The Inequality Puzzle


In January, a team of prestigious economists published an authoritative study showing that there had been no decline in intergenerational mobility during the past three decades. The paper, by Harvard’s Raj Chetty and three colleagues, using some 40 million Internal Revenue Service records, found that if you were born in the bottom fifth of the income distribution in 1980–1982, you had about the same chance of moving to the top quintile (about 1 in 12) as someone born at the bottom 30 years earlier.

This result was surprising. In recent years, the ability of the affluent to pass along class advantage has intensified in countless ways. Young people from wealthy families are more likely to get into elite colleges and less likely to finish college hobbled with debt. Parents can subsidize unpaid internships useful for networking. The children of the affluent can get help with starter homes, in districts with excellent public schools. And when (grand) children come, they often can count on Mom and Dad to pay for good preschool, and so on. 

The wider the income extremes, the more money the elite has to spend assuring that their progeny stay in the family social class. The worse life becomes for ordinary people, the more incentive the rich have to extend privilege to their kids.

Meanwhile, the opportunity ladders that help young adults without affluent parents have been kicked away. College tuitions have increased far faster than incomes, school loans have been substituted for grants, housing has become less affordable, pay scales for entry-level jobs have flattened, spending on social supports for the poor has declined.

So how could intergenerational mobility not have worsened? Conversations with several longtime students of the subject, including Christopher Jencks of Harvard, Tim Smeeding of the University of Wisconsin, and Miles Corak, a visiting scholar at the Russell Sage Foundation, suggest the following caveats.

First, the optimism is premature. Inequality began widening in the mid-1970s. The data in the Chetty paper end with young adults born in the early 1980s, people now in their early thirties. Typically, however, income peaks in one’s late forties or early fifties. The true statistical verdict on declining mobility won’t be in for a few decades, as today’s young complete the life course.

Second, a comparison of different countries suggests that greater inequality produces greater immobility. A recent study by economist David Howell, published by the Center for American Progress, demonstrates that in countries with more equal income distributions, such as Denmark or Finland, people who begin life at the bottom have at least double the chance of making it to the top as their American counterparts. The same social supports that produce a more equal society give young people from humble origins a better shot at surpassing their parents. By contrast, a highly unequal America is a highly immobile America.

Third, because inequality has become more extreme, the consequences of getting stuck at the bottom are more severe. During the postwar boom, we had both rising economic growth and increasing income equality. There was more mobility, in the sense that your living standards improved over time, even if you stayed in the same quintile as your parents. By contrast, polarization today produces stagnation in both senses.

Finally, even if intergenerational mobility has not worsened statistically (yet), it was already dismal three decades ago in the Reagan era and is nothing to be proud of. All of which raises the question, why aren’t we doing more to remedy these extremes?

Something is profoundly wrong with both the economy and the democracy when ordinary people can’t get ahead because nearly all of the gains go to the top. America as the land of opportunity is our national myth. Does any serious person doubt that America would be a more attractive place if family incomes rose with average productivity? If they did, median household income would be well over $80,000, instead of stuck around $50,000. And can anyone argue that our (meager) rate of growth depends on the astronomical paydays of investment bankers and corporate CEOs?

Some say that structural changes—globalization, technology—are behind the rising inequality. Even so, these could be offset with sensible policy. For instance, if we properly regulated the abuses of Wall Street, the top 1 percent would not capture so much of our total national income. If we restored progressive taxation and spent the money on opportunity programs and public infrastructure, we could create both more economic ladders and more good jobs. 

The most important fact to appreciate is that concentrated wealth translates into concentrated political power. The remedies that could reverse the increasing inequality are outside mainstream politics today, because the wealthy get to define what’s mainstream. Even Democrats like President Barack Obama are advised not to use the word inequality, for fear of their sounding like class warriors.

So economic inequality is far from hopeless. But before we can fix our unequal economy, we need to fix our unequal politics.

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