Wealth heritability

By Eric Crampton 27/02/2015


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.