America’s Human Capital Slowdown

A new Brink Lindsay paper “Frontier Economics: Why Entrepreneurial Capitalism Is Needed Now More Than Ever” (PDF) aims to persuade you that even though US growth has been slower in the neoliberal era than in the postwar era, and even though growth is faster in less-neoliberal developing countries than in more neoliberal developed ones, you should nonetheless not give up on neoliberalism. Rather, you should conclude that the richer you are the harder it is to obtain additional growth.

I find various elements of the argument fairly convincing, but to offer an observation in defense of the “big government” (i.e., high levels of spending on public services) fork of the neoliberal tree, it seems to me that it’s a mistake to talk about this without talking about human capital stagnation:

There’s an image of the United States out there as the land of free market capitalism. And certainly there’s something to that. But it’s also the case that throughout our history, America has traditionally been the best educated country in the world. That goes all the way back to New England’s settlement by Bible-obsessed Puritans who through up schools everywhere so kids could learn to read the word of God. It continues through Justin Smith Morrill’s Land Grant Colleges Act, through an emphasis on being an attractive destination for high-skill workers, through to the GI Bill, and public school desegregation in the twenty years after 1955. But we’ve really slowed down. Our fancy colleges are getting more expensive rather than getting bigger or better. The downscale for-profit college sector is dynamic and innovative, but it’s basically a scam where barely anyone graduates. We’re not investing in high-quality preschool, we’re shutting the door on skilled migrants, and we’re not investing in effective job training programs. On top of that, we’ve created housing policies that generally make it too expensive for low-income families to move to school districts whose public school perform well!

And yet while all this is happening, financial deregulation has sucked an increasingly large share of ambitious people with technical skills into the financial sector and out of more entrepreneurial realms of endeavor.