Education: A Good Investment in a Bear Market

Skeptics argue that the United States’ mounting budget deficits are a reason to put off public investments and reign in ambitious reforms. They’re wrong.

It is more imperative than ever to make targeted public investments that will yield high returns and lay the foundation for 21st century growth.

One set of savvy investments is in education, which recent research suggests would grow the economy and earn the government significant positive returns.

With investors around the world scrambling for a safe haven for their money, U.S. treasury bills are in high demand, meaning low yields for investors, but cheap money for the U.S. government.


At the same time, too many of America’s students are stuck in failing schools without quality teachers, test scores in key subject areas are woefully behind the rest of the world, huge gaps persist between students of different races and incomes, and more and more high schoolers are finding college out of reach.

This isn’t just a tragedy for young people and their families, it represents a huge missed opportunity.

High quality universal pre-school, improved efficiency, accountability and funding for grades K-12, and broader access to college, would address these festering educational problems and earn dividends on the taxpayer’s dime.

The fiscal benefits of these reforms aren’t abstract or aspirational. Conservative projections on the real fiscal rate of return on public educational investments are high: 10% for high quality preschool programs, 15% for innovative K-12 reforms like First Things First, and 10.3% for investments to encourage college access and graduation.

By contrast, the CBO’s projected real 10-year treasury bond yield (the cost of borrowing by the United States government) over the next decade is just 3.2% (after inflation).


The source of these potential returns isn’t complicated: better educated people are more productive, get sick less often, are less likely to require public assistance, commit fewer crimes, make more money, and pay more in taxes. Creating more of them is a good idea.

Of course, as a group of researchers at Columbia Teachers College write, “a society that provides fairer access to opportunities, that is more productive and with higher employment, and that has better health and less crime is a better society in itself. It is simply an added incentive that the attainment of such a society is also profoundly good economics.”

Read CAP’s education plans here.