Pubs and Economic Opportunity: Not

I’ve blogged about this before, but I need to pass on another piece of proof, courtesy of Matthew Yglesias.

Adopting one of the free-marketers’ favorite mantras: a good economic system allocates resources to create the greatest prosperity for all. (It’s a sum function.)

That includes human resources: people’s talents are directed where they’re most effective in creating prosperity.

That includes meritocracy: people’s skills have more effect on their success than the circumstances of their birth.

In a meritocracy, people’s incomes are more loosely linked to their parents’ incomes. People succeed because they perform well, not because they were born well.

Free marketers would have you believe that the free market allocates those resources most effectively, because it provides the greatest opportunity for merit to prosper.

Nice theory, but it’s contradicted by the facts on the ground. It’s much easier for meritorious children to climb above their parents on the economic ladder if they live in a country with generous social services and more robust redistribution.

In the U.S., 50% of a boy’s chance of climbing the ladder is the result of his father’s income. In Denmark, it’s only 15%.

Which system allocates human resources most efficiently?







9 responses to “Pubs and Economic Opportunity: Not”

  1. josh Avatar

    In a meritocracy, people’s incomes are more loosely linked to their parents’ incomes.

    This assumes a child’s “merit” is unrelated to his parents “merit”, which is silly.

  2. Asymptosis Avatar

    No, it only assumes that the correlation is <1. In fact it’s probably about .5.

  3. Chris Avatar

    This depends as well on how far along a country is in ‘sorting’ it’s population along genetic lines*. One that underwent sorting earlier would have greater elasticity. Also important is the variability of the country, more genetic variability results in greater elasticity.

    Just posting inheritance numbers doesn’t provide evidence either way without knowing what the contributing factors are and their relative effect.

    *This does not mean genetics is completely responsible economic outcomes.

  4. Asymptosis Avatar

    True, though of course we (I) have no idea the extent in different countries. But I would suggest that in prosperous western coutnries the quanitites of sorting would be vaguley equivalent–nothing like large the differences we’re seeing in these numbers.

  5. Charles H. Green Avatar

    Fascinating. And makes perfect sense, when you stop to think about it. If access to resources is dictated largely by the conditions you’re born into (true in the UK for class, in the US for money), then that’s going to be a big determinant of your success in life.
    In a country like Denmark, access is far more equalized; hence, as you say, resources are more optimally distributed, if by ‘optimal’ we mean meritocratically.
    I buy it!

  6. Asymptosis Avatar

    @Charles H. Green
    Yeah, it definitely imparts a moral, meritocracy argument. And at the same time suggests a strong argument for bigger pie, all boats rise, blah de blah.

  7. Chris Avatar

    Income variability appears to be directly correlated to elasticity as measured by the GINI coefficient. You would expect this, as a smaller range of incomes leads to a greater relative shift every time a person’s income rose or fell:

    I would also point out that the less income is based on the required ability for a job, the smaller elasticity is likely to be (ie: promotions by seniority rather than demonstrated ability). A society in which incomes are randomly assigned every generation would have an elasticity of zero, but would not be remotely meritocratic. If income was completely determined by genetics and genetic traits were perfectly preserved generation to generation, the elasticity would be 1.0 in a perfect meritocracy.

    On its own, elasticity does not tell you anything about how meritocratic a society is.

  8. Asymptosis Avatar

    I don’t really understand this but it’s probably my failing.

    In what way is GINI a measure of elasticity? Elasticity of what?

    By variability, you mean inter-generational variability of income?

    I think you’re saying (partly) that in this data set, the lower intergenerational income might be just a result of those countries’ having a tighter range of incomes?

    >Income variability appears to be directly correlated to elasticity

    I didn’t get that from the graphic you sent. ??

  9. Chris Avatar

    I was not clear in my post, this is my fault. The GINI coefficient measures inequality in income. A lower coefficient means the range of incomes in a country are smaller. In countries with a smaller range of income, random fluctuations would produce much greater relative swings in inter-generational income than that of countries with larger ranges even if the absolute differences were the same.

    “I didn’t get that from the graphic you sent. ??”

    I was noting that the GINI rank order appeared to be extremely similar to that of your elasticity data. The correlation magnitudes seem to be fairly close as judged by a quick scan of the relevant countries.