Social and Educational Mobility: Denmark vs USA (James Heckman)

Despite generous social programs such as free pre-K education, free college, and massive transfer payments, Denmark is similar to the US in key measures of inequality, such as educational outcomes and cognitive test scores. 

While transfer payments can equalize, to some degree, disposable income, they do not seem to be able to compensate for large family effects on individual differences in development. 

These observations raise the following questions: 

1. What is the best case scenario for the US if all progressive government programs are implemented with respect to child development, free high quality K12 education, free college, etc.?

2. What is the causal mechanism for stubborn inequality of outcomes, transmitted from parent to child (i.e., within families)? 

Re #2: Heckman and collaborators focus on environmental factors, but do not (as far as I can tell) discuss genetic transmission. We already know that polygenic scores are correlated to the education and income levels of parents, and (from adoption studies) that children tend to resemble their biological parents much more strongly than their adoptive parents. These results suggest that genetic transmission of inequality may dominate environmental transmission.

  

See 

Genetic correlation of social outcomes between relatives (Fisher 1918) tested using lineage of 400k English individuals 

Game Over: Genomic Prediction of Social Mobility

The Contribution of Cognitive and Noncognitive Skills to Intergenerational Social Mobility (McGue et al. 2020)

Note: Denmark is very homogenous in ancestry, and the data presented in these studies (e.g., polygenic scores and social mobility) are also drawn from European-ancestry cohorts. The focus here is not on ethnicity or group differences between ancestry groups. The focus is on social and educational mobility within European-ancestry populations, with or without generous government programs supporting free college education, daycare, pre-K, etc.

Lessons for Americans from Denmark about inequality and social mobility 

James Heckman and Rasmus Landersø 

Abstract Many progressive American policy analysts point to Denmark as a model welfare state with low levels of income inequality and high levels of income mobility across generations. It has in place many social policies now advocated for adoption in the U.S. Despite generous Danish social policies, family influence on important child outcomes in Denmark is about as strong as it is in the United States. More advantaged families are better able to access, utilize, and influence universally available programs. Purposive sorting by levels of family advantage create neighborhood effects. Powerful forces not easily mitigated by Danish-style welfare state programs operate in both countries.

Also discussed in this episode of EconTalk podcast. Russ does not ask the obvious question about disentangling family environment from genetic transmission of inequality.

 

The figure below appears in Game Over: Genomic Prediction of Social Mobility. It shows SNP-based polygenic score and life outcome (socioeconomic index, on vertical axis) in four longitudinal cohorts, one from New Zealand (Dunedin) and three from the US. Each cohort (varying somewhat in size) has thousands of individuals, ~20k in total (all of European ancestry). The points displayed are averages over bins containing 10-50 individuals. For each cohort, the individuals have been grouped by childhood (family) social economic status. Social mobility can be predicted from polygenic score. Note that higher SES families tend to have higher polygenic scores on average -- which is what one might expect from a society that is at least somewhat meritocratic. The cohorts have not been used in training -- this is true out-of-sample validation. Furthermore, the four cohorts represent different geographic regions (even, different continents) and individuals born in different decades.

The figure below appears in More on SES and IQ.

Where is the evidence for environmental effects described above in Heckman's abstract: "More advantaged families are better able to access, utilize, and influence universally available programs. Purposive sorting by levels of family advantage create neighborhood effects"? Do parents not seek these advantages for their adopted children as well as for their biological children? Or is there an entirely different causal mechanism based on shared DNA?

 

The figure below appears in Low SES does not decrease heritability of cognitive ability (N=300k).

 

Piketty on Capital

Piketty on EconTalk (podcast) -- a lively discussion between Russ Roberts and guest Thomas Piketty. See earlier post here.

Piketty: ... to summarize very quickly our conclusion, we feel that the theory of marginal productivity is a bit naive, I think for this top part of the labor market. That is to say when a manager manages to get a pay increase from $1 million a year to $10 million a year, according to the textbook based on marginal productivity, this should be due to the fact that his marginal contribution to the output of his company has risen from 1 to 10. Now it seems a bit naive. It could be that in practice individual marginal productivities are very hard to observe and monitor, especially in a large corporation. And there is clearly strong incentives for top managers to try to get as much as they can.

... Now, when the top tax rate is 82%, now of course you always want to be paid $1 million more, but on the margin when you get a pay increase of $1 million, 82% is going to go straight to the Treasury, so your incentive to bargain very aggressively and put the right people in the right compensation committee are going to be not so strong. And also your shareholders, your subordinates, maybe will tend to tell you, look, this is very costly. Whereas when the top tax rate goes down to 20, 30% or even 40%, so you keep 2/3rds or 60% of the extra $1 million for you, then the incentives are very, very different. Now, this model seems to explain part of what we observe in the data. In particular, it's very difficult to see any improvement in the performance of managers who are getting $10 million instead of $1 million. When we put together a data base with all the publicly traded companies in North America, Europe, Japan, trying to compare in the companies that are paying their managers $10 million instead of $1 million, it's very difficult to see in the data any extra performance.

... But let me make clear that I love capital accumulation and I certainly don't want to reduce capital accumulation. The problem is the concentration. So let me make very clear that inequality in itself is of course not a problem. Inequality can actually be useful for growth. Up to a point. The problem is when inequality of wealth and concentration of wealth gets too extreme, it is not useful any more for growth. And it can even become bad, because it leads to high perpetuation of inequality over time, so it can reduce social mobility. And it can also be bad for the working or for the democratic institutions. So where is the tipping point--when is it that inequality becomes excessive? Well, I'm sorry to tell you that I don't have a formula for that.

... In the United States right now, the bottom 50% of the population own about 2% of national wealth. And the next 40% own about 20, 22% of national wealth. And this group, the middle 40%, the people who are not in the bottom 50% and who are not in the top 10%, they used to own 25-30% of national wealth. And this has been going down in recent decades, as shown by a recent study by Saez and Zucman and now is closer to 20, 22%. Now, how much should it be? I don't know. I don't know. But the view that we need the middle class share to go down and down and down and that this is not a problem as long as you have positive growth, I think is excessive. You know, I think, of course we need entrepreneurs. I'm not saying, look, if it was perfect equality the bottom 50% should own 50% and the next 40% should own 40. I am not saying that we should have this at all. I'm just saying that when you have 2% for the bottom 50 and 22 for the next 40, you know, the view that we cannot do better than that [[ because ]] you won't have entrepreneurs any more, you won't have growth any more, is very ideological.

... I am actually a lot more optimistic than what some people seem to believe. I'm very sorry some people feel depressed after they read my book because after all this is not the way I wrote it. In fact, I think there are lots of reasons to be optimistic. For instance, one good news coming from the book is that we've never been as rich in terms of net wealth than we are today in developed countries. And we talk all the time about our public debt, but in fact our private wealth as a fraction of GDP has increased a lot more than our public debt as a fraction of GDP, so our national wealth, the sum of private and public wealth, is actually higher than it has ever been. So our countries are rich. It is our governments that are poor, which is a problem; but it raises issues of organization and institution but that can be addressed.

The Moral Foundation of Economic Behavior

I found this econtalk podcast very interesting. The comments are also good.

We Americans are very lucky to have inherited a high trust society from our forebears. How much longer will it last?

Econtalk: David Rose of the University of Missouri, St. Louis and the author of The Moral Foundation of Economic Behavior talks with EconTalk host Russ Roberts about the book and the role morality plays in prosperity. Rose argues that morality plays a crucial role in prosperity and economic development. Knowing that the people you trade with have a principled aversion to exploiting opportunities for cheating in dealing with others allows economic actors to trust one another. That in turn allows for the widespread specialization and interaction through markets with strangers that creates prosperity. In this conversation, Rose explores the nature of the principles that work best to engender trust. The conversation closes with a discussion of the current trend in morality in America and the implications for trust and prosperity.

See also this Wired article: The Neurobiology of Integrity.

In short, when people didn’t sell out their principles, it wasn’t because the price wasn’t right. It just seemed wrong. “There’s one bucket of things that are utilitarian, and another bucket of categorical things,” Berns said. “If it’s a sacred value to you, then you can’t even conceive of it in a cost-benefit framework.” ...

Whether sacred principles offer utilitarian benefits over long periods of time — many years, perhaps many generations, and at population-wide as well as individual scales — is beyond the current study design, but Berns suspects that one of their benefits is simplicity.

“My hypothesis about the Ten Commandments is that they exist because they’re too hard to think about on a cost-benefit basis,” he said. “It’s far easier to have a rule saying, ‘Thou shalt not commit adultery.’ It simplifies decisionmaking.”

Baumeister on Gender Differences and Culture

Nice discussion on Econtalk. I suspect Baumeister has slightly stronger opinions than he expressed to Russ.

Roy Baumeister of Florida State University and the author of Is There Anything Good About Men talks with EconTalk host Russ Roberts about the differences between men and women in cultural and economic areas. Baumeister argues that men aren't superior to women nor are women superior to men. Rather there are some things men are better at while women excel at a different set of tasks and that these tradeoffs are a product of evolution and cultural pressure. He argues that evolutionary pressure has created different distributions of talent for men and women in a wide variety of areas. He argues that other differences in outcomes are not due to innate ability differences but rather come from different tastes or preferences.

The podcast got me through 30 pullups, 100 pushups, situps, kettlebells and cycling :-)

Two honest economists

I highly recommend this podcast discussion between Russ Roberts and John Quiggin (of Crooked Timber) about Quiggin's recent book Zombie Economics. Both parties did a good job of putting aside priors and having an enlightening conversation. Quiggin argues that many economic theories such as the Great Moderation, the efficient markets hypothesis and others have been discredited by recent events and should be relegated to the graveyard.

I think at one point both participants agreed that (or at least entertained the idea that) economics doesn't make progress like a real science. Probably too strong a critique, but at least very honest.

Confessions of a car dealer

Ever wonder what's behind the horrible experience of buying a car at a dealership? What the negotiation looks like from the other side?

There's a great podcast up on Econtalk, in which Russ Roberts (econ prof at George Mason) interviews a sales manager at a Honda dealership. Did you know that everyone working on the sales side, including the manager, is on 100% commission-based compensation? The average amount earned by the salesman on the sale of a new car is about $350. Check out the comments as well.

The sales manager adopts a stubbornly behavioral position for why prices of cars are not set in a more transparent manner -- that we are culturally conditioned to haggle over car prices. In the comments several more traditional economic (game or information theoretic) arguments are proposed. How does it work in other countries? Are Japanese car salesmen just like their American counterparts?