In Favor of Real Meritocracy

The meritocracy has come in for a lot of criticism recently, basically in the form of two arguments. 

There’s a book by Daniel Markovits called The Meritocracy Trap that basically argues that meritocracy makes everyone miserable and unequal by creating this horrific grind to get into the most elite colleges and then, after you get your elite degree, to grind away working 60 – 100 hours to maintain your position at the top of the corporate hierarchy. 

There was also a very interesting column by Ross Douthat that makes a separate but related point. According to Douthat, the WASP-y elite that dominated American society up until the early 20th century decided to “dissolve their own aristocracy” in favor of a meritocracy, but the meritocracy didn’t work out as planned because it sucks talent away from small locales (killing off the diverse regional cultures that we used to have) and because:

the meritocratic elite inevitably tends back toward aristocracy, because any definition of “merit” you choose will be easier for the children of these self-segregated meritocrats to achieve.

What Markovits and Douthat both admit without really admitting it is one simple fact: the meritocracy isn’t meritocratic.

Just to be clear, I’ll adopt Wikipedia’s definition of a meritocracy for this post:

Meritocracy is a political system in which economic goods and/or political power are vested in individual people on the basis of talent, effort, and achievement, rather than wealth or social class. Advancement in such a system is based on performance, as measured through examination or demonstrated achievement.

When people talk about meritocracy today, they’re almost always referring to the Ivy League and then–working forward and backward–to the kinds of feeder schools and programs that prepare kids to make it into the Ivy League and the types of high-powered jobs (and the culture surrounding them) that Ivy League students go onto after they graduate. 

My basic point is a pretty simple one: there’s nothing meritocratic about the Ivy League. The old WASP-y elite did not, as Douthat put it, “dissolve”. It just went into hiding. Americans like to pretend that we’re a classless society, but it’s a fiction. We do have class. And the nexus for class in the United States is the Ivy League. 

If Ivy League admission were really meritocratic, it would be based as much as possible on objective admission criteria. This is hard to do, because even when you pick something that is in a sense objective–like SAT scores–you can’t overcome the fact that wealthy parents can and will hire tutors to train their kids to artificially inflate their scores relative to the scores an equally bright, hard-working lower-class student can attain without all expensive tutoring and practice tests. 

Still, that’s nothing compared to the way that everything else that goes into college admissions–especially the litany of awards, clubs, and activities–tilts the game in favor of kids with parents who (1) know the unspoken rules of the game and (2) have cash to burn playing it. An expression I’ve heard before is that the Ivy League is basically privilege laundering racket. It has a facade of being meritocratic, but the game is rigged so that all it really does is perpetuate social class. “Legacy” admissions are just the tip of the iceberg in that regard.

What’s even more outrageous than the fiction of meritocratic admission to the Ivy League (or other elite, private schools) is the equally absurd fiction that students with Ivy League degrees have learned some objectively quantifiable skillset that students from, say, state schools have not. There’s no evidence for this. 

So students from outside the social elite face double discrimination: first, because they don’t have an equal chance to get into the Ivy Leagues and second, because then they can’t compete with Ivy League graduates on the job market. It doesn’t matter how hard you work or how much you learn, your Statue U degree is never going to stand out on a resume the way Harvard or Yale does.

There’s nothing meritocratic about that. And that’s the point. The Ivy League-based meritocracy is a lie.

So I empathize with criticisms of American meritocracy, but it’s not actually a meritocracy they’re criticizing. It’s a sham meritocracy that is, in fact, just a covert class system. 

The problem is that if we blame the meritocracy and seek to circumvent it, we’re actually going to make things worse. I saw a WaPo headline that said “No one likes the SAT. It’s still the fairest thing about admissions.” And that’s basically what I’m saying: “objective” scores can be gamed, but not nearly as much as the qualitative stuff. If you got rid of the SAT on college admissions you would make it less meritocratic and also less fair. At least with the SAT someone from outside the elite social classes has a chance to compete. Without that? Forget it.

Ideally, we should work to make our system a little more meritocratic by downplaying prestige signals like Ivy League degrees and emphasizing objective measurements more. But we’re never going to eradicate class entirely, and we shouldn’t go to radical measures to attempt it. Pretty soon, the medicine ends up worse than the disease if we go that route. That’s why you end up with absurd, totalitarian arguments that parents shouldn’t read to their children and that having an intact, loving, biological family is cheating. That way lies madness.

We should also stop pretending that our society is fully meritocratic. It’s not. And the denial is perverse. This is where Douthat was right on target:

[E]ven as it restratifies society, the meritocratic order also insists that everything its high-achievers have is justly earned… This spirit discourages inherited responsibility and cultural stewardship; it brushes away the disciplines of duty; it makes the past seem irrelevant, because everyone is supposed to come from the same nowhere and rule based on technique alone. As a consequence, meritocrats are often educated to be bad leaders, and bad people…

Like Douthat, I’m not calling for a return to WASP-y domination. (Also like Douthat, I’d be excluded from that club.) A diverse elite is better than a monocultural elite. But there’s one vital thing that the WASPy elite had going for it that any elite (and there’s always an elite) should reclaim:

the WASPs had at least one clear advantage over their presently-floundering successors: They knew who and what they were.

What Anti-Poverty Programs Actually Reduce Poverty?

According to the Tax Policy Center,

The earned income tax credit (EITC) provides substantial support to low- and moderate-income working parents, but very little support to workers without qualifying children (often called childless workers). Workers receive a credit equal to a percentage of their earnings up to a maximum credit. Both the credit rate and the maximum credit vary by family size, with larger credits available to families with more children. After the credit reaches its maximum, it remains flat until earnings reach the phaseout point. Thereafter, it declines with each additional dollar of income until no credit is available (figure 1).

By design, the EITC only benefits working families. Families with children receive a much larger credit than workers without qualifying children. (A qualifying child must meet requirements based on relationship, age, residency, and tax filing status.) In 2018, the maximum credit for families with one child is $3,461, while the maximum credit for families with three or more children is $6,431.

…Research shows that the EITC encourages single people and primary earners in married couples to work (Dickert, Houser, and Sholz 1995; Eissa and Liebman 1996; Meyer and Rosenbaum 2000, 2001). The credit, however, appears to have little effect on the number of hours they work once employed. Although the EITC phaseout could cause people to reduce their hours (because credits are lost for each additional dollar of eanings, which is effectively a surtax on earnings in the phaseout range), there is little empirical evidence of this happening (Meyer 2002).

The one group of people that may reduce hours of work in response to the EITC incentives is lower-earning spouses in a married couple (Eissa and Hoynes 2006). On balance, though, the increase in work resulting from the EITC dwarfs the decline in participation among second earners in married couples.

If the EITC were treated like earnings, it would have been the single most effective antipoverty program for working-age people, lifting about 5.8 million people out of poverty, including 3 million children (CBPP 2018).

The EITC is concentrated among the lowest earners, with almost all of the credit going to households in the bottom three quintiles of the income distribution (figure 2). (Each quinitle contains 20 percent of the population, ranked by household income.) Very few households in the fourth quinitle receive an EITC (fewer than 0.5 percent).

Recent evidence supports this view of the EITC. From a brand new article in Contemporary Economic Policy:

First, the evidence suggests that longer-run effects[1]”Our working definition of “longer run” in this study is 10 years” (pg. 2).[/ref] of the EITC are to increase employment and to reduce poverty and public assistance, as long as we rely on national as well as state variation in EITC policy. Second, tighter welfare time limits also appear to reduce poverty and public assistance in the longer run. We also find some evidence that higher minimum wages, in the longer run, may lead to declines in poverty and the share of families on public assistance, whereas higher welfare benefits appear to have adverse longer-run effects, although the evidence on minimum wages and welfare benefits—and especially the evidence on minimum wages—is not robust to using only more recent data, nor to other changes. In our view, the most robust relationships we find are consistent with the EITC having beneficial longer-run impacts in terms of reducing poverty and public assistance, whereas there is essentially no evidence that more generous welfare delivers such longer-run benefits, and some evidence that more generous welfare has adverse longer-run effects on poverty and reliance on public assistance—especially with regard to time limits (pg. 21).

Let’s stick with programs that work.

Do Tariffs Cancel Out the Benefits of Deregulation?

In June, the Council of Economic Advisers released a report on the economic effects of the Trump administration’s deregulation. They estimate “that after 5 to 10 years, this new approach to Federal regulation will have raised real incomes by $3,100 per household per year. Twenty notable Federal deregulatory actions alone will be saving American consumers and businesses about $220 billion per year after they go into full effect. They will increase real (after-inflation) incomes by about 1.3 percent” (pg. 1).

David Henderson (former senior economist in Reagan’s Council of Economic Advisers) writes, “Do the authors make a good case for their estimate? Yes…I wonder, though, what the numbers would look like if they included the negative effects on real income of increased restrictions on immigration and increased restrictions on trade with Iran. (I’m putting aside increased tariffs, which also hurt real U.S. income, because tariffs are generally categorized as taxes, not regulation.)”

But what if we did include the tariffs? A recent policy brief suggests that the current savings from deregulation will actually be cancelled out by the new tariffs. As the table shows below, the savings due to deregulation stack up to $46.5 billion as of June. However, the tariffs imposed between January 2017 and June 2019 rack up to a dead loss of $13.6 billion. By the end of 2019, however, the dead loss will rack up another $32.1 billion. If the currently planned tariffs are put into effect on top of the already existing ones, then we’re looking at a dead loss of up to $121.1 billion.

Maybe if economists start putting clap emojis in their work, people will finally get that tariffs aren’t good for the economy.

Demographics & Inequality: 2018 Edition

Every year, economist Mark Perry draws on Census Bureau reports to paint of picture of the demographics of inequality. Looking at 2018 data, he constructed the following table:

Once again, he concludes,

Household demographics, including the average number of earners per household and the marital status, age, and education of householders are all very highly correlated with American’s household income. Specifically, high-income households have a greater average number of income-earners than households in lower-income quintiles, and individuals in high-income households are far more likely than individuals in low-income households to be well-educated, married, working full-time, and in their prime earning years. In contrast, individuals in lower-income households are far more likely than their counterparts in higher-income households to be less-educated, working part-time, either very young (under 35 years) or very old (over 65 years), and living in single-parent or single households.

The good news about the Census Bureau is that the key demographic factors that explain differences in household income are not fixed over our lifetimes and are largely under our control (e.g., staying in school and graduating, getting and staying married, working full-time, etc.), which means that individuals and households are not destined to remain in a single income quintile forever. Fortunately, studies that track people over time find evidence of significant income mobility in America such that individuals and households move up and down the income quintiles over their lifetimes, as the key demographic variables highlighted above change, see related CD posts herehere and here. Those links highlight the research of social scientists Thomas Hirschl (Cornell) and Mark Rank (Washington University) showing that as a result of dynamic income mobility nearly 70% of Americans will be in the top income quintile for at least one year while almost one-third will be in the top quintile for ten years or more (see chart below).

What’s more, Perry points out elsewhere that the new data demonstrate that the middle class is shrinking…along with the lower class. Meanwhile, the percentage of high-income households has more than tripled since 1967:

In short, the percentage of middle and lower-income households has declined because they’ve been moving up.

The Paradox of Trade Liberalization

From a brand new study in the Journal of International Economics:

Using household survey data for 54 low and middle income countries harmonized with trade and tariff data, this paper offers a quantitative assessment of the income gains and inequality costs of trade liberalization and the potential trade-off between them.

A stylized yet comprehensive model that allows for a rich range of first-order effects on household consumption and income is used to quantify welfare gains or losses for households in different parts of the expenditure distribution. These welfare impacts are subsequently explored by deploying the Atkinson social welfare function that allows us to decompose inequality adjusted gains into aggregate gains and equality (distributional) gains.

Liberalization is estimated to lead to income gains in 45 countries in our study, and to income losses in 9 countries. The developing world as a whole would enjoy gains of about 1.9% of real household expenditures, on average. These income gains are negatively correlated with equality gains, such that liberalization typically entails a trade-off between average incomes and income inequality. In fact, such trade-offs arise in 45 out of 54 countries, and are primarily the result of trade exacerbating income inequality. By contrast, consumption gains tend to be more evenly spread across households.

While trade-offs are prevalent, our findings also suggest that liberalization would be welfare enhancing in the vast majority of countries in our study: in a large part of the developing world, the current structure of tariff protection is inducing sizable welfare losses. Explaining what drives these patterns is beyond the scope of this paper but an interesting avenue for future research (pg. 16).

I’m sure this offers a bit of a conundrum for those who have conflated concerns over inequality with caring for the poor.

Is Religious Faith a Global Force for Good?

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According to a new report from the Institute for Family Studies and the Wheatley Institution, religion appears to be a net gain “in 11 countries in the Americas, Europe, and Oceania.” From the executive summary:

When it comes to relationship quality in heterosexual relationships, highly religious couples enjoy higher-quality relationships and more sexual satisfaction, compared to less/mixed religious couples and secular couples. For instance, women in highly religious relationships are about 50% more likely to report that they are strongly satisfied with their sexual relationship than their secular and less religious counterparts. Joint decision-making, however, is more common among men in shared secular relationships and women in highly religious relationships, compared to their peers in less/mixed religious couples.

When it comes to fertility, data from low-fertility countries in the Americas, East Asia, and Europe show that religion’s positive influence on fertility has become stronger in recent decades. Today, people ages 18-49 who attend religious services regularly have 0.27 more children than those who never, or practically never, attend. The report also indicates that marriage plays an important role in explaining religion’s continued positive influence on childbearing because religious men and women are more likely to marry compared to their more secular peers, and the married have more children than the unmarried.

When it comes to domestic violence, religious couples in heterosexual relationships do not have an advantage over secular couples or less/mixed religious couples. Measures of intimate partner violence (IPV)—which includes physical abuse, as well as sexual abuse, emotional abuse, and controlling behaviors—do not differ in a statistically significant way by religiosity. Slightly more than 20% of the men in our sample report perpetuating IPV, and a bit more than 20% of the women in our sample indicate that they have been victims of IPV in their relationship. Our results suggest, then, that religion is not protective against domestic violence for this sample of couples from the Americas, Europe, and Oceania. However, religion is not an increased risk factor for domestic violence in these countries, either.

The relationships between faith, feminism, and family outcomes are complex. The impact of gender ideology on the outcomes covered in this report, for instance, often varies by the religiosity of our respondents. When it comes to relationship quality, we find a J-Curve in overall relationship quality for women, such that women in shared secular, progressive relationships enjoy comparatively high levels of relationship quality, whereas women in the ideological and religious middle report lower levels of relationship quality, as do traditionalist women in secular relationships; but women in highly religious relationships, especially traditionalists, report the highest levels of relationship quality. For domestic violence, we find that progressive women in secular relationships report comparatively low levels of IPV compared to conservative women in less/mixed religious relationships. In sum, the impact of gender ideology on contemporary family life may vary a great deal by whether or not a couple is highly religious, nominally religious, or secular.

There’s also some useful data on family prayer and worldwide family structure, socioeconomic conditions, family satisfaction, and attitudes and norms. Check it out.

Does Trade Promote Economic Growth?

Earlier this year, I did a literature review for class on the effects of trade on poverty. One section in particular focused on the link between trade and growth. A new Peterson Institute working paper by Douglas Irwin performed a similar service and I’m disappointed that I hadn’t come across it in time for my own paper.

So what are his conclusions?

The findings from recent research have been remarkably consistent. For developing countries that are behind the technological frontier and have significant import restrictions, there appears to be a measurable economic payoff from more liberal trade policies. As table 1 reports, a variety of studies using different measures of policy have found that economic growth is roughly 1.0–1.5 percentage points higher than a benchmark after trade reform. Several studies suggest that this gain cumulated to about 10–20 percent higher income after a decade. The effect is heterogeneous across countries, because countries differ in the extent of their reforms and the context in which reform took place (pg. 21).

 

Glad to know my own research was on point.

What Would the World Look Like Without FDI?

What would happen if foreign direct investment (FDI) simply disappeared? Or, more specifically, what would “a hypothetical world without outward and inward FDI from and to low- and lower-middle-income countries” look like? A brand new study tries to quantify this hypothetical. They find,

On average, the gains from FDI in the poorer countries in the world amount to 7% of world’s trade in 2011, the year of our counterfactual analysis. Second, all countries lose from the counterfactual elimination of FDI in the poorer countries.  Third, the impact is heterogeneous. Poorer countries lose the most, but the impact varies widely even within this group – some lose over 50% and some very little. The impact on countries in the rest of the world is significant as well. Some countries lose a lot (e.g. Luxembourg, Singapore, and Ireland) while others (such as India, Ecuador, and Dominican Republic) lose less. Pakistan and Sri Lanka actually see an increase in their total exports due to the elimination of FDI.

Figure 1 Percentage change in total exports from eliminating outward and inward FDI to and from low- and lower-middle-income countries

There’s more:

On average, the gains from FDI amount to 6% of world’s welfare in 2011. Further, all countries in the world have benefited from FDI, but the effects are very heterogeneous. The directly affected low- and lower-middle-income countries see welfare changes up to over 50% (Morocco and Nigeria), while some of the remaining 68 countries, such as Ecuador, Turkmenistan, and Dominican Republic are hardly affected. A higher country-specific production share of FDI leads to larger welfare losses, all else equal.  Intuitively, a larger importance of FDI in production leads to larger welfare losses when restricting FDI. A larger net log FDI position leads to larger welfare losses. Intuitively, if a country has more inward than outward FDI, restricting FDI will lead to larger welfare losses, as FDI is complementary to other production factors and therefore overall income increases more than FDI payments.

Figure 2 Welfare effects of eliminating outward and inward FDI to and from low- and lower-middle-income countries (%)

The authors conclude, “Overall, the analysis reveals that FDI is indeed an important component of the modern world economic system. The results suggest positive payoffs to policies designed to facilitate FDI, particularly those concerning protection of intellectual property.”

How Does Occupational Licensing Impact Immigrants?

From a recent working paper out of the Center for Growth & Opportunity:

We use two sources of data—the Current Population Survey (CPS) and the Survey of Income and Program Participation (SIPP)—to explore the differences in occupational licensing between natives and immigrants. Each dataset provides unique advantages, allowing us to paint a clearer picture of how occupational licensing differs between natives and immigrants than would be possible by using either dataset alone.

Though the CPS and SIPP differ in some key ways, where comparable our results are quite similar between the two datasets. We find that immigrants are significantly less likely to have an occupational license than natives; this gap is larger for men than for women and is especially large for the highest education level. The wage premium from having a license may not differ between natives and immigrants when controlling for English language ability, suggesting that though immigrants are less likely to have a license, they seem to benefit at least as much as natives from having one. Licensed workers tend to work more hours per week than otherwise similar unlicensed workers, so the wage premium understates the earnings premium.

Using the CPS, we find that the native/immigrant licensing gap declines with years since migration, consistent with immigrants assimilating toward natives. We also find large differences in licensing rates by region of origin; in particular, women from the Caribbean, Southeast Asia, and Africa have a higher probability of having a license than otherwise similar natives.

Using the SIPP, we find that a lack of English language proficiency lowers the probability that an immigrant has a license, even when controlling for other individual characteristics such as education level. Utilizing the richer set of occupational licensing questions available in the SIPP, we find no evidence to suggest that license characteristics differ between natives and immigrants, and thus we find no evidence that natives and immigrants are acquiring different types of licenses.

Our results suggest that occupational licensing disproportionately affects immigrants, especially male immigrants, those lacking English proficiency, and the most educated group. Indeed, insofar as occupational licensing helps to protect incumbent (largely native) workers in an occupation from competition, it is unsurprising that immigrants are particularly impacted (pg. 18-19).

They also find, “Skill-based immigration would favor immigrants with high levels of education. Our results indicate that it is precisely this group that exhibits the largest licensing attainment gap with natives. Increasing the flow of immigrants from this education level may lead to substantial occupational mismatch for this group of immigrants if they face difficulty in acquiring licenses needed to work in their pre-migration occupations” (pg. 20).

Regressive regulations like this are low-hanging fruit that can easily be changed.

Would Open Borders Lead to the Migration of Liberal Ideas?

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King’s College political theorist Adam Tebble was recently interviewed about his latest paper on epistemic liberalism and open borders. Explaining epistemic liberalism, he says,

Epistemic liberalism is a tradition of thought that places questions about knowledge, complexity and social learning at the heart of debates in political philosophy, initially with regard to debates about economic organisation and distributive justice.  Key thinkers in this tradition are Karl Popper, Michael Polanyi and of course Austrian School economists such as Friedrich Hayek, although there is also something to be said for including David Hume and John Stuart Mill on the list, given what they have to say about justice in extended or ‘large’ societies and about our liberty to engage in ‘experiments of living’ respectively.

I pick up where these authors, and particularly Hayek, leave off by claiming that epistemic considerations are not just crucial to debates about distributive justice, but also to more fundamental questions about the status of the background norms and conceptions of the good that inform the economic choices that we, either as self-interested individuals or as other-regarding pursuers of collective projects, may make. Thus, in Epistemic liberalism: a defence I seek to build upon Hayek’s claim about the existence of an economic knowledge problem – where the knowledge relevant to our deciding what to do with resources is for a variety of reasons uncentralisable – to claim that there also exists a more profound cultural knowledge problem.

How does this relate to open borders?

In contrast to much of the literature on migration and justice, and especially in contrast to that which defends a more liberal position, the argument I make in favour of more open borders focuses not upon the interests of immigrants or of the already-resident, but upon those whom migrants leave behind in their countries of origin.  In this sense my argument represents something of a breakthrough, for it seeks to claim the interests of those left behind for those arguing in favour of the more liberal approach, rather than leaving them to be appealed to in arguments against it, most notably by writers on brain-drain.  My argument, then, can be read as a response to brain-drain critiques of more open borders and to scepticism about freedom of movement in general.

There is some very interesting work in this area, particularly on social remittances and their effects by authors such as Kathleen Newland and Peggy Levitt.  Both their work and studies by others in development economics do show how, through visits home, via regular communication, or both, immigrants also remit the values of their adopted nations to those they have left behind.  Indeed, there is evidence to suggest that not only the relatives of immigrants, but those who live near to them, are also impacted by this phenomenon.

What’s more, “open borders not only enable migrants to assist those left behind in ways that alternative cross border resource transfer mechanisms cannot, but also assist governments to do the same, via a process of what I call ‘state signalling’.”

Check out the whole interview and the full paper.