Friday, July 18, 2014

The rich are different—they're "smarter"

The rich are not "smarter" as the following headline suggests — but they do attend elite universities and major in the more demanding academic fields.

When this article appeared in May, I was winding down my first year at an elite institution, in its business school. If many of my students are destined for wealth, is it because they are smarter, more gifted, harder working, born to the right families? What is it that takes someone from the middle-class (or nothing) to extreme wealth?

The rich are different—they're smarter, study says
—By CNBC's Robert Frank. | May 16, 2014 | 11:12 AM EDT

Economist Paul Krugman recently wrote that the multibillion-dollar salaries of top hedge fund managers proved that education plays little role in the growing wealth gap. The rich get rich, he said, because of the "runaway financial system" and investors making money from money.
"Modern inequality isn't about graduates," Krugman wrote. "It's about oligarchs."
But a new study offers a different view. Jonathan Wai, a research scientist at Duke University and part of the school's Talent Identification Program, looked at the world's billionaires and global elite. He found that billionaires are, as a group, very highly educated and have high cognitive abilities. About a third of the world's billionaires attended elite schools worldwide.

The study might explain how Wai determined "high cognitive abilities" but I do know that the R1 university where I teach does insist that admitted students achieve certain minimums on standardized tests. Even legacy admissions and faculty family members need to meet the standards, so one can't dismiss the test-taking abilities of those accepted into elite schools.

My students earned near-perfect (or perfect) scores on standardized tests. Many are extremely gifted, as we measure intelligence, and are in the top percentiles of test takers. If we use admissions into an elite institution as a metric for academic ability, that is a reasonable approximation.

Only a third of the billionaires attended such schools, but that does not mean those individuals would not have qualified for admission. The researchers know if the rich attended particular tier universities, but not why (or why not) a school was chosen.
Even among billionaires, the billionaires with higher wealth were more likely to have gone to a top college.
"The average net worth of those that attended an elite school was significantly higher than those who did not," the report said.
One problem with the idea that the super-wealthy correlate to institutions of higher education is that we cannot (easily) determine if the education or the social connections (or both) was the variable that led to wealth. But, the next paragraph does indicate education, not mere connections, matters.
An outsized number of billionaires and Davos attendees also majored in science, technology, engineering or math—also known as the STEM fields.
STEM degrees, I have admitted repeatedly, are much harder to earn than degrees in the humanities. I don't care how many times my colleagues in the arts and humanities argue otherwise, I know that passing an English or history class was much, much easier than earning a good grade in a physics or statistics course. Yes, "Math is hard!" and skills in math and science are worth more money.

Yet, there is the social aspect we must not deny:
Harvard, the study suggested, is the top billionaire-making machine. Among U.S. billionaires, more than 1 in 10 went to the school, and globally about 1 in 20 billionaires went there.
Harvard, for all its greatness, is unlikely to be that much better than Stanford, Cal Tech, MIT, or where I teach. In fact, ratings list the university where I teach higher in some STEM fields. There are social castes within the elites — and we cannot ignore that reality.
The report also said billionaires who inherited their fortunes were more likely to attend elite institutions than self-made billionaires—suggesting that privilege is often passed down by parents rather than earned through brainpower.
Legacy matters. But, wealth also grants access to the best secondary schools, the best tutors, and the best private test prep. If could be that wealthy parents who went to great schools see value in buying access to the best academic preparation for their children. I know that my wife and I would spare little expense to educate a child of ours. Many parents feel that way, I would hope.
Overall, Wai concluded that the wealth gap goes hand in hand with the education gap. The world's super rich, he said, are also "scary smart."
"I think we should deeply consider the implications when a select group of scary smart people also tend to hold a disproportionate share of global wealth and power," he said. "We depend on these people to make wise decisions for all of us. "
My students leave the university with job offers that place them, immediately, in the top half of income earners in the United States. Some will earn six-figures only a year or two out of college. And yet, few of these students were from wealthy families. These are young men and women who fled collapsing nations, corrupt governments, war zones, and situations I cannot imagine. Yet, these young people worked hard and earned their ways into a top-tier research university.

I've had two students graduate as millionaires. They had nothing but student loans (lots of those) and a work ethic that is unparalleled. They deserve to be successful.

Experience and observation suggest to me that many of the elites are smarter.

In a nation in which more than three quarters of the super-wealthy did not start life in the top income quintile, I still believe brains and grit do matter. A lot. No, life is not fair, but you also have to have the skills and passion to act when you do get opportunities.

Preparation means pushing yourself. That's what it takes to earn a STEM degree, certainly. If you followed a different path, don't resort to envy.

And as for Dr. Krugman. Didn't he earn his Ph.D. in a mathematically intense field? Now he earns more than $250,000 a year — and that's not a coincidence. Or does he imagine his success was all about luck?

Many of the wealthy were prepared when opportunities appeared.

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