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Tuesday, May 8, 2007

Becker quote a little off-base

Mankiw cites Becker as saying:
"This brings us to our punch line. Should an increase in earnings inequality due primarily to higher rates of return on education and other skills be considered a favorable rather than an unfavor­able development? We think so. Higher rates of return on capital are a sign of greater productivity in the economy, and that inference is fully applica­ble to human capital as well as to physical capital. The initial impact of higher returns to human cap­ital is wider inequality in earnings (the same as the initial effect of higher returns on physical capital), but that impact becomes more muted and may be reversed over time as young men and women invest more in their human capital....For many, the solution to an increase in inequality is to make the tax structure more progressive—raise taxes on high-income households and reduce taxes on low-income households. While this may sound sensible, it is not. Would these same indi­viduals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education? We think not. Yet shifting the tax structure has exactly this effect."

I agree generally with Becker's placing eduction on such a high pedastal. I don't think redistributing income, however, should be abandoned.

Interestingly, no one else points out the very obvious fact that while the return to education begets income gaps, the reverse is also true: the have-littles don't often have as good of a chance to get the quality education as those that are well off do, for various reasons and variables related to the income gap itself. In other words, a little redistribution may be necessary to provide certain low-bracket individuals the opportunity to receive an education that might otherwise might be outside their grasp.

The only reason I can think that Becker would avoid that simultaneity issue here is perhaps because he has been too far gone up the crickety steps of the Ivory Tower he might not notice those low-income people way down below....

Wanting to devote more resources so more kids pursue higher education is of course great. The thing is, progressive taxation does that at least to some degree. If we get rid of progressive taxation, (or make it much less so) as Becker implies, and supplant it with some education incentive, exactly what would that look like? I don't think specifics were offered, so until they are, I'm sticking with at least some progressive taxation....

Furthermore, if we did use education incentives there would still be a large number of people who can't or just don't want to get a higher education, for various reasons: mentally challenged, socially inept, love doing a specific low-skill job.... Should we eliminate government assistance for them in the form of progressive taxation? If so, does this pose an ethical issue?

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