A very famous economist named Adam Smith really believed that we were all fundamentally equal
and everything was shaped by experience. He said the only reason why the butcher and
the baker and the candlestick maker ended up doing different things in life is because of
the different amount of experience they had, the different amount of education.
Then a hundred years later genetics came in to the modern understanding and we had a period in
which everybody believed skills were genetically determined, or at least a large chunk of them.
Things like IQ and certain kinds of talents. Go forward another hundred years, we’ve come
to understand that the early life plays a very important role. We can offer opportunities and
understanding on what the best form of those opportunities will be, should be,
is still a subject undergoing great evolution. When Adam Smith was writing The Wealth of Nations
he didn’t really have much data. He was a very informed observer, he went around Scotland and
England and looked at factories. So he codified that ethnographic study in a series of what we
now think of as economic models, principles. Why is this factory successful? What principles
underly a division of labour? Many deep ideas he had but he didn’t have a body of data.
Data essentially allow us to discriminate among alternative explanations. We might observe some
fact, then we want to know well is this fact an anomaly? Is this just one instance? And then the
second question would be, even if it’s a repeated finding, what are the mechanisms that give rise to
that repeated finding? As you try to collect data and you try to use every source of information
available to you, and also using economic theory to help organize your thinking. But
then also recognizing parts of the story may not yet be fully understood and that’s the challenge.
One question you think about in economics, that used to be said, was that we had no way to do
experiments. So, I’ve looked at data from what are called cross-sections, looking at different
individuals, following the same people over time. So you look at multiple sources of data,
all of it non experimental. Suppose we want to know how serious are adverse circumstances on
adult life? So, we have examples of children born into famines, for example. You can look
at the course of children born during that period and follow them into their adulthood and say did
those children actually grow up worse in some dimension than children who weren’t starved?
Well I’ve looked at a range of questions over my lifetime. For example, one of the
earliest questions I was concerned with was whether or not government civil rights and
affirmative action policies in the 1960s had actually promoted real improvement
in the disadvantaged black communities. I became aware of the series of experiments
that had been done years ago in a town just west of Detroit called Epsilon in Michigan. A
population of low-income African Americans were randomly assigned to treatment and control when
they were three and four years of age. In fact, everybody in the 1960s thought IQ was the be all
and end all of human differences. If we could boost IQ, we could end human differences. So,
by the first ten years of this project we saw that it had no effect on IQ.
But then what happened is that these people were followed. Just as we speak now we have
a sample that we’re collecting on these same people at age 50; how much they earn,
where they live, their crime, their educational attainment. What we see is substantial benefits
or people who got treatment compared to those who got control. And what we find is a rate of
return that is somewhere between seven to ten percent, per annum, for each dollar invested.
And what we saw was first of all looking only at IQ was crazy, social skills were effective,
early health skills were effective. So a variety of skills that were completely off
the table 50 years ago, now we realize are very important. So the biology and economics
are coming together but it’s also the data. The takeaway for students who care about
inequality–governmental policy makes a difference. We can redistribute money to
the poor. But what we can also understand is that instead of having pure policies of
redistribution in the adult years, we can have policies of pre distribution that actually
provide opportunity over the whole lifecycle. And this gives another dimension for thinking
about the whole question of inequality. What kind of strategies we might be able to do. So we
can think more broadly about inequality than we would have maybe twenty, even thirty years ago.