Sunday, February 17, 2013

Stiglitz's myth-making

Nobel prize-winning economist Joseph Stiglitz in today's New York Times:
Perhaps a hundred years ago, America might have rightly claimed to have been the land of opportunity, or at least a land where there was more opportunity than elsewhere. But not for at least a quarter of a century. Horatio Alger-style rags-to-riches stories were not a deliberate hoax, but given how they’ve lulled us into a sense of complacency, they might as well have been. 
It’s not that social mobility is impossible, but that the upwardly mobile American is becoming a statistical oddity. According to research from the Brookings Institution, only 58 percent of Americans born into the bottom fifth of income earners move out of that category, and just 6 percent born into the bottom fifth move into the top. Economic mobility in the United States is lower than in most of Europe and lower than in all of Scandinavia.
Does the US remain the land of opportunity? While the answer is in the eye of the beholder, the fact that over one million people have sought and obtained permanent legal residency status annually in this country since 2005 would seem to suggest so. 

A more fundamental problem with Stiglitz's screed, however, lies in his use of statistics, as revealed by one of the very links he provides (actually the link is broken, having melded two different links together) which actually undermines his description of Scandinavia:
The income compression in rival countries may also make them seem more mobile. Reihan Salam, a writer for The Daily and National Review Online, has calculated that a Danish family can move from the 10th percentile to the 90th percentile with $45,000 of additional earnings, while an American family would need an additional $93,000. 
Even by measures of relative mobility, Middle America remains fluid. About 36 percent of Americans raised in the middle fifth move up as adults, while 23 percent stay on the same rung and 41 percent move down, according to Pew research. The “stickiness” appears at the top and bottom, as affluent families transmit their advantages and poor families stay trapped.
When everyone earns roughly similar amounts of money, social mobility is much easier to achieve. Imagine two villages, each with five residents (thus each person occupies one income quintile). In the first village, the incomes of each resident differs by $1,000. In the next village each resident is separated by $1 million. In which village is it easier to leapfrog the person in front of them (or conversely, fall into a lower quintile)? Would one rather be a millionaire in a village where $5 million would be required to jump from the bottom income quintile to the top, or the village where a $5,000 boost to a $30,000 income would make all the difference? Which village is really better off?

As a Nobel laureate in economics, Stiglitz is surely aware of all of this, but nonetheless plays such statistical games to advance his agenda.

These aren't Stiglitz's only questionable assertions, as he later states in the column that "government support for many state schools has been steadily gutted over the last few decades — and especially in the last few years." How does such a statement comport with this chart from

Where is the gutting? And remember, since this is in percentage of GDP terms, it actually understates the amount devoted to higher education spending. While the percentage spent on tertiary education has largely held constant since about 1970 at roughly 1 percent of GDP, that figure translates into $58.3 billion for 1970 (current dollars) vs. $150 billion today. While the amount spent has grown by nearly 160 percent, population growth since 1970 has only been about 53 percent. While one can perhaps argue that such an amount is insufficient, it absolutely cannot be argued that such funding has experienced a gutting or anything of the kind.

Later on Stiglitz declares that "Americans are coming to realize that their cherished narrative of social and economic mobility is a myth." Oh really? Last year the Pew Charitable Trusts released a report entitled "Pursuing the American Dream: Economic Mobility Across Generations." Among it's key findings:
  • Eighty-four percent of Americans have higher family incomes than their parents had at the same age, and across all levels of the income distribution, this generation is doing better than the one that came before it. 
  • Ninety-three percent of Americans whose parents were in the bottom fifth of the income ladder and 88 percent of those whose parents were in the middle quintile exceed their parents’ family income as adults.
Rather than a myth, the notion of economic mobility appears to remain alive and well, which perhaps explains why millions of people are so anxious to immigrate to these shores. If Joe Stiglitz has a valid point, why does he choose to rely upon half-truths, distortions and unsupported assertions to make it?

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