Tuesday, November 26, 2002

More on intergenerational transfer of wealth

I asked U Chicago labor economist Robert Topel about the recent (upward) revision to intergenerational transfer of wealth. He said that when Becker first thought about the problem he calculated it to be around 20%, which is actually surprisingly small. He argued that productivity clearly has inherited components to it, whether it be nature (intelligence genes) or nurture (family values include healthy work habits), and so you would expect earning potential to be as inheritable as other inheritable traits. The revised figure is closer to this. Moreover, you would expect this to be stable across income brackets and time because heritable traits are, well, heritable.

He also pointed out that intergenerational transfer of wealth does not answer the question people think it does, namely, "how mobile is the society?" The true test of that is how quickly does individual wealth react to some external shock. For example, does a prodigy with an IQ of 120 (I know, I know, IQ is a terrible measure of productivity, work with me here) born to very poor parents end up very poor? Or does a particularly dumb, lazy, obdurate, and feckless scion of the rich end up equally rich? I don't know the answer to that, but my anecdotal experience says "no." The US may be a lot of things, but it's certainly not a class based society.

I guess my point is that an immobile, class based society of privilege and an efficient, meritocratic society (where heritable traits influence productivity) can look exactly the same from an intergenerational transfer of wealth perspective.

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