Friday, June 10, 2016

The birth of inequality

One of the advantages in blogging my understanding of the world is this: I can easily check for myself whether I might have "flip-flopped" on issues.  Of course, because I am not a politician, I go with logic and evidence, which means that I even if I change my position it is not because I am trying to please somebody but because the evidence compels me to.

Through this post, I want to merely say "I told you so!" ;)

For ever, it seems, I have been blogging that the hype about the world being one's oyster overlooks the reality, which is that on an average eighty percent of one's economic success in life is determined by two simple facts--the geography of where one was born and raised, and the parents.  I have explored this in many posts, like in this one on "choose your parents well."

More evidence along those lines:
What is the most striking consequence of deepening income inequality? Could it be the rise of social immobility?
A report recently released by the Russell Sage Foundation — “Opportunity, Mobility, and Increased Inequality” — concludes
that 60 percent of those born into a bottom-quintile family will themselves be in the bottom two quintiles of the income distribution at age forty, and that 56 percent of those born into a top-quintile family will be in the top two quintiles of the distribution at age forty.
I told you so!
Not only do “children of affluent parents graduate from college at substantially higher rates than children of low-income parents,” according to Bradbury and Triest, “the gap persists even when controlling for ability in the form of test scores.”
They cite data showing that
a child’s earnings in adulthood reflect parental investments in his/her human capital (education) as well as his/her endowment of earnings capacity and market luck. That endowment, in turn, is determined by the reputation and “connections” of their families, the contribution to the ability, race, and other characteristics of children from the genetic constitutions of their families, and the learning, skills, goals, and other “family commodities” acquired through belonging to a particular family culture.
I told you so!

Now, keep in mind that I have also been worrying for a long time about the rapidly evolving technological changes are making the economic issues worse.  Which is why I am going to tell you "I told you so" even before I bring to your attention the excerpt:
Are there economic forces at work that are inexorably worsening equality of opportunity regardless of government intervention?
Bradbury and Triest implicitly raise this issue when they point out that
Nations or eras with greater disparities in pay levels according to educational attainment will, other things equal, have higher intergenerational earnings elasticities, hence, lower mobility, because any level of intergenerational correlation in education translates into greater differences in earnings and, hence, higher correlation of parent and child earnings.
This is precisely what has happened in the United States. From 1979 to 2012, the earnings gap in inflation-adjusted annual pay between high school and college graduates has grown from $17,411 to $34,969 for men and from $12,887 to $23,280 for women, according to data compiled by David Autor, an economist at M.I.T.
In other words, the economy, by increasing the wage premium for high skill jobs requiring college degrees or more, is working to exacerbate the problems documented in the Russell Sage report.
If only we would understand such issues and systematically work towards developing a new social contract, about which I have been blogging about for ever--even as recently as three months ago!

But, very serious people do not want to engage in discussions on developing a new social contract for these times.  There is only one alternative then: Choose your parents well!

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