> [Education] does not guarantee that a person will end up in the top 1 percent, but it increases the likelihood.
Only very slightly, which is the point that Krugman et al. are making. The main determinant of whether you, personally, are in the top 1% is whether your father was.
> I have not seen any data on this, but I am willing to bet that the top 1 percent are more educated than the average American; while their education did not ensure their economic success, it played a role.
Mankiw is doing what is called out in this article as bullshitting:
Mankiw is bullshitting. He is attempting to obfuscate a fact which he knows to be true, by throwing a bunch of other half-truths (of course education has some increasingly minimal effect on your life outcomes; that will always be true, it will still be true even when that effect is a hundredth of a percent) and seeing if any of them stick. Mankiw is fully aware that he's bullshitting.
The purpose of his post is to give people who are already inclined to believe the whole thing is a "liberal plot" a handhold for their beliefs, a rope to grasp at. He knows it's fake, but if you WANT to believe that inequality isn't increasing due to a class of crooks running the U.S. for their own benefit, now you have something to hang your pre-existing belief on, courtesy of Mankiw.
What evidence is there the main determinant of whether you are in the top 1% is whether your father was? And that other determinants like education are relatively insignificant?
Beyond this, maybe the focus should be less about getting in the top 1% and more about something attainable by more than one in a hundred people. A life in the broad middle class is much better predicted by education.
So the fact that dropouts like Mark Zuckerberg and Bill Gates and Steve Jobs became billionaires is due to increasing returns to education? (why did Zuck drop out? why isn't everyone getting Ph.D.s?)
How much of Mankiw's wealth is due to his education, and how much to the industry structure's ability to make people pay $233 for his textbook?
It should not be that hard to take income (or labor income) and regress against educational level and get a pretty good sense of how much inequality is related to educational achievement, and how returns to education have changed. My gut feeling is it explains some of it, but education has not that much to do with the vastly increasing income share of the top 1%. One man's 'stochastic' is another's 'uncorrelated'.
>> "It should not be that hard to take income (or labor income) and regress against educational level and get a pretty good sense of how much inequality is related to educational achievement, and how returns to education have changed. My gut feeling is it explains some of it, but education has not that much to do with the vastly increasing income share of the top 1%. One man's 'stochastic' is another's 'uncorrelated'."
I think Mankiw is actually right about the 'stochastic' returns to education- but he isn't admitting the real reason. I believe it's because the returns to going to a select few schools studying a select few things do create outsized returns. I.e, graduating from a Harvard/Stanford MBA or Law program makes it much more likely to place you top 1%. The number is institutions that this is true for is very small. In a sense, I don't think the actual 'education' is causing this stochastic return, but the people you meet and opportunities people get at the oligarchical institutions.
That regression (which is called a mincerian wage equation & economists have been running it for about 40 years) will give you the average percentage increase in earnings (if you do it in logs) from another year of education. That average measure can be consistent with lots of different dynamics---which is Mankiw's point. Perhaps another year of education increases earnings by 10% across the board (deterministic view) or perhaps is increase by 10% the chance that your income will increase 100% but 90% of the time does nothing.
Note: All of this is just correlational---there are serious problems w/ treating these regressions as establishing causality, but that's another issue.
That much money for a textbook? Sorry, but I have to say it: WTF does it contain? And pardon me again for my French, but just today I stumbled upon Part One of a 1782 edition of Rousseau's Works in an antique book-store, priced at ~ 40 Euros (ironically enough, it contained this: "Discourse on the Origin and Basis of Inequality Among Men" http://en.wikipedia.org/wiki/Discourse_on_the_Origin_and_Bas...).
His point isn't totally wrong, but it's, like, 95% wrong.
The 1% are more educated than average, but not nearly enough to support this argument.
Education gives you a better chance at a huge jump into higher income, but not enough to support this argument.
It's not a coincidence that really rich people have enormous initiative, but rarely enormous education (often including dropping out before they get a degree).
The fact that the 1% are better educated in average doesn't prove that the latter leads to the former; "Empirically observed covariation is a necessary but not sufficient condition for causality" and all that.
One possible underlying common is inheritance: I'd be willing to bet that the child of a family in the 1% is much more likely to be in the 1% in adulthood, even if they drop out. And of course, a child in a 1% family has much more chances of being able to afford higher education.
Citing from The Inheritance of Inequality:
Recent evidence points to a much higher level of intergenerational that was previously thought to be the case. America may still be the land of opportunity by some measures, but parental income and wealth are strong predictors of the likely economic status of the next generation.
Seems like a case of median vs the mean. Krugman's saying that we haven't seen a broad-based increase in pay as productivity rose, because of what he calls oligarchic trends.
Mankiw is saying that the education input into that equation has highly variable returns to the individual, but the average of incomes is rising in the line you'd expect from education.
Basically, Krugman's talking about the median, Mankiw's talking about the mean. I think the interesting question is why they've diverged much more radically in the last 3 decades than the preceding 4-5.
> while their education did not ensure their economic success, it played a role.
That half concedes the original opposing point.
> think of the return to education as stochastic
To say that the effect of education is stochastic means it includes some either purely random factor, or something else not understood or not considered -- i.e. the thing having a big effect is not the basic factor of education but something else. Well, that really does seem to concede the original opposing point.
This is why there's a huge literature in economics on trying to measure the causal impact of more schooling. They've used everything from state-level changes in compulsory schooling laws, proximity to college, changes in grants policies, variation around cut-offs that determine eligibility etc. In all of these studies, the picture is quite clear: more schooling has a positive, causal effect on average earnings, with the estimates around ~6-10%.
Stochastic? Oligarchies? Non sequitur?!? And then there's the structure of the sentences. Mankiw should look at http://www.plainenglish.co.uk/.
That aside, I know many people in the top one percent. Many of them have a far better education than I do, and yet they're idiots. Granted, they're idiots with a lot of money. And also granted, when you have a lot of money you don't need an education.
Besides all that, the article is, as jellicle said, bullshit. My other half's an economist at the Bank of England. She read it and burst out laughing. 'Nuff said.
People need to stop using the term "top 1 percent". We do have a serious (and dangerous!) problem with oligarchs in this country, but a 99.0th-percentile income does not buy entry into the upper class (which might comprise 0.05-0.1 percent of the US population). Not even close.
The upper class (as opposed to "the rich", which is a much larger and looser set) is a socially closed, parasitic network of people who maintain position by peddling favors and influence, and who have done a great job (in comparison to historical counterparts) of making the process appear meritocratic, even though hard work and education are actually contrary to their values. Now, not all rich people are upper class (Jobs wasn't, Gates is debatable) or parasitic crooks. Most rich people aren't. Likewise, not all upper-class people are rich (although they could easily become rich, or famous, if desired).
The reason average people in the US are so parasite-friendly is that, when they think of "rich people", they think of scaled-up versions of the $500,000-per-year neurosurgeon (statistically "top 1%") or small businessperson who has been working her ass off since age 4-- not scummy investment bankers and well-connected influence-peddlers (e.g. the Bush family). If they understood how society actually works, they wouldn't fall for that ruse.
No one wants to "soak the rich". On the other hand, most of us who are awake deeply desire an end to the culturally underaccomplished, corrupt plutocracy that has brought a nation to epic embarrassment and idiotic, endless war to two foreign countries.
Mr. Krugman's point, very succintly, is that money is power, political and otherwise, and that as it concentrates into fewer hands (as has happened to a huge extent in the last 30 years), those at the top start to behave like a ruling class - an oligarchy.
it will always be the case that politicians are more responsive to those with money, especially with the current judicial doctrine in the USA, that money is speech and therefore all attempts to regulate its use in politics is basically unconstitutional. that's the real issue with wealth inequality.
Mr. Mankiw is just arguing sideways to Mr. Krugman by making the very obvious point that more education betters your life's odds. And since Mr. Mankiw is a very bright guy, I can't help but think that he's doing this on purpose to muddy the discussion.
[+] [-] jellicle|14 years ago|reply
Only very slightly, which is the point that Krugman et al. are making. The main determinant of whether you, personally, are in the top 1% is whether your father was.
> I have not seen any data on this, but I am willing to bet that the top 1 percent are more educated than the average American; while their education did not ensure their economic success, it played a role.
Mankiw is doing what is called out in this article as bullshitting:
http://nymag.com/daily/intel/2011/11/inequality_and_bullshit...
Mankiw is bullshitting. He is attempting to obfuscate a fact which he knows to be true, by throwing a bunch of other half-truths (of course education has some increasingly minimal effect on your life outcomes; that will always be true, it will still be true even when that effect is a hundredth of a percent) and seeing if any of them stick. Mankiw is fully aware that he's bullshitting.
The purpose of his post is to give people who are already inclined to believe the whole thing is a "liberal plot" a handhold for their beliefs, a rope to grasp at. He knows it's fake, but if you WANT to believe that inequality isn't increasing due to a class of crooks running the U.S. for their own benefit, now you have something to hang your pre-existing belief on, courtesy of Mankiw.
What an embarrassment.
[+] [-] rudiger|14 years ago|reply
Beyond this, maybe the focus should be less about getting in the top 1% and more about something attainable by more than one in a hundred people. A life in the broad middle class is much better predicted by education.
[+] [-] RockyMcNuts|14 years ago|reply
How much of Mankiw's wealth is due to his education, and how much to the industry structure's ability to make people pay $233 for his textbook?
http://crookedtimber.org/2011/11/04/occupy-greg-mankiw/
http://www.amazon.com/Principles-Economics-N-Gregory-Mankiw/...
It should not be that hard to take income (or labor income) and regress against educational level and get a pretty good sense of how much inequality is related to educational achievement, and how returns to education have changed. My gut feeling is it explains some of it, but education has not that much to do with the vastly increasing income share of the top 1%. One man's 'stochastic' is another's 'uncorrelated'.
http://krugman.blogs.nytimes.com/2011/11/03/inequality-trend...
[+] [-] meterplech|14 years ago|reply
I think Mankiw is actually right about the 'stochastic' returns to education- but he isn't admitting the real reason. I believe it's because the returns to going to a select few schools studying a select few things do create outsized returns. I.e, graduating from a Harvard/Stanford MBA or Law program makes it much more likely to place you top 1%. The number is institutions that this is true for is very small. In a sense, I don't think the actual 'education' is causing this stochastic return, but the people you meet and opportunities people get at the oligarchical institutions.
[+] [-] john_horton|14 years ago|reply
Note: All of this is just correlational---there are serious problems w/ treating these regressions as establishing causality, but that's another issue.
[+] [-] paganel|14 years ago|reply
That much money for a textbook? Sorry, but I have to say it: WTF does it contain? And pardon me again for my French, but just today I stumbled upon Part One of a 1782 edition of Rousseau's Works in an antique book-store, priced at ~ 40 Euros (ironically enough, it contained this: "Discourse on the Origin and Basis of Inequality Among Men" http://en.wikipedia.org/wiki/Discourse_on_the_Origin_and_Bas...).
[+] [-] angelbob|14 years ago|reply
The 1% are more educated than average, but not nearly enough to support this argument.
Education gives you a better chance at a huge jump into higher income, but not enough to support this argument.
It's not a coincidence that really rich people have enormous initiative, but rarely enormous education (often including dropping out before they get a degree).
[+] [-] icebraining|14 years ago|reply
One possible underlying common is inheritance: I'd be willing to bet that the child of a family in the 1% is much more likely to be in the 1% in adulthood, even if they drop out. And of course, a child in a 1% family has much more chances of being able to afford higher education.
Citing from The Inheritance of Inequality:
Recent evidence points to a much higher level of intergenerational that was previously thought to be the case. America may still be the land of opportunity by some measures, but parental income and wealth are strong predictors of the likely economic status of the next generation.
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.115...
[+] [-] jbooth|14 years ago|reply
Mankiw is saying that the education input into that equation has highly variable returns to the individual, but the average of incomes is rising in the line you'd expect from education.
Basically, Krugman's talking about the median, Mankiw's talking about the mean. I think the interesting question is why they've diverged much more radically in the last 3 decades than the preceding 4-5.
PS Mankiw's intro book is awesome.
[+] [-] hxa7241|14 years ago|reply
That half concedes the original opposing point.
> think of the return to education as stochastic
To say that the effect of education is stochastic means it includes some either purely random factor, or something else not understood or not considered -- i.e. the thing having a big effect is not the basic factor of education but something else. Well, that really does seem to concede the original opposing point.
[+] [-] ap22213|14 years ago|reply
For instance, how would this correlation change if companies no longer required a degree for hiring? It would change a lot.
[+] [-] john_horton|14 years ago|reply
[+] [-] Spearchucker|14 years ago|reply
That aside, I know many people in the top one percent. Many of them have a far better education than I do, and yet they're idiots. Granted, they're idiots with a lot of money. And also granted, when you have a lot of money you don't need an education.
Besides all that, the article is, as jellicle said, bullshit. My other half's an economist at the Bank of England. She read it and burst out laughing. 'Nuff said.
[+] [-] chrismealy|14 years ago|reply
[+] [-] michaelochurch|14 years ago|reply
The upper class (as opposed to "the rich", which is a much larger and looser set) is a socially closed, parasitic network of people who maintain position by peddling favors and influence, and who have done a great job (in comparison to historical counterparts) of making the process appear meritocratic, even though hard work and education are actually contrary to their values. Now, not all rich people are upper class (Jobs wasn't, Gates is debatable) or parasitic crooks. Most rich people aren't. Likewise, not all upper-class people are rich (although they could easily become rich, or famous, if desired).
The reason average people in the US are so parasite-friendly is that, when they think of "rich people", they think of scaled-up versions of the $500,000-per-year neurosurgeon (statistically "top 1%") or small businessperson who has been working her ass off since age 4-- not scummy investment bankers and well-connected influence-peddlers (e.g. the Bush family). If they understood how society actually works, they wouldn't fall for that ruse.
No one wants to "soak the rich". On the other hand, most of us who are awake deeply desire an end to the culturally underaccomplished, corrupt plutocracy that has brought a nation to epic embarrassment and idiotic, endless war to two foreign countries.
[+] [-] adabsurdo|14 years ago|reply
it will always be the case that politicians are more responsive to those with money, especially with the current judicial doctrine in the USA, that money is speech and therefore all attempts to regulate its use in politics is basically unconstitutional. that's the real issue with wealth inequality.
Mr. Mankiw is just arguing sideways to Mr. Krugman by making the very obvious point that more education betters your life's odds. And since Mr. Mankiw is a very bright guy, I can't help but think that he's doing this on purpose to muddy the discussion.