Seriously Curious

by Tom Standage

  But a good education alone cannot propel the merely upper-middle class into the ranks of the rich. Few engineers, nurses or pharmacists make it to the top 1%, which is dominated by bankers and other financiers. Recruiters in the financial industry place high premiums on pedigree. Here the Ivies play an outsize role; graduates of elite private universities such as Harvard and Yale are much more likely to end up on Wall Street. Moreover, data from Mr Chetty and colleagues show that it helps to start off rich in the first place.

  This trend is even more pronounced at the very top of the income distribution. Between 1999 and 2004, just 2% of Princetonians came from the families in the lowest 20% of earnings, while 3.2% came from families in the top 0.1%. The admissions process at top colleges is sometimes further skewed by the preferential treatment given to family members of alumni. When the researchers looked at Harvard’s most recently admitted class, they found that 27% had a relative who also went to that “college near Boston”. This suggests that the simplest way to become extremely rich is by being born to rich parents. The second-easiest way is to find a rich spouse. If neither approach works, you could try to get into a top college – but remember that not all Princetonians become plutocrats.

  Why women still earn much less than men

  Payroll clerks across Britain have been busier than usual. New rules mean that, as of April 2018, all large employers are required to publish annual data on the gap in pay between their male and female workers. In America, by contrast, President Donald Trump halted a similar rule that would have taken effect the same year. Such requirements are meant to energise efforts towards equal pay for men and women. The data suggest that a new approach is needed. In the OECD, a club of mostly rich countries, median wages for women working full time are 85% of those for men. Why do women still earn so much less?

  Contrary to popular belief, it is not because employers pay women less than men for doing the same jobs. According to data from 25 countries, gathered by Korn Ferry, a consultancy, women earn 98% of the wages of men who are in the same roles at the same employers. Instead, the gap arises because women outnumber men in lower-paid jobs, such as secretarial and administrative roles, whereas men predominate in senior positions. That means that in a typical company, average male pay is higher than average female pay. Women also cluster in occupations and industries that pay lower salaries overall. Primary-school teachers in the OECD, for example, earn nearly 20% less than the average for university graduates. In the European Union nearly 70% of working women are in occupations where at least 60% of employees are female. In America, the four jobs done by the biggest numbers of women – teacher, nurse, secretary and health-care assistant – are all at least 80% female.

  The main reason why women are less likely than men to reach higher-level positions is that they are their children’s primary carers. In eight countries polled by The Economist and YouGov in 2017, between 44% and 75% of women with children living at home said they had scaled back at work after becoming mothers – either by working fewer hours or by switching to a less demanding job, such as one requiring less travel or overtime. Only 13–37% of fathers said they had done so, and more than half of those men said their partner had also scaled back. This pattern means that men get a better shot at a pay rise or a promotion than their female colleagues, and are less likely to work in jobs for which they are overqualified. One study estimated that in America, women’s future wages fall, on average, by 4% per child, and by 10% per child in the case of the highest-earning, most skilled white women. In Britain, a mother’s wages fall by 2% for each year she is out of the workforce, and by twice as much if she has good school-leaving qualifications.

  Women’s lower salaries mean that they often fall into poverty when they divorce or are widowed. Lack of financial independence prevents some from leaving abusive partners. Policies and workplace norms that make it easier for men to split parental duties equally with their partners can help. Parents, for their part, need to instil in their children the idea that they can be anything – and not only if they are girls. Gender equality will remain elusive until boys are as excited as girls about becoming teachers, nurses and full-time parents.

  Why China is rebuilding the old Silk Road

  In May 2017 Xi Jinping welcomed 28 heads of state and government to Beijing for a coming-out party to celebrate the “belt and road” initiative, his most ambitious foreign-policy project. Launched in 2013 as “one belt, one road”, it involves China underwriting billions of dollars of infrastructure investment in countries along the old Silk Road linking it with Europe. The ambition is immense. China is spending roughly $150bn a year in the 68 countries that have signed up to the scheme. The summit meeting (called a forum) attracted the largest number of foreign dignitaries to Beijing since the Olympic Games in 2008. Yet few European leaders showed up. For the most part they have ignored the implications of China’s initiative. What are those implications, and is the West right to be sanguine?

  The project is the clearest expression so far of Mr Xi’s determination to break with Deng Xiaoping’s dictum to “hide our capabilities and bide our time; never try to take the lead”. The Belt and Road Forum (with its unfortunate acronym, BARF) was the second set-piece event in 2017 at which Mr Xi laid out China’s claim to global leadership. (The first was a speech against protectionism made at the World Economic Forum in Davos in January.) In 2014, Wang Yi, the foreign minister, said the initiative was the most important component of Mr Xi’s foreign policy. Its ultimate aim is to make Eurasia (dominated by China) an economic and trading area to rival the transatlantic one (dominated by America).

  Behind this broad strategic imperative lies a plethora of secondary motivations – the number and variety of which prompt Western scepticism about the coherence and practicality of the project. By investing in infrastructure, Mr Xi hopes to find a more profitable home for China’s vast foreign-exchange reserves, most of which are in low-interest-bearing American government securities. He also hopes to create new markets for Chinese companies, such as high-speed rail firms, and to export some of his country’s vast excess capacity in cement, steel and other metals. By investing in volatile countries in central Asia, he reckons he can create a more stable neighbourhood for China’s own restive western provinces of Xinjiang and Tibet. And by encouraging more Chinese projects around the South China Sea, the initiative could bolster China’s claims in that area (the “road” in “belt and road” refers to sea lanes). Yet some of these ambitions contradict others: is a dodgy project in central Asia a better place to invest than American government securities? And with different motivations go conflicting interests. There is infighting between the most important Chinese institutions involved, including the ministry of commerce, the foreign ministry, the planning commission and China’s provinces. To make matters worse, China is finding it hard to identify profitable projects in many belt-and-road countries (business people in China call it “One Road, One Trap”). To cap it all, China is facing a backlash against some of its plans, with elected governments in Sri Lanka and Myanmar repudiating or seeking to renegotiate projects approved by their authoritarian predecessors.

  That may seem to justify Europeans’ decision to stay away. But the suspicion that the project will fail could be misguided. Mr Xi needs the initiative because he has invested so much in it. China needs it because it provides an answer of sorts to some of its economic problems. And Asia needs it because of an insatiable thirst for infrastructure. The belt-and-road initiative has plenty of problems, but Mr Xi is determined to push ahead with it.

  Why “death taxes” have fallen out of favour

  Once they were feared. Only a few decades ago inheritance taxes and estate taxes took a big bite out of the largest fortunes when their owners passed on. Before the second world war Britons were more likely to pay inheritance tax on death than they were to pay income tax while living. Around the same time the top rate of estate tax in America was 77%. How things have changed: America could be on
the verge of eliminating its estate tax entirely, while Britain is cutting the number of people who are subject to the tax each year by a third. A raft of countries, from India to Norway to Australia, have eliminated their inheritance taxes entirely. Why have governments all over the world turned away from death duties?

  The economic argument in favour of cutting death duties is weaker than you might suspect. There is little evidence that lower death duties encourage saving or investment; nor does the prospect of being able to pass more on to their offspring encourage people to work harder. Instead, research suggests that a large proportion of bequests from one generation to the next are “accidental”. People save money not to pass on, but to cover unexpected costs while they are alive. Nor is there much evidence that high death duties prompt rich folk to flee to lower-tax jurisdictions, which was one of the main arguments used in Sweden to justify its abolition of inheritance tax in 2004.

  Perhaps a better explanation for why governments have turned against death duties is simply that the public hates them. Inheritances are deeply personal, and are often the biggest single gift that many give to causes they believe in or to loved ones they cherished. Many see the estate tax as a “double tax”, since it is often paid on income that has already been subject to income tax. This is not the strongest of arguments, though. If avoiding double taxation were a requirement of good policy, then governments would also need to abolish sales taxes. Nonetheless, politicians have realised that they are onto a winner. Both George W. Bush and Donald Trump found, as presidential candidates, that promises to repeal the estate tax proved highly popular.

  Yet some economists worry about the trend towards tiny or even zero death duties. The rich world has high levels of wealth inequality. Half of Europe’s billionaires inherited their wealth, for instance. The annual flow of inheritances in some rich countries is around 10% of GDP, far above its level a few decades ago. If governments want to avoid the creation of a hereditary elite, they might want to think again about doing away with death duties.

  Wealth inequality has been increasing since the stone age

  The one-percenters are now gobbling up more of the economic pie in America – that much is well known. This trend, though disconcerting, is not unique to the modern era. A study by Timothy Kohler of Washington State University and 17 others found that inequality may well have been rising for several thousand years, at least in some parts of the world. The scholars examined 63 archaeological sites and estimated the levels of wealth inequality in the societies whose remains were dug up, by studying the distributions of house sizes.

  As a measure they used the Gini coefficient (a perfectly equal society would have a Gini coefficient of zero; a society where one person owns all the wealth would have a coefficient of one). It rose from about 0.2 around 8000BC in Jerf el-Ahmar, on the Euphrates in modern-day Syria, to 0.5 in around 79AD in Pompeii. Data on burial goods, though sparse, suggest similar trends.

  The researchers suggest agriculture is to blame. The nomadic lifestyle is not conducive to wealth accumulation: there is a limit to how much you can carry around. Only when humans switched to a settled existence based on farming did people truly begin to acquire material riches. Inequality rose steadily after the shift to agriculture, but tailed off in the Americas after around 2,500 years. In the old world, however, wealth inequality continued to climb for several millennia. That may be because Eurasia was richer in large mammals that could be domesticated. Horses and oxen greatly improved farm productivity – but livestock were mainly owned by the rich (who could also rent them out). In traditional African societies, livestock remain an important store of value. The agricultural revolution was good for humanity, because it supported a larger population and paved the way for modern civilisation. But it was awful for egalitarians.

  Nice digs

  Gini coefficient of house sizes at archaeological sites 1=perfect inequality, 0=perfect equality

  Source: “Greater post-Neolithic wealth disparities in Eurasia than in North America and Mesoamerica” by Timothy A. Kohler et al

  What makes something a commodity?

  A commodity, said Karl Marx, “appears at first sight an extremely obvious, trivial thing. But its analysis brings out that it is a very strange thing, abounding in metaphysical subtleties and theological niceties.” A commodities trader might snort at such a definition: there is nothing much metaphysical, after all, about pork bellies, say, however divine (or sinful) the taste of bacon. Yet for thousands of years, from rice in China to gold, frankincense and myrrh in Biblical times, to spices in the days of empire, commodities have been the building blocks of commerce. At the peak of the China-led super-cycle in 2011, they accounted for one-third of the world’s merchandise trade. They encompass an array of materials – from food and flowers to fossil fuels and metals – that appear to bear little relation to each other. What makes something a commodity?

  In society at large, the word gets pretty bad press. In business-school jargon, commoditisation, of everything from silicon chips to Christmas cards, is associated with dull, repetitive products, however useful, that generate low margins. The extraction of physical commodities such as oil or iron ore, meanwhile, has an unseemly air to it. People talk of the “resource curse” (the impact of cyclical ups and downs in prices on poor countries), “Dutch disease” (the impact of high prices on exchange rates), and “blood oil” and “blood diamonds” (the use of proceeds from extractive industries to fund conflict). Some worry that even love has been commoditised by dating apps and websites.

  In economic terms, commodities are vital components of commerce that are standardised and hence easy to exchange for goods of the same type, have a fairly uniform price around the world (excluding transport costs and taxes) and are used to make other products. They are extracted, grown and sold in sufficient quantities to be traded in highly liquid markets, often with futures and options to help producers and consumers protect themselves against price swings. Such commodities include cocoa and coffee, zinc and copper, wheat and soyabeans, silver and gold, and oil and coal, along with numerous other raw materials. Our lives, literally, depend on them. So do many of the world’s economies – and not just corrupt petro-state dictatorships. Britain’s industrial revolution would not have got going without coal.

  Some raw materials would benefit from being treated like commodities, but are not. Diamonds do not qualify, because each one differs in quality. Rare-earth elements, though not as rare as the name suggests, are sold in differing grades, often via murky backroom deals, and the volumes are too low for a commodities exchange. Unlike oil, natural gas is not traded worldwide. Its price is mostly determined by long-term contracts that vary from region to region. It may, however, be next in line to join the ranks of global commodities, as growing worldwide shipments of liquefied natural gas make its price more uniform. Meanwhile, other once-celebrated commodities have lost their claim to fame. With the 1958 Onion Futures Act, America banned futures trading of onions, after two men cornered the Chicago market. The frozen concentrated-orange-juice market is being squeezed despite Eddie Murphy’s best efforts to popularise it in Trading Places – consumers are opting for fresh varieties. In 2011, the Chicago Mercantile Exchange even stopped offering trade in frozen pork-belly futures. Some commodities may have existed since before the dawn of mankind. But not all of them will be commodities for ever.

  Does longevity always increase with national wealth?

  “In the end, it is not the years in your life that count. It is the life in your years,” goes the saying. Many people fear that a trade-off between the two is inevitable: they may live to a very old age, but their final years may be spent in wretched health. Data from 30 European countries suggest that such a trade-off depends on where people live, and whether they are men or women. The number of years of healthy life that the average person can expect can be determined from a survey asking people about long-term health problems that limit their usual daily activities. On average, Europ
ean women who turn 65 can expect to live about three years longer than men at that age, who have a life expectancy of 17.4 more years. However, women tend to spend much of that extra time in poor health; the number of healthy years for men and women is the same, at just over nine.

  Does it help to live in one of Europe’s richer countries? The data suggest that life expectancy at age 65 rises with a country’s wealth, but only up to a point. The trend levels off at a GDP per person of around $30,000 (adjusted for differences in price levels between countries), which is roughly the dividing line between eastern and western Europe. By contrast, the time spent in good health increases in a linear fashion with a country’s wealth. Italian 65-year-olds, for example, can expect to live about the same number of years as Norwegian ones, even though Norway is much richer than Italy. But Norway’s elderly are likely to spend nearly 80% of their remaining time in good health, whereas those in Italy can hope for just 40%.

  Live long and prosper

  Sources: Eurostat; IMF; The Economist

  *At purchasing-power parity

  This may be a result of countries’ spending on public services and infrastructure. Many characteristic health problems of old age, such as difficulties with hearing or eyesight, are not fatal; but unless they are dealt with, and unless public spaces are adapted to the needs of the elderly, they can make life miserable. Pavements, street signs and pedestrian signals, for example, are often designed for the young and able-bodied. Richer countries have more money to spend on making them better suited to older age groups. That may not extend lifespans, but it can help people make the most of their remaining years.