The Human Capital Deficit

Spending on education is the best investment American can make.

Aptitude testing of American students is down in every category. We have a shortage of teachers and bus drivers. Our school lunches continue to lack the nutrition needed for growing children. Schools and teachers lack the supplies they need. And parents no longer have faith in our education system, with over half of all adults viewing America’s K-12 education system unfavorably. 

On the international stage, America continues to lag behind. Out of 77 countries the US scored:

• 11th in Reading

• 37th in Mathematics

• 18th in Science

All of this results in America having to outsource technology jobs while many Americans struggle to escape poverty. An underfunded education system leads to higher crime and lower community engagement. It even makes it easier for misinformation to spread throughout our nation.

America is failing to invest in Human Capital.

Human Capital is a concept that goes back at least as far as Adam Smith, who is often referred to as the Father of Economics and Capitalism. In his definition of capitalism Smith refers to:

The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person.

Those talents, as they make a part of his fortune, so do they likewise of that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labour, and which, though it costs a certain expense, repays that expense with a profit.

Which is an old-timey way of saying that it is good for a nation to invest in the education and training of its citizens as that knowledge and those skills give the citizens the ability to do better in life and it also helps them to contribute more to society. 

It is an investment that rewards more back to the nation than it costs.

Despite how often Adam Smith is discussed, read, and taught, this was a concept largely abandoned until the late 1950s into the 1960s when Chicago economists such as Jacob Mincer and Gary Becker brought the term Human Capital to the forefront of economic discussion.

Decades of studies and research all find the same results over and over. Access to quality education:

• Reduces crime

• Reduces poverty

• Improves health

• Increases civic involvement

• Reduces reliance on welfare/government assistance

• Improves the overall economy

Despite all of this clear cut evidence and the fact that investing in education has one of the best returns on money spent, America continues to ignore and waste the Human Capital of its citizens.

Crime vs Education

Every state in America spends more on prisons than it does on education, with an average of almost $25,000 more spent per inmate than per student.

Prisons have a ratio of 5 inmates to 1 guard whereas each teacher handles on average 21 students. Worst of all is the fact that spending on prisons does nothing to reduce crime, while spending on education has a significant impact.

A one year average increase in schooling reduces:

• murder and assault by ~30%

• motor vehicle theft by ~20%

• arson by 13%

• burglary/larceny by 6%

On top of how many lives would directly be improved by this reduction in crime, it could also save the US $18 billion in prison related costs each year.

Universal Pre-K

Accessible Preschool for all is a common policy in our peer nations.

Britain, France, Belgium, Iceland, Israel, Finland, Sweden all make sure that children as young as 3 years old receive quality education. But here in the US that concept is still limited to a few states and a few additional cities. 

• Ireland has 100% enrollment of 3-5 year olds in school

• Sweden 94%

• The OECD average is 87%

• The US has only a 66% enrollment

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• Luxembourg spends $14,500 per child under 5 on education

• Sweden almost $12,000

• The EU average is $5,500

• Whereas the US spends only $2,600

In America, the quality of preschool education typically comes down to how much you can afford to spend on it. While preschool is important to all children, wealthy children need preschool the least as the resources available at home tend to put their children ahead of the learning curve.

Researchers have found that children who are dealing with economic scarcity and insecurity make the most gains in preschool. And dual-language learning children, who are mostly low income with underdeveloped pre-literacy and pre-math skills, also see major benefits from preschool.

Overall, all students who attend preschool are more prepared for Kindergarten and have better performance in school.

Free School Lunches

India, Sweden, Brazil, Finland, and Estonia provide free school lunches for all children. America provided free school lunches during the pandemic, but has since ended the program. Some cities and states have now enacted their own programs, but free school lunches still aren’t available for the majority of Americans.

Why are free school lunches important?

For starters, research has shown that students who have had a nutritious and filling lunch perform better in school. It improves their ability to focus and learn which in turn improves their knowledge retention and test taking.

Nutritious free lunches have also been shown to lower childhood obesity. The US is one of the world leaders in childhood obesity with 1 in 6 children being obese and 1 in 3 children being overweight.

The benefits don’t stop with school. Children who have had regular access to nutritious food and nutritional education continue to make better health choices in adult life.

America is one of the world leaders in preventable disease deaths such as heart disease which takes the lives of 695,000 Americans every year, cancer causes 600,000 deaths each year, and strokes take 163,000 lives.

All of this is why the US has an average lifespan much lower than our peer nations. We die a full decade younger than citizens in Japan.

Education is proven to make people healthier and would go a long way to improve the lives of Americans, which in turn would also help reduce healthcare costs.

There are numerous ways to look at all of the advantages of a proper investment in education. And yet, America spends only $195 billion on our Department of Education while Congress just voted to add another $100 billion to our Department of Defense budget, bringing it to almost $900 billion annually. That is over 3x higher than China who is the next largest military spender.

This shouldn’t be a difficult debate. Invest more in American citizens, in our Human Capital, and watch as lives improve, poverty reduces, crime reduces, welfare reduces, incomes rise, civic involvement rises, and even our average lifespan increases. All at a cost that pays for itself in the long run.

Or don’t invest in our Human Capital and continue to fall behind every other highly developed nation as Americans struggle, starve, and die preventable deaths.

Which is it going to be?