indomie
11-12-13, 07:13
LUCK
Rick's lovely account of how computers enabled him to write should remind us of a more general point - that luck determines pretty much all of our economic fate.
The standard Mincer equations express individual earnings as a function of schooling and exprience - and, in more sophisticated versions, of personality or cognitive skills as well. Even these leave a huge chunk of earnings' varation across individuals' unexplained - suggesting that luck plays a big role*.
However, these equations under-estimate the role of luck, because luck helps determine how much human capital we acquire in the first place. I'm thinking of several mechanisms here:
*- When you were born. Rick was lucky enough to be born near enough to the computer age.Had he been born a few decades earlier, he'd never have unleashed his writing "talent.**" This point extends. In the 50s, only a few people could get to university. Now, many more can - which gives late developers especially more advantage. (It is of course, trivial that when you were born also affects the returns to your human capital; top footballers and CEOs earn more now than 40 years ago because their skills are in demand, not because they are necessarily more skilled than their predecessors.)
*- The month you were born in. People born in September earn more than those born in the summer, perhaps because they are bigger and older for their school year, and so do better at school.
*- Where you were born. I'm rich because I was born in England, not Ethiopia. Herbert Simon estimated that at least 90% (pdf) of the incomes of western individuals are due to this fortune of birth.
*- Genes. Michael Young described meritocrats as members of the "lucky sperm club." He was surely right. If I'd inherited my dad's criminal tendencies rather than my mum's unimaginative sense of duty, I'd be very different***.
*- Child poverty. Children from poor homes do worse in school (pdf) and later life - on average! - than those from wealthy homes. Although this doesn't seem to greatly affect life-satisfaction in adulthood, childhood emotional health does. *
*- The luck of getting a sympathetic teacher or good role models. Pretty much every successful person can point to these, surely.
*- Chance meetings. Harry Markowitz has said that a "chance conversation" led him to study portfolio theory for which he won a Nobel prize. The story is surely typical; how many of us got valuable early experience simply because a job interviewer liked the cut of our gib, or were denied it because he didn't?
I suspect that pretty much all the differences between our incomes are due to luck; a capacity for hard work is also a matter for luck. We do not "deserve" our economic fate, and only the most witlessly narcissistic libertoon could claim otherwise.
Now, it doesn't follow automatically from this that the tax system should equalize incomes. As Nozick argued, people can be entitled to things they don't deserve. And justice is not the only virtue; efficiency might require some differences in post-tax income. *
What it does mean is that the rich and successful should be more humble.
Rick's lovely account of how computers enabled him to write should remind us of a more general point - that luck determines pretty much all of our economic fate.
The standard Mincer equations express individual earnings as a function of schooling and exprience - and, in more sophisticated versions, of personality or cognitive skills as well. Even these leave a huge chunk of earnings' varation across individuals' unexplained - suggesting that luck plays a big role*.
However, these equations under-estimate the role of luck, because luck helps determine how much human capital we acquire in the first place. I'm thinking of several mechanisms here:
*- When you were born. Rick was lucky enough to be born near enough to the computer age.Had he been born a few decades earlier, he'd never have unleashed his writing "talent.**" This point extends. In the 50s, only a few people could get to university. Now, many more can - which gives late developers especially more advantage. (It is of course, trivial that when you were born also affects the returns to your human capital; top footballers and CEOs earn more now than 40 years ago because their skills are in demand, not because they are necessarily more skilled than their predecessors.)
*- The month you were born in. People born in September earn more than those born in the summer, perhaps because they are bigger and older for their school year, and so do better at school.
*- Where you were born. I'm rich because I was born in England, not Ethiopia. Herbert Simon estimated that at least 90% (pdf) of the incomes of western individuals are due to this fortune of birth.
*- Genes. Michael Young described meritocrats as members of the "lucky sperm club." He was surely right. If I'd inherited my dad's criminal tendencies rather than my mum's unimaginative sense of duty, I'd be very different***.
*- Child poverty. Children from poor homes do worse in school (pdf) and later life - on average! - than those from wealthy homes. Although this doesn't seem to greatly affect life-satisfaction in adulthood, childhood emotional health does. *
*- The luck of getting a sympathetic teacher or good role models. Pretty much every successful person can point to these, surely.
*- Chance meetings. Harry Markowitz has said that a "chance conversation" led him to study portfolio theory for which he won a Nobel prize. The story is surely typical; how many of us got valuable early experience simply because a job interviewer liked the cut of our gib, or were denied it because he didn't?
I suspect that pretty much all the differences between our incomes are due to luck; a capacity for hard work is also a matter for luck. We do not "deserve" our economic fate, and only the most witlessly narcissistic libertoon could claim otherwise.
Now, it doesn't follow automatically from this that the tax system should equalize incomes. As Nozick argued, people can be entitled to things they don't deserve. And justice is not the only virtue; efficiency might require some differences in post-tax income. *
What it does mean is that the rich and successful should be more humble.