This week and next I’m taking part in an exchange on inequality at Cato Unbound. John Nye, Elizabeth Anderson, and I will be responding to Will Wilkinson’s essay “Economic inequality and the mirage of injustice,” followed by some back-and-forth. My initial comment is titled “Is consumption the grail for inequality skeptics?“
Archive for the 'Inequality' Category
Exchange on inequality
October 14, 2009Did Blair and Brown fail on inequality?
June 1, 2009In a Financial Times op-ed, Matthew Engel says
This month, it was revealed that the UK’s Gini coefficient, measuring inequality between rich and poor, had reached its highest level on record — after the longest period of Labour government ever. You do not have to be a Labour voter to wonder what, then, has been the point of it all.
I wouldn’t want to offer a full-scale defense of the Labour governments’ strategy (see ch. 11 of this book for my views), but there is a reasonable response to this particular challenge. Inequality of market incomes has been increasing almost everywhere. Arguably, it has risen less, and government has done more to mitigate its impact, under Labour than would have been the case under the Conservatives. It’s impossible to know that for certain, of course, but the following data on inflation-adjusted income growth during the most recent periods of Conservative and Labour rule are consistent with this assertion.
Do schools make inequality worse?
May 21, 2009“Far from leaning against economic inequality, U.S. schools make it worse.” This sentiment, from a recent Clive Crook op-ed, expresses a view that’s commonplace on both the left and the right, and among both proponents and opponents of school reform.
It’s wrong. Americans do leave the schooling system more unequal in cognitive and noncognitive skills than when they enter it. Yet that inequality is less — probably much less — than it would be in the absence of schools. Schools don’t increase inequality; they just don’t do enough to overcome the inequality produced throughout childhood by differences in families, neighborhoods, peers, and other influences.
How do we know that? First, children are vastly unequal in ability when they enter the school system at age five or six. This is due partly to genetics and partly to environmental differences.
Second, we have evidence from the natural experiment that is summer vacation. During those three months out of school, the cognitive skills of children in lower socioeconomic status (SES) households tend to stall or actually regress. Kids in high-SES households fare much better during the summer, as they’re more likely to spend it engaged in stimulating activities. In his book Intelligence and How to Get It, cognitive psychologist Richard Nisbett concludes that “much, if not most, of the gap in academic achievement between lower- and higher-SES children, in fact, is due to the greater summer slump for lower-SES children” (p. 40).
Without schools this pattern would be magnified, and the gap in cognitive and noncognitive abilities at age 18 almost certainly would be much greater than it now is.
This by no means implies our educational system is doing fine. It could and should do much better at helping children from disadvantaged environments. But saying it currently makes things worse suggests the situation is hopeless. Instead of promoting reform, that undercuts it.
How to pay for inequality reduction: follow-up
April 20, 2009One way to make some progress in reducing income inequality is to significantly increase redistributive transfers and public services. I’ve suggested that it will be difficult to fund that solely by heightening taxes on those at the top of the income distribution. Robert Waldmann asks, quite reasonably: Where’s the math?
Here’s an answer. I’ll use numbers for 2006, since that’s the most recent year for which we have good income and tax data from the Congressional Budget Office.
Suppose we need to increase tax revenues’ share of GDP by 5 percentage points. As the following chart shows, that would still leave us near the bottom among the world’s rich countries. But if the money were used well, it would be a notable advance.
GDP in 2006 was approximately $13 trillion; 5% of that is $0.65 trillion ($650 billion). President Obama has pledged to not increase taxes for the bottom 95% of Americans, so let’s presume the added revenue will come from the top 5%. In 2006 this group, 5.9 million households, had an average pretax income of $564,200. Their total pretax income was thus $3.3 trillion. The $0.65 trillion needed in order to boost tax revenues by 5% of GDP amounts to 20% of that $3.3 trillion in income. Thus, the effective tax rate (taxes paid as a share of pretax income) on the incomes of the top 5% of households would need to be increased by 20 percentage points.
The following chart shows the effective federal tax rate on the top 5% of households going back to 1960. The data from Piketty and Saez begin in 1960; the CBO data begin in 1979. I use the federal rate not only because data are available, but also because these taxes — mainly individual and corporate income — are the ones most likely to enhance the progressivity of the tax system (also included are payroll and excise taxes).
Incomes are higher in the top 1%, so what if we focused on that group? In 2006 the average pretax income among those 1.1 million households was $1,743,700. Their total income was thus $1.9 trillion. The effective federal tax rate on this group would have to be raised by 34 percentage points in order to increase tax revenues by $0.65 trillion, or 5% of GDP. Here’s what that would look like in historical context.
Whether desirable or not, increases of this magnitude strike me as unlikely. It’s worth thinking about additional potential sources of revenue.
Let me emphasize that my aim isn’t to discourage increases in taxation of the richest. I favor doing that. Rather, it’s to encourage the American left to think beyond heightened tax progressivity when considering strategies for inequality reduction.
Note: I’ve corrected an error in the earlier version of this post.
Reducing inequality: how to pay for it
April 17, 2009The Labour Party returned to power in the U.K. in 1997 based in part on a pledge by Tony Blair and Gordon Brown not to raise taxes’ share of the British economy. In his 2008 presidential campaign, Barack Obama promised to reduce taxes for the bottom 95% of Americans. In both instances this commitment succeeded in insulating the progressive candidate from what had become the right’s most powerful electoral club: stoking fear of tax increases by the left.
But while it may be smart electoral politics, committing not to increase taxes’ share of GDP, as Blair did, or to lower taxes for most of the population, as Obama has done, makes it difficult for a government to make much headway in addressing income inequality. Obama has some leeway; the economic crisis has necessitated increases in government spending that can justifiably excuse some backtracking on his campaign pledge. Fully consistent with his promise, he should increase the tax rate on high-end incomes (beyond simply letting the Bush reductions expire). Two other progressive tax reforms are worth pursuing, though they would affect some in the bottom 95%. One is to reduce or end the homeownership subsidy. More than 80% of the $160 billion in foregone revenues from the deduction for mortgage interest and property tax payments goes to households in the top income quintile. The other is to introduce a modest tax on financial transactions.
But should the focus be confined to steps that make the tax system more progressive? Many on the left view heightened progressivity as the key to inequality reduction. Yet in the United States and other rich countries the tax system overall, including taxes of all types and at all levels of government, is essentially flat; households throughout the income distribution pay roughly similar shares of their market income in taxes. As the following chart shows, inequality reduction is achieved not through taxation but with government transfers (and services).
Taxes help to reduce inequality mainly via their quantity rather than their progressivity. The greater the tax revenues, the more government is able to boost incomes and living standards of those in the lower half of the distribution with transfers and services.
Moderate or high levels of tax revenue can’t come solely from higher rates or new taxes on the rich; the math simply doesn’t work. To significantly increase spending on transfers and/or services, President Obama and/or his successors will need to increase taxes on the middle class. One way to do this would be via a federal consumption tax, such as a value-added tax (VAT). We have state and local consumption (sales) taxes, but we raise less money from consumption taxes than any other rich country. Consumption taxes are regressive, and for that reason they’re often dismissed by the American left. But they can be tweaked to limit the degree of regressivity. And if the money is put to progressive use, the benefits may outweigh this drawback.
Reducing inequality: what to do about the top 1%
April 17, 2009In my view, raising and indexing the minimum wage, enhancing the Earned Income Tax Credit, and expanding and improving public services ought to be our top priorities for boosting the incomes and living standards of Americans in the lower half of the income distribution. What about the other component of rising inequality: soaring incomes of those in the top 1%?
It’s tempting to want to intervene directly in markets to reverse this trend. One way to do so is to legislate some sort of pay cap — a maximum wage, if you will. I don’t think this is the right way to go. If the value-added by particular individuals — a CEO, financial innovator, top athlete, movie star, or what have you — is sufficient to merit pay above the cap, firms will figure out ways to get around it, for instance by providing non-monetary perks or deferring pay.
Stricter regulation of the financial sector is another possibility. This is a good idea, though mainly to prevent a repeat of the current economic downturn. If doing so has the indirect effect of reducing enormous payouts to financial players, so much the better.
The simplest and best strategy is to let markets largely determine high-end earnings and incomes and use the tax system to redistribute (more here and here). We should increase the top income tax rate and/or add one or more new rates for those with very high incomes.
This would help to reduce income inequality. And it follows logically from the rationale for progressive taxation: the higher your income, the larger the share of it you can afford to pay in taxes. Since high-end pretax incomes have risen sharply in recent decades, those at the top can afford to pay a greater share of those incomes in taxes than they did in the past. So far they haven’t had to do so, as the following data on the top 0.01% of households (about 10,000 households) indicate. This group’s average inflation-adjusted pretax income soared from $7 million in 1979 to $35 million in 2005, but the share of that income they paid in taxes didn’t increase.
What’s the proper effective tax rate on top incomes? It’s the rate that is consistent with fairness norms and produces the most tax revenue without (significantly) reducing work, investment, and innovation. I don’t know what that rate is. Maybe it’s 40%. Perhaps it’s 50% or 60%. It could conceivably be even higher. Figuring this out requires policy adjustment and monitoring.
Reducing inequality: expand and improve public services
April 16, 2009How do we boost the incomes of Americans in the lower half (or two-thirds) of the distribution? I’ve discussed what I think are some helpful and some probably-not-so-helpful proposals. But our focus shouldn’t be exclusively on income. The well-being of lower- and middle-class Americans can be improved markedly by enhanced provision of government services.
Service use (consumption) doesn’t show up in income statistics. But services matter for living standards. If I have two kids in a public school that spends about $10,000 per year per child, I’m receiving the equivalent of a government transfer of $20,000. Other public services and public spaces — health care, child care, policing, transportation, roads, parks, libraries, and so on — have the same property. So too does free time funded or mandated by government via holidays and paid parental leave.
When provided by government at little or no cost to users, these services are akin to a transfer given in equal dollar amounts to all individuals or households. Our tax system is roughly flat: households at different points in the income distribution pay approximately the same share of their market (pretransfer-pretax) income in taxes. But a flat tax rate means those with high incomes pay many more dollars in taxes than do poor households. If the value of the government services the rich and poor use is roughly the same in dollars, then the tax-services system overall is quite redistributive. Here’s a way to see this, using tax payment data for 2004 and hypothetical data for consumption of public services:
Some services charge user fees that are structured progressively; those with higher incomes pay more. This makes the tax-services system even more redistributive. Financial aid means this is true for public (and many private) colleges here in the U.S., though we could go much farther. In Denmark and Sweden, fees for child care are scaled according to household income.
Imagine an America in which high-quality public services raise the consumption floor to a high level: most citizens can put their kids in high-quality child care followed by good public schooling and affordable access to a good college; they have access to good health care throughout life; they can get to or near work on clean and efficient public transportation or roads with limited congestion; they enjoy clean and safe neighborhoods, parks, roads, museums, libraries, and other public spaces; they have low-cost access to information, communication, and entertainment via reliable high-speed broadband; they have four weeks of paid vacation each year, an additional week or so of paid sickness leave, and a year of paid family leave to care for a child or other needy relative. Even if the degree of income inequality were no less than today and we still had CEOs, financiers, and entertainers raking in tens or hundreds of millions of dollars in a single year, that society would be markedly less unequal than our current one.
It’s worth emphasizing that markets too boost the consumption floor. New technologies and consumer products — indoor plumbing, cars, air conditioning, cell phones, ipods, and many others — have eventually become affordable for even the least well-off, and in doing so they reduce inequality of living standards. But markets haven’t, and likely won’t, bring us affordability coupled with high quality in health care, education, child care, safety, and mass ground transportation. In these and other areas, government is needed.
The United States provides less in the way of public services than many other rich countries, but we nevertheless have a rich history here, from universal elementary and secondary education to the interstate highway system to the internet. There’s a legacy to build on, and good reason to do so.
Reducing inequality: boosting incomes in the bottom half
April 16, 2009So far in this series of posts on reducing income inequality in America I’ve said that it would be good if there were less inequality, that greater unionization might help but probably isn’t in the cards (even if EFCA becomes law), that more and better education would be a good thing but isn’t likely to make much of a dent in the inequality problem, and that curtailing globalization is a bad choice for progressives even if it would help a lot. So what should we do?
Recall that there are two key components of the rise in inequality: slow income growth in the lower half (or two-thirds) of the distribution and soaring incomes at the top. Let’s start with the first of these two. I think a key component of an effective and politically feasible strategy is an enhanced statutory minimum wage and Earned Income Tax Credit (EITC).
This year the minimum wage will increase to $7.25 per hour. I’d like to see it raised again in 2010, to $8.00. A more important change is to index the minimum wage to inflation. As the following chart shows, since the late 1970s the minimum wage has been allowed to languish for lengthy periods with no increase, resulting in large declines in its inflation-adjusted value. With increases in 2007, 2008, and 2009, it will be at a reasonably high level compared to the past three decades, though still below its late-1960s peak. Raising it to $8.00/hour and keeping it at that value would be a significant step in the right direction.
Is $8.00 an hour high enough? It’s difficult to tell. Two considerations make me inclined to prioritize locking in something like that level rather than aiming for a larger increase right away. The first is jobs. Opponents of raising the minimum wage often contend that any increase will produce employment declines. Our experience with past increases suggests little support for this notion, but it’s equally wrong to presume there won’t be an adverse employment effect no matter how high the minimum wage. Surely there is some level that is too high. This argues for incremental upward adjustment from a stable floor. Second, proponents of a sizable increase in the minimum often point out how inadequate it is given the cost of living in certain parts of the country. That’s quite true, but it’s probably better addressed by state and local governments stepping in with their own higher statutory minimums, as a growing number have done over the past decade.
An expanded Earned Income Tax Credit would be similarly helpful for low- and middle-income Americans. The EITC is a terrific policy: it boosts the incomes of low-earning households, it encourages employment, it has low administrative costs, it creates minimal stigma for recipients, and it’s indexed to inflation. Currently the maximum value of the credit is about $5,000, available to households with two children and with earnings between $12,500 and $19,500. It then declines steadily until it reaches zero at around $43,000 in earnings. For households with one child the credit is lower, and for those with no children it is quite small. A chart showing the current level and structure of the credit is available from the Tax Policy Center.
I’d like to see the EITC look something more like this:
This EITC would extend well into what most of us think of as the middle class. It wouldn’t provide a lot to those with earnings above $50,000, but it would help. Phasing out the credit more rapidly (making the slope of the line on the right side steeper) risks creating work disincentives. Moreover, there’s a potential political advantage to including those with higher incomes. When the middle class uses the same programs as the poor, it tends to be more supportive of those programs; the “us” versus “them” mentality that weakens support for social policy is likely to have less political bite. This EITC expansion would not be cheap. I’ll say a bit about how to pay for it in a future post.
With these changes in the minimum wage and the Earned Income Tax Credit, a single adult working full-time year-round at minimum wage would have an income — earnings plus EITC — of approximately $19,000, compared to 15,500 under current policy. A family of four with two minimum wage earners would have an income of about $38,500, compared to $32,500 currently. That’s not a full solution to the inequality challenge, but it’s a good start.
Reducing inequality: put the brakes on globalization?
April 15, 2009Trade, outward foreign investment (movement of plants and services abroad), and immigration very likely have contributed to the growth of U.S. earnings inequality over the past several decades. Reducing any or all of them might well help to boost wages among Americans in the lower half of the distribution.
But in my view this shouldn’t be even a minor part of a strategy for inequality reduction, much less its chief focus. Trade, investment abroad, and immigration tend to benefit citizens in and from poor countries, which includes the bulk of the world’s population. Most of these people are substantially poorer than even the poorest Americans.
Yes, globalization enriches some rapacious corporations and despotic rulers, and vulnerable workers are exploited. But access to the American market and to employment by U.S.-based transnational firms has helped improve the lives of hundreds of millions of Chinese, Indians, and others in recent decades. And moving to the United States almost invariably enhances the living standards of immigrants from poor nations. It would be a bitter irony if American progressives succeeded in making a real dent in our inequality problem at the expense of the world’s poorest and most needy. We should look elsewhere for solutions.
I’m not suggesting we should sit idly by and let globalization have its way with the Americans who lose their jobs or experience falling wages. But rather than try to slow or block globalization, we should instead do what we can to enhance their flexibility and adaptability and to provide adequate cushions and supports. Among the things we Americans can learn from the Danes, Swedes, and Dutch, one of the most valuable is that it’s possible to embrace globalization (and other sources of economic change and disruption) and still have a high-opportunity, low-inequality, low-poverty society. The following chart offers one indication of this. It shows earnings inequality by imports as of the mid-2000s. Import-heavy countries are by no means doomed to high inequality.
Most of us want policies like wage insurance, better unemployment compensation, portable health insurance and pensions, support for retraining, and assistance with job placement not just because they can help to blunt the adverse consequences of globalization, but because they do so for economic change in general — whether it’s a product of technological progress, geographical shifts of industries and firms within the United States, or what have you. Arguing for limits on globalization directs attention away from these policies, making their adoption less likely. Paradoxically, then, we end up with the worst of both worlds: marginal trade limits, half-hearted steps to curtail investment abroad, confused and ineffective immigration policy, and too little of the supports and cushions needed for successful adjustment.
If you don’t like my take on this, consider what the following have to say before you make up your mind: Alan Blinder, Paul Collier (ch. 10), Brad DeLong, James Galbraith, Nicholas Kristof, Paul Krugman, Dani Rodrik (ch. 9), Amartya Sen (ch. 4), Gene Sperling, Joseph Stiglitz (ch. 3).
Reducing inequality: education to the rescue?
April 14, 2009When social scientists first began noticing and studying the rise in earnings and income inequality in the United States, much of the focus was on technological change. The idea is that in the past generation technology — especially computerization — has advanced more rapidly than skills, so employers have bid up pay for those able to use and improve new technology and reduced pay for (or gotten rid of) employees less adept at doing so.
Though this remains perhaps the single most popular explanation, many are skeptical. In their book The Race between Education and Technology, Claudia Goldin and Lawrence Katz offer an especially compelling critique. They suggest that the pace of skill-biased technological advance actually hasn’t changed much over the past century. What distinguishes recent decades, they contend, is that growth of educational attainment has slowed. Here’s their key picture (the vertical axis shows the share with a college degree):
Among Americans born between 1875 and 1950, the share getting a college degree rose more or less continuously. According to Goldin and Katz, as they became a sizeable portion of the labor force (assume a lag of about 30 years), inequality held steady or declined despite technological progress. But among those born between 1950 and 1965, who became an important part of the labor force beginning around 1980, college completion was pretty much flat, falling for males and increasing just slightly for females. This, say Goldin and Katz, is the key to the rise in earnings inequality that began at that time.
I think there’s something to this story, but I’m not sure it takes us very far in understanding the rise in U.S. earnings inequality or that it points us toward a solution.
For one thing, comparative evidence doesn’t seem especially supportive of the Goldin-Katz hypothesis. The following chart shows changes in earnings inequality from 1979 to 2004 (the most recent year of available data) by changes in average years of schooling completed over the same period. There is a negative association, as Goldin and Katz would predict, but it’s mainly a function of the United States; if we remove the U.S. the relationship largely disappears.
Second, the Goldin-Katz story says pay for college graduates has jumped because their supply stopped growing around 1980. But the key features of the rise in U.S. income inequality are soaring incomes among the top 1% of households (especially the top 0.1%) and slow income growth in the bottom half of the distribution. A slowdown in the supply of college graduates is unlikely to be the key to either of these two developments. It might seem implicated in the latter until we recall that college graduates have never accounted for more than a third of working-age Americans.
Finally, the above chart from Goldin and Katz indicates that college completion began rising again for cohorts born in 1980 and after. Does this mean earnings inequality will soon level off or perhaps even decrease? Absent other changes, I wouldn’t count on it.
Education is important for individuals and for society, and I certainly favor efforts to improve both its quality and its quantity. But it doesn’t seem to me likely to get us very far in reversing the rise in American income inequality.
Reducing inequality: are unions the answer?
April 14, 2009Unionization in the United States has been declining since the 1950s, and at a particularly rapid clip since the 1970s. Many analysts who have studied the growth of income inequality in America over the past several decades agree that union decline has played a role, and some see it as the single most important factor. The Employee Free Choice Act (EFCA), which would make it easier for employees to unionize, stands a chance of becoming law in the next year or two. Would that help to reverse the rise in inequality?
I’m not optimistic. An increase in unionization would very likely help middle and low-end households to capture a larger share of economic growth. But even if EFCA is passed by Congress, I don’t expect a dramatic surge in union membership.
Yes, survey evidence suggests that many American workers who aren’t currently a union member would like some sort of organized representation. And yes, American labor law and its weak enforcement have been a key culprit in union decline. Yet other rich countries have labor law that’s much more favorable to unions, and unionization has been declining in most of them too. Consider the following figures, from the best available comparative data source. Only a few countries have avoided a sharp fall in unionization, and they’re mainly ones in which eligibility for unemployment insurance is tied to union membership.
Why the widespread decline in unionization? The causes are multiple: greater competition and profit pressure on employers, the shift from manufacturing to services, increases in part-time and temporary employment, shrinking public sectors, and attitudinal shifts across generations, among others.
How then are unions in other countries able to secure greater wage gains, and thus less inequality, than their American counterparts? The key is “extension” practices: by agreement between union and employer confederations (most nations) or due to government mandate (France), union-management wage settlements apply to many firms and workers that aren’t unionized. The following chart shows that in a number of countries the share of the workforce whose wages are determined by collective bargaining is much larger than the share of workers who are union members.
I would like to see EFCA become law. The ability of workers to bargain with management collectively rather than individually is, in my view, an important element of a just society, and these days the playing field is too heavily tilted in management’s favor. But I doubt EFCA will get us very far in reducing income inequality. Extension of union-management wage settlements would likely have a bigger impact, but at the moment that isn’t even part of the discussion.
Reducing inequality: what’s the problem?
April 13, 2009I’ll be doing a series of guest posts at Crooked Timber this week on strategies for reducing income inequality in the United States. I’ll cross-post them here.
Here’s the problem (more discussion here):
There are two linked components to this rise in inequality: the surge in incomes for those at the top of the distribution and the slow growth of incomes for those in the middle and at the bottom.
Is this really a problem? Would it be better if income inequality were reduced? I think so, for the following reasons.
1. Fairness. Market processes have produced enormous incomes for various financial operators, CEOs, entrepreneurs, athletes, and entertainers in recent decades. A good bit of this is due to luck — being in the right place at the right time, genetic talent, having the right parents or teacher or coach, and so on. I don’t mind some inequality due to luck, and I recognize that monetary incentives are helpful. But the current (or recent, I should say; the downturn will reduce top incomes somewhat) magnitude of inequality in America strikes me as unfair. An income of several hundred million dollars when the minimum wage gets you about $15,000 is too much inequality. What’s the proper amount of income inequality? I don’t have a precise answer, but that doesn’t mean it’s wrong to feel that our current level is excessive.
2. Inequality’s consequences. Even if you don’t worry about exorbitant incomes in and of themselves, there’s no avoiding the fact that they have consequences for the incomes and well-being of Americans in middle and lower parts of the distribution. The social pie isn’t zero-sum. But our economy hasn’t grown faster in the past few decades than it did before, so the dramatic jump in incomes among those at the top has come in part at the expense of the rest of us. The following chart offers one way to see this. It shows GDP per family and median family income over the past six decades. Relative to growth of the economy, incomes in the middle (and below) have increased slowly since the 1970s.
As Robert Frank has pointed out, super-high incomes also have led to an arms race in consumption, especially in housing. Spending among the rich has escalated dramatically, encouraging middle- and upper-middle-class households to take on more and more debt in order to keep pace.
Over the past decade a number of social scientists have looked at the effect of inequality on other societal outcomes. We have studies suggesting that inequality is bad for education, health, crime, economic growth, economic mobility, civic engagement, political participation, political influence, and political polarization. I’m not convinced that all of these findings are correct, but some of them are quite plausible.
So what should we do? Stay tuned.
Outliers, Opportunity, and Luck
January 11, 2009In Outliers, Malcolm Gladwell relates a series of stories — about Canadian hockey players, Bill Gates, the Beatles, Jewish lawyers, Chinese schoolchildren, and others — which reveal that
It is not the brightest who succeed… Nor is success simply the sum of the decisions and efforts we make on our own behalf. It is, rather, a gift. Outliers are those who have been given opportunities — and who have had the strength and presence of mind to seize them. (p. 267)
It’s a good book. We should be wary of generalizing, as Gladwell does, from a small sample of cherry-picked cases. (Imagine the outcry from progressives at a book written by someone like Charles Murray that relied on this type of evidence.) Yet Gladwell’s stories are nevertheless compelling, and the details nicely illustrate what large, representative samples can’t.
My chief complaint about Outliers concerns Gladwell’s choice to frame his key causal factor as opportunity rather than luck. This leads to some odd interpretations and policy recommendations.
Consider Joe Flom, an attorney whose story is recounted in chapter 5. Because he is Jewish, Flom is denied jobs at the top corporate law firms in New York City in the 1940s, despite his top-flight educational credentials and evident ability. He joins a small start-up firm and focuses on hostile takeovers. At the time such takeovers were rare, so this wasn’t an especially lucrative line of business. But decades of practice puts Flom and his firm in perfect position to benefit when hostile takeovers become common in the 1980s, and he ends up rich and famous. Is it best to think of the discrimination Flom encountered as an “opportunity”? Or would we do better to label it (initially bad, then good) “luck”?
Gladwell’s main recommendation is that we as a society extend to everyone the thing that so benefited his success stories. He calls it opportunity. But he suggests that the key for Bill Gates was being at a junior high school that before almost any other had a computer terminal hooked up to a mainframe, living close to a university that provided him free access to a computer system, and having parents who allowed him (or didn’t notice) to sneak out in the middle of the night to use that university computer. For the Beatles it was getting invited, as teenagers, to play long sets for weeks at a stretch at a strip club in Germany. Can these types of “opportunities” be made widely available? Of course not. Their benefits couldn’t possibly be foreseen by a social planner, and in any event they aren’t replicable on a large scale.
At various points in the book Gladwell emphasizes the importance of parents’ traits, attitudes, and behaviors in contributing to success. This plays a central role in the story of Chris Langan, a genius who was raised in circumstances that stifled his capacity to later take advantage of his mental ability. How do we extend to more children the opportunity to experience good parenting? That’s a tall order in a society committed to limited interference in family affairs. As I see it, the only viable strategy here would be to take parenting out of the hands of parents to a greater extent. I don’t mean by force, of course. But if child care and preschool were available at sufficiently good quality and low cost, many less-than-stellar parents might be induced to utilize it. Interestingly, Denmark and Sweden have been engaged in an experiment along these lines since the 1970s, when their governments began providing extensive funding for early education. We have only limited study of the effects, though, and even in these circumstances parents’ impact is likely to be significant.
I’m fully in favor of expanding opportunity. But the real message of Gladwell’s book is that individual success tends to be heavily influenced by luck. That, in my view, should encourage us to think not only about how to increase opportunity, but also about whether a bit more redistribution from the lucky to the less fortunate would be just.
Should Congress put a cap on executive pay?
January 4, 2009Robert H. Frank says no. A wiser approach, he suggests, is to raise tax rates on the highest earners.
I agree. The motivation for limiting executive compensation is understandable. But the logistics of a true cap are problematic, and the merit of singling out executives as opposed to entertainers, athletes, and non-executive financial high-rollers is questionable.
