Education is perhaps our nation’s most important industry, critical for both economic and personal development. Labor earns a large share of national income, but few people today perform brute physical labor, so our schools provide foundational job market skills. Americans to a greater extent than Europeans embrace equality of opportunity as opposed to the equality of outcomes, and children’s access to education is a crucial component of our opportunity society.

More than thirty years have passed since Ronald Reagan’s Department of Education issued the controversial A Nation at Risk report documenting the failings of American education. Our students still lag behind other industrialized nations on standardized tests. The latest contribution to the Johnson Center’s Improving Lives in Alabama project, authored by Dr. John Merrifield and Jesse Ortiz of the University of Texas – San Antonio, considers potential directions for education reform. We are pleased to offer the wisdom of Dr. Merrifield, one of the nation’s leading economic authorities on school reform, on this important issue.

Today I wish to focus on how the education establishment’s two favorite proposals to improve our schools – smaller class sizes and increased spending – do not work. Economists cannot pretend to possess expertise on teaching children. But we do understand the efficient use of resources and possess powerful statistical tools to evaluate school performance. Determining school performance given the importance of factors like native intelligence and parental involvement requires sophisticated econometrics.

Reduced class sizes and increased spending seemingly should improve school performance. Smaller classes allow teachers to observe each child more closely and understand why a child might struggle with some material. More money allows the hiring of better teachers, raises for the best teachers, and the purchase of better teaching materials. Yet the evidence does not bear these “obvious” truths out.

Some examples illustrate the pattern. Alabama spent about $8,500 per student in 2012, 20% less than the national average and less than half of New York state’s level. Because Alabama children test below national averages, the claim that we need to spend more appears reasonable. Yet Florida, Texas, and Utah outperform Alabama while spending less. And the U.S. spends more per pupil than the industrialized nations we trail on standardized tests.

California aggressively reduced class sizes for grades K-3 to a maximum of 20 in the late 1990s at a cost of over $1 billion per year, yet the effort only minimally affected test results. A Federal judge ordered increased spending and facilities improvements for the Kansas City schools in 1985 to make up for past racial discrimination. Per pupil spending rose to twice the national average, and Kansas City had the smallest class sizes of any large district in the nation, but test scores and racial disparities in performance failed to improve.

Why do more money and smaller classes fail to deliver better results? Merrifield and Ortiz argue that the organization of public school classes lies at the heart of the problem. Students are assigned to schools based on where they live and to classes based on age. The resulting group of students exhibit an almost impossible degree of diversity in learning styles and ability levels. Teachers face a Herculean task in reaching such a diverse group of students, and smaller classes only help on the margin.

Our public schools also do a poor job of selecting or rewarding teachers based on performance. For instance, school districts typically make layoff decisions largely (if not exclusively) based on experience, leading to instances like Alabama’s Teacher of the Year for 2009-10 being laid off due to budget cuts. Surveys reveal that school administrators overwhelmingly desire the autonomy to remove ineffective teachers from the classroom and to reward outstanding teachers financially.

What types of changes might improve education in Alabama? Merrifield and Ortiz argue for a dose of the same medicine which works so well in other sectors of our economy: competition. Next time I will consider how to create a more competitive education market in Alabama.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. Read more about Improving Lives in Alabama at http://business.troy.edu/JohnsonCenter/improving-lives-in-alabama.aspx.