He has a 7-minute video lesson and a companion essay.
What the snapshots show is that the rich today are richer than the rich of yesterday. If the rich people are the same people as yesterday, than one’s class determines one’s fate. But if they are not the same people, the snapshots tell you that the dispersion of income has increased. That may or may not bother you, but it doesn’t necessarily mean that there is a distinct group called “the rich” who are capturing all the gains while the rest of us tread water.
The mis-reading of snapshots is one of my pet peeves. A snapshot means looking at, say the average income of someone in the 90th percentile in 1980 and comparing it with someone in the 90th percentile in 2010. The mis-reading of snapshots is to treat the two as if they were the same person.
If you follow actual people from 1980 to 2010, the average increase in income for people in the bottom 20 percent in 1980 is actually quite high. The thing is, many of those people no longer show up in the bottom 20 percent! Instead, the bottom 20 percent in 2010 is occupied by a new set of people, including young families, retired people no longer earning incomes, new immigrants, and people who have recently lost jobs. The snapshots can show stagnation at the bottom 20 percent, even though real people in the bottom 20 percent in 1980 did not stagnate.
I would like to see a high-profile debate on what the data show about trends in income distribution. Otherwise, I fear that those of us with a powerful case against the conventional wisdom will be ignored.
Perhaps you are confused about what a “powerful case” means.
It would take a bit longer to address the point I’m going to make, but I’ll try to keep it short.
The author does mention that reversion fo the mean is part of the answer, but seems to think that reversion to the mean invalidates concerns about income inequality?
There is also something to the fact that of course the same people earn more as they age. Or in other cases, should we expect someone to be in the top 1% at age 35 to still be in the top 1% at age 55? That would be a rather amazing string of success.
Moreover, if someone who was in the 1% at 35 retires by 55, is this some sign of income equality or just he got so rich he wants to live on the dividends. My friend from high school was making bank at Goldman at 35 and then decided to retire early, spend time with his kids, and become a math professor. His income is down, but not because Goldman salaries came down.
Also he seems to be dealing with wage income only. I don’t know I got to browse it yesterday but was distracted.
Playing around with inflation metrics becomes something of matter of opinion.
There is one aspect of his work I do think it big. The fact that household formation, especially lack of it at the bottom, is a big part of our problem. Two parent households are the real poverty reducer, and the breakdown of the model is more important than anything that could be achieved through other means.
I think a bigger issue is what people think they can get for their money. In 1970 you can get a house in a neighborhood with a good school district in Baltimore County without that bad of a commute. In 2019 many of those same neighborhoods/schools are considered bad or declining, and people have to either send their kids to private school (great for GDP!) or move even further out into the exurbs and commute in (great for GDP!). Whatever these income metrics might show, people feel like there is a critical good they can no longer afford even if say my kid has way cooler toys than I had at way lower prices.
“it doesn’t necessarily mean that there is a distinct group called “the rich” who are capturing all the gains while the rest of us tread water.”
But if your prior belief is that “the rich” are oppressors who enjoy undeserved wealth, power, and status, then the fact they are different people at different times does not matter politically or morally. The analytic point about churn does not matter to those working within the oppressor-oppressed framework.
There are rich people out there. There are poor people out there. So what? Why is that an issue we need to do something about? There’s been rich people, there’s been poor people, in all times, in all places, throughout history. Rich people will try to accumulate more wealth and protect the wealth they have. Poor people will try to get out of poverty. Some will rely on government assistance for the rest of their lives. This is the world we live in, imperfect as it is. I always come back to this question reading through these inequality discussions: Why is the existence of these ultra-wealthy people bad? Why is the distribution of wealth even something worth examining?
Everybody always trots out the “but they buy politicians with their wealth” argument. Sure, they do. The wealthy don’t just have that money sitting in the bank, earning interest so they can live the good life on the beach. Most of them have their money in productive enterprises. They own factories and farms and businesses. They have a lot at stake in those enterprises. Those enterprises typically aren’t run by one billionaire by himself. They employ people. They provide jobs and incomes for those workers’ families. I guess what I’m getting at is those billionaires are going to use their influence to further the success of their investments. And I don’t think that’s a bad thing, quite the contrary. In fact, their success becomes the success of their investors and employees, too.
I guess I just don’t see some rich boogeyman out their making my life miserable or preventing me from having opportunities to advance. I work hard to make those opportunities. Most of the time they don’t pan out. Sometimes they do. I make enough to keep my family warm and fed, and that’s all I am concerned about. Some folks want to really make money, and that’s fine by me. A small portion of them become super wealthy. Their kids inherit that wealth, and usually squander it. Sometimes they take that wealth and increase it even further.
What most arguments for doing something about income inequality boil down to is simple envy. They have something I don’t have. And instead of being thankful that the success we’ve all personally enjoyed, earned and unearned, people become resentful. It drives me nuts. Everyone has a lot to be thankful for if they sit back and really take inventory of their lives, even the poor among us, a group which I belonged to for a while. I don’t understand the obsession with what the top 1% of Americans earn, or how them earning that much is bad for me, or my family, or my community.
As John Samples noted, class mobility is one concern with income inequality, but it isn’t the only one. If the top 5% gets more and more of the resources and power, it may be interesting that the makeup of that 5% may churn at a certain rate or not, but there are negative economic consequences nonetheless.
Inequality produces a market matching problem. The wider the prosperity, the better the markets will be.
We should also expect increasing reverb effects over time. On the demand side, it is inevitable that using wealth to defend wealth will become more focused over time. It almost certainly is easier to defend wealth now than it was in 1980. We may be getting a false sense of security by looking back that far.
On the supply side, markets rationally pursue profit, so if money gets more concentrated, we also have to believe that inequality will teach the market to support more inequality over time.
At about 6 minutes into the video, Roberts displays a chart that shows that the children of the wealthy tend to remain in the wealthy elite. Roberts notes that it is difficult to advance ahead of people born into higher income quintiles. What it shows is that we have a class-based society.
The sense that many people express of there being a caste system in the US dividing people into arbitrary, relatively impermeable, exclusive groups appears well-founded.
Some might argue that it is strictly merit. The people in the lower classes lack the discipline that children in higher income classes are raised with. Others might point to genetics. Rich people are just better genetically endowed and pass this advantage on to their offspring. Some might say that the very richest can afford stay-at-home mothers who provide better nurturing than is available in paid nurturance facilities.
But given how eerily similar the US today to Upstairs-Downstairs England, class may be the best explanation. Educational credentials from a select set of univiersities appears today to play the same exclusionary, defining role in maintaining the US class system that titles of nobility did in openly aristocratic societies.
Since, as many authors have demonstrated, educational credentials do not signify the possession of a holder’s actual skills or abilities, they are de facto title of nobility substitutes.
An appropriate solution to this problem would be to amend the titles of nobility clause of the US constitution to insert a new sentence at the end so that the clause reads:
“No Title of Nobility oshall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince or foreign State. And the United States shall recognize no credential of education without verification that such credential holder possesses the imputed knowledge, skills, and abilities by means of credible, objective examinatons for each of such relevant knowledge, skills, and abilities, administered independently by an official of the United States and the scores on such examinations should be used for all substantive purposes in wh of decisions in employment, contracting, promotion, and grant-making.”
Most federal agencies recruit, for example lawyers, from a small set of schools and rely upon bar associations to separate the wheat from the chaff. But bar exams really do not test any relevant knowledge, skills, or abilities, for the actual work that the lawyer will actuall perform. By making federal employment more inclusive and meritocratic US citizens may benefit from a more qualified government workforce as well as one less prone to seek to maintain advantage for ancestral class distinctions. The availability of such examinations would also benefit those private employers who made use of them.
Since, as many authors have demonstrated, educational credentials do not signify the possession of a holder’s actual skills or abilities, they are de facto title of nobility substitutes.
You are absolutely correct that most educational credentials don’t signify specific employment-related skills or abilities. But, as Bryan Caplan keeps pointing out, they do signify “intelligence, conscientiousness, and conformity”. Those are very important general “skills or abilities”. Much of what you need for a job is learned “on the job”. The fact that you are hired without a lot of specific skills does not mean you are being hired on the basis of “titles of nobility”.
Yes, I am speaking in broad generalities. A study of educatonal outcomes came out the other day that found “it is better to be born rich than to be born smart” in terms of life outcomes: https://www.joannejacobs.com/2019/05/the-rich-get-smarter-and-richer/ “Lower-achieving kids from high-SES [socio-economic status] families were more likely to earn a college degree than higher-achieving low-SES students.” The gatekeeper functions currently performed by universities and colleges appear to me at least to be a big factor in this result.
The examinations you describe would be wonderful. Charles Peters at the old Washington Monthly crusaded for them back in the 1960s and ’70s. He thought a lot of them wouldn’t be pencil and paper. But some time after Griggs, he pretty much gave up.
Even without Griggs, there are lots of problems to be overcome. What skills and knowledge really are required for the job? How can you tell if the person actually possesses them or just has good test prep? You assert that “bar exams really do not test any relevant knowledge, skills, or abilities, for the actual work that the lawyer will actually perform.” Some sort of mechanism would have to ensure that your tests don’t become similarly useless. That is a very, very tall order.
Your point that many people are rising from one quintile to another is valid.
But that has always been true, both back when real income rose rapidly and now when incomes stagnated. But back in the days of rapid growth all quintiles experienced similar growth. Now in the era of stagnation all quintiles but the very top experience similar growth. If you argument were valid the different quintiles would show different real growth rates. Individuals moving up from one quintile to another has always been true. What you need to show to make your argument is that something changed 20 years ago to make the different quintiles behave differently and that has not happened.
Conveniently left out of that conversation is whether the number of people in the bottom 20% have increased or decreased as a proportion of all. What I meant to say is that, after adjusting for inflation has the median income figure increased proportionally with the rich? If not, how far has it lagged. Further, has the population of those people 1-2sd below the median income grown over time?
Finally, since he seems to like picking on Piketty, the whole point of CAPin21stcentury was that it was NOT labor income that was a driver of inequality but rather non-labor income, in that wealth begets wealth. r>g. A better question to ask would be, “are the middle quintiles of Americans creating and sustaining ‘wealth’ at a greater rate than in previous generations. The data suggests absolutely not.
Very good.
Along your lines, the BLS and other government agencies do not include stock options in their income data.
The emotional power of the “inequality is terrible!” folk, and the truth, is that the LBJ+ “Great Society” programs have failed to eliminate poverty. Especially among low-income and less than avg IQ blacks — but the fact that so many blacks doing so poorly is related to lower IQs can only be talked about by racists. Anybody who talks about it IS called a racist.
There was some note about fewer marriages and some adjustments to the “household income” measures that are sensitive to one or two incomes. Totally not discussed were children with two married parents in the lower quintiles as compared to kids with non-married parents. Other studies show how much less income is made by those whose parents are married as compared to those whose parents are not.
A well known number is that today, some 70% of black kids are not living with their married parents, up from a “too high” 30% level a few decades ago. Among whites, the rate is approaching 30% today.
The world actually does “need” a wealth tax, for social solidarity purposes. What is the rich person’s “fair share”? And how to measure it? On the income side, there is an increase of the top 1%, or the top 10%. This increase can be compared to the increase in the median. If the median income is increasing more slowly than the top 10% income level, I’d say the rich are not yet paying “their fair share”.
So I’d start with a more progressive capital gains tax, such that those making 2 or 10 or more “median incomes” pay at higher rates with the rates changing each year based on the prior year’s median income levels (med).
Med is now about $61k; 2*med = $122k; 10*med = $610k. The post notes that income of the top 1% went from $189k to $843k, even tho it’s not the same people.
Having the rich subsidize the middle class used to sound wrong to me. But after the huge bailout of irresponsible rich banksters in 2008 (Bush, Obama, GOPe), and seeing how much little better many overpaid VPs of big companies are, combined with the clear actions of most CEOs and VPs to maximize their own income with, very often, pushing the lower paid workers to do even more work…. Little sympathy left for the rich.
I’m not sure how much the rich Leftist culture war has soured me on what tax system they “deserve”, or what is “fair”. It would be good to talk about inequality and measures of a “fair” system — what a fair system looks like over time.
Moreover (i.e., on the side of “rosy-not-gloomy” argument), I suspect that standard cohort analysis does not totally capture the increase in cohort or inter-generational income among most recent immigrants. If cohorts are established from among individuals who were US workers in the past, one would not capture the growth in individual and inter-generational income experienced (wherever) by a then-foreign-domiciled worker compared to his (or his children’s) income now. (You could select cohorts in reverse chronology, but I am not sure this is what is done.) To the extent that the US economy helped produce those gains, this should also be reflected in the analysis. (And I suspect you really want this to be reflected if you also believed that low wage immigration may have depressed income growth among the lower income cohorts that you did follow.)