The Opportunity Attack

April 5th, 2012 at 11:56 pm

For years, many of the analysts who recognized the increase in inequality thought that it was enough to just document the problem.  Surely, the fact that middle class incomes that once grew roughly at the rate of productivity growth were now falling far behind that benchmark was in and of itself a significant problem.

But just documenting higher inequality isn’t enough.  Like any large, structural change to the economy, it’s essential to analyze how it fits in and alters economic relationships, living standards, growth, and, the topic of this post: opportunity.

And here, both the analytical linkage between inequality and opportunity, and more importantly, opportunity itself, are under attack.

First, let’s look at the attack from two researchers.  I recently testified in the Senate on these issues, and Scott Winship from the Brookings Institution argued as follows:

Many on the political left have argued that the opportunities of middle class and poor Americans have been hurt by rising inequality.  However, the evidence of such an impact is exceedingly thin…

Ron Haskins, also from Brookings, comes at it from the angle of personal responsibility.

In the national debate about opportunity and inequality, people tend to talk about opportunity as if it were an omnipotent cosmic force imposed on Americans by a vicious capitalist economy, the effects of which are ignored by our uncaring government. But opportunity in America depends largely on decisions made by people who are free actors.

Let’s unpack these views a bit (here’s an earlier critique of a different aspect of the Haskins oped).

First, does inequality affect opportunity?  My answer, and that of others, including another Brookings analyst, Isabel Sawhill, is that, as she puts it, “it likely does.”

I’ll present evidence in a moment, but first, let me take on some of Winship’s arguments against this connection.  First, he argues that since inequality hasn’t grown much below the top 1%, it can’t be affecting the middle class and poor.

But that’s just wrong; there’s been considerable growth of inequality at all income levels.  Look at the figure below, which tracks family income at and below the 95th percentile.  Incomes at different levels (below the 99th percentile) grew together for years before they diverged.  Or look at any of the wage data that break out the bottom, middle, and top earners.

Winship then argues that there’s nothing zero-sum about this inequality story.  If Mark Zuckerberg’s IPO yields him gazillions, he argues, how does that hurt the rest of us?  As Scott puts it: “Will a typical worker be better off in 2013 because Zuckerberg will not realize the windfall he did in 2012?”

But again, that’s a thought experiment, not data.  Data, like the figure I show here, suggest that inequality has been a major factor in sticky (i.e., unresponsive to growth) poverty rates over the last few decades.  The sharp divergence of middle-class compensation and income from productivity growth is also highly suggestive of income that used to flow more broadly now eluding these mid-wage workers.  When inequality becomes a wedge, diverting growth upward, the outcomes are not at all as benign as Scott’s thought experiment.

There’s also the political clout that people buy with that kind of IPO money, which is one way the inequality cycle reinforces itself, i.e., by buying a politics that supports income concentration and blocks policies that promote more broadly shared prosperity.

None of that confirms that inequality affects opportunity—Sawhill’s “it likely does” is as far as this takes you.  But the evidence thus far shows that inequality affects incomes and wages, and they in turn likely affect access to opportunity.

Haskins’ critique presents convincing data that life choices around marriage, education, child birth, and work play an important role in economic outcomes:

Brookings Institution calculations of census data for 2009, a deep recession year, show that adults who graduated from at least high school, had a job, and were both at least age 21 and married before having children had about a 2 percent chance of living in poverty and a better than 70 percent chance of making the middle class — defined as $65,000 or more in household income. People who did not meet any of these factors had a 77 percent chance of living in poverty and a 4 percent chance of making the middle class (or higher).

But is the causality really that simple…that “linear”…do these things and you’ll be OK?  Or is it more complicated, such that external forces like inequality, poverty, scarce employment, neighborhood disinvestment, wage stagnation, and so on block an individual’s chances, regardless of their personal choices?

This is an ancient argument, of course, and there is no single right answer.  But there’s evidence building that tilts the other way from Haskins and Winship.

–See slides 10-13 here, some of which come from the excellent volume “Whither Opportunity” (check out chapter 1 here—it’s actually pretty readable).

  • Slide 10 suggests that increased inequality has led to a much larger gap in “enrichment expenditures”—spending on books, tutoring, sports, etc. by income level.
  • Slide 11 shows an increased gap in college completion by cohorts across the period when inequality expanded.
  • Slide 12, from a natural experiment, shows differences in the rates of college completion by class size in primary school.
  • Slide 13 shows that the impact of an income boost on children in poor families makes a much bigger difference to those kids’ later earnings than that same income boost among higher income families, suggesting that the cost of the income-diversion function of growing inequality is a lasting one.

–A new paper on teen births finds inequality to be an important determinant, and that contrary to the Haskins view, the birth is more a symptom of the underlying inequity problem than the cause.  In fact, poor young girls who give birth seem to do about as well or poorly as comparable peers who don’t give birth: “the most rigorous studies on the topic find that teen childbearing has very little, if any, direct negative economic consequence.”

–Sawhill (link above) suspects linkages between high levels of inequality and diminished mobility: “Up to a certain point, more inequality produces more mobility because it encourages people to try harder to climb the ladder. However, after some point it can have a negative effect if the rungs of the ladder move too far apart. We then enter a vicious cycle in which inequality breeds less mobility, and less mobility produces greater stratification—a hardening of class lines.”  Economist and CEA Chair Alan Krueger makes similar connections.

I’ve been careful not to ascribe causality here—that’s a tougher connection.  Haskins could legitimately argue that the reason a family has less to spend on “enrichment goods” for their kids, for example, is because they made the wrong choices.  But to call the evidence linking inequality and opportunity “exceedingly thin” is exceedingly wrong.

And once you start looking for these linkages between inequality and opportunity, they show up everywhere.  Here’s a great example from this AM’s WaPo, where public schools facing budget cuts—the disinvestment in public goods noted above—turn to parents to raise funds, and not for one-off trips to Mount Vernon, but for science curriculum, guidance counselors, smaller class sizes, music classes, etc.  Of course, the affluent parents can raise hundreds of thousands; the poor parents, barely hundreds.  It’s a classic example of inequality reinforcing itself through educational opportunity.

I started this post noting that opportunity is under attack, and not just from intellectuals in journals, but from policy makers.  The most pointed example right now would be Rep Ryan’s budget, which gets 62% of its budget cuts from programs that provide opportunities to low-income people, including grants for college, health coverage, Head Start, and many other programs designed to at least partially offset unequal access to opportunity increasingly exacerbated by rising inequality.

As political scientist Jacob Hacker recently put it, “Ryan’s plan is a privatization of the prerequisites for opportunity…and so they [opportunities] become the province of people whose parents have made it.”

Why is opportunity under attack?  That takes me back to where I started.  By making connections between inequality and fairness, opportunity, and mobility, analysts like myself and Sawhill have strayed from describing a trend that will trouble some but not others, to a critique of the fundamental American social contract—the idea that if you play by the rules and work hard, you will be afforded the opportunities to get ahead.  If that idea is becoming less true—if it’s an ever-lessening characteristic of the experience of low- and middle-income families—then policy makers must either address this broken promise or get out of the way.

And they don’t want to get out the way.  So they obfuscate, distract, blame, and mislead.  We shouldn’t let them do so, and by “we,” I include my friends at Brookings.

 

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One comment in reply to "The Opportunity Attack"

  1. A Debate on Inequality, Opportunity, and Politics | Jared Bernstein | On the Economy says:

    [...] Scott doesn’t buy that inequality negatively affects opportunity, despite all the arguments here.   From that post, I keep coming back to this anecdote, because I think it’s so emblematic of [...]


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