What is the most valuable inheritance in a knowledge economy?

by Grace

Inheriting money is certainly nice, but intellectual capital may be the most valuable bequest in today’s knowledge economy.

… today’s rich increasingly pass on to their children an asset that cannot be frittered away in a few nights at a casino. It is far more useful than wealth, and invulnerable to inheritance tax. It is brains.

Intellectual capital drives the knowledge economy, so those who have lots of it get a fat slice of the pie. And it is increasingly heritable. Far more than in previous generations, clever, successful men marry clever, successful women. Such “assortative mating” increases inequality by 25%, by one estimate, since two-degree households typically enjoy two large incomes. Power couples conceive bright children and bring them up in stable homes—only 9% of college-educated mothers who give birth each year are unmarried, compared with 61% of high-school dropouts. They stimulate them relentlessly: children of professionals hear 32m more words by the age of four than those of parents on welfare. They move to pricey neighbourhoods with good schools, spend a packet on flute lessons and pull strings to get junior into a top-notch college.

Yes, all this is true.  But how to address the issue of income inequality?  Thankfully, the author agrees the “solution is not to discourage rich people from investing in their children”.  But he does have other ideas.

  • Improve early childcare for poor children.
  • Move primary control of public school funding from local to state level, and tilt it to favor poor students.  Expand school choice.
  • Change college admission so it is based “solely on academic merit”, and force schools to be more transparent about the financial “return that graduates earn on their degrees”.

Even if these recommended reforms could be magically imposed, I question whether much would change.  Head Start doesn’t work in improving long-term outcomes, and I’m skeptical about the chance for reforming such a massive government program.  State funding of public education would be an improvement, but wealthy parents would always find ways to make sure their own children got a better deal.  School choice would at least offer motivated low-income families better options.  I like the idea of academic merit becoming the primary determinant for college admission, but that in itself would do little to mitigate the effects of inadequate K-12 education.

How much impact would increased income redistribution have?  So far, it appears our attempts to address poverty have ‘been a “success at strengthening the social safety net” but a “failure as an engine of self-improvement”’.

There are important reasons to help all Americans develop the ability to create their own financial success.

Loosening the link between birth and success would make America richer—far too much talent is currently wasted. It might also make the nation more cohesive….


 “87 percent of poor smart kids escape poverty”

Changes in marriage patterns have affected poverty and income inequality


“America’s new aristocracy”, The Economist, January 24, 2015.


6 Comments to “What is the most valuable inheritance in a knowledge economy?”

  1. I don’t know where peole get the idea that “State funding of public education would be an improvement”. California tried that, and the result was that all public schools ended up with less funding.

    “but wealthy parents would always find ways to make sure their own children got a better deal” In California, that’s mainly private schools.


  2. Hmm, I wonder if other states would follow CA’s pattern if funding shifted to the state level.

    From what I know, poor CA students receive a higher share of state funding, but the problem seems to be reduced spending overall, probably triggered by the state’s economic woes. Also, CA seems to have a higher proportion of challenges among its K-12 population, like more ELLs.

    IIRC, the state imposed some limitations on local communities funding of CA public schools.

    Do you have any ideas about optimal funding ideas?


  3. HI has had a state DOE since statehood.

    One advantage is that it’s easier for parents to put their kids in schools other than the default schools based on their residence, e.g., near their jobs, not necessarily near their homes, or to a school school perceived by parents to be better, or to schools with special programs (e.g., language immersion).

    Some elementary schools in gentrified neighborhoods have turned into de facto magnet schools that sent a lot of kids to private schools for MS and/or HS.

    Historically, private school enrollment has been about 20% of total statewide school enrollment, and more that 90% of NMSF typically come from private schools.


  4. Studies of socioeconomic status need to control for parental IQ. I suspect much of the advantage of children is genetic rather than transmitted by schools, lessons, etc. based on adoption studies, where beyond a certain “acceptable” level, environment doesn’t make a lot of difference.

    All adoptive parents are “good enough”, statistically, to create an environment where their children can reach their potential. Biological parents, umm, not so much.


  5. I don’t see a downside to HI’s state-controlled funding, but the fact that a relatively high percentage of students attend private schools may indicate a problem. Or it just may indicate income/culture factors.


  6. Yes, WCE, and that’s why the trend toward increased assortative mating adds to challenges in any attempts to smooth out income inequality.


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