Head Start for Rich Kids

In episode 205 of the Making Sense podcast, Sam Harris spoke with Daniel Markovits about problems with meritocracy. Markovits is a Professor of Law at Yale Law School. It was an especially engaging and challenging episode that provided many statistics that I hadn't before heard or appreciated. Here's an excerpt I transcribed:

Daniel Markovits: A poor district in America spends maybe eight to $10,000 per pupil per year. Middle Class public schools spends maybe 12,000 to $15,000 per pupil per year, a really rich public school in a town like Scarsdale, New York, where the median household income is over $200,000 a year, spends about $30,000 per pupil per year. And the richest and fanciest private schools in America 80%, of whose kids come from households that make over $200,000 a year, spend maybe $75,000 per pupil per year. So that there's massive inequality in educational investment. This means that if you look at a place like Yale, where I teach, or Harvard or Princeton, or Stanford, there are more kids in those universities whose parents are in the top 1% of the income distribution than in the entire bottom half.

And if you took the difference between what's invested in a typical middle-class kids' education, and what's invested in a typical one-percenter kids’ education, and took that difference every year and put it into the S&P 500, to give it to the rich kid as an inheritance when her parents died--because that's the way aristocrats used to transmit privilege down through the generations--that sum would exceed $10 million per child. So why am I saying this? I'm saying this, because it gives you a sense for the enormity of the educational inequality that exists in our society, between not just or even primarily the middle class and the poor, but between the rich and the middle class. And then if you look at the jobs that pay the most money, at elite law firms, at elite investment banks, elite management jobs, to graduates of elite business schools, all these jobs, specialists, medical doctors, all these jobs, almost require people who do them to have gone through some version of this fancy education.

Sam Harris: So what we have is a system of stratification and exclusion that runs through the central elite institutions of school and work in our society, in which those institutions exclude middle and working class families and children, not excluding them by any intent, but by surely the contingent fact of what it takes to jump through all the hoops you need to jump through to land in Yale or Princeton, or Stanford or Harvard.

Daniel Markovits: Exactly. Stanford admits fewer than 5% of its applicants. That means that if you're applying to college and anything serious ever went wrong in your childhood, you know, parents lost jobs, you had to move all of a sudden, somebody died, and you had to pick up some burden to earn some income for the family, you're not going to have a record that puts you in the top 5% of the already elite pool that tries to apply. . . . There are exceptional people, there are exceptional people always. But unless you're incredibly exceptional, you won't be able to get ahead if you don't have a lot of privilege behind you. And then this privileged class . . . asserts that they've earned their advantage and that they have got there on the merits and that those who are disadvantaged deserve to be disadvantaged because they're not as hard working. They're not as skilled. They're not as virtuous and now those who are excluded get appropriately angry and resentful and turn against the institutions, the schools, the professional companies, the forms of expertise, that people on the outside correctly think are underwriting their disadvantage and exclusion.

And a populist like Trump exploits that resentment. And a lot of people on the left think, "How can class resentment go with Trump rather than against him, given that he was born to a massive inheritance?" And the answer is, yeah, he inherited a lot of money. But he is not part of this system of training, education and professional certification that people correctly see as the principal source of their exclusion. It's not his inheritance that's maybe unjust, maybe not unjust--we can disagree about it--but it's on the margins of our society. Whereas all the doctors and lawyers and bankers and CEOs and elite managers who are training their kids like nobody else can and getting them into the best schools and buying houses in the best neighborhoods and getting them into the best colleges. That's the system that is keeping most Americans down. And so the populist resentment turns against it, in some sense accurately.

Sam Harris: So what is the alternative to meritocracy?

Daniel Markovits: Well, it can't be aristocracy or a caste system based on breeding or on race or on gender. That's, I think, important to say out up front, this you know, if this is a going concern as a social and political project, it can't be backward looking. It has to be forward looking.

Continue ReadingHead Start for Rich Kids

About Rent-Seeking

Until a few years ago, I hadn't heard the term "rent seeking." In the past few months, I've heard the term repeatedly and I'm writing this post to anchor this important multifaceted concept in my understanding and to share it with interested others.

I knew concept of "rent seeking" long before I learned the phrase. I've repeatedly had this fantasy where every person who earns a wage needs to step up to onto a big stage in front of the other 300,000,000+ Americans and tell us these three things in simple language:

1) What is your job title?

2) How much do you make?

3) Justify your wage in terms of what you do for your job. In other words, how does your work make your community a better place?

I imagine that many essential workers would come out of this process as shining heroes. A person who works for $15/hour at a typical grocery store could succinctly state "I help keep my fellow citizens alive by making food available for them.

On the other end of the scale, a big shot at Goldman Sachs. A 2019 article at Investopedia indicates: "The average Goldman Sachs employee makes $367,564 on an annual basis, according to the firm’s most recent financial disclosures." Bonuses exceed $40,000. What does this company do to improve the community? Good question. I look forward to hearing how this sort of money is justified in terms of community betterment.

I have sketched out these two examples in order to introduce the concept of "rent seeking." The following is from Investopedia: 

    1. Rent seeking is an economic concept occurring when an entity seeks to gain wealth without reciprocal contribution of productivity.
    2. The term rent in rent seeking is based on an economic rent which was defined by economist Adam Smith to mean payments made in excess of resource costs.
    3. An example of rent seeking is when a company lobbies the government for grants, subsidies, or tariff protection.

Here's another definition, this one from The Library of Economics and Liberty:

People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors. Elderly people, for example, often seek higher Social Securitypayments; steel producers often seek restrictions on imports of steel; and licensed electricians and doctors often lobby to keep regulations in place that restrict competition from unlicensed electricians or doctors.

Here's a third definition from CFI:

Rent-seeking is a concept in economics that states that an individual or an entity seeks to increase their own wealth without creating any benefits or wealth to the society.

Rent-seeking activities aim to obtain financial gains and benefits through the manipulation of the distribution of economic resources. Economists view such activities as detrimental to the economy and the society. The practice reduces economic efficiency through the inefficient allocation of resources. In addition, it commonly leads to other damaging consequences, including a rise in income inequality, lost government revenues, and a decrease in competition.

The concept of rent-seeking was developed by American economist Gordon Tullock in 1967. However, the term was offered by another economist, Anne Krueger. . . [T]he term “rent” is referred to as one of the sources of income generation that was conceptualized by Adam Smith. According to Smith, rent is an activity of lending one’s own resources in exchange for some benefits. Relative to other sources of income (profit, wages), rent is the least risky and the least labor-demanding source of income.

The corruption of politicians is related to rent-seeking activities. In order to gain certain benefits, the rent-seekers may bribe politicians. However, G. Tullock determined that there is a significant difference between the cost of the rent-seeking (bribery) and the gains from this practice. This paradox is called the Tullock Paradox.  The Tullock Paradox states that rent-seekers generally obtain large financial and economic gains at an enormously small cost.

With these definitions in place, I'd like to share an excerpt Episode 205 of the Making Sense Podcast, "The Failure of Meritocracy," in which Sam Harris interviews Yale Law Professor Daniel Markovits. It is a thoroughly engaging podcast, repeatedly touching on critically important economic issues we are facing. I'll end with this discussion of rent seeking (though that term is not used).  The speaker is Daniel Markovits:

[Re Silicon Valley and Finance] you see certain forms of seemingly rapid technological advancement. But these are not places that necessarily produce an enormous amount of increased social well-being or growth. And so what we need is a careful, deliberate eye to what kinds of skills our society needs. Let me give some examples of this idea to answer your question starting with ones that I think are easy for me and ending at ones that are hardest for me, just to be fair.

So the easy ones are fields like law and finance. We've had enormous innovation in law and finance, set asides, Silicon Valley, derivative securitization. But there is no--literally--no evidence that our super-skilled, super-elite financial sector produces any increase in economic productivity or well-being for the society. It's interesting, people don't realize that from 1950 to 1970, finance was neither better paid nor better educated than the rest of the economy. Whereas today, it sucks up the most educated people in the society and pays them vast amounts. Law is the same.

If you look at other countries’ legal systems, a system like Germany has much less elite or competitive legal education and loitering, but produces more effective justice at a lower cost. So there are some fields where what we're doing is we're creating intense training, genuine expertise, enormous innovation, but the innovation is just producing greater private wealth for the people who have the skills rather than a greater social product. I think that's true in management also, and we could talk about it.

But the hardest case for me is a case like medicine, because surely medical innovations produced by super trained, super creative people, cure diseases make us all better off. And of course they do. But even there, our system of meritocratic, hierarchical exclusive training leaves a lot of social good on the table. So take heart health as an example. Very well trained, very brilliant doctors and scientists have figured out how to transplant hearts, how to build an artificial heart. But here's some things we don't know about heart health. We don't know whether it's better for your heart over the long run, to exercise really intensively for one hour once a week, moderately for half an hour, three times a week, or just always to walk into take the stairs. We don't know the answer to that question. If we did know the answer that question and if we knew how to train people to do whatever is optimal, that would be a lot better for our population's heart health than the ability to transplant hearts for the very small number of people who get access to the heart and the surgeon.

Continue ReadingAbout Rent-Seeking

We Love it That Two (Count’em) Two Cartoon Dimensions Pretend to Describe Complex Political, Racial and Economic Systems

When you last purchased a car or a phone, it was probably an important purchase for you, so you considered many aspects of the product, including cost, function, aesthetics, performance and many other things. When we deal with complex things, we are rightfully motivated to carefully consider many such dimensions. Most of us dig deep into these many factors before making such purchases. The same thing occurs when considering a long-term romantic partner. Most of us will consider dozens of factors before settling into such a relationship. In fact, if we failed to do such a careful analysis, our friends and family would consider us to be reckless. Complex issues demand complex and nuanced analyses.

We don’t use this same degree of care when it comes to evaluating the types of politics. Instead, we jam all the possibilities onto a one-dimension line containing endpoints of “left” and “right.” We do this despite the fact that people are complex and they fall into many dimensions of political attitudes. If you were to gather 100 random self-declared “Conservatives” into one room (or 100 “Liberals” or 100 “Libertarians”), you will have a rich diversity of thought, and you’d starkly see this, if only you take the time to get to know these people. For some reason, however, we are willing posit a simplistic binary single-line political analysis, despite the rich multi-dimensional complexity of political thought in the U.S. This lazy shortcut invites us to talk in cartoons. It invites us to talk about “those Conservatives” or “those Liberals” with hubris.

David Nolan is one of the many people who sensed a big problem with this left-right way of thinking. He offered a two-dimension chart that capture much more complexity: https://en.wikipedia.org/wiki/Nolan_Chart Many others have offered more nuanced (and I would argue, more accurate) ways to characterize political outlooks of our 300+ citizens, but the traditional and highly inaccurate one-dimensional (Left-Right) still dominates the political and journalistic landscape. We seem to prefer simplistic over accurate.

We’ve got the same problem with many other categorizations we blithely make. I resist categorizing people in terms of “race,” because long experience has proven to me that the way a person looks has very little to do with who they are. Using immutable physical traits as a proxy for one’s a stereotyped content of character often wildly inaccurate. When I evaluate a person for character, I consider many factors, dozens of dimensions, such as the “Big Five”:

• openness to experience (inventive/curious vs. consistent/cautious) • conscientiousness (efficient/organized vs. extravagant/careless) • extraversion (outgoing/energetic vs. solitary/reserved) • agreeableness (friendly/compassionate vs. challenging/callous) • neuroticism (sensitive/nervous vs. resilient/confident)

I consider manny other dimensions, including creativity, credibility, grit, acts of altruism, credibility and intelligence, and intelligence can be broken into many sub-categories. For instance, Psychologist Howard Gardner argues that there are multiple types of intelligence, such as:

  • Musical-rhythmic and harmonic
  • Visual-spatial
  • Verbal-linguistic
  • Logical-mathematical
  • Bodily-kinesthetic
  • Interpersonal
  • Intrapersonal
  • Naturalistic
  • Existential

Gardner’s declaration that these are separate intelligences is controversy in psychological circles. That said, these traits that he describes are some of the things I consider when evaluating another person, regardless of any “race.”

There are dozens of other dimensions I might use when evaluating any other person, but many people are willing to divide other people into “white” and “Black,” as though this is a meaningful way to evaluate another person. Making these “racial” distinctions is as absurd as embracing astrology--using a person’s birthdate as a proxy that persons personal character. To me, it seems bizarre and absurd to divide people into colors. That said, I live in a country where far too many people are enthusiastically willing to judge each other on this single simplistic dimension of “white” verses “Black,” despite the fact that this binary is an even cruder measure than the American political spectrum because it’s not a spectrum at all. It is a switch that is flipped from “white” to “Black,” with nothing in between, even though millions of “inter-racial” people exist. What a bizarre stilted binary, on so many levels! How is it possible that this racialized way of dividing people has any intellectual or political traction in modern times?

Here’s another popular binary: socialism versus capitalism. Many people are content to jam complex economies into one of these two boxes despite the overwhelming complexities and nuances of all existing economies. As though libraries are not filled to the brim discussions of the complexities of every economic system, where not a single real life system is declared to be purely socialist or purely capitalist.

I’ve been thinking about these false and limited ways of thinking for a long time. I was reminded of this issue when listening to The Portal, Eric Weinstein’s excellent podcast on Schrodinger’s Cat and the false-binary ways the many people find acceptable for discussing numerous social issues.

Why are we so willing to self-limit the way we think about obviously complex issues? Is it laziness? Gullibility? Social Pressure? We urgently need to reconsider our willingness of categorizing these complex issues, because our one-dimension cartoons are poisoning our ability to talk with one another.  This cartoon-talk is destroying our democracy.

Our willingness to think in terms of these cartoons would seem like an obvious problem for anyone willing to stop and think for even a few minutes, but many of us continue to embrace these cartoonish ways of thinking unabated, perhaps following the lead of our news media, social media and politicians. How can we convince people to stop and smell the nuance? How does one effectively declare that The Emperor has no Clothes in such an intransigent social environment?

Continue ReadingWe Love it That Two (Count’em) Two Cartoon Dimensions Pretend to Describe Complex Political, Racial and Economic Systems

You Built Some of That

"You didn't build that" is a phrase Barack Obama uttered during the 2012 election campaign. It was then used by his political opponents during the 2012 presidential campaign as an attack by Obama upon entrepreneurs.

It's time to revisit Obama's idea. Did they actually build all of that business? Enter A.J. Jacobs, who decided to thank every person responsible for his morning cup of coffee. This project led to him reaching out to more than 1,000 people, far more than the woman who poured his cup of coffee and far more than the man who delivered the coffee beans to the coffee shop. Jacobs has created an upbeat reminder that the world is intricately inter-connected. We all depend upon each other to a mind-blowing degree. Yes, you built that business, but who "built" you and who are all the people you lean upon to keep your business going? Start counting.

Continue ReadingYou Built Some of That

Senator Ted Cruz Invites Eric Weinstein to Diagnose the United States

It is critically important for you to watch this one-hour video, "The Verdict," Hosted by Senator Ted Cruz. If you are thinking "Why the fuck would I want to see any show hosted by Ted Cruz, you are a big part of the problem, because on this show (released July 23) Cruz has reached far from his comfort zone, inviting Eric Weinstein as a guest. If you are worried about the future of the United States, I guarantee that you have an hour for this.

I follow Eric Weinstein on Twitter and on the "Dark Web" because he is consistently brilliant. I found this video on Weinstein's Twitter feed. I didn't quite know what to expect if you put Eric in the same room as Ted Cruz, but it was riveting, and I respect Cruz for giving Weinstein lots of space to present ideas that are highly critical of both the left and the right. The resulting conversation was not out of any typical political playbook and it offers promising new ways to conceptualize intransigent national conundrums.

Topics included the abject failure of both political parties. The rise of the Maoists on the Left. The fact that the moderates of the two dominant parties need to jettison their extremes and come together. "WTF happened in 1971?" The fact that "rent-seeking" (the practice by which the source of one's wealth is non-productive) has destroyed national growth; the resulting economic stress is exposing social pathogens that have always been around, but they are now more visible. The modern media as Shakespeare's character of Iago, poisoning our national dialogue at every turn. "Russell Conjugations" (referencing Bertrand Russell). Our failure to practice "Critical Feelings" (as opposed to critical thinking) ("Most of our feelings are not OUR feelings, but feelings that we inherit through daily programming, convincing us that those people that think differently than us are evil." The failures of universities. The lies about immigration that are a cover-up to a scheme to exchange citizenship for free university labor. That a successful national response to COVID-19 should have been a "layup," and what this failure says about us (our entire leadership class of both parties is "unworkable").

[Ted Cruz]: How do we get from Othello to midsummer night's dream?

[Eric Weinstein]:

The key issue is that we have to start talking about our own failures. What I hope you've heard is that I'm willing to call out the Left, the right, and the libertarian. The libertarian problem is that it doesn't work to pretend that we're all atomistic. We see that with respect to contagion and masks and the like. Arnold Kling has this beautiful description. He says that you have three Groups: progressives conservatives and Libertarians. Libertarians are animated principally by hating coercion, progressives are animated principally by hating oppression, and conservatives are principally animated by needless loss of hard-won traditions and gains over past generations. The answer is that any sensible person should want to make sure that they're optimizing among the three, and not to become part of a simplistic situation whereby they so hate coercion or so hate oppression that they lose sight of the entire picture and therefore lose the plot of the American Project.

Continue ReadingSenator Ted Cruz Invites Eric Weinstein to Diagnose the United States