Wednesday, September 17, 2008

The dream for a human capital agenda

Edward Glaser has an op-ed on about the need for increased support for American education.

ONE OF an economist's jobs is to be a sort of public scrooge, complaining loudly and obnoxiously when politicians come up with foolish ways of playing St. Nicholas with taxpayers' dollars. Subsidies for Iowa farmers or Detroit carmakers? Bah humbug. Gas tax holidays? Rent control? Certainly not. Go ahead and raise Bob Cratchit's rent.

But in this hopeful season of presidential change, even economists need to be for something. Some of my colleagues labor to improve healthcare; others fight for tax reform. My dream is that one, or both, candidates will make human capital the centerpiece of their campaign.

More than 70 percent of Americans routinely tell pollsters that the country is headed in the wrong direction. America will not change course just by electing a new president, no matter how much charisma or character that leader might have. America's future will instead depend on the skills of its citizens. In a remarkable new book, my colleagues Claudia Goldin and Lawrence Katz make a compelling case that America's 20th-century achievements owed much to our nation's once-robust investment in education, and that since the 1970s the growth in that investment has slowed dramatically.

Also since the mid-1970s, America has become much more unequal. Not all inequality is bad. I wouldn't mind if the guys who gave us Google earned even more, given their contributions to society. I do, however, care deeply that millions of Americans seem to have reaped, at best, modest benefits from the past 30 years of technological change.

Scrooge-like economists stress that most means of fighting inequality carry large costs. Progressive taxation reduces the incentives for entrepreneurship. Taxes on capital gains reduce investment. Allegedly redistributive regulations, like rent control, restrict the supply of things, like apartments, that should be abundant. Large welfare programs create the prospect of a permanent, government-funded underclass.

By contrast, investing in human capital offers the potential for permanent increases in earnings that encourage work. Education increases the ability to deal with innovation, so that investing in skills today will make Americans better able to weather the storms of future technological changes.

The attractiveness of education, to liberals and conservatives, explains why President Bush and Senator Edward M. Kennedy came together to pass the No Child Left Behind Act in 2001. Despite the law's flaws, it was a legislative high point of the last decade. But it was a small intervention, relative to the size of the education sector, targeted at failing students and schools.

A national human capital agenda requires investing in all children, not just those who might be left behind, and it requires much more than $50 billion a year.

Such spending needs to be justified by more than just a desire to reduce inequality. The case for governmental investment in education reflects the fact all of us become more productive when our neighbors know more. The success of cities like Boston reflects the magic that occurs when knowledgeable people work and live around each other. As the share of adults in a metropolitan area with college degrees increases by 10 percent, the wages of a worker with a fixed education level increases by 8 percent. Area level education also seems to increase the production of innovations and speed economic growth.

American education is not just another arrow in a quiver of policy proposals, but it is the primary weapon, the great claymore, to fight a host of public ills. One can make a plausible case that improving American education would do as much to improve health outcomes as either candidate's health plans. [Editor: I disagree in this case. You also need the means for people to access healthcare and to have the infrastructure necessary to live healthily, and these go beyond just being more educated.] People with more years of schooling are less obese, smoke less, and live longer. Better-educated people are also more likely to vote and to build social capital by investing in civic organizations. [Ed: That said, he has a good point.]

Improving America's human capital requires more than just writing a large check. My next columns will outline the details of a Marshall Plan for American Education. Because education is both important and difficult, it should be at the center of the presidential political debates.

Edward L. Glaeser, a professor of economics at Harvard University, is director of the Rappaport Institute for Greater Boston.

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