district in prison, including the President of the School Board. So, there was no emphasis on actually teaching kids anything. Only 6 out of 10 high school students actually graduated. And, the valedictorian of one of the high schools actually failed the graduation exam five times and couldn't graduate. She was the valedictorian. Right? So, this is a really, really bad system. And, everybody knew it was bad. And yet, for a long time they were unable to do anything about it, unable to reform the thing, because there was resistance from the union and the school board, all that time, that was successful. Right? They're powerful.

30:39 Russ Roberts: So in your book, you talk in some detail, which we won't go into here, about the ways that they stumbled toward trying to--it didn't happen quickly, they may have overnight looked at each other and said, 'This is a chance to do something different.' But they weren't sure what that was. And your book details that journey and the different people that played a role in it, in part of the book. But the bottom line is that, at the end, we ended up with a Charter School system. And I want you to give us two pieces of information. One is why should Charter Schools, which are run by the government still--they're still public schools--why should they be any different than the schools they replaced? And, what kind of results did they get when they did this revolution? Because it did go from almost no charter schools--a handful--to almost all charter schools. And as a result, performance changed. Terry Moe: Yeah. Okay. So, the traditional system was run by the local school board, which was corrupt and was unconcerned with how much students were learning, and was incapable of running a high-level school system. Okay. So, what these decision-makers knew--they didn't know what the perfect system was going to look like. They didn't have an ideology; they weren't charter supporters, etc., etc. But they knew that they could not put control back in the hands of the School Board because the School Board had a tradition of failure, and it would just revert to that. And so what they felt they needed to do was to move toward schools that would be autonomous--right?--that could run themselves. And charter schools offered them that opportunity. And also, charter schools, because they were individual units, could get up and running. And what they--the problem that they faced was kids were coming back, you know, to New Orleans and they needed a place to put these kids. You know? And here the School Board is bumbling around trying to get a few regular schools up and running. They could get these charter schools going. And they did. Russ Roberts: Why? Why did they get going so much more quickly than the traditional schools that had been there, public schools that had been in place before? Terry Moe: Because the school board wasn't in charge of it. There were individual sort of teams of people, entrepreneurial groups of people. Plus there were outsiders like KIPP, and other organizations that had run systems of Charter Schools who were applying to the State School Board to get charters to set up one or more charter schools in the system. There were local organizations that knew something about schooling that were ready to roll. And they were able to do this on their own initiative and get money on their own initiative from philanthropists who became very, very interested in New Orleans, precisely because the power was gone. They could come in and they could have a real impact on this city. And that's a second part of this story. You know, that in the past, philanthropists like Gates [Bill Gates--Econlib Ed.] and Eli Broad and others knew that New Orleans was a basket case ; but they wouldn't come in and really try to help these schools because the power structure was so corrupt that the money would be wasted. And so once the power was gone, these philanthropists came in and said, 'Okay, we want to help.' You know, 'What can we do?' Well, they could help fund these charter schools and--go ahead. Russ Roberts: Well, you mentioned that they're autonomous or at least not under the control of the School Board in the way that the public schools perceiving them were. But there's also this general idea I hear all the time about Charters is they 'Don't have the same rules'. That the unions don't have the ability to set the way the school is run or the way teachers are treated or how they're paid. Was that important also? Terry Moe: It was crucial . Because, in the district, prior to Katrina, there was one collective bargaining contract--filled with rules, like seniority rules--that heavily constrained what principals and others can do to set up a team of people within the school that actually care about kids and teaching them something. Charter schools don't have to be unionized. They're not covered by the district wide contract. The union can still organize them but it has to do it school, by school, by school--which is a very difficult thing for them. Also, the teachers in a charter school tend to be recruited to the school because they agree with the school mission: they're on the same page with the school principal, they work together, there's a small number of them. And they're not really good candidates for union membership and for collective bargaining. And it also gives the Principal a lot of flexibility, and the Board to hire the kinds of people who are on the same page, who agree with the school's mission. Who work well together. And when people don't work well together--when there's some people who don't get along with their colleagues or don't get along with the Principal, those people can be let go. And so what you wind up with is a much more sort of organic team that can work together. Well, you don't have that in the public, regular public schools. Because whoever is there you're stuck with, because the collective bargaining contract doesn't allow you to move people out like that and doesn't give you that kind of flexibility. Russ Roberts: So, I love that, but I'm going to play the other side for a minute. So what we had here is a chance for a bunch of super-wealthy foundations with their own vested interests to run a set of schools that should have been run through the democratic process of what we had before. This gave authority to principals to indulge their preferences, to mistreat and abuse teachers without the protection of the union, etc, etc. So, that's a very--that's what the union would say in response to your claims, right? You just painted a really lovely picture of how charters could work, but that's the other side. What's your response to that? Terry Moe: Look. First of all, the philanthropists that were in the background of all this, they're not making a profit on anything. You know, these are basically do-gooders who are trying to create a better school system and trying to fund the kinds of reforms that might bring that about. They don't make a nickel on any of this. And each school floats on its own bottom. Nobody has to go to these schools. They're all schools of choice. And so these schools have to be good enough, and responsive enough to parents to attract parents and kids. Russ Roberts: So that's a really important point we didn't mention before. Terry Moe: Absolutely, huge. Russ Roberts: You didn't just go to your neighborhood school under the current system: You could choose. Terry Moe: That's right. In fact, as the system developed, all kids had to choose a school. Meantime, I think that people who talk about, you know, with tears in their eyes, really, how democratic controlled by the local school board is, are really exaggerating the quality of that democracy. As I said, that school board was corrupt. And school board elections don't really correct for that, because what you get in a school board election is phenomenally low turnout. And the unions--the union, local union--plays a huge role in supporting candidates and getting their own members and neighbors and friends out to vote. It doesn't take that much. And they can have a huge impact on who sits on that school board. Usually their allies are sitting on the school board. So, in that case, and in many cases around the country, you get a school board that is not fundamentally concerned with what's best for kids. Right? Whereas the charter schools have to be concerned with that or they're going to lose kids. Russ Roberts: First, I don't want to forget, I want to thank Plantronics for providing Terry's headset today.

39:42 Russ Roberts: So we can debate back and forth whether we're right, whether charter schools matter or not, or the fact that parents can choose. We could debate whether it gave too much power to local principals rather than the school board, which is democratically elected, and so on and so forth. You could say they're corrupt. Other people could say, 'But at least they have to get reelected,' and so on. But we do have some data. It's imperfect. We'll talk about the imperfections, but it's pretty dramatic data. So once this change happened, once we went from a world where almost no children were in charter schools, to where we're--what? 90%, how many percent? 90 what? Terry Moe: Well, it's virtually all children now: Let's say 95%. Russ Roberts: Okay. I want to make a comparison, say, between 2010 and 2005. Five years go by. Did the students in those schools do better in that new system that had been created from scratch, from what was essentially a blank slate with those political and power changes that you've outlined? What happened? Terry Moe: Oh, they did a lot better. I said that in 2006, 25% of the kids were scoring Basic or above on state tests-- Russ Roberts: Which means 75% were not. Terry Moe: Yeah, were not. And in 2010, 48% were. So there was a huge increase in school quality here. Now , you also have to take into account the demographics of the kids and all the disadvantages that these kids bring with them into the school system. And so this is a very, very difficult population of kids to educate. And I think it's always a struggle to get them even up to the state average. And so , New Orleans is--they have a tough challenge here. But, they managed through their reforms of this process and the proliferation of charter schools and getting these kids into schools that actually cared about them, to increase student performance dramatically. Russ Roberts: They roughly doubled the number of students who reached that standard. Now, did the standard change over that time period? Terry Moe: To my knowledge, not over that time period ; but later on starting, I don't know, around 2014, 2015, 2016, the state began changing the tests and changing the standards. And, for the following, like, three, four years they've been pretty much in flux but moving toward what they consider to be tougher standards, but creating a lot of uncertainty in the schools about how to teach these things and what kinds of curriculum would be appropriate and so on. And so , in recent years test scores have stalled in New Orleans. So, they made dramatic progress, but since then that dramatic progress has sort of stalled out. And that's concerning. But, I think the thing to underline is for the people who are running these schools, the charter schools, and also the people on the school board who are reformers now, it is concerning, right? They're all over this. It's like, 'Oh my God, our test scores are stalling out. What are we doing wrong? Let's get on this, let's change things, let's do things.' Because they're focused on student performance. This was never true before. Right? Under the old school board, performance was not a priority, and now it is. And that is the fundamental difference.

43:40 Russ Roberts: So let me give two possible explanations of this change. It's always nice to say we had a natural experiment and couch it, again, in what sounds like scientific terms, like we're in a lab with a beaker and a pipette, and we've got something under a microscope. But there's two possibilities that at least come to my mind right off the bat that might explain this improvement that have nothing to do with charter schools. The first is : people under hardship pull together. There was the new culture in New Orleans of trying to improve things in the aftermath of this horrible tragedy. So that would be one possible reason for why the scores and performance improved. Second, which I think is more important, is that they're not the same students. Not everybody came back. Some people left New Orleans to go live with their cousin in Oklahoma and stayed. So, I assume we know a little bit about the overlap between the pre-Katrina and post-Katrina population. Obviously, as you say, terrible demographic challenges, very poor, a lot of single-parent homes. It's not an easy environment for kids to come to school and learn in necessarily, but those are probably similar. But how similar are they before and after? And do we know anything about the characteristics of the people who came back? Because it could be, the ones that came back are the ones who are more motivated, they're better parents. Who knows? Terry Moe: Okay. So , your first explanation was that a new culture has developed. Russ Roberts: It's called storytelling. I like that. You can always explain. And you can always get your narrative confirmed if you have to, by some out of the box trick if you need to. I don't believe that, but it could be. Terry Moe: Yeah. Okay. Well, I would say that to the extent that there is any new culture that's been created, it's been created because of the proliferation of charter schools and the emergence of choice as the means of getting kids into schools. Because the parents of New Orleans love choice. And it's something like 90% of parents are very positive about being able to choose their kids' schools. Also, the schools go out and try to recruit parents. Parents are suddenly the target of a lot of attention by these schools. Everything is different, right? So I think that there is something of a new culture, but it's been driven by these reforms. Okay. The flip side of that is that the old culture didn't go away, and a big part of that was that the people who initiated these reforms in New Orleans and, like, the Teach for America Kids that came in and taught in a lot of the schools, were white. And almost all of the teachers who lost their jobs after Katrina were black, and same with the central office there. And this school system had always been perhaps the major avenue for blacks into the middle class. Right? And so they viewed the school board as their means of gaining African-American control over the schools. And this school system had always been perhaps the major avenue for blacks into the middle class. Right? And so they viewed the school board as their means of gaining African-American control over the schools. This had nothing to do with the quality of the school system. It had to do with race and with promoting the economic interests of the African-American population. And after Katrina, the school board and the teacher's union did everything that they could to fan the flames of that discontent and to bring that old culture to bear on the new reforms. And to bring those reforms down. So I don't think that suddenly New Orleans emerged out of this with a brand new culture-- Russ Roberts: Kumbaya-- Terry Moe: It was still alive and dangerous, I think, to the reforms. So, that's an answer to the culture issue. With regard to not the same students, I think that these issues have been explored and discussed in depth by Douglas Harris, who is an economist who's done the principal studies on student performance, and is very well aware of the controls that need to be taken into account in trying to think about whether these changes make sense in light of the student population. So I don't think the student population has been dramatically different. That's my understanding. But I would just refer you to Harris's studies, which are very, very positive about the progress of the New Orleans system. Russ Roberts: The stagnation is a little bit disturbing, although you don't expect it to go to 120% of the students who are scoring above grade level or whatever, at or above grade level. But in 48, you could argue 48 is better that 25. Again, that number was 25% of students were at or above some standard, pitifully low number. It went up to 48%, five years later. 48% is not very good. It is a lot higher than 25, which means that thousands of students have a chance to get a decent--got a decent education and to have a chance to get more. But I could still argue it's not a very effective system. Terry Moe: It's all relative. I think it's very important to recognize that probably half or more of student performance is due to student background characteristics--to poverty and one-parent households and all the rest. And the schools contribute the rest. So, the schools are really up against it. In any community: in Detroit or Philadelphia or Chicago, any community with lots of minority kids in almost every urban area has exactly that. It is going to find it very difficult to get really high test scores. So, that's something that I think we all need to keep in mind in evaluating how the New Orleans system is doing. Russ Roberts: I don't agree with that. Well certainly there's racism and there's challenges that students in those systems face, particularly the poverty and the single parenting. But there are many, many schools systems--many meaning more than zero--suggesting that it can be done. And I'm thinking of Doug Lemov, who has been a guest on the program before: the system of charter schools he's involved in, in the Northeast, has worked with very challenging populations on the same dimensions of poverty and home life, and they've thrived. And so, I guess I would say it in a different way--see if you agree with me or disagree. As you said in the beginning, there's no silver bullet. It would be great to have a set of reforms that could lead to 100% of the students achieving at grade level or better, but 48% is a glorious step in the right direction. And as you say, people are desperately trying to figure out how do we keep this improvement continuing? How do we keep it from going back to what it was before? And that makes all the difference, even though it may not be ideal. The perfect is often the enemy of the good; and in this case that would be what I would worry about. Terry Moe: I think actually we're on the same page. I mean, I think all children can learn and that has to be the way that top educators approach this. But, if social science has shown anything, it's that student background is enormously important in shaping how much kids learn, over and above how much the schools can contribute. Russ Roberts: Absolutely. Terry Moe: So, that is a fundamental part of evaluating all this. Now it's also true that KIPP [Knowledge Is Power Program] and a number of other charter school systems have been able to show that they can take these disadvantaged kids and really teach them and get them to perform at very high levels. This is a really powerful thing. But, what percentage of kids are going to KIPP schools? It's a very tiny percentage. So the problem is: how do we get these things to scale? And, our whole system, the structure of power, makes it very difficult to do that because the unions and others don't want KIPP and other models to spread, because they're going to take students away from the regular public schools where the unionized teachers work.

53:14 Russ Roberts: So I want to move to the question of what we learn from this beyond education. And I want to start with a quote that you didn't use in the book. I wish you had. But it summarizes what I think is the most important lesson. And then I want to see if you agree and then we'll see what else it applies to. The way I would describe one of your summaries of what changed is that this cast of political players--the Governor, other people within the political system--they went from being defenders of the status quo to what you call problem solvers. And I think that's an important phrase, 'problem solvers.' Again, they were not ideologues. They didn't do what I would've done if I'd been in charge, which is to say, 'Let's get rid of the public school system and let's let things grow and let's see what emerges. And there'll be trial and error and competition. And I'm confident that that process will lead to good results, even though I will not be in charge of them.' That's not the way politicians normally behave. And these didn't either. But they did try to make things better. That's what I mean by problem solvers. Because they didn't literally solve the problem, but they did struggle in the darkness, as you, I think a metaphor you used, to figure out what might make things better. And so the fundamental question is: what's the implication of that for--that's extraordinary. And the quote I want to bring in is from Milton Friedman, which has always been one of my--this quote has always been my essential understanding of politics. It might not be correct, but this particular episode that you've highlighted in American history illustrates it beautifully. Friedman said the following: It's nice to elect the right people, but that isn't the way you solve things. The way you solve things is to make it politically profitable for the wrong people to do the right things. [--Milton Friedman] And what Friedman means by that is simply the economist's obsession with incentives. So, if politicians don't have the incentive to do the right thing, I don't care how noble they are, they become driven by those incentives. There are exceptions, of course, throughout history. But most politicians follow the incentives. And if they don't, they usually lose office, and it doesn't matter how right they are or how noble they are or how reform-minded they are. Here's a case where it's literally the same people. It's such a fantastic little mini-piece of this laboratory experiment that you've highlighted--these people who before said, 'Yeah, it's fine. It's not great, but it's fine,' all of a sudden became zealots, because the incentives have changed. I think it's an extraordinary thing. Terry Moe: Right. Right. I agree with that. Power shapes incentives, right? And so before Katrina, these people, they were incrementalists. They were responding to their context, responding to the incentives of that context. And when the power was taken away, their incentives were completely different. They didn't have to worry about reprisals from the power holders. And what was not apparent was that these people were not just like problem solvers, but they were problem solvers who were just--they were willing to do whatever works. That's like a completely pragmatic approach, right? 'We'll do anything. Whatever works.' In the past, they could never do that. But, because the power wasn't there, they were able to do whatever works. And what no one recognizes is that 'whatever works' is revolutionary. Because, what it means is: they don't care that the traditional system is what has always been followed. They're willing to completely up-end the thing and do something completely different. And they're free to do that because there's no power in that situation to stop them, to stand in their way, and to change their incentives. And the second part of this is they didn't know what they were doing. Right? And it's a beautiful thing, right? Because: What do people who want to, like, completely up-end the system and do something really dramatic do when they don't know what they're doing? And it turns out that ultimately they were able to put this in the hands of Paul Pastorek and Paul Vallas who were real leader-types. They also didn't know what they were doing. But they were going to create good schools, come hell or high water-- Russ Roberts: To claim the phrase-- Terry Moe: Yeah. And so they had charter schools that they could put kids in right away. And they also had a lot of direct-run schools. And what they found out was that the direct-run schools-- Russ Roberts: Explain what that is, Terry. Terry Moe: Those are--well, there was a unit called the Recovery School District [RSD] that had been created by the state to take all of the New Orleans schools, just about, and run them. And the idea was: Okay, well, they'll charter them. And the reason was the RSD didn't know how to run schools. Right? They didn't really know how to do this well. But it turned out there were so many kids coming back, there weren't enough charter schools to put kids in. And so, in the beginning, most kids were in schools that were directly run by the recovery school district. And what Pastorek and Vallas found out, in trying to run these schools and run them well, was: they couldn't run them well. It just wasn't working out. And so as pragmatists, they said, 'Look, we just got to start putting more kids into charter schools. Let's just put them all into charter schools,' eventually. And so, that's how this all-charter system evolved. You know, when people on the outside look at this, they say, 'Yeah, this is a case where a bunch of right-wingers: they wanted to bring the free market system'-- Russ Roberts: Neo-liberals-- Terry Moe: Yeah. 'And here they had this opportunity because the city had been destroyed and they rushed in, and the Heritage Foundation and Milton Friedman and all of these people, you know, they came in and they're responsible for this free market thing.' And nothing could be further from the truth. This was a bunch of problem solvers who were just thinking, 'We've got to do something that works for these kids.' And they were led, step by step, to this all-charter system. And, this is where the Second Face of Power comes in, because what we're seeing here is what power was preventing before Katrina. Right? We could see that there were battles and there were winners and losers. What we couldn't see is that all of these problem solvers--Kathleen Blanco and Pastorek and all the rest--were not behaving like radicals. They gave no indication that they had this potential to upend the traditional system. They didn't even think about it. So that was the Second Face of Power stifling: Any activity that they could have engaged in, they knew they would lose. And causing them basically to just play inside the box. But as soon as the power was taken away, they had this radical potential that just came out, that was completely hidden and snuffed out. And that's the part of power that we never see; we can't observe what that power is doing to people all the time, every day, in every school district. Right? There are these problem solvers who have this potential to really do big things, but they're not doing them, they're not talking about them, they're not proposing them, they're not pursuing them because of the Second Face of Power. And the Katrina natural experiment allows us to see what power has been preventing all this time and what is preventing everywhere else. Because the conditions there are normal, the schools are protected by vested interests, and the Second Face of Power is stifling these kinds of major reforms. Russ Roberts: And we see this in the economy, of course, elsewhere. Obvious example would be the innovation of Uber and Lyft disintermediating or destroying the taxi system. Now, they're not making a living--they're not making money yet--so it's not clear that this is going to be an effective way of changing the way people catch rides in American cities. But, just the technology alone and the opportunity to see where you're going and to not use cash out of pocket but rather pay for it with a credit card--these are innovations that could have been done--well, they couldn't have been done terribly long ago, but as soon as that technology came along, essentially it was an end-around. And in a lot of areas where the government has made it hard to compete, end-arounds are the only way you can change things, which is why a lot of people put a lot of hope into online education as a way to get around the stasis in the school system we're talking about. It hasn't succeeded at all yet.