What drives success?

From The New York Times:

It turns out that for all their diversity, the strikingly successful groups in America today share three traits that, together, propel success. The first is a superiority complex — a deep-seated belief in their exceptionality. The second appears to be the opposite — insecurity, a feeling that you or what you’ve done is not good enough. The third is impulse control.

Any individual, from any background, can have what we call this Triple Package of traits. But research shows that some groups are instilling them more frequently than others, and that they are enjoying greater success.

It’s odd to think of people feeling simultaneously superior and insecure. Yet it’s precisely this unstable combination that generates drive: a chip on the shoulder, a goading need to prove oneself. Add impulse control — the ability to resist temptation — and the result is people who systematically sacrifice present gratification in pursuit of future attainment.

Euro-envy, the welfare state, and economic growth

Many Democrats wish the U.S. was more like Western and Northern Europe. Good idea?

Asia is set to have the world's wealthiest residents, with city-state Singapore heading the rich list.

Hong Kong, Taiwan and South Korea will do well, too, according to by a new survey that predicts which countries will be home to the wealthiest citizens by 2050. ...

By 2050, the Wealth Report estimates the world's wealthy citizens will be dominated by Asia: Singapore ($137,710), Hong Kong ($116,639), Taiwan ($114,093) and South Korea ($107,752). The only western economy projected to remain in the top five is the U.S., with an estimated per capita income of $100,802. ...

Old World economies will have the worst growth performance in the next 40 years, the report predicts: Spain, France, Sweden, Belgium, Switzerland, Austria, the Netherlands, Italy and Germany are at the bottom of the list. But Japan and its aging population will have the weakest projected growth of all economies, Knight Frank estimates.

In general, the size of a country's welfare state and it's rate of economic growth are inversely proportional, because a cushy welfare state (and correspondingly high tax burden) reduces the incentive to work, invest, and start new businesses.

That said, government spending isn't always harmful. Government capital investment increases economic growth. Governments should favor spending on intellectual capital (education and scientific R&D) and physical capital (transportation and communications).

The late Milton Friedman has a little to say about #2 on the list, Hong Kong:

How to become rich: Choose the right occupation

According to this research paper, these are the career fields of Americans in the top 1% of the income distribution (as of 2005):

• 31% are non-financial executives, managers, or supervisors
• 16% are medical professionals
• 14% are financial professionals, including management
• 8.4% are lawyers
• 4.6% are in technical fields (computers, math, engineering, etc.)
• 4.2% are in skilled sales, excluding real estate and finance
• 3.8% are in blue collar or miscellaneous services
• 3.2% are in real estate
• 3.0% are in non-finance business operations
• 1.8% are professors or scientists
• 1.6% are in arts, media, or sports

So much for the myth from late night infomercial pitchmen that real estate is the path to wealth! The top 1% are ten times more likely to be managers.

The career fields of the super wealthy—the top 0.1%—are similar, but slightly different:

• 43% are non-financial executives, managers, or supervisors
• 18% are financial professionals, including management
• 7.3% are lawyers
• 5.9% are medical professionals
• 3.7% are in real estate
• 3.0% are in arts, media, or sports
• 2.9% are in non-finance business operations
• 2.9% are in technical fields (computers, math, or engineering)
• 2.3% are in skilled sales, excluding real estate and finance

Judging by this list, and what I've posted previously, for enterprising high school or college students who would like a successful career but don't know what they want to study, a finance, accounting, economics, engineering, math, or computer science bachelor's degree followed by a dual MBA/JD would give you a fantastic head start in life. ...But above all else, get that MBA!

How to become rich: Education and marriage

Gallup has researched the difference between the top 1% of Americans and the rest. Not surprisingly, the wealthy are better educated and married:

To better understand who makes up the top 1%, Gallup combined 61 of its nationwide surveys conducted between January 2009 and November 2011. The resulting sample includes nearly 400 adults in households earning $500,000 or more annually, and more than 65,000 in households earning less than that. The official top 1% of American households in 2010 includes those with incomes of at least $516,633, according to data from the Tax Policy Center as reported in The Washington Post.

Advanced Education Separates the 1% From the 99%

Apart from their bank accounts, Gallup finds education to be the greatest difference between the wealthiest 1% of Americans and everyone else. The Gallup analysis reveals that 72% of the wealthiest Americans have a college degree, compared with 31% of those in the lower 99 percentiles. Furthermore, nearly half of those in the wealthiest group have postgraduate education, versus 16% of all others.

More generally, college education is strongly correlated with household income. Nine percent of Americans earning less than $20,000 per year are college graduates; this rises to majorities of adults in all income groups above $100,000. Similarly, few adults in low-income households have postgraduate education, and this rises only into the teens among middle-income adults. But it sharply increases among those earning $100,000 or more, peaking at 49% among those earning between $250,000 and $499,000, and those earning at least half a million.

The educational differences between the nation's "1%" and "99%" exceed all other demographic as well as political differences seen between these groups in the Gallup data. The next-most-significant distinction is marital status, with nearly three-quarters of the very wealthy (73%) being currently married, compared with half of all others (51%). Accordingly, by 49% to 31%, the very wealthy are more likely to have minor children in the household.

The impact of marriage is pretty simple to explain: Two salaries pay more than one. Regarding education, as I've said in the past level of education matters a lot, but what you study is every bit as important. Despite the fact that society indoctrinates high school students to try to attend high-ranking universities, choosing the right college major matters far more than going to the right school.

Yes, money buys happiness

It's an old saying, "Money doesn't buy happiness." But, it turns out it might not be true. Higher incomes are associated with greater happiness across countries. According to The Economist, the key to spotting the correlation is to use a logarithmic scale rather than a linear one.

[Economists] who look at happiness often contend that, beyond a GDP per capita of just $15,000 (measured at purchasing-power parity), money does not buy happiness. ... But plot the data another way, on a logarithmic scale where each increment represents a 100% increase in income per head, and the relationship between wealth and happiness looks more robust.

Myth busted, apparently.

Progressives at war with the facts

In a recent New York Times column calling the United States a banana republic, Nicholas Kristof writes:

The United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.

According to the United Nations Development Programme, this is simply false. They rank the United States at #42 out of 133 countries. Nicaragua ranks #93, Venezuela ranks #65, and Guyana ranks #57.

However, Kristof's column reflects something I find quite troubling about the left's concern with "economic inequality." Modern-day progressives appear to be far more concerned with the fact that some people are rich than that some people are poor. You see this throughout Kristof's column. He never once uses the words "poor" or "poverty" in the column, however, he repeatedly complains about the rich:

In my reporting, I regularly travel to banana republics notorious for their inequality. In some of these plutocracies, the richest 1 percent of the population gobbles up 20 percent of the national pie. ...

The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976. ...

C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent. ...

So we face a choice. Is our economic priority the jobless, or is it zillionaires? ...

To me, we’ve reached a banana republic point where our inequality has become both economically unhealthy and morally repugnant.

So, let's clear up a few facts here. First, rich people don't make poor people poor. That would only occur if there was a only a fixed amount of wealth in a country. The truth is that economies grow over time. The rate at which they grow depends on how much a country invests in creating new businesses, expanding existing businesses, educating the public, building efficient transportation and communication networks, etc.

Second, the prospect of becoming rich is one of the main reasons people give up the security of a salaried job in order to create a new business. Starting a new business is risky. Most businesses fail in the first year. Reduce the financial incentive and you will have fewer new businesses, which in turn will create fewer high-paying jobs.

Third, taking money from the rich and redistributing it to the middle class—the progressive agenda ever since Bill Clinton took office—does nothing to help the poor. It's just a modern way of buying votes.

Fourth, Nicholas Kristof's column is misleading because it only focuses on inequality. The problem with Nicaragua, Venezuela and Guyana is not that a few people are rich, it's that the bulk of the population is poor and undereducated. According to the United Nations Development Programme, the United States ranks 9th in the world in terms of per capita income, beaten only by relatively small countries. By contrast, Nicaragua ranks #135, Venezuela ranks #71, and Guyana ranks #128. In terms of education, the United States ranks #5, compared to Nicaragua at #118, Venezuela at #104, and Guyana at #85.

On the overall United Nations Human Development Index for 2010, the United States ranks 4th in the world, beating all 27 members of the European Union.

Personally, poverty troubles me. Inequality does not.

Data source.

How the poor successfully lift themselves out of poverty

A new paper by Anan Pawasutipaisit and Robert M. Townsend identifies how poor people in Thailand successfully lift themselves out of poverty:

The paper, "Wealth Accumulation and Factors Accounting for Success" appears in the current issue of the Journal of Econometrics. It suggests that poor people who skillfully manage their assets are especially successful in improving their net worth. The authors discovered that the ability of poor families to increase their wealth was strongly related with their rate of saving and, even more so, with their ability to create a high return on assets.

This means that those households who used their existing assets most productively were more successful at pulling themselves out of poverty. Many of the successful households reinvested their money in their small businesses and farms, suggesting that they are well aware of the source of their success. ...

The data also allowed the authors to identify traits that the most successful households tended to share in common: more highly-educated household members, a younger age of the head of household, a higher ratio of debt to assets, and a preference for formal financial markets over informal ones. But the largest source of variation in the rate of return on assets was household-specific and uncorrelated with any of these variables. This suggests there is great persistence among the most successful households.

"The data seem to show pretty conclusively that successful households are not just lucky," observes author Robert M. Townsend. "They are doing something systematic, month after month, year after year. The next step, of course, is to figure out what the associated skills and attitudes really are."

Most of the qualities identified in the research paper can probably benefit the poor anywhere in the world. When the paper cites a higher ratio of debt to assets, I assume it's referring to borrowing for capital investment, not American-style consumer debt.

A strong work ethic, a strong education ethic, a strong frugality ethic, and a strong entrepreneurial ethic are essential to improving one's economic well-being. Ethic is a key word here. Parents need to teach their children that these qualities are important, and they need to live it themselves as well.

The full paper can be found here.

Income by religion in the United States

According to the Pew Research Center, Hindus and Jews earn the highest incomes in America. Evangelical Christians, Muslims, and Jehovah's Witnesses earn among the least. It appears that the incomes of the different religious groups are highly correlated with the emphasis they put on education. Evangelicals, for example, are downright hostile towards science.

What causes Hindus and Jews to earn so much? It's education, baby!

Nearly half of Hindus in the U.S., one-third of Jews and a quarter of Buddhists have obtained post-graduate education, compared with only about one-in-ten of the adult population overall. Hindus and Jews are also much more likely than other groups to report high income levels.

In short, if you want your kids to grow up to be wealthy, you don't need them to convert to Hinduism. You just need to ingrain them with an education ethic.

The highest-paying college majors

Here are the 25 highest-paying bachelor degrees according to Payscale.com, ranked by median mid-career salary:

Here's what Payscale.com says about the list:

Only employees who possess a Bachelor's Degree and no higher degrees are included. This means Bachelor graduates who go on to earn a Master's degree, MBA, MD, JD, PhD, or other advanced degree are not included.

For some Liberal Arts, Ivy League, and highly selective schools, graduates with degrees higher than a bachelor's degree can represent a significant fraction of all graduates.

Careers that require advanced degrees, such as law or medicine, are not included.

In case you don't see your college major in the graph, the full list can be found here.

For students who major in physics, I highly recommend a minor in computer science. For students who major in mathematics or statistics, I highly recommend a minor in either computer science or finance. Having an applied skill that complements your "pure" math or science major will give you far better employment opportunities after graduation.

As I've said before on this blog, I think a technical bachelor's degree (e.g. engineering or computer science) combined with an M.B.A. makes a powerful combination that will result in a very high salary. An M.B.A. is also a good follow-up to a degree in economics, finance, accounting, marketing, or information systems.

Previously, I have blogged about average starting salary by category of college major and about median earnings by level of education.

Top ten highest-paying college majors

According to the National Association of Colleges and Employers, these are currently the ten highest-paying college majors for new college graduates:

1. Petroleum Engineering — $86,220
2. Chemical Engineering — $65,142
3. Mining & Mineral Engineering (incl. geological) — $64,552
4. Computer Science — $61,205
5. Computer Engineering — $60,879
6. Electrical/Electronics & Communications Engineering — $59,074
7. Mechanical Engineering — $58,392
8. Industrial/Manufacturing Engineering — $57,734
9. Aerospace/Aeronautical/Astronautical Engineering — $57,231
10. Information Sciences & Systems — $54,038

In general, technical majors pay the most. Finance-related majors (e.g. finance, accounting, economics, business) are the second-highest-paying group of majors. Health and natural sciences come next. Liberal arts, agriculture, and education majors pay the least. A technical undergraduate degree combined with an M.B.A. pays extremely well. For more on this topic, see here.

Starting salary by category of college major

Here is a graph of starting salaries by general category of college major. These are the starting salaries for bachelor's degrees. Notice that technology-oriented degrees pay substantially more than other degrees. Business and science degrees take up the middle of the pack. Liberal arts and education majors are at the bottom.

Source: NACE Salary Survey, Fall 2009

If a student goes on to business school, law school, or medical school, the choice of undergraduate major would generally lose its influence on salary. Some natural complements are a liberal arts bachelor's degree combined with a law degree, a health sciences bachelor's degree combined with a medical degree,* or a liberal arts, sciences, or business bachelor's degree combined with an M.B.A.

One case in which the undergraduate degree continues to have a large influence on salary is the powerful mix of an engineering or computer science bachelor's degree combined with an M.B.A. This is because managers with both technical and business skills are needed at many computer, aerospace, and industrial companies.

I wonder how seeing a graph like this in high school might have affected my choice of college major. Probably not much since my multiple requests for a computer in high school were denied by my then-Luddite parents. Thus, I was intimidated by computers when I entered college.

People who like this post may also be interested in a previous blog post of mine, earnings by level of education.

* I have no idea how stringent the prerequisites are for medical school.

Graph: earnings by level of education

Notice that there are two big gaps in the graph. The first is between "some college" and a bachelor's degree. The second is between a master's degree and a doctoral/professional degree.