Head Start

Libertarian economist Tyler Cowen reads an abstract making the case for massive socialism:

Is lifetime inequality mainly due to differences across people established early in life or to differences in luck experienced over the working lifetime? We answer this question within a model that features idiosyncratic shocks to human capital, estimated directly from data, as well as heterogeneity in ability to learn, initial human capital, and initial wealth -- features which are chosen to match observed properties of earnings dynamics by cohorts. We find that as of age 20, differences in initial conditions account for more of the variation in lifetime utility, lifetime earnings and lifetime wealth than do differences in shocks received over the lifetime. Among initial conditions, variation in initial human capital is substantially more important than variation in learning ability or initial wealth for determining how an agent fares in life. An increase in an agent's human capital affects expected lifetime utility by raising an agent's expected earnings profile, whereas an increase in learning ability affects expected utility by producing a steeper expected earnings profile.

That's Tyler's emphasis and mine as well. He views the lesson as "treat your kids well, invest in them, and realize that determinism is not altogether crazy." This is true, but I don't think one should ignore the political upshot that equality of opportunity is a sham.

Comments

At age 20, you're still mostly an adjunct of your parents. What happens 20 years further down the road?

Posted by Jeffrey Davis | July 6, 2007 9:17 AM

It's not what you know, it's who you bl.....

Posted by steve duncan | July 6, 2007 9:21 AM

Isn't this more an argument for a highly demanding socially conservative attitude to parental duty, rather than an argument for individualist big government which erects obstacles to family ties?

Anyway, this is familiar territory to anyone paying attention -- see Heckman/Kruger et al...

Posted by Chris | July 6, 2007 9:24 AM

...I don't think one should ignore the political upshot that equality of opportunity is a sham.

Prince Gautama peers outside the palace walls and lo, what does he discover? "Equality of opportunity is a sham." See you under the bo tree, Matt.

Posted by James Gary | July 6, 2007 9:26 AM

Re: "Isn't this more an argument for a highly demanding socially conservative attitude to parental duty"

Oh, man. Does that mean I have to start paying attention to my kids?

Posted by Jim W | July 6, 2007 9:28 AM

Um, doesn't this argue, if anything, for a massive increase in education funding. The effect of "human capital" being "substantially more important than variation in... initial wealth"

Of course whether this argues for massive socialism or the more modest goal of massive incremental investment in education depends also on whether these things can actually be made to work in the world we live in. The study could after all argue that the driving variable of lifetime outcomes is whether or not each child gets A Pony!

Posted by sd | July 6, 2007 10:11 AM

We live in a society that gives point on college entrance examination for living in a rich neighborhood (what did you think coming from a good school district meant?). The elite have gone out of their way NOT to build more colleges so that they could keep college tuition out of the realm of most Americans financial grasp. It's gotten to the point where even REALLY good grades can't get you into a good school, you need to do 300 hours of community service, join the football team AND be involved in student government.

Tell me, who is such a system more likely to advantage; the poor kid who has to get a job to help his or her single mother pay bills, or the rich kid who never worked a day in his life, has a completely open schedule and can afford professional tutoring?

The problem is designed, it's not accidental. The elite just don't want to have their children compete with everyone else's children.

Posted by soullite | July 6, 2007 10:22 AM

Wait, so if it turned out that differences in luck mattered more than initial conditions, that would somehow mean equality of opportunity was awesome? You've got a dichotomy between Luck and Fate, and neither of those are within our control.

Posted by Consumatopia | July 6, 2007 10:46 AM

Since human capital as of age 20 is possibly related to ability to learn and family wealth as of earlier ages, it is perhaps misleading to suggest that these variables are less significant than "initial human capital." This could be a function of choosing an age by which a significant store of human capital has been accumulated. The real issue (in my opinion) is how to bring about such an accumulation, and what role parenting, schooling, genes, etc. play in that process?

Posted by henry evans | July 6, 2007 10:50 AM

But Fate is in our parent's (at least partial) control, whereas Luck isn't. Therefore, these data indicate how advantages can accrue intergenerationally.

Posted by Jim W | July 6, 2007 10:51 AM

One of the biggest difficulties in getting the public to recognize the validity and importance of these kinds of claims (i.e. that circumstances, especially early circumstances, are the primary driving force in lifetime success) is that the most salient representatives of the people who had it tough are the ones who made it out.

So you end up with a sort of "Green Lantern Theory of Antipoverty Programs." The examples of people who started out in abject poverty and ended up rich and famous as a result of "hard work and determination" are plentiful enough that the public assumes that people are poor because they lack the will to succeed -- after all, these people who had "the will" made it out! Never mind that these stories are salient precisely _because_ they represent outliers.

Posted by Galen | July 6, 2007 11:20 AM

Anyone who non-ironically endorses the American dream-- if you are smart and work hard, you will succeed-- is a fool. You'll see counter examples time and time and time again in your life, and yet you'll be told over and over again not to trust your own experiences. I don't think that I'm a socialist, but it does drive me crazy when socialists are derided as idealists. The simple narrative of capitalist success is as much of a dream as the benign dictatorship of the proletariat. One vision just has a better advertisement campaign going for it.

What's more, I don't think the American dream is just a house and two kids and a wife and a dog and screwing your secretary anymore. I think if you look at our popular culture the dream is now nothing less than being rich and famous. In college when questions like this arose I had a standard little thought experiment. I would ask for a show of hands of how many people in the room believed that they would one day be rich-- not just the people who wanted to be, but the peopel who expected themselves to be upper class, wealthy. Inevitably, at least 9 out of 10 of my classmates would raise their hand. Then the follow up question-- how many people here believe that everyone who raised their hands will, in fact, be rich? No one ever raised their hands, and with good cause. It would be incredibly statistically rare for everyone in a 30 person class to end up wealthy. So people were aware of the degree of wishful thinking among their peers. They just couldn't confront the same in themselves.

Here's one simple way to improve this country: make people understand that they are not going to be rich. They won't write that novel. A rich uncle they've never heard of is not going to die and leave them a bundle. They won't get discovered by the Hollywood agent in the mall. They won't patent that device. Something is not going to just come along. Maybe if they get that message they'll endorse politics that actually represent their reality instead of their dreams. And if they are one of the rare few, it'll be a pleasant surprise.

Posted by Freddie | July 6, 2007 12:51 PM

I doubt very much you could succeed in "making" young men internalize the notion that they're not going be rich, famous and married to a supermodel. At some level they may grant you that the odds are somewhat steep, but that won't be enough to overcome the heady brew of hormones, optimism and invincibility that that they're drinking.

I suspect most people over 40 (and almost everyone over 50) already have a much more realistic sense of their likely prospects in these matters. Given the fact that older people vote in greater numbers than younger people, it's hard to believe that self-delusion about life prospects is a significant driver of social policy.

Posted by henry evans | July 6, 2007 1:03 PM

What percentage of people making 50k a year would take an opportunity to make 200k a year? In my experience , when offered, about 20%.

The 50k job and the 200k job are almost identical, with one minor difference. To make 200k one needs to increase one's hours from 36 to 50-60 and one will need to spend up to 15 hours a week on a plane, 50 weeks a year.

How hard one is willing to work, and how much s**t one is willing to put up with, has a huge effect on one's earnings.

Posted by Jmo | July 6, 2007 1:23 PM

Re: The examples of people who started out in abject poverty and ended up rich and famous as a result of "hard work and determination" are plentiful enough

Other than Anna Nicole (who came to a rather bad end) and a handful of Rappers (some of whom have also come to a bad end) I can't think of anyone who went from abject poverty to wealth and fame. And I'm not sure that "hard work and determination" are what got Anna Nicole into the old rich guy's bed, while the rappers were probably born with some degree of talent.

Posted by JonF | July 6, 2007 1:26 PM

I've worked and went to school with many people who's families came from Cambodia, Mexico, Korea, Vietnam, India, China and who were born in absolute poverty of the kind we really don't have in America.

One fled the killing fields of Cambodia as a two year old and spent his early years in a Thai refugee camp...

Several are corporate executives, a few have been part of IPO's etc. Many are now quite wealthy.

Posted by Jmo | July 6, 2007 1:35 PM

JonF - you don't know many first of second generation immigrants do you?

Posted by Jmo | July 6, 2007 1:40 PM

See Chapter 1 of Mohnish Pabrai's The Dhando Investor, where he describes how members of the Indian Patel clan came to America in the early 1970's poor and with little education and now own over "$40 billion in motel assets in the United States, pay over $725 million a year in taxes, and employ nearly a million people."

These Patels came to America from Uganda, where they had lived for a century, until a political leader stoking racial and class envies expropriated all their property, nationalized the Patels' businesses with no compensation, and expelled them from the country.

After that experience, I'm guessing most Patels won't be voting for John Edwards.

Posted by Fred | July 6, 2007 1:59 PM

I've worked and went to school with many people who's families came from Cambodia, Mexico, Korea, Vietnam, India, China and who were born in absolute poverty of the kind we really don't have in America.

One fled the killing fields of Cambodia as a two year old and spent his early years in a Thai refugee camp...

Several are corporate executives, a few have been part of IPO's etc. Many are now quite wealthy.

Uh huh.

What percentage of destitute immigrants from the countries you mention, would you guess, are now upper middle to upper class? What percentage of all impoverished immigrants to this country?

And as a follow up-- the remaining percentage of those people who have not moved on to wealth, are they lazy, stupid, or both?

Posted by Freddie | July 6, 2007 2:00 PM

Matt,

As an experiment in socialism, why don't you take your six-figure book advance, and give equal amounts of it to ten or a hundred of your poorest neighbors in D.C.? Let us know how that works out.

Somehow, that sort of thing never happens to people like you though, right? The real sacrifices in any socialist scheme are made by people who managed to claw their way into middle- or upper-middle class: state college grads who climbed the ranks of corporate sales or went to state law or medical schools; laid off fifty year olds who cashed in their 401(k)s to buy a franchise they work at 12 hours a day, etc. They'll get squeezed. You'll still have your Dad's Maine house and Manhattan apartment to visit.

Posted by Harry | July 6, 2007 2:06 PM

See Chapter 1 of Mohnish Pabrai's The Dhando Investor, where he describes how members of the Indian Patel clan came to America in the early 1970's poor and with little education and now own over "$40 billion in motel assets in the United States, pay over $725 million a year in taxes, and employ nearly a million people."

These Patels came to America from Uganda, where they had lived for a century, until a political leader stoking racial and class envies expropriated all their property, nationalized the Patels' businesses with no compensation, and expelled them from the country.

After that experience, I'm guessing most Patels won't be voting for John Edwards.

Yeah, telling people about the largesse of billionaire clans is usually a great strategy to motivate them against progressive poverty initiatives.

Posted by Freddie | July 6, 2007 2:08 PM

Freddie:

What % of asian immigrants make it to middle class or above within 2 generations? Upwards of 80% I would think.

Does anyone know the exact number?

What % of asian immigrants are still poor after 2 generations in the US? Do you think the % living in poverty is higher or lower than that of the general population?

Posted by Jmo | July 6, 2007 2:11 PM

As an experiment in socialism, why don't you take your six-figure book advance, and give equal amounts of it to ten or a hundred of your poorest neighbors in D.C.? Let us know how that works out.

The non-plus ultra of bullshit "freemarket" capitalist argument: rich people don't give away all their money, so they can't support liberal policies! Checkmate!

Of course, endorsing changes in structural governmental factors of income distribution, such as progressive taxation or higher capital gains taxes is a rational position that could have positive impacts for the country's poor. Giving away $500K (or $500 million, say) will not. But you knew that.

Posted by Freddie | July 6, 2007 2:12 PM

"What percentage of all impoverished immigrants to this country?"

Freddie, since the majority of poor immigrants to this country are from Mexico, and Mexican-Americans, on average, have historically been a low-achieving group*, Mexican immigrants will skew these numbers down. Nevertheless, America has long been (and continues to be) a land of opportunity for enterprising immigrants.

My great-grandfather, for example, came to this country from Kiev at the turn of the last century. He was 13 and broke. There was no welfare, Social Security, Medicare, or Medicaid then. He ended up getting apprenticed to a cabinet maker, and then built his own cabinet making business. Among his great-grand children are a Harvard MBA portfolio manager, a Yale-trained attorney, and a medical researcher with a Ph.D. from Johns Hopkins.

(non-Mexican) Immigrant family histories like that are so common in America that they are a cliché; I'm sure several people commenting here could share similar stories.

*Flame away, if it makes your heart happy, but the academic and economic under-achievement, on average, of Mexican-Americans is a sad reality.

Posted by Fred | July 6, 2007 2:22 PM

Of course equality of opportunity doesn't exist in the sense that if you spend all your time and money on yourself rather than on your kids, they'll do just as well. And that's a good thing. Love of their children provides a huge incentive for adults to behave responsibly and sacrifice.

Posted by Steve Sailer | July 6, 2007 2:30 PM

Fred, what about the other guy on the boat your great-grandfather arrived on? The guy who died a couple of years later completely destitute. He doesn't have any descendants to talk about how things didn't work out for him. What you have is an example of survivorship bias. Plus the plural of anecdote is not data. Early in this comment thread it was noted that the biggest problem with this issue is those best positioned to speak for the poor are those few among them who made it. Ironically, they were proven quite right in short order.

Posted by mpowell | July 6, 2007 2:46 PM

Parental wealth is undoubtedly a factor in the accumulation of human capital by children, but how much of a factor is unclear and does not seem to be the subject of this paper.

Without a thorough understanding of the factors that contribute to human capital accumulation, this paper is of little use for public policy.

Posted by henry evans | July 6, 2007 3:03 PM

No flames here. Just an echo of mpowell above that, no matter how many anecdotes of great-grandfathers from the old country who had nothing, these stories prove nothing. Whatever his intelligence and work ethic, along the way he, like everyone successful, caught many breaks. Many others like him, some more talent and smart and hard working, did not catch the same breaks, and they did not succeed. Your great-grandfather's story does nothing to prove the great myth from which all other American myths spring, the myth of equal opportunity.

Posted by Freddie | July 6, 2007 4:27 PM

"This is true, but I don't think one should ignore the political upshot that equality of opportunity is a sham."

I think all this establishes is that you haven't got a clue as to what people normally mean by "equality of opportunity". It doesn't mean that a couch potato with bad genetics and a worse upbringing has as good a chance of winning a marathon as the son of an Olympic athlete who's trained from birth.

It just means that they run the same course.

Posted by Brett Bellmore | July 6, 2007 4:28 PM

"The non-plus ultra of bullshit "freemarket" capitalist argument: rich people don't give away all their money, so they can't support liberal policies! Checkmate!"

First, genius, it's ne plus ultra.

Second, I never suggested Matt give away all his money -- that would be extreme. I just suggested he give away his six figure book advance which represents -- how do you lefties call it? -- a "windfall" profit.

The point is that policies that spring from the altruism of wealthy lefties end up getting paid for by the not-so-wealthy middle class; the middle class also ends up paying the non-monetary costs as well (think public school integration schemes subsidized housing, etc.).

Posted by Harry | July 6, 2007 4:38 PM

"Plus the plural of anecdote is not data."

This in a post from you with no data, but a major unsupported supposition: that they apparent success of the descendants of Ellis Island immigrants is skewed by "survivorship bias" -- because those immigrants who stayed poor left no descendants. Do you really believe this?

Posted by Fred | July 6, 2007 4:50 PM

First, genius, it's ne plus ultra.

True enough.

That means you win the argument, right?

Second, I never suggested Matt give away all his money -- that would be extreme. I just suggested he give away his six figure book advance which represents -- how do you lefties call it? -- a "windfall" profit.

That's just a meaningless evasion. You're still making the classic, intellectually bankrupt "if you're a rich lefty and you don't give away your money you're a hypocrite" argument. And you know that. So fess up.

The point is that policies that spring from the altruism of wealthy lefties end up getting paid for by the not-so-wealthy middle class; the middle class also ends up paying the non-monetary costs as well (think public school integration schemes subsidized housing, etc.).

No, the point is that the costs of increased taxes are ameliorated by the social programs that the taxes pay for. The social safety net doesn't just extend to the poor; the benefits are shared along with the cost, in the form of, say, health care for everyone. And as for those non-monetary costs, they are only costs if you don't want your kid going to school with poor people, or if you don't want to live on the same street with poor people. That's your baggage, not mine.

Posted by Freddie | July 6, 2007 5:23 PM

"And as for those non-monetary costs, they are only costs if you don't want your kid going to school with poor people, or if you don't want to live on the same street with poor people. That's your baggage, not mine."

Classic. I'm just going to let this slow-motion softball hang over home plate for a bit.

Posted by Harry | July 6, 2007 5:50 PM

We live in a society that gives point on college entrance examination for living in a rich neighborhood (what did you think coming from a good school district meant?). The elite have gone out of their way NOT to build more colleges so that they could keep college tuition out of the realm of most Americans financial grasp.
************************************************

Gone out of their way NOT to build more colleges? Intuitively that didn't sound right to me, so I looked it up.

http://nces.ed.gov/programs/digest/d05/tables/dt05_243.asp

Total of 4 and 2 year degree-granting institutions:

1949-50 1,851

2004-05 4,216

Posted by Campesino | July 6, 2007 7:07 PM

Classic. I'm just going to let this slow-motion softball hang over home plate for a bit.

Clever. Of course, you've made no argument. But hey, who's counting.

Should I come up with some meaningless sports metaphor?

Posted by Freddie | July 6, 2007 7:48 PM

"Clever. Of course, you've made no argument"

Do I need to make an argument to convince you of something that is such common knowledge to everyone else? You claim it's "my baggage" -- rather than the expression of a near-universal American aspiration -- that makes me want to live in a middle class (or better) neighborhood rather than a poor one, or send my kids to a middle class (or better) school rather than one with poor students.

Take Matt Yglesias's father, as an example. Was it his "baggage" that prompted him to buy an apartment in Greenwich Village instead of the poor neighborhood where he grew up, Washington Heights? Was it his "baggage" that prompted him to send Matt to Dalton instead of to an NYC public school with poor people? Was it his "baggage" that prompted him to buy a vacation home in Brooklin, ME, instead of, say, Neptune, NJ?

Posted by Harry | July 6, 2007 9:27 PM

Enough with the Matt-envy--I don't think, with the amount of money
being made in the US today, anyone is going to marry Matt for *his* money

Posted by Rob | July 6, 2007 11:04 PM

Wait - is someone arguing Matt has had certain opportunities unavailable to many of his cohort due to his parents wealth and connections?

Fun fact: MY's grandfather was interviewed by Studs Terkel in "Hard Times."

Posted by imagine if he was an Iglesias | July 7, 2007 12:30 AM