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The End of Director’s Law?

August 10, 2010

Many have long believed that big government helps the poor at the expense of the wealthy. But back in the glory days of economics at the University of Chicago Aaron Director noticed a recurring theme in the way democracies cut the pie. Given the power to tax and redistribute, you might expect those on the bottom (plus one to gain a majority) would form a coalition to snatch away the wealth of the top 49 percent. But this doesn’t happen. Director teased out why: forming a winning coalition requires intelligence, effort, organization, endurance, resources, indignation…capabilities the poor simply do not have. This is part of the reason why they’re poor, after all. For the very same reasons they struggle in a free market, they fail in the political market too. By Director’s logic and contrary to popular belief, the big jackpot winners in democracy are the members of the motivated middle class. They take from the rich and the poor. (Here’s George Stigler’s paper on Director’s Law.)

Today Eric Falkenstein says the middle class is no longer the dominant coalition in the U.S.. Instead, we have a bar bell coalition made up of the political savvy and the lowest classes. He says it’s the end of Director’s Law:

So, perhaps every society has a different optimal coalition at various times, and currently I don’t see what will keep it from bringing everything down to the coalition of a few elites, sincerely deluded as to their belief in the virtue of government spending, combined with a vast entitlement mob at the bottom, all literally feeding off the middle class. It sounds a lot like South America.

I’m not certain Eric’s got it right here, though. I wouldn’t repeal Director’s Law yet. There’s a publicly funded middle class that is still grabbing, grasping, gripping, plucking, possessing and raiding quite well. Just like old times. The inexcusable public pensions, the outlandish salaries for cops, tenured public school teachers, and city managers, the coming baby boom entitlement tsunami, increasingly generous student loan programs for increasingly useless undergraduate degrees, bailouts for unions, banks and insiders—all of this is tribute paid by the rich and the for-profit middle to the politically connected. The demographics have changed some, but not completely.

Anyway, Milton Friedman explains Director’s Law here:


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  45. Chris permalink
    August 11, 2010 4:27 am

    Interesting link, I am surprised at the part he mentions about income correlation in adopted twins. However, at the risk of bickering over words, correlation between levels of income and personality/intelligence is a lot easier case to make than that the poor in any society have that status because they are inferior in so many ways. Employers tend to select for certain types of individuals for a given job, but I don’t think the income level of those jobs is determined by the overall personality traits or intelligence needed to perform it. It’s difficult to come up with an example, because these traits are mostly subjective, but let’s say that it seems wrong to conclude that since most math professors make considerably less than most lawyers that they are also considerably lacking in valuable traits or intelligence that the lawyers possess. It seems more likely that personality traits and intelligence cause them to lean towards and be selected for those roles, and some roles happen to pay more than others for whatever reason (I’d certainly pay a guy more to keep me out of jail than to explain differential geometry to me).

    As for the poor in general, it was my view that there’s a large spectrum of reasons people are in such status, everything from stupidity, alcoholism or mental illness to abusive parents and poor career/academic guidance, bad luck financially or living in communities or social settings that discourage any kind of upward mobility. Claiming them to mostly be on some level genetically unfit seems more like self-serving bias to justify elitism, and it’s certainly social Darwinism (discredited in the post-eugenics era, as we all know, although I wish Caplan had linked to the research he claimed supported correlations between heredity and income levels, since it would support such a thesis).

    Anyhow, thanks for the reply.

  46. Chris permalink
    August 10, 2010 11:55 pm

    “Director teased out why: forming a winning coalition requires intelligence, effort, organization, endurance, resources, indignation…capabilities the poor simply do not have. This is part of the reason why they’re poor, after all. For the very same reasons they struggle in a free market, they fail in the political market too.”

    Hm, honestly this seems like simple-minded thinking and fallacious logic. But I’ll assume for a moment you’re correct. Can you tell me how this works exactly? I mean, is wealth directly proportional to such traits, so that I can say a person with $10 mil is twice as intelligence, resourceful, committed, etc. than someone with $5 mil? Or are there thresholds, like tax brackets, where people in different classes represent different levels of quality-of-person? Can we say that when someone is poor, then becomes rich, that their intelligence level has obviously grown? Or the opposite if they lose their wealth? Please, do enlighten me. I had always ignorantly thought that such things were largely circumstantial.

    Seriously though, when I hear stuff like this is makes it ever harder for me to keep an open mind to anarcho-capitalism, and not simply label it as farcical attempt to promote harmful levels of deregulation for the interests of the business community. Thanks for pushing me a little farther left. 😉

    • Mike Gibson permalink*
      August 11, 2010 12:46 am

      Chris, many on the left would agree with the facts of that statement. It is a taboo subject, but yes, intelligence and personality traits like conscientiousness correlate with levels of income. I don’t have the research at hand, but here’s a post by Bryan Caplan on the subject:

      If you’re truly concerned about helping the poor, many on the left think in Rawlsian terms. In the Theory of Justice, it’s accepted as fact that personality traits correlate strongly with wealth. The next step in Rawls’ argument is to say that your personality and what flows from it are arbitrary from a moral point of view. I agree insofar as we ought to think of the institutions and laws that improve the lot of the worst off best.

      A final word: I should have added a disclaimer that I was speaking in general., Yes there are intelligent poor people. Yes, there are dumb rich people. But add up the total and follow the pattern.

      I do not intend for this question to be hostile, but why do you think the poor are poor? Help me change my mind.

      • August 11, 2010 2:34 am

        This comment is not meant to relate to Director’s Law, but Mike’s comment:

        (Apologies if this sounds melodramatic) What is the meaning of life (/our end goal for our lives)? Is it wealth? Is it only things/mostly things that can be bought with money?

        Perhaps the best thing we can hope for in life is happiness and fulfillment. Perhaps there is only a mild correlation between money and happiness/fulfillment.

        Perhaps the “most intelligent” people (whatever that means) realise this fact, and the majority of extremely wealthy are in fact unhappy and, deep down, a little bit disappointed they went through life investing their time maximising the wrong currency (and that the currency they have excess of can’t be converted into the currency that they really wanted all along).

        I have no doubt that poverty leads to discontent. But I am extremely skeptical that past basic necessities, there is a correlation between wealth and happiness/fulfillment (I recently bought a new HDTV, and was disappointed at the return on investment as far as happiness goes. I recently spent an afternoon teaching an adult friend how to ride a bike, which he had always wanted to do. This was incredibly rewarding, and much better and the TV. It only cost me an afternoon).

        I would have thought that happiness and fulfillment is what an intelligent person should invest most of their time trying to maximise.

        Side note:
        How do you propose we measure intelligence?

        So to reverse your question, “why are the poor poor?”, why are the unhappy and unfulfilled, unhappy and unfulfilled (all the way along the wealth spectrum)?

  47. August 10, 2010 9:23 pm

    I question whether Director’s Law was ever valid. It seems to me that the factors enumerated explain how the powerful use the lower class to take from the poor. This seems to me to explain why the upper middle class is the one with the heaviest tax burden. The rich promise the poor the middle class’s money in exchange for supporting the rich’s agenda.


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