This interview was conducted by a journalist from the Federal Reserve Bank of Minneapolis in June 2005.
Below are some of the provocative highlights (which make perfect sense in the context of the interview.
On sources of inequality -
The family is the major source of human inequality in American society.
On the importance of measuring non-cognitive skills (personal behaviors, discipline, etc.) as well as cognitive skills (such as test scores, years of school attended, etc.) -
These findings have major implications for American educational policy - for example, the No Child Left Behind Act, and all the related policies which are predicated on the assumption that we succeed with an educational intervention if we improve on test scores. Such policies are at best misleading. The achievement test scores of these GEDs show they're as smart as high school graduates, but they don't earn anywhere near what high school graduates earn because they lack persistence and motivation.
Most macroeconomists think of human capital as education, measured by years of school. Or if they're a little more sophisticated, they measure human capital by test scores like IQ or an achievement test. Neglected are all the noncognitive abilities that are produced by healthy families. Deficiencies in these skills can be partially remediated, as we know from the early intervention programs. Not completely remediated, but certainly gaps can be closed. The things we used to think of as soft and fuzzy have a real effect on behavior.
The importance of stories as contributors to non-cognitive capabilities -
But anyway, [Adam] Smith says people are basically born the same and at age 8 one can't really see much difference among them. But then starting at age 8, 9, 10, they pursue different fields, they specialize and they diverge. In his mind, the butcher and the lawyer and the journalist and the professor and the mechanic, all are basically the same person at age 8.
This is wrong. IQ is basically formed by age 8, and there are huge differences in IQ among people. Smith was right that people specialize after 8, but they started specializing before 8. On the early formation of human skill, I think Smith was wrong, although he was right about many other things. And Dimitriy and I said that in the speeches we gave while in Scotland last year. We wanted to be a little titillating. But I think these observations on human skill formation are exactly why the job training programs aren't working in the United States and why many remediation programs directed toward disadvantaged young adults are so ineffective. And that's why the distinction between cognitive and noncognitive skill is so important, because a lot of the problem with children from disadvantaged homes is their values, attitudes and motivations.
Cognitive skills such as IQ can't really be changed much after ages 8 to 10. But with noncognitive skills there's much more malleability. That's the point I was making earlier when talking about the prefrontal cortex. It remains fluid and adaptable until the early 20s. That's why adolescent mentoring programs are as effective as they are. Take a 13-year-old. You're not going to raise the IQ of a 13-year-old, but you can talk the 13-year-old out of dropping out of school. Up to a point you can provide surrogate parenting.
So, coming back to job training and other interventions targeted toward disadvantaged adolescents, mainstream discussions miss the basic economics of the skill formation process. When we understand how that works, that skills build on each other, it's very common-sensical. It's not just IQ, or achievement measured by a test. That's very hard for many economists to understand. There are interactions among IQ, cognitive ability as measured by an achievement test and noncognitive ability.
We tell stories in nursery school, such as the story of the tortoise and the hare and the story of the little train that could. I read these to my kids, and they were read to me. All these folk tales, all these pieces of wisdom, the fact that a mother's love matters and all this stuff, we tend to dismiss them in our formal models of education policy. We economists like to write down specific technologies and make things very precise. That's a useful discipline, and that's what I am doing with various coauthors. We are making this subject precise. But sometimes I have my doubts. Some of what economists do is to explain to fellow economists what most intelligent people already know. A lot of what economists do is explain to themselves what the rest of the world already knows. There's a real risk of being caught up in that.