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The Economic Argument

The monetary benefits of early intervention are remarkable. Leading economists such as James Heckmann and Robert Lynch firmly assert that putting money into early childhood education is perhaps the soundest investment one could make today. If we as a society had the foresight to invest in comprehensive early intervention services, the returns would be astounding, better than the most profit-yielding stocks of our time.

The Productivity Argument For Investing In Young Children
by James J. Heckman and Dimitriy V. Masterov


Exceptional Returns
by Robert G. Lynch

Why Early Childhood?
“ It is easier to build strong children than to repair broken men.” – Frederick Douglass

The United States is not making the right investments in human capital. Government Job Training initiatives and GED Programs have been proven to have no substantial effect on participants’ well-being and are incapable of pulling individuals out of poverty. Moreover, “at current levels of funding, these programs are highly ineffective and cannot remedy the skill deficits accumulated over a lifetime of neglect.” (Heckmann et al., P. 475). Quite simply, these initiatives are too little too late.  Conversely, analysis illustrates that early intervention generates the greatest returns for every dollar invested. This is due to the fact that skills are cumulative and “learning begets later learning” (Heckmann et al., P. 476). Thus, instilling a solid foundation in young minds increases children’s lifelong potential and significantly increases the likelihood that they will graduate from high school. Compelling research illustrates that completing high school raises an individual’s income by $10,372 per year (Heckmann et al., P. 476).

Benefit cost ratio for ECD programFunds devoted to early childhood education should be viewed as an investment, not an expense. As Lynch demonstrates, “Investments in high-quality early childhood development programs consistently generate benefit-cost ratios exceeding 3-to-1—or more than a $3 return for every $1 invested—well above the 1-to-1 ratio needed to justify such investments” (Exceptional Returns, P. vii). Longitudinal studies on early intervention have shown returns at a ratio of 8.74 to 1, with lesser programs still reaping rewards of a 3.78 to 1 cost-benefit ratio (Lynch, P. 6). To put such ratios into perspective, the 16 percent rate that the Perry Preschool program generated far surpasses the 6.3 percent return rate for the stock market between 1871 and 1998. (Lynch, P.7).  With every child livingAnnual budgetary benefits and outlays in a low-income environment enrolled in an early education program akin to that outlined by the Perry Preschool Project by the year 2050 the United States would accrue $167 billion in returns (Lynch, P.12). Not only will previous generations benefit from increased revenue fueling Social Security and other elder care services, but also younger generations will be dramatically less likely to grow up in poverty, thus ensuring future success.
 
What is the true disadvantage?
There is a well-established base of research affirming higher instances of crime, single-motherhood, welfare, and failure to complete high school for children from low-income households, thus promoting the cycle of poverty. Children born into at-risk environments are at a substantially greater risk of being filtered into the Special Education system, and have greater cognitive and intellectual deficits due to environmental stress.  Children from secure-income environments are at a strong advantage when it comes to academic success due to a learning edge instilled in the home (see Hart & Risley ).  Unfortunately, given their own environmental circumstances, not all parents are equipped with the resources and abilities necessary to best prepare their children.  As a result, children from secure-income environments are able to buildRates of return to human capital investment in disadvantaged children on the strong foundation instilled in the home during school hours, while children from lower-income families are at a significant disadvantage requiring them to play catch-up.  In other words, discrepancies in social, intellectual, and cognitive stimulation provided at home lead to critical disadvantages within the classroom. The effects of these deficits in resources surface early on and the gap progressively widens as time elapses, leading later interventions to be much less effective. (Heckmann et al.)

Early Intervention As Crime Prevention:
“To put this evidence in perspective, 23% of the black–white difference in average incarceration rates can be explained by the differences in education between these groups.” – Heckman and Masterov, P. 458

The United States spends upwards of $1.3 trillion per year on crime related expenses. The inmate population has been steadily increasing and by 2001 an estimated 5.1 million American adults had been incarcerated at some point in their lives (Heckmann et al., P. 454). These astonishing statistics relate to education due to the fact that increasing high school graduation rates is a critical strategy in crime prevention. Poor family backgrounds promote failure to complete high school  which significantly increases the likelihood that an individual will participate in a crime. This leads to the strong empirical relationship between early adverse environments and criminal action later in life (Heckmann et al., P. 456). Research shows that increasing the national high school graduation rate a mere one percent would yield a $1.8 billion dollar return in social benefits and reduce the number of crimes committed annually by over 94,000 (Heckmann et al., P. 459).

So, is education truly the most effective deterrent in crime prevention? The facts indicate this is so. For example, to reduce the cost of crime by $200,000 a city in the United States could hire a Police Officer for roughly $80,000. By investing this $80,000 they would save $120,000 overall. However, there is another alternative. To decrease the cost of crime by $200,000, the city could instead invest a meager $15,000 in producing enough high school graduates to decrease the crime rate by this amount, resulting in savings of $185,000(Heckmann et al., P. 459). This projection shows that investing in educational policy is of far greater benefit than smaller, more costly efforts in crime reduction.  Beyond the evident financial returns, there are other benefits that cannot be quantified monetarily, such as fewer incidences of rape, murder, and assault and heightened environmental stability. Reduced pain, suffering, and loss cannot be translated into concrete statistics, but are certainly of significant merit.

Real World Application:

The studies conducted by the Chicago Child-Parent Centers (CPC), the Abecedarian program led by the University of North Carolina, and the Perry Preschool Study are three critical longitudinal cases that solidify the importance of early-childhood intervention. All three of these studies took at-risk children from low-income environments and provided them with free early childhood education services of varying intensity, often coupled with parental services. Multiple benefits were noted from these studies including increase in IQ, decreased enrollment in Special Education, higher high school graduation rates, less dependency on welfare, lower rates of teen pregnancy, higher marriage rates, marked declines in crime, improved longitudinal literacy and math performance, and reduced incidences of child abuse. From a purely economic standpoint, according to one analysis of the Perry Preschool Study done by Rolnick and Grunewald, the annual rate of return for each Perry participant is four percent, for society at large this rate is twelve percent, leading to a total annual rate of return of sixteen percent.

Sources Cited:
Grunewald, R., Rolnick, A. “Early Childhood Development: Economic Development with a High Public Return.” (2003). The Region, 6-12. < http://datacenter.spps.org/sites/2259653e-ffb3-45ba-8fd6-04a024ecf7a4/uploads/ABC-Part2.pdf>

Heckman, J.J., & Masterov, D.V. “The Productivity Argument for Investing in Young Children.” (2007). Review of Agricultural Economics, 29(3), 446-493. < http://jenni.uchicago.edu/human-inequality/papers/Heckman_final_all_wp_2007-03-22c_jsb.pdf>

Lynch, R.G. “Exceptional Returns: Economic, Fiscal, and Social Benefits of Investment in Early Childhood Development.” (2004). Economic Policy Institute, 1-41. < https://docs.google.com/viewer?url=http://www.epi.org/page/-/old/books/exceptional/exceptional_returns_(full).pdf&hl=en_US&chrome=true>

— Prepared by Ashlin Orr, Kinder Institute Intern, 2011-12.

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