The Wrongologist

What’s
Wrong Today:

Have you
ever heard of the Heckman
Equation? Neither had the Wrongologist.

Dr. James Heckman is an
American economist and winner of the Nobel Prize for Economics in 2000. Heckman is a
professor of economics at the University of Chicago. His research shows that poor
families should have guaranteed access to education for their 3- and
4-year-olds.

Heckman says
he isn’t advocating socialism, it’s just the opposite: He is fixing a market
failure.

Unlike
our political elites and some of their captured economists, Heckman stresses using observable data in making public policy. His thesis is that
focused and individualized attention paid to the young children of poor families
can be a hard-nosed investment that pays off in lower social welfare costs,
decreased crime rates, and increased tax revenue.

The Heckman
Equation demonstrates the numbers that prove his point. According to Business
Week, Heckman says:

Heckman’s
equation is based on two long-term studies, one begun in the 1960s in
Ypsilanti, MI, and another a decade later in Chapel Hill, NC. Both provided
free preschool to children from lower-income families. In the decades since,
researchers have followed those children, who are now adults.

• At
  age 40, the subjects from the Ypsilanti study were far more likely than their
  peers to have graduated from high school and have jobs. They were more likely
  to own homes and less likely to have needed social services. The boys were more
  likely to have grown up to raise their own children and less likely ever to
  have been arrested.

• Children
  from the program in Chapel Hill had higher test scores than their peers through
  adolescence and were more likely to have gone to college.

While both
studies are well-known to education researchers, Heckman and several co-authors
produced in 2010 what he called the “first rigorous cost-benefit study” of the
Ypsilanti program. The free instruction cost $17,759 per child per year in 2006
dollars (the year they began working with the data). Heckman set out to find
out what taxpayers got for that money. He calculated what the program had saved
the state and federal government in social welfare, what it had paid in
increased tax revenue from higher wages, and, most significantly, what it had
saved in police, court, and prison costs.

The initial investment provided what
Heckman calls a “return to society” at an annual rate of 7% to 10%. In dollar
terms, each dollar spent at age 4 is worth between $60 and $300 by age 65.

A lot of the return
on investment comes from crime reduction, but Heckman’s research
paper indicates that early learning boosts lifetime earnings:

Heckman
also cites the Perry
preschool program as an example that proves his points: Between 1962 and
1967, the Perry program offered preschool to a group of three- and
four-year-olds born in poverty. Interviewed
at age 40 in the mid-2000s, that group was significantly more likely to have
graduated from high school and to earn more than $20,000 a year.

So, when
Mr. Obama said in the 2014 State of the Union address:

He
was talking about Heckman. Last year, the White House acknowledged Heckman’s research
(along with the Perry preschool work) by including early education grants for
states in its budget proposal. On Dec. 13, congressional negotiators put $250
million for new early education funding into its omnibus spending bill.

According
to Business Week, some states
are way ahead of the Obama Administration. Fifteen governors, both Republicans and Democrats, included new money for early childhood education in their
budgets in 2013. In all, states are now spending $400 million more on pre-K
than before the economic downturn, so Heckman’s ideas are gaining ground.

Heckman’s data
show that the earlier a child gets help, the better the results through each
stage of education. Yet, younger parents are on the whole, more financially constrained
at that point than when their kids are older. So when they ought to be putting
their kids into early education programs, they don’t have the money or credit
to pay for it.

Economists
call this an imperfect market. Business Week quotes Heckman:

So, Dr.
Heckman is building a case for a soft-hearted investment in America’s
pre-schoolers. If you are a certain kind of politician, you will be able to smell
the socialism and redistribution. Sadly for them, Heckman’s work is backed by
data, not just the bias of Randian fundamentalism.

This
should be an idea that everyone in America can support, particularly since the
data show it works.