Wealth heritability

Swedish income and wealth are strongly heritable, as measured by differences between monozygotic and dizygotic twin outcome variances.

These patterns of correlations illustrate Turkheimer's (2000) three “laws” of behavior genetics, which are not theoretical necessities, but rather stylized facts that summarize the broad pattern of empirical findings in several decades of behavior genetics studies. The first law states that all behavioral outcomes are heritable. For comparison with our estimates of around 0.50 for permanent income, the heritability of personality traits and cognitive abilities is about 0.40 to 0.60 (Plomin et al. 1994, and the heritability of height is about 0.80 (e.g., Silventoinen et al. 2003). Indeed, although Turkheimer's first law is stated qualitatively, it could be made quantitative: Of the hundreds of outcomes analyzed to date, almost all have heritabilities estimated between 0.20 and 0.80 (see Plomin et al. 2008 for a review). The second law states that common family environment explains less variance than genes do, and the third law states that a substantial part of the variance in the outcome is left unexplained by the sum of genetic and common environment effects. Our results are consistent with the second and third laws, as well.

We still have little clue which genes are associated with intelligence and income; results from one study won't replicate in another population, for example. Sample sizes generally are not large enough to detect small effects. I love this part:

We also predict that methodological challenges—such as multiple testing—will generate many more false positives in the literature, especially in the short run. The press is likely to distort findings and exaggerate the degree to which specific genes “determine” outcomes. In most cases there is no “gene for [insert behavior here],” despite frequent newspaper headlines suggesting that there is. Indeed, for most behaviors, researchers are struggling to find a SNP with an R2 that is greater than one-tenth of 1%. Researchers in this field hold a special responsibility to try to accurately inform the media and the public about the limitations of the science.

Moving to policy, they note:

Governments will need to formulate new policies that maximize social welfare in a world where people with genetic advantages will wish to share them with potential employers and insurers, and people with genetic disadvantages will want to shroud them.

Indeed. We probably need pre-insurance markets against inheriting an unfavourable genotype, but those would likely unravel anyway where parent type determines most of the odds, and increasingly so as assortative mating strengthens.

Greg Clark argues that strong heritability of life outcomes makes an argument for redistribution: as relative positioning doesn't change much even where redistribution is heavy, he takes it as an argument for that labour supply of the most productive cohorts does not respond much to taxation. There's plenty of other evidence arguing against that point, and Jason Collins's review of Clark is on point, but let's take it for now for argument's sake.

What is appropriate policy if both of the following are true? I'm not saying these stylised facts are true, but I put better than even odds on each element's being true.

1. Generalised ability - the mix of cognitive and personality traits that combine to affect income and employment - is strongly heritable. The children of the more able will be more able; the children of the less able will be less able, although outcomes for either can be moderated a bit by environmental interventions;
2. Family size is elastic to income: increasing a household's income, all else equal, increases their optimal family size; decreasing their income decreases it. Yes, richer people tend to have smaller households than those in the lower-middle of the distribution, but that's part of the all-else-equal.

You could well wind up with longer-term effects on relative skilled labour supply via an extensive margin in population composition, even where any individual's labour supply is highly price inelastic. Welfare economics gets awfully messy when future population distribution is one of the things affected by policy.

HT: Collins on the Clark piece.

Darwinian Politics and risk-seeking behaviour

I love Paul Rubin's "Darwinian Politics". Rubin argues that existing political preferences around things like fairness, inequality, altruism, and group affiliation can really be traced back to the Environment of Evolutionary Adaptedness - the 50,000 years or so that modern-form humans spent in the Pleistocene. I often teach the book as part of my graduate-level public choice class.

Jason Collins reviews the book here and notes the one part of the book with which I disagreed:

Rubin’s least libertarian finding, apart from his implied support of restrictions on polygamy, relates to restrictions on drugs and other “anti-social” activities. Rubin argues that if consumption of these goods and activities is a form of competition between young males to signal status, restrictions on their use will be required to prevent above optimal use. While Rubin considers that the need to maintain a society’s prime age men at fighting strength is weaker than in our evolutionary past, a case can still be made for this form of control. It was interesting that Rubin chose to use a signaling argument at this point as he does not address the role of signaling in most of his analysis, such as in his discussion of “altruistic” gifts of game in ancestral societies or donations to charity.

I find this argument wholly unsatisfying. I agree with Rubin that the age-profile of risk preference looks like it's set in the EEA. But the policy implications of that are a lot less obvious than Rubin makes out. If we're hardwired to demonstrate ability to bear risk when we're in our mid to late teens, then banning one form of risk-taking is very likely to push risk-taking demonstrations over onto other margins. It's then manifestly unclear whether we improve or worsen outcomes when we ban youth access to consumption activities whose risks are relatively well understood and the use of which is at least relatively well socialised as it depends onto what other margins the kids switch. If everybody switches to bungee jumping, that's probably better; if everybody switches to car surfing, that's worse.

Where at least some youth alcohol demand is derived from an underlying preference for demonstrating fitness to bear risk, we have to worry about the other margins on which the underlying preference can be expressed if we want to push down on one part of the balloon.

I worry for similar reasons about Veblen-themed arguments about reducing status competition through income taxes. If we're hard-wired to be status-seeking animals, isn't it better that that status-seeking is channelled into productive outlets, like earning money by working hard to meet the needs of others, than less productive or downright harmful alternatives, like jousting, tournaments, or feats of military valour? As I'd wondered a few years ago after Robin Hanson provided some data on the relative positionality of different types of activities:

If humans are status-seekers, which seems highly likely given how sexual selection works, then high marginal tax rates just push status-seeking onto the other dimensions identified by Hanson. Which then gives us some testable hypotheses: do countries with heavy income redistribution see greater spending on education, more time investment in sport, more money and time spent on personal beauty and exercise (all normalized for income, of course)? I wouldn't know where to start looking for the data, but I'd be keen to see the results.

I'll have to dig around a bit to see whether that kind of cross-national data exists: potentially another topic for the future honours projects file.