The Growing Class Divide—Posner

Charles Murray’s recent book Coming Apart has gotten a lot of attention because of the data it presents concerning the growing social and economic gap between working-class and middle-class people (politicians call all nonwealthy Americans “middle class,” but that is because politicians in a democratic society need to flatter the masses in order to get elected). The incomes of working-class people have fallen, family stability and employment have declined, and the crime rate has risen, creating a very large gap in these respects between working class and middle class, especially upper middle class. As summarized by the Washington Post’s economic analyst Robert Samuelson, “Among those 30 to 49 in the blue-collar community, 84 percent were married in 1960 and only 48 percent in 2010. In 1962, 96 percent of children were living with both biological parents; by 2004, the proportion was 37 percent. Meanwhile, the share of households with someone working at least 40 hours a week dropped from 81 percent in 1960 to 60 percent in 2008.” The middle class and especially the upper middle class have escaped these trends. Murray’s book is not very analytical, however, and also (though this is a limitation more than a defect) contains no constructive proposals for narrowing the class divide—both points argued in a recent online review of the book by David Frum. As Becker points out, the proposals that Murray made in a March 7 New York Times piece are unhelpful.

A significant causal factor in the growing class divide reported in Murray’s book may be the increasing return to IQ. In a society in which most work is manual (for example, agricultural labor, construction of buildings and roads, mining, assembly-line manufacturing, old-fashioned soldiering, and craft work such as plumbing and carpentry), the demand for manual labor is great, and the return to personal qualities that enhance the productivity of a manual laborer, such as physical strength and tolerance for dirty or dangerous working conditions, is substantial and favors men, because they have superior aptitude for most manual labor. (Male upper-body strength in particular is substantially greater than female.) Women have the superior aptitude for household labor, including child care, and so do not compete with men in the labor market in an economy dominated by manual labor.

With technological advance, the market value of the traditional male labor assets—assets that are not correlated with IQ—declines, and men find themselves competing with women for service jobs, which grow relative to mining, manufacturing, and other heavy-duty traditionally male jobs. Hence working-class male incomes fall, and at the same time middle-class and especially upper middle-class incomes rise because the return to IQ rises with the increase not only in technologically complex jobs but also in managerial and other intellectually demanding service occupations. Society becomes more complex and increasing complexity increases the demand for IQ even if the complexity is not technological.

IQ is normally distributed, with a standard deviation of 15 from its arbitrarily scored mean of 100 (not a “score,” really, but just a round number to designate the mean). Hence two-thirds of the population has an IQ between 85 and 115. Persons with an IQ below 85 are pretty much limited to working-class jobs; but that is probably also true of a majority of persons with an IQ between 85 and 100—and persons with IQs below 100 comprise half the population. The percentage of the population with IQs between 70 and 130 (two standard deviations from the mean) is 95 percent, which means that only 2.5 percent have an IQ above 130. The increased return to IQ provides far more opportunities to that intellectual elite than in a society in which the overwhelming demand is for manual labor, and in which the demand for high-IQ persons is largely limited to priests and tyrants.

Of course there are people with modest IQs who are immensely successful, including professional athletes and entertainers (though only a small minority command high incomes in either group). There are even very successful businessmen who owe their success to charisma or even sheer luck rather than to a high IQ, and there are a fair number of dopes who are in the upper middle class by reason of inheritance. And there are high-IQ people who are held back by poor physical or mental health. All this is just to say that IQ is by no means a conprehensive index of personal success; it does not even measure all dimensions of intellectual prowess. There is certainly no one-to-one correlation between IQ and income or family stability or crime, but IQ is an important factor in success in these domains.

If this analysis is correct, then (it seems to me) an essential means of narrowing the class divide, if that is thought an important goal, is redistributive tax and spending policies (which are costly, hence not worth undertaking if narrowing the class divide is not deemed important). Improving our educational system, even if possible, which it doesn’t seem to be, wouldn’t do much, because education can’t do much to increase intelligence. Milton Friedman used to say that the problem of poor people is that they don’t have money, and he advocated a negative income tax (which we now have in the form of the Earned Income Tax Credit). Increasing the income of the depressed working class might go far to increase family stability in that class, lower the crime rate, and perhaps even increase employment, provided the redistribution was coupled with the creation of incentives for working.

Comments

[Mitchell K.]

"Of course there are people with modest IQs who are immensely successful, including professional athletes and entertainers."

You can add computer programmers, engineers, and scientists to that list (not to mention economists and constitutional law professors!). People who are recognized as smart and successful frequently do not possess the traits that one tends to associate with high IQ or native intelligence. Possessing high IQ helps, but an average or above average IQ is enough for people to succeed in a technical field when they possess the right work ethic and personality. Many people who are regarded as intelligent are people who have honed their mind through training and experience in spite of not possessing terrific mental aptitude.

Posner is correct to say that education "can't do much to increase intelligence" if by intelligence he means IQ, working memory, raw computing power, etc. But that kind of intelligence is not as crucial in attaining financial success as the kind of intelligence (knowledge and experience) that can be cultivated through learning and effort.

As the demand for technical skills grow, education and job training become even more important. Our education system could certainly be improved and dramatically so. For example, the American education system could be more like those of Europe and Japan. American students are occupied with a diverse curriculum that deprives them of specialization. Instead of preparing them for the future with mathematics, computer programming, and engineering skills starting in high school, our system system straddles technically-inclined students with multiculturalism in English literature classes, politically correct revisionism in U.S. history classes, and other job-creation programs for college graduates who might otherwise have difficulty achieving job security if not for the tenure system that public school teachers enjoy.

American companies in technical fields that employ skilled foreign labor do not lament the lack of intelligent job seekers in America but the fact that many Americans do not possess the right skills.

[RA]

"You can add computer programmers, engineers, and scientists to that list (not to mention economists and constitutional law professors!). People who are recognized as smart and successful frequently do not possess the traits that one tends to associate with high IQ or native intelligence. Possessing high IQ helps, but an average or above average IQ is enough for people to succeed in a technical field when they possess the right work ethic and personality. Many people who are regarded as intelligent are people who have honed their mind through training and experience in spite of not possessing terrific mental aptitude."

I think you exaggerate what work ethic can do. I doubt anyone with an average IQ can be a constitutional law professor. An average IQ gets you 145 on the LSAT. Even if you could up it by a standard deviation, you're not getting into anything but a Tier 4 school. And how many law professors come from tier 4 schools? None do, both because credentials matter and someone with an average IQ isn't going to be able to produce enough scholarly material.

I'm just using law as an example because it's what I know best. But my research tells me that this applies to other professions. Here's an important article on the topic.

http://www.dana.org/news/cerebrum/detail.aspx?id=3228

[Jim Houston]

The post was going well until you mentioned "the increasing return to IQ", and proceed to suggest that IQ is an innate trait that can be used to determine whether someone is only capable of "working class jobs" which applies to half the population. Recognizing some of the exceptions to application of IQ doesn't prevent the argument from going astray. Many of the complaints in the "Mismeasure of Man" by Steven Jay Gould still apply to the current use of IQ as a 'measure'. In a large population, it has some loose correlations to income (.5), job performance (.2 - .6), grades (.5), etc... But in overview, it is a poor measure for public policy purposes, is not likely a causative 'factor', and doesn't justify a conclusion that improving education "wouldn't do much".

As a interesting anecdote to the 'increased use of IQ' take a look at
http://books.google.com/ngrams/graph?content=IQ&year_start=1800&year_end=2000&corpus=0&smoothing=1
-- the incidence of the use of the term 'IQ' as sampled from 5 million books in the Google digital library. It has the same incidence today as it did in the 1930s, reaching a peak during the 1970's.

Intelligence is fluid and of many types. Deciding that a child should be tracked to 'manual labor' because of an early test score is in no way justified. What does it say that there has been a general rise in IQ scores of roughly 3 points per decade. Does it mean that we have all gotten smarter.. or that the test isn't very stable over time and has an inflationary element. What does it mean to have a score of 100 fifty years ago, and to have a current normalized 10-year old be staked with the same 100 score today (a 1962 equivalent of 82, borderline feeble). If you normalize the curve every year, you can't set policies for a population that will be consistent.

no single number should be used to plan a persons future as much as it may appeal to the numerically inclined.

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[RA]

"In a large population, it has some loose correlations to income (.5), job performance (.2 - .6), grades (.5), etc... But in overview, it is a poor measure for public policy purposes, is not likely a causative 'factor', and doesn't justify a conclusion that improving education "wouldn't do much"."

A correlation of .5 is huge in the social sciences. Can you point to anything that is a better predictor of job performance? Considering how relatively easy it is to measure IQ and the high correlation, it's hard to think of a more efficient sorting mechanism. The civil services should use IQ tests, as colleges already do.

"Intelligence is fluid and of many types. Deciding that a child should be tracked to 'manual labor' because of an early test score is in no way justified. What does it say that there has been a general rise in IQ scores of roughly 3 points per decade. Does it mean that we have all gotten smarter.. or that the test isn't very stable over time and has an inflationary element. What does it mean to have a score of 100 fifty years ago, and to have a current normalized 10-year old be staked with the same 100 score today (a 1962 equivalent of 82, borderline feeble). If you normalize the curve every year, you can't set policies for a population that will be consistent."

This is called the "Flynn Effect" and it stopped more than twenty years ago in developed countries. Just because people have gotten taller over the last century, does not mean that height doesn't exist or that it can be raised forever through environmental changes.

[Matt A.]

There is, of course, that kind of success you're talking about-- professional success-- that I.Q. does help with, but investing success has far more to do with temperament than intelligence. As Warren Buffett says, it's not a game in which the guy with a 160 I.Q. beats the guy with a 130 I.Q. You don't even need to be able to pick stocks, though that's not as hard as it looks; you just need to be able temperamentally to not get swept up in the flow of emotions of the crowd. And you need to be able to believe in your investments being the basis for your life's stability, so they're untouchable by you for lifestyle. I think the main income-affecting characteristic of poor people this way is impulsiveness, not brains.

[NEH]

Ahh... the infamous "Bell Curve" and IQ tests as the explanation of Socioeconomic phenomenon. IQ tests may be indicative of potential future Socioeconomic success as measured by "wealth", but it is not the prime causative fact of that success. There are many more factors at play.

One such factor can be the dissassociation of family and the Educational system. Any one remember the old PTA? Another factor can very well be the disassociation that has occured between Business, Industry, and Commerce and the Educational System. How many times have we heard the plaintive cry, "We can't seem to find skilled and qualified people we need to fill the positions we have"! Education does not exist in a vacuum and requires input from the groups that require an "educated" populous.

There are also other Socio-politico-economic factors that are being played out at present that also explains the widening income gap. Above and beyond "IQ". This analysis will require a much greater indepth study than time here will allow...

[Jimbino]

It never ceases to amaze me how little respect is given to intelligence. Regardless of how bright you are, those in positions of hiring consider age, years spent in drudgery, working well with others and passing a drug screen to be more important. But really, who wants to hire or even work alongside a person who's happily spent the last 15 years in a cubicle programming in C++?

If Leonardo da Vinci applied for a job to design a bridge over the Bosporus at advanced age, he'd be rejected for having spent most of his time lately doing paintings. Ditto for the Wright Brothers, who had no credentials or experience making airplanes, and for Edison, a mere telegraph tinkerer. Even Bill Gates, Michael Dell, Steve Jobs and Mark Zuckerberg were never qualified for a programming job by today's standards.

I wonder what the reasons are for this. Two that come to mind are that bright folks threaten not to fit into the corporate "culture" and might end up stirring the pot, and that the folks that do the interviews and hiring tend to come from the shallow end of the gene-pool themselves.

Professorships might even be worse. I imagine that Jesus, Gandhi, Martin Luther, and Socrates would be the very ones not to be hired or not to gain tenure. Of course, only Jesus, being Jewish, would have had a chance of being appointed to the RC-Jewish Supreme Court.

[Isomorphisms]

It never ceases to amaze me how much respect is given to intelligence. IQ is basically worthless, yet writers with very public voices never cease to praise how important it is. Just because Zuckerberg, Gates, and Griffin have high IQ's doesn't matter. Let's talk about other quantiles which someone has non-trivial odds of reaching. Let's talk about the income quantiles someone with a 140 IQ can range among.

Most importantly, let's distinguish cunning from book-learning. Unless we're talking about tippy-top scholars like you two, the rewards to book-learning (acquired today, not 50 years ago) are small.

As regards raising the incomes of the working class without creating a disincentive to work -- how about paying for more of their healthcare?

[Thomas Matia]

Posner's post has the trajectory of most well-intentioned (but poorly thought out) pieces that have anything to do with narrowing the divide between those with wealth and those without wealth. Specifically, it suffers from the dilemma facing most writers: in most written works dealing with society's woes a solution is not apparent, but the impulse to come up with a solution (however superficial) is irresistible to the author. So readers often find themselves immersed in an intelligent and artfully crafted essay that ends with the simplistic and trite solution of "just give the poor more money."

The Income Redistribution Solution is not always the best solution. It is not always the worst solution either, but it is always the easiest. Anyone who has paid any amount of attention to social issues in the past 30 years understands that simply giving money to some cause is rarely ever a final solution. Examples abound: healthcare spending, education, foreign aid, military spending... The list goes on.

So why would we assume that simply throwing money at the income gap would be a solution to the problem? More specifically, Murray makes it clear that elements like familial breakdown are significant contributors to economic inequality. Would a few thousands dollars more a year really encourage a deadbeat dad to stick around? Will children read more because their mothers have more disposable income? Will drug culture in the lower classes dissipate because someone has taken some of my money and redistributed it the economically disadvantaged, in the hopes that it will head off a life of drug dependency?

No one would make those arguments. Yet, this is exactly what redistribution implies. It seems far more likely that those who argue in favor of redistribution do so because they are intellectually lazy. It is the easy solution: just throw money at them.

[Allen P]

I have two questions about the growing divide. When I think about wealthy people increasing their wealth in the 50s and 60s, I don't see how they did it back then without multiplying working people in classes under them.

Today, wealthy people seem to be able to increase their wealth without multiplying the working class people under them. They could use robots, more sophisticated machines, the internet, or cheap foreign labor, none of which were available 50 years ago they way they are today. Don't these modern factors coming into play automatically lead to Wealthier people getting wealthier while leaving working class people behind?

As well, if millions of people in other countries like China are being lifted out of poverty because of globalization, does that mean the wealth divide is really shrinking, at least if you look at the wealth divide globally? If this is the case, is the American wealth divide caused by the shrinking global wealth divide?

[Jack]

NEH.... As usual good additions. I'm remembering going into the, then infant, IT biz, when there was not even recognition of its existence in most colleges.

Much as so many have self-taught themselves computers and internet-Iphone skills, back then we too were mostly self-taught with companies being desperate for folks knowing how to make the things work (HA! after IBM pre-sold them the idea they'd hire a few programmers and analysts for a year then fire half their accountants or other number crunchers being willing to train or at least give one the room to learn on some of their time.

Today? It seems the niches have become smaller and more specialized with Ha! more demand for a BA/BS with five years of "increasing responsibility in a fast paced, multi-tasking environment" for an entry level spot.

Some years ago, when I first came to Alaska I met a couple who were just building what become quite a successful janitorial biz. Why did they come to Alaska? He'd been a wing designer for Boeing, but in a severe cut back the demand for wing designers was gone from our entire economy. I suspect we suffer from an advanced case of that today as some wave creates a huge demand for "game designers" or some such and then just spits them out into a world of surplus game designers and with all the jobs just below, or off to the side having unemployment lines as well.

[Jack]

Thomas, You as most, speak of "income redistribution" as if it were something new to take from those having deservedly "earned it themselves".

Trouble is our recent (40 history) is one of UPWARDS redidistribtuion...... be it at the level of trying to get an honest hardworking CEO out of bed at today's 400 times the wages of those he'd "lead" when 40 years ago they were quite happy, hard-working, and seemingly more honest at 30 times working folk's pay, as they should have been as 30 times was higher than the wages of other CEO's the world around.

Volvo was one example, among many, where no one earned more than 10 times that of the least paid. After all Volvo's fine reputation was built not by one superstar but by a team paying attention to details and quality control.

You ask whether a few thousand is enough to make dysfunctional homes work? Had incomes remained in a similar distribution curve as that of 1970 most middle class homes would have $10,000 more with which to "go shopping" and which would mean $1500/year which would come close to making SS a viable program for a very long time.

Take a look at these two graphs:

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

At those lower 40% levels there is nothing with which to maintain a family. It would be a struggle to put food on a table with a roof over it with "H/C" being the hit and miss of those not totally on welfare but not "in the system" either.

Look at the slope of the 95% or even those lower. Even without an "upward mobility move" they can look forward to an annual incremental increase that is gone from the lower 40% many of whom have lost purchasing power if they were not able to get that next job.

The "throw money at" is a very tired and tiresome cliche meaning only that of clutching to an utterly unsustainable status quo with both hands lest one slip into the abyss below himself.

Likely one of the BEST moves possible for this nation, and perhaps it is being done, is that of creating a H/C system with NORMAL access for all and which both compresses costs and passes some of the costs upward to those of the top few percent who've been so well coddled over the last 25 years.

[Jack]

It's good that old Miltie understood the problem of the poor is that of not having enough money... cute in an almost Gingrich like manner. but let's hope that both he and Posner understand that those hulking, muscle bound relics of another era also require food, housing, and medical care and that the "negative income" of the EITC is but a token.

Ha! Posner almost makes the case for those adept at manual labor rising up and enslaving the "high IQ" set before they were enslaved by them.

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[Jack]

Imprisoning a whole LOT of Wall Street thieves and schuck and jive artists who sold "prime paper" out of one drive up window while shorting the very same toxic crap out the other window would do a lot, at least for the morale of those who work to scrape out a living and pay taxes off the somewhat progressive tax tables used by those not privvy to having their gleanings taxed at the very favorable, Romney Rate of 13%.

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[Stan]

During the 50's and 60's strong private sector unions, which Richard Posner despises, provided a countervailing force to the power of corporate management. The unions insured that a sizable chunk of corporate profits went to low paid workers and that laws benefiting low and median income earners, Medicare for example, were passed by Congress and implemented by the executive branch. This led to a society in which parents could afford a decent life for themselves and their families and could expect their children to do even better. A society like this is one in which family structure flourishes.

At some point in the late 60's and 70's, companies started pushing back through the use of aggressive anti-union policies in the workplace and by inducing state legislatures to pass so-called right to work legislation. Coupled with technological innovations that allowed much of our manufacturing to be transferred to low wage countries, we got a wholly predictable result, the return of a new gilded age.

I'm among the winners in our new two-class society, but I don't like it. And I find it hard to believe that a man as intelligent as Richard Posner could believe that the demoralization of our working class and the aggrandizement of the upper 1% is simply a matter of IQ and individual merit.

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[CoonAndFriends]

Employers don't really ask you about your IQ, they would rather see a college degree or another document that certifies that you possess a skill that they value. It doesn't take more than an average IQ to get one. In that sense, expanding access to quality higher education is vital to reduce the class divide.

Even if - for the sake of argument - we concede that the educational system cannot be "improved" (I assume Posner is referring to the quality of education, otherwise the claim is ridiculous), the fact that employers hire based on credentials rather than IQ should be enough to make education spending a priority. Just filling the poor's pockets with money is neither sustainable nor effective for the purpose of reducing income inequality.

The way I see it, the problem with the lower class in developed countries has more to do with globalization and technological change than with the wealth distribution scheme. People on the right have argued that the more the rich keep from their gross income, the more incentives they have to hire and pay better wages, thus generating a win-win situation. People on the left seem to think that giving the poor more money will automatically reduce the class divide. I think they are both focusing on the wrong thing.

The reason why the poor stay poor is because they lack access to the entitlements that will get them out of poverty, namely a good education and a healthy social environment. The main obstacle to a good education seems to be the performance of low-income students in standardized tests and the lack of resources to pay for higher education, both of which require government spending to remedy. One obstacle to a better social environment seems to be the unsuccessful and counter-productive war on drugs, though there are others which are unfortunately difficult to solve through government action.

So long as corporations have a strong incentive to invest and hire low-qualified labor abroad, changes in tax policy (either in favor of the rich or the poor) are unlikely to make a significant difference to income inequality - though a tax increase for the rich would be convenient to tackle the deficit problem. This will keep on going until developing countries catch up, which will take many decades.

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[Divorce Lawyers]

"the infamous "Bell Curve" and IQ tests as the explanation of Socioeconomic phenomenon. IQ tests may be indicative of potential future Socioeconomic success as measured by "wealth", but it is not the prime causative fact of that success. There are many more factors at play."

Agreed.

[Jack]

CoonAndFriends: As we see with "selective media" some about bound to "see" what they want to see.

While we'd surely benefit with more, sharp, college grads (not drones of "average" or less ability going through the motions only to later be a drag on the enterprise they got into by the means you depict) truth is with the current mix of jobs we can likely do OK with the 25% or approaching 30% who graduate these days.

Look around at the job mix: For example housing that has been such a job generator..... I'd bet that from landscaper to builder and even much of the ancillary "financial sector" jobs that the percentage of college grads are a very low percentage. That's not to say there are not crafts that take a long time to master but it's not college that is required.

Come to think of it have any of the economists and academics prattling about EDUCATION done any objective studies to determine the optimum number of college grads? (In commercial terms? For citizenship, I'd hope that most had a couple years of liberal arts, basic law, history and government.)

[NEH]

Divorce Lawyers, As they say, "Love is Blind" and in lot of cases a form of "Madness" that overwhelms any rational thought and can only be "exorcised" by the Courts at great expense to either or both parties... :)