My Kid Or Your Kid
Greg Mankiw responds to something
from Paul Krugman about income equality/mobility.
…the
most important factor in whether you can become rich is whether you chose the
right parents: Most people are going to end up with socioeconomic status close
to where they started.
According
to a recent
study of mobility (see Figure 1), the correlation between parent's income
rank and children's income rank is about 0.3. That means that if you are in the
99th percentile (the much-talked-about 1 percent), your best guess is that your
child will be at the 65th percentile.
To
me, that seems like a lot of regression toward the mean.
Now I’m not saying that what I’m
about to write is correct, but I just want to think about it, and maybe by
asking the question, someone will tell me why I’m wrong, and therefore expand
my knowledge.
So, my thought experiment is,
what if the money and riches that could be going to your kid are really just
going to some other rich person’s kid? Maybe this could manifest itself because
one set of parents really like yachts, and the yacht company’s owner’s child is
in no way going to leave that lucrative business. Or, maybe you spent your
riches on your kid already? By giving them a pricy education, maybe that wealth
went to the school?
I guess my thought was that the
money goes somewhere. Maybe Greg would then say that the wealth was indeed transferred,
but instead of it going to the wealthy parent’s child, it went to the
government in taxes. Or, maybe the parent had more children.
All that being said, the data is
hard to refute. The only cursory thing I could even try to say anything against
is that maybe using quintiles is still muddying up numbers. Maybe, there’s a
percentage of wealth owners (dare I say 1%) who continue to gain wealth, and
indeed their children do see that.
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