The Harvard Genius Mapping the Death of the American Dream — Zip Code by Zip Code

What if the single strongest predictor of whether a poor kid rises into the middle class has nothing to do with intelligence, work ethic, or even education, and everything to do with who happens to be in their classroom in third grade?

Raj Chetty grew up in New Delhi, came to the US in fourth grade, emailed 15 Harvard professors his first week on campus, was working as a research assistant for Marty Feldstein within weeks, graduated college a year early, and became one of the youngest tenured professors in Harvard's history. He has since used anonymized tax records covering virtually every American to build the most detailed picture ever assembled of who gets ahead in this country, why, and what we could actually do about it.

In this episode, Professor Kotlikoff sits down with his MacArthur Genius Fellow and John Bates Clark Medal-winning colleague for a conversation covering the grocery store experiment that upended tax theory, the kindergarten classroom that changes your earnings for life, the Facebook data revealing why Iowa produces more upward mobility than Atlanta, and a brand-new private capital market proposal that could finally align financial incentives with the American dream.

What You'll Learn:

• [00:17:23] The grocery store experiment: do people respond differently to a price hike versus a tax hike of the same dollar amount, and what the answer reveals about policy design
• [00:18:28] Why your true marginal tax rate is nearly impossible to calculate, and why that matters enormously for how much people work and save
• [00:36:20] The key insight behind the kindergarten teacher paper: linking the 1980s Tennessee STAR experiment to adult tax records 25 years later
• [00:39:25] How kindergarten classroom assignment by coin flip changed the course of children's lives
• [00:40:09] One excellent teacher versus one average teacher: a 2 to 3% annual earnings gain per grade, compounding to a 20 to 25% lifetime wage difference
• [00:41:25] Why teacher quality beats class size as a policy lever, and why Finland and Switzerland get this right while the US does not
• [00:44:44] The Opportunity Atlas: type in your zip code and see what the American dream looks like in your own neighborhood
• [00:48:00] Why Dubuque, Iowa, produces more upward mobility than almost anywhere on earth while Charlotte and Atlanta rank below many developing countries for poor kids rising up
• [00:50:00] The single strongest predictor of economic mobility: not schools, not income, but cross-class friendship
• [00:53:00] The causal proof: kids randomly assigned to classrooms with more high-income peers go on to earn more and rise higher
• [00:56:00] The inventor gap
• [01:00:11] The digital twins method
• [01:03:31] The private capital market for opportunity: how a $10,000 investment in job training could generate double-digit investor returns while reducing inequality

Featured Guest:

Raj Chetty is the William A. Ackman Professor of Economics at Harvard University and Director of Opportunity Insights. He received his BA and PhD from Harvard and became one of the youngest tenured professors in the university's history. He is the recipient of a MacArthur Genius Fellowship, the John Bates Clark Medal, and the Harvard George Ledley Prize.

Resources:

• Opportunity Insights: opportunityinsights.org
• The Opportunity Atlas: opportunityatlas.org
• The Social Capital Atlas: socialcapital.org
• "Social Capital I" (Nature, 2022): nature.com
• "Social Capital II" (Nature, 2022): nature.com
• "Where Is the Land of Opportunity?" (QJE, 2014): opportunityinsights.org
• Raj Chetty's publications: rajchetty.com/publications
• Economics Matters Substack: larrykotlikoff.substack.com

Economics Matters: The Podcast is hosted by Larry Kotlikoff, Professor of Economics at Boston University.

Disclaimer: Any opinions expressed on Economics Matters are those of the authors and guests. These are not the opinions of Boston University or Economic Security Planning, Inc.