The relationship between inequality and economic mobility; Concern about "rigged"
Welcome to Destabilized, a newsletter about the internet and other forces straining American society.
My last post on inequality was short on actual data, even though (or maybe because) there’s a lot of it. Here’s a good chart from the Center on Budget and Policy Priorities (CBPP) on the decoupling of higher and lower tier income growth over the past several decades.
Starting around 1980, economic growth in the United States - which since WW II had been broadly shared across American society - started going disproportionately to the already well off. This tweet from my last post tells the same story, in a dramatized and (appropriately) unsettling way:
During the same period that income became increasingly concentrated at the top, relative shares of national wealth did, as well:
You can see that since 1990, the share of wealth held by the bottom 90 percent (blue line plus gray line) fell from about 39% of all the wealth in the US to about 31%, while the share held be the top 1 percent (red line) increased from 24% to 32%. In addition, smart-guy/gal economists like to say there are trends and there are levels, and the other important takeaway is that the share of wealth owned by the bottom half of the American income scale is extremely small.
Some people believe higher concentrations of wealth at the top isn’t per se bad, as long as everyone has a reasonably comparable opportunity to end up at or near the top. Often this view goes along with a belief that relatively high inequality is an inherent correlate of economic growth, and that policies that successfully reduce inequality are also harmful to growth. I don’t see it this way, but I can understand how reasonable people end up there.
The main problem with that perspective is that, empirically, as inequality increases, economic mobility tends to decrease. As Vice President Biden’s former chief economic advisor, Jared Bernstein, put it in a 2015 Atlantic piece,
In addition, a large and growing body of evidence, recently reviewed by Katharine Bradbury and Robert Triest of the Federal Reserve Bank of Boston, directly connects inequality of outcomes to inequality of opportunity. As shown in the figure below, Bradbury and Triest find a significant, negative relationship between living in an area with greater income inequality and children’s expected upward mobility.
Here’s the “figure below” he’s referring to:
What explains the inverse relationship between inequality and economic mobility? Here’s Bernstein:
First, inequality is driving increasing residential segregation by income. The shares of families in neighborhoods of concentrated poverty and neighborhoods of concentrated wealth both more than doubled between 1970 and 2009, while the share of families in middle-income neighborhoods declined from 65 percent to 42 percent. Those high-poverty neighborhoods—where more and more families are living—create lasting disadvantages for many who grow up there: If a family with young children (less than age 13) relocates from a high- to a low-poverty neighborhood, the kids achieve better academic and economic outcomes later in life, as new work by Chetty et al. indicates.
Second, inequality leads to unequal access to quality educational experiences throughout a child’s lifetime. Over the period of growing inequality, these disparities have increased. In 1995, for example, families with education debt in the bottom half of the net worth distribution (a broader definition of income, including assets minus liabilities) had a mean debt-to-income ratio of around 0.26, meaning that for every dollar of their income, they owed 26 cents in college debt. For families in the top 5 percent, that ratio was eight cents on the dollar. But by 2013, the debt-to-income ratio had more than doubled to 0.58 for the bottom half (some of whom are poor but many of whom are middle class) while remaining unchanged for those at the top.
Third, and most importantly, inequality directly undermines equality of opportunity, likely through a variety of mechanisms. As the gap between the rich and poor widens, lower-income families have less ability relative to their rich counterparts to invest in enrichment goods for their children. Children from families with less income have relatively less extensive and privileged social networks and, compared to their rich peers, are more likely to experience the type of "toxic" stress that can hamper brain development and long term academic, health, and economic outcomes.
In short, inequality entrenches immobility not just by enabling increasingly unequal transfers of wealth from one generation to the next, but also through a number of more subtle pathways that affect opportunity on a daily basis. It may not yet be possible to explain all of these subtle pathways with great certainty, but the fact that “rich and poor children score very differently on school readiness tests before they enter kindergarten” should be viewed as an unsurprising consequence of the high levels of inequality American society currently tolerates.
It’s intuitive when you think about it. It’s unlikely we could ever have high inequality with high economic mobility because the conditions inherent in high inequality make it more difficult for those at the bottom to get to the top - or anywhere close. In a country of 330 million people there will always be individual exceptions, but those require extraordinary circumstances, rare talent, and consistent good luck along the way.
(By the way, in addition to having worsened over time, economic mobility in the U.S. is quite a bit lower than many of our developed nation peers.)
One of the notable and to me ominous societal trends of the last several years is the rise of “rigged” as a short-hand analysis of the economy and policy-making. In its conspiratorial overtones and sense of hopelessness, it’s a word with a fairly dark aura. But when you look at income distribution data showing high and rising inequality and economic mobility data showing that if you’re born near the bottom you’re likely stuck there, you can understand where it comes from. Add in jobs lost to globalization and automation, the rising cost of college and increasing student debt, and the lack of good jobs even for college graduates, and it becomes even clearer. The seven months of the pandemic have only made things worse.
This is the deep problem associated with inequality and low economic mobility: when tens of millions of people come to understand that not only are they stuck in an effectively permanent struggle for a minimally decent life, but also their kids have very little chance to do better, they tend to feel less invested in the future of their country. That lessened stake, the weakened commitment, is dangerous and potentially destabilizing.
Bonus for newspaper lovers:
