What Causes Wealth Inequality?

This discussion is adapted from a forum debate.

There are many causes of wealth inequality, but several major factors come to mind:

  • High effective income tax rates and costs of living. When the government takes larger percentages of income, it becomes harder and harder to accumulate wealth, but existing wealth is untouched. Hence, those trying to climb the economic ladder find it much more difficult to get to the top than it is for the wealthy to stay at the top. You’ll notice that most blue states have high taxes and high costs of living due to redistributive welfare policies, regulations, bans, licensing laws, etc.
  • High inflation. Inflation that is driven by the government printing money is effectively a flat-rate tax on income and wealth. This is even more harmful than the income tax for those trying to climb the economic ladder, because those are the people who tend to have their assets purely in the form of cash. The wealthy have enough wealth that they can afford to (knowledgeably) put most of it into stocks, bonds, securities, and business investments. So, they are hardly touched by inflation, while poorer people who have all their cash in the bank will see their effective purchasing power dwindle over the years.
  • Regulation and licensing laws. Regulations make it harder to run a business. They also make the learning curve and required initial investment to start a business MUCH steeper. The people who are already at the top can afford legal experts to parse through all the regulations for them, and can afford to comply with all the licensing laws. But people who are just trying to get started and make something of themselves are hopeless unless they can get free outside assistance to help them navigate the regulatory pitfalls and compliance requirements. Unless you’re very sociable and know the right people, free help is pretty hard to come by. Big businesses actively lobby for strict licensing laws (e.g. medical licensing, food service licensing, distillery licensing, “official” taxi licensing, etc.) because they know it keeps potential small competitors with great ideas out of the game completely. A powerful example of this effect can be seen in the beer market. After prohibition ended, all forms of alcohol production were kept under strict licensing laws, and only 2 or 3 breweries and 1 distillery dominated the entire market for decades. Then, in the 1970’s, brewery licensing laws were repealed (while distillery licensing laws were kept in place) and the craft brewery movement immediately got started. The quality and variety of available beer skyrocket so much that, within a decade, the beer market started to even outcompete the wine market on their own turf (i.e. customers interested in “classy” alcoholic beverages). This is why today, we have tens of thousands of choices in beer whereas in 1970, you had to pick Coors, Miller, or Budweiser. Though, distilleries still suffer under (some of) the old licensing laws, keeping just a few big companies in control of the whole market.
  • Government grants. Government grants sound like a good idea for helping causes you like (e.g. business, science, etc.), but it gives government enormous power to play favorites. The wealthiest districts in the country are those where people are most skilled at winning government grants. If you’re trying to run a business, and you have the best product on the market, but your competitor has a government grant, your competitor will win. And it’s much easier to get a government grant if you’re already wealthy, so the politicians have already heard of you. This process entrenches an economic elite that does little of value, but speaks the language that makes political hearts flutter with excitement. In graduate school PhD programs, they don’t even teach young scientists how to raise private money from willing contributors anymore. They just teach us how to apply for- and win -government grants. Getting government grants is also a lot easier if you live in a state that votes Democrat, simply because Democrats populate most of the government’s executive offices that distribute these grants. Based on what I’ve seen in my own field, you could have a university in Texas that generates more high-quality research than a university in California, both competing for the same grants, and the California university would get >80% of the grant money.

It is a perpetual irony of the political economy that every major problem faced by the lower-class and middle-class is created or worsened by the same people who claim to want to help them. Nobel Laureate Friedrich von Hayek observed this phenomenon in the 1930’s, and published a book in 1944 called The Road to Serfdom, in which he describes how totalitarians successfully subjugate a voting population through a vicious cycle of Observe a Societal Problem -> Implement Government Authority to Fix It -> The Authority Causes More Problems -> Repeat. Voters fall for it every time.

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Does I.Q. Predict Success?

I came across a forum thread discussing this article, which points out that SAT scores and I.Q. tests are high-resolution, strong predictors for the probability that an individual will patent, publish, and/or earn a doctorate. The article goes on to argue that innate talent is more important than hard work for predicting career success.

I think this conclusion misses some of the selection bias inherent in the SAT. I’ve witnessed friends (who happened to be particularly open about their scores) jump several percentile points year over year by attending SAT classes. Hard work and training can, in fact, drastically change how you measure on the SAT and other I.Q. tests, making them not particularly good at directly measuring innate talent. I think it is more likely that those who have the skills and academic drive necessary for academic success are simply more likely to work hard to improve their SAT scores, since good SAT scores are a gateway to good education and high-skill jobs. In other words, those who focus more on trying to look academically successful will inevitably become more successful in academics. It’s just another way of saying that people tend to get what they strive for.

But that’s not to say that intelligence or other innate talents are irrelevant to success. SAT scores and I.Q. test a very specific skill very effectively: the ability to recognize and evaluate simple patterns very quickly. They do not test other forms of intelligence that are easily recognized as crucial components of genius. These include creative inspiration, the ability to break down complex problems into solvable ones, and the ability to flawlessly follow a long trail of logic to its inevitable conclusion.

Have you ever known someone who always thinks carefully and speaks slowly, yet everything they say is absolutely uniquely brilliant? I know several people like this. Those people would score poorly on IQ tests due to the timing of it, but can out-think even the fastest pattern-solvers if you give them the time for it. They simply devote their mental resources towards quality and reflection rather than speed. Some of these individuals even choose not to pursue academic fields, despite their capabilities, preferring instead to focus on other hobbies, like entrepreneurship, art, or developing some component of their personal lives.

All of these forms of intelligence are necessary in some degree for true genius. Even then, genius alone won’t bring you success without confidence, perseverance, and a sense of purpose. The first step to being successful is figuring out how you, in your own life, would define “success.”

What is Civilization?

What is civilization? What is it that separates humans from the animals, and more civilized humans from the less civilized ones? The artist will tell you that civilization is the capacity to produce art. The scientist will tell you that civilization is a society that can contemplate its own existence. The engineer will tell you that civilization is the ability to build newer and greater technologies that improve the human condition. The businessman will tell you that civilization is the organization of labor to generate products in efficient ways. So who is right? Are any of them actually wrong? Is civilization just a conglomeration of different skills that all happened to be developed in humans, just because we’re smart or special or whatnot?

The property of being civilized doesn’t come from these attributes. Rather, these attributes all come from a root cause- some root “specialness.” So between all of these special abilities, what is the common thread? What do we really mean when we call one person civilized and another uncivilized?

After observing ancient artifacts in the National Palace Museum in Taipei, Taiwan today, it became pretty clear that the beginnings of civilization are recognized in the ability to produce and preserve things that take a great amount of time and effort. Using a stick as a tool to harvest termites is intelligent, but it’s not necessarily civilized. But the technique of identifying specific ores or clays, skillfully shaping them into useful vessels, taking the time to decorate them with designs, and baking them in furnaces specifically designed for that purpose? Now that’s civilization. Making a profession out of cutting elaborate jade idols by rubbing stone down with nothing more than sticks and string? Now that’s civilization. Cultivating farms of wheat or rice to trade for other goods? Now that’s civilization. The common theme here is clearly the organized or systematic production of value using human ingenuity. But why did some societies develop these capacities while others remained less “civilized?” Why did humans develop these capacities while other animals did not? Is it all just chance?

If you spent hours, days, or weeks of your short, neolithic life making a decorated ceramic vessel for storing grain (instead of spending that time seeking more food), and then someone else came along and took it (or smashed it), how likely would you be to make another one? If you spent days designing and building a furnace to cast metals, and then someone else immediately decided they were going to take it over, would you bother trying again, or would you return your focus to day-to-day survival? Without the ability to protect your own creations from destruction or theft, creativity is pretty pointless. We cannot have cultural or technological innovation unless the fruits of those labors are protected for the creator’s use. In other words, property rights are a fundamental component of civilization.

With the protection of property rights, there is a major evolutionary advantage to developing skills besides those necessary for basic survival. You can create tools to make survival easier. You can create decorative objects of great value that you can trade for the means to survive. You can specialize your labor and accumulate property with the certainty that you are not leaving yourself at a disadvantage against those who simply take what they want. When the protection of property rights fails (or never existed) societies fail to develop because there is no evolutionary advantage to creating anything of value. When value is ephemeral, putting time and effort into seeking it will just leave you at a disadvantage in the animalistic struggle for survival. Hence, no species or society that fails to recognize any form of property rights will ever evolve the capacity to develop culture, technology, or infrastructure. Meanwhile, any species or society that simply develops the means to recognize and protect property rights will grow, diversify, innovate, and prosper. The better the protection of property rights, the faster that civilized development will occur.

The earliest form of property rights that humans developed was a very centralized, authoritarian version of it. The leader of the tribe, or clan, or empire decides who gets what, and resolves all property disputes through binding judgements. Rather than engaging in a pure “might makes right” formula, these early civilizations operated by the rules of, “might makes leadership, leadership assigns rights to everyone else.” This certainly wasn’t the pinnacle of civilization, but it does allow for some forms of property rights to be assigned to some classes of people, providing a slight elevation of civilization above the purely animalistic realm. The warlord unifies a large region, preventing (or at least trying to prevent) other warlords from rising up and taking whatever they want. If only one person can steal from you, your property is still safer than when anyone can steal from you. So the artisans are free to practice their crafts in relative safety, offering their products to the warlord in exchange for the means of survival.

Several societies eventually grew tired of living only in service to kings and emperors. Decentralization of control over the arts in Ming Dynasty China led to a massive diversification of styles (in literature, painting, ceramics, etc.), within a larger shift to a prosperous market-based economy. The Magna Carta in 13th century England laid the constitutional foundations for the culturally and economically prolific British Empire. Allowing people other than the central leader to have consistent rights protecting their property allowed many more people to produce creative works without fearing the loss of their labors to the whims of the ruling class. Through market capitalism, artisans could also finance their works without imperial subsidies.

Of course, this protection of property rights was not complete. It took about half a century for a conscious philosophy of individual liberty to be hashed out. Implementation of liberty was attempted through the American Revolution in the 18th century. The spread of property rights to democratic majorities again produced an economic and cultural revolution that reshaped the societal structure of the entire world. Suddenly, diverse products became available to most people, and nearly anyone could become an artisan and express their creativity in exchange for the means of survival. But the democratic system meant to produce this liberty was imperfect, still allowing elected majorities to have the power to infringe on property rights, even continuing the practice of enslaving certain classes of people for decades. The populist philosophies of communism, socialism, and fascism arose, questioning the value of property rights to the lower-skilled classes. These philosophies of majoritarian rule reverted entire countries to the uncivilized practice of predatory survival. This time, however, it was majorities preying on a small number of productive people, rather than the ancient practice of an elite minority leeching off of the labors of the masses. This has inevitably restrained the creative potential inherent to humanity by encouraging survival by dependency, while making it more difficult to navigate the regulations that still control the productive arts.

So this is where we are now. We, as a humans, have not yet progressed to the point of implementing the entirely non-predatory system that would mark a fully-civilized society. But of course, that isn’t for lack of inspiration. Libertarianism is a philosophy which extends property rights to all aspects of human endeavor, and renders them inviolable. Defined in terms that span the history of civilization, Libertarianism is a system where, if you make a bowl, you (not an emperor, not an elite class, not a majority) get to decide what to do with that bowl, but you can’t force someone to do what you want with their own bowl. Implementation of this philosophy globally would complete the transition to civilized coexistence from predatory animalism. But therein lies the challenge. The idea exists, so why has it not yet been implemented?

The entire political history of humanity can be characterized as a gradual progression towards increasing levels of civilization. We, as a species, have made remarkable progress across the millennia. Yet, this progress has been intermittent, inconsistent, and slow. But what has changed about humans that has allowed this progress to occur? From the establishment of non-family governments, to the extension of property rights beyond the ruling family took thousands of years. From the formalization of individual rights to the first explicit attempt at their implementation took hundreds of years. Will the implementation of Libertarianism only take tens of years from the moment it was first fully defined as a philosophy? To reach that level of civilization, do we need to evolve intellectually, culturally, or biologically? Is the fact that I and others are writing pieces like this a hint that we may be on the brink of that transition towards greater civilization?

Title Change

In case you’ve noticed, the title of this blog has changed. This decision was made after googling my own name, and discovering that all of the results related to my scientific endeavors have been drowned out by links leading here.

Unfortunately, the world of a science is filled with people who are perfectly happy working for the government. Many scientists see their own intelligence as a reason to use politics to force their beliefs and lifestyle on others, rather than as a reason to be free of government intrusion. This stems from the belief that the public is too stupid to appreciate good science, and so the only way to get funding is to appeal to the confiscatory power of government, rather than by seeking out voluntary funding sources. Of course, this unenlightened view ignores the fact that the government is made up of the same descendents of Cro-Magnons that make up the general public, but with even less inspired variance. Yet, even scientists usually don’t have the courage to question their own funding. Just like everyone else, they don’t like to bite the hand that feeds.

So, to avoid being retaliated against in the professional world for my advocacy of liberty, I must distance my online presence from my professional name. Of course, I will never allow myself to be silenced, but I will be a more effective voice for my cause in the future if my career success is not hindered by butting heads with my colleagues. A name change seems the simplest way to achieve this.

I did build this.

For those who don’t understand, or think it’s all a matter of context, allow me to explain what is so offensive about Obama’s statements.

What Obama said cuts very deep for a lot of people. It is a very personal attack to tell someone that they only succeeded because somebody else helped them. That’s basically saying that you don’t deserve the success you received, because you didn’t do it yourself. Of course, that’s exactly what Obama wants to say, because in that speech, he’s explicitly making an argument in favor of taking more money from the successful to pay for more government-controlled “investments.”

Obama has made this personal by using his bully pulpit to attack the achievements of every single individual in this country. And we all know he’s wrong, because each of us knows what it took to achieve the success that we have. I didn’t get into a PhD program just riding on somebody else’s coattails. Certainly, I received plenty of help, from my friends, from my family, from my teachers, even from the government. And I know I couldn’t have done it without them, and am eternally grateful for all of that. But it was still my own hard work, focus, and perseverance that made the difference and got me to my goals. As a scientist, I spend every day struggling to elucidate the intricacies of systems that nobody else in the world understands. Every time I make a breakthrough, that is a great personal achievement. And yet, Obama doesn’t think so.

That is why Obama’s statements were so very insulting. That is why Obama’s entire economic philosophy is an insult. Obama believes that success comes in the form of five year plans and Sputnik projects for the glory of a nation. But we are not just cogs in some productivity machine that he runs. We are all individuals, and we all have our own individual goals and achievements. Collective success comes from the contributions of individuals, not the other way around. I don’t want to live in a country where I am a servant to the nation. I want to live in a country that secures the freedom for me to achieve my goals, and lets me help society in the way I feel I am best suited to.

Social Darwinism in the GOP?

According to the San Francisco Chronicle, “if one of the current crop of Republican hopefuls becomes president, Social Darwinism is back.”

Okay, I think a history lesson is in order. The claim in this article is that Social Darwinism consists of the belief that “life was a competitive struggle in which only the fittest could survive – and through this struggle, societies became stronger over time.” But wait a second- that’s natural selection, not Social Darwinism. There’s a world of difference between the statistical inevitability that is natural selection and the social philosophy that is Social Darwinism.

Natural selection happens whether you like it or not, adapting populations to survive as efficiently as possible. If you create a society that lets individuals survive without doing any work, then very few individuals will do work and that society will collapse.

On the other hand, Social Darwinism is a philosophy which suggests that society should actively seek out and destroy the elements considered “weak” or “inefficient.” Who makes that judgement? Generally, the government. Social Darwinism is a philosophy of letting the government pick winners and losers, NOT the philosophy of letting societies naturally evolve towards adaptability.

For example, consider Nazi Germany. How do we envision Hitler’s version of Social Darwinism? Was Hitler a proponent of laissez-faire policies, giving people the liberty to make their own choices and live with the results? No, of course not! Hitler was a totalitarian who usurped the power for his own administration to decide who gets to succeed (or even survive) based on their own narrow judgements of who deserves it. Hitler was no free-market advocate, and free-market advocates are no Social Darwinists.

So if you want to find the Social Darwinists, look for the politicians who are trying to give government the power to arbitrarily pick winners and losers according to the judgements of appointed bureaucrats, rather than letting people make their own fortune in an unbiased market. Can you think of anyone who this description fits? I’ll give you a hint: it starts with “O” and ends with “bama.”

Funding Science

Obama’s lead science adviser, Dr. John P. Holdren, gave a speech here last night. He spoke at length about how the Obama is the president most committed to helping science in all of US history. He threw around all kinds of dollar figures and percentage increases in various budgets, and talked about how hard he’s working to “defend science from the current Congress.” I was not impressed, and I would like to explain why.

I asked a question which was skillfully reworded by Dr. Ahmed Zewail to something like this (paraphrasing):

As you know, science is driven forward by the innovation of inspired individuals. When government funds science, it tends to focus on a few “big picture” goals which don’t predict a lot of new ideas (from these individuals) which haven’t yet become politically attractive. In some ways, the innovative power in this country is a zero-sum game. The government wants to fund missions to the Moon, missions to Mars, electric cars, but what about the truly unexpected ideas that the government can’t predict? You get a lot of people working on these bigger projects at the expense of diversity in scientific research. So, in the future, do you see a new model for scientific funding- a new way for scientists to get money for their research so the diversity of innovation isn’t drowned out by the goals of government?

Dr. Holdren’s response went something like this (again, paraphrasing):

Well, no, I don’t think so. I disagree that science is a zero-sum game. You see, it takes government funding to do basic research. The private sector funds a lot of research, but they look for marketable attributes when deciding what to provide funding for. What the government does, what I see its role as, is to nurture more options in science for the market to pick up and choose from. And as you know, the President is very committed to nurturing a diverse array of science, and by making that money available, we help provide the resources necessary to make use of this country’s innovation. You know, China has been increasing their scientific research budget 15-20% annually, and I used to go there at least once a year, and it’s changed dramatically. If you were airdropped into one of their universities with no sense of where you are, you might think you were right here at Caltech, or up at Stanford, just looking at the equipment and facilities they have available now. But it is the innovativeness of this country which has allowed our own country to succeed for so long, and we need to nurture that in order to maintain our prominence.

This answer disappointed me, because I think it reveals a fundamental misunderstanding of how markets work and what young researchers need. The question was meant to get at the heart of von Hayek’s local knowledge problem and how it relates to science, as a market. How can the government “nurture more options” when nobody in government actually knows what these millions of scientists know? Politicians and the people they appoint like “popular science,” because that’s the kind of science that gets more attention from the media. They don’t like science which is so theoretically focused that the potential applications are unknown.

Dr. Holdren made the point that the private sector seeks marketable science, so it isn’t very good at providing adequate funding for basic research. However, I can make the same argument about government-funded research. Government funding agencies lean towards applied research just as much as the private sector, but with different topics in mind. I experienced this first-hand when applying for the NSF Graduate Research Fellowship and NDSEG Fellowship. Government has very specific interests in mind (energy research, flexible body armor, helping poor communities), and they will almost always take research geared towards those goals above research which is just very theoretically interesting. It’s no secret among scientists that when applying for these fellowships, we compete to see who can spin their research activities to make it sound like we’re trying to help poor ghetto children. Because, you know, scientific merit is great, but that alone isn’t going to get you funding from the government.

Scientists go where the funding goes, so if the government is funding science, government interests are where scientific progress will focus, often redundantly. Dr. Holdren might object, saying that creating new funding opportunities doesn’t detract from the ones that exist independently. But it does. If the general public is given the impression that scientific funding comes from tax dollars, then they’re not as likely to contribute voluntarily. If individuals see the government as filling the role of supplying scientific funding, then they are not as likely to donate to independent funding agencies for basic research, or found their own. This is the “crowding out” effect, as applied to the market for science. “Crowding out” is a very real and significant effect of government funding, and I can cite countless examples of this effect demonstrably playing a huge part in real markets.

This assumption that “more money => better development” is such a 20th-century perspective, and I’m really saddened that the leading science adviser to the President is stuck in this mindset. More money isn’t always better when the type of funding system is flawed to begin with. I really wish Dr. Holdren and others were more willing to consider a future in which science is funded in a better way.