Human Capital Confusion

The past few days have produced a bumper crop of takes on human capital. I summarize and comment on some of those takes below.

1. Milanovic: "Human Capital" is confusing.

Branko Milanovic argues that the phrase "human capital" is confusing and should be junked because it often obscures the important distinction between labor income and capital income (I, II). In his second piece, Milanovic even suggests that ideological desires to obscure that distinction may motivate its use in the first place.

As my prior writings indicate, I think Milanovic's basic point about the confusion engendered by "human capital" is exactly correct. The idea that acquiring more skills often makes people more productive has a long pedigree. You can even find it in Das Kapital. Further, the insight that spending resources on acquiring skills is thus a kind of investment is an important one. But the investment analogy that gives rise to the "human capital" nomenclature can never erase the fact that "human capital" only pays dividends when people work, i.e. physically exert themselves in labor. This is not the case for "capital" as it is classically defined (e.g. by Smith).

Ultimately, ideology determines whether the classical distinction between income from working and income from owning truly matters. But the distinction carries a lot of weight in many common ideological frames. As Milanovic points out, acquiring labor income involves undergoing disutility that acquiring capital income does not, an important consideration within utilitarian frames. Also, as I frequently point out, labor income is the consequence of you being productive, while capital income is (at best) the consequence of external objects (that under the prevaling legal regime you happen to "own") being productive, an important consideration within desert frames that maintain people are only owed what they produce.

2. Pethokoukis: Reformocon Child Tax Credit is justified on human capital grounds.

Jim Pethokoukis, as part of his revolving effort to backfill a justification for the Reformocon's Child Tax Credit plan, argues that the credit can be justified on human capital grounds. Pascal-Emmanuel Gobry, whose entire body of writing merely aggregates ideas from other conservatives, regurgituates Pethokoukis' argument at The Week. The human capital argument here is that increasing the resources of families with children can improve the condition of children (better nutrition, less stress, more enrichment, more stability) and that this will cause the children to be more productive workers when they grow up.

This is all well and good as a general matter (though, as we shall see below, it is a bit creepy to commodify children like this). The problem is that the Reformocon Child Tax Credit is intentionally designed in a way that dramatically limits its effect on human capital.

As Robert Stein explains, the credit is specifically designed to exclude the poorest fifth of families from benefits. This pattern of benefit deprivation creates two distinct human capital disasters. The first is that the pattern directly deprives poor children of benefits, the children who stand to gain the most human capital boosts from such benefits. Poor children in the US are among the poorest in the developed world while the middle and upper class children the credit primarily targets are already the richest in the developed world.

The second disaster is that the credit incidentally deprives young children of benefits, who also stand to gain the most human capital boosts from such benefits (the early years are crucial to brain development). The credit deprives young children of benefits because young children (on account of having younger parents who are less progressed in their careers) are far more likely to be low income and therefore lose out on the benefits. As I've discussed before, the poverty rate for 1-year-olds is 40% higher than the poverty rate for 15-year-olds.

A benefit that was truly targeted at boosting the human capital of children would take the form of a universal child allowance, a program very popular elsewhere in the world that provides flat, monthly, per-child cash benefits to every single family.

3. Chait: Child Care benefits will increase human capital.

Riffing on the James Heckman and Center for American Progress line, Jonathan Chait notes that early childhood education and quality child care is now being sold as liberals' new human-capital strategy. Using some recent studies purporting to show huge productivity gains from these sorts of programs, liberals are now trying to sell them under a pro-growth banner.

As with Pethokoukis, this is basically all well and good as a general matter (though again troublingly commodifying as we see below). However, I do find it strange that liberals play around in this pro-growth game as if it is supposed to persuade anybody on the right. Many liberals seem to be a tad delusive about how genuine conservatives are when they say they are just worried about growth. Even if you could definitively prove such policies were pro-growth via this human-capital mechanism, have no doubt that conservatives would still heavily oppose them because the concern for growth is a rhetorical ploy that largely does not motivate their substantive policy views.

4. Elizabeth Stoker Bruenig: Human capital arguments commodify children.

ESB argues that this new crop of human capital arguments popping up around child welfare benefits are "a nice way of fitting a welfare program into a supposedly conservative agenda, but at the same time [they] transform[] everything positive about the moral commitments that should underpin a child benefit program into gross money-grubbery." The point here is that these arguments essentially understand children as "androids" (Krugman's word), robots to pour investment money into rather than people with intrinsic value.

To be sure, providing material security to people involves many considerations, some of which relate to helping them reach their full human potential (which includes productive potential). But the balance of how we talk about this matters, and at present we seem to be pushing headlong into total commodifiction territory. Soon enough, arguments for feeding children will not focus on their hunger, but instead on how much extra productivity will result from each marginal piece of bread.

The problems with these kinds of arguments are not just that they employ morally repugnant language. It's that they also lead in many cases to morally objectionable conclusions. In cases where providing resources to a child both cares for them intrinsically and greatly boosts their future productivity, it may seem purely academic to complain about focusing so much on the productivity point. But not all cases are like that. Things like special education and other public benefits for disabled children almost certainly do not pass this emerging human-capital test. But do we really want to say educating, doctoring, and generally providing resources for disabled children is a waste?