Ed Glaeser dreams of a human capital agenda (updated x2)

In the Boston Globe Edward L. Glaeser has The dream for a human capital agenda. Glaeser writes

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.

But he says, investment in education is different

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.

He goes on

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. 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.

While what Glaeser says about the fact that there are positive externalises to education is true, it should also be noted the the largest share of the returns to education are captured by those receiving the education. Thus it's not clear why this is not incentive enough for people to invest in their and their children's education. The role for government seems small.

Glaeser takes a different view to me. He ends his column by saying

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.

I look forward to seeing his "Marshall Plan".

Update: At the Free Exchange blog they write,

Ed Glaeser has been reading Claudia Goldin and Lawrence Katz and agrees that education has to be at the centre of the next American president's domestic policy agenda. Mr Glaeser promises to follow up his piece with an outline of a "Marshall Plan" for education. I'll be interested to see what it contains. Despite near universal agreement that more investment in education is needed, rancorous partisan disputes over policy prevent the game-changing measures needed. So the onus is on you, Mr Glaeser—come up with something, but make sure it's politically enactable.

Update 2: As to Glaeser's argument about the externalities from education being positive, Arnold Kling has a different view. He writes at EconLog on Public Goods, Externalities, and Education where he says

For education, the positive externality is the benefits that accrue to me from your education. I think that those benefits tend to be pretty small. You get a higher income, and most of those benefits flow to you. I get some of the benefits, because you are more likely to pay taxes and less likely to require government transfers, so that my tax obligations can be correspondingly reduced.

You also get the consumption benefits of your education. I personally don't benefit from your experiments with drugs, sex, rock'n'roll. Nor do I particularly care that you take a class in art appreciation or get tickets to your school's basketball games.

Finally, you are supposed to be a better citizen because of education, and I should be happy about that. But if what you learn is that profits are evil, man-made global warming is beyond doubt, and it is wrong to question that gender differences are socially constructed, then from my perspective your education is not making you a better citizen.

If the higher income that you get from education is due to its signaling effects, then that is a classic negative externality. The investment in the signal is wasteful, and your investment forces others to make a wasteful investment.

On the whole, the case for taxing education rather than subsidizing it is really quite plausible. It is counter-intuitive, perhaps, but the case for free trade is also counter-intuitive to most people.