Zac Schultz:

Minnesota’s Democratic governor has a different answer to the surplus question. He plans to invest in infrastructure and higher education. Here to talk about that contrast in budgeting is Art Rolnick, a University of Minnesota economist and former research director at the Federal Reserve Bank of Minneapolis. He joins us via Skype. Mr. Rolnick, thanks for joining us.

Arthur Rolnick:

My pleasure.

Zac Schultz:

Well, for years the right-left debate has been about how to get out of a recession, tax cuts or infrastructure spending. Does the argument change when it’s about what to do with the surplus?

Arthur Rolnick:

It should. I would hope that states that have surpluses, like Minnesota, like Wisconsin, would take a longer run view. That is, to invest this money for the sustainable economic growth. And you can do that. A conventional way of using public dollars to promote economic development comes with deflection, a conventional way. And we’re talking nationwide about $90 billion. Cities and states try to lure each other's businesses across state lines or city lines. Clearly, from a national perspective, that’s a zero/sum game. That’s moving jobs around. That’s not really creating jobs. Even from a local perspective often these dollars are wasted because businesses probably would have located in those communities anyway. A much better investment is thinking of human capital. We've learned post-World War II that those countries, internationally, that have done well, these so-called economic miracles, they’ve invested in their human capital in particular. Human capital seems to be a key ingredient, or it has been for the last 50 years. It’s probably going to be more important the next 50. So investing in trained workers, educating our children, critical, critical to long-term economics.

Zac Schultz:

And you just spoke before to Wisconsin legislators on this topic. Tell us about your area of expertise and what you’re pitching to them.

Arthur Rolnick:

Well, when we look at this question of education, worker training, human capital, the question that researchers have framed, where is the next dollars' best investment. And there’s an overwhelming amount of research right now that shows dollars are best invested in the earliest years; that is, early childhood, starting as early as prenatal. We've got longitudinal studies that show that children, especially our poverty children, if they get high-quality ed, if they start kindergarten healthy and ready to learn, they succeed. Long term, they’re less likely to be curtained in the 1st grade, more likely to be literate by the sixth grade, graduate high school, get a job, pay taxes. We've shown that the crime rate went almost 50%, compared to poverty kids who don’t get that help. So we know more and more kids are born into poverty. If we leave them behind our work force suffers dramatically. It's difficult to sustain economic growth now, imagine what it will be like in 20 years if we don't educate those kids. We showed in a number of these studies that you get double-digit returns, the public gets double-digit returns from investing in high-quality early ed for poverty kids. That’s what I was talking to your legislators about. I think there’s a lot of understanding. In particular, I’m surprised at how many in the audience knew about the neuroscience research which shows that brain development in those early years, something like 50% of the brain– I’m sorry, 80% of the brain is developed in the earliest years. If we get to the kids early and we reduce what’s known as toxic stress, provide a positive environment for these families, these kids thrive and they thrive as adults, which means we have stronger economies, stronger economic growth for all of us.

Zac Schultz:

Well, the Republicans in charge of the Wisconsin legislature support ideas like school choice and other options for parents, but there’s quite a few of them that draw the line at anything pre-k. They call it the nanny state or state-funded baby-sitting. How do you break through with them that this is where to spend the money?

Arthur Rolnick:

I want to tell you what we did in Minnesota to make that breakthrough. I have both sides of the aisle, I have our business community behind this. I have CEOs of Target, Best Buy, Ecolab, Cargill, some of our best and our strongest companies that have a long-term vision not only for their companies but for the community. We initiated the following program. We provide scholarships to poverty kids, scholarships not to go to college, but to go to high-quality early ed programs. Parents choose and we empower these parents. We engage these parents. We’re already getting extraordinary results in the program. So we call on a market-based approach. They can only use the scholarship for four-star rated programs. It's market driven. We only pay for performance. They can choose HeadStart, but they can choose Montessori. They could choose a private early ed program. They can choose faith-based programs, as long as they’re four star. So we found that that approach plus all this research had convinced quite a few people on both sides if the aisle that this is the best public investment.

Zac Schultz:

So what’s the price tag on something like that?

Arthur Rolnick:

Small. In Minnesota, we just laid out a half a billion dollars for a new Vikings stadium, $250 million for the Mall of America. With that kind of money we can provide scholarships for every poverty child in the state of Minnesota. It's so interesting, Minnesota produces about $280 billion worth of gross state product every year. To provide the kind of scholarship mentoring program, our mentors state as early as prenatal, it’s a relatively small amount of money compared to the return. We save a significant amount of money in k-12 because our kids, a higher percentage of our kids, do not need special ed. We reduce the cost of special ed. Fewer of our kids are retained in kindergarten, first grade. So we show significant savings right up front. Then long-term, you know, if you don’t do this, a high percentage of these kids drop out of school and they end up in jail, and the cost to society is enormous. So think of it as an investment. Yeah, you have to put some dollars up front, but relatively speaking, for an awful lot of economic development programs, it’s a small amount of money, with a much better return.

Zac Schultz:

We’ve got less than a minute now, but how do you convince a politician who gets elected every two years that they need to wait ten years or a generation to see the results?

Arthur Rolnick:

Well, we created something called Minnesota Early Learning Foundation. They raised $20 million privately due to the help of, again, Cargill, Best Buy, Target, Ecolab, many, many other companies. So we had the business community behind this. And the business community, — your success stories. They have a long-term vision. And when the business community says, this is important. This is — and puts their dollars in, we’ve had a lot of success convincing politicians on both sides of the aisle that this is what government should be investing in first when it comes to economic develpoment.

Zac Schultz:

All right. Professor Rolnick, thank you very much for your time. We appreciate it.

Arthur Rolnick:

Thank you.