Bryan Caplan  

It's Not Who You Know, It's Who You Are

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Children resemble their parents.  When the resemblance is physical, we usually think it's funny or cute.  But when the resemblance is financial, it's an Issue.  Non-economists debate the merits of the cynic's maxim that, "It's not what you know, it's who you know."  Economists debate the magnitude of the intergenerational income correlation.

During the past two weeks, I've been reading all the articles I can find on this subject.  Here's my three stage summary:

Stage 1 (1970s-80s): The intergenerational income correlation is low, about .2.  This shows that capitalism is pretty fair - while many people see a class society where rich people give their kids a massive edge in life, the reality is that people succeed largely on their merits.

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).

Notice: In Stage 1 and Stage 2 , the normative subtext was quite clear.  Capitalism is pretty fair!  No, it's not!  On my reading, though, most researchers have moved from Stage 2 to Stage 3 without noticing that their normative subtext is more pro-capitalist than Stage 1 even imagined. 

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." 

Rawlsians will naturally protest that "talent is just another kind of luck."  But doesn't my smug Victorian take follow from the facts plus normal meritocratic moral intuitions?


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COMMENTS (12 to date)

All of this is true, but it also matters who you know. As I have come to know more people, more opportunities have come my way. People have even come offering me opportunities I didn't know were out there.

I also noticed that nobody would ever respond to emails from Troy Camplin, but everyone responds to emails from Troy Camplin, Ph.D. So education matters, too.

Joe writes:

Having wealthy parents and being white will certainly improve anyones chances. Think of the neighborhoods where these kids grow up. Their peer group. Who they idolize and what expectations that have for themselves. It is IQ+Culture+Money+Parenting+Etc. Etc. Etc.:
Far more difficult to determine that a simple correlation can tell you.

Troy Camplin writes:

Okay, let's add up Joe's formula for me:

IQ = 148
Culture = rural western Kentucky
Money = often-laid-off coal miner
Parenting = very good
Peers = many abusive, mostly ignored by others, only 2-3 real friends

Add those together, and you get a Ph.D. in the humanities, M.A. in English, B.A. in recombinant gene technology and chemistry who reads economics and philosophy for fun and writes poems, plays, and short stories and does interdisciplinary scholarly work.

Of all those, the only things I would recommend are the IQ and the parenting. I had great parents who were able to counteract the peer-environment that was, mostly, atrocious for me.

Lee Kelly writes:

It is often said that humans are a social animal. But how did we get to be social? Why do we communicate using complex languages? When did facial and body signals become so nuanced and informative? Etc. Genetic diversity was a necessary precursor to the evolution of human society, and such variation still exists today. Some people are more inclined to seek out relationships, forge alliances, and induce loyalty than others. The cynic's observation that it is who you know, and not what you know, is not a non-hereditary explanation of individual success, but just another facet of human behaviour which is inexorably is tied up in diverse genetic endowments.

Except in misleading statistics, no aspect of human action or behaviour can be divorced from hereditary factors. Whatever properties of an organism exist emerge from an intractable combination of genetics and history.

hacs writes:

That remember me the discussion about economists and the status quo. A funnier version is "explanations are endogenous".

hacs writes:

For me seems clear that income is a weak factor to a sample from a population with incomes beyond a threshold. But in different conditions, income is a increasing time technology allowing a time intensification of study/venture/work effort. I see many econometrics tests/researches being applied on US data, but only a few on world data. But economic theory cannot be based on US data only, can it?

Dan Weber writes:

Having wealthy parents and being white will certainly improve anyones chances. Think of the neighborhoods where these kids grow up.

Yeah, if only someone did adoption or twin studies. And if only Bryan were to make a blog post about that, and called it Stage 3. And if only someone ignored all that and then posted as if there were no research here whatsoever.

eccdogg writes:

"Notice: In Stage 1 and Stage 2 , the normative subtext was quite clear. Capitalism is pretty fair! No, it's not! On my reading, though, most researchers have moved from Stage 2 to Stage 3 without noticing that their normative subtext is more pro-capitalist than Stage 1 even imagined."

Is that really true since some of the traits that twins share are height, good looks, skin color, etc.

Yes the market rewards them for these traits, can the fact that the market puts so much weight on how tall someone is really be thought of as pro market argument.

By the way I am very pro market, I just am not sure the conclusion follows.

TomB writes:

I haven't read the literature and only made a brief survey of the link in the post.

Has anyone done studies of immigrants and their children? I think the results would be interesting, especially if you could compare skilled and unskilled immigrants. My feeling (totally unresearched or otherwise corroborated) is that a person's definition of success plays a part in outcome. Some people only require a stable job with a decent (maybe $100K) paycheck. Other people won't be happy unless they are at the top of their field.

I think that having wealthy parents (immigrant or American) typically sets the success bar higher. I think that for children of unskilled immigrants, the bar is set much higher than for the parents though not necessarily high in absolute terms. And for people with parents of average wealth, the bar could be set anywhere.

Steve Sailer writes:

Bryan:

You should focus more on parents' effect on their children's children.

What parents can do to some extent is buy their children a peer group that improves the odds that they'll get good genes from their future in-laws for their mutual grandchildren.

I just had the pleasure of attending a school charitable function where the parents of a girl at the school raved for an hour about how wonderful my son is. These parent had four Ivy League degrees between them; the father had pioneered a new route up Mt. Everest, and was the grandson of a famous painter. In other words, I wouldn't mind my grandchildren ending up with some of their genes.

hacs writes:

There are not science behind those stages, only ideology.

Does Economics want to speak in heredity and genetics? It is good, but that will need a lot of study and hard work to be accomplished. Only statistical-based regularities (to worsen the situation, the vast majority of the techniques are based on hypothesis only partially testable) and economists common sense is far insufficient.

I really want to read those still nonexistent studies.

Vasco writes:

I assume there is good data behind this, but I think anyone who has met children of the very rich knows how hard to believe that is. ;)

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