Larry Summers calls this the educational deficit, which he finds is much worse than the current fiscal deficit.
Warren Buffett used the term “winning the ovarian lottery”.
To go along with your post, and this is based purely on anecdotal evidence, no studies here, but Canada seems to be a relatively lower risk/lower reward labour market. When I was comparing salaries for identical jobs in the same company, they were 10-20% lower in Canada vs the US (this was in 2011/2012). Now uni costs in Canada are much lower, but taxes are higher. I also realize at the lower end of the wage level you’re better off in Canada. So maybe some of the lower salary is companies compensating for what they assume is a lower cost to be job ready. I don’t know, I’m not an unemployable chick-aka almost every HR person I’ve met.
This is completely wrong, there are alot of insanely entitled rich asian kids that are completely coddled by their parents. Im talking kids that are driving McLarens at 16 and have their entire life financed by absent parents. You just haven’t seen it because its unlikely that there are many asians where you live.
I did alot of research on this is undergrad, the reality is social mobility in the United States is worse then all other developed economies. The idea of pulling oneself by the bootstraps and going from rags to riches is not borne out by the empirical data. The single biggest determinate of the economic class you achieve as an adult is the one in which you were born in. In fact I think the R^2 is something like 70%.
I look at my own life, I am a very focused, hardworking guy with alot of innate ability but a huge component of why I am where I am today is due to the pure dumb luck of being a white guy, born in Canada to good parents who cared about me and instilled wisdom and values that I can draw upon.
As stated above, you cannot compare the US to Nordic countries or Canada. Here’s why:
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You are talking about countries with relatively low populations compared to massive natural resources. The US has ample natural resources but a much larger population. It’s similar to comparing UAE to the US.
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The US had extensive slavery. It had segregation 50 years ago. That leaves a socioeconomic mark.
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People, primarily from Mexico, are flooding into the US. Canada’s immigration situation is markedly different and so are all Nordic countries. Canada had about 250k immigrants on average over the last ten years (source) the US had that many people obtaining legal permanent resident status in 1847 (source). Now it’s in the millions. Very different scenarios.
On social mobility:
Your paper (http://ftp.iza.org/dp1993.pdf) says this as it’s conclusion:
“The United Kingdom, the United States, and to a slightly lesser extent France, are the least mobile countries with 40 to 50% of the earnings advantage high income young adults have over their lower income counterparts being associated with the fact that they were the children of higher earning parents. In none of the OECD countries under study is this relationship entirely eliminated, falling to about 20% or a little less in Canada, Finland, Norway, and Denmark.” This is bullshit, both intuitively and due to the nature of the data: 1) Intuitively : the UK, US and France all have a much wider disparity in income and wealth compared to Canada, Finland, Norway and Denmark. Their economies are also more diverse. It seems wholly sensical that a person with making $300k in the US, that would make $200k in Canada or Norway, would have a larger portion of their salarly attributed to being the children of higher earnings parents. Their pie is bigger. If you think salaries in the US, UK and France are too high, that is another matter, but that is certainly influencing the data. 2) Data : the income elasticity estimates used in the paper, which form the crux of the argument, are bullshit. The paper admits as much. The US has tons of studies on income elasticity between a father’s income and a son’s income. These elasticity estimates range from about 0.1 (same as Norway) to 0.6. Norway has one study with one estimate.
So I post two reputable studies that support my claim that income in the US is more driven by family wealth than individual effort than elsewhere in the developed world. You then say the US is special because of x, y, z, (ignoring factors that impact other countries like indigenous populations in Canada, Sweden, Norway, etc.) but it doesn’t even matter because intuitively you know better than the studies.
Feel free to offer up some evidence of this.
And this argument that because their pie is bigger that a bigger percentage would be attributable to parental wealth… that’s just a red herring. Either family wealth is the driver or its not. 40-60%, depending on the survey, of income in the US is derived from the wealth of your parents, on average. That’s not the case in most other developed countries.
This idea of rags to riches being an American thing is just false and not supported by data.
How do the studies account for families where some children in the family climb the ladder and some fall down it?
The methodology would average those out.
Interesting. I hadn’t looked at any comparisons by country, just our country over time. How did you quantify it?
You mad, bro?
You’re right, it makes sense to compare China to Canada. Country differences are irrelevant.
LMAO about comparing indigenous populations to slavery. Here’s a hint: I only think about native Americans on thanksgiving. The legacy of slavery and segregation affects my surroundings every day.
As I stated, the studies are BS because the data they are using as the crux of their argument is not robust. This is stated in the paper. Just search for “Figure 1”.
Ok, I don’t know how to make this statistical point more clear.
Nobody said it was. I’m justing thinking about it and looking at the data, as opposed to angrily building straw men.
To be clear, I’m not saying the studies are wrong. They have problems, but they could be valid. I am saying that the conclusion that if the US taxed inheritance at a higher rate then it would have more social mobility is obviously true: because the disparity of incomes would be less. It’s the equivalent of saying “If we gave all the money to one person, then he would be rich.” Obviously.
Indigenous issues are a major one in Canada and some of the Nordic countries and represent a sizeable population with little social mobility, which drags down income elasticity. They aren’t as big an issue in the US. That’s why I say you can’t just look at US specific issues. The US is also far more tolerant of immigrants than the nordic states, another thing that should work in the US’s favour and against Sweden or Norway when it comes to income elasticity.
Of the OECD paper?
Countries with higher disparity of wealth (note: not saying income) such as Denmark and Switzerland still have more fair outcomes when it comes to social mobility. So it’s not purely about taxing inheritance at a higher rate. It’s a broader question of whether taxes are sufficiently levied on wealthy folks to ensure those less well off have equal access to education and health care, basic human necessities for one to really have a level playing field.
Interestingly, as it relates to trust fund kids and the above arguement, Sweden has no inheritence or estate tax. Nor does Canada or Australia. Norway just abolished theirs on January 1 (sucks to be the guy that died on December 31). It’s interesting that even without such a tax, wealth was always more equally distributed in Canada and Australia than in the US. It’s harder to compare Sweden because they abolished the tax more recently.
The question is getting the mix right: enough taxes to ensure proper schools and health care so that all kids have a relatively equal start. But not so much tax that it destroys the personal incentive that makes the US the world’s greatest innovator.
Really, as non-Americans, I get to enjoy the best of both. I live in a more just and fair society myself, while I get to enjoy the benefits of American injustice with cool new technology. Fantastic.
I think the issue here is that “opportunity” means different things to different people. Take some high powered bromion, numi. etc. These guys will do better in the US than in Norway or Sweden. The US does not have the same distributive policies that will limit their potential. To me, this means that the system in the US is more meritocratic. It rewards people who are driven enough to achieve their goals.
The second question is whether the US encourages people to develop these high powered personalities in the first place. This question is harder to answer and is not addressed by studies on pure generational income elasticity. As has been said a few times, the US is diverse; people here are culturally different. Divergences in income outcomes can be explained by intrinsic population differences, not just policy.
^ I agree 100% that the high powered bromion, numi and co. are WAY better off in the US. Not even close to comparable elsewhere. I don’t think this is at dispute or should be. The US rewards people that make things happen.
The moral question I posed earlier is whether they are worthy of their success… in that does their success reflect meritocracy or does it reflect advantages outside of their control… essientially pure luck through birth. I don’t know any of their backgrounds and not that one ancedote would matter anyway. But if someone gets better schools, better access to health care in their youth and what not, have they really “earned” their relative advantage compared to the other guy that didn’t have access to these things?
If kid “a” that went to top private schools and ivy league university outperforms kid “b” that grew up in poverty and struggled through poor public schools, is that really an accomplishment that reflects that “a” is more worthy than “b”? I hear a lot of Americans claim that “b” still has the opportunity to advance, and he does and a few do, but I think it’s a stretch to say that “a” and “b” are on equal footing.
I agree there will be outliers that succeed based on some insane level of effort, ability or skill (look at some NBA star from a disadvantaged background). And there are some rich kids that fall. But generally people end up where they start in the US.
I’m playing somewhat of a devil’s advocate here because in my own country I’d be considered a conservative and I’m generally in favour of lower taxes (I kind of think Canada has the balance too far the other way). But I think there are important moral questions about what success and merit really mean, and whether disadvantaged people in all countries have just outcomes, or are mostly the product of a bad lottery draw.
Personally, I’d like to see more access to quality education in all countries as I think this is the ticket to ensuring more equally of opportunity. If every kid gets a high quality education, then I think the bromions and numi’s of the world can accept more of their success as actually being better than others, rather than just a better start than others.
Also consider risk taking: A kid with a trust fund can accept more risk than someone worried about food and shelter. This enables them to take opportunities with greater potential outcomes that would be unavailable to much of the population. This is one way in which income becomes inelastic between generations.
Ultimately, there can only be one.
Every one has an equal chance - if they work hard enough, make no mistakes, and are a little lucky, or perhaps just not caught cheating - to maybe be that one.
This principle made many nations great: L’Ancien Régime, for example.
More seriously, the question is to what extent does inherited wealth create barriers to entry. It is clear that inherited wealth can feed sloth, and that these people tend to move downward, but it can also create economic moats that others cannot cross, even if they are talented.
To some extent, society no longer needs large numbers of educated or capable people. It just needs a few, plus google and robots, and then a bunch of wage laborers to compete against each other while the remainder collect rents on deployable capital. When you’re in a system like that, there is meritocracy among the rich, but there is still a glass ceiling for anyone that isn’t born into it.
I know a lot of people grew up in rich families.
I would say, it’s not always how you think at all.
YES, there are some rich kids who are spoiled, and they do not work and just party and spend money all the time. but you also have to understand, everyone’s “happiness scale” is relative. Meaning, if you work really really hard and buy yourself a nice car, your satisfaction and happiness is extremely high, but if you are GIVEN the car, your happiness may not be as high as if you have been longing for it.
So, people with money takes more to become “happy” or excited. Think about children in the 3rd world countries, they are happy to see new notebooks and pens, but are we going to be excited over new stationaries?
Then there are more rich kids out there just like the rest of us, with passion and things they want to do. I know one of them really want to become a makeup artist and she went to school for it. Granted, she’s got connection to get into the industry, but she still has to wait on set, long hours, get yelled at, and work in bad weather and condition wherever the crew goes.
Sometimes they also find people judge them based on their background too, and they have to work EXTRA hard to prove that they are serious and they do have the skills.
I made some edits which messed up my logic a bit.
I was saying that yes, wealth can create sloth in the next generation, but that’s not at all a hard-and-fast rule. In the wealthy segments of society, long-term success does seem to be relatively meritocratic. To stay wealthy, or at least keep up with the top of the wealth stream, one does need to be fairly smart and to work hard. One cannot expect to be lazy and remain wealthy (though if you are extremely wealthy, it can take a while before the effects are noticed).
My point was that the fact that there is meritocracy within social classes does not automatically translate into meritocracy across social classes. How hard work translates into rewards (and by extension, the effectiveness of incentives) is not at all uniform. The idea that someone having less money proves that they just didn’t work hard enough is a comforting fiction. Plenty of people work very hard and aren’t able to move up in the world, or aren’t able to jump the chasm separating themselves from the next social class up. Disruptive technological or political change can open up opportunities that were previously closed off by economic and/or social moats, but society tends to learn and adapt until the next disruption arrives (there’s a bit of tautology here, because a disruption is by definition something that society is not previously adapted to, but empirically this is observed to happen).
This is the challenge: the fact that the very wealthy have to work hard to maintain their wealth leads to an overgeneralization that suggests the comforting idea (to the wealthy) that those who aren’t wealthy must be that way either 1) because they are too lazy, or 2) because they are too stupid, or 3) both. In many ways, I suspect it is this dynamic - more than actual wealth-envy - that drives disgust with the 1%.
Good post. That is exactly how I hope to raise my future children. Also agree with you that the U.S. view on generational barriers and elders strikes me as quite strange, though I only realized this after spending some time living in Europe and Asia.
Amen, but society’s getting it. So what next?