Heritability of income-relevant traits is an argument for redistribution, says Karl Smith.
I'm reasonably convinced that genetics (and don't forget the epigenome either - please click the link, it is awesome) matters a whole lot in affecting outcomes. But I'm less convinced on the normative implications.
In Smith's world, behind the Veil we don't know whether we'll be born with good or bad genes, where good and bad are defined relative to their correlation with generalized good outcomes (income, success, happiness) for the eventual kid. Don't scoff: IQ is highly heritable and so too seem "Big 5" personality traits like conscientiousness and neuroticism (see here too); the three together are kinda important in affecting outcomes. Consequently we agree to some kind of redistribution that's ex ante a decent insurance deal for all the precorporeal spirits. Or at least that's how I parse his argument -- too much Rawls and Buchanan perhaps. Smith says that insuring against bad genetic outcomes doesn't work because they're "the ultimate pre-existing condition".
I'll quibble first, but only minorly, with the insurance argument. I can't see any particular reason why insurance markets couldn't exist in which prospective parents would buy policies providing big payouts in case of really bad genetic outcomes. But I can only see that working against bad random draw outcomes, not against bad "your parents both have low quality genes and so you're likely to too" outcomes.
My bigger worry is that if there's any kind of elasticity of childbirth with respect to income, the Veil argument becomes far more ambiguous. Behind the Veil, you get to choose between two worlds. In World A, you've a shorter wait to be born but you're more likely to be born with worse genes. In World B, you'll have to wait longer to be born but you're more likely to be born with better genes.
World A is Karl's with genetic egalitarian redistribution. Couples with good genes have fewer kids relative to World B - tax rates are high and these couples follow strategies of only having as many high-investment kids as they can afford. Couples with poor genes also follow strategies of only having as many kids as they can afford, but each child gets a rather smaller investment of parental resources. More kids are born into poor-gene families in World A.
World B has far less redistribution and consequently more kids born into good gene families.
Behind the veil, you get to choose whether you want to be in World A or B. I don't think the answer's as clear as Karl's story would make out, probably because he didn't frame it this way. But whenever we're considering policies that have potentially large effects on population composition, I have a hard time not putting things into a contractarian Veil framework. In the static one-shot world, Karl's right. But I don't think he is if we're in a more dynamic multi-generational game where population composition varies across states.
Our world is closer to A than it is to B. Were we in World B, my family's taxes would be lower and we could afford domestic help and a third child. Instead, the resources that would have funded a third child for us are transferred to pay for the fourth and fifth children of some other family whose optimal per-child investment is rather lower. Maybe that's optimal in some static sense. But the Flynn Effect is slowing. And the long term consequences of reversal aren't pretty.
Update: Eli Dourado reminds us that even absent the static case is less than certain: we can't be sure that the marginal utility of income is higher for lower income folks. While we normally are pretty safe in assuming declining marginal utility of income within persons, it's plausible that the characteristics that give rise to high earning ability also enable greater appreciation of the fruits of that income: in other words, there's the potential for increasing marginal utility of income when viewed in the cross section. I'd disagree if the low income person is around subsistence level and would be agnostic thereafter - I don't feel qualified to make interpersonal utility comparisons.