On the importance of bringing an ample policy response to an issue I’ve focused on a lot around here: the linkages between increased inequality and diminished mobility, over at the NYT Economix blog.
Inequality, Mobility, and the Adequacy of the Policy Agenda
Hi Jared,
I know comments are reserved almost exclusively for the crazies, but I really enjoyed your article. It’s rare these days to find an American economist who’s truly critical not just of inequality per see, but of the greater unfairness that permeates every aspect of our society. As you rightly pointed out, most policy prescriptions, even from so-called “progressive” economists, don’t even begin to scratch the surface of what we’re dealing with. Until this country learns to properly criticize itself, nothing will change.
What I fail to understand, and what I would like to see Mr. Bernstein explain, is why inequality is even an issue worthy of our consideration. If I receive a raise of $10,000, and my boss receives a raise of $50,000, our inequality has increased, yet I am plainly better off. Conversely, if I receive a pay cut of $10,000, and my boss receives one of $20,000, I am worse off even though our incomes have become more equal. If income inequality is always so bad, how is this reconciled with the above examples?
It’s a similar story with social mobility. Consider the fact that if everyone in this country were so see their income double overnight — an unquestionably good thing that would raise everyone’s standard of living — social mobility would be zero. Not only that, it would actually become worse, as the gaps between the different income quintiles would also double.
Rather than talking about relative measurements of welfare like inequality and social mobility, why not focus on people’s standard of living and well-being from an absolute perspective? Isn’t this the most important thing? If one does, the picture brightens considerably. Consider this study from Pew (http://www.pewstates.org/uploadedFiles/PCS_Assets/2012/Pursuing_American_Dream.pdf). Among its conclusions:
* Eighty-four percent of Americans have higher family incomes than their parents had at the same age, and across all levels of the income distribution, this generation is doing better than the one that came before it.
* Ninety-three percent of Americans whose parents were in the bottom fifth of the income ladder and 88 percent of those whose parents were in the middle quintile exceed their parents’ family income as adults.
Hey, pretty good, so why not talk about this? My guess is because when things are getting better it is more difficult to justify expanded government spending and interventionism, which appears to be the heart and soul of the progressive agenda.
Fair questions but divorced from the actual data which have been consistent in this regard for decades, so you’re either late to this debate or you’ve missed a lot. For decades, though the economy has grown on average, the incomes of many from the middle on down have stagnated. One very clear data trend herein is the divergence between productivity growth and median compensation–I’ve got many posts with pictures of all the above.
A good microcosm–and again, a recent post somewhere–shows the stock market up 60% over this recovery, GDP up, and median HH inc down 5%.
So you really don’t need to invent “what if’s?” on this stuff.
Since Mr. Bernstein probably won’t toot his own horn, here’s some good reporting on the subject:
http://www.nytimes.com/2013/07/23/us/politics/president-adopts-catchphrase-to-describe-proposed-recipe-for-economic-revival.html
“The grand idea behind the rhetorical flourish — which Mr. Obama has used for the past two years or so but which the White House put front and center this week — is that the hollowing out of the American middle class is not just unfair or unfortunate, it has slowed growth and created a more fragile economy, too.
In that sense, the thinking goes, a thriving middle class is not just a worthy goal in itself, but a path to a stronger economy.
That is because the wealthy tend to spend less of their income on goods like cars, clothes and houses than the middle class, said Jared Bernstein, a former Obama administration economist. But in the past three decades, income has become more and more concentrated among the rich, he said, and that might have depressed the consumer spending that drives the American economy and slowed down the recovery.
“It makes this interesting macroeconomic linkage between the growth story and the inequality story, which has usually been discussed solely in terms of fairness,” said Mr. Bernstein, who is now at the Center on Budget and Policy Priorities, a Washington research group.”
First, you need to revisit the definition of economic mobility. When both you and your boss get pay increases (or decreases) simultaneously, there is no economic mobility in the sense that you are now doing better than your boss.
The concept of economic mobility, in my understanding, is that you are able to succeed in demonstrating your ability and get a new position, earning more than your boss, either within the company you work for or by moving to another company or forming one of your own. The latter takes the ability to attract financing from others, etc., which often requires “networking” inside and outside your job. These are the opportunities often denied middle- and lower-income workers.
Next you need to take a look at rent-seeking activities of the wealthiest, where their earnings are used less to create new jobs for others but to extract the most money from existing enterprises through monopolistic actions supported by contributions to political forces that give their interests unequal advantages. This ensures the wealthy their continuing position at the top of the income range.