Positive feedback in inequality

by on November 1, 2009 at 6:50 am in Uncategorized | Permalink

Here is a very nice summary of some important trends from Arnold Kling.  Arnold buried the lede on this one so a hat tip to Tim Kane at Growthology.

I think that perhaps the most important trend of the past thirty years is the
increased importance of cognitive skills relative to physical labor. Obviously,
this has been going on for more than just the past thirty years, but during the
past thirty years we saw an acceleration. This has had a number of
consequences:

1. It changed the role of women. Their comparative advantage went from
housework to market work.

2. This in turn, as Wolfers and Stevenson have pointed out, changed the
nature of marriage. Men and women look for complementarity in consumption rather
than in production.

3. This in turn leads to more assortive mating, with achievement-oriented men
looking for interesting mates rather than for good maids.

4. This in turn leads to greater inequality across households. It also
fosters greater inequality among children. The children of two affluent parents
are likely to have much better genetic and environmental endowments than the
children of two (likely unmarried) low-income parents.

5. Inequality is exacerbated by globalization and technological change. If
your comparative advantage is basic physical labor, you have to compete with
machines as well is with workers from the Third World.

The net result is an economy that has improved considerably for people with
high cognitive skills, but which has improved only somewhat for people with
relatively low cognitive skills.

1 Neal November 1, 2009 at 7:35 am

I think it’s important to especially focus on #4: even if you have the potential for a high comparative advantage in cognitive skills, if your family lacks the capital to develop it, you’ll end up with an actual comparative advantage in physical labor and be poor. This is something policymakers can improve with better public education: if a student’s education doesn’t depend on his family’s income, he’ll more likely realize his potential (if he has it).

2 Ralph November 1, 2009 at 8:36 am

This appears to be more of a US phenomenon. You do not see the same levels of inequality in Europe. We look to be heading towards a two tier society while Europe maintains a larger middle. What does that imply going forward?

3 dearieme November 1, 2009 at 9:12 am

“people with high cognitive skills”: this is all very mealy-mouthed, isn’t it?

4 anon November 1, 2009 at 9:42 am

you’ll end up with an actual comparative advantage in physical labor and be poor.

Oh, you mean like plumbers and electricians and auto mechanics. Those kind of poor people?

5 Robin Hanson November 1, 2009 at 10:15 am

Globally, inequality is down over the last thirty years. More here.

6 RJ November 1, 2009 at 10:31 am

“The children of two affluent parents are likely to have much better genetic and environmental endowments than the children of two (likely unmarried) low-income parents.”

Note to self: time to watch the movie “Idiocracy” again.

7 John Thacker November 1, 2009 at 12:18 pm

“Oh, you mean like plumbers and electricians and auto mechanics. Those kind of poor people? “

Anon, if you think that plumbers, electricians, and auto mechanics don’t have cognitive skills, especially today, you’re mistaken. Perhaps you’re confusing the signaling of formal schooling with the cognitive skills it purports to measure?

“If global inequality is down, but US inequality is up, perhaps we should be looking at how other countries grow their middle class.”

Global inequality is down because other countries are achieving the standard of living previously only seen in the First World. Their poor were far worse off than the poor in the US and other rich countries; plenty of people with lower skills were able to be much better off simply because they were lucky enough to be born in the US or Europe.

Global inequality is decreasing because poor people in other countries are coming up to the level of poor people in the US. Rich people in other countries were always at similar levels to rich people in the US. (Sometimes with fewer capital goods, but with more labor-reliant things like servant labor and as many positional goods.) That says very little about how we can make our poor like our rich.

8 Russ R November 1, 2009 at 2:31 pm

“If global inequality is down, but US inequality is up, perhaps we should be looking at how other countries grow their middle class.”

This pre-supposes that “inequality” is a bad thing.

I’d suggest renaming it “Socio-Economic Diversity”. Shouldn’t we all be in favour of more diversity?

9 Zamfir November 1, 2009 at 2:54 pm

Kling seems to greatly overestimate the importance of being good at physical labor in the past. It was of course never a way into the upper classes, and women were not kept out of offical positions of power because of their lesser body strength when many of those positions were held by 60+ men.

But also to grow your farm for example, being a good organizer and negotiator were more useful skills than (easily hirable) physical power. Of course, being able to work long hours helped, just as keeping a good health for several decades and not having to carry your children inside you. But those physical abilities are still as large advantages as they used to be.

10 mulp November 1, 2009 at 4:38 pm

Didn’t Malthus take the same view of how things naturally were?

Didn’t the world move away from that natural state of things in Malthus day by enormous transfers of wealth from the hereditary American landowners to the poor immigrants from Malthus’ Britain?

Once all the land had been taken for the original hereditary owners and 80% given away to spread the wealth by about 1900, it took the WWII planned economy to have government employ almost everyone, pay almost everyone equally, distribute the goods almost equally with rationing, and by forcing huge savings and investment programs that allowed the common people who didn’t deserve by hereditary reasons to get things like education and property.

So, the US has had two massive government run transfers of wealth to fight the natural state of a small number with the hereditary wealth they deserve and most people not having or deserving a larger share of the wealth.

11 Justin November 1, 2009 at 5:16 pm

Surely we need to look at #3 with a skeptical eye. First, if you look at the cult of motherhood in the 19th century it was much more than maid skills that were emphasized. Perhaps things were different by the 50s, but we should hesitate before thinking that women were marriagable based on their housework. Second, assortive mating based on earnings is a lot different than assortive mating based on interestingness. As far as I can tell, Kling’s comment doesn’t make sense if you don’t conflate them.

12 dearieme November 1, 2009 at 6:10 pm

“….math and medicine. The top student of either willl vastly out-earn the top student in, say, philosophy or english, despite the fact that it seems fair to assume both have the same cognitive umph.” Fair, perhaps – but not very likely.

13 John Pertz November 1, 2009 at 7:00 pm

Can you not a make point that U.S income inequality is more ethical than Western European income equality? In the sense that the US economy can inhale people and capital to a much greater degree than it’s Western European counterpart, it seems to me like the better deal is in the states. I mean look what happened to France with an uptick in Muslim immigrants, their unemployment rate hit nearly 10 percent.

For my money, I dont worry about inequality philosophically. I do worry about it’s effect on politics though.

14 Clark November 2, 2009 at 1:49 am

(3) does seem the problematic premise. I can buy part of it, but not the way you’ve put it. I think there were, especially among the rich, trophy wives. And they weren’t being married for their scrubbing skills. But I think today both men and women clearly demand different things from significant others beyond what was done in the 50’s. And yes, I think “cognitive compatibility” is simply much more significant today than in the past. Heck, it’s changed just in the last 20 years.

But even if you don’t think it is self-selected then you can get the same effect by simply noting many people meet in college which is a kind of external selection. Whereas in the past with women not in college and the way dating was done quite different you didn’t have cognitive ability selected in quite the same way. And no, that’s not saying everyone out of college has no cognitive abilities. Clearly a significant number do, just as there are people in college with low cognitive skills. But on average it’s changing the bias quite a bit.

15 babar November 2, 2009 at 7:16 am

i can’t imagine that anyone would have married my mother (born 1942, married 1963) based on her housekeeping skills. she was part of a generation of jewish women who, in her words, were not allowed into the kitchen while growing up because their mothers didn’t want them to end up as the family domestic servants. yet she and my father married in the their first year of graduate school. so, 30 years? if this is a trend, it’s 50 years, minimum.

16 john November 2, 2009 at 10:16 am

I’m surprised that in this whole thread no one’s mentioned The Bell Curve by Herrnstein and Murray. If you ignore when the authors tie race to general IQ then the book makes the same points as Kling’s five points.

17 DG Lesvic November 3, 2009 at 3:22 am

For the most important point about inequality, see the following:

http://www.econotrashtalk.org/Forbidden Theory.htm

18 Jacqueline November 3, 2009 at 9:30 am

(which you men would know if y’all actually did your fair share of it. LOL)

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