Over roughly 40 years, school finance has shifted dramatically in both who funds schools and who makes the decisions, with courts—starting from Serrano v. Priest in California in the late 1960s—becoming central players by interpreting vague state constitutional education clauses to mandate funding changes.

Although the US Supreme Court ruled education funding was not a federal matter, this effectively opened every state court to school finance lawsuits because each state constitution contains a vague education clause (e.g., requiring a 'thorough and efficient system of public schools'), which courts could interpret expansively.

Equity lawsuits, intended to equalize spending across districts, often backfired on advocates: in many states courts upheld existing funding, and where they didn't, some states equalized by taking money from high-spending districts and giving it to low-spending ones (leveling down) rather than raising overall spending as advocates wanted.

In the late 1980s advocates pivoted to 'adequacy' lawsuits—arguing not that spending was unequal but that it was simply insufficient to provide a good education—which put courts on thin constitutional ice by having them effectively appropriate funds, a power traditionally reserved for legislatures and executives.

In Campaign for Fiscal Equity v. State of New York (~2002), the courts initially ordered $5.8 billion in additional spending on top of $13-14 billion—nearly a 50% increase mandated on the legislature—implying about $19,000 per student in New York City versus a national average under $8,000, even though NYC already spent above average and had students performing well.

The New York Court of Appeals reduced the mandated increase (to about $2 billion per year) partly because the figure was so large and partly because being explicit about a dollar amount risked overstepping judicial authority under constitutional separation of powers—yet it preserved the principle that courts could appropriate funds if outcomes were deemed inadequate.

The largest court influence on schools historically came through racial desegregation following Brown v. Board of Education (1954), which evolved from addressing de jure segregation in the South to de facto segregation in the North, until the recent Supreme Court ruling that race-based assignment policies (including busing) were unconstitutional.

In the Kansas City desegregation case, a federal judge tried to attract white students back by making the schools so attractive that it told the district to 'dream your biggest dream and the state will pay for it,' making Kansas City the highest-spending large district in the nation in the 1990s—yet the money went into lavish facilities (Olympic pools, a zoo) rather than better teachers, and produced no gains in student achievement.

There is a fundamental accountability problem: courts have limited power to judge what happens inside schools yet mandate spending levels with no reason to believe achievement will improve, and a judge who makes a poor funding decision faces no feedback loop—informational, financial, or otherwise—and thus no incentive to correct mistakes.

In 40+ years of school finance lawsuits, plaintiffs have never presented evidence that a state with a favorable money ruling subsequently achieved achievement gains; the case rests entirely on the unexamined assumption that 'everybody knows more money will help schools,' and courts have not demanded evidence that funding leads to improvement.

Wyoming, after a 1996 court case funded by natural gas revenue, became one of the top five spending states per pupil, yet on the National Assessment of Educational Progress it retrogressed relative to the rest of the nation over the period of the lawsuit—students did relatively worse despite dramatic funding increases.

In New Jersey's Abbott v. Burke litigation, 28 'special need' districts were allowed to spend as much as the highest-spending district—reaching roughly $19,000 per student versus under $10,000 elsewhere—and after 35 years of court involvement, despite preschool, smaller classes, summer and after-school programs, there is essentially no evidence of rising student achievement attributable to funding (only a single 2007 4th-grade reading uptick).

Cross-state studies using national tests show no evidence that simply putting more money into the current system leads to higher outcomes—the effect is essentially zero—though Hanushek carefully distinguishes that this does not mean money never matters; money can and does matter in certain instances, but the public-policy problem is ensuring it happens systematically rather than occasionally.

Hanushek positions himself as sympathetic to the plaintiffs' premise—that US student achievement is low relative to other nations and achievement gaps are too large—while interpreting the judges' motivation as a belief that the legislature isn't doing enough and that, since they cannot directly mandate test outcomes, they fall back on ordering more spending under the consumer intuition that paying more yields more or higher quality.

The most satisfying economic explanation for why more spending fails to raise achievement is the near-total absence of incentives: teachers' and principals' salaries and careers are virtually independent of student performance—pay rises with experience and graduate degrees, neither of which much affects achievement—so additional money tends to be spent on other interests (e.g., higher salaries) rather than the most productive uses.

Paying all teachers a uniformly higher salary will not improve student performance because bad teachers value more money as much as good teachers; raising pay uniformly makes everyone happier without changing outcomes, since improvement would require changing who enters teaching and principals having incentives to select better people.

The argument that vouchers would harm schools by draining their money is logically equivalent to claiming that allowing foreign cars to be sold harms American automakers—true holding everything constant, but missing that competition forces incumbents to improve quality; taken to extreme, it would absurdly imply one monopoly car company (or one school provider) makes the best product, when in fact a monopoly with all the money has little incentive to be good.

The statement 'if money is spent well we will get higher achievement' is tautologically true, but the actual education system doesn't direct money toward productive, achievement-raising uses, so on average more money does not produce more achievement; advocates often cite a scientific study showing a program worked, but schools given extra funding frequently don't adopt that program or implement it poorly.

The proportion of students attending private schools has declined, largely due to the continuing collapse of US Catholic schools (from about 8% to roughly 4%), while other religious schools grew and non-sectarian private schools held steady at about 2%; meanwhile homeschooling has risen to roughly 1.5% of students, though data on homeschoolers and their learning is poor.

Charter schools—publicly funded public schools freed from many regulations (including union teacher requirements) in exchange for charting their own program and depending on attracting enough students—represent a 'semi-market' innovation; some are terrible and some excellent, but unlike regular public schools they face at least some market signal, since bad ones struggle to keep students.

KIPP academies—charter schools targeting disadvantaged students with a structured nationwide program emphasizing both socialization and achievement outcomes—appear to be doing much better than alternative public schools, though they remain only a handful (around 150 schools).

In Texas charter-school research, parents pulled their children out of bad charter schools at significantly higher rates than out of regular public schools or good charters—good charters retained students while poor ones had high exit and turnover—providing evidence that parents can make good decisions in education markets, though the market didn't shut bad schools down immediately because new students kept arriving.

Parents tolerate failing schools partly because they lack good comparative information—schools tell them they're doing well and judging quality requires expertise—and partly because Americans have a strong cultural predisposition favoring the common public school, where most attended themselves and turned out fine, making it take substantial (and unavailable) evidence to convince them their public schools are failing.

Roberts speculates that the relatively unregimented, 'happy-go-lucky' American school system, while weaker on test scores than highly drilled countries (e.g., East Asia), may have an unintended advantage of leaving students' minds open to non-traditional thinking, helping explain why American students grow up to found great companies and create great products.

Hanushek argues much of the creativity and innovation seen in the US (e.g., Silicon Valley) results not from schooling but from how the US labor market rewards creative ideas instantly, whereas in places like Korea a low-level worker proposing a new idea is as likely to be fired as rewarded, so people don't volunteer better ways of doing things—incentives, not schooling differences, drive the creativity gap.

Across developed and developing nations, those whose adults and children achieve higher cognitive skills—more math and science skills—do better economically, grow faster, and are more innovative, establishing that higher cognitive skills are important both for individuals' own rewards and for national prosperity.

Silicon Valley's innovative firms regularly hire engineers from East Asian countries trained in skills and problem-solving, displacing California-educated workers, because California schools aren't producing skills at the level of other states and nations—evidence of a domestic skills deficit.

Hanushek's policy prescription is a short list: (1) build strong accountability systems that measure student performance and attribute schools' value-added; (2) provide direct incentives—including competition and choice so parents help decide which schools are rewarded; and (3) restructure school funding to reward performance—providing extra resources for higher-need students for equity, but otherwise sending money toward high value-added and not toward failure, reversing the current tendency to give failing districts more resources.

Accountability and choice must be combined because each fails alone: an accountability system without choice gets eroded by the public schools eliminating information, while a choice system without good information prevents people from sorting into the best schools—so meaningful reform requires both better information and more choice together.

Teachers' unions are the largest spending political body in the nation and have systematically been less interested in innovation and more interested in their own personal interests, which constrains education reform because educational outcomes are decided through a political process rather than by experts or parents.

Roberts notes that there are many school districts where the public schools are phenomenal and do a great job, so not everything in public education is bad.

Many important things people understand in life were not learned in school, and formal schooling remains a 'black box' that is poorly understood even if some parts (like cognitive skills) are better understood.