On the day the article was published in Policy Review Jonathan Chait, columnist and editor of The New Republic, wrote a column in The New Republic challenging the article.  His column was entitled, “The Rich are Different: They’re Luckier”.  This is the link to the column:

The thrust of the column was that my essay did not adequately consider the role pecuniary luck plays in determining income.  Mr. Chait had not read the unabridged version of the essay, so he was unaware of that the role of luck was discussed in some detail (on page 5).  I emailed him suggesting that he read that section.  He was nice enough to reply, so it gave us an opportunity to explore the issue more fully. 

Mr. Chait has given me his permission to post this with this caveat: “Please make clear it was an email, not a something I wrote intended to meet normal publication standards.”

What follows is the email string.  The RED text insertions are my comments interspersed within his text.

Because it is an email string, it is best to read this from the bottom up.

—–Original Message—–
From: Jon Chait
Sent: Thursday, April 14, 2011 11:32 AM
To: Kip Hagopian
Subject: RE: Your critique of my article in Policy Reviewur

Yes, you can go ahead and publish it. Please make clear it was an email, not a something I wrote intended to meet normal publication standards. 

From: Kip Hagopian 
Sent: Thursday, April 14, 2011 2:27 PM
To: Jon Chait
Subject: RE: Your critique of my article in Policy Reviewur

Dear Mr. Chait,

I appreciate your engaging me on the issues on which we disagree.  My purpose in writing the essay was to ignite a debate over the equity of progression, so I am glad that you have chosen to express your views. Inserted in red are my responses to the points you raise in your last email. 

As I said in my last email, I would like to post our email exchange on my website, which is the forum I created for this purpose.  Of course, you are free to do the same on the TNR website.  Are you OK with that?



—–Original Message—–
From: Jon Chait 
Sent: Sunday, April 10, 2011 6:55 PM
To: Kip Hagopian
Subject: RE: Your critique of my article in Policy Review

a few quick points:

1. I described you as wealthy because your bio described you as a co-founder of a venture capital and private equity firm. I made an assumption that you are therefore rich. is this not true?

Yes.  By most people’s standards I am wealthy.  But I didn’t start life that way, I started in debt. My father was a truck driver. I am the first in my family to go to college. I grew up inEast LA and have never set foot in a private school or college. I do not consider this “story” to be unusual or particularly “heart warming”; I know hundreds of so-called wealthy people who come from similar circumstances of birth.  I am not sure what your point was in describing me that way. 

2. I described you as a right-winger because the views expressed in your essay by definition make you a right-winger. If you read an essay arguing that capitalism is exploitation and advocating collective ownership of the means of production, would you not assume that the author was left-wing (even if he might have non-leftwing views on abortion or some other issue)?

By calling me a “right-winger”, based on the views I expressed in the paper, you appear to be saying that my conclusions are based on ideology, rather than objective scholarship. I could even infer that you are accusing me of intellectual dishonesty.  Is that what you believe?  If so, why? Instead of labeling me in a pejorative way, why not just identify what you believe are the weaknesses in my logic or scholarship and let it go at that? I expect people to disagree with me; that is how I learn.  But your approach to disagreement seems to be uncalled for and not very productive.

3. We’re agreed that a rich child is likely to have better genetic intelligence, better parenting, better schooling, better social environment, and better health than a poor child, and that all these things contribute to aptitude and are likely to make him better prepared to make a lot of money in the market completely independent of any other luck factor. We’re disagreed on two points. The first is how appropriate it is to describe this as “luck.”

I do not necessarily agree with your first sentence as written because it assumes that the success in life of the children of rich parents is because of the parents wealth.  I think you would agree that there is a strong positive correlation between, income and aptitude. So how do you know that the actual causal factor in determining a child’s success is the parents’ aptitude, and not his wealth?  In all probability, the success of the children you describe derives from a combination of: innate aptitude, “learned aptitude” (due to the parenting skills of educated or rich parents), “ehnanced aptitude” (which comes from individual work effort), and, possibly, family connections.  I would put “family connections” in last place on this list.

As to your question in the second sentence, I don’t really understand it.  I consider myself one of the luckiest people in the world because I was born with an above average brain and caring parents.  I think that positioned me to become successful in the occupation of my choice, whether it had been teaching school, investment banking, or running an investment company (which is where I ended up).  According to your bio, your father was a doctor, which makes it very likely that you inherited a reasonably high IQ (by the way, was your father born into a rich family?).  And from reading your work, it is clear that I am right.  Do you not feel lucky that you were born with these endowments?  You could just have easily been born to a single parent with a drug habit.  As far as I can tell, you have been very successful at what you do.  Do think your success was because of a lucky break or family connections?  If so, don’t you think that, if you had not had such a break, you would still have achieved success?

The second is, I don’t feel you’re grappling sufficiently with the reality that luck plays an enormous role even outside of the parts of luck that contribute to aptitude. Again, poor kids with average math test scores generally don’t get to attend college, while affluent kids with average test scores do. Even after luck has stacked the deck of aptitude, being rich gives you even more luck on top of that. A lot more.

I am really surprised that you discount raw aptitude as much as you do.  I don’t think family connections helped LaBron James very much and he makes $30-40 million a year.  Steve Jobs was an orphan whose adoptive parents were middle class.  Warren Buffet grew up in very modest circumstances.  I could go on.
If a child in the top quintile who doesn’t get a college degree is more likely to be in the top quintile than a kid born into the bottom quintile who did get a college degree, then this is another powerful demonstration of the role of luck beyond aptitude. Indeed, bottom fifth college graduates almost certainly have far, far greater aptitude than top fifth non-graduates. I guess we are excluding from the sample, Bill Gates, Steve Jobs and Mark Zuckerberg (for example) who are all college dropouts?

Let’s assume you are right, i.e., the child of a of rich family generally goes on to make more money than a poor kid even though the latter graduated from college and the former did not.  As I point out in the paper, the number of people who inherit a significant amount of money or who are born “rich” (if rich is defined as a family whose income exceeds $250,000–a very low bar for defining rich, in my opinion), is quite small.  Based on the data I presented, it is around 3-4% of the population.  That means the other 96% were not born rich.  Actually less because when most people are born, their parents are just starting out in life.  For those parents who eventually do get “rich”, it is usually not until their 50s, 60s or older that they achieve that status.  By that time most their offspring are well into their careers, which suggests that the luck of coming from a rich family did not come at a time that could have had a significant impact.  As I say above, the people who are most likely to achieve high incomes are those born into families who are high achievers.  Those are almost always people who have high-value aptitudes, or who work very hard, or both.

We can agree to disagree on whether Bill gates, born 20 years earlier, would have been anywhere near as rich as he was. I can’t prove it.

I think it is very surprising that you would even make the assertion you did about Gates.  By all accounts (including my personal time spent with him, my 25+ years of tracking his career, and my multiple investments in companies that competed with him), Bill Gates has one of the most brilliant minds and is one the most extraordinary entrepreneurs of the 20th century.  On what conceivable basis do you suggest that, if not for luck, he would not have been highly successful?  Of the things about your article that I disagree with, this is probably at top of my list.

There’s data enough to prove that just the class element of luck is extremely important, overwhelming the importance of aptitude. In other words I see your framework as not just in need of tweaking but fundamentally broken.

You say: “There’s data enough to prove that the ….element of luck is extremely important, overwhelming the importance of aptitude”.  Here you are making a sweeping generalization.  What data do you have to support such a generalization?  You seem to be saying that the vast majority of successful people are successful because they were born rich.  How does that square with the fact that less than 5% of families are rich? (Actually,  using a better definition of “rich” it is closer to 1 or 2%.)  If only 5% or fewer are rich, how can there be more than about that percentage of people who have the advantage you are attributing to luck?  And how do you account for me? And the millions of other people like me who are mostly self-made.  By the way, if you haven’t seen it, take a look at a short article by Russ Roberts (apparently another right winger), writing on the Cafe Hayek website.  He used the same data source as you in his recent review of Stiglitz’s essay in Vanity Fair.  His insight is interesting;

So let’s turn to most important issue.  To wit:  What difference does it make whether some or most people become well-to-do primarily because of luck?.  How does that change my thesis that progression is inequitable?  To the extent that the lucky people work harder than all of the other people with the same amount of luck, the hardest working lucky folks will end up with lower after-tax income per hour than the lucky ones who don’t work as hard.  This is inequitable on its face, is it not?  And what if we leave work effort and aptitude out of the equation entirely; isn’t it likely that there is a distribution curve for luck (like there is for aptitude)?  If so, some people would be luckier than others.  If that is the case, we would want to tax people based on how lucky they are; i.e., the luckier you are, the more you should pay in taxes.  Assuming we measure luck according to how much money you make, we would tax luckier people more than less lucky people.  But how much more?  This is the place where you and probably disagree the most.  What is the principle that would have us tax them at progressive rates?  I believe that I have shown clearly that the non-income benefits of government are essentially equal for all citizens–that is, government benefits like national defense, police and fire protection, infrastructure, etc., are the same for rich, poor and everyone in between (assume the needy are taken care of out of spending programs).  I believe I have also shown conclusively, I believe, that the benefits of government (including well being) do NOT increase more rapidly than income.  So what conceivable reason could there be to tax the luckier people more than in proportion to their income (which is the only thing I can think of that puts a value on luck)?

—–Original Message—–
From: Kip Hagopian 
Sent: Sun 4/10/2011 8:50 PM
To: Jon Chait
Subject: RE: Your critique of my article in Policy Review
Dear Mr. Chait,

Thanks for your reply. Sorry it has taken a few days to respond.

In thinking about your article, I’ve decided that its title is basically
correct. But as I mentioned in my earlier email, we disagree on which type of luck is really important. I contend that the primary determinant of income is aptitude and other circumstances of birth.  Parenting and environment is a big part of the latter, so being born into a rich family could have some benefit (or not; many children of the rich really struggle), particularly since most well-to-do couples are better educated and are less likely to live in high crime areas. I suggest that the other end of the income scale is probably more important in looking at the luck factor. A child born to a single mother who is entrenched in poverty, is less likely to develop a high-value aptitude than a child born into a family in the lower-middle class or higher. A family doesn’t have to be rich to raise a successful kid, but a child raised by a single mother in abject poverty is very likely to be handicapped. So I would say that a better title for your article might be: “The Underclass is Different: They’re Less Lucky.” I say “less lucky” rather than “unlucky” because I have had very positive personal experiences with several young African-American men and woman who were raised in single-parent families in poor neighborhoods. These are college
graduates to whom my wife and I have granted scholarships to attend graduate business school. In each case their life story is heart wrenching but inspiring. 

As I point out in the paper, very few people inherit large sums of
money, and what is inherited does not appear to be more than 3% of the sum of earned and inherited income.  Moreover, only the top 2-4% of earners could be considered wealthy or privileged (if you consider someone earning $200,000 to $250,000 per year either wealthy or privileged), so it is seems unlikely that the “lucky” ones comprise a large group.  So even if your concerns are valid with respect to the differences in upward mobility among people in the lowest income quintiles and those in the highest quintiles, the incidence of this seeming inequity appears to be minor.  As I say in the essay, aptitudes are distributed unequally.  This is unalterable.

But none of the foregoing is really relevant to my thesis. I am not
saying that the offspring of high-income people don’t have advantages in life.  What I am saying is that, however and from whomever one’s aptitude is derived, it is for most people, the most significant determinant of income.  And for any given profession, the second most significant determinant is work effort.  So, let’s assume that Tom, Dick and Harry are the triplet sons of a very wealthy family, that all had the aptitude to become Harvard-educated, corporate lawyers.  My contention is that if the three brothers’ work effort varied as cited in the essay, and that Harry’s wife also worked as a lawyer for the number of hours cited, the same basic inequitable outcome would result.  I think this is plainly unfair.

Thus, I recap my position: 1) taxing income from work effort
progressively is inequitable on its face; 2) government benefits do not rise more rapidly than income, so taxing income from aptitude or work effort progressively is inequitable; 3) the most equitable (or least inequitable) tax system is one that taxes people in proportion to the amount of value they get from their government services; and 4) since income is a reasonable proxy for value received, income should be taxed proportionately, regardless of how it was derived–from aptitude, from work effort, or from “luck”. This means that if I earn 20 times as much money as Jonathan Chait, I should pay 20 times as much in taxes. This is
despite the fact that the non-income benefits you and I receive from our government are probably about the same.

The worst thing about the progressive tax is not how it affects rich
people–in fact, they are hurt the least. It is the people who are born with lower-value aptitudes–those whose primary means of raising their standard of living is by working harder–who are hit the hardest.

On another issue: You seem clearly to have implied in your article that I am a “wealthy right winger”.  And you appear just as clearly to have used the term pejoratively. Why do you think I am a “right winger”?  And what is your basis for speaking of me in a pejorative manner?


Kip Hagopian

PS: Subject to your approval, I would like to post this email exchange on my website and yours. I am seeking your permission because I don’t feel comfortable posting your personal email comments without it.  I will probably post my comments in any event and just refer to your article.

 —–Original Message—–
From: Jon Chait 
Sent: Sunday, April 03, 2011 6:45 PM
To: Kip Hagopian
Subject: RE: Your critique of my article in Policy Review

Ok, thanks for the note. We’re agreed that luck plays a large role. Great parenting is the most important kind of luck. But the data I presented, which is one small piece of a great deal of evidence demonstrating the role of different kinds of luck, goes far beyond that. Right? The fact that poor kids who graduate college are less likely to be rich than rich-born kids who don’t shows that even having natural smarts and drive is not, on the aggregate, as important as circumstances of birth.

 —–Original Message—– 
From:         Kip Hagopian  
Sent: Sunday, April 03, 2011 12:53 PM 
To:   Jon Chait 
Subject:      Your critique of my article in Policy Review 
Dear Mr. Chait, 
It appears from your comments on my article in Policy Review that you have not read the unabridged version of the essay, the link to which is referenced in footnote one in the article (the domain name is:  Unfortunately, it is a bit longer than the PR article.  
There are two important issues discussed in the unabridged version that, because of space limitations, did not make it into the PR article. One is the issue you addressed, namely, the role that pecuniary luck plays in determining income.  You will find my analysis of this on page five of the full essay.   My take on this will probably not change your mind, but I do think it is worth your time to read it.  The short version is that I believe that luck is huge in determining income, but, for the most part, it is not the kind of luck you describe.  The greatest luck of all is the luck of being born with a high-value aptitude as the progeny of competent and caring parents.  As I define it in the essay, aptitude does not just derive from one’s genetic endowments, it is also shaped by parenting, life experiences, and quite importantly, one’s own work effort.  So you are right to say that being born to a rich family can (but not always)  lead to a higher valued aptitude simply because of the family environment.  But the opposite is also true.  Frankly, I have always felt sorry for most of the people I know (and have competed against) because they grew up rich (my father was a truck driver/entrepreneur).  I think you are wrong, however, to
suggest that Bill Gates would not have become wealthy if had not been for the year in which he was born.  I assure you Gates would NOT have ended up as a lab geek.  And if he had started a restaurant chain, I am almost certain it would have been very successful. (Have you ever met him? I spent two hours over dinner with him once and he is quite impressive up close.) 
I learn something from every criticism I get on the essay.  In this
case, since I do say on page five that luck is a “minor” factor in
determining income, I should not say or imply that luck plays no role. When I listed the three factors that determine income, I should have made clear that these are the “primary” and not the sole factors.  I will change the paper accordingly.  This is thanks to you. 
Kip Hagopian 
PS:  In case you are wondering: The other important issue discussed in the unabgidged version is entitled, “On Social Justice: What Would Rawls do?”.  It appears on pages 25-27.

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