Sunday, April 18, 2010

The Myth of American Social Mobility.

One of the major differences between Europe and America is that Americans have a greater acceptance of income inequalities than Europeans because they believe that everyone can move up the social ladder and that the United-States is a land of opportunity.
Contrary to Europeans most Americans believe that success is not determined by force beyond their control but by their hard work and skill.
In early 2009, hardly a sunny period, 71% still agreed that hard work and personal skill are the main ingredients for success.
How much of this is true and how much of it is a myth rooted in an old national narrative?
According The Economist this week, the social mobility that existed between 1947 and 1973 has increasingly become a myth :
Between 1970 and 2008 the Gini coefficient, a measure of income inequality, grew from 0.39 to 0.47. In mid-2008 the typical family’s income was lower than it had been in 2000. The richest 10% earned nearly half of all income, surpassing even their share in 1928, the year before the Great Crash.

This is not something that I find very surprising, even it goes against popular belief. In 2008, I posted the results of an OECD report that showed that the United States was the country with the highest inequality level and poverty rate across the OECD, and unfortunately the income mobility does not offset the rising inequality (FT).

In fact, it seems , "parental income is a better predictor of a child’s future in America than in much of Europe".
In western countries, education is one of the keys to social mobility and unfortunately income inequality has been accompanied by a widening gap in college attendance. One of the reasons may be that American universities may have become too money-addicted and may not admit enough people on the basis of their intellectual ability.

Unfortunately, policies of income redistribution seem out of the question in the U.S., yet it seems that if people were better informed they might accept some changes, and the media are certainly to blame.

As Jon Stewart pointed out this week, while there has been some outrage over the fact that 47%of the population pays no taxes (mostly low-income workers or people on fixed incomes, such as single mothers qualifying for income support and the elderly.), the news that Exxon/Mobil paid no U.S. income tax last year, even though the oil giant raked in more than $45 billion in profits (because its subsidiaries are domiciled in the Bahamas, Bermuda and the Cayman Islands.)

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Clearly the notion of income redistribution will would offend many people, but only up to a point and it really depends on how you build the narrative. An alternative may be policies that help equalize opportunity. What is necessary though it that the American people stop entertaining the myth of "American exceptionalism" and start facing the reality of today's world.

1 comment:

Anonymous said...

Several problems with using Gini coefficient.

Gini compares relative mobility within a population.

It does not consider the absolute changes to the population, or changes to the composition of the population.

In America, the pie as a whole grew substantially between 1970 and 2008. Incomes in general moved up. The ability of the fellow at 80th percentile to catch the fellow at 20th percentile is less than it was 30 years ago, and less than it is in Europe - - but only because here and now, the fellow at 20th percentile is far less likely to move down than is his historical or European counterpart. In short, we have slightly less upward or downward relative mobility only because we have significantly less downward absolute mobility than in Europe or in the US in the past.

This is a good thing, if what you want is for people to be materially better off, and for the welfare state to survive (because that requires a majority of the people to be paying into it and a minority of the people to be clients or potential clients).

The other problem with Gini is that the US is not a closed system. The "bottom" is constantly being replenished with new immigrants - much poorer and less-skilled immigrants than had come here before 1980. If the purpose of poverty and income statistics is to validate or invalidate the economic policies in place in one country, then it makes no sense to include persons who just arrived from another country, and whose condition is a function of that other country's economic policies. Comparing "deviation from the mean" is meaningless if your population is not constant - particularly where the changes occur primarily at one end.

Gini also measures on an after-tax basis - and the top marginal rates have come down. But again - it's not a zero sum game. What use is "equality" if the only way you achieve it is by pushing the successful down, rather than lifting the less-successful (or anyone else) up?