Tag Archives: Chetty

Are the Republicans serious about mobility?

The GOP’s response to widening inequality has long been similar to Sinclair Lewis’s Babbitt: “The sooner a man learns he isn’t going to be coddled, and he needn’t expect a lot of free grub and, uh, all these free classes and flipflop and doodads for his kids unless he earns ’em, why, the sooner he’ll get on the job and produce—produce—produce!” But between the fallout over Mitt Romney’s “47 percent” remark and a resurgence of progressive populism, Republicans realize they need a new, softer approach. It appears they’ve finally found one.

Paul Ryan recently appeared at the Brookings Institute’s “Social Mobility Summit” to announce, “We’re losing not only mobility, we understand that, but whole generations of Americans don’t know what this is.” Eric Cantor told Bloomberg, “All of us want to grow the economy … that means more jobs, upward mobility.” Mike Leewarned last year of an “opportunity crisis.” Cathy McMorris Rodgers’s response to the State of the Union included the line, “The president talks a lot about income inequality. But the real gap we face today is one of opportunity inequality…” And in a speech on the anniversary of LBJ’s “War on Poverty” address, Marco Rubio said that “it is this lack of mobility, not just income inequality, that we should be focused on.

“Mobility” is the party’s new mantra—but it’s based on a familiar delusion.

Mobility in many parts of America is abysmal. In some cities, children born in the poorest quintile have a less than 3 percent chance of reaching the top quintile. Across the country, a child born in the poorest quintile has a 60 percent chance of staying in the bottom two quintiles.

It’s a two-part problem. First, there is opportunity hoarding at the top, wherein the wealthy invest heavily in their children’s education and job prospects, while also passing their wealth on to their children. Then there is stagnation at the bottom, caused largely by reverse trends, economic and racial segregation, awful schools, and poor parents without much money to invest in children.

Why does the “land of opportunity” have such low mobility? Laissez-faire economic policies—massive tax breaks, untrammeled free markets, unregulated free trade, deep cuts to the safety net—have widened the income gap. While Republicans have tried tosever the link between mobility and inequality, research shows that the two issues areintimately connected: Societies and communities with high inequality have low levels of upward mobility. Josh Bivens of the Economic Policy Institute estimates that had income growth risen proportionally between 1979 and 2007, the median incomewould be $19,000 higher.

Republican pundits have their own theories on these problems, of course. They like to point to the disintegrating family and other social factors, even though a large swath of research suggests this is to mistake an effect for its cause. As for solutions, Ari Fleischer has argued for more (straight) marriage, Ross Douthat prefers chastising single mothers, Charles Murray wants the poor to emulate the values of the rich, and David Brooks wants… well, it’s not clear exactly. None of these proposals are serious about the problem, because being serious about the problem will require doing the one thing that Republicans hate: government spending.

Several Republican politicians have put forward specific policy proposals. Rubio’sbig idea, supported by Ryan, is to make the Earned Income Tax Credit (a tax break for low income workers) a monthly, rather than yearly, program. With the median income of American households $19,000 dollars below what it should be, students struggling under piles of debt, and millions trying to pay off underwater mortgages, such a plan, while welcome, is wholly inadequate. Lee and Rubio have both proposed modifying the EITC for married couples, to eliminate the “marriage tax” (whereby two single people who become married become ineligible for the program or take a benefit cut). However, if they increase the benefit, they’ll have to increase deficits. The only other option is to reduce the EITC for single mothers.

Rubio’s other idea (again supported by Ryan) is revenue-neutral block grants to the states, which means that states would have more leeway in how to spend the funds. “Revenue-neutral” is the key phrase here; if you’re not increasing spending, you’re just shifting around authority at best and sneaking in cuts at worst.

This is the catch-22 the Republicans are facing: The only way to increase upward mobility is more government spending. Schools need more money, unemployed workers need extended benefits, poor mothers need daycare, kids need Pre-K. The best way to be upwardly mobile is to get a job, which is a lot harder to do when Republicans are still criticizing the 2009 stimulus that created millions of jobs. It’s easier to move up if you have health care, but Republicans are cutting Medicaid. Paul Ryan wants to talk education, but Republican governors across the country are cutting education budgets to fund tax cuts.

Ryan argues that the real thing hurting the poor is big government: “Government is a very powerful tool. Too powerful, you might say. Just as it can build and encourage, it can frustrate and deter.” The actual data show that higher government expenditures increase upward mobility. That’s why countries like Denmark have much higher levels of mobility. We find the same correlation at the local level within the U.S.: Higher government spending leads to more mobility.

 

It is no surprise that the period with the most equal growth and upward mobility was the post-war era, when marginal income taxes on the wealthy topped 90 percent, the government invested heavily in infrastructure and education, and the social safety net was being strengthened, not vitiated. Today, booming countries like China and India are discovering that the government must bolster their middle class with a pension and safety net.

In his book, Social Democratic AmericaLane Kenworthy argues that social democracy—a fully-developed, European-style welfare state—will require the U.S. government to increase revenues by 10 percent of the national GDP, and he proposes a series of tax boosts to get us there. But most Republicans have signed a no-tax pledge, so social democracy is out of the question. If we can’t spend more on poverty, the only other method is lowering taxes on the poor (who, according to Republicans, already pay too little in taxes).

Republicans want a strong, upwardly mobile middle class and a weak government, but the two cannot coexist. Instead, Republicans will have to choose between social mobility and low deficits. Given the party’s obsession with cutting government spending, “mobility” will remain a hollow mantra, nothing more.

Originally published on The New Republic.

Absolute mobility and relative mobility

The economics blogosphere as well as mainstream publications are alight with new researchfrom Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez and Nicholas Turner on upward mobility. It’s a key topic, especially here at Demos, where we want an equal chance for all. I haven’t finished reading the paper and related commentary, which I plan to do over the weekend, so I don’t want to comment on it, other than to note a very important distinction between absolute mobility and relative mobility that may get lost in the fray.

Chetty, et. al., are looking at what is called “relative mobility.” Relative mobility measures how a child’s ranking in the income distribution compares to her parents’. If we use the old cliche of a ladder, it’s how far up, or down, the ladder you move compared to the quintile you were born into. If your parents were in the bottom quintile and you move into the second quintile, you have experienced relative mobility.

But what does that mean? Well, nothing really to you, unless you know what quintile you are born into and pay incredibly close attention to it. Relative mobility is a zero-sum game, if you move from the first quintile to the second, that means someone else has dropped downward. The numbers have to add up in the end. “Absolute mobility” measures something entirely different. It measures how your income compares with your parent’s income. So let’s say your parents make $10,000 a year and you are in the bottom quintile. If you stay in the bottom quintile, but make $20,000 a year, you’ve experienced absolute mobility.

Relative mobility is important, but the big question is absolute mobility. Imagine a society where relative mobility looks like this:

That is, no matter where you are born, you have a 20% chance of landing in any income bracket. But with an income distribution looks like this:

That society is perfectly mobile, but certainly one we don’t want to live in. To give everyone a decent shot at life means not just making sure they can move into another quintile, but that no matter what quintile they end up in, they can live a fulfilling life. Upward relative mobility for me means downward relative mobility for thee. Far better would be a society where all boats are rising together, rather than just a couple of yachts.

The problem is that in the last few decades, relative mobility has stayed pretty much the same (although, lower than most developed countries), but absolute mobility hasn’t been doing quite as well, mainly because of rising inequality. Josh Bivens calculates that if incomes had risen proportionately, the median income would be $19,000 higher.

The story of the past forty years has been an increasing share of the national income going to the top one percent, and little “trickling down” to the bottom. Because of this increase in inequality, it matters far more where you are born into on the income ladder. That’s a problem.