Interesting how the increase in inequality over 40 years is very similar to the increase in population over that time period.
He likes to repeat how doctors and such don't have the skills to commensurate the pay they receive and how lowest paid people often are much more skilled than their pay would suggest.
One went through hellish and laborious years of schooling, studying and high stress while the other not only chose a much easier path, but they decided to just remain at or near the bottom of the work...by the authors own admission! Otherwise why would all these people be at this low level of the work force while possessing skills above that level of pay?
So of course they are over skilled for their low paying job.
It is very important to note the lack of the importance of our own decision making in this article.
The absolute and total lack of personal responsibility...just the unfairness that these two are in such contrasting stations in life.
This strikes me as lazy analysis. There is no reason to associate "50% more ability" with "50% more pay" other than the number "50" remains consistent for no good reason. The question is value. How much would you pay a financial advisor who consistently got you 50% better returns year-over-year than the S&P? Over 20 years, on average, you'd have made 250% as much as you'd have made otherwise. Given a standard fee structure, you might be willing to pay this advisor 10x the rate you'd pay the one that only got you S&P returns. The whole point is that algebraic comparisons are meaningless. The whole point is value. Which the article never addresses.
1
@Bruce Your example talks about investment return. That is naturally view in compound interest term which follow exponential growth. However, the article is talking about wages. In this context, it is more likely that a worker performing at 150% of the average one year continues to perform at 150% average the next year. It is extremely unlikely that they would start performing at 150% x 150% = 225% the second year. Therefor, your analogy fails in this context.
One of the corrupt cabals that exist in the US is the cozy relationship between C corporate officers and their board members. Cross-membership (you’re on my board deciding my salary and I’m on yours) thwarts the interests of shareholders and is counter to efficient capitalism, yet our government does nothing about it. That this practice is also not in the public interest (aside from shareholder interests) should be the most important reason to stop it, but the right doesn’t care about the public interest. The right ought to be all over this abrogation of smoothly functioning capitalism, but their non-action proves that they are corrupt, not purists at all.
1
This is such a flawed analysis -- does this mean valuing extraversion more than introverts, and negatively / punishing anxieties, which is a prevalent condition in the US? Aside from this mere personality subjectivity, I would dare say this doesn't work for some industries. As someone who works in the tech industry, the higher EQ isn't necessarily valued the same way -- personable approach to collaboration may be viewed as inferior to the data-driven approach to solving problems, so much so that the higher ranks in tech companies or even tech founders tend to be viewed as more "robotic" than the rest. Also, innovative thinkers that generate ideas / products are not necessarily your enthusiastic / extravert colleagues. Conscientiousness is not as highly valued as say, the ability to manage up.
Many commenters are quite unfair to the author. He's talking about income inequality, not wealth distribution. I understand that for a few, like CEOs, there are other ways to earn income (stock options,etc.), but I'm struggling to see how this invalidates the argument of the author.
1
Grit and persistence are the best measures of success—best noted by Calvin Coolidge:
“Nothing in the world can take the place of
persistence.
Talent will not; nothing is more common
than unsuccessful men with talent.
Genius will not; unrewarded genius is almost
a proverb.
Education will not; the world is full of
educated derelicts.
Persistence and determination alone are
omnipotent.”
"Income inequality in the United States would fall drastically if people were compensated based only on their ability." This is true but it doesn't take into account many things. Income inequality is extremely important to our republic. If everyone was paid the same, there would be nothing to strive for, nothing to work towards. Look at the USSR for instance. Large portions of society being paid the same led to low satisfaction, and starvation in some cases. We need the incentive to forward industry.
Paid is largely tied to how replaceable you are.
1
If males and females were paid on the same level? Let’s try it first. Then report the outcome.
3
What if what is considered to be the right traits and qualities to analyze relative to an individual's level of success is at best incomplete? In other words, what if the basis for this book is at best incomplete and at worst, wrong?
While this is not an end all be all result. a recent and highly detailed study (Oxford/Said Business School) of the success and the persistence/consistency thereof of private equity transactions could be attributed more to the individual deal manager than to the PE firm. But, when the study went further to look at the most successful individuals, those typical "human capital" traits, also noted in this piece, could not provide the basis of an explanation for those who were the most successful and consistently so.
This suggests, and matches my own experience, that there is far more to high performance than is believed by the consensus.
From the beginning of time...it has always been the business owner against the worker...from peasants/patriarchs, subject/kings... to the present.
The years after WWII were an aberration because for the first time in history, the majority of people were Well-Paid. The USA became the wealthiest, most inventive, and had the highest standard of living when More People made More Money.
But in the end that just made those at the top angry, and they wanted to return life to the way it has always been...the way they feel it should naturally be. An extremely wealthy few that control everything...and the rest of us miserably poor.
The Right has been wildly successful in convincing the working class that those days of Wealth for Most will never return and they need to adjust their expectations. Sad isn't it?
5
But income can't be doled out by ability/education/age and personality traits. Are you really gonna pay a guy more just because he's more personable vs another? An extra IQ pt get's him more too? There's so much more to income that's determined by family standing, reputation, knowledge of clientele, background, upbringing, etc.etc You can't ask the person 20 questions and say ok your worth X. I don't want to live in a world where jobs and life work by a formula, and we shouldn't be striving for such a world. It would be kinda 1984, don't you think? This is insanity with a veneer of statistics, you want communities and culture to value the job, not a calculator.
3
One's ultimate level of achievement relies in part on one's native ability, but other factors are equally important over the long haul, such as adaptability or resilience.
How effective is someone at accomplishing the specific duties of their job? That metric will always be viewed as the paramount measure of ability in any functional workplace.
3
What this article fails to acknowledge is that the "goal posts" have always moved farther and farther down the field for a an overwhelming majority of Americans, no matter how fast we run, no matter how hard we push.
When I was in grade school it was "Finish high school and you'll get a good job right away". In middle school it became "You need to graduate from college with an associates degree if you really want to get ahead". Then by the time I was in high school it was "You're going to need a bachelors degree to get ahead". By the time I got into college it was "You're gonna need a masters degree to get ahead".
Now entry level, dead end jobs want a degree, 5 years of experience, certifications for skills that are never used in the job role.
4
IQ means nothing but the fact is that even smart people lacking a degree can make corporate decisions based on just one thing... common sense based on experience. A degree doesn't give you experience. The old saying that you can train a monkey to do some jobs isn't far from the truth. An exceptional one at that.
1
Why did the NYT publish an article with insidious premises about IQ and ability that have underpinned racist and anti-Semitic nonsense for centuries? There is a vast literature devoted to the fallacy; start with Gould's classic "The Mismeasure of Man."
Early on, the author slips in, "most workers are underpaid relative to their measured intelligence, and personality traits..." He then criticizes doctors, lawyers, and financial managers for being overpaid "according to the same metrics."
Let's be clear: Whatever we think about income inequality, the premise that IQ and personality traits are stable metrics equivalent to "ability," is insidious. First, IQ is not a real, biological thing. It is a test score, "mental age," divided by age, times 100. Questions are culled using a Principle Components Analysis, which a famous statistician called "more art than science." IQ scores are unstable. They vary by test taking savvy, age, education, and health. They increase across decades and generations.
Second, "ability" has a sly connotation that has been used for centuries to push Anglo Saxon supremacy. Books from Ivanhoe, to The Passing of the Great Race, to the Bell Curve, argue that each race has its own "innate abilities;" just point them in the right direction.
Ability is simply how well you do something. Which involves everything from practice, motivation, and focus to hand eye-coordination, reaction time, problem-solving, and tolerance of boredom. Little is innate.
5
“If People Were Paid by Ability, Inequality Would Plummet”
Ability?
As a university professor I rarely met a student that I didn’t feel had the ability to master the material. Nevertheless, too few students earned an A in the courses I taught. I always thought, and told my students, that they earned their grades through demonstrated mastery and accomplishment. Did I spend 30 years doing it all wrong?
7
Very rarely is whoever is declared best at something actually the best. Good plus lucky (or very very good and not unlucky) is generally the case. The truly unfortunate part is that intellectual capital is being squandered by the inequality. The biggest problem is not the income inequality, but that overall world performance is poorer due to poor distribution of intellectual capital. Income inequality is just one driver of this problem.
6
How well we sell ourselves is surely important. Ultimately, though -- and like it or not -- the market knows what we're worth.
1
This is very embarrassing, painful, and shockingly true on many levels. There are many factors and reasons extreme levels of wealth inequality exist. Perhaps if a survey were to be conducted this instant, ‘greed’ would most likely be in the top five reasons individuals surveyed would choose to be the main cause of wealth inequality if it depended upon each individuals actual ability to perform their work. It usually always is a given response when the question is asked. I myself would say it is in my top five reasons, if that helps drive the point to the core of this article.
The author points out a truism as well when the top earners form coalitions, groups, or associations that have major backing from powerful interest groups. It happens all too often to prevent or make nearly impossible for others to make any meaningful gain in earning potential as a sole proprietor, or the increase of livable wages and conditions for everyone else. The ripple effects of such practices are clearly evident throughout many parts of the country. The San Francisco Bay Area is a prime example of just how impossible it is becoming for many ‘natives’, and other long time residents to continue to live in an area they consider home.
To know and witness personally individuals who have far more talent and perseverance in their profession than others, and not get paid their due worth does resonate close with me. The diligence to enforce accountability is dangerous if the reaction may endanger lives.
3
I'm skeptical. The late Paul Harvey, a radio commentator, once opined that perseverance is even more important than intelligence for success in life. The author may be relying on too few factors. I know one person who has an IQ of 150 or above and who didn't have a good career. Something else held her back.
3
Although income inequality between elite professionals in the top 1% and other workers is something of an issue, it is INSIGNIFICANT in comparison to the income inequality between the 0.01% and the rest of the population. Others commenting here have
At least the elite professionals are "earning" their income by some stretch of the imagination and PAYING TAXES ON IT.
I wholeheartedly agree that EVERY citizen should have an excellent education, quality food and medical care, decent housing--and this should all be possible, considering the amount of wealth in our economy.
I wholeheartedly agree that income inequality should be flattened out along the lines suggested by this author.
However, the real culprits who have siphoned off the massive wealth of the country--money that needs to be clawed back for the public good--is now in the hands of the super-wealthy 0.01%.
DO NOT LET AUTHORS SUCH AS THIS ONE, FUELING THE FLAMES OF JEALOUSY OF THE 1% HIGH EARNERS, DISTRACT US FROM WHERE THE REAL MONEY AND ANTI-DEMOCRATIC POWER IS!!!
11
We live in a culture with values inherited from a world built on the divine right of kings. In that world, people at the top had the most value regardless of their actual capacity. Many kings were disastrous for their countries, yet their every whim was obeyed without question and the damage they caused was ignored or explained away as a sign of their great virtue. Value grew less as you went down the social ladder to serfs then peons—individuals who had to beg to survive. Have we advanced much from that set of values? This essay suggests not a bit. The actors have changed but the outcomes are the same. We need to fix our mindset.
4
@TDHawkes
Excuse me, but the US abolished monarchy and aristocracy 230 years ago, while most European countries didn't do so till a century or more later, and many still haven't. Nevertheless, inequality here is far greater than in Europe. Your theory has a few holes in it. (But, to be fair, Mr. Rothwell's theory has even more holes, as he seems to neatly side-step the multi-trillion-dollar shift from wages to profits as a share of GDP, and the increasing monopoly and monopsony power of the small number of very large companies that dominate our economy.)
7
And if wishes were fishes we'd all but eating nothing but sushi.
5
If we focused on enriching those with the most skills, creatives would be at the top of the pay scale, yet they are not even mentioned in this article. I see so many artists toiling away not only at their craft, but also contributing to their local communities and enhancing and elevating any job they are involved in without any extra compensation.
5
@J Creatives are not the greatest doers. Look at Bill Gates, where would he have been with Microsoft, if he had been forced to rely on his own creativity? No. He is a a big doer who exploits other people's ideas.
The inventors today are not generally the ones to reap the profits. That is up to the more uncreative but systematic economists and the lawyers.
1
What Adam Smith said, actually. In the parts of The Wealth of Nations that are almost never quoted.
4
I’m a bit confused. In a true free market economy, people are paid based on the value of the services and/or goods that they provide to society, not based off their ability. You could say that more ability would mean a higher likelihood of contributing a higher value of goods and or services to society, but there’s a big difference between what you are able to supply and what you actually supply.
8
I think the article is essentially arguing that we don’t have a truly free market economy because local “professional elites” through real estate and professional organizations block access to the market.
4
@Todd
While that's part of the problem, the original commenter is still correct. Innate intellect and mere "book larnin" alone does not a wealthy or well-compensated person make. There are a lot of very talented and well-educated professors at many universities who are not making very much money by "civilian" standards, but there are numerous other explanations for that outcome. Some because they enjoy the low pressure work environment, some because they enjoy the academic milieu and all it offers, some because they can pursue their personal research interests at their own pace, some because they're simply lazy or uninspired, etc., etc., etc.
The author's conclusions seem to conflict with those of the OECD brief video, but I'm going to review them all again.
He also distorts the comparison by implying that all graduate degrees are equal. Utter rubbish, and I would expect him to know better.
Also, he makes some statements without providing the obligatory references or links. His arguments are more political than fact based.
4
Having been born in a different country (and having lived in 4 different countries for at least one year) I completely agree with this assessment. In most other developed countries lawyers and doctors earn just as much as other professionals. In the US, however, both professions have enacted high barriers to entry and earn far beyond their capabilities.
And, no, doctors in the US are not any more capable than doctors in any other OECD country.
13
@fblan Ah but doctors in the US are really highly capable at whining about their school loans. :-)
3
Life is like a marathon. The winner is the first runner past the finish line. Life's race to acquire wealth also favors the fastest runners. The only dfference is that in life our individual starting lines vary - some have inherited genetic profiles and stable homes that inspire success in lifes' challenges. Others are born into unstable families that present the greatest life challenge.
Unlike a marathon, the 'best and brightest' often start way ahead of their cohorts and finish earlier in achieving success. The 'normal folks' often are required to negotiate steep hills along the road to success.
If you want to level the playing field, start by levelling the path. And if you want to see greater success decentralized, develop progams that move people ahead, past the life challenges not experienced by the best and brightest
Let's face it. Those that get ahead in life's race need to use others that, through no fault of their own, failed to make the finish lines or did so through greater personal costs.
So unless your father is a doctor with med chool connections and a bountiful practice to hand-down to his son upon retirement - an early cross of the finish line, think "Pizza".
The moral of this story: if you can't make it into medical school, open a pizzeria and start making doe.
2
@Bob Aceti Being the best and the brightest is always helpful...if you're a white male.
4
There is some really good news here, despite the quibbling about doctors vs. Tim Cook. It means that there is a workforce out there, and individuals in it, who are every bit as talented and hard-working as those at the top of this ridiculous wealth inequality pyramid.
If these smart enterprising "un-rich" were SOMEWHAT unburdened by constant scrapping to pay the mortgage or rent; or save for college tuition or pay student loans; or worry about their health care payments, then think of the productivity unleashed! And this group includes people of color, rural Americans, working class, and I am sure some really poor people.
This country is coming to the state of mind that existed in the pre-Revolution period when the colonists discovered that they really did not need GB to be successful, and were increasingly burdened by the relationship.
Now how do we declare Independence from the super-rich who grab both money and power, to the detriment of far too many "regular"Americans who need less burdens, better infrastructure, and the time to be creative and productive?
19
@SJL
Well, we don't start by first killing all the lawyers! But we could kick Trump out of the Presidency and find someone who moves full speed ahead on the problem of global warming. This might assume that we find someone who at least reads Newsweek and National Geographic! LOL! The prospects for continuing life on earth, at the rate we are going with the 1% leading us, are not pretty.
Want a job that pays more money? Simple. Develop the skills and educational background that are pre-requisites for such jobs and then apply accordingly. Whining that a dentist makes more than you will get you nowhere. Go to Dental school. Go to law school. Do whatever it takes. But don’t complain that “they make more than me.” It’s America. Turn off the TV. Get off the couch. And, improve your life! (Or, is this not politically correct to say these days?).
7
and how are they going to afford this investment? The barriers for entering medical school are immense and are there to reduce supply not improve care.
2
Is this an argument for real [not rhetorical] meritocracy?
2
This is an old debate. While this study may make a good case for the existing gap between the ideology of a modern democratic system based on meritocracy (versus old regime privilege and other sources for the distribution of wealth) and suggests other distributional strategies more fitting to meritocracy claims, there are also some problems with the criteria. Why, I wonder, should intelligence (an ascriptive trait) and personality be considered skills and basis of merit? These are for the most part ascriptive traits, one is born and blessed by them, perhaps other forms of privilege (genetic?). Perhaps the criteria of meritocracy should be reconsidered as well and other distributional systems of wealth considered by our economists, sociologists and statisticians.
1
can you put the income inequality discussed here in the context of the larger problem of wealth inequality? i have the feeling that focusing on income inequality misses the bigger picture of what is driving wealth disparity. Most of the wealth at the top 1% doesn't come from income, which is why doctors may represent a large portion of the top 1% in earnings, but not wealth.
5
I can't believe the hostility towards doctors. They are successful because of devotion to a goal and the ability to stay the course. Social lives were sacrificed for the pre med goal starting in high school. After college, incomes were sacrificed for 5-10 years while debt accumulated. Marriage and family life was postponed. They deserve the upper middle class income that most of them earn. Most people, regardless of ability, do not have the interest in so much self sacrifice.
12
@Noa
On the other hand, our doctors may be overpaid compared to other countries.
Who says doctors should be making $600,000 instead of $300,000?
We spend twice as much for healthcare in this country as the other first world countries - $11,000 average per person and 18% of GDP.
All the doctors I know are very well off, expensive cars, and home, second home, kids to the best schools and colleges, expensive vacations.
Those doctors in the other countries also make similar sacrifices.
I will say that those doctors do have much lower costs which we could also do.
And why to we have a shortage of doctors and are bringing in doctors from other countries?
Finally, when I go to a doctor, they are always late. I get about 10 to 15 minutes. While I am talking, they are typing into their computer to make sure they get reimbursed by insurance.
Not a great experience.
12
@Noa
My wife worked almost 40 yrs as an RN and I also worked in business end of hospitals for over 20 yrs, and I will tell you that, as a whole, among people who work with them, doctors are not highly respected. Many individual doctors certainly are, but not in general. As a group they tend to to both greedy and arrogant, not all, but many, many.
6
@Caded
And RNs and PAs are usually better doctors, though they are not adequately paid or respected for their phenomenal skills!
3
Simply getting a degree does not really matter much as far as salary at high levels? Acquiring a lot of meaningless certifications does not matter much as far as salary? You have to generate big revenue, reduce significant costs and bring in big customers if you want the big dollars. Just cranking out a lot of work does not really matter at high levels. My analysis of the histograms is the system works pretty well at lower and middle levels. After that point, people have to demonstrate skills beyond a degree and stack of certifications. They have to work long hours, succeed in roles that others failed, take big risks and continue to succeed against very smart people doing exactly the same things. The competition is brutal and one big mistake can leave you behind.
7
It is the government's job to work towards fairness and transparency. It's the capitalist's job to find discrepancies and opportunities in unlevel playing fields and opaque sectors. There's nothing wrong with that tension. In fact, because we choose to live in a Capitalist Democracy, it's exactly as it should be.
The author considers why dentists make more than other workers. It's simple of course. The service she provides is deemed more valuable than other services available to the customer. Seller and buyer agree on that. If the government wants to create a more transparent environment on pricing for dentists, it can. But it shouldn't override or mandate those prices as they are what buyer and seller agreed to. Leave it alone.
7
@Lewis Schiff
you sound like a dentist or a friend of one.
My experience is more along the lines of what the article suggests. Dentists or other professionals form their associations to protect and strengthen themselves and ultimately set their prices. Buyers do not necessarily agree and often do not. When it comes to money, fairness is a rare attribute.
12
@hongson0 No dentist here. Just a good old fashioned entrepreneur. Associations work lawfully, though not always fairly, to protect advantages. But market forces are far more powerful than a cabal of dentist/lobbyists. By definition, when seller and buyer agree on price, it's deemed 'fair.'
The alternative, having a government entity set prices, whether or not you like it, is no longer capitalism. Perhaps there are areas we should consider exceptions, such as matters of life and death. But if we do it across the board, we no longer live in a Capitalist Democracy. It's just not the way we operate.
3
@Lewis Schiff
So, Ok for government to set prices for farmers but not for dentists or doctors? People (customers) did not agree to dentist or doctor pricing. Poor people go without dental care in the USA all the time! It is disgraceful! I knew a dentist who worked in a poor neighborhood and let people pay what they could. He died about five years ago. I knew an ophthalmologist who never cashed the checks that poor people wrote to him; his wife found hundreds of checks and bills when he died. These men lived well, did not deprive themselves or their families, but they also added enormously to the communities in which they lived. Rare men they were; they knew the value of what was really important. So many doctors are unhappy miserable people.
2
Wealth is driven by affiliation. It is tribal.
8
I think the author ought to Google "disparate impact" and head back to the drawing board.
3
If income were based on ability, there would be people cheating like mad to game whatever system was in place to rate “ability”...
And who are you going to have doing evaluations and “rating”...
Look at the college admission scandal for example.
Wealthy people gaming the system because they can’t deal with the fact that their kids might be “average” or heaven forbid, below average...yet from looking at Lori Laughlin’s daughters’ skill set, their beauty might be all they have going for them... they certainly weren’t in school enough to actually learn anything...
5
@Texas Native
Lori Laughlin's daughter is rather bland.
@Texas Native
There is a lot of learning available outside of school.
2
”Most low-wage workers are underpaid relative to their measured intelligence and personality traits, and many of the highest-paid professionals — including doctors, lawyers and financial managers — are overpaid according to the same metrics.”
Has the author been to see a doctor recently? I was at mine on Tues, he’s the head of gastroenterology at the clinic attached to our local Med school. He teaches, does research and sees clinical patients 1/2 day a week. He makes a very good salary doing this.
He apologized for my wait when he came into the exam room. He said he waited and waited and no patients were being sent back to the exam rooms. So he went up front and found that all the women who were supposed to be checking patients in @nd sending them back, were too busy fighting with one another over who was taking a break and when. Sure - they’re under paid and he’s overpaid by this idiots “metrics”!
I’ll be dead before his version of “utopia” will happen, but I worry greatly about my very bright, very hard working children and even more about my grandchildren. By his measure, my eldest, a student at an Ivy in the College of Engineering and on the dean”s list every semester, will surely be of no greater value than the guy selling him a cup of coffee in the AM.
Shades of Mao”s Little Red Book...
7
If people were paid by the authors metrics (IQ, educational attainment), only a third or so of whites would make as much as the average Asian-American and a considerably smaller number of blacks would make as much as the average white person — and that’s not too far from the case today. So the author’s argument certainly explains why racial gaps in income would exist even in the absence of racism. More importantly, in a free market, people are paid according to their value. A janitor (IQ 85, GED) cannot do half the number or half the quality of the hip replacements performed by a top surgeon (IQ 130, med school). In fact, 100 janitors couldn’t perform a single surgery, and millions of patients would die if they tried. But virtually anyone can do janitorial work — and that’s the direction in which the author’s productivity claims may be accurate. Sure, the average top surgeon might only be 150% as productive at mopping floors — but so what? He’s being paid for performing surgery, a rare and thus precious ability.
12
@wills11111
Actually, the janitor might be brighter than the brain surgeon. There are many different kinds of skills and ways of thinking. I'm sure that the average janitor must be smarter than Ben Carson.
3
IQ is a highly overrated and misused concept used in all kinds of contexts where it doesn't belong especially to justify racial theories grounded in tribal politics more than anything else. Its really a tool to sort out people with genuine learning disabilities from everyone else by qualified professionals, but with little other use and yet popular culture has accorded it a status of some kind of magical superpower. You might as well be comparing hair color of the janitor to the surgeon and drawing your (guesses) conclusions on that basis.
At least doctors and dentists actually work - and do something really positive and necessary for society. I'm fine with them being paid very well.
Financial managers and CEOs? Those clowns should be making minimum wage.
17
At least doctors and dentists actually work hard -- doing something really positive and necessary for society. Sure, some of them make too much (especially compared to nurses etc.) but I'm fine with them being paid very well.
Financial managers and CEOs? Those clowns should be making minimum wage.
5
At one software firm, my “boss,” when asked to do a 350 page manual reformat project, demanded 3 months. I finished in 1.5 days (60 times faster). At another firm (there were about 2 dozen), I quit and was replaced by three people and a boss. They could not do 1/3rd of my work. At current workplace, created 10k CAD files (three separate databases), rewrote (and illustrated) all assembly/parts location diagrams, and created 6k product support files on 80+ page website. Boss cannot afford to have me retired. I reward my boss’s loyalty and trust.
4
Still Here,
thanks for sending in your resume, we’ll be in touch...
4
they don't deserve it - golly - who would have thought ?
time to tax them back to the 1950s - remember then - when the US was the most productive and innovative economy in the world - thanks to high taxes - remember that ?
Let's do that again !
9
"Research from management science finds that high-performing managers or professionals are roughly 50 percent more productive than a typical worker in the same role."
Okay, but Mike Trout is only 76% better than the average big league baseball hitter (as measured by career OPS+) and Clayton Kershaw only 57% better than the average big league pitcher (career ERA+). They are the top-ranked hitter and pitcher, respectively. And they both make $30+ million per year.
Why?
Well, the median big league ballplayer ($1.5 million pay) is really, really good at baseball compared to everybody who is not a big league baseball player.
4
People make a lot of money in Las Vegas exploiting single digit odds advantages. If every time you bet on something or take a bet with a 5 per cent advantage, you eventually make big dollars. If a ballplayer is 75 per cent better, you can expect they will have an outsize impact over the course of a season. That is why these players make the big bucks vs. the average player.
3
@Steve Sailer
But do you seriously think that Conan O'Brien is $12 million funnier than I am?
3
The so-called super skilled led us right into the worst economic catastrophe since the Great Depression. The so-called super skilled have created the worst economic inequality in history.
They are super skilled at manipulating the system and the buying of congress so that they can pay some of the lowest tax rates in history.
Many of the so-called super skilled are simply super parasites.
9
@Concernicus Nonsense. The highly intelligent and skilled have created enormous advances in quality (and quantity) of life for all. Very few individuals have the ability to creat vaccines, invent technologies that win wars, and launch companies that employ thousands — and they do so in large part for the economic incentives. Capitalism has been the greatest driver of progress in the history of mankind, with religion a distant second.
7
@Concernicus if they really were so super-skilled there would not have been a recession.
I suggest they were simply educated beyond their capacity to project results and consequences.
3
@wills11111 I will agree with Capitalism being a great driver of progress -- even in countries where Capitalism is rejected by the ruling party -- but religion? Where did that come from? Too much of religion demands stasis and tradition, even when it is killing people.
On your title: there isn’t a working man or woman in this country who doesn’t know this—in her or his bones.
5
The connection between IQ and success, financially or otherwise, is always debatable. Lewis Terman's Genetic Studies of Genius showed decades ago that IQ is simply a measure of how fast your brain works, not whether you're "intelligent" or will ever become successful.
What isn't debatable is the role of Big Professions and the state colluding to keep competition to a minimum. The fact that "support" staff such as physicians assistants, nurse practitioners, paralegals, legal assistants, etc. are forbidden from "hanging their own shingle" and going into business themselves is criminal, frankly. And it concentrates wealth in an obviously unequal fashion.
The idea of comparable worth should be discussed more. Is the value or worth of the work generated by a paralegal (or nurse practioner) really that much less than the lawyer (or doctor)? In a word, no.
8
Respectfully, it’s not just about the value created, it’s also about ability and training. The problem with being seen by a nurse practitioner or PA instead of a physician is that their training is *significantly* less. The doc seeing you in the ER? They went through four years of medical school and 3-4 years of residency, and possibly a fellowship. The PA? Two years of PA school, and that’s about it. The bigger problem is that you just don’t know what you don’t know - and that unavoidable ignorance can kill you. If you want to be seen by a mid-level for your chest pain that could be a heart attack, or have your anesthesia for a complex surgeon done by a nurse, go right ahead. Those of us who know better, who have “seen how the sausage gets made”, so to speak, shudder at the thought.
2
This is a gross oversimplification, not uncommon in academic economic analyses. It does not account for ambition, willingness to consistently work inhuman hours, ability to deal with unusually high levels of stress, leadership abilities, creativity, interpersonal skills, willingness to take risks, decisiveness, salesmanship, etc. In my professional career as a lawyer at a large law firm, I’ve seen many professionals and businessmen who succeeded beyond what you’d expect based on their relative ability (as simplistically measured by this article) because of other incredibly strong qualities, and others who had great ability but didn’t go far because of a deficit of these other qualities. Sure there is plenty of unfairness in the system, but looking at IQ or other one dimensional measures of ability is not a valid way to reach this conclusion.
22
@RockP For a lawyer you don't read very well. It was a multifaceted measure of skills, not simply IQ. Read the article and then comment. It included many of the factors you mentioned. There is room for reasonable discussion over whether there are additional factors in measuring a worker's ability to produce, but don't set up a straw man argument.
9
What is the big stress that these super-achievers have to take care of? Mostly it is created by competition among the super-achievers to grab more of the pie, or just managing the mess they create by subterfuge and greed.
Apart from inherent capability, if we want to evaluate someone's dynamic ability, we need to find out over a lifetime what is the measure of the real value they create for the society, and not just for themselves.
A worker who starts at the lowest ladder of society, takes care of a family for 30 years, working two shifts and performs his role in his workplace is a far more valuable man than one who plots hours together about how to bend rules, create artificial valuation of his shares, acquire uselsss super-expensive articles and kills company after company to create a super-company that feeds him and him alone.
7
@John
There was one paragraph that acknowledged that certain other skills had an impact, but no explanation of how the author came up with a measure of “ability” to draw any of his conclusions. There is no practical way to weight the many factors that go into producing success in any given endeavor, which makes this article and its analysis overly simplistic and its thesis hard to prove. That is not to say that there aren’t many factors at work that create unfairness and discrimination. I happen to believe that the level of income and wealth disparity in our country is terrible and a very real threat to the stability of our society.
7
It would seem that a lot of people have made comments trying to make a cogent argument out of an absolutely ridiculous premise. In my view, Rothwell's article states it would be possible for someone who possesses a high IQ/ability level to get a job at McDonald's and make as much money as a manager at a corporation. He makes the assumption that highly intelligent and skilled people will always make the choice to exploit their traits to their furthest degree. However, it is safe to assume that most will take the path of least resistance, ie, less work, more pay. Does income inequality need to be addressed? Yes. But Rothwell's pie-in-the-sky idea isn't the answer.
9
The main problem with articles like this is the ranking criteria and their measurement, which the author always assumes is a given. Ever read a "Best Places to Live" article?
In this case, the author chooses cognitive ability (IQ?), Years of education (Harvard = Trump University?), experience (Does 20 years expeience equal one year repeated 20 times?), and non-cognitive traits like conscientiousness, enthusiasm and emotional stability (Might we deem these subjective?)
IQ has been shown to be an imprecise indicator, although it has a correlation with intelligence. The importance of education is cumulative knowledge absorbed, or perhaps pertinent cumulative knowledge absorbed, not amount of exposure to a structured learning environment. Experience is important if it shows the amount of practical application of that learned knowledge. The subjective traits come under the "I know it when I see it" category. Their ranking and importance may vary with the job. Politicians typically are high on enthusiasm but low on the other two traits.
The idea behind the article has a lot of merit, but it has little use beyond academia.
1
I had a hard time believing any of the individuals in the top 2 bars, where all the purported discrepancy exists sat down with a government bureaucrat for a true evaluation of IQ and cognitive ability. If the areas of biggest difference are also areas of least credible data, some part of statistics must be waving red flags.
1
The rich keep getting richer. They have the money and power to influence legislators in ways the average middle class worker can only dream about. Think about the numbers. The vast middle class has enormous potential in terms of population numbers alone. All they need to do is organize. A middle class tax union would terrorize legislators. Think about it. What would it feel like to pay no taxes? Then we would see how the system really works faced with this intolerable situation.
2
If people were paid by their value and contribution to the greater good of this country that would be a step in the best direction.
2
I'm all for more equality of income, but you can realistically only tweak the dials so much.
Should we give everyone the Stanford-Binet, Meyers-Briggs, and The Big Five personality test?
The author, please note, that most of the metrics of successful (financial or otherwise) people are exactly what Jordan Peterson has been saying.
1
Curious how this article uses “ability” as an acceptable measure from which to benchmark equality. Yet this newspaper is critical of “ability” when it comes to selecting students for schools for the gifted.
Let’s examine this differently. Let’s have the exceptional determine the characteristics. What are the characteristics that S&P 500 C-suite officers hold in common? Or for that matter senior military officers? The latter undoubtedly has been studied, known and tested by the military. Then are these combinations of abilities just as prevalent elsewhere in the institution. Unlikely. Alas, distribution curves are in evidence.
As for IQ, a functional-to-above average IQ is necessary but not sufficient for exceptional leadership positions. But a low IQ makes those positions are unavailable.
I will add timing and luck amongst the qualified are factors for advancement. As for luck I’ve noticed that “the harder I work, the luckier I get” is generally true.
The point of small differences amongst those studied misses the concept that exceptional is often but a small increment above the other overachievers. NFL is an example, there are stars amongst the world class athletes. Their small edge across many possible abilities makes them standouts. It’s called nonlinear or tipping point.
I suggest the institutions do a better job of performance selection than that of a government appointed committee. Not perfect of course, but better than the alternatives.
A factor completely ignored in this article is scarcity. There are a lot more people with the skills and training to be a factory worker than there are for a corporate executive. Even within a profession, the same applies. A lawyer who has specialized in M&A, for example, will be more highly compensated than one with nothing but a basic law degree.
3
What an interesting concept! And worth further discussion. I had a 2nd career with the gov't, and saw a lot of favoritism especially from the retired military group towards their pals. We had a partial number system (you were assigned a number) and all interviews were in writing....it did not include the final in-person interview. And I saw on 3 occasions the person who was #1 thru-out lose out at that final interview...in favor of a retired military! In 2 of the cases, the #1's who lost out were Asians.
3
Being born on third base helps more than being born with the talent needed to reach home plate.
17
Yes, but like crime and other issues, if every demographic does not fit nice and evenly proportionate in a pie chart then there must be some nefarious reason behind one group being overly represented in whatever category.
2
By omitting consideration of results (such as quality and quantity of output) in setting compensation, this idea comes across as being irrelevant to business and ignorant of human nature (e.g., tendency to not step up to the plate when part of a group). Results matter - that’s what customers and clients pay for.
3
Average workers are not organized to demand fair pay. The elite don't have any respect for low wage workers and think that they are interchangeable. The funny thing is that when you actually deal with these elitists you realize that many of their positions are solely gained by connections and not actual next level skills. People are hired based on common alma maters or personal referrals; and these people don't get the average chump change yearly raises either; they switch up their titles every year and get 20-30% raises along with bonuses that the average worker doesn't qualify for-- creating and even greater disparity.
7
@kerri you are living in LaLa Land. The point is that everyone is interchangeable in a free market. But small advantages in ability can translate into massive differences in market value. No one would expect a person with an IQ of 50 to be half as good a plumber as someone with an IQ of 100. And a person with an IQ of 100 is not going to be two-thirds as good at theoretical physics as someone with an IQ of 150. High wages correlate with rarity of ability. The reason people from the top colleges do very well is because they’re very smart, and their social and family connections tend to be very smart.
1
Using ability and skillset is just as important as having them.
In my limited experience I knew several individuals who moved up to high-level positions, although none of them are billionaires or close to it. These people tended to be the most aggressive and dishonest people who were also able to market themselves very effectively. The smartest and most talented people I knew did all right but never were able to move into high-level positions.
9
Your comment about a 5 IQ point difference between average achievers and highly successful people strikes me as glib. I’d be willing to bet it doesn’t apply at all to one of the three groups that you are asserting are unjustly compensated relative to their ability: doctors.
I don’t have the data on this, however I have to believe that the difference in average IQ for this profession is much greater than 5 points when comparing doctors to those who are only average achievers in other fields. Just getting into med school is no mean feat, much less completing it and then passing board exams. No amount of hard work and drive can make up for a deficit in the IQ department, imho.
3
@tom You do realize that a huge part of becoming a doctor is MEMORIZING stuff, right? I've had several doctors over my lifetime, and it's rare to find who exhibits genuine intellectual curiosity in diagnosing something that doesn't fit the checklist. Sorry, but intellectual capacity is not a hallmark of most doctors. The ones who engage in biomedical research? Sure.
1
People are (or should be) paid for contribution and accomplishment. Ability is only part of the picture. It would be good to see the rest of valid analysis
1
So, you want to distribute income based on a standardized test not based on the profession you chose, how hard you work and results vs theoretical ability? Is that supposed to be a serious proposal?!
4
So does this author want to pay people solely based on skillset? What will we use to determine people skill sets, IQ tests?
This is hilarious that this author is telling us to use standardized tests to adjust compensation. We cannot even agree to use standardized tests for college admissions (far lower stakes) and now we would use them for compensation?
4
Non-sequitor. Income depends on the career you choose, as it should, and then your IQ. The market assesses the value of your services, and your IQ is not relevant, except in that you leverage it to provide value to your customers. What distorts optimal distribution of resources, is when information on the quality and value of your services is not transparent and universal among your customers.
2
Doctors can become wealthy but not all pursue it.
It depends on the speciality and lifestyle. Generally, highly paid individuals that are able to save and invest will be wealthy. The wealthy docs I know made their money post-war and invested in land; apartments buildings, modest motels, land leased to a local McDonalds franchise.
I’ve also known doctors from a family of doctors. Many doctors had fathers who were doctors and the family is sitting on a trust of single digit millions. Not smashingly rich but the kind of cushion that helps you and future generations through medical school.
You don’t have to take my word for it. This newspaper has covered professionals that have decided their calling is in PE.
https://www.google.com/amp/s/www.nytimes.com/2019/07/19/your-money/diy-private-equity.amp.html
While I share the author's instinct that existing income inequality cannot possibly be justified by what we all recognize is inequality of merit, I don't find his approach persuasive.
He says that pay inequality outstrips the inequality in productivity (comparing the better people to the average people). That may be true but (i) I'm not sure that in any highly compensated job, the person is evaluated on "productivity," as opposed to more qualitative judgments and (ii) In a skill position, if someone is, say 25%, better than the alternative that's a huge advantage.
Think about it this way, would we pay more to get the heart surgeon who is just 10% better than the alternative? You bet. And would you pay more than a 10% differential? Yes. Indeed, if something constrains the surgeon's pricing ability, I doubt it has anything to do with the differential between that good surgeon and the average surgeon. More likely, it's about how many other surgeons exist who are 10% better than average.
2
Intelligence and personality traits are only the entry requirements. It is very specific skills that matter: a surgeon skilled in a particular operation, for example. If he saves your life, you won't object to his being paid many times anyone else.
The problem is in management (both corporate and non-profit). Those skills are vague and poorly defined, and held by many more people than hold top positions. Their pay is an example of market failure, because it is determined by other people with similar jobs who populate the compensation committees, and have an interest in the outcome, essentially deciding each others' compensation.
For example, the head of Boeing has been getting tens of millions of dollars a year, running an organization whose incompetence is responsible for the deaths of over 300 people and costing the shareholders tens of billions in equity. Boeing may well go bankrupt if passengers refuse to fly its airplanes and airlines refuse to buy them. This is all a consequence of his mismanagement.
Even if Boeing had been competently managed, the skills for that are widely distributed and the market clearing wage would be hundreds of thousands a year, not tens of millions.
3
@Jonathan Katz Sure, top CEOs make disastrous errors. But the market adjusts. The average low-level manager at Boeing would surely perform less than half as well, even if his IQ is 80% that of the CEO’s.
@wills11111 The CEO at Boeing doesn't have to manage the technical side of things. That's a very different type of intelligence and the actual managers should actually have higher IQs.
1
This is an excellent analysis. Somewhat waiting for a deeper dive into an analysis of gender and race as part of this research direction. It rings true.
1
Can we break down the data further into 0.1%, 0.5%, vs the overall 1%? Seems like when you go further up, the income will tilt further toward capital gain so even less work and skill related.
Also, US doctors among the highest paid in the world may be why US spending on healthcare also highest in the world with little to show for.
Interesting software developers mentioned. Anyone who'd met a software developer in real life will know they're overwhelmingly middle class, strange to associate them with the 1%.
2
A rather unconvincing article. I do agree with one of his conclusions, "expanding access to markets and defending their integrity." No one said life is fair, equal, or based solely on talent. Ask any actor or actress about their success or lack of it. The author makes a rather simple minded claim that talent can be mapped to income and that talent's 'narrower' range should contract the income range. But try taking that to a casino. Perhaps we can point to those workers who have to please a boss and compare their income range, but once you get beyond 'bossed' workers*, the variety of factors that create income are beyond Mr. Rothwell's scope.
* I would exclude from 'bossed' workers: S corp, partnerships, doctors, lawyers, real estate, anyone on commission, actors, athletes, CEOs, union workers, and most top earners.
5
The argument is actually that it’s not intelligence, or emotional stability, or work ethic, or talent in general, that accounts for most of income inequality. In other words, all the fantasies that the free market simply rewards ability in anything like a fair way are, well, fantasies.
A Bloomberg, a Buffett, a Gates, a Jobs, a Jamie Diamond, really pretty much is smarter and more-talented than the average bear, so it makes at least some sense to argue that they earned the loot and the power.
But the list of gazillionaires who can’t conceivably be described as smarter and more-talented goeth on forever. Look at their endless screwups: the guys who ran Detroit, Enron, oxycontin, and so on, proved that theynever had the sense of a gnat.
For them, you need other explanations. One shouldn’t need to explain this, given what we’ve saddled ourselves with as President.
14
@Robert
Bloomberg, etc. were talented, hard working, etc., but also were in the right place at the right time. There is a big element of luck, too.
The exception is Gates, whose bug-ridden and defective software has and is costing the economy trillions in lost productivity, as people try to make their computers do what they promise to do. That is negative talent.
3
@Robert You are conflating talent/intelligence with judgement/morality. One does not necessarily goeth with the other, I would submit. Enron’s business model was brilliant. The guys running Enron were brought down through a combination of poor judgement and downright illegal activities. While one can rightly ask whether their wittingly illegal activity was the brightest thing to do, that should take nothing away from the fact that they pulled it off for quite some time before being discovered and prosecuted.
Ditto for a successful street hustler, drug dealer, willfully evil leader. Successful? Yes. Exemplars of good judgement and/or morality? Obviously not.
1
Interesting but oversimplistic seems to be the theme, based on a somewhat uneven literature review. For example, human capital is based on general abilities, which he focused on, but also firm specific, which is the training and know-how needed not only for an occupation but for a particular position at a particular company. Big oversight. A lot of the background research on this topic has been done already. Here's a 30 second update.
Superstars exist. Performance distributions are radically skewed across most professions, where some produce multiples of the average (like 30 times at times). A meritocracy should recognize superior performers, but only to the extent these superstars contribute to their own success (we don't reward luck). We modeled what could explain superstars, investigating ability, luck, and feedback effects where the skilled get more skilled or resources go the successful. While ability and luck had its role, feedback loops explained most. You might know it as The Matthew Effect, where we give perks to the smart like scholarships, which helps them get even further ahead, or coaches to the athletic, or venture capital to those already successful.
These feedback effects are a variation on Ben Franklin's "money makes money and the money that money makes makes more money." And the core paper for those who like to verify "Using a computational model to understand possible sources of skews in distributions of job performance."
5
1. We don’t reward luck? Are you kidding?
2. Donald John Trump.
1
There are so many overpaid professions. In addition to doctors and lawyers, who do go to school for a few post graduate years, how about real estate agents? They seem to profit not necessarily from education or ability, but more from being in the right place at the right time. They are the first to hear about potential listings, and they suggest the sales price. There is an unrecognized, adversarial relationship between property owner and listing agent. The agent's commission varies only slightly if the sales price is reduced by thousands, so it is to their advantage to encourage acceptance of a low offer. It is difficult for a buyer and seller to strike a deal on their own without massive amounts of legal paperwork and listing through a company. I have seen properties listed on Friday and sold by Sunday at an open house. Does that really deserve a 5-6% commission on a million dollar home sale requiring three days of work? I'm not picking on the real estate industry. There are other groups that provide an overpaid service.
16
As an example of the protection of a market by professional elitists look no further than the head of the FCC, a man who previously worked at Verizon and who was recommended by Mitch McConnell. Upgrading America's power grid might be difficult. So would adapting to renewable energy sources. But providing high (should be the HIGHEST) speed communications to every town in the USA? No problem. Except the FCC doesn't allow that. Because the private carriers like things just the way they are. And they control the FCC.
6
Great article that was both concise and thorough in explaining reasons why inequality in pay would plummet if barriers were removed to allow skillful people from all background to succeed. I think that most of us have experienced lack of advancement at work because of “cultural differences or policies “ that kept inept management in place.
I hope that this article gives hope to many young, old or discriminated against employees to keep on working and networking to achieve both financial and self esteem fulfillment.
3
Wait, this guy is the Chief Economist for Gallup? Yikes. There are roughly 1.1 mm doctors in the US, and roughly 190,000 people classified as "chief executives" by the BLS. And he is surprised that 15% of top earners are doctors compared to 11% who are CEO's? There are about 1.4 mm taxpayers in the top 1% group, so 15% of the doctors make the cut, while almost 75% of the CEO's are in there. Not arguing that either group deserves or doesn't deserve to be in there, but this statistic that he cites doesnt seem either surprising OR meaningful.
57
Same thoughts here. The way he used the maths cited has been pretty bad
4
The conclusion of the author is not as simple and linear as he suggests. Besides education and experience, there are other enabling (soft) skills that allow a person to be more effective in a particular role.
Others prefer to just do the work without the stress of being the boss. But the racial discrimination mentioned in the article is so prevalent in the U.S.
6
"Income inequality in the United States would fall drastically if people were compensated based only on their ability."
For the most part, we live in an exchange society. Compensation, rewards, pleasures, relationships may (and often do) incorporate "ability" in some fashion. However, EXCHANGE counts as the dominant determinant--not ability, merit, power, or any combination of other factors.
As the famed Zig Ziglar has said, "you can receive anything you want in life--as long as you provide others what they desire."
Of course, not perfectly true, but a better guide to life than most other short and pithy advice. Most certainly, a better guide than merit or ability in and of themselves.
8
@Gerry Professor Exchange counts if it's done fairly, but, as the article points out, it isn't -- not in the US, anyway. We could take Ziglar's pithy advice and go back in time for a very extreme counter-example: Did the slaves of the antebellum South receive anything they wanted in life? They certainly provided their 'masters' with what they desired.
2
@Pryor Lawson
A slave relationship does not count as freely-entered exchange. Of course, a variety of laws circumscribe all exchanges, no one assumes otherwise. An exchange need not meet some abstract idea of fairness.to still benefit both parties.
Nevertheless, as a touchstone guide, if I would like to receive, I should think what I am willing and able to provide in exchange. If repeated exchanges with the same party are desired, then benefits to all typically occur--win-win.
Otherwise, I take my business (or my love) elsewhere.
Many of the highest-paid doctors are actually administrators and rarely use their specialized skills. These administrators would not keep their positions and earn the respect of their underlings if they earned less than the doctors they oversee.
Basically, the system is set up to pay the lowest rung doctor high enough to keep her there and subsequently pay the administrators even higher though their technical skills were exhausted years ago.
I'm sure this is true of other fields as well.
24
I am not sure whether the author has been in a corporation, especially in a leadership role in the past but the notion that ability alone should be the key to ones pay level is too simplistic. I have seen many with strong ability but, in the end, do not use that ability to drive results. Ability may be more evenly distributed than people think, realization of that ability is not, nor is ability alone enough.
There are always exceptions but self-motivation or the drive to consistently work hard is a big factor in upward movement in organizations. Other skills this article ignores which are important include self-control, positive attitude, communication skills and the ability to lead. Ultimately, it is a combination of many factors (including, sometimes, luck) that drives success and bigger paychecks. For most billionaires, at least self-made ones, risk-tolerance and the ability to fail, learn from it and move on are almost always part of the equation.
13
@Robert M. Looking back on a long career mostly spent in large organizations, I've only rarely seen large institutions reward either hard work, the ability to produce results, or skills; unless one is willing to assert that self promotion is the skill that most deserves lavish reward. Most often, simple luck of the draw, combined with aggressive self promotion are what bring high reward in large organizations. Those first in the door at growing companies generally shut the door behind them as growth slows. For instance, at a large medical organization, talented and hard working physicians earned less than a fifth of the salaries of the more senior physicians, and were shut out of partner distributions simply because all doors to achieving partner status were shut to newcomers.
25
@Robert M. Hear, hear! I was going to write my own response, but yours sums up my sentiments precisely. This growing cry for socialism will ultimately diminish our country if left unabated. Not everybody works as hard as others. Not everybody takes the risks necessary to bring forth new ideas and products. Not everybody is wiling to be unpopular by making hard decisions. And yes, sadly, not everything is fair. Yes, sometimes that guy in your class who got D's in math will figure out that what your neighborhood really needs is a reliable landscaping service and not an East-Asian nanomolecular entomologist. Despite his relative "lack of ability", he may end up providing a service that the populace will value more greatly and thus, reward him further. What's so wrong about that?
We cannot continue down the path of the "participation award" society. We need to provide a level playing field via education, strict exclusion of racism and sexism, and social/physical security - but we do not need to wave magic wands and try to undo every perceived inequality that results thereafter.
1
"For most billionaires, at least self-made ones, risk-tolerance and the ability to fail, learn from it and move on are almost always part of the equation." A part of the equation sure but how big a part? I would argue that luck, a system based on cliques networks, connections and good advice, right place right time, did I say luck, being born in the right place, being born talented at the right sport and so on play a far far bigger role than anything the person did. In addition to that political and social skills in every profession trump any other kind of skill.
I think the rise in financial employment (now abating) isa main cause for the disconnect between ability and income Doctors and dentists are highly skilled and must be on top of their game every day and I don't begrudge them a penny. However, I know so many financial types who are "treasury managers", "credit managers", "fund analysts" "benefits manager" who have multiple houses, kids in expensive schools, that when you sit down and talk offer little beyond what a journeyman machinists might(sports, politics, etc). They do have an exaggerated sense of self importance and imagine fight like a tiger at work to give the impression they are indispensable So many of these jobs are being outsourced or moved to less expensive areas of the country now
10
Who are you taking to? While not intellectuals, these guys usually read a book a week. Also good for you if you are regularly talking to journeyman machinists and chief executives. I’m not sure I believe it though.
@arthur - Maybe casual conversation doesn't touch on their knowledge of corporate finance? Perhaps you should try turning the chat to depreciation schedules for various assets classes.
1
@arthur
I think you might find that the average journeyman in a skilled trade has far more conversational skills and topical knowledge than the average red-suspenders wearer on Wall Street .
2
Removing artificial market restrictions is well and good, but this model seems a bit simplistic. The fact that number of hours worked does not seem to be a part of the model, and especially at night, weekends makes the results incomplete. That would certainly explain why doctors have a large salary: it's simply highly educated work at irregular hours. Software developments, financial services, lawyers can also fall into this category, to varying degree.
If the results still stand, the remaining inequality is more likely to be undeserved.
1
It is not by chance that the wealthy are wealthy. They concentrate on money-making to the exclusion of everything else, so of course they're good at it. They're like the pro golfers who have been practicing 6-8 hours a day since they were in elementary school.
The doctors and lawyers who are much richer than all the other doctors and lawyers - what do they specialize in? Doing the most expensive work, and sending out the biggest bills, that's what. They make it their business to find out what it is and get in on it.
If you are reasonably intelligent and healthy, live in the US, and are determined to make lots of money without regard to anything else, you are highly likely to become wealthy. But most people, including most doctors and lawyers, have other interests.
25
The very worst thing that could happen to many, many people would be for them to "get what I really deserve". While there would be many teachers, caregivers, and non-profit workers who would benefit greatly, there would be a large number of surprised CEOs, financial 'wizards', and political figures. Considering the political figures at the very top of the heap, if he "got what he deserves", he'd be wearing stripes and making 13 cents an hour.
41
There are no billionaire doctors who made their money by practicing medicine.
94
@Paul Adams
Maybe doctors should be paid by the patients they actually help... the clowns that have been in charge of my son’s care for the past year would owe him money based on that standard...
4
Yes, and there are thought to be less than 3000 billionaires in the world.
If you confiscated $100B from your least favorite billionaire, this would not make a dent in inequality. It may kill their company. It may also kill some entrepreneurship.
According to this article, there are something like 100,000 doctor millionaires in the US.
I suppose it depends on where you want to focus the class war and the fact that being a single digit millionaire isn’t what it used to be.
There’s a socialist running for president who is a millionaire.
1
@Paul Adams
Billionaires depend on the value of the shares they own for their wealth. As a result there are now 57 fewer billionaires in the world this year than last year.
(BTW this is why they like to sack people & offshore jobs to 'increase share value': theirs, not the protozoae who own a handful of shares & imagine themselves to be Warren Buffet).
By contrast doctors receive fees for service. They probably use these fees to buy shares.
Mr Rothwell is looking at fees or wages, not share value.
3
Self interest! Pure and simple - use your status to make more money. Distort the playing field. Whatever it takes, especially Trump style logic.
5
@H Smith You know it didn't start with Trump.
Your chart showing the decline of corporate income debunks your whole argument. Really what happened is in 1986, Congress dropped the tax rate on individual income below the rate on corporate income, as a result, a lot of wealthy taxpayers reclassified their income. One study has found that virtually all the apparent rise in inequality was caused by this, it's just statistical fiction. http://davidsplinter.com/AutenSplinter-Tax_Data_and_Inequality.pdf
9
@Will
Also, 1986 TRA eliminated or reduced individual tax shelters--especially in real estate. Thus, paper losses through depreciation and depletion no longer served to eliminate substantive amounts of taxable income.
2
@Gerry Professor The Auten Splinter study said that the biggest one was the reclassification of retained corporate earnings as personal income. What they found was that adjusting for all that, and after taxes and transfers, income inequality has not risen at all since 1979.
2
Sadly, intelligence and talent does not account for good/poor health or personality or lack of the same.
Can you control for that?
Then there are things like ACEs which are risk factors that have to do with growing up in poverty, abusive situations, hunger, illness, violence, etc.
It's really hard to generalize.
8
This article misses the entire issue about income inequality. It is not an issue of upper middle class professionals vs working class people. Rather it is an issue of the super wealthy accumulating a huge share of the wealth in the country. That's the main argument made by Thomas Piketty in his highly aclaimed book on the topic. Articles like these let the very wealthy off the hook and inappropriately encourage tension between groups much lower down on the wealth scale.
37
@Larry Figdill - The problem with that argument is that many of the industries started by billionaires are actually of benefit to the average person. Amazon and Walmart will sell you cheap stuff, Microsoft will allow you to buy and use a computer at home, Apple will supply you with a great phone. Bezos, the Waltons, Gates, and the late Steve Jobs became very wealthy as a result, but each customer got a good deal - they just had lots of customers.
Doctors and lawyers, on the other hand, sock it to each customer - and buying their services is not voluntary, either.
13
@Jonathan "Doctors and lawyers, on the other hand, sock it to each customer - and buying their services is not voluntary, either." The doctors and lawyers who end up wealthy are providing expertise to a specialized group of clients, such as those who may desire a nip/tuck. Those services are arguably voluntary. Less well-off people don't go for creative plastic surgery and can find attorneys that don't charge $500/hr.
4
@Jonathan
Big error: you can buy and use a computer at home because IBM created open hardware architecture, resulting in a vigorously competitive market for components. Microsoft only made it more difficult with buggy and badly designed software. Much better software already existed (unix) and is now available (free, open source) as linux.
4
So what's the big idea here, to determine income levels by an intelligence exam? I don't recall anybody (before this article) making the claim that incomes should be related to intelligence - if that were the case then professors and scientists would probably be amongst the most highly paid.
9
Did you factor in work ethic?
Law of nature requires you to support yourself?
Think of it in terms of avoiding becoming prey in a predator environment.
Duty to support yourself even if it isn’t your Passion.
Too many people prefer to wait for their passion to kick in.
Like the last Saber-toothed tiger said...That’s the way used to do things!
Or better yet think of a barter economy...What am I bringing to the market that other people might need or want.
3
Fascinating!
Some of this is news, a lot of it is not.
It’s a bit funny that the “elite professionals” share the same credentials - often JD or MD - as other less elite professionals that make up the upper-middle class base of the Democratic Party.(We’ve seen the enemy and he is us?)
We’ve been told for years the Bogeyman is multinational corporations and fat cats. Now you are telling me the fat cats are my dentist and dermatologist. Considering my dentist is 35, owns two houses, while taking multiple vacations a year, this is not surprising. (It’s also worth noting that income is not the same as status. Nearly no one thinks being a dentist is an interesting or prestigious job.)
There were also a bunch of articles, in WSJ and Bloomberg, saying the Republican tax law of 2017 would hurt the pass through entities owned by doctors and lawyers. Is that in the data or did they get rich anyway?
This piece advances the same argument Daniel Markovitz writes about “superordinate” workers in The Meritocracy Trap. It also tracks with a lot of populist anger at these elite professionals. People know elite professionals in their community are wealthy and they often don’t know anyone that works for a private equity fund. Add in legacy admissions, it happens in medical and law schools too, and this makes people very angry because it shuts out their own children joining these jobs. Yes, the legacy is often qualified but it’s the family connection that “breaks the tie.”
8
"Consider that the top 1 percent of earners in the United States score one-third of a standard deviation (or 5 IQ points) above the average adult on cognitive and workplace skills — measured from an assessment of adults by the Organization for Economic Cooperation and Development. Not bad, but not that unusual, either: Roughly 45 percent of adults score that high."
Sorry, but I don't believe that. A 105 IQ is an Associates Art degree level. Take a look at your own list of top professions among the One Percent.
Can you document this claim from other databases, such as the National Longitudinal Study of Youth 1997?
5
@Steve Sailer
Is the OECD assessment even an IQ test? The article seems a little unclear in that is measures “cognitive and workplace skills”?
3
@Jared Dr. Rothwell linked to the home page for the PIAAC test:
https://www.oecd.org/skills/piaac/
but unfortunately not to any specific page within that large website to explain how he came up with his assertion.
The PIAAC is a pretty legit test, though. I wrote about it here:
http://www.unz.com/isteve/test-scores-among-adults-by-race-and-education/?highlight=piaac
Reading the source note to the chart was interesting. Several of the factors that the author considers to "reflect ability" are self scored. He makes no mention of correcting the results due to biases in self-reporting. The Dunning–Kruger effect is a well know bias in peoples self reporting of their abilities. If his sample exhibited the Dunning–Kruger effect, which is probable, and the results were not corrected for it, then the results would be biased in the direction that he reports.
Just saying you know.
6
Well of course, but people are really paid on the basis of luck.
6
It appears from the chart "Redistribution by Ability" that the only significant variation between pay and ability is in the 90-100th income decile. That suggests only that those of the least ability are penalized more than the rest rather than broad maldristribution. The chart presumably does not count welfare benefits that might even this decile out as well.
2
The questionable relevancy of State civil service tests and licensing is not discussed nearly enough. I think there should be major reforms. In NY state, just to take the civil service test for a postion as a youth recreation counselor requires that the applicant have 15 credits in Recreational Studies, including "Theory of Leisure". Need I explain to readers why this is problematic?
I was not allowed to apply as a Corrections Counselor because a BA in a Social Science was required however NYSDOCCS does not consider Anthropology a social science. "Could I please provide a letter from my department that it is a social science" I was asked. A textbook quote wasn't good enough. Being a sociology professor also didn't count as filling the requirement to have an undergraduate degree in Sociology.
And while I understand why veterans get preference, how about single parents, especially women? The number one reason women and children are in poverty is because the familay is female head of household single parent family New York State Department of Social Services will count hanging up clothes in the Salvation Army as fulfilling my TANF work requirement which provides no value in terms of self sufficiency at all. Why not an independent path for single moms to civil service jobs. Why are the needs of our families dismissed so callously?
This just ties in with all the other research on inequality. It's about who has the power, not who has the skills.
13
It seemed the author ignored actual productivity. As a physician, I hope that we would be considered productive if we helped people with serious conditions. And that our LEVEL of productivity might be related to the number of patients we helped. (parenthetically, as a practicing pediatrician, I wasn’t a particularly high earner.)
I don’t understand how the author would decide an appropriate income for a particular physician based on IQ and education, but not actual productivity.
Same for other occupations.
I believe that we need to reduce income and wealth inequality for the good of our society AND our individual citizens.
I just don’t see how the author’s criteria make any sense.
2
This article seems unconvincing on several fronts.
The current distribution is less about the 1% driving inequality (the recent cutoff was only $328k and the 90th% cutoff was on $116k, and these are pretax/transfer levels) but rather the 0.1% or the .01%. In fact, by the author’s own charts, the 8th and 9th deciles underperform versus his constructed indicators. So while dentists may be a larger part of the 1% than software execs, they are not the drivers of extreme inequality (there are no dentists in the Zuckerberg, Gates, Bezos stratosphere).
It is certainly true that state regulations and licensing requirements act to restrict entry and competition, hence protecting the incomes of many 1%ers like doctors, lawyers, and dentists. This is an argument for skepticism regarding governmental regulatory barriers, but the income distribution implications are likely not large.
Those at the top are more likely business owners and entrepreneurs (hence the significance of subchapter S income) and chief executives of large companies.
That leads to the second flaw: the indicators. While intelligence and education certainly correlate with income, this misses the characteristics that really drive most entrepreneurial success and much of the .01%. Both Gates and Zuckerberg were both college dropouts. But they took risks and created whole industries. Risk taking and market insight are bigger drivers of extreme wealth. And nothing here attempts to identify or measure that.
11
@JG
For example, Mark Zuckerberg's father was an extremely successful dentist, but he sometimes mused that he should have gone into computers instead of dentistry.
Top performers can make a lot more in starting tech companies than in starting dental practices.
8
Thousands of people with adequate skills for top-paying jobs simply don't get the opportunity at those higher incomes. For instance, there are a LOT of excellent managers out there who just happen as a matter of circumstance to be working at jobs paying less.
Consider folks like Job, Gates, etc who became almost unimaginably wealthy. Let's completely acknowledge their intelligence and drive. However there are MANY persons with similar innovative, useful creative ideas. Those who are now unimaginable wealthy simply "won the lottery" - their ideas serendipitously encountered JUST the right environment to get amplified enormously. A lot of people with great ideas don't encounter that good fortune.
The statistics presented by the author are consistent with this interpretation.
17
Ironically this column provides its own rebuttal. The author is obviously a smart guy but his arguments make no sense! First, he conflates the high incomes of folks (doctors, eg) who make enormous personal investments in sustained training and may work on demanding schedules and business owners (beneficiaries of flow-through tax treatment and, massively, the 2017 Tax Cut), who may benefit from local monopolies (but who also work very hard). Second, "ability," "effort," and "judgment" are not the same thing. Look the dispersion of incomes among lawyers, eg, rather than the representation of lawyers within the top 1%.
6
The ability to affect profits and labor market dynamics are the two largest factors which influence what people get paid.
Sales types will always make a lot of money because if nothing gets sold, nobody has a job. Upper management will always make a lot of money because they have primary control over expenses. As do accountants and lawyers, who are also handsomely paid in many organizations.
Scientists and engineers who invent, create, and design things also have the ability to impact profits and thus are highly compensated. And so it goes on down the line.
Within these groups there is great disparity as well. People who are best at leveraging their talent and effort, or the talent and effort of others, will always be paid more than mere differences in ability would predict.
4
As others have mentioned, it’s the c-suite individuals that have incomes that are far greater than their skill set. IMHO, asking a surgeon to take a pay cut is not a good idea - i want my surgeon to be meticulous and motivated to do his or her best work. I’m in business development with a chemical background; I make a good living, and I’d like to think I’m fairly paid. But who knows?
3
Some of this attitude begins when we're in grade school. We're rewarded for being quick on the uptake but not for working through a problem. Popularity counts more than competence. Another issue is how few employers realize that skills are transferable from one area to another. A person may need some training to switch from one field to another but, unless s/he is trying to go from being a writer to being an MD, the change isn't as great as some think it is. And people are capable of learning new things. It's just that employers have lost interest in training people.
The biggest nonsense I've heard in all my years of working and searching for jobs is this one statement: you have to hit the ground running. No, we don't and we can't. Every job, no matter how many of the required skills we have, is a new challenge. We have to learn what our employer wants, how the employer expects it done, what the peculiarities are, the politics, etc. Even the smartest person on the planet needs to learn the job.
As long as employers continue to search for purple squirrels and overpay for talent that isn't present there will be extreme inequality in what people are paid. I think it takes more intelligence to be a good customer service representative than it does to be a high level manager. But I'd rather be good at helping my customers than good at firing people.
56
Reminds me of Ross Perot: "If you're so smart, why aren't you rich?"
I could never answer that. I have an IQ in the top 0.1% and am mid-career in a solid professional job in higher ed. Next year, I hope to crack the 6-figure income hurdle.
When I was a young professional, the rhetoric was, "Do what you love, the money will follow." I like my job, but geez does the 1% irk me.
41
@Sonder That "do what you love..." piece of advice is an overgeneralization. Sometimes you need to add a little bit of "do what you don't love" into the equation to break into the next income range.
9
@Sonder I am a member of Mensa. However, my greatest surprise with many members has been how unaccomplished they are. Mensa should be a "millionaires club", but it is not. The older and more experienced I am, the more I question the whole concept of IQ.
3
If you or I spend our wealth, much of it is consumer goods. But billionaires, even those with luxury cars, invest almost all of their wealth where it will gain the most profit - which is, after all, as Adam Smith showed us, the road to the most productive society. Also, for the most part they are good at choosing investments, since that’s pretty much how they got to be billionaires.
And, to academics and journalists who have never engaged the for-profit world - everyone pays as little as possible to get someone who’ll do the job.
6
@Charlierf , really? You think what's happening in our healthcare system, the Tech Crash, the real estate bust, the Financial Crisis, the stuff at Uber and what just occurred at WeWork are examples of a productive society?
America today is the most poorly balanced and constructed society as I have ever seen it in my entire adult life.
11
@Larry L
Like the man said, “The worst system, except for all the others.”
1
Equating high performance on the factors listed by the author as equivalent to value is of course meaningless and invalid. To begin, the author ignores things like creativity, intuition and risk taking, all of which could account for most of the differential the author abhors.
12
I don't know about lawyers or financial managers, but physicians perform the most complex variety of tasks of any job. Although some are considered "overpaid" in comparison with their colleagues, they are the most highly educated and highly skilled workers as a group in the nation. And yes, they deserve higher pay than "rocket scientists" because biology is vastly more complex than physics.
12
@Old Hominid
Another view of physicians is that they are technicians of a single type of biological entity. Based on this, veterinary surgeons should earn more as they are exposed to many more biological systems, and they have an added communication challenge.
Our self interest in wanting to have the best care for ourselves drives a desire (hope?) that the salaries of physicians are justified. Of course that must mean that other countries with far lower physician salaries have worse health outcomes.
hmmm.
Maybe the physician salaries are just driven by market manipulation of supply side after all.
22
@THowell You are discounting the risk and stress levels associated with being a physician. Treating humans is on an entirely different level than treating animals. Physicians literally hold lives in the palm of their hands...multiple lives at any point in time. These professionals work extremely long hours. These people study for many, many years. The talent and motivation that is required for this job is a rarity. Furthermore, humans do not come with an owner's manual. Some diseases and conditions are extremely rare and difficult to treat. To reduce physicians to the level of a "technician" displays the utmost disrespect for their knowledge and skill level. I find that argument to be supremely DISTASTEFUL and CONDESCENDING.
5
@Old Hominid , really? Why don't you take apart your car's 30,000 parts (yes, that's actually correct and NOT a typo) and then put it back together?
What amazes me is how little most people understand outside of their own disciplines.
1
It's hard to assess skills when hiring.
Experience does not equal skill. I've had staff who worked the same desk for 20+ years asking me questions they should have known for years, yet they polished the same seat for decades in complete cluelessness.
Education also does not mean skill. I've had kids call in looking for a job, they held MBA's in something random, no experience or knowledge in my industry, demanding 40k because they deserve it, yet they had no clue what we did.
I've also had applicants with low experience and amazing skill, and total newcomers who just wanted to see if this would be a good fit.
I trained those I hired. most stayed in the industry, some were so not ready for real life they left to go work for non-profits and such.
But those who stayed I paid them well, based on skill. Some just wanted to lay low and make no waves, they did not get ahead very much at all.
The one lesson I can learn is, if you're skilled boast of skills, then prove them when hired.
Any one can ace an interview, but few can back up their words with actual skill.
I just wish they got paid better.
8
Lack of competition. Doctors used to be self-employed and hospitals were religiously-affiliated or community owned. Today, young doctors are graduating with higher student loan debt, are employees of corporate organizations, and sued if violating non-compete contracts if they choose to take their patients elsewhere. In fact, many different types of employees can be sued over non-compete clauses in our current rent-seeking society. Businesses are consolidating, therefore there is less demand for former highly or not-as-highly paid professionals. Then, the demand evaporates for the types of services that small businesses cater to, as discretionary income can no longer support the over-supply of those, such as restaurants.
2
This article makes a HUGE error and oversimplification, which is repeatedly made across most articles analyzing income inequality in the US.
By focusing mainly on reported earned income (such as the 6-figure salary a surgeon has to report on his W2), you ignore the far greater driver of inequality in the US and the world, which is a combination of capital-based income (investment gains) and business profits which can be savvily redirected to avoid W2 (and thus income) reporting.
This is more clear in examples:
- A surgeon makes $500,000 per year. Yes, that's a lot, but he reports all of it on his W2 and gets taxed for it.
- A CEO makes $135,000 per year but is holding onto lots of stock options and other non-income classified performance bonuses. Tim cook of Apple has a $3million salary, but that's a pittance compared to the $114 million in vested stock for performance gains which is excluded from nearly all analyses that the author is doing.
- A financier of a hedge fund reports earned income of $500k/yr, but in reality has pass-through investment profits treated as non-income capital gains of $10million/yr.
This illustrates why doctors and many lawyers often occupy the top income positions in such articles, yet everyone knows that the rich billionaires are NEVER doctors and always businesspeople.
Hardworking doctors and lawyers are literally being scapegoated for the unreal income of CEOs that are the true villains behind income inequality.
205
@agarose2000 100% this. The article misses the eight ball. I am a surgeon- I wish I was a CEO. Also, comparing a doctor to a nurse practitioner is insulting. I'm all for NPs, however, my training is different. The length of training, knowledge acquired during that training, expense of that training, the numerous licensing/proficiency exams that I had to take, the accountability that I hold as a surgeon (surgeon is a different landscape than non-surgeon in medicine)- none are equivalent to an NP. The implication that I am overpaid relative to others with less training- this is insulting.
57
@agarose2000 Amen!
4
@agarose2000 - Well, there are only about 600 billionaires in the US, but over 1.1 million doctors. Furthermore, nobody needs to pay for the services of a billionaire, but everybody needs to pay for the services of a doctor.
9
While there is a logic in the productivity attributes cited, the author doesn't give us any evidence that they are the true drivers of value creation by an individual. A star baseball player (or singer, or actress or academic) is only a fraction better than those who can not even earn a living in that profession. Viewed in the distribution across the total population, as the this article does, the two players would be indistinguishable. Value creation is not a linear function of intelligence, education, hard work.... If it were then two average novelists would create as much literary value as one genius.
28
Seems odd that one of the traits not studied, maybe because it’s not possible, if the amount of hard work performed. Having a high iq and cognitive ability is great, but unless you put in the work it won’t result in a top tier salary.
9
Income equality isn’t the same thing as economic inequality.
What proportion of today’s economic inequality is from job income versus investments, inheritances, and other sources of non-job related income?
55
What a bizarre notion, that somehow there could be central planners who'd assess out "abilities" (without regard to what we actually do and create) and then set our pay accordingly. Even communists didn't think this crazily and they murdered millions to achieve their desired levels of equity.
Doctors and lawyers are, of course, protected by government regulations and licensing, and both get a lot of money due to government edicts like paying for people's medical expenses and driving lawsuits related to legislative conflicts. It's expected they'd do well.
But prices, in a free market (which we are far from), are as correct as anybody can determine, and they give key information for others. If the pay goes up, then more will fill a job. If pay goes down, then fewer willl
Only a fool would pay for abstract "abilities" without regard to production that others want and will pay for.
25
Let's put Elizabeth Warren on this. She'll make a plan to make it happen. :-D
1
I guess this is a sort of "what if" piece. He does not reveal how he makes his income calculations based on the wider set of attributes he mentions, but even if he did this is largely irrelevant to the actual problem of income inequality.
There are a number of ways of parsing the problem. For example, the relationship between income and population density is a very string one: people are richer in urban environments and poorer in rural ones. The extremely rich tend to live in large cities while the extremely poor reside in very small rural communities.
On this sort of analysis (It is not the only one, obviously), helping rural communities would seem to be apropos. More generally an approach which seeks to economically empower the poor (e.g. via cash disbursements, tax policy, housing programs, health programs, educational and early childhood investment, etc.) seems well motivated.
Observations about corporate America are fine and thought experiments about what could be the case are fine, but they largely fail to gain much traction on the actual problem.
Finally, paying people based on their personality traits and not on their performance seems rather odd. It may be as the author claims, that fact that pay levels do not correlate with the presence of the character traits he identifies, signifies systemic bias or discrimination, but that is a (difficult) case not made in this article. Performance clearly matters, etc.
3
@Econ If rural is less than urban, you don't fix anything by wasting your money investing into rural without someone finding the competitive advantage that brings them.
The prices give information. Urban is less polluting and more economical than rural, at least today.
Remove government licensing schemes that reduce competition, stop paying for personal medical needs or anything that's personal (government pay for the common good, not any person's good).
1
@David , urban environments are denser but also have other undesirable effects from that density: noise, traffic, human waste products that can cause diseases and general stress. Human beings built cities but they didn't evolve inside them.
As for the pollution question: if sewer systems didn't exist, the people would die from their own waste like they did in the 19th century. And, you can see the air pollution on hazy days right? Do the power, food and consumer goods get created inside the city? Mostly no. So the pollution has been outsourced or offshored. It only APPEARS city living is cleaner.
2
@Econ , if you killed all of agriculture we would all be dead. I stated this numerous times but it always amazes me the blindspots supposedly intelligent people have in regards to their own ignorance.
The current system rewards risk-taking and offloading the risk consequences to others when the results are not rewards. Indeed, risk should be rewarded but those who benefit from that should also bear the consequences when the outcome is a loss. This change is due in great part to the elimination of most regulations in the market which results in moneymakers pushing the envelope because a torn envelope does not cost them anything.
As the profits are the rewards of risk-taking, losses should become the corrective action triggers, not something born by others, mainly the consumers.
37
This is a good example of why I fully support a more progressive tax system that increases taxes on wealthy individuals, but not in the form of Elizabeth Warren's plan. Billionaires are not the problem in this country, least of all billionaires like Bill Gates. Gates became extraordinarily wealthy by starting a company that has helped millions of people be more productive, and now he is using his winnings to tackle large global health problems. He is a good example of how a rising tide can lift all boats (sometime, if done properly).
The much, much larger problem is what is laid out here - wealthy people who are trying to maintain their wealth and status not through growth but through artificial barriers and rent seeking. So it isn't surprising to me that a lot of these individuals work in real estate, medicine or law - all fields that are heavily regulated, and therefore can have the mechanisms of said regulation bought and used to distort the markets to the benefit of themselves and not to society as a whole. That is who we should be concerned about, they are a much more destructive force.
8
@Ben but Bill Gates is the symptom of a larger problems with our markets. Within our long and overzealous copyright and IP laws Microsoft and therefore Bill Gates would not be worth nearly as much. IP laws are a monopoly which is an interruption of the free market. So a significant if not majority of the wealth accumulated by Gates is due to monopoly rents. So it makes sense to tax and recover the monopoly rents accrued to Gates in a purely free market sense.
10
@Gignere So you want intellectual property to just be stolen from the person who created it?
What IP does Microsoft have that requires I pay so much to his benefit? There are alternatives to everything MSFT offers. That you use MSFT over them suggests you want what they offer.
We do need patents to end after 20 years. And we nee copyrights to end after X years from the creation (since IP is owned by corporations that never die, the creation date must be used instead).
3
@David "That you use MSFT over them suggests you want what they offer."
Actually, most people are forced to use MSFT at work because some people in purchasing and IT decided that's what they want to buy for the whole company. WHY did they make this choice? Most commonly, because it is a SAFE choice. No one will fault you for buying MSFT (like IBM in days of yore). But if they buy from someone else and a problem develops, they'd be on the hot seat. So dominance breed dominance - no features improvement needed.
13
The problem with the C corporate income numbers is that a lot of it has shifted offshore so it masks how large it is. Do you think public market equity values would have risen as much in 40 years if the corporate incomes had really declined?
Sorry something DOESN'T make sense with the argument.
51
In addition to the traits mentioned by Rothwell, and glad to see he includes non cognitive traits, what about the simple desire to focus on financial success? How many people with otherwise equal skills will end up with more or less money simply because they prioritize earning and saving--or not?
2
@Bob Krantz - Or because they don't measure their lives by money? I know some top-notch peeps who choose to work for non-profits.
Or because they don't want to participate in Predatory Capitalism? I also know an exceptional woman who cleans rooms for money and spends the bulk of her time volunteering for organizations that serve the pubic weal.
24
@Miss Anne Thrope Bill Gates runs a non-profit today. And like most uber rich, they will donate much of it to causes others will benefit from.
Poor people don't buy up land and make them into national parks. They don't build museums, hospitals, universities, concert halls, etc.
5
@David - I'm not quite sure what your point is, David. I said nothing about BG - he might be just the swellest of fellows. Sure, he makes valuable (tax deductable) donations, but he's still sitting on $100 Billion!! Personally, I'd be embarrassed to have that much moolah in my Money Pit in this world of need, but you know, whatever.
My point is that some folks aren't interested in having Big Bucks (even tho' that's how we tend to measure Individual Value here in America). Nor are they willing to spend their precious time to the accumulation of that wealth. They have different values.
10
What an excellent piece, and what a refreshing perspective on the obvious. Finally, an economist worth reading. I'll be looking into the book.
Indeed, extreme wealth is usually the result of monopoly power -over land, natural resources, basic goods, or professional credentials. It has less to do with innate abilities, as the author rightly points out. In communist societies, rulers have the monopoly on political and economic power. In capitalist democracies, the situation is messier, but the tendency is always for powerful groups to carve out their piece of the pie and generate untenable levels of inequality. The solution is indeed for the State to work tirelessly to balance the system, through minimum wage policies, affordable housing, public education, and so on. There is just no other way. The alternative is a situation where large segments of society are left marginalized through no fault of their own.
38
@Diego An "economist worth reading" that describes an impossible utopia? You want central planners (aka government bureaucrats who have messed up nations forever) to determine your value and force "magical money" (presumably taxed from everyone so the central planner can pay your ability wage), and to pretend that wealth is generated by abstract abilities and not the actual production of something others want enough to trade for it.
6
@David
I believe many people would like to become dentists, but some force keeps the number of slots at dental school artificially low, and the tuition of dental school very high. This force is probably at least partially boosted by government actions.
Therefore, if the government removed itself, and market forces took over, you'd have more dentists and the cost of dental work would decrease. There is no reason for dentists to be in the top 1%, except the government is keeping it that way.
5
Income equality is not an achievable goal without repeating the errors and misdeeds of societies that have attempted to achieve it. There are downsides to our current system but you don’t see a backwashes of refugees returning to Cuba or agitation in Russia to adopt the economic policies of the Soviet Union. I can live with a little income envy and fewer townhouses.
12
@heyomania Income inequality was being reduced in the decades after WW II. Since the 60's wages have stagnated and inequality is getting worse at an accelerating rate. We are going in the wrong direction, and to some extent the simple remedy is to revert to conditions that existed before the country's economic policy turned sharply to the right. Some of the Democratic candidates basically advocate returning to New Deal ideology, not communism or even socialism.
63
@heyomania We could strive for greater equal protection so that the wealthy/donor class doesn't get treated to special interests rather than the common good.
It's absurd that some income is taxed higher than others, especially when it suggests unearned income is preferable to earned income. Same for expenses...stop pretending that any non-charitable expense is worth others paying your taxes for you while saying if you buy this you pay even more in taxes.
Equal protection has a clear meaning, even if corrupted politicians and a foolish electorate allow it to be abused to prefer some over others.
11
@skeptonomist WWII was an anomaly, a world in which most of our competition was destroyed by war and the US came out mostly unscathed. Rebuilding was necessary, and of course deficit spending started to rise. Add to that, more government social services to individuals rather than focusing on the common good. And then add to the increase in automation that has reduced the need to labor.
If you looked globally rather than at the US, you'd see the US makes "unequal incomes" compared to other nations, so presumably those who believe in equity believe American wealth should be taxed and given to poor nations, lest their do-gooderism is only for their tribe and others can be damned.
2