Thursday, March 22, 2012

The inequality chronicles

Yesterday's New York Times managed to churn out -- surprise, surprise -- yet another piece on the supposed dangers of income inequality. For all of the ink spilled by author Eduardo Porter, however, we are still left with only a very fuzzy idea of exactly what we are supposed to be worried about. Roughly two-thirds of the way through the column he gets to the meat of his argument:
Progress still happens, but there is less of it. Two-thirds of American families — including four of five in the poorest fifth of the population — earn more than their parents did 30 years earlier. But they don’t advance much. Four out of 10 children whose family is in the bottom fifth will end up there as adults. Only 6 percent of them will rise to the top fifth. 
It is difficult to measure changes in income mobility over time. But some studies suggest it is declining: the share of families that manage to rise out of the bottom fifth of earnings has fallen since the early 1980s. So has the share of people that fall from the top. 
And on this count too, the United States seems to be trailing other developed nations. Comparisons across countries suggest a fairly strong, negative link between the level of inequality and the odds of advancement across the generations. And the United States appears at extreme ends along both of these dimensions — with some of the highest inequality and lowest mobility in the industrial world. 
The link makes sense: a big income gap is likely to open up other social breaches that make it tougher for those lower down the rungs to get ahead. And that is exactly what appears to be happening in the United States, where a narrow elite is peeling off from the rest of society by a chasm of wealth, power and experience.
The first paragraph pretty much refutes everything else Porter writes. He notes that a sizable majority of American families -- and an impressive 80 percent of the bottom quintile -- earn more than their parents 30 years ago, but then in the very next sentence adds "but they don't advance much." Porter justifies this statement by switching from measuring their absolute incomes to relative ones, pointing out that 40 percent of those in the bottom quintile will remain there as adults.

Besides the fact that this means 60 percent will still rise to a higher quintile, let's also keep in mind that for one person to move up to a higher quintile that another person from a higher quintile must move down. Should we celebrate when, say, someone from the middle quintile moves down to the bottom? After all, such moves are necessary for someone from the bottom to rise up.

Remember, if every person in a country managed to double their income overnight, there would be absolutely no movement among quintiles. On the other hand, if a natural disaster struck a rich neighborhood and impoverished its inhabitants, there would be movement. Which scenario is more preferable? The irrelevance of such relative shifts have previously been discussed here.

Porter continues:
The sharp rise in the cost of college is making it harder for lower-income and middle-class families to progress, feeding education inequality. 
Inequality is also fueling geographical segregation — pushing the homes of the rich and poor further apart. Brides and grooms increasingly seek out mates with similar levels of income and education. Marriages among less-educated people have become much more likely to fail. 
And a growing income gap has bred a gap in political clout that could entrench inequality for a very long time. One study found that public spending on education was lower in countries like Britain and the United States where the rich participate more in the political process than the poor, and higher in countries like Sweden and Denmark, where levels of political participation are approximately similar across the income scale. If the very rich can use the political system to slow or stop the ascent of the rest, the United States could become a hereditary plutocracy under the trappings of liberal democracy. 
One doesn’t have to believe in equality to be concerned about these trends. Once inequality becomes very acute, it breeds resentment and political instability, eroding the legitimacy of democratic institutions. It can produce political polarization and gridlock, splitting the political system between haves and have-nots, making it more difficult for governments to address imbalances and respond to brewing crises. That too can undermine economic growth, let alone democracy.
The cost of college is a problem is indeed a real problem, and it might even be a driver of income inequality, but there is zero evidence that inequality is driving the cost of college higher. As in most cases, income inequality is a symptom that something is amiss rather than the actual malady.

With regard to geographical segregation and the connection between marriage and income inequality, it is not obvious why either should be regarded as a pressing concern. Would marriages among the less educated be more successful if Bill Gates, Wall Street money managers and the country's CEOs had less wealth? What exactly is the argument here? Raising such concerns has the smell of desperation, with Porter appearing to throw anything and everything at the wall out of hope that something will stick. 

The penultimate paragraph is perhaps the weakest of all. The alleged linkage between income inequality and a refusal to spend money in public education simply does not square with the data:

Source: Super-Economy

Further note that the link supplied by Porter to a study which allegedly found the opposite does not work. The final sentence about the rich using the political system to actively stymie the ambitions of the poor is bizarre. Why should we think that the rich uniformly share the same interests? Are the Koch brothers and  George Soros ideologically aligned? Furthermore, what do the rich have to gain by halting the ascent of the poor? It's utter nonsense. Again, the desperation is palpable.

The last paragraph contains so many unsupported grand pronouncements that it is difficult to respond. However, let's note that despite the allegedly deplorable state of income inequality in the US that political gridlock has been the least of our worries, with Congress passing a raft of deplorable legislation over the past decade including pork-laden farm and energy bills, Sarbanes-Oxley, a massive stimulus bill, Obamacare and Dodd-Frank. 

Yet again one is left to wonder: if the case against income inequality is so compelling, why do those who insist it is one of the most pressing problems facing society today struggle so mightily to make their case?

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