David R. Henderson  

Robert Frank Fails to Connect the Dots

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Please don't pay me to researc... Barbara Anderson, RIP...

Cornell University economics professor Robert Frank has an article in The Atlantic on luck. In "Why Luck Matters More Than You Might Think," he claims that successful people underestimate the role of luck in their lives. I'm quite willing to believe that, although he does not give any supporting data.

Instead, he argues for higher marginal tax rates.

Frank writes:

According to the Pew Research Center, people in higher income brackets are much more likely than those with lower incomes to say that individuals get rich primarily because they work hard. Other surveys bear this out: Wealthy people overwhelmingly attribute their own success to hard work rather than to factors like luck or being in the right place at the right time.

That's troubling , because a growing body of evidence suggests that seeing ourselves as self-made--rather than as talented, hardworking, and lucky--leads us to be less generous and public-spirited. It may even make the lucky less likely to support the conditions (such as high-quality public infrastructure and education) that made their own success possible.


Let's say that Frank is right that high-income people overstate the role of their own hard work in their success. How does he know that low-income people, who put a bigger weight on luck, are thinking correctly? Moreover, imagine that you were asked to give advice to a 20-year-old from a poor family who wanted to be financially successful. Would you tell him that luck is a huge factor? Even if it's true, it's demotivating. Who is likely to do better: the poor 20-year-old who thinks that luck is more important than hard work or the poor 20-year-old who thinks the opposite?

In a "you didn't build that" spirit, Frank advocates higher marginal tax rates so that the government can spend on more on infrastructure and schooling. Past such expenditures, he argues, were a large factor in the success of the successful. He doesn't give any data or even any links backing this up. He simply asserts it.

Frank writes:

A recent study by the political scientists Benjamin Page, Larry Bartels, and Jason Seawright found that the top 1 percent of U.S. wealth-holders are "extremely active politically" and are much more likely than the rest of the American public to resist taxation, regulation, and government spending. Given that the wealthiest Americans believe their prosperity is due, above all else, to their own talent and hard work, is this any wonder? Surely it's a short hop from overlooking luck's role in success to feeling entitled to keep the lion's share of your income--and to being reluctant to sustain the public investments that let you succeed in the first place.

I must say, partly because I'm a libertarian and partly because high taxes, heavy regulation, and high government spending are keeping economic growth anemic, thus making it harder for almost everyone in the United States, I found this paragraph the most heartening of all.

My impression, though, and I may be wrong, is that there is one policy that the top 1 percent tend to favor more than the bottom 99 percent, a policy that would do more than any other policy to help really poor people: they tend to favor immigration. Robert Frank almost gets there. He writes:

The one dimension of personal luck that transcends all others is to have been born in a highly developed country. I often think of Birkhaman Rai, the Bhutanese man who was my cook when I was a Peace Corps volunteer in Nepal. He was perhaps the most resourceful person I've ever met. Though he was never taught to read, he could perform virtually any task in his environment to a high standard, from thatching a roof to repairing a clock to driving a tough bargain without alienating people. Even so, the meager salary I was able to pay him was almost certainly the high point of his life's earnings trajectory. If he'd grown up in a rich country, he would have been far more prosperous, perhaps even spectacularly successful.

So wouldn't it be nice if instead of using Birkhaman Rai as a prop to illustrate Frank's case for bigger government, Frank instead advocated letting more people like Birkhaman Rai into the United States?

Unfortunately, Frank fails to connect the dots. In the very next paragraph, he writes:

Being born in a favorable environment is an enormous stroke of luck. But maintaining such an environment requires high levels of public investment in everything from infrastructure to education--something Americans have lately been unwilling to support. Many factors have contributed to this reticence, but one in particular stands out: budget deficits resulting from a long-term decline in the United States' top marginal tax rate.

Frank is right that those of us born in the United States were incredibly lucky just to be born here. I was born in Canada, which made me roughly 80% as lucky. But then if we want to help poor people, let's let them in. Ask the Birkhaman Rai's of the world: Would you like the U.S. government to let an extra 5 million people a year into the United States or would you like more government spending on freeways and government schools.

HT2 Mark Thoma.

Update: Russ Roberts interviews Robert Frank on success and luck here.


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COMMENTS (18 to date)
Steve S writes:

I was getting frustrated during the EconTalk episode how he kept referring to housing as being this good that was bid up in price with no increase in quality or value (at the extreme high end of wealth, e.g. $5MM+ houses). Like there is some free lunch to just capping home prices, or otherwise reducing spending on housing, and funneling that money into public investment.

He's only looking at the buyer. What about the person who sells the 50,000 sq. ft. mansion who now makes less of a gain because home values at the very top end of the market are no longer as high as they were? Now that person has less income to tax, less money to spend.

Jon Murphy writes:

I agree that luck (or other things) has a lot to do with it, but knowing what to do with luck is just as important.

For example, your earlier post on the Warriors. There was some combination of luck and skill that allowed the Warriors to get Curry. But knowing how to use him, knowing how to maximize his abilities, that was all skill.

Likewise, there was luck that gave Curry godlike basketball abilities, but his ability to be coached and to be a team player is all skill.

Matthew Moore writes:

+1 Steve.

I kept expecting Roberts to point out that housing and marina space are only seriously inelastic in the short run, aside from zoning laws, and there is a supply side response to very high prices.

True positional goods are very very rare.

Alex writes:

Of course luck is by far the main factor in success. How about the luck of not being mentally ill?
But you should also take into consideration that people respond to incentives. Higher taxes will mean less investments and less economic growth. People never like to pay taxes. Even if they are very charitable, they would rather give to charities. But people never like to pay taxes, that's the way it is and you cannot change it.

Mark Barbieri writes:

It's sad. Why does he think that having a larger share of the economy controlled by the government will make people better off? I did a quick correlation between median national income and General government final consumption expenditure (% of GDP). The correlation was a meager 0.29. I then compared median income to Heritage's economic freedom index and came up with a correlation of 0.49. Wouldn't it make much more sense to focus on increasing economic freedom rather than increasing the size of government?

BC writes:

I am puzzled by Frank's views on luck and infrastructure spending. If people's success is largely due to luck, then how could public infrastructure be that which "made their own success possible"? If luck dominates hard work and own ability, then why does it not also dominate public infrastructure, especially since public infrastructure is, by definition, common to everyone, regardless of subsequent success? Does Frank believe that public infrastructure helps only the lucky but not the unlucky? If so, then how would building more infrastructure help the unlucky? Alternatively, perhaps Frank believes that public infrastructure helps everyone. But, then why attribute the differential success between people sharing the same infrastructure to that common infrastructure?

Frank is correct when he says that the biggest dimension of personal luck is to have been born into a highly developed country. That's why it's so strange for anyone to pay attention to inequality of results within developed countries. Everyone in these countries, from the highest to lowest income earners, has shared in the luck that Frank calls the one dimension that "transcends all others".

Finally, I am confused by the connection that Frank tries to make between generosity and resistance to taxation, let alone regulation. Generosity has no connection to support for taxation for the simple reason that a generous person can always donate money to charities; no one needs to pay higher taxes to be more generous. Desire to increase taxes arises from a desire to spend *other* people's money --- that's when taxes are necessary. Needless to say, desiring to spend *other* people's money has no correlation to one's own generosity and may even have a negative correlation.

philemon writes:

If people's success is largely due to luck, I expect the same to apply to politicians and civil servants--they get to be where they are largely due to luck. So if luck makes it such that private individuals don't deserve their earnings in the market, then likewise, politicians and civil servants don't deserve the power they have other the lives of others... unless Roberts have some special arguments to show that politicians and civil servants don't get to where they are by luck, arguments that don't also apply to private individuals earning in the market.

Andrew_FL writes:

The "rich people benefited from government" argument is interesting. If government education, roads, etc, so disproportionately benefit a lucky few, is not the government then responsible for inequality, for life being "unfair"?

Dustin writes:

You may be interested in the following article, which is relevant to your final thought (let people in). Migrant remittances accrue to developing countries at a rate of 3x to that of foreign aid.

Developing countries got $131 billion in official aid in 2015. And they got $431.6 billion in remittances.

http://www.npr.org/sections/goatsandsoda/2016/04/13/474105981/who-gives-more-to-the-developing-world-aid-donors-or-migrant-workers

Dr N Shackel writes:

"Frank is right that those of us born in the United States were incredibly lucky just to be born here" And you are both completely wrong about this. For why you are wrong see here: http://blog.practicalethics.ox.ac.uk/2015/08/guest-post-no-fortune-of-birth/

Pajser writes:

Few interesting topics for discussion here. First, it seems that David Henderson criticizes Robert H. Frank because Frank didn't mentioned immigration in one particular article. But what is Frank's position on immigration? Search on Internet show that ten years ago it was very similar to Henderson's, they both signed "Open Letter on Immigration." Did it changed?

Second, I wouldn't say that immigration is the best possible politics for eradication of the world poverty. That claim is occasionally repeated, but I failed to find arguments for that. World is rich enough that absolute poverty could be completely eradicated through redistribution already.

Finally, on more philosophical level, I believe success is 100% luck. Hard work has influence on success, but one's emotions, attitudes and decisions about hard work and anything else are also result of his genetics and environment, therefore, the luck.

Andrew writes:

It saddens me when otherwise intelligent people believe there is such a thing as luck. Perhaps it was voodoo, karma or fate that led people to their lot in life.

I wasn't lucky to be born in Minnesota. I was born here because my mother was here when she gave birth to me. As was her mother. Maybe I am unlucky that I wasn't born in Finland like my great grandparents. But that would be silly to think that.

Dustin writes:

Andrew,

Per Merriam-Webster:

  • the things that happen to a person because of chance : the accidental way things happen without being planned
  • the events or circumstances that operate for or against an individual

'Luck' is quite the perfect description of one being born in Minnesota (or anywhere) - it happened to you and was beyond your control. Sometimes such luck is ultimately for good fortune or ill.

Floccina writes:
But maintaining such an environment requires high levels of public investment in everything from infrastructure to education--something Americans have lately been unwilling to support

I do not see how he how he can say that.

http://un-thought.blogspot.com/2016/04/robert-frank-on-luck-and-dilligence.html

Between 1960 and 1995, annual per pupil spending in the United States rose from $2,122 to $6,434 in inflation-adjusted 1995 dollars.3 By 1999, the United States was spending an average of $7,397 per K–12 student. Spending in other industrialized countries averaged $4,850. Only Switzerland, at $8,194 per pupil, spent


I just read that USA infrastructure is good, better than it has ever been.

AND middle of the pack for the industrialized countries. That matches with my experience also. How much does the U.S. spend on infrastructure compared to the rest of the world?

USA infrastructure quality and spending is in the middle of the pack.

Between 2001 and 2011, annual public investment averaged 3.3 percent of gross domestic product, according to the Organization for Economic Cooperation and Development. The average OECD nation spent 3 percent of GDP over the same period.

Not that I am not willing to spend more. I am but it is not where our tax dollars go. I am even for a rise in the gasoline tax.

ThaomasH writes:

As for advice to give, the question is which margin? Hard work is more likely to make the difference between being a poor young person just starting out in life and ending up as a non exactly retiree at age 75. Luck is more likely to make the difference in ending up in the top 0.1% at age 75.

Aaron McNay writes:

In the article that David links to, Frank says:

"But maintaining such an environment requires high levels of public investment in everything from infrastructure to education--something Americans have lately been unwilling to support."

I find it difficult to find evidence of this when we look at government spending. For example, non-defense federal, state and local consumption expenditures and gross investment averaged 9.7% of GDP in the 1950s, 12.5% in the 1960s, 14.6% in the 1970s, 13.6% in the 1980s and 14% in the 1990s. In the 2000s the average reached a high point of 14.8%. For the first 24 quarters of the 2010s, it has averaged 14.2%. (FRED Data)

If federal, state and local governments are investing and spending more now than they did in the 1950s, 1960s and 1990s, how can one say that we are Americans have only recently been unwilling to support government "investment" through spending?

Now, of course, it is possible that government spending should be even higher than it is now. However, I find it difficult to support the notion that "we" are unwilling to fund government "investment" when spending is higher now than it was in most periods during the previous 50 years.

john hare writes:

Finally, on more philosophical level, I believe success is 100% luck. Hard work has influence on success, but one's emotions, attitudes and decisions about hard work and anything else are also result of his genetics and environment, therefore, the luck.

I would be extremely careful about any dealings with a person with this opinion. Ambition and hard work are not accidents of luck. Calling success luck is a step closer to advocating destroying success to spread the luck around.

LD Bottorff writes:

Many of the wealthy resist additional taxation because they know how to grow wealth, and they see how quickly the government squanders it. As at least two posters have said, we are spending more money on infrastructure and education.
I'm not at the level of wealth that Robert Frank discusses, but I do resist sending more to the government when it is just spent buying votes. Higher marginal tax rates won't mean more investment in education and infrastructure; it will mean more investment in the careers of politicians.

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