Half Sigma

Human nature, income, and status: a response to Don Boudreaux

Don Boudreaux, chairman of economics at GMU, has a lengthy post explaining why he believes that income inequality is irrelevant.

First, income inequality says nothing about absolute levels of income. If the real incomes of society’s poorest people are rising by X%, what does it matter if the real incomes of society’s wealthiest people are rising by X+1%?

This matters a lot to people, because it is part of our core human nature to be concerned with our position in society. As an economist, Don surely understands that money is a medium of exchange. People don’t really want money, they want the things that money can buy. After the basic necessities one needs to survive, what the remaining income is really spent on is status. A big house, an expensive car, expensive clothes, there are all signaling devices that tell the world “I have made it, my status is high, look at what I can afford to buy!”

Second, discussions of income inequality promote – psychologically if not logically – the mistaken notion that the amount of total income is fixed.

The total amount of status is actually fixed relative to the total population. If Uncle Sam gave everyone a check for $1,000, are we really richer? No, because it just creates inflation, the amount of goods and services available to buy don’t change. In the same manner, if we were magically able to give everyone a new Mercedes, would everyone’s status go up? No, because the amount of status in society is fixed. In this case, the Mercedes would instantly become a symbol of having low status because it would represent the default car that everyone, even fast food laborers, drive.

concern with income inequality denigrates non-monetary sources of human happiness and flourishing.

Most non-monetary sources of happiness come from status. Don claims to be happy, but he is the chairman of his department and appears on TV shows from time to time. He has status within the economics community. I doubt that Don would be so happy if he was just a nobody teaching economics at Devry.

The lesson, of course, is that money is not life’s be-all and end-all.

A funny comment considering that earlier in his blog post he made a big deal about explaining how great it is that total income is rising. But it’s this last comment that’s correct. It’s not money that’s life’s be-all and end-all, it’s status. The ancient Roman poet Ovid got it right when he wrote two thousand years ago that “this is truly the Golden Age of Rome, because gold can buy everything: love, happiness, and the esteem of man.” Ovid understood that money is used to buy status, not physical possessions.

Economists who say that only total income counts and distribution is irrelevant, they are making the crucial mistake of ignoring human nature. The communists made a similar mistake thinking they could create a society where everyone had the exact same status. This is impossible because it’s only the possibility of increasing one’s status (or preventing one’s status from decreasing) that motivates anyone to do anything. If people can’t get ahead by working hard, then they won’t work hard. Libertarian economists like Don understand very well that people won’t accomplish much without incentives, but they don’t grasp the true incentive people seek: not money, but status.

Genes and success

An article by David Wessel in the W$J says:

Consider the genes that a person inherits. Somewhere between a third and 40% of the link between a parent's income and a child's has to do with genes, researchers find. It's easy to assert that if smart successful people have smart kids who are successful, so be it.

I have little doubt that genes are an important component of how much income one earns. But unfortunately David Wessel tries to check some of the political correctness by kicking the book The Bell Curve.

But despite the celebrated case for the power of inherited IQ made by the authors of "The Bell Curve," most other researchers find that IQ explains very little of the way parents pass advantages to their children. Only "a modest fraction of the economic resemblance between parents and children" is tied to their IQs, says Harvard University sociologist Christopher Jencks.

Liberals hate The Bell Curve because they want to believe that everyone is equal, the the fact that we genetically inherit our intelligence demonstrates that we are not born equal at all. Equal under the law, yes, but not equal in ability. I wouldn't pay attention to anything that some liberal Harvard professor says on this topic. But I will anecdotally point out that the correlation between intelligence and income is far from perfect, or I'd be making a lot more money.

Other genetic inheritances may be more economically valuable -- and may cause Americans more discomfort. "Traits like 'ability' are widely seen as legitimate sources of economic inequality," Mr. Jencks and colleague Laura Tach write in an essay for a forthcoming book on mobility. "Traits like beauty and skin color are not seen this way."

Indeed one's appearance is an important component of one's earning ability, a fact that few people acknowledge. Kudos to Mr. Wessel for writing about it. And obviously physical appearance is an hereditary trait to a certain extent. Yet probably, with height excepted, intelligence is actually influenced by heredity to a higher degree than physical attractiveness! I don't think people realize to what a large extent the illusion of attractiveness is environmental. Nor do they realize to what a large extent intelligence is hereditary.

Gay genes in the NY Times

For too long it has been taboo to suggest that our behavior is influenced by what genes we inherited. So I am glad to see a NY Times op-ed article by Harvard psychologist Steven Pinker discussing the link between genes and homosexuality (which is a type of behavior). Pinker writes:

Homosexuality is a puzzle for biology … because any genetic tendency to avoid heterosexual opportunities should have been selected out long ago. Perhaps "gay genes" have some other compensating advantage, like enhancing fertility, when they are carried by women.

I’m sure that the gay genes do have compensating advantages, otherwise, like Pinker reasons, they would have been selected out of the gene pool. And maybe not just in women. Gay men are stereotyped as being more creative, stylish and artistic. It’s reasonable to assume that this stereotype is not just a coincidence but is genetically influenced. The same genes that make a man more likely to be homosexual also make him more likely to be creative.

Just as puzzling is the existence of homophobia. Why didn't evolution shape straight men to react to their gay fellows by thinking: "Great! More women for me!"

“Homophobia” seems more cultural than biological to me. The ancient Greeks didn’t seem to have any problems with it. On the other hand, Islamic societies seem to be afraid of regular heterosexual sex.

Nor do I like the word “homophobia,” because it doesn’t seem to me that straight men are afraid of homosexuals so much, but rather they dislike the homosexual community’s attempts to change American society’s norms and bring homosexuality out of the closet. I might add that homosexuals have been quite successful doing this, no doubt due to their disproportional representation in influential creative industries like Hollywood and the media. No wonder why people who don’t like change are angry.

NY Times article about class and cool web widget

Returning to the topic of the article about class in today’s NY Times, looking at it more closely makes me more aware of how incredibly crappy it is.

MONEY VS. CLASS

Blogger Ed Cone writes:

This first article focuses mainly on economic status as the arbiter of class, which is fine as far as it goes, but doesn't tell the whole story. Social class and economic class overlap significantly, but not completely, and while economic class certainly helps define social status, it also works the other way around.

I couldn’t agree more. Everyone knows that a college professor has more “class” then a UPS driver, even though the UPS driver might earn more money. Making an even finer disctinction, a college professor whose father is a UPS driver has less class than a college professor whose father is a deca-millionaire.

THE WEB WIDGET

The online article includes a cool web widget. Cool, but full of some really bad data.

But first let’s talk about the good part. It lets you see how your individual income and wealth compares to the rest of America. This should be really depressing to the fools who think they’ve made it because they have a house worth a few hundred thousand. In order to be in the top 1% you need to have more than $5 million of wealth. Meanwhile, the widget seems to be saying that half the people have less than $50,000 of wealth with one quarter have less than $5,000. What a huge amount of wealth disparity.

The horrible part of the web widget purports to tell you how you are doing based on your education and occupation.

For education, the only thing the widget considers is your highest level completed. This means absolutely nothing if you don’t consider the prestige of the school and the type of degree. An Ivy League degree is an upper middle class indicator, while a degree from the local state school is merely a middle class indicator.

Futhermore, graduate degrees don’t mean that much and in most cases shouldn’t be considered. A master’s degree in education means the degree holder is a schoolteacher, strictly a middle class job. And a PhD, which the widget thinks is the most prestigious of all, usually means the degree holder is a college professor which generally pays a middle class salary. The genuinely upper class would never get a PhD.

I thank CapitalImperialistPig for pointing out how bad the occupation rankings are. The job of CEO, which is usually an upper class job (that’s upper class, not upper middle class), is ranked as having lower prestige than a high school teacher which, as pointed out above, is only a middle class job. Blue collar jobs like “electrician” and “sheet metal worker” are ranked higher than white collar jobs such as “financial analyst” and “insurance underwriter.”

The occupations were ranked based on a Census survey. These rankings tell us very little about the real statuses of the included jobs, but a lot about the stupidity of the average American responding to the survey.

DAVID BROOKS AND BOBOS

The blog Just One Minute mentions this article and a related op-ed by David Brooks. Brooks begins by writing:

Last week the Pew Research Center came out with a study [read my post about the study] of the American electorate that crystallized something I've been sensing for a long time: rich people are boring, but poor people are interesting.

This is Brooks’ weirdest statement ever considering that he wrote an entire book, Bobos in Paradise, about the upper middle class. (Read David Tufte’s review.)

Ugly children study in the NY Times

I while back I blogged about the study which supposedly showed that parents take better care of attractive children.

But I explained that this conclusion was wrong, and what the study really showed is social class differences:

People from higher social classes have more attractive children. (Higher social classes value attractiveness more, and because of cross-assortative mating they tend to have better genetic material.) People from higher social classes also look more attentively after their children.

This study has made the pages of the NY Times, and now the whole world is being given this bogus information. This is currently the number one most emailed NY Times article.

To the Times’ credit, they did include a mention about “socioeconomic status”:

Dr. Robert Sternberg, professor of psychology and education at Yale, said he saw problems in Dr. Harrell's method and conclusions, for example, not considering socioeconomic status.

"Wealthier parents can feed, clothe and take care of their children better due to greater resources," Dr. Sternberg said, possibly making them more attractive. "The link to evolutionary theory is speculative."

Unfortunately, Sternberg ignores the genetic link that I mentioned. Wealthier children aren’t just more attractive because their parents feed them better, but because they are born more attractive.

Sternberg also ignores the fact that “wealthier” people (I would much prefer the term “higher social class” because wealth and social class are correlated but not exactly the same) value attractiveness more than people from the lower classes, so they put more effort into making their children look good.

Bring back IQ tests

Steve Sailer has written an excellent column in which he recommends that we bring back IQ tests.

However, I disagree with a very minor point. Steve writes:

So, why do employers care about which college applicants attended? Mostly because it’s evidence of an applicant’s SAT score—along with high school grades—which in turn is correlated with his IQ. What college you go to permanently signifies your position in the IQ strata.

Not true. The vast majority of employers, just like the vast majority of Americans, don't believe in IQ. But because IQ is highly correlated with job performance, and IQ is also correlated, as Steve correctly points out, with graduating from an elite college, therefore there is a correlation between job performance and graduating from an elite college. Employers are ignoring the IQ part of the connection.

But there's more to the elite college preference than mere IQ. It's a cultural preference. Certain firms have a culture of elitism, and they don't even realize it has anything to do with IQ or mathematical correlations.

I have a BS from the Ivy League University of Pennsylvania, and throughout life I've observed that it's very rare that anyone gives a crap. The preference for graduates of elite universities lies with only a tiny number of firms, the rest of America doesn't care (or even realize that Penn is not a state school).

(Note that big law firm are among those firms that are into the culture of elitism. If you want to work at a big law firm, don't bother going to any but one of the top fourteen law schools. See my essay Law school: the big lie.)