The Cornell University economist Robert Frank’s latest New York Times editorial is well worth reading, not least for his argument in favor of a progressive consumption tax. (I’m not a fan of any kind of tax, but I think a progressive consumption tax would be far preferable to our current progressive income tax.)
That said, this section is way off base:
When the ability to achieve important goals depends on relative consumption, all bets on the efficacy of Smith’s invisible hand are off. …
The median size of a new single-family house in 2007 was over 2,300 square feet, more than 50 percent larger than its counterpart from 1970. That creates a problem for concerned parents, because good schools are usually found in affluent neighborhoods. To send your children to one, you must outbid others for a house in a good school district. Yet when all families increase their bidding for such houses, they succeed only in driving up their prices. No matter how much parents pay, only half of all children can attend schools in the top half.
Frank is of course correct that in any educational system only half of the students can attend above-average schools, but a Smithian market would not lead to this distortion in the price of housing. Government bundles education and housing, effectively requiring families to buy two of their biggest expenses together. By definition, the wealthy can better afford any good or service than other people, but bundling the goods restricts middle and lower class people’s ability to pay for either. Laying that government mandated failure at the feet of the market is utterly bizarre.