Wednesday, April 04, 2012

False Analyses of Income and Wealth Inequality, and a De Facto New Legacy Program for America's Colleges

-- Posted by Neil H. Buchanan

Continuing my recent unplanned series of Dorf on Law posts (here, and very briefly here) and Verdict columns (here) about the importance of higher education, my Verdict column today (here) discusses whether differing levels of education can explain American inequality. I also discuss whether there is an argument that taxing higher incomes is a proxy "tax on education." I conclude that it definitely is not, and even if it were, it could be more than justified by using the revenue collected to support higher education for others.

Returning to the first issue (whether educational differences can explain American inequality), the answer is definitely no. The affirmative case for that proposition is based on the observation that college graduates earn more than high school graduates. Indeed, there is a clear positive correlation between levels of educational attainment along the whole spectrum (high school dropout, high school graduate, some college, associate's degree, bachelor's degree, some grad school, master's degree, terminal degree) and average incomes. So, education causes inequality, right?

Any market economy is going to have some inequality, of course. Differences in talent levels, differences in interests (think poets versus computer geeks), and so on, will inexorably result in a dispersion of incomes. It is actually quite remarkable -- and as strong an affirmation of the value of higher education as one could hope to find -- that the statistics so clearly show a strong correlation between more education and higher incomes. If nothing else, it is important to emphasize this fact in the current environment, where we not only have enterprising politicians fomenting resentment of college professors, but we also are treated to anecdotes about people who did well without going to college. (And people win lotteries, too!)

What makes the "Education causes inequality, so we should not worry about inequality (and certainly not tax higher incomes)" line truly ridiculous, however, involves a mildly subtle logical distinction. The basic problem is the difference between changes in a variable, and differences between levels of variables. That is, this argument tries to explain changes in inequality by referring to mostly unchanging levels of educational differences. Consider an unrelated analogy:

At some point in the 1980's, as the U.S. tennis stars Jimmy Connors and John McEnroe were aging, and European stars (especially from Sweden and Czechoslovakia) were dominating the men's game, an American tennis analyst was asked why there were no young Americans coming up to take Jimmy's and Mac's places. His answer: Athletically talented American kids have a zillion avenues through which to develop their talents (basketball, football, baseball, hockey, etc.), only one of which is tennis. Swedish kids have tennis and soccer. Therefore, he told viewers, America will no longer be dominant in men's tennis.

The factual assertions here are at best tenuous, of course. And there is always the question of population sizes: 250 million Americans should probably include one or two guys who happen to love tennis and who can challenge the best players produced by 8 million Swedes. When we are only looking at the greatest of stars, moreover, true randomness kicks in. (The best player in the world had to grow up somewhere, which could just as easily be Silver Spring, Maryland as Skanstull, Sweden).

Setting that aside, however, the problem is that the factor that the tennis analyst identified (the differences between the US and Sweden in youth sports opportunities) had existed for as long as anyone could remember, while the question was why the US had suddenly stopped producing top male tennis stars. Connors and McEnroe also could have played baseball or lacrosse or squash, but they chose tennis. What changed?

That is the problem with the "education causes inequality" claim as well. The income-enhancing effects of higher education have long existed. For more than the last generation, the share of Americans going to college has been essentially unchanged (which is its own scandal, as I mention in my new Verdict column). Yet the degree of income and wealth inequality in the U.S. has gone up dramatically since 1979, and even more dramatically since beginning of the Great Recession. Saying that "education makes you richer, so obviously there will be inequality" says nothing about the real question, which is: What has changed?

And we know what has changed. Unions have been successfully busted and marginalized (often with the enthusiastic support of "centrist" Democrats). Financial markets were turned loose (by the direct act of a New Democrat, Bill Clinton), allowing them to concentrate money in the hands of a few, while preying on the financially unsophisticated victims who believed the lies they were told. Taxes on the rich were slashed. Those things actually track the changes in income inequality. As I note in my new column, the vast majority of college-educated people were among the victims of this, not the winners.

The "education explains inequality" argument is, therefore, just another dodge, more noise for the echo chamber. Let us, therefore, return to the big-picture argument that the right is offering regarding college education. They say that college is a big waste, so real hard-working Americans should not be forced to pay taxes to support them. And if any individual person happens to think that college is worthwhile, then he is free to pay full freight on his own, with no government subsidies (to the colleges themselves, nor to the students through grants or loan programs). As Mitt Romney said, potential college students should not expect help from the government.

What are they really doing? Taking away support for education, which raises the net price for everyone. College is then priced out of range for all but those whose families can come up with the cash up front (or who have access to private loans under non-ruinous terms, which are only available to the most financially viable families, i.e., the upper and upper-middle classes).

Part of the reason to cut support for higher education is to be able to reduce the government's "domestic discretionary spending," which is the category of spending that is the central target of the current Republican Party. They then will use that spending reduction not to reduce the deficit but to cut taxes on the wealthy. Since the wealthy are already able to pay for their children's educations up front, this just makes it easier for the children of the wealthy to go to college. Less competition for slots, more money to pay tuition.

Welcome to the new college legacy program. The children of a tiny fraction of college graduates will be able to go to college. For the rest, they should have done a better job picking their parents.

4 comments:

Paul Scott said...

Even without Republican assistance, things are already very bad. We started 529's for our children as soon as we got SSNs (about 2 weeks after birth). Our financial planner said that a top-tier private university (we used Stanford and Cal Tech as our targets) was expected to run (including Room and Board) $125,000/year by the time our daughters reach college age. Our other targets (in-State top Universities UCB and UCLA) are expected to cost only slightly less at apx. $100,000/year.

This was shocking to me, and that was without including any effects from the Republican assault on education. If Mitt gets his way, in spite of our very early planning with generous 529s, we still may be shelling out more money when it comes time.

With college being a bare minimum education (in my mind, anyway), things are already well set up to keep the poor where they are (and the middle and upper-middle class where they are too, for that matter - or at least to make sure that hard work alone is insufficient to break out of whatever class you happen to have been born into).

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