The Upper Middle Class



Several writers (Charles Murray, Robert Putnam, Richard V. Reeves, Matthew Stewart in The Atlantic) have pointed out that the upper middle class is pulling away from the rest of the middle class. The upper middle class is usually defined as the top 20% of Americans, based on income.

What is causing that?

The place to start is with statistics. Suppose you rolled a pair of dice a lot of times and kept track of the results. What you would get would be: 2's and 12's about 1/36 of the time, 3's and 11's about 1/18 of the time, and so forth. If you use statistics to measure how spread out they are, called the variance, you would get 5.83, where zero means they are all the same. Now suppose you paint one of the dice red and the other blue, and repeat the experiment, keeping track not only of the total, but of each individual die. The variance of the total would stay the same, but now we can measure the variance of each die. Both the red die and the blue die will have a variance of about 2.92, about half of the total. That is what we should expect, since they are the same.

Suppose we replace the numbers on the blue die with 2, 4, 6, 8, 10, and 12 (i.e. twice as much). If we run the experiment again, the variance of the total will increase from 5.83 to 8.75, and the variance of the blue die will increase from 2.92 to 5.83, again twice as much. That is what we should expect. The variance of the total of the two dice is still the sum of the variances of each of the individual dice 8.75 = 5.83 + 2.92. That works because the dice are independent of each other: what one does doesn't affect what the other does.

Now we go back to two regular dice: one blue and one red.

Let's suppose that we sort the dice before adding them together. If we sort both the red die results and the blue die results in increasing order, then add them, we get that the 2's, 4's, 6's, 8's, 10's, and 12's each appears about 1/6 of the time, and the odd numbers hardly appear at all. Now, if we compute the variance of the totals, we get about 11.67, twice as much as before. Where did the extra variance come from? It came from sorting the dice. If we add up the variances, the blue die still contributes 2.92, but that's now just 1/4 of the total, not 1/2. Similarly, the red die stays at 2.92, but its share also drops to 1/4. The remaining half comes from the fact that the two dice are now tightly connected: if the red die result is 3, then the blue die result will also very likely be 3.

Next let's sort the red die results in increasing order and the blue die results in decreasing order: we get almost all 7's, with a few 6's and 8's. Now, if we compute the variance of the totals, we get close to zero. Where did it go? It was the result of sorting the dice, just like before, when we sorted them both the same direction.

When we increase the variance by sorting them the same way, it's called positive covariance; when we do the opposite, it's called negative covariance. In general, when we have a result that is caused by more than one factor, we can analyze how much each factor contributes to the final result. This is called Analysis of Variance. If the factors are correlated with each other, then we get positive or negative covariance as contributing factors. I first learned of covariance from the book Inequality by Christopher Jenks. He attributed the variance in intelligence about half to genetics, about 20 or 30 percent to environment, and the balance to genetics - environment covariance.

Now let's apply that idea to the distribution of income and how inheritance is affected.

Over the past half century or so, the economy has become increasingly technical. We have more engineers, lawyers, accountants, and other professionals. We have fewer factory workers and farmers. As a simple result of the laws of supply and demand, this has caused increasing incomes for professionals compared to others.

Because professionals need more education, there is now a stronger link between education and income. The wage premium of education has been increasing.

It used to be that all you needed to go to college was enough money. Now the elite colleges have become selective. They require high SAT scores and other credentials. This has strengthened the link between intelligence and education.

In the 1970s, women entered the workforce in increasing numbers. This changed marriage patterns. Doctors used to marry nurses, lawyers married secretaries, accountants married receptionists. Now doctors marry doctors, lawyers marry lawyers, and accountants marry accountants. This is called assortative mating.

Since intelligence is partly a result of genetics, a child of intelligent parents benefits both environmentally and genetically.

Since about 1970, the divorce rate has been increasing among lower income families but has remained more or less steady among the upper middle class. Since single parenthood is a strong predictor of poor outcomes for the children involved, even after accounting for reduced incomes, this also affects income distribution.

Now the links from income to education, from education to intelligence, from all of those to a similar spouse and to family structure have become stronger. If a child has a high income father, he also most likely has a well educated, intelligent father, and a similar mother who is married to his father. He hits the jackpot. But if he has a low income father, then everything works against him.

Over the past half century, the positive covariance has been increasing. That means that children of upper middle class parents are likely to become upper middle class themselves. Similarly for children of lower class parents. This reduces economic mobility.

It's hard to see what should be done. It's good that our economy has more professional people and fewer semiskilled workers. It's good that well educated people are being funneled into the professions. It's good that admission to selective colleges is based more on merit. Few would dispute that the entry of women into the workforce was good. To a very large extent, the increase in inequality and social immobility has been the unintended consequence of good things. The only available policy variables are the divorce rate and the illegitimacy rate among lower income people. But it's hard to see how to influence them.

So, what do we do? A common response is a variation on a Universal Basic Income (UBI). This is being promoted by Andrew Yang among others. The idea is that the government would give everyone money on a regular basis. Doug Saunders described this approach as paying poor people to go away: "A universal income just says, 'Here's some money, go off in a corner and stop complaining.' A job is a source of self-worth. Buying people out of the labour market does not create an equal society, it just hides the problem." That is the problem with UBI. Voltaire wrote: "Work keeps at bay three great evils: boredom, vice, and need." - Candide. I would replace boredom with meaninglessness or lack of prestige.

The New Yorker had an article about coal miners in Appalachia. It mentioned that during World Wars I and II, coal miners were sometimes exempt from the draft because they were an essential occupation. Also the job was dangerous. Coal miners had (and to some extent still have) great prestige: "In Greene County, miners are treated like gods". A UBI wouldn't restore their prestige.

Life expectancy in America has declined for three years. A major reason is the "deaths of despair": suicide and opioid overdoses. The overdoses can be attributed to the failure of work to keep vice at bay. The suicides can be attributed to the failure of work to provide meaning. A UBI wouldn't fix those problems and might make them worse.

We also have had some experience with a UBI.

Salman Ramadan Abedi bombed the Manchester Arena in 2017, killing 23 people, including himself, at an Ariana Grande concert. He had been receiving money from the British government as student loans even though he had stopped attending classes. In effect, he had been receiving a UBI.

The Economist reported that Europe had a worse Islamic terrorist problem than America. It attributed that to Europe's social welfare system. After discussing the French regulations on Islamic dress and the Charlie Hebdo cartoons, it wrote: "In America, it is easy for a newcomer to get work and hard to claim welfare; in Europe the opposite is true. Deregulating labour markets is a less emotive subject than head-scarves or cartoons, but it matters far more."

A related problem is marriage. Many social scientists have observed that men are less likely to commit crimes if they are married. The Economist reported that it had been attributed to "the calming effect of marriage", but that is just a tautology. Evolutionary psychologists concluded that unmarried men have little to lose genetically, so they have an incentive to take great risks. Once they get married, they have a lot to lose. The Economist concluded that the effect should be attributed to: "ambition fulfilled". An interesting example occurred when the Palestinian Liberation Organization decided to decommission its terrorist operation following a peace treaty. The leadership recruited the most beautiful women they could find and held a party with them and their fighters. A lot of marriages resulted. Later, as a test, the PLO leadership asked some of the men if they would be interested in starting up the fight again. They said "no". George Guilder made a similar point in his book "Sexual Suicide".

The most dangerous people in society are unemployed, unmarried, young men. A UBI could make the problem worse.

Another current example is Alaska. It already has a UBI, based on its oil revenue. It has an interesting effect on its politics. It's very hard politically to cut it, so when the state runs low on money, the politicians tend to cut other services, such as education.

One of H. G. Wells' most famous novels is The Time Machine. The narrator travels into the future where he meets the Eloi, a quiet, well mannered race. They are preyed upon by the Morlocks, a rough, brutal race that operates the machines that keep civilization going. With the benefit of hindsight, it's clear that Wells had projected the British class system forward: the upper class had become effete and useless, while the lower class was doing all the work. He got it half right. The classes are diverging, but not in the way Wells had imagined. We are moving into an age where the professionals have the best of everything and do the necessary work, while the rest are cast aside.

Posted 2019/September/13