My recent post, Tough luck for dumb luck, linked an article by Robert H. Frank which disagreed with the contentions that the tax system strains the vital connection between individual effort and reward. Robert H. Frank argued that luck contributed heavily to success, and that “well-paid Americans owe an enormous, if rarely acknowledged, debt to the social investments that supported their success.”
Following an interview on Fox Business News, Robert H. Frank clarified his position this way in a Huffington Post column:
There’s no question that hard work and talent make someone more likely to achieve economic success. But for every successful person who exhibits these qualities, there are hundreds of others who are just as talented and work just as hard, yet earn only modest incomes.
Even talent and the inclination to work hard are themselves heavily dependent on chance. In combination, genes and environment ultimately account for all important individual differences, which means that someone who was born talented and brought up to be hard-working was incredibly lucky to begin with.
The Wall Street Journal journalist and author of the Wealth Report, Robert Frank (apparently no relation) appeared on Fox Business News the following day in this video:
Near the end of the clip, WSJ’s Robert Frank makes the common sense point that the discussion of luck and success is all very nice and academic, but misses the most important thing about tax policy in the current economic environment. Congress and the Obama Administration need to raise money to fund the stimulus, and the wealthy are who have it. An honest debate about tax policy should focus less on philosophy and more on what, if anything, government needs to do.
This essentially was my point when I wrote that Robert H. Frank’s point that luck plays a big role, even if true, “doesn’t necessarily lead to the belief that governmental taxing and spending is fiscally sound or that it creates the circumstances for economic and social progress.”
However, in a follow-up blog post on the Wealth Report, WSJ’s Robert Frank wrote that:
practically all of the millionaires or billionaires I have interviewed over the years were obsessive workers. Sure, people win the lottery. And some inherit their money. But they are the minority. Repeated studies show that inherited wealth accounts for 10% to 20% of today’s multimillionaires.
That isn’t to say that luck doesn’t play a role in getting rich. In a study by PNC Wealth Management of 1,500 Americans with $500,000 or more in investible assets, 37% of self-made wealthy agreed that “the money I have made so far has come from being at the right place at the right time.
One Robert Frank writes for the Wall Street Journal. The other Robert Frank writes for the New York Times and teaches economics at Cornell. They’re talking past each other, but seem to agree more than disagree that hard work leads to success if you’re lucky. Both Robert Franks focus on whether and to what extent the wealthy should congratulate themselves or all of us for their wealth, but miss the crucial questions of whether governmental taxing and spending is fiscally sound and whether it’s the right step to creating the circumstances for economic and social progress.
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Comments welcome, as always.
Another factor to consider in the debate over tax and spend policy is whether this should be the default policy or an emergency measure to counter an “unprecedented” economic crisis.
Framing the policy as an emergency measure will probably make it slightly more palatable to fiscal conservatives.
The question,of course, is how to wean the government once to crisis has passed.
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