Economics

Whose Fault Is It That You Are Rich?

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Research indicates there's a good chance it's your parents. But the extent of, and reasons for, that effect have shifted in the relevant professional literature on intergenerational income equality, as surveyed and cheekily summed up by economist Bryan Caplan:

Stage 1 (1970s-80s): The intergenerational income correlation is low, about .2.  This shows that capitalism is pretty fair….

Stage 2 (1980s-1990s): Previous researchers underestimated the intergenerational income correlation by failing to correct for year-to-year fluctuations.  The true correlation is much higher, about .4, showing that we live in an unfair class society.

Stage 3: (late 1990s – today): The intergenerational income correlation is indeed quite high.  But twin and adoption studies show that most or all of this correlation stems from heredity.  The reason why kids from rich families do well isn't that mom and dad buy their way through life.  The reason, rather, is that rich families have genes that cause financial success, and pass these genes on to their kids.  (Casual consumers of this literature often get confused by the fact that the effect of IQ is far too small to explain the intergenerational income correlation.  The key thing to remember is that there is a lot more to genetics and success than IQ)…..

Stage 1 was defensive: "Sure, life's not fair.  The children of the rich do better.  But the unfairness is pretty small, and almost vanishes after two generations."  Stage 3, in contrast, is offensive: "Life is fair.  The children of the rich do better because talent breeds talent, and under capitalism, the cream rises to the top."