My eighth grade religion teacher once made 10 kids pull 10 desks to the front of the class.Every student represented a tenth of the population, and each desk represented a tenth of the wealth.”Everyone has his own desk. That seems pretty fair, right?” The teacher then demonstrated different decades’ income distribution’s by progressively cramming more kids into the leftmost desk and letting the rightmost kid comfortably rest his feet on more and more seats. The details have faded, but the moral remains with me: The rich are getting richer and the poor are getting poorer.Almost a decade too late, I have a list of points to undercut the demonstration:1. Yes, the rich are most certainly getting richer, but the poor are getting richer, too. The poorest in America might be poorer now compared to the rich, but — in absoluteterms — both groups have made tremendous gains. Most of us would take the poor’s standard of living in 2010 over the rich’s standard of living in 1910. Today, almost all Americans can refrigerate their food, vaccinate their children, listen to any musician atany time and instantaneously communicate with anyone around the world. In addition, there have been vast increases in leisure time — especially for the less educated.In my teacher’s metaphor, each desk should have gotten larger as he moved from decade to decade.2. The rich are getting richer relative to the poor, but “the rich” and “the poor” aren’t set groups. Those in the latter are capable of working harder, and those in the former are capable of wasting away their fortune. Don’t take my word for it; perform the experiment.Slack off at work and see if your income gets reduced. In my teacher’s metaphor,people should only get more desks if they helped make the desks larger.3. My religion teacher might object that we don’t live in a meritocracy. Rich children get anunfair advantage compared to poor children. Fortunately, this is a question wecan approach with data. We can use statistics to measure the intergenerational incomecorrelation. If the number is one, then there’s perfect correlation between how much parents and their children make. Zero means no correlation, and negative one means there’s a perfect negative correlation. In the ’70s and ’80s, statisticians estimated the correlation to be around 0.2. Capitalism seemed fair because parents and childrenlargely had uncorrelated incomes. Unfortunately, this research was flawed.In the ’80s and ’90s, economists controlled for yearly variations and the correlation roseto around 0.4. Capitalism seemed unfair since wealth, rather than work, begat wealth. Fortunately, this research was also flawed. Recently, statisticians have used twin and adoption studies to account for the effects of nature and nurture. Economists can contrastidentical twins (with identical DNA) with fraternal twins (with similar DNA) or compare identical twins adopted into different households.For instance, MIT economics professor David Cesarini finds an income correlation of 0.545between identical twins and 0.266 between fraternal twins. The conclusion: Smart, hardworking, ambitious parents give their successful genes to children who become successes. Perhaps income inequality isn’t the right word. Perhaps we’re studying income differentiation. And perhaps the income redistribution my teacher was advocating also is an Orwellian misnomer. Wealth can’t be “redistributed” because that implies it was distributed in the first place.We weren’t assigned desks as we walked into a classroom; we built the desks through economic interactions. Bill Gates and Warren Bufett deserve to have lots ofwealth. They earned it. As if that weren’t optimistic enough, as people get wealthier,they care less about income and more about status. For Gates, Buffet and other philanthropists, this means they give away billions to the truly poor overseas.That strikes me as even better than fair.Daniel Morgan is a 22-year-old economics major from Baton Rouge. Follow him on Twitter@TDR_dmorgan.– – – -Contact Daniel Morgan at [email protected]
The Devil’s Advocate: Income inequality can be perfectly fair and just
March 3, 2010