High income families are more likely to produce inventors

Children from high-income families (belonging to the top percentile) are ten times as likely to become inventors as those from below-median families, a new National Bureau of Economic Research (NBER) working paper by Alexander M Bell of Harvard University and co-authors show. There are similarly large gaps by race and gender, their research drawing on data from patents and tax records shows. Differences in socioeconomic factors rather than differences in innate ability --- as measured by test scores in early childhood --- help explain the differences in the propensities of children to become inventors, the researchers show. These factors include income status of the family, parents’ achievements in the field of inventions, standard of college education, exposure to innovation through peers and neighbours, etc. For female children, chances of invention in a category increase if there were more women innovating in that category in the area where they grew up. The researchers estimate that the total number of inventors in the US would quadruple if women, minorities, and children from lower income families were to innovate at the same rate as white men from high-income classes.

Also Read: Who Becomes an Inventor in America? The Importance of Exposure to Innovation

An increasing share of the demand for services in India has been arising from poorer income classes, shows an Economic and Political Weekly paper by Deepankar Basu and Debarshi Das, professors at the University of Massachusetts, Amherst and IIT Guwahati, respectively. Spending on services includes money spent on education, healthcare, telephone bills, bus fares, etc. The paper notes that in rural areas, the poorest 75% of households accounted for 62% of the total expenditure on services in 2011-12, up from 52% in 1993-94. More surprisingly, the gap between the rich and poor in terms of share of expenditure on services has declined, even though there hasn’t been a concurrent decline in inequality. This leads the authors to argue that the increasing spend on services by poorer classes may reflect the lack of choice for the poor in the face of privatisation of many essential services.

Also Read: Service Sector Growth in India from the Perspective of Household Expenditure

Not everyone who falls prey to stock market manipulation – such as a “pump-and-dump” scheme -- is a novice, according to a recent NBER working paper by Christian Leuz, professor at the University of Chicago, and others. Pump-and-dump schemes refer to fraudulent attempts by some investors to push up the price of a stock they own, often by spreading false stories. The intention is to sell their stock at a high price before the bubble bursts. On examining the trading records of over 110,000 investors from a major German bank, the authors find that nearly 6% of all investors participated in at least one such scheme, losing on average nearly 30% of their investments. However, a substantial proportion (around 35%) of investors could not be plausibly classified as novices “simply falling prey” to fraud. Rather, they had a history of trading very frequently, often engaging in day-trading in penny stocks. It seemed that they sought out such schemes, viewing them as lotteries.

Also Read: Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation

The post-crisis recovery in the wealth of American households has been largely confined to the very rich, according to an NBER working paper by Edward N. Wolff, professor at New York University. The wealth of most American households had eroded during the global financial crash owing to declines in house prices and stock prices. However, the paper finds that the middle class was more adversely hit from a decline in home prices than the rich were affected by a plunge in the stock market, which has recovered sharply since then.

Also Read: Household Wealth Trends in the United States, 1962 To 2016: Has Middle Class Wealth Recovered?

Even as countries such as India try to bring down the level of cash in the economy, often adopting extreme measures such as demonetisation, the level of cash in the global economy has been rising over the years, research by Clemens Jobst and Helmut Stix of the central bank of Austria shows. The prevalence of low interest rates globally could be one of the reasons behind the increase in usage of cash since mid-2000s, measured as the ratio of currency in circulation to gross domestic product (GDP). Other reasons could be the reduced trust in banks following the crash of 2008, and increase in the global shadow economy, the authors argue in a recent blog-post.

Also Read: The cash comeback: Evidence and possible explanations

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