Jonathan Chait

The Rich Are Different: They're Luckier

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This long attack on the unfairness of progressive taxation from the Hoover Institution by Kip Hagopian usefully embodies a lot of right-wing delusions about income inequality. It argues that a person's income is determined by three things:

America’s free enterprise system provides an environment in which the substantial majority of its citizens can realize their fullest earnings potential. Within that environment, individual economic outcomes are the product of a combination of three elements: aptitude, work effort, and choice of occupation.

Aptitude. For the purposes of this essay, aptitude is broadly defined as the capacity to produce, or to earn income. For the most part, it comes from circumstances of birth and is distributed unequally. Aptitude may be derived from innate talents (cognitive, musical, artistic, athletic, etc.) or physical attributes (appearance, dexterity, possession of senses, etc.). Or it may be acquired from lessons learned from parents and other life experiences. Aptitude emanating from circumstances of birth (either innate or acquired) can be significantly enhanced by individual effort applied to strengthening one’s skills (see “Work Effort” below). Aptitude is measured from low to high in accordance with the monetary value placed on it in the marketplace. This is a measure of earning power and is not in any way an indication of an individual’s intrinsic worth as a human being. For most people aptitude is the most significant determinant of income. But it has to be understood as capacity; aptitude does not produce income until it is combined with individual effort.

Work effort. For any given level of aptitude and occupation, work effort plays the decisive role in determining income, and in many cases may result in persons with lower aptitudes earning more than their higher-aptitude peers. For the purposes of this essay, the term “work effort” includes not only the number of hours worked, but also the intensity of the effort applied during those hours. As noted above, it also includes work effort applied to strengthening one’s skills.

At every level of aptitude and in every profession, whether the pay is in salary or hourly wages, there are workers who outperform their peers in each hour worked. They do this by performing tasks more quickly; focusing on the tasks more intently; finding and completing additional tasks that need to be done; and using some of their leisure time practicing or training to become more skilled. These people get more raises, larger bonuses, and more promotions than their peers. Thus, greater work effort can produce higher income whether the person is paid by the hour or earns a salary.

In addition to producing higher income in its own right, work effort applied to strengthening one’s skill resulting in “learned” or “enhanced” aptitude can make a substantial contribution toward increasing income. The “rough” carpenter who spends nights and weekends developing the skills necessary to qualify as a more highly valued “finish” carpenter will move up the wage scale by doing so. Professional athletes, musicians, singers, and other performers can enhance their innate aptitudes substantially through extensive practice, and a great many are renowned for having done so. A classic example is Hall-of-Famer Jerry Rice, who is generally recognized as the best wide receiver in nfl history. He was one of the highest paid players in pro football for twenty years, an achievement largely credited to his intense practice and workout regimen. Perhaps the most effective way of enhancing aptitude is through increased study in school. Whether it is grade school, high school, vocational school or college, for any particular tier of aptitude, those who study the most almost always get the best grades, matriculate to the best colleges, and secure the best jobs.

Choice of occupation. Choice of occupation is also important in determining income. Had Bill Gates decided to finish Harvard and become a high school math teacher, he almost certainly would have been successful, but he would not have become a multi-billionaire.

Earned income is determined by a mix of the three factors described above, and the relative contribution of each varies by individual.

This is obviously written to minimize the role of luck. It acknowledges that Bill Gates made more money by choosing to become a software mogul than by choosing t be a high school math teacher. But, of course, Gates (as he has acknowledged) benefited enormously not just from his family situation but from the timing of his birth, which put him in the work force at a moment when computing technology was set to explode. If he had been born a decade or two earlier, he probably would have been an anonymous lab geek if he had followed his mathematical inclinations, or perhaps the owner of a successful grocery store chain if he had pursued his entrepreneurial instincts.

What's more, it is demonstrably not the case that income levels simply reflect aptitude and effort. Now, obviously being from a richer family affords all sorts of advantages, including physical, emotional, and cultural development. But factor all that out of the equation and assume that it's just fair for all those things to translate into higher academic performance and higher earnings.

Even assuming that, there are massive advantages inherent simply in being born rich (and disadvantages in being poor.) My favorite example, simply because it's so dramatic, is that a child born into the lowest-earning quintile who manages to attain a college degree is less likely to be in the highest-earning quintile than a child born into the top quintile who does not attain a college degree. This is all the more remarkable when you consider that making it to, and through, college is far harder for poor kids than rich kids even at a given level of aptitude. (Two thirds of the kids with average math scores and low-income parents do not attend college, while almost two-thirds of high-income kids with average math scores do.)

 

How would Hagopian explain this? The lower-income kids managed to beat the odds by graduating from college, yet they make less money than the rich kids who beat the odds in the other direction by not going to college. By any measure, the former group has more aptitude and greater work ethic. Now, clearly right-wingers in general, and wealthy right-wingers in particular, like to think aptitude and effort and choices determine how much money you make. (Hagopian is the co-founder of a venture capital and private equity firm.) You see this from Greg Mankiw, Arthur Brooks, and on and on. The right-wing worldview is based on a moral premise about the relationship between merit and wealth that is demonstrably false.

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