On intergenerational mobility

Luke Johnson in the FT is scathing about the sons of rich men:

The children of self-made parents almost never possess the same level of ambition or capacity for enterprise. Consequently family fortunes tend to wither

They are, he says, "an unimpressive lot...spoilt and deficient in energy or experience of the real world."

This appeals to my prejudice. But it doesn't appeal to the tiny rational part of my brain. Sure, some heirs can screw themselves up. But many others don't. For example, the Koch brothers, Kerry Packer and Rupert Murdoch all inherited their businesses from their fathers and thrived. And very many of the most successful entrepreneurs came from pretty wealthy families: Bill Gates' dad was a successful lawyer and Larry Page, Eric Schmidt and Sergey Brin's fathers were all professors. James Dyson and Richard Branson's families were at least well-off enough to send their sons to private schools. I suspect Larry Ellison and Alan Sugar are atypical in succeeding from the wrong side of the tracks.

There are at least two reasons for this.

One is that entrepreneurship doesn't merely require a particular character. It also requires money. As Michal Kalecki wrote: "The most important prerequistite for becoming an entrepreneur is the ownership of capital." It's much easier for rich kids to get the first step in business than poor ones.

Secondly, in some cases, having rich parents can actually be a spur to get rich oneself. If you've been brought up in luxury, you'll come to expect a lavish lifestyle -  which needs funding. By contrast, many of us from poorer backgrounds have lower expectations; I lost all my ambition in my 30s when I realized I would never have to sleep under a bridge. And, of course, having a rich dad can make a son want to outdo him, or at least impress him; in contrast, the fact that I've not seen the inside of Gartree gives me one over my pater.

So much for hypothesizing. What of the facts? IFS economists have estimated (pdf) that the correlation between fathers' and sons' income in the UK is 0.4-0.6 - much the same as in the US (pdf). This is sufficiently below one to be consistent with Luke's claim that some sons of the rich are no-marks. But it's sufficiently far above zero to corroborate my view.

However, if we multiply these correlations, they fall markedly. They imply that the correlation between our income and our great-great-grandchildrens' is just 0.06 - as near as dammit zero. "Rags to rags in three generations" is an exaggeration, but it contains some truth, as Greg Clark has pointed out (pdf). Eventually, the waves wash everything away.

Comments

[Ralph Musgrave]

"Rags to rags"? Oop North where I live, we actually say "Clogs to clogs in three generations". The phrase originated in Lancashire.

Ignorant Southerners....

[Luis Enrique]

I'm confused (again). One assertion is that the offspring of the wealthy lack drive etc. (are no-marks). Another is that offspring of wealthy tend to be wealthy too. Perhaps because entrepreneurs require wealth, perhaps because despite being no-marks they are privately educated plus parental connections give them an easy passage into high paying jobs.

to answer this question properly, we have to be thinking in terms of distribution, right?

1. is the distribution of "no-marks" conditional on having successful parents different from the distribution conditional on having unsuccessful parents, and if so how large is the difference

2. are the offspring of successful parents, on average, lesser marks than their parents?

[I'd have thought 2 was an obvious yes. For example if all humans have no-mark probability of 2/3, but all successful people are marks, then successful are more likely to be marks than their kids.]

[simon cooke]

My best man came from a wealthy - very wealthy - Canadian family. He always described himself as 'downwardly mobile' - a generation far enough from the money not to get any but close enough to see it in the family.

[Econ Student]

The methodology of the final paragraph, taking 0.5 to the power 4, only works if the three generations are statistically independent of each other. Which I'm not sure is the case.

I've used up my monthly quota of free FT articles. Does Johnson say anything about his own background? I have no idea where his seed capital came from but having a famous and well-connected father, and an Oxford education, might have helped a little.

[chris]

@ Econ Student: oddly, Luke is silent on that.
You're right that the calculation only works if the generations are independent. And Jonathan Portes has directed me to a paper which points out that this is not the case:
http://www.sociology.ox.ac.uk/documents/working-papers/2011/wp2011-04.pdf
But I wonder what the mechanism is causing such non-independence. The Bowles & Gintis paper points out that IQ is only weakly inheritable, and that the IQ-earnings link is weak. This suggests that one such mechanism is weak.

[Econ Student]

I might have misunderstood but surely they are correlated at least in the sense that if the son of the original millionaire pisses away part of the family fortune, it will make subsequent generations similarly less likely to be wealthy (and vice versa)?

One doesn't need to have recourse to theories of IQ or other human capital explanations - there is a direct causal link from generation to generation, failing the independence assumption immediately.

[Szczepan Stachura]

@author
I believe You have misrepresented Clarks's paper, maybe unintentionally. He referred to Becker's view, that three generations wash away any difference, but he is opposed to it.
In fact Clark & Cummins say it's much more, than three generations. On page 14:

"But this process of convergence is much slower than recent estimates of bs for
income, earnings and education would suggest. Average wealth at death in 2000-11
was still significantly higher for the group identified as rich in 1858-1887. Indeed the
average wealth of the richest surname group from 1858-1887 was still 5.6 times that
of the poorest surname group in 2000-11."

And than their estimation b value for wealth is .72-.75 (page 31).

They're pretty convincing for me.

[charlieman]

On neologisms, nomarks and hyphens.

Luis Enrique got it a smidge wrong. Nomark contains no-blooming-hyphen-marks but it is the normal form of no-mark.

[rogerh]

So are clever - or at least well socialised - families accumulating at the top of the wealth tree and dim - or badly socialised - families accumulating at the bottom? Do the nomarks descend the ladder quickly or slowly, if sufficiently slowly they may have time and money for the next generation to rise - or at least not fall further. If this were true we would expect to see a swelling of the numbers of families in the upper wealth bracket and at the bottom. This does seem to be the case.

So has it become harder for the old adage 'scum and cream always rise' to apply? If the above were true we might expect fewer entry positions for upcomers and perhaps some signs of exclusion. There do seem worrying signs of overcrowding in the law at least. But there always seems to be room for the clever and energetic - just look at the job adverts. There does seem a problem in the middle though, the rewards for being a science worker say seem rather poor considering the effort involved - if you plan to rise don't get stuck in the middle.

[François]

"I lost all my ambition in my 30s when I realized I would never have to sleep under a bridge." What a good argument in favour of social security!

Kidding of course, but still, I find that part awkward.

[Akilah]

This is awesome!

[Bruce]

A third reason why the sons of the rich can do well is their ability to take on risk. They can risk playing at something (unconnected to the family business) that stands a high risk of failure without worrying about ending up sleeping under a bridge if it doesn't; in the words of Jarvis Cocker: "if you call your Dad he could stop it all". But if it works out (and doubtless helped by capital and contacts) then he can kid himself he's a 'self made man'.

[Dipper]

One development that has broken correlation between parental income and child income has been the use of maths PhD's in the city. Many people with parents in everyday vocations have become wealthy due to their mathematical ability alone.

Needless to say the hereditary public-school dynasties that run the Labour Party have identified these individuals as their primary hate-figures and targets for public attacks.

[Dipper]

Bruce 8 Aug 01:19. Exactly. It was noticeable how many of the companies founded in the dot com era were founded by the children of the rich.

[harry Holdorf]

Discussing discouraging truths is much less fun than trivial thinking.
We’ve got several rather large elephants squatting in the middles of our living rooms.
We go about life with our heads down, so frustrated about the Big Things, that eventually, we don’t even consider fixing them.
1. Government whistle-blowers are considered traitors.
2. The supreme irony of considering ourselves the worlds greatest democracy, while having, by far, the world’s highest incarceration rate. It’s time to open the prison doors and release most of the non-violent offenders.
3. Remove the money from the drug trade. Let anyone over eighteen do what they want to their bodies: they’ll soon tire of the wacky stuff, and discover life is better straight, and sober. We need to help the millions of white, rural/urban younger Americans to get off meth -- it’s destroying them. They need a meaningful life, to counter their extreme boredom.
4. Abolish the IRS; it sucks way too much money from the honest middle class.
5. Corruption, wherever it exists, is our biggest, worst, and most deadly crime. Congress obviously can’t control itself, and has lost any semblance of morality. Out with the lobbyists, out with the thousand-page bills. Can we say the words together: No Pork Barreling, no pork barreling, NO PORK BARRELING!! Take back the government from the special interests, If necessary, move it to an empty Missouri mountain top. Do something, get rid of the corruption, before it brings the whole country down.
Seventy-five year-old Jerry Brown has managed to right California’s Ship of State; maybe Governor Moonbeam and Chris Christie could work together in ‘16 to fix the country. There are many, many things the Left and Right can agree on, so Let’s Get With It.

[Roger]

Firstly your RSS link may be broken - I complained to Inoreader that your blog hadn't updated since the Bosses post and they tell me that its not them but you (plus seeing same problem in feedspot).

On the post coincidentally I was discussing this very question yesterday with relation to Scottish data on social mobility that covers 4 cohorts and sees the last cohort (born 1967-76) coming up as much less mobile than the previous three:

Scotland is similar to many developed countries.

Rise in upward mobility has stopped, and process may be going into reverse because of prior upward mobility of parents.

This is still driven mainly by shape of occupational distribution, not by changes in fluidity.

Education does not account for most of the association between class of origin and class of destination.

(www.scotland.gov.uk/Resource/Doc/997/0055101.ppt - if you check Cristina Ianelli's publications list you should get full paper)

And really couldn't offer a satisfying answer as to why not just Scottish but other mature late capitalist economies all show this tendency.

But is it possible that we're seeing just a natural plateau - whatever the validity of your income correlations I very much doubt that you see a lot of genuine downward mobility amongst the trustafarian class.

And if the purpose of life is to accumulate more money than you can practically spend why should Paris Hilton emulate her great-grandfather and circle the global Monopoly board looking for more vacant lots to build hotels on when quite literally whatever she does she will be showered with money?

Plus what of the tendency to monopoly?

While 'managers' seem to proliferate endlessly the institutions they work for merge or are asset-stripped out of existence and wealth even at the top end of the distribution seems to be more and more concentrated.

So maybe just as it is getting harder and harder to jump from the 90% to the 10% so it may also be harder to make it from the 10% to the 1% (and from the 1% to the 0.1% etc...)

[Roger]

So dipper how many people from 'everyday backgrounds' get Maths PhDs and how many are working in the city?

According to HEFCE data the total number of postgraduate students currently doing higher research degrees in Mathematics is around 2,250.

On average only 75% of research students complete the degree they've registered for so you can probably knock that down to say 1,700
who'll eventually finish.

A lot of those may not be doing full doctorates which might knock the number down to perhaps 1,000.

Of those a significant number (perhaps a couple of hundred?) might be overseas students who won't stay in the UK.

So lets say that there are currently 800 (give or take a couple hundred) Maths doctoral students who will qualify and stay in the UK and that on average they spend 3 or 4 years studying.

That gives us 2-300 (or given the number of guesstimates above lets just say several hundred) new Maths doctors per year.

As Maths is not like an Arts subject where thousands of PhDs are chasing fewer and fewer real academic posts I suspect a significantly higher percentage of these mathematicians go on to teach than do say historians.

And there are surely other fields than devising new arcane financial instruments to bankrupt the global economy where mathematicians make their career.

So we are here talking about statistically insignificant numbers - tens not hundreds - of these doctors of mathematics 'going into the City' each year and very few indeed may have come from whatever the fuck you think 'an everyday background' is.

[Dipper]

@Roger.

I’m not sure what caused the vitriol in your comment, but the original post is about correlation of wealth between generations and I was pointing out that the City was an area where there was a breakdown of this link because people with advanced qualifications in maths and science can earn multiples of the median wage of money and generally having rich parents is not a significant factor in having mathematical ability (I have no evidence for this) or generally in their recruitment. It probably isn’t statistically significant on a national basis, but including banks, software companies, funds, hedge funds, and setting the bar at a few multiples of the median salary, its probably tens of thousands (a lot of these are from overseas so reducing the UK-specific effect).

“very few indeed may have come from whatever the fuck you think 'an everyday background' is.” I don’t think this is true proportionally. I suspect the proportion of comprehensive educated people on a city trading desk comfortably exceeds the proportion in journalism, law, theatre and the arts, and is enough for me to have noticed it in most institutions where I’ve worked. As for “whatever the fuck I think an everyday background is” then for the purposes of the post it would be a background where the household income is in the middle 66% of incomes. I suspect (without evidence other than discussion with colleagues) that the commonest parental profession on trading desks and associated areas is teacher.

I found it noteworthy that the Labour party picked out Steven Hester for individual abuse. Hester’s father was a professor. Hester went to a comprehensive, then Oxford, then a career in Finance which conspicuously did not include working for any institution which has been blamed for the financial crash. Rather than complain about inherited wealth or how the upper classes exercise hereditary control the major institutions of this country, the assorted relatives of peers of the realm, grandchildren of high-court judges, and the generally well-connected and public-school educated folks who constitute the Labour front bench decided to attack someone for Getting Above Their Station and Not Knowing Their Place. I thought that was relevant to the post.

[rogerh]

Intergenerational migration was gone into (amusingly) by C N Parkinson in an essay 'La Ronde' - back in the '60s. He points out something as true then as today - those who are ambitious for money & power and those who are ambitious for tradition and position. He sketched a map depicting the two groups rising from desperation (living in the North-West) and moving through Shropshire, Sheffield and Nottingham to Norfolk and Cambridgshire and Wiltshire (where the ambitious hopefuls lived). At this stage in development those ambitious for power and money move on to London - eschewing Suffolk, Essex and Kent. Those ambitious for tradition and position (having made their pile) move on to Hampshire, Berkshire and Gloucestershire. Those who did not make it circulated back to Shropshire etc or, heaven forfend, Liverpool. C N P attributed the divisions to the old Roundhead/Cavalier regions back in Civil War times - and the rise of Methodism in the UK's least desirable regions.

[john malpas]

Why has crime been left out.
Really dynamic criminals make money andf have power. And a lot live the good life.
As an aside there was no mention of rich men's bastard children - what happens to them.

[Chris Williams]

Crime was not left out of the original post, John, which was one of the reasons why it was so good. Though as ever, you get more out of Chris D if you know Leicester than if you don't.

[Roger]

@Dipper

The vitriol is directed at any parasite who works in the City or leaps to their defence.

I really very much doubt that the majority of traders are from that middle 66% of incomes and if data does exist and on the basis of the braying herds of them I've seen around city watering holes would be willing to bet that a good half or more are privately educated.

Perhaps Chris as a journalist might actually have encountered rather more of these creatures and give us his view?