David Boulton: We come into this with a real interest in understanding the economic arguments that are starting to formulate relative to investing in young children. We are trying to understand the intersection between the brain sciences, educational, sociological, and economic research that makes a compelling case for what we call ‘stewarding the health of our children's learning.’ In the course of that we have encountered a number of articles that referred to you.

I’d like to start by asking you to give a sketch of how you come to be a champion with such a unique focus in this area. How does a person in your position, with your strategic view of money and economics, come to focus on children?

Arthur Rolnick:  It was an accident. Doing research on the economics of early childhood education is not my real job. My real job is being the Director of Research at the Federal Reserve Bank of Minneapolis. In that role I direct research aimed at understanding overall economic conditions. We do basic research on issues like inflation, unemployment, the business cycle, banking conditions and international developments. Every six weeks the president of this bank and I meet in Washington D.C. with the other eleven directors of research and bank presidents, and the seven governors in Washington. This committee, which is chaired by Mr. Greenspan, is known as the Federal Open Market Committee (FOMC). The FOMC meets to essentially decide whether or not to change short-term interest rates. In addition, my research responsibilities are influenced by a Congressional mandate that requires the twelve Federal Reserve District Banks to ensure that commercial banks are meeting the needs of their communities.

Much of my work over the last dozen years has raised questions about banking and local economic development initiatives. Almost every city and state in this country has some sort of an economic development program. The problem within these programs is that from a national perspective they are counter productive. When we allow cities and states to bid against each other for businesses and the jobs they create, we set up what economists call a "zero sum game." We dubbed it ‘the economic bidding war,’ for professional sports teams, automobile factories, corporate head quarters, airline facilities, etc. We argue that these types of economic development programs do not create jobs, they just move them around. States have spent an awful lot of public money in trying to lure companies from each other. States bid against each other by offering preferential treatment to businesses that are willing to locate in their state. Often the enticement comes in the form of subsidies. However, when you add it all up, from a national perspective there are no new jobs being created. Maybe some jobs are being relocated, but we found that in many cases business were not influenced much by subsidies; they are going to do what they're going to do anyways, and the subsidies are just icing on the cake.

Arthur Rolnick: The work we were doing on the economic bidding war led us to ask the question: What would be the best way to promote local economic development? What sort of policies, what sort of public investments best promote local economies? Since we found that the way states conventionally promote economic development was fundamentally flawed, we argued that we have to rethink economic development in this country. We also made the legal argument that the bidding war violated the Commerce Clause in our Constitution. The Commerce Clause, as interpreted by the courts, prohibits states from interfering with interstate commerce. There was a recent court decision (September, 2004, United States 6^th Circuit Court) that a subsidy that went to Chrysler Corporation to keep them in Toledo, Ohio, to encourage them to stay instead of moving to Detroit, was indeed unconstitutional. So, we think there are both good economic and legal arguments for questioning the conventional way we promote economic development in this country. We're talking billions of dollars across the country.

Up until a couple years ago when people would ask me, "If the bidding war is the wrong way to promote economic development, if giving subsidies to specific companies to lure them to your city or to your state is the wrong way to do economic development, what should state and local officials do to promote their economies?” My answer would be that most research that I was familiar with pointed in the direction of investing in human capital, in education. We had international evidence pointing in that direction, as well as studies on the U.S. economy. We know a high-quality workforce will lead to economic growth.

So, while there's no magic bullet to economic development, economic research strongly suggests that a key ingredient to economic growth is investment in human capital. Until two years ago I would of have advised local public officials to invest in education from k-12 through higher education.

However, my views have changed. In the spring of 2005, I was listening to a report on the importance of investing in birth to five, an education issue which I had never really thought about. The speaker was with an advocacy group here in the Twin Cities known as Ready-4K (Ready for Kindergarten), and he presented a report on why it was important to fund early childhood development (ECD) programs. He made a moral argument for more ECD funding. After the presentation, I suggested that a much stronger case could be made by utilizing economic research.

Arthur Rolnick: Exactly. So, you have kindergarten through twelfth grade, you have higher education, you've got prisons, you've got congestion, you've got pollution, and on and on. How is a politician supposed to make that choice? I said I thought there might be a good economic case for ECD, but I wasn't familiar with the literature - it wasn't my field. Nevertheless, Ready-4K asked me to write a summary paper of the economic literature on ECD. I thought I could complete this assignment in a few months, and I'd be done with the issue.

My co-author and colleague at the Bank, Rob Grunewald, and I looked at the literature on interventions using high-quality ECD programs with at-risk children. In addition, we also looked at the research on brain development, a totally independent line of work. And both lines of research all came together in a way that said, if done right, high-quality, parent focused, ECD programs that began at birth can make an extraordinary difference in outcomes both for the child and society.

We found excellent longitudinal studies on ECD programs, as well as related studies, that strongly suggest there's a very high public return, but you must invest at birth and you must do it right.

What we mean by ‘do it right’ is that ECD programs must be high quality to get the high returns. They must incorporate master level teachers and regular home visits and they must focus on the parent(s). If done right, especially for at-risk children, these studies show dramatic differences. ECD children are much less likely to be retained in the first grade, much less likely to need special education, much more likely to be literate by the third grade, much more likely to complete high school, get a good job, raise a family and much less likely to commit a crime. In addition, related studies confirm that within three or four years you can see dramatic improvement in at-risk children's outcomes.

Arthur Rolnick: We then asked the question: What was the return on the money invested in high-quality ECD programs for at-risk children? We found that the annual rate of return from one of the four major longitudinal studies was sixteen percent, inflation adjusted. Twelve percent of that was a public return because of the reasons just mentioned, especially the reducing crime.

David Boulton: Wow.

Arthur Rolnick: So, we said, "Look, hands down, this beats conventional economic development, which we argued was a zero public return. And it stacks up well against any private return. We argued this was a fairly safe investment because, if done right and focused on at-risk children, we can achieve these outcomes. Hence, ECD should be high on any economic development list.  Typically, ECD is either low on the list, or it doesn't even appear.

Your original question was: How did I get involved in the economics of ECD? The answer is through the back door, looking at economic development and realizing that most of the economic development that is publicly funded in this country is counter productive, that is, it is over funded. However, there is an area in which we're under funding, and it's ECD birth to five.  And ECD should be viewed not just as education, but as economic development.

The essay we wrote for Ready-4K was sent all over the country. As a result, our phones have been ringing off the hook. I have been the keynote speaker at several national conferences, including the National Governors Conference in December 2003, the United Way Leaders Conference in April 2005, and the World Bank/IMF annual meeting in September 2005. My co-author and I have been to over forty states speaking on this issue. In addition, we are working with several states that are making ECD one of their top economic priorities. The economics of ECD is an issue that I never thought would generate this much interest, but it has.

David Boulton: Yes, I interviewed him a couple weeks ago.

Arthur Rolnick: I think Heckman’s work is the outstanding research in this area.

Arthur Rolnick: Right.

David Boulton: Implicitly what we're saying is that it's how ready children are for school. Is that right?

David Boulton: Which means that the cost associated with trying to compensate for these variations is, in the practical order, difficult and near impossible to deal with inside school.

Arthur Rolnick: Solving the problem becomes more expensive once a child starts school. Most of the research says if the child starts out significantly behind, that's a good predictor of how they're going to end up in the third grade, the sixth grade and beyond. The good news is that ECD research tells us that interventions can work, and that investing in a child’s early years of development yields a much better return than waiting to invest in later years.

David Boulton: In some respect when we talk about these kinds of preschools, we're focusing on the comparatively disadvantaged children. The children that are coming out of upper middle class homes, where there's a different kind of nourishing environment to stimulate brain growth and so forth, it isn't as necessary there.

Arthur Rolnick: That's correct.

David Boulton: So, in some respects, what we're saying is that we need to do this in order to compensate for variations in the family. How much of this is really about the family learning environment?

Arthur Rolnick: I think most of it is. And the problem is mostly related to poverty. It isn't that early education isn't important for every child. But clearly, in middle and upper middle class families a high percentage of children are brought up in a positive environment. They've got both the social and language skills to start school ready to learn.

I've heard from criminal justice professionals around the country. They tell me that most of the children that end up in jail don't come from middle and upper middle class families. They come from poverty families. These professionals see the problems every day. They realize that if a child has a very slow start, or if they're far behind in kindergarten, odds are the criminal justice system is going to see them somewhere down the road, five, ten, fifteen years later.  

David Boulton: Have you begun to identify what the resistance is to appreciating the underlying argument?

Arthur Rolnick: Well, one type of resistance comes from people on the far right of the political spectrum. They're worried that we're going to take children away from their families. I point out that the research strongly suggests that parent involvement is a key factor in getting the kind of return we're talking about. We're not talking about taking children away from low-income families, just the opposite. We're talking about working with the family because the studies show you've got to get the parents engaged. 

Essentially, you're educating the parent on parenting and it's a critical component. The programs that we are advocating include home visits by a high-quality mentor at the earliest age possible. The brain development researchers will tell you that in the most stressful environments the damage to the brain is the most severe; waiting until the child turns three is too late. So, we're aiming to get mentors into families shortly after the birth of the child.

When we talk about high quality programs, therefore, we mean home visits and we mean parent education as well as child education.

These kinds of programs have a high upfront cost, but they yield an extraordinary public rate of return.

Arthur Rolnick: We've argued, in a second essay, that we need a system that allows us to bring ECD up to scale. I'll give you a specific proposal we're making for Minnesota and you'll see what I mean by "up to scale."  We want to make these programs permanently available for every at-risk child in the state of Minnesota. So we ask: How do we provide an effective ECD program for all of Minnesota’s at- risk children today and in the future?   

To ensure permanency, we suggest that the state create an endowed fund to provide scholarships for our estimated 14,000 at-risk children in Minnesota. We estimate that we need about $1.5 billion for such an endowment. The scholarships would go to the families. They would be tuition-plus scholarships.  That is, they would include tuition to a high-quality ECD program, plus a mentor that would make regular home visits.

David Boulton: So you're trying to make a kind of voucher birth-K?

Arthur Rolnick: Yes. But for obvious political reasons, we call them scholarships.

David Boulton: Okay. I understand the mechanism.

Arthur Rolnick: The idea is that the scholarships will pay for performance, so that we expect these kids to be ready. The whole point of this program is to get kids ready for school. Minnesota has a readiness test right now and fifty percent of our kids do not pass that test. Most of those kids fall behind and never catch up. We've got pretty good data on that.

So, we're saying to ECD providers who are looking for funding, “Look, as a provider, if you're good, you're going to get the scholarship kids, you're going to get this money. But you've got to produce."

When I present it that way, I have no trouble getting the business community supporting these efforts. In fact, we have an organization here in Minnesota of business leaders that are promoting early education and scholarships. And in a number of states I have created some interest in creating an endowed fund that would do something like this. 

As far as opposition to these ideas, I wouldn’t say it was strong.  I think it is simply a problem with the lack of understanding about the importance of ECD.

Resistance to the Argument - Assessment:

Arthur Rolnick: The other form of opposition is assessment. We're not talking high-stakes testing. We're talking about these school readiness tests, which are not high-stake. But there are experts in the field that are very concerned that we're going to be doing high-stakes testing on three and four year old kids and we're not.  Moreover, we will learn from these assessments.

David Boulton: The more that we move in this direction, the more that we’ll develop methods of assessment that are not too intrusive or onerous or scary.

Arthur Rolnick: Right.

David Boulton: Those are not solid reasons.

Arthur Rolnick: No, and there is no way that either government or business is going to fund ECD programs today without some assessment. 

David Boulton: Yes, those days are ending.

Arthur Rolnick: Yes. But anyways, that's the opposition I've had. There are of course the people who are just worried this is going to cost a lot of money, and people who are worried about government spending money. And I say, "Give me the state’s economic development budget. I can get a much better return on that money."

David Boulton: That's the real heart of the case. And that’s the level that's going to inspire business and shift government policy. We will get more and more traction the more we have evidence behind the fundamental financial case.

Arthur Rolnick: Exactly. I'm talking now to several of faith-based organizations and I say to them, "I'm not making a moral argument. That's your job. My job is the economic argument. I'm not going to show you pictures of cute kids learning in a classroom environment, or whatever. I'm just going to make the economic argument. I'm going to show you why this is a good public investment. That's it.”

David Boulton: And it's going to be really important to support and triangulate support on your argument from these different dimensions.

Arthur Rolnick: Absolutely. But the public needs to have a clear understanding of the economics of ECD.

David Boulton: Yes. That's where the core fulcrum is, I agree.

Arthur Rolnick: No, I do not think so.

David Boulton: I recommend this to your attention. It was a study done in homes across the socioeconomic spectrum in which a person came once a week for an hour plus and actually recorded every word that was spoken in the household between the child and the adults.

Arthur Rolnick: Oh yes, I am familiar with this work, but not with the names of the authors.

David Boulton: The difference in language exposure has an incredible correlation to IQ, and to reading scores and other performance issues years down the road.

Arthur Rolnick: Yes, very consistent.

Arthur Rolnick: There was a program, not for school readiness, but there was a program in Minnesota designed for cultural reasons to keep the Ojibwa language alive. They took groups of very young Indian children, age two, three and four, and immersed them in the Ojibwa language. At that age they're like sponges. When they get to kindergarten, they're some of the best students in class and continue to do well throughout their schooling. The language skill appears to transfers to the other skills.

Arthur Rolnick: I'm not surprised.

David Boulton: And it's not just because language is the bathing exercise that's creating brain differentiation at this most fundamental level that's exercising intelligence and all the rest of it, but language is the conveyer of affect. So, it's the language environment that's really creating positive or negative affect to such a significant degree, and that both of those things are the fundamental cornerstones of literacy, which is the center of success in school.

Arthur Rolnick: Right.

David Boulton: Relative to this, we've noticed in California they're moving fast towards establishing a pre-K system, particularly for four year olds. That's what the latest Rand Report, commissioned by the Packard Foundation, recommended for California. That’s a step in the right direction on one level, but it's also institutionalizing this at a latter stage of the ‘sensitive window.' In other words, the information on vocabulary is showing that it's exploding late in the second year, and then throughout the third year. And that the third year's development of language is critical to everything else.

Arthur Rolnick: Yes, I like the way you said it. A universal four year-old early education is a good first step. I'm not sure it's the best first step, though. The programs that we argue for are focused on at-risk families, birth to five, with regular home visits by highly qualified mentors. The scholarships are tuition-plus. The plus is the mentor. The tuition can be used by the family when the child turns three to enroll in a high-quality early education school.

It’s a program that covers birth to five. If you just aim at enrolling four year olds, and if you do it universal, you end up subsidizing many families that don't need it; that is, the public return is low. Moreover, the universal four year old program is starting too late in many cases. So, while I think the universal four year old program is a good step, I think the investment with the highest return is birth to five focused on the at-risk families.

I don't simply want to add a grade onto kindergarten through twelve. Again, I want to empower the parents, because the research tells us that if you get the parents engaged, you're going to get these results.

Arthur Rolnick: Yes, and it doesn't make any economic sense. I'm not just saying this because it is intuitive. The research here is pretty convincing. As I said earlier, it is two separate lines of research, independent lines of research. There are the brain development researchers who now tell us how critical that brain, the architecture, the development of that architecture is from zero to five. Then there are the intervention researchers where they work with at-risk children, providing a high-quality program, comparing them to kids that don't have it. That research is very, very persuasive.

Arthur Rolnick: So, you’re doing a number of interviews? This is for a project you're working on, obviously, that's going to be published?

David Boulton: Yes. We've got about twenty of the interviews up on line now ranging from government policy leaders to neuroscientists, to language specialists and many others.

There are two main levels to our project. One is reading itself. Reading represents an unnatural form of confusion to the organism. It requires processing an external, artificial code in a way that nothing in our evolution has prepared us to do. Some children, for all the reasons that we've been describing, come through home environments that sufficiently exercise their language and emotional development such that their brains have been prepared with the inner resources necessary to stretch through this artificial confusion. Others don't. And the consequence of this reading difficulty connects at both the cognitive and the brain science level. But also, and this is where the social pathology correlations come in, children that experience protracted confusion and the frustration during the early stages of learning to read tend to blame themselves.

Arthur Rolnick: Wow.

Arthur Rolnick: Yes.

David Boulton: That they are feeling as if there's something wrong with them because of this confusion and that leads to shame. And they develop faster-than-consciousness shame aversions to the feeling of certain kinds of confusion and that's decapitating to learning more generally than just reading.

Arthur Rolnick: Again, the research here is impressive and persuasive. I think it's a failure on the academic side not to market this work more widely.

David Boulton: That's why we're doing the interviews. We're creating a web matrix online. We've been traveling around the country presenting seminars in which we take the jewels of these interviews and sequence them together into a thumping experience that brings these different planes of information into registration together.

Arthur Rolnick: I think it's very important to get this information out. I'm trying to do this with the business community here in Minnesota. I find that business people are quick learners on this issue. I show them the literature, and I show them the research. There is not much debate

Arthur Rolnick: I agree. Although I can tell you, when you are making the case for building a professional sports stadium or arena with public money, public officials do not seem to demand objective research showing the public benefits - it is just assumed that the public benefits are high. As a result, most of our professional sports stadiums and arenas around the country have been built with generous public subsidies.

David Boulton: That's why I'm reaching out to you and others in this dimension because I think the neuroscience arguments and the self-esteem or emotional development arguments and all these different planes are very critical, and they'll reach a number of different people in those different universes. But ultimately what's going to shift the behavior of the country over the long-term is going to be understanding how fundamental this is to everybody through the economic channel.

Arthur Rolnick: Yes, I agree.

David Boulton: One of the missing ingredients that could register all these different planes or dimensions of research and information is to come up with a way of describing, measuring and supporting the health of children's learning. It is the unhealthy learning environments that are the problem.

Arthur Rolnick: Yes, that's the message. That's the message you've got to get across.

David Boulton: Let's go back and get a brief, crisp summary of what you started off with saying, relative to the financial efficiency of investing in this period.

Arthur Rolnick: Conventional economic development is usually focused on what's the next new company we're going to bring to town, what new building we're going to construct. The development is always very visible and, pun intended, very concrete. However, the market would do this on it own - without government subsidies. From a national perspective, the public return is zero. Real economic development comes from developing our workforce and the development of a high-quality workforce starts at birth. And investment in ECD, if it's high quality, yields extraordinary returns.

David Boulton: Excellent. Do you have any sense of what we're investing in birth to five?

Arthur Rolnick: In pre-K, I don't. You know, the big investment, of course, is Head Start and Head Start averages about $8,000, per kid, per year. There is no funding for about forty percent of the kids who are eligible for Head Start. Eight thousand dollars per kid, we estimate, based on the studies of high-quality early education is about twenty-five to fifty percent below what it should be to get the kind of quality we need on average. So, it's way underfunded from a research perspective. It's focused on at-risk children, and there are some very good Head Start programs. But on average, Head Start is not getting the returns because the Head Start program is not well funded and it is not embedded in the type of market environment that we're suggesting with scholarships and mentors for at-risk parents.

David Boulton: It seems to me that what we're talking about, we have this $550 billion investment going into K-12, and the efficiency of that system as a whole really depends on how we re-conceptualize investing in this on-ramp into it. And right now we're talking about a one percent development, comparatively.

Arthur Rolnick: Right. Absolutely. This is the work of Professor James Heckman at the University of Chicago. I think he makes a very powerful case that we're investing at the wrong end. We should be putting much more at the foundation, in the birth to five. Percentage-wise, it's minuscule compared to the resources that we put into kindergarten through twelve. Again, I think it's a rethinking of the importance of birth to five. I think most of us don't understand how critical those learning years are, how critical those years are to the architecture of the brain, how critical those years are for success in the future.

You know, the last ten years on brain development research, we're just starting to understand how important birth to five education is. I think as we educate the public about this we'll start making some inroads.

David Boulton: Is there anything that we didn't touch on that you think we should?

Arthur Rolnick: You got to the universal versus focused. I like that. There’s people who say to me, "Well yeah, I understand what you're saying. But that's the job of the mother." And my response is, "I agree with you. Now, let's give the mother the tools and the fathers the tools to do this and do it right."

The problem is that the middle class and the upper middle class, they have those tools. At the lower end they don't. And you could say, "Well, why should I care?" You should care, because as society, we have to live with huge costs if these kids don't succeed.

David Boulton: That would proceed from the assumption that they were aware of the importance and that's precisely what's missing…

Arthur Rolnick: That's what's missing.

David Boulton: And being propagated generation to generation. It will require some other approach then just compassion for the well-being of the children.

Arthur Rolnick: Right. I mean, you can make the moral argument, and that will work for some people.  But I think the economic argument also needs to be made, to understand that this is a public investment that yields a high public return.

To promote their economy and job creation, public officials try to attract professional sports team, software companies, automobile factories, etc to their state. All states compete in this way. This is what we conventionally think of as economic development. But it is counter productive. It's a zero sum game. There are no new jobs that are created in this economic bidding war. We have to rethink economic development, think of it in terms of investing in human capital. And when you go down that road, and when you start to think about how important worker development and the quality of a workforce is, it leads you to ECD, birth to five, that's where we need to be investing.

David Boulton: Thank you so much.

Arthur Rolnick: Very nice meeting you. Good luck.