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05/22/2005

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N.E.Hatfield

Do I detect a hint of a naturally occuring, but latent "eugenics" program at work in the modern economic order? If so, is it moving forward or in reverse? And that is about as close as I'mm going to get to the issue. This could be a real can of worms. ;)

jeem

My Social Darwinist detector is beeping too.

First of all, this issue is only partly about economics. It's more about the political and social influence of an hereditary aristocracy. These things are hard to quantify and their influences are no doubt nonlinear and thus imperfectly predictable (to an economist, that means they don't exist). Implicit in Posner's argument are two things: mean reversion in IQ takes several generations and therefore isn't important, and the super-rich are few in number and thus aren't important. In a linear world these are probably reasonable assumptions; in the real world they are not.

Most Americans would probably agree that hereditary dynasties are bad and that the fortunes of the rich and powerful should dissipate and dilute over the course of a few generations. By the time the genetic endowments revert to the mean, the fortune should have also. Room is made at the top for more newly rich people, and the dead wood is cleared out. This is not what happens to the super-rich. Bill Gates' heirs could remain wealthy for a century or more without lifting a finger if Daddy wills it. Maybe Bill won't, but others will.

This is not about getting a free Ivy League education, it's a matter of scale. Compound interest is scale invariant, but living expenses aren't. If I was born with a hundred million dollars, all I'd have to do is avoid making any dumb mistakes and make one smart decision sometime in the course of my life. One 20% gainer gives me a cool 20 million, which could pay my bills for my entire life. I could afford to hire the best experts to help me do even better. Only extreme stupidity could endanger my heirs' fortune passing into perpetuity.

This is unfair, but fairness isn't the issue. What matters is the way it distributes power and thus the incentives of others. Wealthy incompetents begin to believe they are different/better than others and lose touch with the rest of the population. They become arrogant and feel entitled to what they have and use their power to protect their position. Boardrooms and executive suites become populated with people who don't really belong there but were given positions because of who they are, rather than what they are. Hell, they might even become president and get us into a disastrous war, destroy the nation's finances, and turn the nation into a global pariah!

Reading this post, one thing rings loud and clear. Becker and Posner are rich, have mostly rich friends, and have been that way for some time.

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