Centerfield

I think genetics has precious little to do with it, compared to opportunity.

But I don't think you need to go to an expensive private school to get ahead which is what is implied in the article you cite.

Our system has elements of both meritocracy and of class. I don't expect it to become more calcified over the next generation, but rather less so due to increased competition from globalization. We're not entitled to continue to be the richest and most powerful nation, we have to keep battling for it every day.

Their "evidence" of declining social mobility is extremely weak and anecdotal, but there's no doubt at all that income inequality has increased. The comments about the "self-perpetuation" of families in Hollywood and Washington are particularly well-taken. (Nothing else in this world can explain the career of Tori Spelling.)

This is why even as I argued Devil's Advocate against death taxes I kept hinting that there was a very real reason to have them. Namely, to prevent the rich from becoming a permanently self-perpetuating and other-excluding elite, able to control the government and the economy strictly for their own benefit. This is particularly dangerous in the corporate boardrooms of America, where reality and performance and pay seem to have increasingly little to do with each other.

Yeah, I agree, that's why I am in favor of keeping the estate tax.

But I'm not quite as exorcised about it as some, since I feel democracy is at least partially self-corrective. If the disparities get too great, the have-nots will vote for people who raise taxes on the rich.

The puritan work ethic lives!!!

I think the Economist is right about this, though, as they point out, it's a gentle effect. Because we allow capitalism a slightly freer hand, we get better and cheaper stuff and better-paying and more interesting jobs, BUT more winner-takes-all dynamics.

Plus, the vast demand for elite schooling has put the best private schools out of reach for most, and that's just getting more true with each passing year.

One thing I hope we see annoyed people do is vote for politicians who raise the Pell grant enough to pay for more than books at Harvard.

A few years back, Megan McCardle had an interesting article wondering whether Georgia's Hope Grant program was creating bad education market distortions. It's an interesting and surely valid worry, but on the other hand, education spending to some extent creates value.

Maybe it would make sense to fund Pell grantees enough to pay for 1/2 or 3/4 of their tuition and fees, so there would still be market pricing mechanisms in play.

this article is so full of holes.
Comparing the percentage of growth in top 5%. How many people were in the top 5%, and bottom 5%?
How many are there now?
What is the income level of the bottom fifth? of second to bottom fifth?
Maybe the huge growth in income over the past 30 years plays a part.
This totally ignores the real lifestyles of Americans, especially compared to europeans. Americans that are working poor, live with luxuries and ameneties that nobody had 20 years ago.
Just a narrrow article, that has the sole purpose of trying to make europe look good and America look bad.

You touched on the other big factor, inheritance. I come from a single-parent family, thus when my mother passes on, I don't stand to inherit much money. Many of my friends will, probably into the hundreds of thousands of dollars from the sale of their parents' homes, savings, retirement accounts, etc. At the very least, this allows the rich to continue to buy good homes and invest substantial amounts of money.

But even though I am a "victim" of that process, is there anything inherently wrong with that?

Steven,

Perhaps there is nothing wrong with it, but I wish people would not use the rhetoric of "equal opportunity" if they did not mean it. If we are to have a society of inherited privilege, lets have people stand up and advocate it honestly.

Sean,

It is certainly possible to poke holes in the article, but I believe the article does a better job than most in presenting viewpoints which contradict its thesis. If anything, the purpose of the article is not to say we're worse than Europe, but that we're at risk of becoming as stratified as Europe.

There's no question that most Americans, even those at the bottom, live well in economic terms. But if being born at the bottom makes it hard for you to advance, even if you do have the talent, then the economy is wasting human resources.

I don't think we're losing mobility in the bottom 95%. Not only is there a fair amount of change from generation to generation, there's a large amount of change just from year to year.

But I do believe it's getting harder and harder to reach that top 1% and remain independent. How much "rollover" are we getting in the ranks at the top? What kind of opportunity is still available for the "self-made?" A corporate VP can be in "the club" money-wise, but he's still subject to whims of his masters. Many of the "corporate rich" are just pampered slaves whose lifestyles would collapse if they were fired.

I pick on corporations in particular because Big Business is ALWAYS trying to establish barriers to competition, and the most effective barriers are those that keep start-ups from getting in the game. And those start-ups are where the major opportunity is for most people. You don't need to have gone to Yale and been in Skull & Bones to found the next Pizza Hut or Google--but Big Business is always doing its best to make sure it's as tough as possible to get into the market, and the closer the corporate world gets to the government, the more legislation passes to make it tougher.

Think the main driver behind the "Internet sales tax" proposals is state governments hungry for revenue? A bigger one is local retailers hoping to limit low-cost competition through "regulation strangulation." A Mom & Pop internet operation can't afford to file tax reports quarterly in fifty states.

I know the men who started Pizza Hut, Frank and Dan Carney. They were college kids looking for a way to fund their tuition at the local state university. Times were tough, and they couldn't find jobs flexible enough to match up with school. So they opened a little restaurant...but could they succeed so spectacularly today?

Assuming that all levels of society grow wealthier all the time, income inequality will always increase. In economics it's called the "long tail" effect, and is seen in all sorts of areas.

I see no evidence that the poor are growing poorer. I see no evidence that people who work hard can't get ahead. In fact, I see no evidence that people who only work somewhat hard will not get ahead.

Recent study has suggested that past an income of about 40,000 a year, most people do not grow any happier.

That being the case, what is the concern here? If you have good health care, decent living conditions, good food, a job you pretty much like: isn't that fabulously wealthy by all the measures that really count?

You've struck the foundation there, Dean. When you get to the bottom line, whenever people are talking about "income inequality", they are speaking from a basis in envy.

Except that your assumption would be incorrect, Dean, according to the US Bureau of the Census. Over the last decade, the top 5% and the top quintile got steadily wealthier, but the 4 lower quintiles experienced stagnant or even slightly declining income in constant-dollar terms. This trend began before 9/11/01. As of 2004, the lower four quintiles were still stagnant and the top quintile was still gaining.

I agree that most discussions of income inequality are driven by envy. I even agree that in most historical comparisons, the Case of the Long Tail has indeed been apparent. But it's not the case right now. We have a "spike" in the "tail" not accompanied by upward movement in the base. This shows in both the raw data and the indices. This suggests that increased income from current growth is going to the upper end, but not anywhere else.

You will note that I was careful to distinguish income mobility from overall income inequality--and ask if current mobility was as high as in the past. I've seen no data on that yet. I also have some serious reservations about the use of CPI-U-RS adjusted dollars for the calculations, as the method seriously under-represents health care costs.

Tully, over the last decade, the limit on the income considered for the top quintile has risen. Thus, Bill Gates' income went from, I believe, $300,000 to $600,000 for purposes of calculation. I believe he got richer during that period, but the jump in the ceiling explains the rise in the average income in the quintile. Try messing around with the other quintiles--which is not done--and see if you get a change in average.
Trick question: Suppose the bottom quintile is zero to $25k in income, average $12,500. Suppose everybody in the nation doubles his income. What's the average of the bottom quintile? $12,500. Because everybody in the bottom quintile who would have gone over $25,000 is no longer in the bottom quintile. No longer counted. Not pulling the average up. Except for the fact that the bottom is no longer $1, but $2, there isn't much effect. No indication that everybody in the country has twice as much money as before. So tracking quintiles is less relevant than tracking people. But the latter doesn't make many political points. Or, rather, it does, but the wrong ones.
The estate tax actually freezes the top of the top. It's not complicated, but the basis is this: There is a limit beyond which it is impractical to purchase expendables. You may buy a house for $10,000,000, but you didn't spend $10 mil. You converted cash to house and the value of your estate did not drop. Once you've reached that limit, the excess growth just grows. Hacking it by half each generation doesn't do much to reduce the malefactors of great wealth to penury. At four percent net (after the purchase of expendables for which you have nothing to show), the estate will double in eighteen years, quadruple in thirty-six, and if you have two kids, they will inherit in their later years what you had to start with before estate taxes, after estate taxes if they're fifty percent.
Now, the guy who built and sold a string of drycleaners for two million dollars has to use all of his passive income to survive retirement, lose a quarter at death, and his kids split it. Going backwards. In the meantime, the guy with $200 mill lives on,say, $250k of expendables purchases a year out of a total growth of $1,250,000--just to make it simple. So his estate grows at 6% after expendables, doubling every twelve years. The estate tax keeps the up-and-comers out of the top of the top, while not affecting many of the wildly rich.
So the turnover Teddy wanted won't happen. The opposite is true. The revenue is exceedingly small and the entire process generates billions in unproductive economic activity designed to dodge the thing, probably resulting in a net negative revenue to the feds. All that's left is envy. And you could sell snow to Eskimoes with envy.
I'd like to see a break out of the incomes earned by the grads of the elite schools separate from their family money. That would be the important question.
And, to finish on a contentious note, Charles Murray in his "Bell Curve" does put part of it to genetics, and says the elite schools are a genetic filter where the really bright find each other, and breed. I can think of a number of reasons a number of them should not breed, but I hadn't thought of this angle.

Trick question: Suppose the bottom quintile is zero to $25k in income, average $12,500. Suppose everybody in the nation doubles his income. What's the average of the bottom quintile? $12,500.

Steer manure. If everybody in the nation doubled their income the size of the quintile ranges themselves would expand commensurately, as would the means and medians of the quintiles.

over the last decade, the limit on the income considered for the top quintile has risen

The ACS and the ASEC CPS have not significantly changed their methodology since 1992. This was due to the phase-out of an older computer model and the implementation of a newer one, which hit full phase-in early 1994. Direct comparisons of data from before 1992 with data after may be slightly off for this reason. The ACS and the ASEC CPS do not use IRS definitions of income.

As Dean pointed out, in a growing economy where all levels grow equally wealthier all the time, income inequality will always increase. His point is that a simple IE stat (such as the Gini Index) doesn't tell the whole story, and he's completely right. But that just means you need to use more than one measure and examine the components of the data. And an examination of those components indicates that all levels are NOT growing equally wealthier. The upper levels are growing wealthier faster than the lower and middle levels.

As long as all groups are becoming better off, it's valid to say that gripes about income inequality are simply envy. If everyone is better off and society as whole is better off, we're obviously improving. The problem comes when some groups become better off while others stagnate or slip. And there is some evidence that we have income stagnation at the lower levels.

Tully.
Let's say, in regards to my trick question, that the nation has a doubling of everybody's income.
You are telling me that the lowest quintile would then run, not 0-25 but 0-50. Right?
You could do that if you wanted, I suppose, but that wouldn't leave you knowing much about the folks making under 25.
Imagine somebody making $49,500 being pointed at as one of the working poor whose misfortune is a reproach to American society.
Nope.
Wouldn't happen.
Wouldn't be allowed to happen.

Frankly, Richard, that's incoherent.

No, Tully it makes sense.

Discard the predetermined outcome you seem to have and follow what he's saying closely.

Makes perfect sense.

I read the Economist article, and there was no mention in it (or in the comments above) about the high level of immigration into the USA. Foreget the legal/illegal argument for now (or start a new thread). If our economy is absorbing ever-increasing numbers of poorly-educated and/or non-English-speaking people, they are going to take the jobs that pay shit and thus widen the current gap b/w rich and poor.

qt, it's happened throughout history as the result of inflation. My grandfather, were he still alive, would be amazed that a family of four might have trouble making ends meet on $15-20K/yr.

The "predetermined outcome" I have is that of following the data instead of trying to explain it away or invent my own. YMMV.

I think that some here are unclear on the definition of quintile. A quintile is not defined by some arbitrary such as $0-$25K range, but is rather defined by dividing the entire spectrum into 5 (quint) groups each with exactly the same number of persons. If each person in the dataset doubled his income, each person would in fact by definition remain in the same quintile. So the person at the top of the bottom quintile would remain at the top of the bottom quintile, and the range of income the quintile represented would necessarily double. I.e. person number 19,999,999 out of 100,000,000 would still be in exactly the same position relative to the rest of the population.

I'm not sure what the big deal is? Does nature provide equal opportunity? Does an ugly person have equal opportunity to become a movie starlet? Does a short, clumsy guy have equal opportunity to play in the NBA?

Is it some-one's fault if they are born short or ugly or clumsy? Do they deserve less of a chance to pursue thier dreams (the NBA, stardom)?

Let's face it, life is NOT fair... and no one ever said it would be. So what is so horrible if wealthy parents are able to give thier kids a leg up in life because of thier wealth? Is that any more unfair then a person gaining an advantadge because they happen to be borne attractive?

What our system guaranties is that there is NO BAR to a persons opportunity to pursue thier dreams if they have the ability. It does NOT guarantie that everyone will have an equaly easy time in pursuing thier dreams (i.e. "equal opportunity"), how could it without making everyone identical clones?

Furthermore even if we agree that it is a problem (which I'm not convinced it is) why do people automaticaly turn to government legislation as the default solution to everything? Do you folks think it's appropriate to address EVERY problem by writing a law. Should we make over-eating a criminal offense? What about rudeness? Should we have a special tax on rude people. One of my freinds is getting bald....what about forced redistribution of hair assets? Where does it end?