This was partly an oversight; I meant to say something about them in the context of discussing college affordability. But I actually have become a bit more ambivalent about asset-building policies. Not negative, just ambivalent.

Lane

2. “College should be a financially viable option for all Americans.”

Right now, college graduates earn more. But it’s a fallacy to think that if everyone were given a college degree, we’d all suddenly earn more and no one would work at any menial jobs any longer. Instead, if everyone goes to college, then a college degree will be the equivalent of what a high school degree used to be — except that it will have wasted 4-6 more years of the average person’s life, plus cost more in tuition money. And then employers will still find ways to put people in menial jobs, for which people will now be “overqualified.” See http://www.johnlocke.org/acrobat/pope_articles/the_overselling_of_higher_education_report.pdf (I once knew a guy who had an anthropology degree from Brandeis, whose job was overseeing a loading dock at a large bookstore.)

As to why college has a high earnings premium these days, I like to think of it this way: In an era when fewer people went to college, it was perfectly respectable to enter the workforce as a high school graduate. Now, to do so marks you as being in the bottom 20 or 30%. So it’s a framing issue — it’s not that college has a high premium, it’s that failing to go to college has a higher penalty. But it’s not good to have a world in which failing to go to college has a high penalty. There are many, many people out there who really don’t like the world of school, and it’s simply unjust to force them to spend several years and tuition money getting a degree just so they can have a credential to enter the workforce. Am I wrong?

I don’t blame you for being confused about this, since so many others are too, but you would probably like to learn this important fact: the home- mortgage- interest deduction is NOT a subsidy to owner-occupied housing. Why? Because landlords of rental housing also get to deduct mortgage interest and property taxes (as business expenses). The mortgage- interest and property-tax deductions do not discriminate between “owners” and renters. HOWEVER, a different feature of the tax code does subsidize “ownership.” That is the exclusion of imputed rental income. (One who owns a home could, in theory, rent it out for cash. Instead he just lives in it. The hypothetical rent he “pays” to himself arguably should be taxed as income). There are good reasons for the imputed-rent exclusion (it would be very difficult to estimate imputed rental values accurately, and it’s hard to make people pay taxes on accounting gains in actual cash they may not have), but as any real economist (or accountant) who you may ask about the problem will confirm, the exclusion of imputed rental income is the chief tax subsidy to owner- occupied housing– the mortgage- interest deduction has nothing to do with it.

“What,” you ask, “would be more effective at fostering mobility?”

“1. Universal preschool for 4-year-olds and subsidized high-quality care for under-4s.”

You realize that “high-quality care” is a propaganda term for “care provided by unionized teachers at enormous expense,” don’t you? Worse, even your sources (go look at Heckman again) agree that the best thing we could do for kids would be to facilitate their being raised in intact homes by attentive parents. Schemes to substitute one-size-fits-all care by bureaucratic school staff for parental care are likely to exacerbate kids’ problems, not ameliorate them. Heckman likes to rely on the Perry Preschool Project (from 1962, when the population of the US was 85% white) for the notion that intensive preschool will boost poor kids’ achievement. He omits to discuss the flaws in the Perry project which make its uniquely-positive results dubious. Also, states like Georgia and New York implemented universal preschool more than a decade ago and have seen NO significant improvement in social outcomes.

Instead of preschool schemes to get kids away from their parents, you should be advocating tax relief and divorce reform to promote stable families for kids to grow up in.

“2. Improve K-12 public schooling by increasing teacher pay.”

Contrary to your “view” there is no evidence at all that teacher pay is the problem with public schools. Consider teachers in California, who earn almost $60,000/school-year on average, equivalent to full-time wages of $75-80,000/year. Yet California’s NAEP scores are abysmal. Comparisons like this show the same pattern at every level of magnification. You can predict NAEP scores by parents’ income, or by the race of students in a school, but you cannot find any meaningful correlation between teacher salaries and student academic performance, except for one: schools with lots of unruly kids and slow-learners tend to be staffed with teachers having less seniority and therefore lower pay under union rules, because more senior teachers get first pick of schools and naturally choose to work in the nicer ones. If you wish to fix the public schools you don’t need to pay teachers more, you just need to discard the union rules which: prevent paying teachers for performance; prevent hiring capable teachers with degrees in something real (e.g., English, or math) rather than “Education;” prevent replacing incompetent teachers; etc.

“3. Encourage lifelong learning. Just 28% of 25- to 29-year-olds have a four-year college degree.”

See the answer to point #4.

“4. Make college more affordable. The earnings of those with a four-year college degree tend to be substantially higher than of those without one, and a college education sharply increases the odds of economic success for persons from disadvantaged backgrounds (see here). College should be a financially viable option for all Americans.”

When we all have college degrees, who will drive the trucks which bring groceries to our supermarkets? Really, your proposal seems uninformed, if not fantastical. Only about 1/6 of the population are really smart enough to earn and utilize a college degree. To subsidize college attendance for manifestly unqualified applicants will have only ill effects: it will waste a ton of money; and it will harm those kids who spend time in college and either drop out or graduate with worthless “feelgood” degrees– kids who could have learned trades and gotten respectable jobs, but who will be disappointed and frustrated instead.

“[The] main obstacle to increasing the share of Americans with a college degree is the low rate of high school completion.”

Subsidizing college won’t fix the high school graduation problem, which is substantially caused by school boards trying to implement the fantasy that every high-school student belongs on the college-prep track, even if that means he will drop out of high school! Want to help young people? Bring back vocational courses in high school. Do you realize that “business skills,” and “shop,” and “home economics” classes have been eliminated from high school? Those classes used to prepare many kids for work and all kids for more self-reliant lives. Which do you think will be more useful to some perfectly normal, average, 100 IQ kid– learning how to fix a car, or flunking Algebra II?

“5. Universal health care.”

It would take too long to discuss this, but I don’t think you’re right. There was more mobility in America before 1965 than there is now.

“6. Expand the Earned Income Tax Credit.”

You advocated single-payer health coverage to remove an implicit tax on mobility. EITC eligibility phaseouts impose a very stiff marginal tax burden on workers whose earnings grow. Why is that okay?

Anyway, the EITC operates as a subsidy to employers, not workers. It distorts the whole market in subtle but pretty damaging ways.

Some businesses, like janitorial services or various restaurants, are based on large amounts of low-skilled labor. These businesses compete on price to sell a commodity good/ service. Their prices are determined by the local subsistence wage which is their minimum cost for labor. Competition prevents any of these businesses paying more than the subsistence wage.

Now, suppose rising rents or gasoline prices push up the minimum subsistence wage. Ordinarily this would force low-wage businesses to pay their workers more. At the same time, they would raise prices. That would promote the consumption of substitutes and entice (capital) investment into more labor-efficient methods. Ultimately, total output would increase–a rising tide which would lift all boats.

Instead of allowing this process to play out, though, our beloved Federal government steps in. It raises taxes, then subsidizes (only) low-wage workers so their employers will not have to pay them more or raise prices.

Those artificially-capped prices then deliver false signals to the economy, causing it to veer off course.

Goods/ services from low-productivity producers seem cheap, but consumers really pay for them twice: once at their nominal price, then again through the tax system. (The portion laundered through the EITC includes a hefty surcharge for transaction costs.)

Not only do the actual goods/ services cost as much or more in the end, but the low nominal prices protect inefficient (low-wage) incumbent suppliers from competition by discouraging the entry of more efficient suppliers.

(Note how cleverly EITC is structured. To get the subsidy, you must work for a low wage. So unlike welfare, EITC doesn’t drive up wages by competing with business for workers. At the same time, EITC rules fence more-efficient higher-wage employers out of this large Federal subsidy program.)

EITC’s effects reach beyond the obvious interference in labor-intensive sectors of the economy. EITC discourages quality improvements in many businesses.

Suppose every fast-food sandwich would cost 20 cents more if there were no EITC. Hypothetically, it takes about the same amount of labor to prepare each sandwich, though some have better ingredients. If the price of the crummiest sandwich increased 20% from $1.00 to $1.20, while the price of the tastiest one increased only 10% from $2.00 to $2.20, people would choose to enjoy the tastier one more often. (Note that eliminating EITC would leave at least 30 cents more in every sandwich-buyers’ pocket (not 20 cents, because of EITC’s overhead costs). People who continued to buy the cheapest sandwiches could spend their surplus on something else instead.)

The whole EITC program is nothing but rent-seeking by low-wage businesses and their corporate clients.

(Also, non-minimum-wage businesses benefit from EITC at taxpayers’ expense.

(Many businesses buy services from low-wage suppliers (janitorial services are the obvious example). The EITC holds down the price of those services by transferring part of their cost to income-tax payers. So businesses which buy low-wage services effectively transfer part of their costs to taxpayers at large.)

If we really want to boost the income of low-wage workers, raising the minimum wage is the way to go.

“7. Wage insurance.”

Actually, I almost agree with you on this one. If we could figure out how to set up a wage-insurance plan that wouldn’t end up as a subsidy to low-wage employers I could support it.

“8. Boost income maintenance.”

The empirical evidence is that higher welfare payments or longer unemployment-insurance payouts just discourage job seeking. HOWEVER, you could advocate a national- basic- income or negative- income- tax plan.

“9. Job placement assistance and public employment as a last resort.”

Can you get public-sector unions to go along? (They have always been stridently opposed to workfare schemes that give participants any real work experience.)

Anyway, if you fix basic education and provide a basic income, you won’t need to fund a useless job-placement bureaucracy or workfare.