Howell continues his “Metrics of Protest” series. -Jeff
Extreme inequality has finally made it to prime time. Occupy Wall Street helped focus attention on the problem last Fall, and President Obama finally rose to the challenge with what was perhaps the best speech of his presidency. He spoke forthrightly about the massive and continued growth in inequality, linking this to the collapse of the middle class and to the obstructionism of the Republican-controlled Congress.
Concern over rising inequality has even made its way into the Republican presidential primary debates. While Mitt Romney has announced (with the Supreme Court) that “corporations are people” (see Stephen Colbert’s hilarious PAC advertisement), he has also said that he is really concerned about the poor and that we should address income inequality, but only in “quiet rooms.”
The argument on the right has always been that people should not bemoan extreme inequality as long as America remains the land of opportunity, where anyone who goes to school and works hard can make it. Those of a certain age will remember the 1960s pop hymn to American mobility “Only in America” by Jay and the Americans (who else?). Did anyone question the reality behind these uplifting lyrics? At least for white people?
But now the reality behind mobility promise of America has also hit prime time. The New York Times ran a front page story on the compelling evidence, quite well-known for some time among labor economists (at least progressive ones), that Americans actually have far lower chances of moving up the income ladder than those in other rich countries. Extreme inequality and low social mobility have become definitive of the American social condition, an apparent refutation of the American dream.
The latest contribution to a better understanding of inequality as “causing an unhealthy division in opportunities and a threat to economic growth” is a fantastic recent speech at the Center for American Progress by Alan Krueger, Obama’s new Chairman of Economic Advisers. He makes his case with the help of 11 powerful figures, some of which will look familiar to those who have followed recent discussions of inequality, and especially to those who have read earlier Metrics of Protest posts.
Krueger presents what he calls the “Great Gatsby Curve.” The basic message is the mirror-opposite of the conservative “Only in America” mantra about American mobility: extreme inequality is associated with dramatically reduced economic mobility. There is a close correlation across countries between income inequality and income mobility. The Gatsby Curve, reproduced below, shows that those countries with the greatest inequality in the mid-1980s also have the lowest income mobility across generations.
To be more specific, Krueger’s figure shows that in the middle of their working careers, fathers and sons tend to have much closer incomes in countries with the highest income inequality (the UK and US) than in more egalitarian countries (Germany, and especially the Scandinavian countries). The figure also includes Krueger’s projection for the U.S. to 2010, which is based on the relationship shown on the graph (the regression line) together with the increase in the U.S. inequality since 1985. Growing inequality begets class lines increasingly locked in place – a sort of Feudal Capitalism.
This is no accident. As Krueger puts it:
“… because of rising inequality the happenstance of having been born to poor parents makes it harder to climb the ladder of economic success. There is a cost to the economy and society if children from low-income families do not have anything close to the opportunities to develop and use their talents as the more fortunate kin from better off families who can attend better schools, receive college prep tutoring, and draw on a network of family connections in the job market” (p. 6).
So what’s to be done about it? Take a look at Krueger’s conclusion for his proposals and judge for yourself whether these will turn back the inequality tsunami. What can be said with some certainty is that there is no plan (and little concern) on the Republican side.
This is an excellent article. However, there is a component missing in this discussion. In the neighborhood of all people who are rich INHERITED their money, they did NOT earn it: e.g. Romney. It still remains the case that the best way to join the 1% is to be born into it. Alas, I have seen little new info on this since Domhoff’s Who Rules American? and writings of E. Digby Baltzell, many decades ago. This point badly needs to be updated with more complete information.
Tom Hall, retired sociologist
Good point, inheritance and especially the recent decline in the taxation of inherited wealth should be part of the outrage. At the same time, I’m pretty sure that the source of nearly all of Romney’s wealth was Bain Capital, not inheritance. And I suspect that most of those in the top 1%, and even many in the top .1%, “earned” their way there as opposed to inheriting it. Of course they did it with huge advantages of education and networks, and their wealth is now being passed on with tax rates that are pitifully low…
If you’re born into wealth, you have a much better chance of aquiring the social and political capital to attain positions of influence and power. In this sense Romney is in no way was a “self made man.” He, and most other presidential candidates, are part of the aristocracy. And if you wonder why it was the supposed “best and brightest” that wrecked the economy, you might have to re-think the idea that any of them truly “earned” what they received. In a level playing field, many of them would be lucky to rise higher than floor manager at a Wall Mart. (Not to disparage that group however; they may just find themselves having to make a more honest living.)
Yet no one necessarily gets to where they are through their own efforts alone. They have had plenty of help along the way, and not just from their wealthy families. Warren Buffett, even though he was born into a well off family, still acknowledges the debt he owes to society for much of what he has. And, accordingly, he is willing to give back. Only egomaniacs believe they’ve earned what they’ve gotten throught their own efforts alone, and thus owe society nothing.
There was another front-page story that appeared in the New York Times that paints a somewhat different picture of the top 1%. The interactive feature that accompanies the story is especially interesting. The graphic provides a visual display of the many types of occupations that comprise the top 1%. http://www.nytimes.com/2012/01/15/business/the-1-percent-paint-a-more-nuanced-portrait-of-the-rich.html?_r=1&emc=eta1. To me, it is a much better profile than the stereotype that is usually offered. It also suggests to me that there may be much more mobility within careers and between generations than is noted. My guess is that if the careers of people were examined, it would show that they passed through many income levels, and many of those in the top one percent only were at those earning levels during their prime years.
It is always dangerous to generalize from our own life experiences; however, sometimes the observations are useful. Over my career in business, I’ve had a chance to meet thousands of people; many of them have been very successful. Most came from very ordinary backgrounds, and some emerged from families that experienced significant hardships and challenges. I and other members of senior management in my company mentored aspiring high potential employees from very diverse backgrounds. The most common characteristics of people who been very successful in my view are: aptitude, acquired and applied skills, excellent interpersonal skills, relevant educational achievements, outstanding performance over time, an industrious work ethic, the propensity to create value; and being in the right place at the right time. Risk and reward are equally important for entrepreneurs. Many more fail than succeed. Knowing someone and connections aren’t substitutes for these other characteristics.
Is there good data on the number of people within the top 1% over time? If so, I would like to see how this has changed. I would also like to see the composition of the strata within the top 1%. I have a feeling that is a much more interesting story than concentrating on the relatively small number of billionaires that exist.
Rather than concentrating on The Great Gatsby Curve, I would like to see graphic representations of how the structure of the economy has changed in the United States. My guess is that a huge part of our problem is the reduction of employment opportunities in major better paying sectors of the economy. If that is the case, then we can ask, what needs to be done to change this.
I continue to be fascinated by the lack of interest in addressing the under classes in our economy. This has been and continues to be a huge problem. In my opinion, changing our tax codes will not significantly change this chronic issue. Most governmental programs have failed.
Are union workers always better off than non-union workers in comparable industries and types of facilities? I’ve had substantial experience with both types of facilities. For me, the answer is that it depends on the facility and the way it operates. Alienation has been a problem with many types of manufacturing jobs. It can be addressed through high performance teams. These can be put in place at both union and non-union facilities; however, it is much easier to put in place at new facilities than existing facilities. One non-union facility than I am familiar with became one of the world’s highest quality and most productive facilities of its type with well-compensated and satisfied employees. I am familiar with parts of non-union facilities that changed parts of them with good results. It is easier to implement more innovative compensation systems (pay for knowledge, multi-craft premiums, gain sharing, profit sharing, and other performance based approaches) in non-unionized facilities. Organizational culture and contracts frequently impede organizational change. Restrictive old-style contracts tend to foster alienation and reduce productivity.
Unless we are willing to find ways to reshape the composition of the economy and creatively address the underclass issues, things may get worse.
There was another front-page story that appeared in the New York Times that paints a somewhat different picture of the top 1%. The interactive feature that accompanies the story is especially interesting. The graphic provides a visual display of the many types of occupations that comprise the top 1%. http://www.nytimes.com/2012/01/15/business/the-1-percent-paint-a-more-nuanced-portrait-of-the-rich.html?_r=1&emc=eta1. To me, it is a much better profile than the stereotype that is usually offered. It also suggests to me that there may be much more mobility within careers and between generations than is noted. My guess is that if the careers of people were examined, it would show that they passed through many income levels, and many of those in the top one percent only were at those earning levels during their prime years.
It is always dangerous to generalize from our own life experiences; however, sometimes the observations are useful. Over my career in business, I’ve had a chance to meet thousands of people; many of them have been very successful. Most came from very ordinary backgrounds, and some emerged from families that experienced significant hardships and challenges. I and other members of senior management in my company mentored aspiring high potential employees from very diverse backgrounds. The most common characteristics of people who been very successful in my view are: aptitude, acquired and applied skills, excellent interpersonal skills, relevant educational achievements, outstanding performance over time, an industrious work ethic, the propensity to create value; and being in the right place at the right time. Risk and reward are equally important for entrepreneurs. Many more fail than succeed. Knowing someone and connections aren’t substitutes for these other characteristics.
Is there good data on the number of people within the top 1% over time? If so, I would like to see how this has changed. I would also like to see the composition of the strata within the top 1%. I have a feeling that is a much more interesting story than concentrating on the relatively small number of billionaires that exist.
Rather than concentrating on The Great Gatsby Curve, I would like to see graphic representations of how the structure of the economy has changed in the United States. My guess is that a huge part of our problem is the reduction of employment opportunities in major better paying sectors of the economy. If that is the case, then we can ask, what needs to be done to change this.
I continue to be fascinated by the lack of interest in addressing the under classes in our economy. This has been and continues to be a huge problem. In my opinion, changing our tax codes will not significantly change this chronic issue. Most governmental programs have failed.
Are union workers always better off than non-union workers in comparable industries and types of facilities? I’ve had substantial experience with both types of facilities. For me, the answer is that it depends on the facility and the way it operates. Alienation has been a problem with many types of manufacturing jobs. It can be addressed through high performance teams. These can be put in place at both union and non-union facilities; however, it is much easier to put in place at new facilities than existing facilities. One non-union facility than I am familiar with became one of the world’s highest quality and most productive facilities of its type with well-compensated and satisfied employees. I am familiar with parts of non-union facilities that changed parts of them with good results. It is easier to implement more innovative compensation systems (pay for knowledge, multi-craft premiums, gain sharing, profit sharing, and other performance based approaches) in non-unionized facilities. Organizational culture and contracts frequently impede organizational change. Restrictive old-style contracts tend to foster alienation and reduce productivity.
Unless we are willing to find ways to reshape the composition of the economy and creatively address the underclass issues, things may get worse.
Michael Corey raises lots of good questions, based mainly it seems on his own experiences. These anecdotes are important, but as he points out, it’s dangerous to generalize from them. There’s a need to combine them with both common sense and a good understanding of what the data say. This post was narrowly focused on how the US compares to other countries on measures of point-in-time income inequality (the X axis of the figure) and a conventional measure of cross-generation income mobility (Y axis). The questions Michael raises require quite different data, and some of the figures I’ve posted in earlier “Metrics” blogs might bear on some of of them.
Michael Corey raises lots of good questions, based mainly it seems on his own experiences. These anecdotes are important, but as he points out, it’s dangerous to generalize from them. There’s a need to combine them with both common sense and a good understanding of what the data say. This post was narrowly focused on how the US compares to other countries on measures of point-in-time income inequality (the X axis of the figure) and a conventional measure of cross-generation income mobility (Y axis). The questions Michael raises require quite different data, and some of the figures I’ve posted in earlier “Metrics” blogs might bear on some of of them.
“I continue to be fascinated by the lack of interest in addressing the under classes in our economy.”
This is a very interesting point. The focus of political rhetoric right now appears to be predominantly on the middle classes. This while the number of Americans living in poverty is at its highest level since the Census has published figures on this. (I assume however by “under classes” you mean the impoverished).
However, I would question the notion that government programs have “failed.” This depends on how you might define failure. Without a social safety net, the lot of the “poor” would be much worse, and no doubt instances of homelessness would be much higher. Yet with regards to the actual prevention of poverty, most government programs do not seem to address this issue adequately but neither do they appear designed to do so. However, there are a lot of other factors at play, the disappearance of jobs that were once the foundation of the working class being one of them.