Caring for Children Is Caring for the Economy

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I’ll be speaking next week, May 9, to the Arizona Directors Symposium, a professional development symposium for directors, managers, and others involved in early childhood education and early childcare. I’ll be speaking about the macroeconomics of early childcare. The slides are posted below here (you can download the file if you click on the little gear icon).  I’m very excited about this opportunity for two reasons. First, people who work with kids in early childcare programs are often under-paid and under-funded. It’s a real shame because, macroeconomically, the work they do is about as important as anyone’s. In fact our future long-run GDP growth rate depends more on what they do than what happens in Silicon Valley. The second reason I’m excited is because it’s another chance to get the message out about the importance of intergenerational economics. In the past couple of years, I’ve often presented on the importance to the entire economy of intergenerational transfer programs to seniors such as Social Security and Medicare. (see here, here, here, or here) But now I’ve got a chance to talk about the importance of intergenerational transfers to children, especially very young children. Besides the slides here, I hope to write a couple longer posts in the near future as time permits explaining some of the key points I plan to make.

Early childhood education (ECE) and early childcare is one of the very best, if not the best, investment we can make. Research in recent years, particularly research by economics Nobel Laureate James Heckman at heckmanequation.org combined with research at the Harvard Center on the Developing Child and others have demonstrated the power of ECE. Building off of longitudinal, controlled studies of participants in the pioneering 1960’s Perry Pre-School Program in Ypsilanti, MI, Heckman calculates that the annual return on investment is at least 7-10%. Each dollar that society invests in ECE through government funding of programs returns to society as much as $16 eventually. This is a real return, after adjusted for inflation, and lasts for 40+ years. No other investment opportunity pays off like ECE.  Even average stock market returns over 3 and 4 decades fail to achieve this level of return.

The Heckman Curve_v2The reason ECE is so powerful is because very young children’s brains and minds under go such rapid development in the first few months and years. Not only does this sensory pathway and language development provide the foundation for higher cognitive function, it also provides the basis for “emotional intelligence” (EQ).  EQ, or what Heckman calls character, includes the qualities such as persistence, creativity, communication, and social skills that are necessary for success in later education, careers, and life in general. Substantial evidence shows that by providing quality early child education and childcare, society can and does reap a significant increase in GDP. The increase in GDP comes from multiple sources:

  • improved health when the children become adults – lowering social healthcare costs
  • reduced social costs from reduced corrections, incarceration, and victim damages
  • greater participation in the workforce as adults
  • greater productivity as adults.

As our economy moves further through the 21st century we need the kind of healthy, high-EQ adults that ECE produces. It’s truly a win-win all the way around. Further, ECE is a classic economic example of why we must have government social funding of ECE. The economic benefits of ECE are so wide-spread that the bulk of the returns are in the form of externalities, which means that depending upon private decisions and private funding of ECE will guarantee under-investment and an inefficient result. In contrast, if society steps up and invests in ECE, instead of making government budget issues worse, we will in fact improve the long-run budget perspective, improve standards of living, and even make future adjustments to Social Security unnecessary.  That’s how intergenerational economics should work.

A downloadable copy of the Powerpoint file is available and a Google Slides version is also available.

Data and Visualization Resources for Incomes and Inequality

Posting links to two incredibly useful resources for students and people doing research on incomes, income distribution, and income inequality. These resources are useful for both historical data and visualizations as well as cross-country comparisons.

The first is the World Top Incomes Database from the Paris School of Economics. Many thanks to the Paris School and researchers Facundo Alvaredo, Tony Atkinson, Thomas Piketty and Emmanuel Saez. It’s a a tremendous resource.

The second is a tremendous resource also. It’s Our World In Data. It’s a work in progress project by Max Roser,   but it’s already jam packed with great data and visualizations on incomes, health, war and violence, poverty, and food and hunger. And best of all, it’s all CC-BY-SA licensed.  I love it when collaboration and the commons come together to support learning.

So Who Pays For the Government and How?

I’ve always found putting things in historical perspective and looking at the long-term trend of things usually illuminates a lot of policy discussions. It’s easier to see “what’s really happening” if you look at the long-term trend.  Taxes, tax rates, and the government budget are often hot topics of policy debate.  So is the future of the intergenerational social insurance programs such as Social Security and Medicare (also here).

As Paul Krugman has often mentioned, the best way to think of the U.S. federal government budget is to think of the government as “an insurance company with an army”.  But who pays for this insurance company (Social Security, Medicare, Medicaid) and it’s accompanying army?  The distinct trend of the last few decades is that individuals are being asked to shoulder more and more of the burden and that corporations are carrying a less-and-less share. In fact, as this graph shows, the corporations are nearing becoming insignificant in their contribution to the general welfare and maintenance of our government.

The data for this graph is from Office of Management and Budget in this file.