Education = inequality

Tyler Cowen has a very interesting article over at the NYT on the main driver of inequality in this country:

The most commonly cited culprits for the income inequality in America — outsourcing, immigration and the gains of the super-rich — are diversions from the main issue. Instead, the problem is largely one of (a lack of) education. [...]

For the economy as a whole, labor’s share of national income has stayed roughly constant at just above 70 percent. What has changed is that highly skilled laborers earn more labor income than low-skilled workers. [...]

Starting about 1950, the relative returns for schooling rose, and they skyrocketed after 1980. The reason is supply and demand. For the first time in American history, the current generation is not significantly more educated than its parents. Those in need of skilled labor are bidding for a relatively stagnant supply and so must pay more.

This supports my previous riff on the education premium. Similar to many free-market types, I do not believe than reducing inequality is a feasible or even desirable goal. This is for two reasons.

First, if our goal is to improve lives, we must focus fundamentally on economic progress, ie, wealth creation. A shorthand for this is to increase the size of the total pie. The mechanisms that increase the total pie (education, good salaries, low taxes) also have the effect of increasing inequality.

Secondly, and relatedly, when one talks of reducing inequality, what one typically means is clipping the high-flyers, as if they were the problem. High income earners, pretty much by definition, are the ones creating wealth -- read, jobs and products. To argue that their success should be limited in the name of equality is to argue that a smaller pie will serve our needs better than a larger one.

Cowen puts it this way:

Nor should we be distracted by the gains of the top 1 percent. The goal should be to elevate the poor, not knock down the tall poppies. Microsoft has created cheap software and many jobs, and its co-founder, Bill Gates, is giving away most of his fortune.

The next time that a privileged person complains about inequality in this country, you should kindly point out that education is its primary driver. Outsourcing, unions and immigration are very small potatoes by comparison.

If a person really believes that inequality must be reduced, then it follows that having a four-year degree contributes to the problem. Can one live with that on their conscience?

Of course, such an argument is reductio ad absurdum. Education is obviously good for all involved, and we should consider the possibility that this is true for other drivers of wealth.

Most arguments which advocate equality over progress, when you look at the evidence, are similarly self-defeating.

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Update: Here is a bit more from the WSJ [may require subscription], which cites that educated workers earn 75% more than less-educated workers, even after factoring out experience levels and gender. Lots of good info, read the whole thing.

Comments

[The Gentle Cricket]

This is an interesting subject. I think that on the surface our gut reaction is actually counterintuitive. Society sees inequality and think "something must be wrong", when in reality it is a sign of health.

As an example, consider two wage earners--one earns $100,000 per year, and the other earns $25,000. As the economy improves, they each double their earnings. While both are now better off, the "inequality" has also doubled. This is hardly a situation that we should be avoiding.

Unfortunately, typical policy seems focused on bringing down the successful (high taxes, affirmative action, etc..) instead of raising up the poor/uneducated/etc...

[poptones]

Indeed, we need greater focus on elevating the less privileged - and education does help that end greatly especially when it comes to building wealth.

So, why are there no free colleges (or, at least, outside california)? I don't think Yale and Harvard should have to take in everyone, but every state should offer a higher education to its residents without forcing them into tens of thousands of dollars in federal student loan debt.

[moncler outlet]

Government spending is poverty. It is the destruction of wealth. Imagine a world of hungry people.