2/28/2006

Graduates vs. oligarchs

I read an interesting article by Paul Krugman, he talks about the discrepancy of the often preached idea that the higher the education you receive the higher the income. The 80-20 fallacy is mentioned that 20 percent of the people control 80 percent of the wealth, and he argues this is not the case. He says that it has become less than a percent of the people that are controlling the wealth "income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that's not a misprint." Many of our goals as MBA’s is to be the best and work hard to be in the top percent, are the odds on our side? I believe they can be.

4 comments:

Blake said...

I read the linked article, and while I can see the author's point, I must say that I disagree with him when he says that a college degree doesn't give people a significant gain in income. While college graduates' income may not compare to the miniscule populations of Jack Welch's in the world, college graduates are undoubtedly profiting more than the high school drop outs of the world. Unfortunately there is a huge wealth gap, but I still firmly believe that people benefit from the attaining of higher education, and personally I am in pursuit of trying to acquire as much knowledge as possible because I naturally will never be able to compete with the top 1% of wealth holders, nor would I want to.

Ian said...

Hope you don't mind comments from those not in the classes...but had a couple thoughts on reading the Krugman piece.

Generally, I'd suggest looking into his varying uses of income and wealth. He starts with "income and wealth", and then quickly moves into income tax statistics. Certainly a good deal of wealth gets caught up in tax returns, but it tends to confound some things.

For instance, the housing boom wasn't due to 17000 ultra-rich (roughly the number of people the IR S reports for returns of people having an AGI higher than 5 million) buying up all the houses and land. Somehow, wether through relative growth in income/decline in cost, or through interest rate decline, homes became far more affordable, and provided a much larger return (a return that doesn't get realized until the sale of the home; or you can look at LOCAL taxes for property assessment changes). The low-sounding change in income growth for the middle and upper-middle class should be compared against other changes in purchasing ability and patterns.

As another example, Krugman also gets a little loose with his notions of "returns" as well. That top 99.99 percenter is likely to make a great deal of return on investments; returns that may pay off yearly or at least more frequently than some house sales. A 3% return on investments of $100 million is a lot higher in absolute terms than 3% on an investment of $100 thousand. The higher return then gets mixed in with income (depending on the investment). Even setting aside the massive change in C-level salaries, it seems natural to expect, during a time of continuing growth, a larger absolute return to the larger level of wealth.

In all, I think Krugman uses the fuzziness between wealth, income, and returns to paint a desperate picture. Inequality may be growing and harmful, but I think he's a long way from showing that Bernanke has gotten it "so wrong."

zoe said...

I agree that achieving a higher education is of great importance to some, not all, thus the reason I am furthering my education. However, I know that education is not what makes an individual successful. I know many people, my spouse included, that have not attended school outside of high school, and who actually did not finish high school for that matter. They have very well-paying jobs, good families, are successful, and are not suffering from not having not attained a higher education. So although an education is very important, it is not always the only factor that contributes to one's success.

Cole said...

The original article seems to miss the point. The author says, "Highly educated workers have done better than those with less education, but a college degree has hardly been a ticket to big income gains." Not everyone is going to be in at the top, but a lot of people can make a good living. I think what we need to focus on is the better-educated workforce that has emerged from higher education. A college education is not required for higher earnings by any individual. However, a college degree makes for a better-educated workforce and a somewhat proven path for worker advancement.