Scott Aaronson just reviewed Caplan’s Case Against Education. He seems to accept most of Caplan’s specific analysis and claims:

It’s true that a large fraction of what passes for education doesn’t deserve the name—even if, as a practical matter, it’s far from obvious how to cut that fraction without also destroying what’s precious and irreplaceable. He’s right that there’s no sense in badgering weak students to go to college … we should support vocational education … Nor am I scandalized by the thought of teenagers apprenticing themselves to craftspeople. … From adolescence onward, I think that enormous deference ought to be given to students’ choices.

And yet he can’t endorse Caplan’s recommendation:

I’m not sure I want to live in the world of Caplan’s “complete separation of school and state.” … There’s not a single advanced country on earth that’s done what he advocates; the trend has everywhere been in the opposite direction. … Show me a case where this has worked. … In any future I can plausibly imagine where the government actually axes education, the savings go to things like enriching the leaders’ cronies and launching vanity wars.

You gotta distinguish Caplan’s favorite option, which is extreme, from the obvious cautious advice based on his book. Maybe huge school cuts haven’t been tried, but small cuts are being tried all the time, and the data Caplan points to suggests that we suffer little harm from those. Its overwhelmingly obvious that most such small cuts are not mainly spent “enriching the leaders’ cronies and launching vanity wars.” They are put toward all other government spending, and rebated to taxpayers. So the obvious advice here is to try somewhat bigger cuts, and slowly increase them as as long as things seem to be going okay.

Aaronson is also reluctant to cut school funding for fear of destroying innovation:

OK, but if professors are at least good at producing more people like themselves, able to teach and do research, isn’t that something, a base we can build on that isn’t all about signalling? And more pointedly: if this system is how the basic research enterprise perpetuates itself, then shouldn’t we be really damned careful with it, lest we slaughter the golden goose? …

It’s easy to look at most basic research, and say: this will probably never be useful for anything. But then if you survey the inventions that did change the world over the past century—the transistor, the laser, the Web, Google—you find that almost none would have happened without what Caplan calls “ivory tower self-indulgence.” What didn’t come directly from universities came from entities (Bell Labs, DARPA, CERN) that wouldn’t have been thinkable without universities, and that themselves were largely freed from short-term market pressures by governments. …

I work in theoretical computer science: … the stuff we use cutting-edge math for might itself be dismissed as “ivory tower self-indulgence.” Except then the cryptographers building the successors to Bitcoin, or the big-data or machine-learning people, turn out to want the stuff we were talking about at conferences 15 years ago. … There’s also math that struck me as boutique scholasticism, until … someone else finally managed to explain … [that its] almost like an ordinary applied engineering question, albeit one from the year 2130 or something.”

Yes of course, where government supports most basic research, most good work is funded by government. But this hardly implies that basic research is crucial, or that enough wouldn’t happen without government support. And as US governments spends roughly 25 times as much on schools as on basic research, we could double basic research funding while cutting school funding by only 5%, and have plenty left over. And even today 56% of U.S. basic research is funded outside of government.

More important, my reading of the innovation literature is that high prestige academics tend to vastly exaggerate the economic value of their work. Most economically-relevant innovation is not driven by basic research, and observed variations in basic research funding don’t much predict variations in rates of innovation. Cuts to government funding would move some basic researchers to private funding, and some to other activities. This wouldn’t hurt economic growth much, and might even help it.