(SOUNDBITE OF ARCHIVED RECORDING)
PRESIDENT BARACK OBAMA: There are people across America with talents just waiting to be tapped, sparks waiting to be lit. Our job is to light them.
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ALEX BLUMBERG, HOST:
Hello, and welcome to PLANET MONEY. I'm Alex Blumberg.
DAVID KESTENBAUM, HOST:
And I'm David Kestenbaum. Today is Friday, June 10. And that was President Obama you heard at the top talking about a new job training program for blue-collar workers.
BLUMBERG: Today on our program, the solution.
KESTENBAUM: Oh, come on. The solution to what?
BLUMBERG: Everything - poverty, crime.
KESTENBAUM: You have a grand, unified theory for economics?
BLUMBERG: I do, and I can play it for you. Want to hear what it sounds like?
JULIAN: I love trains. That's why I'm going to make a train.
BLUMBERG: You're going to make a train? You're going to make a train?
KESTENBAUM: That guy sounded a little young to be a train engineer.
BLUMBERG: Right, no. That was Julian (ph). He's 3, and he's a student at The Co-op School, a preschool in Brooklyn. And today on the podcast, we're going to talk about the unbelievably large economic impact of what Julian and all his classmates are doing right now in this school in Brooklyn, surrounded by blocks and paint sets and live chicken eggs.
KESTENBAUM: That in a minute, but first, our PLANET MONEY indicator. Take it away, Jacob Goldstein.
JACOB GOLDSTEIN, BYLINE: Today's PLANET MONEY indicator is 10 trillion, trillion with a T and an R. It may be the biggest indicator ever.
GOLDSTEIN: U.S. households owe a total of $10 trillion in mortgage debt. That's according to numbers the fed released this week. And, of course, it's just a gargantuan number on its face. But I actually think the most striking thing about it is how steady it's been over the past few years. Since the peak of the housing boom, household mortgage debt has only fallen by about 5 percent.
Now, over that same period, of course, the price of homes in this country, that's fallen by about 30 percent. So when you look at it, home prices are basically back to normal. But mortgage debt is still really high by historic standards.
KESTENBAUM: Which I guess makes sense - right? - 'cause if you take out a loan of $200,000 to buy a house and then the value of your house plummets, the house is worth less, but you still have the same amount of debt.
BLUMBERG: Right, like, the bank isn't going to say, oh, you pay us back 150.
GOLDSTEIN: Yeah, not often anyway, although people want to see that. And this is why we have millions of people underwater on their mortgages right now. And I think there's a broader point here, which is the same thing I was talking about in the indicator on Tuesday when we did credit card debt. And that is what drove the housing bubble was this broader credit bubble. And so now, when we're living through the bust, thinking about the bust, it's important not only to look at home prices but also to pay attention to how much debt people are still carrying because bringing that debt back down to normal levels, this is what economists call deleveraging.
This is a long process. It's a painful process. You typically see slow economic growth and high unemployment, not surprisingly - right? - given what we're seeing right now. And, you know, these mortgage debt numbers that we're looking at today, they suggest it could take several more years to bring debt back down to normal levels.
BLUMBERG: All right. Thanks for successfully bumming us out one more time, Jacob.
GOLDSTEIN: Any time.
BLUMBERG: (Laughter) All right. Onto the podcast in which I reveal the solution to all of society's problems, and to Jacob's pessimism, preschool.
KESTENBAUM: Wait. Wait. Did you go to preschool?
BLUMBERG: I did, yeah.
KESTENBAUM: You're biased. Hang on a second. I've got to check something. I'm calling my sister.
BLUMBERG: You're calling her right now?
KESTENBAUM: Yeah. I don't actually remember if I went to preschool or not. I think we did. Hello, sister?
UNIDENTIFIED PERSON: Brother?
KESTENBAUM: (Laughter) I have a quick question for you. Did I - did we go to preschool?
UNIDENTIFIED PERSON: Well, I did, but it was called nursery school.
KESTENBAUM: Did I go, though?
UNIDENTIFIED PERSON: Well, how would I know? Because you're 3 1/2 years older.
KESTENBAUM: I know but you remember it. I don't remember.
UNIDENTIFIED PERSON: Mom, I think, felt that you didn't need to be in a preschool. So you - she pretty much, like, kept you home except for a couple mornings a week the year before you went to kindergarten. That's what I think she said.
KESTENBAUM: What the heck did I do at home, just play by myself? You weren't there.
UNIDENTIFIED PERSON: Oh, wait. I know you really liked records. Mom always said you really liked to listen to records.
KESTENBAUM: OK. That was my childhood.
UNIDENTIFIED PERSON: I mean, you were like a boy genius, so I don't know, you were probably reading Shakespeare then.
KESTENBAUM: No, I was listening to "Winnie The Pooh" on record, I think.
UNIDENTIFIED PERSON: Oh, yeah, yeah. We have that on TV now.
KESTENBAUM: OK. All right. So basically, I didn't have preschool, not like you did.
UNIDENTIFIED PERSON: Well, I don't think I had it much either. But I think I had it a few days a week.
BLUMBERG: All right.
KESTENBAUM: All right. Thank you very much.
UNIDENTIFIED PERSON: You're welcome.
KESTENBAUM: All right. Alex, so you went to preschool. I apparently didn't. I don't quite understand what the big deal is. I mean, from what I hear about preschool, it's basically taking a lot of naps. You know, you eat some snacks. You trace your hand on the paper with a crayon and turn that into a turkey. I mean, there's a lot of crying. Like, I don't really see what a big deal it is.
BLUMBERG: Well, after today's podcast, I believe you will see what a big deal it is. We're going to lay out the evidence of the importance of preschool, and we're going to be talking to a guy named James Heckman. He's a Nobel Prize-winning economist who's done a lot of research on this.
KESTENBAUM: And it's surprising that James Heckman got involved in studying preschool at all because he's trained as a labor economist. And his early work was pretty math-heavy stuff about labor supply.
BLUMBERG: And he was answering the question of, like, why do women join the workforce and in what way? And, you know, one of his early papers was called, for example, "Simultaneous Equation Models With Both Continuous And Discrete Androgenous" - I'm not even going to finish it. You get the idea. So how did the guy who wrote this end up studying preschool?
Well, it all started when he was invited by the government to analyze the effectiveness of job training programs.
KESTENBAUM: So job training programs, these are big, national programs. Every president from Johnson through Reagan has touted them. The idea is basically you take poor people who are out of work, you train them, give them the skills they need to get a job. And Heckman was hired to see, how well do those programs work? Answer - not so well.
JAMES HECKMAN: Results of these job training programs were especially disappointing. I mean, for boys, the effect on the participation in the program was basically negative. They would've been better off if they hadn't gone into the program. And for many other groups, the effects were basically zero.
BLUMBERG: So these programs were supposed to train you in a new skill that would enable you to get a better job. And when you looked at them, they didn't do that, and in some cases, they actually made it worse?
HECKMAN: Harmed people, correct. There wasn't a - there certainly was no positive benefit, even just in terms of earnings gains. And so the general feeling that I came out with that was quite depressed in some sense because I really was hopeful, as were many, that such programs would have a big effect.
BLUMBERG: Heckman, though, was also confused. Why was this the case? I mean, it seems logical. You give people skills, they should be able to get a job. So why wasn't this helping you get a job? And more importantly, what does help you get a job? And as he looked into it, he found that getting a job wasn't as much about what you knew or didn't know or what skills you had or didn't have, especially for the population that he was studying. These are young adults who've had a pretty hard time. They've come from poor families. They're high school dropouts, a lot of them. The problems ran much deeper.
HECKMAN: The disadvantaged, by the time there were 17, 18, 19, were lacking more fundamental skills. These were intellectual skills. They were personality skills. They were skills that made it very difficult for them to sort of integrate themselves into the modern economy. And the idea of training them out of disadvantage, The way we were traditionally training them, which was by boosting their cognitive skills, by boosting reading and writing and adult literacy programs and criminal rehabilitation programs and the like, those programs weren't paying off.
BLUMBERG: Heckman says that the population of people he was studying lacked something he called soft skills. These are sort of more intangible, harder-to-quantify skills. Some of us might not even think of them as skills at all. But it's sort of like the way you interact with people. Do you make eye contact? Do you smile? Are you open to new experience? Are you curious? Do you show up on time? Things like that. Do you have confidence? How long do you stay on task? Do you pay attention? And then another one turns out to be pretty important, how well do you control your temper? All those things come into play. And these are skills that some people get and some people don't.
HECKMAN: Those skills - gaps between the advantaged and the disadvantaged - open up very early, very early, in fact, before kids even entered school.
BLUMBERG: OK. So that's where we are. These skills that are very essential for getting a job are being formed before you enter school, like from the ages of 2 to 5. And the more Heckmann looked at the data on these skills, the more important these skills seemed. For example, there's this study - a pretty mindblowing and revolutionary study - from the '60s called the Perry Preschool Project, took place in Ypsilanti, Mich.
HECKMAN: In the early '60s, some very visionary individuals conducted a social experiment. They took kids all in one area of the so-called Perry Elementary School - which is in Ypsilanti, it's a disadvantaged area inside of Ypsilanti - and kids were randomly assigned to two years of an early childhood program.
BLUMBERG: These are kids that are really, really disadvantaged. They did poorly on IQ tests. Over half the families are on welfare. Only 2 percent of the families in the study had ever been to a museum. There's 123 kids, and they are randomly put into one of two groups, what Heckman called the treatment group.
KESTENBAUM: Treatment group, like instead of taking experimental medicine, they're treated with preschool?
BLUMBERG: Exactly, right. So the treatment group was the group that went to preschool. They got two hours of preschool a day in the afternoon, five days a week. And they also got a visit once a week. But the interesting part and what makes this study so revolutionary is they had the second group who got none of that. Now, Dave, I know you're a scientist. What's the second group called?
KESTENBAUM: The control group.
BLUMBERG: Remember back to the days of your Harvard Ph.D.?
KESTENBAUM: I do.
BLUMBERG: Exactly, the control group. The control group did what they normally would have done. They didn't go to preschool. And the researchers followed both of these groups as they came back together and through the same kindergarten, went to the same elementary school, went to the same high school and all the way through their adult lives. They're still following them today. They're almost 50 years old, these kids. And every decade or so, researchers call them up and ask how they're doing.
KESTENBAUM: And how are they doing?
BLUMBERG: Well, what they found is really interesting. So the kids who went to preschool, when they got to kindergarten and first grade, they were ahead of the control group.
KESTENBAUM: They did better?
BLUMBERG: They did better in school. But then, after school, in the real world - and this is where it gets really strange - huge differences open up in things that you wouldn't even think would have anything to do with preschool. For example, when researchers followed up with both groups at age 27, the boys in the control group, the non-preschool group, had been arrested an average of 2.3 times. But in the preschool group, the treatment group...
HECKMAN: In the treatment group, that was cut in half.
HECKMAN: You look at monthly earnings on the job, the control group is earning about two-thirds of what the treatment group is earning.
KESTENBAUM: So these kids who, over 20 years before this, got like two hours a day of preschool between the ages of 3 and 5, decades later, they were now half as likely to be arrested? They earn 30 percent more on average a year?
BLUMBERG: Yeah, and there's a whole bunch of results like that. There's this huge table in one of Heckman's papers that he sent me on this where he talks about the other good things that seem to have come from preschool. Preschool girls, for example, when they got to age 27, they were 50 percent more likely to have a savings account. They were 20 percent more likely to have a car. Preschool kids get sick less often. They're unemployed less often.
KESTENBAUM: That seems incredible. Are there criticism? I mean, it seems like one question about this is that - there were how many students, 120-something?
KESTENBAUM: It's not - it's a small study, right? I mean, it's smallish, right?
BLUMBERG: It is a small study, and people have critiqued the study because of that. Like 123 kids isn't enough to draw conclusions about poor people in general. But there has actually been other research that really backs up the Perry project. There's another randomized long-term study out of North Carolina that got almost the same results. There's a big study in Chicago that found the same things, as well.
KESTENBAUM: OK, so the question for me then is, what is actually going on in preschool? Like, what is so magic about preschool?
BLUMBERG: Well, let's take a visit, shall we?
ELIZA CUTLER: You want to say hi? Oh, upside-down hi.
BLUMBERG: (Laughing) Hi.
This is The Co-op School, a preschool in Brooklyn. And I spent a morning here recently hanging out with the 3-year-olds in one classroom. And I was on this mission basically to find out, well, what what happens here that's so special? I talked to one of the students, Ella, a 3-year-old who, during our conversation, would every once in awhile spin around like a ballerina. And I asked her, you know, what goes on here, Ella?
You come here everyday?
BLUMBERG: And when you come here, what do you do?
ELLA: I don't know. I just don't know.
BLUMBERG: You don't know?
(Laughing) I just don't know.
KESTENBAUM: That's not so helpful.
BLUMBERG: No, but I did talk to her teacher, Eliza Cutler, and she actually explained it to me.
CUTLER: They kind of - they play in the morning. And then we'll sit down and have, like, a morning meeting, which is where we - it's just, like, kind of gets them into the routine of the day, which involves, like, doing the weather and doing the calendar and, like, just having general conversation about what we might do during the day. Taking care of the eggs and taking care of our plants is a big part of our day now because they obviously all want a turn and we have to make schedules and stuff like that. Then we play outside. Then they take a little nap (laughing).
KESTENBAUM: Did she say taking care of the eggs?
BLUMBERG: Yeah, they have a bunch of live chicken eggs in this little incubator in the corner, and they're waiting for them to hatch into baby chicks. And each day the kids take turns sort of turning the eggs over. You have to turn the eggs over.
So tell me what you're building.
UNIDENTIFIED CHILD #1: A rocket ship.
BLUMBERG: A rocket ship?
UNIDENTIFIED CHILD #1: And the smoke comes out of those little holes.
BLUMBERG: The smoke comes out of the little holes. Where is the rocket ship going to go?
So, you know, a lot of what I saw here that morning was stuff you'd expect - kids painting with little paint sets or building stuff with blocks, although, they're not blocks anymore. They're these special plastic tiles with magnets in them that sort of stick together and you can build all sorts of shapes with them. They're actually very popular there.
UNIDENTIFIED CHILD #1: I'm using that one.
UNIDENTIFIED CHILD #2: Not even we can't have just one?
BLUMBERG: And actually, that little exchange, that is what Heckman and a lot of others argue is what's going on at preschool that's so valuable. Like these little interactions like this, where kids sort of learn to negotiate, talk to each other, figure out how to share with each other - these are the building blocks of essential skills later on. Everything you do in preschool, it turns out, is sort of teaching you something that you'll need later on, like staying on task, sharing, communication, confidence and curiosity. And it's these skills that the kids in the Perry Preschool Program got that their peers in that control group weren't getting. Again, here's James Heckman.
HECKMAN: I mean, for these kids, 3 to 5, this is like a bolt from heaven in some sense. They got something that they hadn't had before. And that gave them a kind of a new world, a new set of skills, a new set of capabilities which empowered them, I think, and then stayed with them throughout their lives.
BLUMBERG: So and that - I mean, to me, that's the thing that's sort of the most striking, is that like, that a couple of years of things that we typically think of as just sort of, like, you know, playtime for kids, you know, like sharing, and trust games, and flashcards and finger painting - you know what I mean?
HECKMAN: Yeah, but you see that as common. But we take inventories of that. And you look at disadvantaged kids, and frequently, they don't get anything like that.
HECKMAN: This is the case - you know, most parents are teaching soft skills. I mean, they do it daily. We teach that to our kids. We do it by example. We also do it by instruction, of taking the kid aside. Disadvantaged kids are frequently not given the same kind of lessons. They're not given the same kind of parenting. And, you know, people use euphemisms. You talk about harsh parenting and nonresponsive parenting, but I think many people would be shocked, especially middle class, especially I would guess most of your listeners would probably be shocked at the quality of the homes in many of these environments. Kids in disadvantaged families are getting many fewer words read to them, many fewer symbols explained to them. These things all sound very fuzzy and soft, but they translate into real changes in behavior and real attitudes and real traits that emerge into adulthood.
BLUMBERG: Back at The Co-op School in Brooklyn, Eliza, the teacher, she says that sounds right to her.
CUTLER: Yeah, it makes sense.
BLUMBERG: When you're doing this, how much are you thinking about what kind of people they're going to be when they grow up?
CUTLER: I think about it a lot. One of the most interesting things about this age group is this is when they, like, actually start to develop empathy. And so I think it's really important to, like, just help them create, like, strong social bonds and, like, problem-solving techniques because if they don't reach that developmental milestone - because it is a developmental thing - they might not ever develop it.
BLUMBERG: So that last thing that Eliza said, Dave - if they don't develop it, they might never develop it - the data actually backs that up. It turns out there is sort of a window for learning these soft skills. If you don't get them by the time you're 5 or 6, it gets harder and harder to acquire them. Eventually, by the time you're a teenager, it's almost impossible.
KESTENBAUM: Which explains why Heckman, you know, when he was evaluating those job training programs, why he was finding that they didn't work very well - because once you're a teenager or a young adult, it's hard to acquire those skills.
BLUMBERG: And this is where we get to Heckman being an economist. And this paper he wrote - here, I'll read you the title - "A New Cost-Benefit And Rate Of Return Analysis For The Perry Preschool Program: A Summary." In this paper, he argues, essentially, spending money on preschool is one of the smartest things we can do with our dollars. It's much smarter to spend it on preschool than later in life when it does less good. In this paper he adds up what it costs to pay for preschool for disadvantaged kids who need it and what society gets back in return.
KESTENBAUM: What's the answer?
BLUMBERG: When society spends money on these kids when they're in preschool, it actually makes back a lot more.
HECKMAN: The cost to society save courts and crime the - is lowered. The cost of educating kids who were unruly and undisciplined in school, that goes down. The benefits that the kid contributes to earnings and society, that goes up, and so on down the line.
BLUMBERG: The way Heckman thinks about it is like this - for every dollar we spend on high-quality preschool for a disadvantaged kid, we get back 7 to 10 percent per year in return. That means, he says, that for every dollar we put in today, we get back between $30 and $300 over that preschool kid's lifetime.
KESTENBAUM: And where are we today? Are there good preschool programs out there for the kids who need them?
BLUMBERG: Well, I mean, definitely not to the extent that Heckman would like, but there are some programs around the country and there are some national programs. There's Head Start, of course, which people fight about a lot. Some people think it's not the best way to do it. Some people think it is. There are some states that have been very aggressive, sort of setting up near-universal preschool programs. Oklahoma and Georgia, in particular, are credited with doing a lot to make preschool available. Some estimates say that to get preschool to all the kids who need it all across the country, it could cost $14 billion. Heckman says that doesn't need to come from the federal government. It could come from state or local government or not-for-profits.
KESTENBAUM: But he thinks it should come from somewhere?
(SOUNDBITE OF SONG, "SENSITIVE KID")
COLD WAR KIDS: (Singing) Who made me a sensitive kid, a sensitive kid?
BLUMBERG: Before we leave today, I want to mention I first heard about James Heckman from Paul Tuff in his great book "Whatever It Takes" about Geoffrey Canada and education reform in New York City. We'll link to that book as well as to some of Heckman's more accessible papers on our website, npr.org/money.
KESTENBAUM: We'd also love to hear your thoughts, your questions and comments. You can find us on Facebook or Twitter. You can also e-mail us, email@example.com. I'm David Kestenbaum.
BLUMBERG: And I'm Alex Blumberg. Thanks for listening.
(SOUNDBITE OF SONG, "SENSITIVE KID")
COLD WAR KIDS: (Singing) I know you were born with a heart of gold. But I want a Purple Heart that cannot be sold. A sensitive kid, a sensitive kid. Don't call me a sensitive kid, a sensitive kid.
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