Written by a 2000 winner of the Nobel Prize in Economic Sciences, this paper explores the assumptions and foundations of current policies toward skill formation. The paper examines the conventional wisdom articulated by political leaders and draws on a body of recent scholarship that challenges many of the premises that govern popular policy discussions. This scholarship suggests that taking a broader view of the way skills are produced in a modern economy is more appropriate and, ultimately, more beneficial. The paper asserts that by focusing on cognitive skills as measured by achievement or IQ tests, policies exclude the critical importance of social skills, self-discipline, and a variety of non-cognitive skills that are known to determine success in life. Furthermore, the paper maintains, this preoccupation with cognition and academic "smarts" as measured by test scores to the exclusion of social adaptability and motivation causes a serious bias in the evaluation of many human capital interventions. The paper also discusses recent research demonstrating the vital importance of the early preschool years for skill formation and the success and cost effectiveness of early intervention. (EV)