Category Archives: income distribution-wealth-poverty

Response to a Comment

Posted on by

Concerning Gregory Clark’s findings of the absence of high multi-generational mobility, a commenter writes,

I still can’t believe things are quite as static as he makes them out to be, but I don’t know enough to dispute any of his specific findings. The model of human social behavior I carry around in my brain just doesn’t match the one he presents.

One thing we know is that there is high variance in outcomes across siblings. Back when people had many children, it may have been the case that if you were well off it was very likely that at least one of your grandchildren would be well off, but not so likely that every one of your grandchildren would be well off. With people having fewer children, either multigenerational mobility will go up or other forces (such as stronger assortative mating) will offset what otherwise would be an increase in random variation across generations.

Charles Murray Watch

Posted on by

Paul Caron writes,

Power couples conceive bright children and bring them up in stable homes—only 9% of college-educated mothers who give birth each year are unmarried, compared with 61% of high-school dropouts. They stimulate them relentlessly: children of professionals hear 32m more words by the age of four than those of parents on welfare. They move to pricey neighbourhoods with good schools, spend a packet on flute lessons and pull strings to get junior into a top-notch college.

The question is to what extent this “coming apart” is treatable by policy.

Gregory Clark on (the lack of) Social Mobility

Posted on by

He writes (concerning China),

the descendants of the pre-revolution elites crop up unexpectedly frequently among high government officials, university professors, and students at elite universities.

Also,

Marriage is highly assortative in all societies. Even in 19th century England, where women had no formal educational status and little control of wealth, women married men who were very like their fathers or brothers in wealth and education.

This is from an article a couple of weeks ago that I missed. Thanks to Jason Collins for the pointer.

Marriage != Children

Posted on by

“Dalrock” writes,

The jump in the late thirties bracket is striking, with 17% of White women in their late 30s having never married

This figure was just 10.4 percent as recently as 2003. However, the proportion of never-married white women in their early 40s has remained below 12 percent. Arithmetically, one can predict either that a large proportion of women in their late 30s will marry within the next five years or there will be a sharp rise in the proportion of women in their early 40s who never have been married. “Dalrock” writes,

women marrying after forty means their fertility window is all but closed by the time they walk down the aisle.

We know that many children are being born out of wedlock. It looks like we are going to see a lot of marriages that do not produce children. The disconnect between marriage and children is a striking change over the past fifty years. My guess is that it has large effects on the distribution of income.

I Missed This Story on Income Distribution

Posted on by

Last fall, The WaPo created an interactive map inspired by Charles Murray’s idea of indexing zip codes by median household income and percent of college graduates. My zip code is in the 80th percentile. The zip code of the suburban St. Louis location where I will be speaking next month, in part about the forces driving the distribution of income, is in the 99th percentile.

The WaPo story says,

In 1970, 65 percent of families lived in middle-income neighborhoods; four decades later, 42 percent did.

Meanwhile, the share of families living in affluent neighborhoods doubled, from 7 percent to 15 percent, as did families living in poor neighborhoods, from 8 percent to 18 percent.

They are citing this report.

I am not sure why I did not see this earlier. For the pointer I thank Jason Brennan on Facebook.

A Question about Inequality Within States

Posted on by

Salil Mehta writes,

Let’s start by looking at this chart below. It shows the differences in state-level ratios, contrasting the typical incomes at the top 1% versus the typical incomes at the bottom 1%… the Economic Policy Institute (EPI) chart above has a clear concordance between income dispersion and the population size itself.

Pointer from Tyler Cowen.

My question is this. Suppose that we ignored the actual geography of states, and instead we produced artificial pseudo-states by taking random samples of all U.S. data. We took one sample the size of Texas, and called it pseudo-Texas. Another the size of Vermont, and called it pseudo-Vermont. etc. My guess is that the pattern of inequality across pseudo-states would look a lot like the pattern across actual states. If that is true, then there is not really much information in the pattern of inequality across states.

The Source of the College Earnings Premium?

Posted on by

Gustav Bruze writes,

A collective marriage matching model is estimated and calibrated to quantify the share of returns to schooling that is realized through marriage. The predictions of the model are matched with detailed Danish household data on the relationship between schooling and wage rates, the division of time and goods within the household, and the extent to which men and women sort positively on several traits in marriage. Counterfactual analysis conducted with the model suggests that Danish men and women are earning on the order of half of their returns to schooling through improved marital outcomes.

Pointer from Tyler Cowen. I find this more plausible than the signaling model. Assortative mating is one of the four forces I will discuss in my St. Louis talk. Fifty years ago, my guess is that the majority of men who were in the top 30 percent of the earnings distribution were married to women without a college education. Today, my guess is that only a small minority of men in the top 30 percent of the earnings distribution would be married to a woman without a college education. What the Danish study suggests is that if people married randomly with respect to education that would greatly reduce income inequality.

Family Structure Matters

Posted on by

Timothy Taylor looks at various meta-analyses of studies of the possible causal role of the absence of a father on outcomes for the children. He quotes a meta-analysis by Sara McLanahan and others

The research base examining the longer-term effects of father absence on adult outcomes is considerably smaller, but here too we see the strongest evidence for a causal effect on adult mental health, suggesting that the psychological harms of father absence experienced during childhood persist throughout the life course. The evidence that father absence affects adult economic or family outcomes is much weaker. A handful of studies find negative effects on employment in adulthood, but there is little consistent evidence of negative effects on marriage or divorce, on income or earnings, or on college education.

Read Taylor’s whole post. He and the authors he cites are quite aware of the difficulty of distinguishing correlation from causation in this sort of research.

PG County Foreclosure Story Focuses on the N-word

Posted on by

This WaPo story is long, but nonetheless incomplete.

Using court and land records, The Post analyzed 173 home purchases in Fairwood that wound up in foreclosure between 2006 and 2008.

In 43 of those home purchases, borrowers financed 100 percent of the cost of the home with loans that had high interest rates and reset periods within three years. The loans were of the type that Angelo Mozilo, the CEO of defunct subprime lending powerhouse Countrywide Financial, had called “toxic” because they offered such onerous terms. He warned his own company in internal e-mails that the loans were “the most dangerous product in existence.”

Nearly all the remaining loans The Post examined contained features associated with high default rates, such as low or no down payments, interest-only payment periods and higher rates than prime loans.

Only seven out of the 173 defaulters received the most favorable lending terms, known as conventional 30-year fixed interest rate loans. These “prime” loans are the least likely to fail, experts agree.

The neighborhood is described as primarily African-American, with a median income over $170,000.

Some questions that I have:

1. Why were so many loans made with zero down payment? If the median family income is that high, should there not have been higher down payments?

2. If the borrowers put nothing down to begin with, then foreclosure cost them nothing in terms of lost equity. Presumably, if they were affluent before, they are still affluent now. If not, why not?

3. Did anyone benefit from making these loans? The companies that ended up owning the mortgages took huge losses (taxpayers also may have been involved in some way, through bailouts). Companies that originated subprime loans but did not hold them (the “originate to distribute model”) picked up some small fees, but my guess is that they competed away a lot of profits by incurring marketing costs, and in any case enough of them went out of business that you can hardly envy their franchises.

4. When did borrowers start to fall behind on their payments? If it was within a year of buying the home, then you can be sure that even if the borrowers had gotten prime, thirty-year fixed rate loans they still would have defaulted.

Remember, it was the WaPo that said on January 1st that “narrative” is “out” and “facts” are “in.” Their story is instead all about narrative (the N-word, as I call it), and I think it could use more facts.

Wealth and Inequality

Posted on by

1. Branko Milanovic:

There are very good reasons to study distribution of net wealth, globally and within countries. Even for those people in the rich world who are “anomalously” placed among the wealth-poor and who may lead nice lives despite owning nothing, a shock in the form of a medical emergency (unless there is public health care), or loss of job may have catastrophic consequences. There is just no wealth to fall back on to tide you over the bad times. A decline in the value of the main asset (housing) had similar consequences for many people in the US during the recent crisis. Finally, wealth, especially when we look at the rich, is the source of both economic and political power. It is not people who are running huge, and hard to repay, credit card debts, who are likely to be “players” by contributing to the political campaigns, influencing policy and setting legislative agenda.

It was hard to excerpt. Read the whole thing. Pointer from Mark Thoma.

2. The Washington Post:

Just over a decade ago, homeownership — the single biggest engine of wealth creation for most Americans — reached a historic high for African Americans, nearly 50 percent. Now the black homeownership rate has dipped under 43 percent, and the homeownership gap separating blacks and whites is at levels not seen in a century, according to Boston University researcher Robert A. Margo.

…For a substantial number of African Americans who remain homeowners, their properties only hurt their net worth. According to the Fed survey, 1 in 7 owed more on their mortgages than their homes were worth in 2013, a sharp increase from 2010.

By comparison, just 1 in 18 white homeowners was underwater, an improvement from 2010. Also, African Americans own fewer businesses, stocks and other equities than whites — assets that have all recovered sharply since the recession.

Some of us dare to suggest that the government should encourage saving, rather than home borrowership. The housing lobby drowns us out.