Tuesday, November 9, 2010

Matthew 25: Jesus, Youth Hockey, and Progressive Taxes

Last night as I was walking home from class in the drizzle, I was listening to Radio Lab, a snazzily produced NPR program that focuses on science topics. The title of the piece was "Secrets of Success." (You can hear the podcast here.)

In it, cohost Robert Krulwich asks author and New Yorker contributor Malcolm Gladwell why successful people thrive. (Gladwell answers this question at length in his recent book Outliers.) In responding, Gladwell brings up "the Matthew effect," a term coined in 1968 by the sociologist Robert K. Merton to describe the tendency of the rich to get richer--and vice versa.

The phrase derives from the last lines of Jesus's "parable of the talents," found in Matthew 25: "For to all those who have, more will be given, and they will have an abundance; but from those who have nothing, even what they have will be taken away" (Matthew 25:29).

Gladwell applies the Matthew effect to youth ice hockey in Canada. He suggests that when considering young hockey players, we find that talent is almost always directly related to age. Therefore, if Calgary selects its nine year-olds' all-star team, most of the players will be nine years and eleven months old; many players nine years and one month old will be left off the squad. Players on the team will receive more practice, more ice time, more coaching, and better equipment. And this trend will only snowball as time passes. Thus, a seemingly insignificant age advantage will eventually become a statistically significant talent advantage--the slightly rich get much, much richer.

Merton himself sees the Matthew effect in academic science departments, and argues that researchers with small advantages--specifically, posts at better universities--get disproportionally greater rewards than their more poorly placed colleagues. Said differently, a research scientist at the prestigious University of Wisconsin will win much greater renown--and more grant money, and better offices, and hotter research assistants--than a fellow researcher doing similar work at, say, the slightly less prestigious Kansas State. (No hate to Kansas State!)

As I got to thinking about it, I realized that we can also use the Matthew effect to rationalize progressive tax codes--whereby the rich are taxed at a higher rate than the poor.

Imagine two men residing in suburban Boston, where the cost of living for a single guy is around $50,000 a year. Imagine that both men earn that much money--$50,000--and both can make ends meet.

But then pretend that the second man also has a modest trust fund that pays out an extra $10,000 a year, bringing his total income to $60,000. The difference between the two salaries is small, but the second man's disposable income--$10,000--is infinitely larger than that of the first. If, over the course of a 30-year career, the second man puts that $10,000 a year in a standard individual retirement account, his modest investment will eventually pay out at over $1.4 million!

Small earnings advantages deliver significant income disparities over time. Just imagine, then, how larger advantages pay off. The progressive tax code softens Matthew effect disparities by taking more money from those with greater opportunities.

(And I know that I'm swimming out of my depth here--I'm not a tax lawyer. But I did find at least one tax guy who agrees with me.)

So check it out. Jesus can help you figure out tax policy. Or choose your tenure-track science position. Or pick a youth hockey team. Or write a hugely popular piece of popular sociology. You're welcome, Mr. Gladwell.

5 comments:

  1. I can't tell if you wrote this because you actually believe this crap, or to mess with people who actually enjoy their free-market capitalistic nation?

    A few things Mr. Blogger;

    A. Said people at the "prestigious" UW are probably better (more intelligent, creative, smarter and have more quality publications) researchers than those stuck at KState. Better performers should get rewarded and those not cut out for the task should be naturally selected out. (Similar argument for teacher assessments pissing off teachers unions)

    B. If you want to live in a society that celebrates when everyone gets to "make ends meat" (and I mean meAt, look up the etiology of the phrase) and give the rest to government, you should try communism, I hear it's a blast. To promote a thriving society we should want to celebrate the pursuit of wealth, as it is the only thing that drives innovation and creates more wealth. Why the hell would I work my ass off if I was just going to be as well off as John Doe? Also, why punish people for trust funds? It's at least one-less (and likely many more) person that will require welfare and social assistance. Also, kudos to the guy who invested and made 1.4million! That's called intelligence. Furthermore, it's the trust fund babies that have the capital to invest and create businesses the put you and I to work. I might be a bit jealous of them at the bar, but if they give my son or daughter a job, more power to them.

    C. Progressive taxes are for the proponents of laziness. Why don't you tell guy 1 at the bar to get out and do something extra to make up for his deficiency? It's absolutely no wonder this is a Gladwell piece, the guy is as wacko as they get. I'll tell you what though, he sure knows how to rile people up and make good money out of it by selling his books and publishing mag articles. Probably wouldn't work so hard at it if he made as much as the welfare case next door. I doubt even he believes this.

    -You know who this is!

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  2. To meAt or not to meAtNovember 11, 2010 at 9:13 AM

    If I may Anonymous, are you sure it is meAt and not meet? I found this to be particularly interesting point, but was unable to confirm that your usage was in fact correct. Here is why:

    Some online sources link the phrase to a depression era poem about sausage making:
    ECONOMICS FOR SAUSAGE MAKERS - Unknown
    "I buy a pig," the butcher said,
    "And grind 'er up complete,
    Excepting for the nose and tail,
    For they ain't fit to eat.
    That's why I'm always broke," he wept;
    "I can't make both ends meat."

    But others link it as far back as 1661 in Thomas Fuller’s The History of the Worthies of England: “Worldly wealth he cared not for, desiring only to make both ends meet; and as for that little that lapped over he gave it to pious uses”

    That to me makes it seem that the depression era poem was a pun, and not in fact the correct usage.

    Do you have another older source suggesting meAt?

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  3. What a fun, if unexpected, etymological discussion.

    I actually do know the etiology of "make ends meet/meat," anonymous. I also know that etiology can alternately be spelled aetiology. However, I think I am in the minority on both counts, so I stick with the standard version of each.

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  4. My friend--a real live tax guy--chimes in with this correction to my dilettantish discussion of progressive taxes ...

    "Your general broad-based theory is correct; though I wouldn't have used such small numbers close together. 1.4 million over 30 years isn't actually a ton of money. Further if our society was just spread out between $50k and $60k a year I think we'd be fine. The problem is better illustrated in the BC Law Review article where it shows the growth in the top 1% from $400k to 1.2m over 20 years v. the bottom bracket growing from 13.5k to 14.6."

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  5. Even if we take the (generally fallacious) assumption that the top 1% are much more intelligent and thus deserve the wealth, it has led to other consequences, like the arms race of conspicuous consumption -- where quite a number of the super-rich (and supposedly intelligent) compete with each other to consume huge quantities of resources (very often by employing high leverage), which contributed quite nicely to the economic crisis. And then of course, Obama has to bear the blame for not salvaging the US economic situation.

    *sorry Prof. Pederson, couldn't help but to babble a little -- hope you are doing well!

    ReplyDelete

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