Greg Mankiw calls it “The Least Surprising Correlation of All Time“…

The NY Times Economix blog offers us the above graph [..] a good example of omitted variable bias. The key omitted variable here is parents’ IQ. Smart parents make more money and pass those good genes on to their offspring.

Suppose we were to graph average SAT scores by number of bathrooms a student has in their family home. That curve would also likely slope upward. (After all, people with more money buy larger homes with more bathrooms.) But it would be a mistake to conclude that installing an extra toilet raises yours kids’ SAT scores.

It would be interesting to see the above graph reproduced for adopted children only. I would be willing to bet that the curve would be a lot flatter.

Basically we have something of an inheritable meritocracy going on here: economic survival of the fittest extends beyond the first generation. This is a significant part of why I resist the notion that estate taxes should be higher than the tax for spending the same wealth for any other purpose, including charity.

It’s also why I think targeting the educational underachievement of poor students (e.g. higher dropout rates) isn’t always a good use of resources. Part of the reason poor kids do worse is cultural: they may not appreciate learning as much, e.g. what Barack Obama called out as some poor minorities’ pernicious prejudice against “acting white” and studying hard. Those who teach groups of minority students should be aware of this effect and work to discourage it by showing them why success matters to everyone. And if we can find effective ways to give poor students a better education, like providing them with vouchers for a cheaper and superior private school, so much the better. School choice and competition is essential to reforming our broken, bloated, outrageously expensive and under-performing public education system.

Yet at the same time, we should not be blind nor get into a politically correct tizzy about the fact that, overall, poor kids tend to have inferior genes and will necessarily perform worse on average.

On a related note, genes also vary by geographic origin—which, along with cultural differences, explains the bulk of minority achievement variations.

Racial intolerance and vestiges of classism still exist, of course, but they’re hardly the all-powerful boogiemen people make them out to be.

Update: I’d thought more people would be interested in this. Oh well, here’s economist Brad Delong:

IIRC, the age-adjusted correlation between log income and IQ is 0.4: take someone with a log income higher by one standard deviation than average–these days someone with a middle-age-adjusted family income of $100,000-$120,000 rather than $60,000-$80,000–and their IQ is likely to be 0.4 standard deviations (6 points) above average. The individual heritability of IQ is about 0.5: take an individual with a IQ 6 points above average and their children will be expected to have an IQ 3 points above average. SAT scores have a mean of 500, a standard deviation of 100, and a high but not a perfect (0.7) correlation with IQ.

So if we compare people whose parents have an income of $100,000-$120,000 to those with an income of $60,000-$80,000 we would expect to see 1 x 0.4 x 0.5 x 0.7 x 100 = 14 points. The actual jump in the graph Mankiw refers to is twice as large.

The rule of thumb, I think, is that half of the income-test score correlation is due to the correlation of your test scores with your parents’ IQ; and half of the income-test score correlation is coing purely from the advantages provided by that component of wealth uncorrelated with your parents’ (genetic and environmental!) IQ.