The ever-interesting ApeMan writes:
If you grant that overregulation, excessive lawsuits, and complex tax codes all present problems that increase the demand for high I.Q people, then the price for the labor of high I.Q actors should rise until demand and supply stabilize. Therefore, it follows that if you grant that regulations, the rate of lawsuits, and the complexity of the tax codes are not optimal, then you must admit that the pay rate for high I.Q people is not optimal either.
A good point, but I am not convinced that a highly regulated society boosts income inequality. On the flip side, the regulators themselves earn government salaries, and that favors greater equality. Either they are the dregs pulled up a bit, or some otherwise high-salaried lawyers move to the greater security of the public sector.
How about inefficient regulation itself?
Lots of smart people earn a mint finding creative ways around complexities in the tax code and in regulations. But I still believe that those complexities tax smart people more than they benefit them. The smart lawyer is paid so much only because some other smart guy wants to walk through that loophole and is otherwise suffering under the regulatory lash.
Imagine that a regulation chokes off an entrepreneurial opportunity worth $100 million. Without regulation, one entrepreneur would have earned that much. With regulation, a bunch of smart lawyers rake off, say, $20 million of the total but that is still a more equal distribution than the former scenario (which is not to say it is better). An alternative scenario is that such large gains are usually spread across many shareholders, and lawyers walk in as the big winners, thereby boosting inequality, but I do not think that is the primary case.
Furthermore inequality tends to rise with wealth (imagine the Gini coefficient for Bel-Air), so inefficiencies which destroy wealth tend to lower inequality, albeit not for the better.
The Mexico or Indonesia scenario is different. Government creates some monopolies and a small number of people get very rich from them. That is unlike the case where smart lawyers get smart people through hurdles.
The bottom line: To the extent income inequality is higher, I don’t view government as a fundamental cause, at least not in the United States.
Does that mean that you also don’t think that it is something that the government can or should do something about?
I’m not sure that ApeMan’s suggestion captures all the ways that government might have something to do with inequality and I’m not sure that it is true that inequality rises with wealth. Is Norway more unequal than India?
Copyright law provides an example of government regulation increasing income inequality. Take operating systems as a particularly egregious example. BY creating a monopoly in an organic standard for developing computer programs (the windows API, a single company (microsoft)was able to capture a significant fraction of the network effects of a shared computer platforms. Rather than many companies creating their own versions of windows and many more companies developing windows software thus creating thousands of millionaires, a few billionaires were ablt to reap all the benefit themselves. Compare this to the example of the web, where no company controlled the underlying standard. A vast number of companies were able to make their fortunes compared to the desktop software world where only microsoft has had any kind of success.
As I wrote in 2000:
“Stifling discourse on intelligence differences allows the IQ upper class to quietly push its interests at the expense of the rest of society. Denouncing Arthur Jensen and Charles Murray proclaims your faith in empirical egalitarianism. Then you can ignore the irksome demands of moral egalitarianism.
“Consider the inordinate complexity of the tax system, law, government regulation. This allows a high IQ priesthood of lawyers, accountants and consultants to extract handsome sums from the average citizen in return for interpreting these inscrutable instructions. …
“In contrast, the U.S. military has elicited a high level of achievement from blacks and whites in the 90-100 IQ range. A major reason: the military demands its high-IQ officers search out what legal scholar Richard Epstein calls simple rules for a complex world. In dismal contrast, lawyers, regulators, consultants, academics, and others who profit from abstruseness increasingly dominate the rest of America.”
http://www.isteve.com/How_to_Help_the_Left_Half_of_the_Bell_Curve.htm
I’m sorry, I find the claim ridiculous. Even without neurological or psychological training, I think I can safely say that there is no type of intelligence + motivation type that is extremely good at outwitting regulations, but confounded when it comes to offering services on the market. It’s all about taking the path of least resistance.
Mr. Cowen,
I think that the reason that you rarely find highly regulated societies with high inequality is that such societies usually have a very progressive tax code as well. The two factors tend to cancel each other out. In America though, the trend has been to cut taxes without cutting regulation. I would argue that if that trend continues, it will widen inequality.
Mr. Dolohov
Granted high I.Q people have problems with the tax code and such. But you are not going to find low I.Q people taking the jobs like lawyers, and accountants, and compliance officers. If you grant that supply of high I.Q people is finite, then there is less competition in your chosen field.
Mr. Sailer,
I shall have to read you work more closely. The ironic thing is that I wrote the post after spending the day thinking about all the ways in which I disagreed with Murray and crew. I generally think that high I.Q is over valued by Murray and society in general. But I shall make that argument some other time.
To all:
The thought that Tyler linked to was speculative. It is not backed by a rigorous argument or any kind of data. But it is based on what I see every day.
I am laborer by trade. I work with people on an everyday basis who have a lower I.Q then most of the posters here. Many of these low I.Q people have incredible skills, but they are unable to reap the full rewards of their skill because they can’t handle the rules and regulations that society imposes. I believe that a lot of regulations that keep low I.Q people from reaping the full rewards of their talents are unnecessary.
I don’t expect anyone to take my word for this and I shall probably revisit the topic again latter.
But I am curious: How many of you deal with low I.Q people every day? How many of them have you watched as they try to deal with rules and regulations?
You all know what kind of problems you have with regulations and such and you seem to be assuming that it can not be any worse for anyone else. But one of the biggest surprises that I had when I started working in the trades was how hard it was for an awesome tradesman to deal with moderately complex regulation.
This is definitely the interesting thought for the day. Man, I love the internet.
Jonathan Swift’s Brobdignagians, his models of attainable human virtue, had a word-length limit on their laws and believed that no law was just unless everyone could understand what it required. Sometimes I think the old boy was onto something.
Tyler,
In one of your other postings you argued that a substantial
portion of the increased inequality in the US was due to its
relatively aging population. How then do you explain the
fact that most of Western Europe and also Japan have
substantially older populations relative to the US, but
have substantially greater degrees of income equality. Indeed
in the last decade or so, almost the only countries that one
can find anywhere on the face of the planet that have seen
increases in equality have been in Western Europe.
I think the obvious explanation is different government
policies.
The kind of rent seeking we’re talking about is more likely to flow down the IQ ladder than up it, at least in the areas I’ve seen. I’ve been involved in two preposterous patent cases that resulted in mediocre engineers and dull lawyers extracting huge payments from actual innovators. I also work in property development and see nothing but smart architects, engineers, and developers buying the acquiescence of pols and “community leaders” with the help of flunkie consultants and, of course, lawyers.
The tax code or the local planning code or the USPTO may be complex, but it isn’t the kind of complexity that requires IQ to parse. They have the “complexity” of middle school girls’ cliques, and reward the same skills. Or maybe I’m wrong, and the Federal Eastern District of Texas really is a seat of deep and subtle thinking on patent issues. (Google Marshall+Texas+patents for a laugh.)
I agree, but your scenario assumes that the great entrepreneurial opportunities will be found by people w/ high IQs.
Someone left the italics tag on.
guy in the veal calf office: Can you provide some more backup for your claim that you are not all that bright? If the LSAT is not a good test, I think it would be best to state what a better test is and then assert that the LSAT does a poor job of indicating intelligence by its failure to correspond to the better test. That does sound a bit circular, but the worth of an IQ test is supposed to be indicated by its predictive ability or correlation with other IQ tests.
@ Timon Braun
But it does need high-IQ to parse in reasonable (less than infinite) time, especially from the outside. You need to be able to understand, at least somewhat, from the outside if you are going to deal with them.
As far as entrepreneurship and high-IQ, I suspect the average successful entrepreneur has a higher IQ than the average lawyer (about 110-120 depending on source).
I work in a low level job at Wal-Mart with many much lower IQ people. The biggest “problem” they seem to have is inability to really think ahead, especially to foresee possible problems. Despite their personal skills, this is going to prevent them from being really successful outside of an organization which can do planning for them.
Credentialism is probably the main force increasing inequality of income in the U.S. Government regulation is probably second. I remember reading (in a book, it was before I was on the net) about a study in L.A. that found that regulation was the biggest hurdle to starting a new business. I don’t remember my source, it may have been one of Bovard’s or Sowell’s books. The problem was that regulation, as opposed for example to taxation, put a lot of upfront costs, both monetary and informational on any new project.
TGGP-
The same LSAT score can achieved by a grinder with a dollop of smarts as it can be by a lazy but inherently good thinker. One spends countless hours in preparation and practice, spends money on tutoring, etc. and the other just wings it, perhaps on a lark. Same score, but comepletely different minds.
I think emotions like ambition, chutzpah and impolite free thinking creativity are as important to achievement as are one’s IQ. I see big dollops of each of those attributes (including IQ) in the people I’m most impressed with, although not necessarily in the same proportions. I enjoy the thinking and teaching at blogs like this, Volokh’s & Becker/Posner’s, but they’re not the people I’d invest money with, hire to run a company, manage a project, or general a war.
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