The Economics of Human Capital

Eric A. Hanushek, Jens Ruhose, Ludger Woessmann, “Human Capital Quality and Aggregate Income Differences: Development Accounting for U.S. States“, NBER Working Paper No. 21295 (June 2015).

Although many U.S. state policies presume that human capital is important for state economic development, there is little research linking better education to state incomes. In a complement to international studies of income differences, we investigate the extent to which quality-adjusted measures of human capital can explain within-country income differences. 

We develop detailed measures of state human capital based on school attainment from census micro data and on cognitive skills from state- and country-of-origin achievement tests. Partitioning current state workforces into state locals, interstate migrants, and immigrants, we adjust achievement scores for selective migration. We use the new human capital measures in development accounting analyses calibrated with standard production parameters. 

We find that differences in human capital account for 20-35 percent of the current variation in per-capita GDP among states, with roughly even contributions by school attainment and cognitive skills. Similar results emerge from growth accounting analyses.

I have serious doubts about the narrowness of the definitions of human capital used and the methods used for determining them.  But, I’m not surprised that more educated states whose people come from states with higher test scores outperform those which lack these.

Human capital does not just mean intelligence or education,  Social capital, civil society, attitudes towards authority, self-organization, tolerance, facilitation of networking are at least, and shared values are at least as critical, and unlike IQ and educational achievement which is heavily influenced by IQ and highly correlated with it, social capital is not predominantly genetic in origin and hence more amenable to management with policy solutions.  Lots of human capital resides in cultures and groups, not in individual brain power.

This isn’t to say that narrower definitions of human capital don’t have a place in economics.  For example, the aggregate number of people with various kinds of health profession degrees and certifications may be a decent way of measuring human capital in the health care industry.  But, in less regulated fields, this approach has declining utility.

Furthermore, achievement scores from places of migration are very poor measures of migrant IQ or education, because migrants are well known to be highly atypical of their places of origin (see, e.g., the “fit immigrant” hypothesis).

This study also does not engage the literature of decreasing economic returns to education.  More education is still almost always better than less education at the individual, and increases in GDP have coincided with increases in average education.  But, returns to a given level of education vary greatly over time and from place to place.

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SCOTUS Shows Interest In Conditions Of Incarceration

In Kingsley v. Henderdrickson, the U.S. Supreme Court resolved a circuit split by holding that the standard of civil liability for excessive force for people incarcerated prior to trial and conviction under the Fourteenth Amendment’s due process clause (“objective unreasonableness”) was distinct from and lower than the standard of civil liability for excessive force for people incarcerated pursuant to a conviction (“reckless disregard for the prisoner’s safety and rights”) under the Eighth Amendment cruel and unusual punishment clause.

By itself, this is unremarkable, but it is notable when taken together with the off topic concurring opinion of Justice Kennedy in David v. Ayala, in which Justice Kennedy invites future judicial review of prolonged solitary confinement for everyone from inmates on death row (as in the case before the Court) to poor New York kids in pretrial detention for years because they can’t make bail.

The full text of the June 18, 2015 opinion is worth restating here for reference purposes:

JUSTICE KENNEDY, concurring. My join in the Court’s opinion is unqualified; for, in my view, it is complete and correct in all respects. This separate writing responds only to one factual circumstance, mentioned at oral argument but with no direct bearing on the precise legal questions presented by this case.

In response to a question, respondent’s counsel advised the Court that, since being sentenced to death in 1989, Ayala has served the great majority of his more than 25 years in custody in “administrative segregation” or, as it is better known, solitary confinement. Tr. of Oral Arg. 43–44. Counsel for petitioner did not have a clear opportunity to enter the discussion, and the precise details of respondent’s conditions of confinement are not established in the record. Yet if his solitary confinement follows the usual pattern, it is likely respondent has been held for all or most of the past 20 years or more in a windowless cell no larger than a typical parking spot for 23 hours a day; and in the one hour when he leaves it, he likely is allowed little or no opportunity for conversation or interaction with anyone. Ibid.; see also Wilkinson v. Austin, 545 U. S. 209, 218 (2005); Amnesty International, Entombed: Isolation in the U. S. Federal Prison System (2014). It is estimated that 25,000 inmates in the United States are currently serving their sentence in whole or substantial part in solitary confinement, many regardless of their conduct in prison. Ibid.

The human toll wrought by extended terms of isolation long has been understood, and questioned, by writers and commentators. Eighteenth-century British prison reformer John Howard wrote “that criminals who had affected an air of boldness during their trial, and appeared quite unconcerned at the pronouncing sentence upon them, were struck with horror, and shed tears when brought to these darksome solitary abodes.” The State of the Prisons in England and Wales 152 (1777). In literature, Charles Dickens recounted the toil of Dr. Manette, whose 18 years of isolation in One Hundred and Five, North Tower, caused him, even years after his release, to lapse in and out of a mindless state with almost no awareness or appreciation for time or his surroundings. A Tale of Two Cities (1859). And even Manette, while imprisoned, had a work bench and tools to make shoes, a type of diversion no doubt denied many of today’s inmates.

One hundred and twenty-five years ago, this Court recognized that, even for prisoners sentenced to death, solitary confinement bears “a further terror and peculiar mark of infamy.” In re Medley, 134 U. S. 160, 170 (1890); see also id., at 168 (“A considerable number of the prisoners fell, after even a short [solitary] confinement, into a semi-fatuous condition . . . and others became violently insane; others, still, committed suicide”). The past centuries’ experience and consideration of this issue is discussed at length in texts such as The Oxford History of the Prison: The Practice of Punishment in Western Society (1995), a joint disciplinary work edited by law professor Norval Morris and professor of medicine and psychiatry David Rothman that discusses the deprivations attendant to solitary confinement. Id., at 184.

Yet despite scholarly discussion and some commentary from other sources, the condition in which prisoners are kept simply has not been a matter of sufficient public inquiry or interest. To be sure, cases on prison procedures and conditions do reach the courts. See, e.g., Brown v. Plata, 563 U. S. ___ (2011); Hutto v. Finney, 437 U. S. 678, 685 (1978) (“Confinement in a prison or in an isolation cell is a form of punishment subject to scrutiny under the Eighth Amendment”); Weems v. United States, 217 U. S. 349, 365–367 (1910). Sentencing judges, moreover, devote considerable time and thought to their task. There is no accepted mechanism, however, for them to take into account, when sentencing a defendant, whether the time in prison will or should be served in solitary. So in many cases, it is as if a judge had no choice but to say: “In imposing this capital sentence, the court is well aware that during the many years you will serve in prison before your execution, the penal system has a solitary confinement regime that will bring you to the edge of madness, perhaps to madness itself.” Even if the law were to condone or permit this added punishment, so stark an outcome ought not to be the result of society’s simple unawareness or indifference.

Too often, discussion in the legal academy and among practitioners and policymakers concentrates simply on the adjudication of guilt or innocence. Too easily ignored is the question of what comes next. Prisoners are shut away—out of sight, out of mind. It seems fair to suggest that, in decades past, the public may have assumed lawyers and judges were engaged in a careful assessment of correctional policies, while most lawyers and judges assumed these matters were for the policymakers and correctional experts.

There are indications of a new and growing awareness in the broader public of the subject of corrections and of solitary confinement in particular. See, e.g., Gonnerman, Before the Law, The New Yorker, Oct. 6, 2014, p. 26 (detailing multiyear solitary confinement of Kalief Browder, who was held—but never tried—for stealing a backpack); Schwirtz & Winerip, Man, Held at Rikers for 3 Years Without Trial, Kills Himself, N. Y. Times, June 9, 2015, p. A18. And penology and psychology experts, including scholars in the legal academy, continue to offer essential information and analysis. See, e.g., Simon & Sparks, Punishment and Society: The Emergence of an Academic Field, in The SAGE Handbook of Punishment and Society (2013); see also Venters et al., Solitary Confinement and Risk of Self-Harm Among Jail Inmates, 104 Am. J. Pub. Health 442 (March 2014); Metzner & Fellner, Solitary Confinement and Mental Illness in U. S. Prisons: A Challenge for Medical Ethics, 38 J. Am. Academy Psychiatry and Law 104–108 (2010).

These are but a few examples of the expert scholarship that, along with continued attention from the legal community, no doubt will aid in the consideration of the many issues solitary confinement presents. And consideration of these issues is needed. Of course, prison officials must have discretion to decide that in some instances temporary, solitary confinement is a useful or necessary means to impose discipline and to protect prison employees and other inmates. But research still confirms what this Court suggested over a century ago: Years on end of near-total isolation exact a terrible price. See, e.g., Grassian, Psychiatric Effects of Solitary Confinement, 22 Wash. U. J. L. & Pol’y 325 (2006) (common side-effects of solitary confinement include anxiety, panic, withdrawal, hallucinations, self-mutilation, and suicidal thoughts and behaviors). In a case that presented the issue, the judiciary may be required, within its proper jurisdiction and authority, to determine whether workable alternative systems for long-term confinement exist, and, if so, whether a correctional system should be required to adopt them.

Over 150 years ago, Dostoyevsky wrote, “The degree of civilization in a society can be judged by entering its prisons.” The Yale Book of Quotations 210 (F. Shapiro ed. 2006). There is truth to this in our own time.

We can expect to see petitions brought to the Court in response to this opinion, both on solitary confinement and excessive pre-trial confinement, and can expect to see a receptive Justice Kennedy together with the four liberal justices, ready to grant relief in response to them.

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A Modest Proposal

Consider this proposal for a law, and I am only half tongue in cheek here, enacted using the grant of Congressional enforcement powers under the final sections of the 13th, 14th and 15th Amendments to the United States Constitution, respectively:

1.  An “Unreconstructed Government” shall mean any state, county, city, or other governmental entity that as a matter of official policy, or as a matter of practice without ratification in an official policy (or contrary to a statement in an official policy), makes use of any of the distinctive symbols of the Confederate State of America, or a substantially similar symbol, or uses the name of any politician of the Confederate State of America to name any building, department, part of a building, or program. 

2. In any civil action, or in any motion filed or legal action taken in any civil or criminal or administrative case in any state, or local or federal court or administrative proceeding, in which it is alleged that an Unreconstructed Government, or an officer, employee or agent of that Unreconstructed Government acted with an intent to discriminate against a person on account of race or ethnicity, because a person is not a native born non-Hispanic white individual, this intent shall be presumed.  This presumption may be overcome only with proof beyond a reasonable doubt to the contrary.

Thus, for example, in an employment discrimination lawsuit, or Batson challenge, or suit alleging that a state patrol officer acted in a racially discriminatory manner with South Carolina, which is an “Unreconstructed Government” as defined in the statute, the person claiming discrimination would automatically establish that intent unless the State of South Carolina overcame that presumption with proof beyond a reasonable doubt.

Governments make symbolic statements and this law would not bar them from doing so.  But, it is well within the scope of federal power under the Reconstruction Amendments to make reasonable efforts to define the statement that a governmental entity makes when it uses those symbols, in a manner that reflects their widely understood meaning.

Flying a Confederate flag, just like burning a cross, has a well defined meaning in the American historical context which everyone on both sides of the issue of whether those symbols are used understands perfectly well.

If a government wants to make those statements, coded in symbols, however, it needs to live with the consequences of its acts, like losing cases where it claims, insincerely to be saying something else, in the Courts.

States like South Carolina, which has flown the Confederate battle flag since 1962, and which recently experienced a white supremacist murder of nine people at a prayer meeting in a historically black church which was intended to “start a race war,” would have to decide if they wanted to pay that price.

The hope, of course, is that so shamed and so made to pay the consequences of their acts, that the Unreconstructed Governments in the United States would “voluntarily” change their ways in a way that created a new cultural reality, just as anti-discrimination laws have done in the private sector despite the fact that they are extremely hard to enforce in many contexts such as initial hiring of employees for open positions.

Many “moderates” are willing to make racist statements with symbols if there are no consequences for their actions, but would change their tune if they were forced to own their symbolic statements.

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Publicity, Not Secrecy, Is The Secret To Catching Culprits (Again)

A woman heading in to work at a florist shop in North Carolina Thursday morning led police to a man accused of gunning down nine people at a historic African-American church in South Carolina the night before.

Debbie Dills spotted the black car being driven by alleged gunman Dylann Roof at around 10:20 a.m. and called a friend, who notified police, NBC station WCNC in Charlotte reported.

“I paid close attention to the pictures on TV, but I thought, ‘No. It can’t be him,'” Dills, of Gastonia, N.C., told the station. “I noticed the car. And I noticed the boy’s haircut,” Dills said.

Dills, who was on her way to work at Frady’s Florist, followed the black Hyundai along Highway 74 while the man she called, Fred Frady, called Kings Mountain Police, who notified Shelby Police and led to Roof’s arrest, the station reported.

Roof, 21, is accused of opening fire at a Bible study meeting at Emanuel African Methodist Episcopal Church in Charleston at around 9 p.m. Wednesday, killing nine people, including the church pastor, the Rev. Clementa C. Pinckney, who is also a state senator.

From NBC News.

To be clear, I don’t presume, at this point, that Roof is definitely guilty or definitely innocent. Police identified him as a suspect, for reasons I don’t know, and made the information public.  That question depends upon the evidence that was used to identify the suspect.  But, there is no doubt that sharing information about the person who they suspected widely and publicly was pivotal to apprehending their suspect who was hours of driving and a state line away from the scene of the crime.

Earlier reports had attributed the arrest to an apparently random traffic stop, but it turns out from this report that the stop wasn’t nearly as random as it was first described as being.

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The Non-Monetary Care Giving Economy

Not all of the goods and services produced in the U.S. economy are part of the monetary market economy.  Some are provided within the families or to other loved ones outside the monetary economy.

A  new study comprehensively describes this non-monetary part of our economy. “The study estimates the value of unpaid care nationwide at $691 billion in 2012, roughly 4.3 percent of the country’s GDP.”

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Teen Births At All Time U.S. Low

Preliminary date from 2014 show that the teen birth rate in the United States is the lowest it has ever been in U.S. history.

The preliminary birth rate for teenagers in 2014 was 24.2 births per 1,000 women aged 15–19—yet another historic low for the nation. The rate was down 9% from 2013 (26.5) and has declined more than 7% annually since 2007. Since the most recent peak in 1991 (61.8), the rate has declined a total of 61%. In 2014, the preliminary number of births to women aged 15–19 was 249,067, down 9% from 2013 and 44% from 2007 (444,899).

In 2014, the preliminary birth rates for teenagers aged 15–17 and 18–19 fell 11% and 7%, respectively, to 10.9 and 43.8 births per 1,000 women, another record low for both groups, from 12.3 and 47.1 in 2013.

Since 2007, the rate for teenagers aged 15–17 has declined more than 9% annually, and the rate for those aged 18–19 has declined nearly 7% annually. The number of births for teenagers aged 15–17 declined 11% from 2013 to 2014, and births to those aged 18–19 declined 8%.

The birth rate for teenagers aged 10–14 was 0.3 births per 1,000 in 2014, unchanged from 2013, the historic low for the nation. The number of births to mothers in this age group declined 11% in 2014, to 2,771 births.

Near record post-Roe v. Wade abortion rates for teenagers are largely a product of the same factor that has led to lower birth rates for teenagers, which is a reduced number of pregnancies, in significant part due to increased use of birth control.

Birth rates, in general, have been declining since 2007, mostly due to the financial crisis, and just recovered for the first year since then in 2014 with overall U.S. births up 1%.

C-sections, low risk C-sections, and pre-term deliveries are down for every ethnic group.  Increased births to mothers 35 years of age and older, particularly among better educated women is making up for reduced numbers of teen births.

On the whole, it is just about the best news we could have in the vital statistics department.  This will likely translate into reduced poverty, and in particular reduced child poverty, in the U.S. for decades.

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China’s Securities Markets Still In A Bubble

About 97% of the profits that manufacturers in China earned in the last year were from a 60% increase in the value of the investment securities that they held, while their profits from operations rose by only 0.09%.

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Kansas Explained

Why is Kansas so conservative, to the point is dysfunction?

One of the key factors is that it has two major cities that make up half the state, which are highly atypical.  The poor urban core of Kansas City is in Missouri, and Wichita, due to a lack of natural boundaries, has a very low population density.  Also, neither of its major cities is home to a major university.

Another key point is that Kansas is seeing the rural areas and small towns that make up 98% of its land decline in population to the point where economies of scale for basic services are breaking down, except in areas experiencing large amounts of immigration for farm related industries that remain poor.

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Interstate Alienation Of Affections

A very small number of states, including Mississippi, still authorize civil lawsuits for “alienation of affections” in which a married person sued a third party who has sex or an affair with the married person’s spouse.

So far, those lawsuits have not been held unconstitutional (despite the issue being cleanly presented to the U.S. Supreme Court for review if it wished to consider the issue), although the vast majority of U.S. states have abolished such lawsuits and it is a crime in Colorado to file, or seek to obtain a settlement of, such a claim.

But, what is someone from a state other than Mississippi that does not recognize an alienation of affects cause of action, in a place other than Mississippi that does not recognize an alienation of affections cause of action, has an affair with a married Mississippian and is sued by that married Mississippian’s spouse.  Can the spouse sue the “other man” or “other woman” in Mississippi for alienation of affections?

The Mississippi Supreme Court has ruled, 7-2, that he may, if the “other man” or “other woman” knew that the spouse was from Mississippi, but that he may not if the “other man” or “other woman” did not know that the spouse was from Mississippi.

This implicates a field of law known as “choice of laws”.  Historically, great emphasis was placed in both jurisdiction and choice of law, on the place that a critical fact was tied to, like the execution of a contract, or the place that a tortious act took place.

But, more recently, courts have looked to whether there are “significant connections” between the state whose law is to be applied (often the law of the forum state) and the events that took place.  Hence, an automobile accident involving two people from Mississippi that takes place in California might be subject to Mississippi law rather than California law.  Decisions like this one can flow from that approach and from the due process emphasis of the constitutional law of personal jurisdiction that requires someone to “purposefully avail themselves” of a state’s laws by their actions in order to be subject to its jurisdiction.

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