Arthur Rolnick

One of the strongest economic arguments in favor of investing in high-quality early education is that leading economists estimate it produces a 10-16% return in increased productivity and reduced social costs – well above the annual yield of the stock market since World War II. The 10% figure comes from Nobel laureate James Heckman, who calls investing in early education “America’s best economic stimulus package.” The 16% statistic comes from Arthur Rolnick, the former senior vice president and director of research at the Federal Reserve Bank of Minneapolis. The latest issue of Forefront, the magazine of the Federal Reserve Bank of Cleveland, features an interview with Rolnick, who retired from the Fed last summer and is now a senior fellow at the Humphrey Institute of Public Policy at the University of Minnesota.

In “Stop Investing in Stadiums…Start Investing in Kids,” Rolnick recalls the day almost a decade ago when he was at a meeting where the head of an organization called Ready for K spoke. Rolnick made a comment. “They presented what I thought was a fairly weak argument,” he said in the interview. “It was basically a moral argument, and it’s not that I disagreed with it. But it was weak from an economic point of view. I felt that if they were going to really push this issue forward, they should look at the economics of investing in early childhood education. Policymakers need a way to rank a plethora of reasonable-sounding initiatives. They need a way to figure out how much to invest in each. And that’s where economics comes in.”

Soon the board of Ready for K persuaded him to do an economic analysis of high-quality early education. He and his colleague Rob Grunewald looked at short-term impacts, such as first grade retention and enrollment in special needs services. They looked at increased high school completion, employment, tax generation. They considered reductions in crime and reliance on welfare.

The 16% return they found stunned Rolnick. “We compared it to the stock market,” he said. “The annual yield in the stock market, post-World War II, is about 5.8 percent, so we thought we would be doing well if we could beat 5.8 percent.”

Rolnick expressed impatience with a political system that has not caught up with the research and economic evidence about the effectiveness of high-quality early education.

“I think we have the research on our side. I think we have the economic case on our side,” Rolnick said. “Unfortunately, we still have a long way to go politically to make all this happen….

“I think there is a lot of encouraging movement in Washington,” he added. “I do think, though, it’s up to the cities and states, the local communities, to be more aggressive in this area. I think there could be federal dollars if they are. I think it’s going to take a partnership, the private sector with the local communities and the federal government. But I think it’s important for communities to get their priorities in order to make it clear that this is an area we can’t afford not to invest in.”