James Pethokoukis: “New economic mobility study shows the 1% didn’t kill the American dream” – AE Ideas

Posted on :Jan 25, 2014

By: James Pethokoukis.

AE Ideas

January 23, 2014

President Obama got it half right. Kind of. Last month, he declared the “defining challenge of our time” was “a dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain … .” Obama, shorter: What’s good for the 1% isn’t at all good for America. In fact, extreme income differences are toxic for the rest of us — and for equality of opportunity.

But new data tell a different, more complex story about income inequality and economic mobility and causality. A landmark study from the Equality of Opportunity Project — which includes rock-star economists Raj Chetty and Emmanuel Saez — examined millions of tax records and found that mobility has change little in nearly half a century.

Children born in 1971 in the bottom 20% of household earners, according to The Wall Street Journal, had an 8.4% chance of eventually making it into the top 20% of earners by their 20s or 30s vs. for 9.0% kids born in 1986. And about 20% of children born into the middle fifth households in the mid-1980s climbed into the top fifth as adults, also largely unchanged from earlier. Upward mobility has not been declining.

Hold on a second. Progressives like the president argue that extreme income inequality has been hurting mobility. They point to research from Saez and fellow economist Thomas Piketty finding the share of market income going to the top 1% of the population has more than doubled since the 1970s. Maybe so, but that phenomenon — driven mostly by technology and globalization — doesn’t seem to be hurting mobility. Indeed, the EOP study inconveniently found that when you looking mobility across geographic areas “upper tail inequality is uncorrelated with upward mobility … .”

True, the study also found that inequality, as measured by the Gini index, within the bottom 99% “remains very highly strongly correlated with upward mobility.” But that kind of inequality has been far more stable than high-end inequality. As Northwestern University economist concluded in a 2009 study: “The rise in American inequality has been exaggerated both in magnitude and timing. … The income share of the 91st to 95th percentile has not increased since 1983, and the income ratio of the 90th to 10th percentile has barely increased since 1986.”

Left-liberals also argue that social programs such as Head Start have managed to offset rising inequality. But the EOP study found “much of the difference in intergenerational mobility across areas emerges before children enter the labor market.” And as for Head Start, the results from a large randomized trial found no differences in elementary school outcomes between children who had vs. had not attended Head Start as four-year-olds.

Besides, inequality isn’t the factor most correlated with mobility. Family structure is. Again, the EOP study on mobility across areas: “The fraction of children living in single-parent households is the strongest correlate of upward income mobility” among all the variables the research team explored. Social capital is also key since “high upward mobility areas tend to have higher fractions of religious individuals and greater participation in local civic organizations.” Good schools and less sprawl — thus less segregation — also also important factors. Here’s how the study sums things up:

The United States is often hailed as the “land of opportunity,” a society in which a child’s chances of success depend little on her family background. Is this reputation warranted? We show that this question does not have a clear answer because there is substantial variation in intergenerational mobility across areas within the U.S. The U.S. is better described as a collection of societies, some of which are “lands of opportunity” with high rates of mobility across generations, and others in which few children escape poverty.

The key issue, then, is not whether mobility is getting worse but whether there is just too little opportunity, especially from the bottom, than we would like. As Saez told The New York Times, “The odds of escaping poverty appear to be only about half as high in the United States as in the most mobile countries like Denmark.” Surely we can do better. It should matter less who our parents are, especially if the top rung on the ladder is further away than ever. And America can do better if all of us, including the president, focus on real problems — such as the emerging impact of automation on work and income, education, family structure, transportation, cronyism, and the level of economic growth — not scoring political points in an election year.

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