The president and C-E-O of the Federal Reserve Bank of Chicago says there must be “systemic” change in education and he advocates paying teachers based on the performance of their students.

Michael Moskow spoke over the noon-hour (Monday) at a luncheon in Des Moines. “In my opinion, we must be careful about simply raising teacher salaries across-the-board. This would attract and keep better teachers, but it would also encourage many poorly-performing teachers to remain on the job even longer,” Moskow said. “So I believe that merit-based pay incentives deserve full consideration.”

The Iowa Legislature and Democrat Governor Tom Vilsack have been struggling to devise a teacher pay package that’s agreeable to both parties, with Republicans insisting there be some “pay-for-performance” elements included. In addition to merit-based pay for teachers, Moskow also suggests teacher training programs at colleges around the country aren’t “doing the job.”

“So what can we do to improve our teacher corps? Well, one approach is to identify those teachers who are ineffective and replace them with more effective teachers,” Moskow said. “Now, we know that it’s possible to identify ineffective teachers however, in our current system, it’s not so easy to make them better or to replace them.”

Later in a question-and-answer session with the audience, Des Moines businessman Marvin Pomerantz blamed the teachers’ union for making it difficult to fire poor teachers. “The teachers have been, if they’ll forgive me — and many of them won’t, their own worst enemy…and I just thought you’d like to echo those words ,” Pomerantz said, as the audience laughed and clapped. “The Federal Reserve stays out of politics,” Moskow replied, to more laughter.

During his prepared remarks, Moskow suggested more states and cities should enact school “choice” initiatives, such as voucher programs which allow parents to enroll their children in whichever school they choose rather than in their neighborhood school. “Personally, I believe that the consumers of education — the parents and the students — have a good idea what they want from their schools,” Moskow said. “Given a choice, they’ll gravitate to those schools that provide it and when a choice is available, market mechanisms work work relentlessly in most instances to deliver the right services to their customers.”

Moskow says education reform is a critical factor in the nation’s long-term economic outlook. While the Iowa economy and the national economy are doing well, according to Moskow, future productivity could be endangered by the lagging skills of American workers. Moskow also suggests that on an individual level, getting an advanced degree makes it less likely you’ll be unemployed. “The unemployment rate for college graduates is currently under two-and-a-half percent, but it’s about seven percent for high school drop-outs,” Moskow said. Moskow, who began his career as a college professor, served as former President Bush’s U.S. Trade Representative and was appointed president of the Chicago Reserve Bank in 1994.

Radio Iowa