Greg Mankiw says that the rich have gotten richer since 1970 because their parents are richer:
The recent paper by Chetty et al. finds that the regression of kids’ income rank on parents’ income rank has a coefficient of 0.3. (See Figure 1.) That implies an R2 for the regression of 0.09. In other words, 91 percent of the variance is unexplained by parents’ income.
I would be willing venture a guess, based on adoption studies, that a lot of that 9 percent is genetics rather than environment. That is, talented parents have talented kids partly because of good genes. Conservatively, let’s say half is genetics. That leaves only 4.5 percent of the variance attributed directly to parents’ income.
I see a problem with his conclusion:
Even a highly successful policy intervention that neutralized the effects of differing parental incomes would reduce the gap between rich and poor by only about 2 percent.
I don’t think he’s looking at parental incomes critically enough. Bankers and physicians don’t have higher incomes due to market forces. They have higher incomes due to regulations and subsidies. If the banks hadn’t been bailed out in 2008 and 2009, a lot of bankers who are presently earning six and seven figure incomes would have earned no incomes because their banks would have gone out of business. or, at least, that’s what we were told at the time.
There’s no essential connection between ensuring that banks continue to operate and preserving the incomes of bankers. The fact that’s the way it worked out does make you wonder what the actual objective was.
We protect the jobs of some workers through licensing, barriers to entry, and other regulations. We don’t protects the jobs of others. That’s not genetic.