Are inequality and immobility inseparable?

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The New York Times
By: Ross Douthat
January 18, 2012

Are inequality and immobility inseparable?

I've written a number of posts and pieces pushing the idea that American conservatives need what I've called an opportunity agenda -- one that focuses more on the problems of upward mobility and stagnating wages than does the current standard Republican line, but doesn't share contemporary liberalism's tendency to blame the struggles of downscale Americans almost entirely on the richest 1 percent. I thought I'd use this post to respond to the most plausible left-wing critique of this idea. (I'll tackle the most plausible right-wing critique in a later post.) First, here's Matt Yglesias, pivoting off an excellent piece by my colleague Jason DeParle to question the idea that there's any real distinction between fighting inequality and fighting immobility:

My suspicion, living and working in mostly progressive circles, is that most of the people upset about "inequality" are actually bothered by what they see as missed opportunities to raise living standards at the bottom or at the median ... There's a lot of ideological diversity on the left, and perhaps some people are in fact saying that it would be a good tradeoff to make America more equal even if that meant lower absolute incomes for middle class and poor families. But I don't think that's really something most of the people who say they're bothered by inequality are bothered by.

The people who care about inequality, in other words, care about it because they care about social mobility. And are they right to do so? Well, here's Alan Krueger, the Chairman of the White House Council of Economic Advisers, trying to provide a statistical basis for the idea that the two issues can't be separated:

Recent work by Miles Corak finds an intriguing link between [intergenerational mobility] and income inequality at a point in time. Countries that have a high degree of inequality also tend to have less economic mobility across generations. We have extended this work using OECD data on after-tax income inequality, as measured by the Gini coefficient. This next figure shows a scatter diagram of the relationship between income mobility across generations ... and inequality in the mid-1980s ... I call this the "Great Gatsby Curve." The points cluster around an upward sloping line, indicating that countries that had more inequality across households also had more persistence in income from one generation to the next.

So there you have it. (You can see the Gatsby curve reproduced on my colleague Paul Krugman's blog here.) Inequality and immobility increase in tandem, to care about one is to care about the other, and conservative attempts to disentangle the two are just a clever way of evading the need to take on the East Eggers of our own era and make them pay their fare share.

Except that perhaps it isn't quite this open and shut. Here's Brookings' Scott Winship, who's written perceptively about social mobility for National Review, critiquing Krueger's methodology:

Each of the points in the Great Gatsby chart represents an immobility estimate taken from independent earlier studies. It is very difficult to get comparable estimates of immobility for different countries. One needs measures of income defined in a common way across countries. Ideally, one would have multiple years of income data for each generation, and the analyses would use real data, as opposed to model-based estimates, on adults and on their parents when they were children. This last requirement is perhaps the hardest to meet. Many governments do not conduct studies tracking children's income as they grow older (or have only started to recently), so researchers must estimate childhood income using an algorithm obtained from a separate data set and compare the result against actual adult-child income.

Because of these technical difficulties, for some countries--particularly the United Kingdom--researchers estimating immobility come up with widely varying estimates. Building a Great Gatsby chart then requires choosing an immobility estimate to represent the country. Different scholars choose different estimates, with the result that their best-fitting lines differ. In the version I trust the most, there is a relationship between inequality and immobility, but it is entirely driven by three countries--the United States, Italy, and France. In particular, the estimates of immobility for the United Kingdom range widely across different versions of these charts.

Do read the whole thing. Winship acknowledges that the data suggests some relation between inequality and immobility -- and, indeed, it would be surprising if none existed. But the connection isn't nearly as direct and clear-cut as Krueger suggests. (For one thing, as Winship notes, the Gatsby chart compares immobility data for people who were in their 30s during the 1990s -- early Generation Xers, that is -- to inequality data from the 1980s. But if we're interested in the future of mobility, and how "inequality experienced in childhood affects mobility between childhood and adulthood," then the proper comparison should match immobility data from the '90s with inequality data from the more-equal 1960s and 1970s -- which would presumably yield different results.) And this implies, in turn, that policymakers shouldn't just assume that measures that reduce inequality will necessarily improve upward mobility. They should look at specific policies, rather than a general trend, and assess their likely impact on both phenomena.

And this is where I think the American left falls short. I agree with Yglesias that most liberals who care about inequality care about immobility as well. But it makes a difference where you start, and where you put your energy -- and because the left-wing focus on the sins of the top 1 percent is so strong, and the left-wing identification with existing government programs so intense, there's an awful lot of Democratic political energy behind the proposition that the very best policy course for 21st century America consists primarily of "higher taxes on the rich to fund generous pay for public sector workers while avoiding any cuts to Social Security and Medicare (or any other existing program, for that matter)."

This is a policy mix that would clearly lead to at least some reductions in post-tax inequality between the top 1 percent and everyone else. It's much less clear whether it's a policy mix that would do much for middle-class wages overall or enhance upward mobility for the working poor. If you look at the comparison of mobility in Denmark to mobility in the United States that accompanied DeParle's article, it's clear that our mobility problem is concentrated in the poorest quintile of the population. If you look at data on middle-class wage stagnation, meanwhile, it's clear that a big part of the problem is the growth of health care costs, which claim an ever larger -- and very soon, impossibly large -- chunk of take-home pay. Taken together, then, there's a good case to be made that the quest for broadly shared prosperity requires thinking through and addressing issues like family breakdown and mass incarceration at the bottom of the ladder (as well as the impact of low-skilled immigration, as David Frum notes), health care cost inflation in the middle rungs, and the weaknesses of our education sector across the board. Some of these are issues where the left is arguably ahead of the right (prison reform, in particular); some are issues where there's potential common ground (education reform); some are issues where ideological differences inevitably lead to very different prescriptions (health care reform, and the cost issue in particular). But none of them are issues where raising taxes today in order to postpone public sector reforms till tomorrow seems likely to bear much fruit for future generations -- especially since that postponement will lead, inexorably, to tax increases that hit a much larger population than just the richest 1 percent.

In this sense, the focus on inequality qua inequality has made liberalism's job too easy. It's encouraged liberals to rally around modest changes to the tax code that would reduce incomes at the top, instead of forcing them to reckon with the deeper, more challenging problems inherent in institutions that they themselves helped build.

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This page contains a single entry by CFED published on January 19, 2012 4:08 PM.

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