Why economic mobility measures are overrated

by on January 18, 2012 at 7:13 am in Economics, Philosophy, Uncategorized | Permalink

By mobility I mean whether people are crossing into different income quintiles or deciles than the ones they were born into, or the ones they enjoyed at an earlier period of life.

1. If the general standard of living is rising (and I am more than willing to admit problems in this area for the United States), mobility takes care of itself over time.  I find it more useful to focus on slow growth, if indeed that is the case.  Just look at income growth for non-wealthy families and that is more useful than all the mobility measures put together.

2. Measured mobility in the United States does not seem to be falling, or at least not falling much, as shown by Scott Winship.

3. For a given level of income, if some are moving up others are moving down.  Do you take theories of wage rigidity seriously?  If so, you might favor less relative mobility, other things remaining equal.  More upward — and thus downward — relative mobility probably means less aggregate happiness, due to habit formation and frame of reference effects.

4. Why do many European nations have higher mobility?  Putting ethnic and demographic issues aside, here is one mechanism.  Lots of smart Europeans decide to be not so ambitious, to enjoy their public goods, to work for the government, to avoid high marginal tax rates, to travel a lot, and so on.  That approach makes more sense in a lot of Europe than here.  Some of the children of those families have comparable smarts but higher ambition and so they rise quite a bit in income relative to their peers.  (The opposite may occur as well, with the children choosing more leisure.)  That is a less likely scenario for the United States, where smart people realize this is a country geared toward higher earners and so fewer smart parents play the “tend the garden” strategy.  Maybe the U.S. doesn’t have a “first best” set-up in this regard, but the comparison between U.S. and Europe is less sinister than it seems at first.  “High intergenerational mobility” is sometimes a synonym for “lots of parental underachievers.”

5. How much of immobility is due to “inherited talent plus diminishing role for random circumstance”?  Is not this cause of immobility very different — both practically and morally — from such factors as discrimination, bad schools, occupational licensing, etc.?  What are you supposed to get when you combine genetics with meritocracy?  I do not know how much of current American (or other) immobility is due to this factor, but I find it discomforting that complaints about mobility are so infrequently accompanied by an analysis of this topic.

6. I am more than willing to hear arguments than a less mobile society is a less stable society, or otherwise a society which makes worse political decisions.  But I haven’t seen serious arguments here.  By “serious arguments” I mean those which take endogeneity into account and go beyond noting that Denmark is a better polity than Brazil, and so on.

7. I would like all measurements in this area to take into account the pre-migration incomes of incoming entrants.  Denmark, which doesn’t let many people in, is a much less upwardly mobile society once you take this into account.  Sweden deserves more praise, and in general this factor will make the Anglo countries look much, much more supportive of mobility.

Addendum: Here is more from Scott Winship.

dearieme January 18, 2012 at 7:23 am

“…the United States, where smart people realize this is a country geared toward higher earners…”: would you care to elaborate?

prior_approval January 18, 2012 at 8:00 am

He does, every day – it is just that sometimes, someone looking from the outside in may not realize it.

Americans simply value the illusion of getting wealthy over the reality of having what wealth is supposed to bring – security for one’s family (like that which universal health insurance provides, for one concrete example, in Europe), leisure time, the ability to travel, security in one’s job (firing at will is not really allowed in Europe, very broadly speaking).

But truly high earners in America (and even that might be considered a misnomer – a certain current Republican candidate for president didn’t ‘earn’ money at a PE company, since that would have been taxed at twice the rate of 15% he actually paid, for example) don’t care – and having spent some of their income in ensuring a continuing stream of effective propaganda, have ensured that the American system continues to be bent increasingly to their advantage.

What is so laughable about this is that high earning Europeans tend to value exactly the same things – leisure time, health care, job security – as low earning ones. That one would think that there is somehow a difference in such desires simply due to how much money one earns is an interesting comment on how skewed America has become.

Andrew' January 18, 2012 at 8:27 am

Right. The Greeks decided they really like chaos. They could just stimulate and keep extending the promises but they are just bored with the good life.

And we could just extend free healthcare to everybody, despite the fact that the only real reason, and even the self-contradictory suspension of disbelief justifications given (remember, we need to fix healthcare to fix the economy) is the increasing perception (some might say recognition) that we can’t even keep doing as much as we have been.

And talking about Mitt Romney is the same as talking about anyone who earns over $250k/yr.

Bill January 18, 2012 at 8:41 am

prior-approval. Agreed. We just have better opium to feed the masses. The persons arguing the contrary should look up the gini coefficients for the US and other countries over time.

Andrew' January 18, 2012 at 8:47 am

It doesn’t prove anything. Other countries work hard to remove inequality. They don’t always increase their GDP per capita in the process.

Bill January 18, 2012 at 9:18 am

What are those countries. Please provide the data on GDP change and change on income inequality to support your statement.

You can’t.

JWatts January 18, 2012 at 11:55 am

North Korea, historically the USSR, etc.

TallDave January 18, 2012 at 12:20 pm

The Great Leap Forward is generally accepted to have done both.

Andrew' January 18, 2012 at 12:46 pm

Now you are talking about changes?

Google “gini coefficients by year” and look at images.

Check out China and Brazil.

I’m not sure what you are asking for.

Bill January 18, 2012 at 1:15 pm

Andrew, I did yesterday and that was my source of comments. Also, look at the US.

JWatts January 18, 2012 at 11:53 am

Gini coefficients are a poor measure of nominal well being.

If Bill Gates moved his family and his assets to Icelands and became Icelandic, Icelands gini coefficient would immediately become the worst in the OECD and the US would become marginally better.

Is it your opinion that this would be a Bad thing for Iceland and a Good thing for the US?

Bill January 18, 2012 at 1:54 pm

So, you’re argument against gini coefficients is based on one wealthty person moving to a low population island?

What’s your argument for a high population country?

RG January 18, 2012 at 3:07 pm

Heterogenous population.

JWatts January 19, 2012 at 10:15 am

“What’s your argument for a high population country?”

You ignored half of my argument.
“Is it your opinion that this would be a … Good thing for the US?”

Bill Gates leaving the US would lower the US Gini coefficient. Explain to me how the US is better off if this happens? If you can’t, then I’ll keep believing that the Gini coefficient is a lousy measure of nominal well being.

Bill January 19, 2012 at 11:18 am

JW. Do you understand how a gini is computed. Gate’s departure would be in the thousandths of a percentile effect.

Thomas Zaslavsky January 25, 2012 at 8:04 pm

Yes, it would be very bad for Iceland to have such enormous wealth in one family. It would make no difference to the U.S.

Cliff January 18, 2012 at 9:16 am

Well, you are leaving out all the things Americans have and Europeans don’t, like appliances and technology, houses, land, children.

Bill January 18, 2012 at 9:36 am

Cliff

Really?

lI travel to Europe several times a year.

Never had to bring a toaster.

Cliff January 18, 2012 at 9:39 am

Have you ever had to bring a clothes washer? Because there are a lot less of those, among many other things. Yes there are studies…

Bill January 18, 2012 at 9:54 am

Cliff, I’ll leave your comment about the washing machine unresponded to because it is so, shall we say, interesting and at the same time representative.

Cliff January 18, 2012 at 10:35 am

And yet you did respond to it, only extremely vaguely…

kiwi dave January 18, 2012 at 10:43 am

Bill: well that was smarmy.

According to this study (http://www.eceee.org/conference_proceedings/eceee/2009/Panel_8/8.364/paper), as of 2000, North America had a slightly higher rate of washing machine ownership than western Europe (98% vs. 92%), although it had a vastly higher air conditioning ownership rate (85% vs. 2%) — although that probably has more to do with western Europe’s comparatively mild climates.

Having spent a fair amount of time both in Europe and the US, there is no question that, on average, Americans have a higher economic standard of living than western Europeans.

Whether that leads to a better life is, of course, a different matter (although the non-economic factors are by no means one way: despite their long working hours and fewer vacations, Americans report high levels of life satisfaction; and inasmuch as birth rates are correlated with the level of a society’s optimism in the future, the fact that America is at least close to replacement level does speak comparatively well for America).

Bill January 18, 2012 at 10:52 am

kiwi, I don’t think my comment was as you described it. I was merely repeating what was said regarding the backwardness of Europe. If you think that is smarmy, perhaps you should consider the original comment.

So, you think a difference of washing machine use between the US (98%) and Europe (92%) is significant for quality of life, and as Cliff said is one of “things Americans have and Europeans don’t”.

Interesting.

kiwi dave January 18, 2012 at 11:07 am

It was the tone that was smarmy; to remark on someone else’s comment as “shall we say, interesting” without responding to its substance is irritating. Say what you want to say.

In any event, as I said in my original comment, I make no conclusion on whether owning more stuff is per se conducive to a better life. The washing machine example Cliff raised is just one example (perhaps not even a very good one) of stuff that practically all Americans own that many Europeans don’t. He could’ve used any one of many other examples (cars, computers, home gym equipment or whatever). Again, not saying Americans lead better lives — that’s an infinitely more complex question. Just that Americans do tend to own more stuff.

Bill January 18, 2012 at 11:15 am

kiwi, So, calling Cliff’s comment about washing machines “interesting” is smarmy.

Interesting.

IVV January 18, 2012 at 11:27 am

Smarmy.

IVV January 18, 2012 at 11:36 am

Sorry, I kid.

Clearly, when Bill says “Interesting,” it means he approves of the comment. Since it’s one possible definition, there’s no reason not to believe it. So it’s all good, we’re all on the same side. Peace!

CBBB January 18, 2012 at 3:02 pm

Who cares about washing machines? I take most of my clothes out any way – the washing machine just ruins the fabric.

Claudia January 18, 2012 at 11:18 am

dearime, Here’s a pithy response to your question: “Americans live to work and Europeans work to live.” That difference shows up in a lot of our respective social and economic institutions and individual choices. Seems pointless to me to argue which is the right mindset, just different priorities.

Rahul January 18, 2012 at 11:51 am

Americans live to consume …..

msgkings January 18, 2012 at 11:55 am

PreCISELY. So given that very true statement, how does income mobility factor in? Does the ‘work to live’ society or the ‘live to work’ society have more income mobility? Which would it be more important for?

Claudia January 18, 2012 at 6:57 pm

msgkings, my gut says income mobility is more important in the “live to work” society than a “work to live” society (assuming that we’re talking about above subsistence countries). For example, I partly measure my success as an American careerist by the fact that my paycheck is larger than my parents. But my German husband doesn’t need to make that much more than his parents to happily “tend the garden.” This would be consistent with Americans caring about income mobility than Europeans. And Americans tend to put up with inequality if it’s paired with the potential for upward income mobility…of course, there in lies the current debate. So maybe we are getting too hung up on measurement (economists have their flaws too), but income mobility does seem to be an important concept in the US.

msgkings January 18, 2012 at 10:40 pm

Nice answer, +1. I wish all of us, myself included, could manage to post in this manner here.

Urso January 18, 2012 at 2:27 pm

This comment is so divorced from the reality of how life actually is in America, at least as I’ve experienced it, that I assume the author has never actually been here.

Andrew' January 18, 2012 at 7:27 am

If I go up a quintile doesn’t someone have to go down? I’m about to, so someone up there get ready.

NAME REDACTED January 18, 2012 at 8:38 am

Yes, this is a flaw with using distributional measures.

MP January 18, 2012 at 11:44 am

Exactly. This is my biggest issue with all the mobility discussion. It’s even worse when people call it a lack of “upward mobility”, explicitly ignoring the fact these measures run both ways.

MP January 18, 2012 at 12:06 pm

That said, I’m not very happy with the idea that the US is less mobile than European countries. Maybe there are good reasons for it, maybe not. My priors are pretty weak on this one. (Unlike, say, in the inequality discussion, where I have a pretty strong prior assumption that most, but not all, comes from causes I’m OK with.)

hey now January 18, 2012 at 1:54 pm

Let’s summarize, shall we? The US is experiencing:

- a growing wealth disparity between the haves and have-nots
- lowered economic mobility
- a crappy economy for years to come (and possibly decades if you believe Tyler’s premise)

In other words, “The best of all possible worlds” in the opinion of an insulated, union-protected ivory tower economist.

CBBB January 18, 2012 at 2:27 pm

+1

Colin January 19, 2012 at 1:48 pm

http://www.nytimes.com/2012/01/05/us/harder-for-americans-to-rise-from-lower-rungs.html?pagewanted=print

“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.”

Urso January 18, 2012 at 2:28 pm

You should patiently wait your turn for a rich guy to croak

Joshua Miller January 18, 2012 at 7:31 am

Tyler writes “I am more than willing to hear arguments…”

Here are some:
http://www-personal.umich.edu/~eandersn/abstracts.htm

Tyler Cowen January 18, 2012 at 7:51 am

There’s not much empirical in there, is there?

Rahul January 18, 2012 at 8:18 am

Reap as you shall sow!

Rob January 18, 2012 at 10:10 am

+1

Bill January 18, 2012 at 8:24 am

No empirics, just logic.

How about addressing the logic?

rpl January 18, 2012 at 9:00 am

What a bizarre response. Logic can reason just as well from false premises to invalid conclusions as from true premises to valid conclusions. A logical argument provides a good starting place, but at some point you have to say, “This all seems logical, but is it in fact true?”

gil January 19, 2012 at 2:21 pm

isn’t this what got Aristotle on to the thin ice?

Joshua Miller January 18, 2012 at 9:17 am

Well, given your interest in “the inequality that matters” I thought you might like to take a crack at identifying the problem with Anderson’s conception of “relational egalitarianism” or “democratic equality,” like the one she identifies in “What is the Point of Equality?” http://www.forum2.org/mellon/lj/anderson.html

TallDave January 18, 2012 at 12:56 pm

Democratic equality isn’t the same as income inequality — one can accept her premise of a social safety net being morally good without accepting the notion that rich people getting richer somehow harms the non-rich.

Also, the lack of empiricism tends to lead to sentences like this:
Nothing would prevent people, even those whose gambles were prudent but who suffered from bad option luck, from subjection to debt peonage, sweatshops, or other forms of exploitation
Productivity gains are what primarily prevents those things.

JWatts January 19, 2012 at 10:22 am

“Productivity gains are what primarily prevents those things.”
+1

Mike G January 18, 2012 at 7:32 am

Regarding Tyler’s second point…

I don’t think one can so easily dismiss the evidence of declining mobility by simply linking to a NRO/Brookings critique of Alan Kruger’s speech last week. Scholars who have been studying this topic for many years, like the Boston Fed’s Kathy Bradbury, have been coming up with similar findings. See http://www.bostonfed.org/economic/wp/wp2011/wp1110.htm for a recent example…

Tyler Cowen January 18, 2012 at 7:52 am

You are referring to, and responding to, something other than what I linked to…

Andrew' January 18, 2012 at 8:29 am

People moving up and down willy nilly or not is not good or bad without the explanation of why. It could be correcting a broken meritocracy or a breaking meritocracy in either case.

Andrew' January 18, 2012 at 9:17 am

Cutting off the tails seems like a really good idea.

Bill January 18, 2012 at 8:53 am

Tyler,

Winship’s piece you cited yesterday referred only to the median income as to the “declining middle class”. As you know, economists use gini coeeficients to measure income disparities and changes in income disparities over time. If you use a median number, and the tails of the distribution change that is not reflected in the median.

Second, what we are looking at is median income with that measure, not disposable or discretionary income. If disposable or discretionary income, for example, is declining because of healthcare costs, one group, even the middle and lower ends, are going to feel it more than the other tail of the distribution.

Third, your point 5 –regarinding “inherited talent”–could just as well be substituted with the term “inherited wealth” and it would read better and correspond more with reality. Sometimes people inherit more than their parents genes, and in fact receive their inheritance over time while there parents are living, with the benefits of their parents income in obtaining better schooling, etc.

kharris January 26, 2012 at 2:16 pm

There’s an economist joke just begging to be told. It would start with some smarty pants saying there is a perfectly good reason that the US has income mobility far below the norm for wealthy countries, and that it may well be a good thing. The punch like would be something like “now, assume inherited talent…”.

An argument based on an assumption of inherited talent, and then the same guy complaining in the comments section that other folks aren’t offering much in the way of evidence. Wow. Just wow.

We’re watching a bad argument in its death throes.

Jon Martin January 18, 2012 at 7:36 am

“If the general standard of living is rising mobility takes care of itself over time”

Huh? Not in terms of quintiles or deciles it doesn’t. You get wealthier but you don’t move up a quintile or decile. Do you mean if everyone is getting richer it doesn’t matter if they move up or down relative to others since they are still better off in absolute terms? If so I disagree. It seems almost certain that meritocracy demands more social mobility than we currently see.

“Denmark, which doesn’t let many people in, is a much less upwardly mobile society once you take this into account.”

So, I’m sure, is Finland. However, come to any law course at Helsinki University and you will find vastly more kids from blue collar backgrounds than in comparable university in any Anglo country. Strong and equal schooling and free higher education make this happen and discrediting the statistics doesn’t make it less so nor less important.

Rahul January 18, 2012 at 8:33 am

Also, are those mutually exclusive choices? Does every mobility increment come at the cost of hampered standard of living?

Cliff January 18, 2012 at 9:19 am

In Europe, law is an undergraduate degree. Big difference between undergrad and graduate school.

J January 18, 2012 at 10:07 am

Cliff, “undergrad” and “graduate school” are relatively meaningless terms in the Finnish system. Everybody who gets accepted into, say, the University of Helsinki will pursue a master’s degree. While it’s possible to get a bachelor’s degree, everybody who has only a bachelor’s and not a master’s degree (or better) will in practise be regarded as a dropout. You are not a lawyer and you cannot practise law unless you have a Master of Laws degree. The faculties of law in Finnish universities accept only about 15 percent of applicants each year.

Cliff January 18, 2012 at 10:39 am

If everyone gets a Masters, then a Masters is essentially an undergrad degree. Also, a law degree is a doctorate in the U.S., requiring a total of 7 years of schooling. My point is that in Finland, a law degree is just like any other Bachelors/Masters degree, you don’t have to go to 3 additional years of school.

Jon Martin January 18, 2012 at 11:18 am

It’s a five year degree minimum.

Jon Martin January 18, 2012 at 11:30 am

Also, what’s your point. I used law as an example but it goes for all courses. The point it that in Finland’s best university there is much more diversity at all levels. Sorry if that was unclear.

JL January 18, 2012 at 11:45 am

The average time it takes to complete the Finnish Master of Laws degree is a bit less than six years (which is similar to other Master’s degrees). To study for a Master’s degree, you must first earn a Bachelor’s degree in the same subject, so Finnish lawyers actually have a lot more legal training under their belts than their American counterparts.

Cliff January 18, 2012 at 2:42 pm

Well in the U.S., law is a doctorate degree, so it might be more notable for someone “blue-collar” to be in law school. Whereas, I imagine many blue collar people get undergraduate degrees (in the U.S.).

I would be interested in some quantitative measure of the respective university diversities.

Sbard January 18, 2012 at 9:31 pm

A “doctorate” in name only. US law schools used to grant LL.B degrees (nominally a bachelor’s degree) but all switched to calling their degrees JD’s because of government salary scales that start you higher up for having a “doctorate”.

Cliff January 18, 2012 at 10:24 pm

Well, I agree that it is stupid that law school is a doctorate, but nevertheless you cannot get one without a bachelor’s degree.

JWatts January 19, 2012 at 10:28 am

“Also, what’s your point. I used law as an example but it goes for all courses. The point it that in Finland’s best university there is much more diversity at all levels. Sorry if that was unclear.”

I don’t really think you know anything about the US college system. Have you ever walked into a US community college or state college (which account for the majority of enrollment in the US). Here’s a hint: the Ivy League schools are well under 1% of US graduates per year.

Urso January 18, 2012 at 2:33 pm

“come to any law course at Helsinki University and you will find vastly more kids from blue collar backgrounds than in comparable university in any Anglo country. ”

What rank bullshit. Only someone who has never actually been into a classroom at an American law school would think that law schools are some kind of preserve of the bluebloods.

Andrew' January 18, 2012 at 7:48 am

While I’m thinking about it, I don’t want Warren Buffett to pay more taxes. He might consider lowering prices.

JWatts January 19, 2012 at 10:29 am

Or kicking out a dividend.

DW January 18, 2012 at 8:03 am

RE: #4 Great point.

I think of the difference between Richard Feynman’s dad and Steve (“I want a biography so my kids can know me”) Jobs.

Tom January 18, 2012 at 8:13 am

Love the site! But: from the statement that “measured mobility in the United States does not seem to be falling,” it does not follow that “economic mobility measures are overrated.” That’s like saying that if measured median income growth does not seem to be falling, measures of median income growth are overrated (also not true).

Lars January 18, 2012 at 8:15 am

Hilarious. It used to be that right wingers would downplay US inequality by pretending we had high social mobility. Now that that has been shown false, Cowan is reduced to suggesting that maybe mobility isn’t so great. I especially love point 3. “How do you know you wouldn’t be happier with hereditary nobility?”

Andrew' January 18, 2012 at 8:32 am

It has always been that if you go look at the Fortune 500 most of the people earned their way onto the list. The Walton’s get to earn their keep on the list, or fools and their money are parted.

Lars January 18, 2012 at 8:39 am

Did you intend this reply for someone else? I can’t figure out what it has to do with my comment.

Andrew' January 18, 2012 at 8:42 am

No. It is because I’ve never heard an argument about income inequality responded to by people talking about people moving from the 3rd to 4th quintile. I have many times heard arguments about the top 1% responded to with the fact that the wealthiest are majority business owners/starters.

CBBB January 18, 2012 at 1:14 pm

No they aren’t the very top of the income distribution is dominated by corporate executives – people who got to their position because they know how to play the office politics game really well.

TallDave January 18, 2012 at 11:46 am

By contrast, the largest companies in Europe haven’t changed much.

On on absolute scale, inequality is lower here than anywhere in the world, because our poor are the best off (e.g. the bottom 5% of Americans are better off than the top 5% of Indians, the poorest U.S. state ranks in the middle of the OECD, the U.S. has the highest absolute PPP per capita transfers to the poor, etc). So leftists have to pretend that other people getting richer hurts the poor, somehow.

Meanwhile, with hardworking ambitious immigrants added in the mix we also have the highest mobility (which again, should be defined as ability to move not tendency to move). So the leftists have to pretend that people who choose not to be upwardly mobile are somehow victims of oppression, or something.

Dan Dostal January 18, 2012 at 3:50 pm

Your Troll-fu seems off. No one responded to this particularly flamey tripe.

TallDave January 18, 2012 at 4:29 pm

Probably because it’s true.

Cliff January 18, 2012 at 9:21 am

You make it sound like some new data has shattered the status quo and revealed the immobility. Actually, nothing has changed in many, many years, right? In fact inequality has gone down and immobility up during the recession?

Lars January 18, 2012 at 9:45 am

You’re right, I should have said something like “Now that even conservatives have had to acknowledge the overwhelming evidence that the US has high inequality…”

Andrew' January 18, 2012 at 10:25 am

Inequality and immobility are different things. Increasing inequality is one type of high mobility.

Lars January 18, 2012 at 10:59 am

Shoot, you’re right, I meant “Now that even conservatives have had to ackcnowledge the overwhelming evidence that the US has low mobility.” Not a very coherent morning. But no, increasing inequality is not a type of mobility as it is usually defined.

Lars January 18, 2012 at 11:01 am

I probably should have just linked to this.

Tom January 18, 2012 at 2:07 pm

A link to Yglesias doesn’t really make your argument more coherent.

TallDave January 18, 2012 at 12:00 pm

Yes, because people choosing to remain in their comfort zones is just like hereditary nobility forcing everyone to accept their status. This is especially amusing from the crowd that is sure the answer to the problem is to forcibly take more from the productive.

Lars January 18, 2012 at 12:09 pm

You seem to have reading comprehension issues so let me quote most of Cowan’s third argument again: “Do you take theories of wage rigidity seriously? If so, you might favor less relative mobility, other things remaining equal. More upward — and thus downward — relative mobility probably means less aggregate happiness, due to habit formation and frame of reference effects.” Nowhere in this point does he refer to choice. He is offering up the argument that people might be happier on average if, regardless of the cause (choice or economic stratification), it is less likely that they change classes. Now, you can see Cowan doesn’t actually believe this argument, with his usual carefully worded tell, but as a propagandist he is more than willing to throw it out to his readership.

TallDave January 18, 2012 at 12:26 pm

The reading comprehension problem seems to be yours. Where does Tyler ever suggest people would enjoy being forced to be immobile? You brought choice or the lack thereof into it.

Lars January 18, 2012 at 12:33 pm

“More upward — and thus downward — relative mobility probably means less aggregate happiness, due to habit formation and frame of reference effects.”

TallDave January 18, 2012 at 12:36 pm

Yes, I suppose if you’d said

“How do you know you wouldn’t be happier with hereditary nobility immobility because of habit formation and frame of reference effects.”

that would have sound… reasonable, instead of asinine.

Dan Dostal January 18, 2012 at 4:04 pm

Choosing immobility as a group creates hereditary nobility. I’d argue this is exactly how European Feudalism occurred. It wasn’t that kings, princes, and thanes could force people to follow them without a strong contingent of people who chose to follow them. Eventually these stations become codified, but that was after generations of choosing immobility. Those groups who didn’t choose immobility had low survivability.

So I’ll concur with Lars that choosing immobility equals hereditary nobility.

TallDave January 18, 2012 at 4:31 pm

Peasants don’t choose to follow, they’re forced to.

CBBB January 18, 2012 at 1:15 pm

I question the idea that those with the most money are even productive

CBBB January 18, 2012 at 1:12 pm

No, this is absolutely true – this entire blog operates to generate excuses for the terrible shape of the economy and society. It’s just one big fucking Panglossian world out there.

Jack January 18, 2012 at 8:29 am

Basic, uncontroversial economics tells you that in a ”perfect society” free of prejudice, etc., you will have some increase of income inequality as the country grows more prosperous. Avoiding jargon: in a more prosperous country, some people who like leisure a lot will cut back on their work, finding that they have enough, materially. This means the wage of those who stay in the market must increase because labor is more scarce than before. Hence greater income inequality in a perfect society. This much is obvious from basic economics. What is not obvious, but I believe true, is that as a consequence there will be less mobility. So it is perfectly natural to see less mobility in a more prosperous country. The question is, how much is natural, and how much is due to various barriers and artifacts of injustice?

Ed January 18, 2012 at 8:30 am

Actually Cowen makes an important point, though its somewhat buried.

If we have income or wealth mobility, but no overall economic gains, then if someone moves up a quintile then someone else has to move down a quintile. That doesn’t do any good on the whole, its just churn. In fact, if you can picture an economy where there is no overall growth but people constantly bounce between one class and another it would probably be a nightmare, since every would be terrified of dropping (though if the churn was rapid enough dropping would be no big deal, you would always bounce back later).

However, I think the American fixation with a “strong middle class” (good) was a proxy for a concern about a relatively equal distribution of wealth (Marxist/ socialist; bad). Concentrate enough wealth into the 1% and they outbid me for houses in good neighborhoods, places in good universities for my kids, medical treatments, even participation in the political process. A higher prospect of getting into the 1% myself (and by definition only 1% of the population can be there at one time) doesn’t compensate for essentially barred from these things, since wealth is concentrated enough that the wealthy can use their resulting political and social power to set up oligoplies for themselves in all areas of society.

And a lack of social mobility could indicate that the lack of oligopolization has gotten far enough that the top classes can close off avenues to wealth advancement for the lower classes as well, and this will probably involve shutting down some areas where wealth can be created.

In other words, when people are worried about “lack of social mobility” they aren’t worried about the US turning into Portugal, they are worried about the US turning into Haiti.

Andrew' January 18, 2012 at 8:45 am

For the engineers, imagine a column of liquid. Flow through an imaginary horizontal plane can be convection or diffusion. Diffusion can be totally random (in=out) or the warmer molecules can rise (and the cooler, slower ones fall) or someone can put an impeller in the liquid and just churn it up.

Rahul January 18, 2012 at 10:35 am

To continue the analogy, a density difference induced flow will be retarded in a high viscosity medium. It’s this viscosity we want to reduce. Ideally we’d want an anisotropic medium where the viscosity depends on the direction of the motion.

derek January 18, 2012 at 1:28 pm

The most vigorous opposition to anything that would threaten one’s position in the distribution will come from those who have the most to lose. The opposition to improving the schools in Washington DC doesn’t come from rich New York bankers who want to eat black children; it comes from established middle class individuals and groups who see their position threatened by any reform.

There could be an argument made that in the US the avenue to advancement from sub middle class to middle class is the hardest hurdle because of the barriers put in place by the middle class themselves. The rich benefit from a larger economy. Wall Street did very well providing an illusion of upward mobility to the middle class. An individual in the middle class can lose personally by any change in a vibrant economy.

The opposition to Obamacare came from middle class people who saw the potential of a decrease in benefits to themselves given to someone else. A Timken union agreement was voted down a short while ago that was part of a process to make major investments. The established middle class union members saw a threat to their well being that may very well cause them and their state to lose to somewhere else.

Tom January 18, 2012 at 2:26 pm

“it comes from established middle class individuals and groups who see their position threatened by any reform. ” … You mean Teachers unions. The vast majority of middle class are in favor of fixing the schools.

As for Obamacare, the poor already have medical benefits, its the middle class who would e helped the most. The middle class has seen what the gov’t to the school system though.

derek January 18, 2012 at 4:00 pm

>The vast majority of middle class are in favor of fixing the schools.

I disagree. The idea of ‘fixing the schools’ obviously has broad support. The actual fixes less so.

Skip Intro January 18, 2012 at 8:42 am

“If the general standard of living is rising (and I am more than willing to admit problems in this area for the United States), mobility takes care of itself over time.”

Whether or not this holds true is itself an interesting and important empirical question.

Claudia January 18, 2012 at 11:34 am

Skip Intro, I agree. Among many economists (self included) this statement on a quick first read seems pretty uncontroversial. If we have solid increases in household income and wealth (however it’s measured), then people will enjoy more financial security, better material conditions, and more leisure time. (Justin Wolfers and Betsey Stevenson have re-invigorated the “money makes you happy” debate among economists: http://faz-community.faz.net/blogs/fazit/archive/2012/01/16/economist-s-profile-justin-wolfers-about-happiness.aspx) And yet, I am still sympathetic to the idea that relative socio-economic rankings matter more than absolute levels in happiness or utility. Measuring this is tricky, but I agree it’s an important empirical question.

Rahul January 18, 2012 at 11:54 am

I guess the question at the heart is whether happiness is more relative or absolute? Has this been settled?

byomtov January 18, 2012 at 12:52 pm

Claudia,

If we have solid increases in household income and wealth (however it’s measured), then people will enjoy more financial security, better material conditions, and more leisure time.

The people who enjoy the “solid increases” will. But what if those increases are heavily concentrated?

Claudia January 18, 2012 at 7:05 pm

Rahul, I don’t think it’s a settled question…the tool kit of economists can work with either concept.

byomtov, If everyone’s income is rising solidly and people are not totally hung up on their relative ranks then I will stand by my sentence. Sure the distribution of income will flavor the outcomes, but this would be less of a problem.

Rahul January 19, 2012 at 12:07 am

@Claudia

The tool might work; but the answers will be very different.

Miley Cyrax January 18, 2012 at 9:03 am

I’m saddened there’s been no mentioning of assortative mating. Any discussion on mobility without it is incomplete.

Also, downward mobility is indicative of an improving society, upward mobility a regressing one.

Basically, what I said in the other thread, but it gets buried under people’s comments attacking libertarians and conservatives.

Miley Cyrax January 18, 2012 at 9:17 am

In fairness, Tyler’s 5. hints at it.

Cliff January 18, 2012 at 9:23 am

Can you elaborate on your downward/upward mobility?

kiwi dave January 18, 2012 at 10:11 am

read Greg Clark’s “A Farewell To Alms” — IMO, the best economic history I’ve read.

Clark posits that one of the reasons the industrial revolution happened when and where it did (i.e., Britain at the turn of the 19th Century) was centuries of downward mobility: in short (at least pre-20th C.), people from higher up the social scale tend to have more surviving children than people from lower down: the present population is derived disproportionately from the wealthy, landowners, nobility and royalty rather than from the peasantry (who made up the vast majority of the population at the time).

Essentially, this led to downward mobility: nobles and landowners had too many sons for each to inherit, so some became merchants; merchants had too many sons, some became craftsmen; etc. What happened was that the cognitive abilities, values and social norms that had previously been located in the upper strata became spread throughout society. In Britain, where downward mobility had been a particularly major factor, it meant that the values and abilities necessary to start and sustain the industrial revolution spread throughout society.

TallDave January 18, 2012 at 11:39 am

+1

Rahul January 18, 2012 at 11:57 am

Interestingly, in modern times isn’t the bottom of the social hierarchy the most fertile?

TallDave January 18, 2012 at 12:29 pm

Thus setting the stage for… uh oh.

CBBB January 18, 2012 at 12:59 pm

Yeah but why would you want to have children? It’s just not worthwhile

TallDave January 18, 2012 at 1:49 pm

Well, I can’t speak for anyone else, but personally I’m trying to bring on the Singularity.

Cliff January 18, 2012 at 2:45 pm

It’s been pretty rewarding so far.

msgkings January 18, 2012 at 2:50 pm

+1 to Cliff

CBBB January 18, 2012 at 2:52 pm

That’s all nonsense kids are the worst

msgkings January 18, 2012 at 4:03 pm

CBBB is all nonsense, kids are the best.

See how easy it is to be a prick like you?

Rahul January 18, 2012 at 4:17 pm

Also interestingly, in modern times, aren’t extremists ( of all flavors ) most fertile?

e.g. Nazis, Mormons, Amish, Hasidic Jews, Palestenians, Wahhabis

Miley Cyrax January 18, 2012 at 4:54 pm

Rahul, illegal immigrants are pretty prolific in producing their anchor babies.

JonF January 18, 2012 at 6:01 pm

It’s always been a complaint of the well-to-do that the poor are outbreeding them. Augustus was moaning about it 2000 years ago.
My father had a rather blunt explanation for the fecundity of the poor: they have no other entertainment except what they can do in bed.

Miley Cyrax January 18, 2012 at 10:57 pm

“It’s always been a complaint of the well-to-do that the poor are outbreeding them. Augustus was moaning about it 2000 years ago. My father had a rather blunt explanation for the fecundity of the poor: they have no other entertainment except what they can do in bed.”

JonF, yes, it has been a recurring complaint throughout history and still is in pretty much every industrial nation. The human brain shrinking since the the Stone Age may or may not be a result of de facto idiocracy.

It’s simple r vs. K selection; the more resources you have, the more K selection is appealing to you. However, those practicing r selection are subsidized by those practicing K selection via income transfers in societies, so it results in r selection being more successful (and more appealing) vis a vis K selection than it otherwise would.

We can only hope that received wisdom and cultural momentum can continue to outweigh the dysgenic effects of societal breeding patterns.

JonF January 18, 2012 at 5:59 pm

I’ve read this theory and I find it not credible. It ignores the fact that the pre-modern rich had only limited advantages over the poor in rearing more children to adulthood. The main one was the fact that the rich were not in danger of outright starvation when the harvest was poor (though they might still suffer vitamin deficiencies due to general ignorance). When it came to disease, both epidemic or childhood, however there was no advanatge. The democratic scythe of plagues like the Black Death was much commented on by moralists, and imortalized (pun intended I guess) by the weird art form known as the Danse Macabre. Indeed, the fact that the rich were more likely to be attended by doctors may have worked against them, given the awful and often harmful incompetence of medicine in the past; the rural poor may have been better off with the village herb lady and charitable monks to tend them. And one need only check out the history of assorted royal dynasties to observe high childhood mortality in the highest strata of society.
The real split was between the city, town and the countryside. Cities were horribly unhealthy places, viciously crowded, often violent, polluted with human and animal wastes and corpses. Well into the 19th century the death rate exceeded the birth rate in nearly all cities of any size. The countryside was much healthier since here was less crowding and less pollution; rural populations (mainly peasants) and since there was not enough land for everyone, younger sons went off to the city to seek their fortunes, which is why cities were able to maintain and expand their populations.
Finally, the nobility were not particularly intelligent. They were mainly noted for their military prowess and brutality, more akin to mafia families than today’s elite. The intellectual sorts tended to go into the Church where, chaste or not, they had far fewer children than everyone else.

Miley Cyrax January 18, 2012 at 10:40 pm

Jon F.,

I’m not completely sold on the idea that this actually happened in pre-industrial England, even though Clark’s evidence and logic are pretty convincing, but the general principle still holds true with regard to downward mobility. You would rather someone who could have been an engineer a generation ago serving you hamburgers than someone who could have only been a burger-flipper a generation ago serving as your engineer, all else equal.

However, instead of conjuring up a just-so story for or against the rich out-performing the poor reproductively in pre-industrial England, Clark builds an empirical case by turning to available historical records, which seem to indicate the rich outbred that poor in the timeframe we’re talking about.

JonF January 19, 2012 at 5:44 pm

Miley,

The nobility was not necessarily all that intelligent or gifted in pre-modern times. Their position depended on a certain thuggishness, like mafia families. The members of the nobiolity who sank were apt to be the least intelligent sorts too (bright nobles kids without inheritance or marriage prospects had the Church as an option), so they were hardly enriching the lower classes. Moreover there’s evidence that peasants also made the trip to the top. The Tudors were Welsh nobodies who do not show up in history at all until the 14th century, when they began their ascent in the social churn that followed the Black Death; others also climbed out of obscurity in that period. And going way far back (and outside Britain) the Emperor Justinian was the grandson of an Illyrian peasant, and his wife Theodora came out of a circus where she was employed for a time as the Byzantine version of a pole dancer. Despite the appearance of rigid social classes the past actually had a fair amount of mobility.

Ari T January 18, 2012 at 9:10 am

Meanwhile, all quiet on SOPA front…

Discount Double Choke January 18, 2012 at 9:14 am

Tyler, I think another point that is worth mentioning is how compressed or spread out are the quintiles are in different countries? It’s entirely possible that the distribution of incomes in European countries is much narrower than in the US. So for example, an increase in income of $10,000 in Sweden may move someone from the bottom to the middle quintile, but an increase of $15,000 in the US may only move someone from the bottom to the second quintile. The first person has experienced more income mobility, but I think most would say the second person is actually better off. Without some reference to actual income values that represent the bottom, second, middle, fourth, and top quintiles, these studies don’t really tell us much.

OGT January 18, 2012 at 9:16 am

Cowen: 2. Measured mobility in the United States does not seem to be falling, or at least not falling much, as shown by Scott Winship.

Apparently not, from Labor economist Miles Corak:

“Winship’s article does a disservice to a well-established literature on generational mobility by suggesting that the basic information Krueger used is in some sense invalid. Krueger’s Great Gatsby Curve is in fact well-rooted in the labour economics literature, and debate would be better placed addressing the policy implications he draws than to suggest that President Obama’s top economist feels compelled to create his own facts.”

He goes on considerably demolishing Winship’s claims point by point. Winship apparently does not understand the theory and is not familiar with the empirical literature.

http://milescorak.com/2012/01/17/the-economics-of-the-great-gatsby-curve/

Further, as Becker’s theory and the data show your claim about endogeneity between instability and polity goes both ways, highly unequal societies will be less mobile and less stable precisely because they produce a worse polity.

Andrew' January 18, 2012 at 9:27 am

I love it when economists say “this is well established by 2 papers since 2004.” Jabbing aside, money quote:

” His reworking of the Becker-Tomes model makes the prediction that he summarizes in the last sentence of his paper: “an era of rising returns to human capital or declining progressivity in public human capital investment is also an era of declining intergenerational mobility.” ”

In other words, as I understand this, seeing declining intergenerational mobility doesn’t conclude for you what caused it.

christy January 18, 2012 at 9:30 am

Like the site but this is a very annoying post.

These sound like the last arguments of a desperate man or the arguments put forward by a devil’s advocate.

The arguments, at best, don’t get to the core complaint that comes out of the mobility stats. The points raised seem to me to be akin to arguments about the problems with GDP per capita as a measure of economic well being. Th clear answer to those complaints iis often that the measurement isn’t perfect but it’s pretty consistent over time and across countries and is correlated with alot of things that matter.

So, for example, when you ask “how much of immobility is due to “inherited talent plus diminishing role for random circumstance”?” I would respond that this is not really relevant because similar processes should be underway across countries so that if this was important it should show up in Sweden’s stats as well.

Americans, like most people, don’t like criticism of their country that is directed at what they perceive as it’s core moral strengths or ideals or values.

But make no mistake; these stats show the lie in the ideal that is the American Dream; and they ought to serve as a wake up call to Americans who come across them.

Higher levels of inequality in America can not be said to be merely the result of meritocracy, but instead are a result, at least in part, of ingrained privilege.

Cliff January 18, 2012 at 9:42 am

That’s the problem. I don’t think statistics like this actually address the issue of whether it is possible for a smart person to improve their lot in life above what they were born into. That’s what people are really interested in, right?

Andrew' January 18, 2012 at 10:29 am

The top 1% have almost nothing to do with what is going on in high schools. Why are we talking about inequality and income mobility as if they were synonymous?

And by the way, why are we talking about the top 1% as if they were synonymous with the top 0.1%. If I think about my high school, I’m in the top 1% which is a nutso thought.

Rich January 18, 2012 at 9:35 am

“Do you take theories of wage rigidity seriously? If so, you might favor less relative mobility, other things remaining equal. More upward — and thus downward — relative mobility probably means less aggregate happiness, due to habit formation and frame of reference effects.”

What about a theory of sticky satisfaction? Once you start thinking of yourself as middle class, you keep thinking of yourself that way, even when you slip a bit. (Argentina is this writ large.) Upward mobility might add more happiness than is subtracted by downward mobility… call it “class illusion.”

Bill January 18, 2012 at 9:48 am

A behavioural economist would say you hurt more from losing a little than you gain in happiness by an increase of the equivalent amount. Add a perception of risk to losing what you have, and you have a potent cocktail of anxiety. Add to this increasing inequality as measured objectively by a gini coefficient, what you have begins to look smaller in the rearview mirror.

Jonathan January 18, 2012 at 11:06 am

i prefer gin cocktails to gini cocktails.

Bill January 18, 2012 at 11:29 am

Evidently Tyler does too.

Andrew MacDonald January 18, 2012 at 9:52 am

Economic mobility is conditioned by the size of existing income inequality. It is much easier to move up several income distribution quantiles when income distribution is compressed than when it is greatly expanded. Moreover, while happiness seems primarily predicated on relative income in the US, I would guess that the absolute versus relative effect of income happiness starts to dominate when income distributions are compressed.

Thus, I don’t think a discussion of economic mobility without acknowledging the interaction effect with inequality is particularly interesting. Economic mobility may be, at best, an indicator of income inequality, not an important variable in its own right.

The literature on why income inequality is problematic is vast; it prevents democratization (Boix 2009: http://campus.ibei.org/admin/uploads/publicacions/37/cat/WP_IBEI_26.pdf), increases mortality (Kawachi et al., 1997: http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=7610852), increases the oppressiveness of non-democratic regimes (Acemoglu and Robinson 2000: http://www.sciencedirect.com/science/article/pii/S0014292199000409), and decrease economic growth prospects: (Alesina and Rodrik 1991: http://www.nber.org/papers/w3668)

cournot January 18, 2012 at 11:46 am

Most of these are about historic inequality in nations with weak economic systems. They don’t deal with new inequality caused by market reforms and they have a hard time squaring the Asian nations where low inequality followed market liberalization but with few links to democratization. Moreover, none of the literature addresses the problem of whether trying to increase or decrease inequality in an otherwise modern, developed nation makes a difference at the **margin.** The latter is the issue for the US and there is no systematic evidence on this effect.

Knowing that Latin America has bad institutions and weak democracy because of historical inequality tells us NOTHING about whether letting the top 1% of the US double their wealth will affect future institutions. Moreover it doesn’t distinguish between the effects of inequality due to rent-seeking or due to market processes. So this literature tells us little of relevance for the US debate.

Slugger January 18, 2012 at 10:23 am

I like point 5.
We should identify the subdivisions in society by having the individual strata wear color coded clothes. And to prevent useless envy and anxiety, we could pipe messages into the ears of sleeping children. ” I like being a beta, I like being a beta…”
Actually, I agree with Ed in an earlier comment. Aristocracies and plutocracies freeze societies into rigid strata that are the opposite of the models that make market based economies desirable. Everybody has idiot relatives, but it is rare for anyone to purge them.
People who posit point 5 are just as antithetical to free markets and open societies as any Leninist.

Andrew' January 18, 2012 at 10:32 am

We could take all the earnings for one year from the reds and give it to the greens. That would increase the income mobility. Then as the greens did dumb stuff with the money and it went back into the hands of the reds that would increase mobility again. Then we’d have a great society.

Really Curious January 18, 2012 at 10:53 am

Or, it could be like this: greens are doing just fine making 100 inflation adjusted mongolian dinars in perpetuity, spending 90 on consumption, investing 5 in the stock market and sending 5 to help the reds. Meanwhile, reds are stuck living in 3rd world conditions with little education and few prospects. If greens took an additional 5 out of their consumption and built better vocational schools for the reds, the reds would have better education, get better jobs, have more money, spend that money and therefore, raise the cash flows earned by the stock market investments of the greens and therefore, greens would be richer. Does that describe one of the possible universes in the multi-verse we live in ?

Andrew' January 18, 2012 at 11:54 am

Or, rather than vocational schools, they could send them to Duke.

msgkings January 18, 2012 at 12:09 pm

Cute, snarky reply = Really Curious just scored a point off Andrew’

TallDave January 18, 2012 at 1:02 pm

What typically happens is Red Leader steals all the dinars, builds himself a palace, and uses the flow of dinars to oppress the other reds.

The problem is that you have to start with social capital to make any use of financial capital. That’s why Africa is still poor.

TallDave January 18, 2012 at 1:09 pm

…and of course, if you already have social capital, you probably don’t need the aid in the first place.

If you really wanted to change the reds’ situation, you’d probably have to invade their country, subjugate their people, and forcibly convert them to a society that has more social capital.

Alternatively you can enslave them, bring them back to your country, and later free them, which has proved a good way to greatly increase the GDP per capita of a few million people.

But of course everyone (rightly) agrees those things are both very very bad, so the greens are going to have to help the reds develop their own social capital. Good luck with that greenies, you’re going to need it!

hey now January 18, 2012 at 2:18 pm

Dumb stuff like leveraging risky derivative bets orders of magnitude beyond any generally-accepted prudent level and crashing the financial system?

Yes, those reds sure do deserve to be masters of the universe, and stay that way.

Cliff January 18, 2012 at 2:47 pm

Yes, because all wealthy people are directly responsible for the financial crisis

CBBB January 18, 2012 at 2:50 pm

They sure are

hey now January 18, 2012 at 10:23 pm

How many poor people played a major role in the financial meltdown in your learned opinion. Just curious.

Cliff January 18, 2012 at 10:29 pm

A hell of a lot of people brokering and taking out mortgages. People are very quick to tar ALL WEALTHY PEOPLE as “banksters” and so forth. How many of the top 1% were truly involved in any way in the financial crisis? 1% is 3 million people.

CBBB January 18, 2012 at 11:59 pm

Kill them all and let God sort it out

Zach January 18, 2012 at 10:41 am

Two questions. First, I’m reading one of Winship’s references right now; it looks at earnings between 1977-2000, but doesn’t seem to care that the female labor participation rate in the united states jumped by a third or so over this period. It seems like that’s a pretty big one-time shock to ignore. Is this usual?

Second, do European wages vary more or less with geography within a country than in the United States (e.g. NYC and London vs. rural communities)? If you compile mobility statistics with national data, do you have to account for geographic wage variance (and how this variance changes over time — the South since WWII)? For an extreme example, what if half of Americans lived in Puerto Rico, where the median wage is half the mainland number, and people routinely migrated between Puerto Rico and the mainland? Measuring mobility by income wouldn’t be so useful.

Also, stronger subsidies for higher education seems a more likely mechanism for increased European mobility than whether folks who are wealthy and successful enough to choose whether they want to maximize their income do so and whether their children are immune to this choice… any effects there would be mostly limited to mobility within the upper tiers.

TallDave January 18, 2012 at 10:50 am

The immigration question is a big one. My wife’s HHI is something around a thousand times her parents’ and I know this is true for others as well, esp immigrants from China or India.

TallDave January 18, 2012 at 10:51 am

Oops, that should be a hundred times. Mea culpa.

IVV January 18, 2012 at 11:26 am

I am American and my wife is European. In our early days, she would occasionally comment on my personal ambition with concern–why can’t I be happy with what I have? Must I keep working harder? My response was that I am ambitious not only out of a desire for more, but out of survival. If I decide I have enough, it will be taken from me. I must always look for the next opportunity because the one I presently have will not last. That thought had never crossed her mind before.

If I don’t somehow reach a director-level position in my career, I can be sure that I will be laid off and not given the option of returning to the work force. Even then, my job will depend on my ability to maintain and grow profit levels and decrease cost levels. It is impossible to believe that financial security will be maintained for me and my household without constant hard work and vigilance.

Social mobility isn’t about improving oneself with respect to your peers. It’s about cobbling financial security out of a constantly corroding market.

TallDave January 18, 2012 at 11:35 am

That’s interesting, I avoided management for the same reason — they had less job security (and didn’t make any more). The people who actually do stuff have been much safer. I believe I am now on my 5th director and 7th manager.

IVV January 18, 2012 at 11:38 am

Where do those directors and managers end up? At the bottom, or just shuffled into a new directorship or managership?

TallDave January 18, 2012 at 11:51 am

Generally they’re let go by the new mgmt above them. If we get a new CIO, he brings in new directors, who bring in new managers.

IVV January 18, 2012 at 11:55 am

Yeah, I haven’t really seen that, myself. Although what I have observed is that in the case that a director or executive is pushed out, they land in a different director or executive-level position (at another company, possibly), typically lined up before the last day in the present job.

Managers are just as likely to be replaced and fall as individual contributors. Meanwhile, layoffs continue apace and contributors are trimmed and not replaced.

IVV January 18, 2012 at 11:57 am

And yes, that means that the company (companies) become increasingly top-heavy.

TallDave January 18, 2012 at 12:39 pm

Interesting, we’ve actually become top-lighter over time.

IVV January 18, 2012 at 1:21 pm

Our personal situations are different, then. Different conditions call for different strategies. Sounds good to me!

TallDave January 19, 2012 at 11:28 am

Good luck, hope it works out for you.

Finch January 18, 2012 at 1:34 pm

> Where do those directors and managers end up?

In my experience, on average, they’re demoted a level and their future progression tells you something about whether their firing was a mistake.

NAME REDACTED January 18, 2012 at 11:38 am

heh

NAME REDACTED January 18, 2012 at 11:39 am

We must keep running to stand still.

Zach January 18, 2012 at 11:44 am

Obama’s speech (subject of Winship’s article in #2) claimed both a decrease in mobility up into the middle class and an increase in mobility down out of the middle class. This cannot happen if “middle class” means “the middle few quintiles” or a similarly constant fraction of people or families.

I don’t know what Obama meant by “middle class,” but I suspect it’s something like “sufficient income and job/social security to raise children, give them adequate medical care and send them to college.” How has the number of people with this status changed recently?

Let’s define someone in the “middle class” in this sense as someone in a family that earns twice the poverty level. The fraction of the population below this has risen ~5% from its low of 29% in 2000. We had some 40 years of improvement in this number (data from 1975-2010 available from the Census CPS), with large swings associated with the economic cycle. The last decade’s seen an increase that’s unprecedented in that it’s yet to followed by a large decline. That’s a shift from 0.2% of the population per year entering the middle class to 0.5% leaving the middle class… 2 million people per year.

mw January 18, 2012 at 11:52 am

#4 is almost incoherent. What is your point? At the end of the day, non-wealthy incomes during “TGS” in France have grown at least as much if not more than they have in the USA. So…the French lack of ambition and government coddling has produced the same or better outcomes for non-wealthy families as the macho free wheeling up by your bootstraps American values? And….?
http://elsa.berkeley.edu/~saez/atkinson-piketty-saezJEL10.pdf

TallDave January 18, 2012 at 12:40 pm

Well, except for France being much poorer on average.

prior_approval January 18, 2012 at 12:59 pm

Is this going to become another thread where people will confidently reveal their knowledge of France, like that thread with commenters talking about how no one in France uses the TGV? I like being amused – please tell us more about French poverty.

TallDave January 18, 2012 at 1:43 pm

Clearly you are not familiar with the relative PPP GDP per capita, the U.S. is more than 40% higher.

http://www.indexmundi.com/g/r.aspx?v=67

USA — 47,200
France — 33,100

IIRC by the U.S. standard, something like half of France is below the poverty line.

CBBB January 18, 2012 at 2:29 pm

I’ve said it before though GDP/capita is just not a meaningful measure of social well being. First of all it says nothing about the distribution and it doesn’t take into account that poor in France probably have great access to public goods then poor in the US

TallDave January 18, 2012 at 2:40 pm

GDP per capita, no. PPP GDP per capita, yes.

The poor in the U.S. almost certainly get much higher transfers on an absolute basis, simply because we can afford it.

CBBB January 18, 2012 at 2:48 pm

No it’s still not an accurate portrait at all. Even the fact that you have to basically own a car to get anywhere in most of the US makes the poor there FAR worse off – unless the difference in income is enough to own and maintain 100% of a car that’s one issue that’s difficult to overcome.

TallDave January 18, 2012 at 4:33 pm

Contrary to rumor, we do have trains, buses and bicycles in the USA.

mw January 18, 2012 at 4:08 pm

the whole point of Tyler’s post and my comment is not to look at average, but at NON-WEALTHY, and not absolute numbers, but INTERGENERATIONAL changes. Hence, your comments being irrelevant, and not responding to mine.

Cliff January 18, 2012 at 10:30 pm

But aren’t the absolute numbers by far the most important?

rcyran January 18, 2012 at 12:01 pm

This arguments sound a bit defensive, and what I’d expect from someone living in the US. It reads like a laundry list of someone seeing a fact they don’t like, and then finding as many points against it as possible. Take point four – come on, lot’s of parental underachievers? First, I’d like to see any data backing your point, because in my experience living in France, the UK, Germany and Slovakia this simply isn’t the case. Second, if they are “underachieving” in this manner (which I doubt) isn’t this because it’s utility maximizing? If so, isn’t increased mobility a good thing.

It would be more interesting, Tyler, if you gave the reasons why indices of social mobility are under-rated.

Norm January 18, 2012 at 12:18 pm

Point #5 is so rarely discussed that I haven’t seen it written down before (and very rarely heard it spoken) although I have wondered about it for many years. Note though, it is not just genetics it is also upbringing, or anything else parents do to pass along merit, however defined. If upbringing didn’t reduce “mobility” it would suggest thoughtful parenting is economically pointless.

With regard to churn among the quintiles, the time scale is critical. A time scale of a year or two produces anxiety. A time scale of decades is normal and retirement provides lots of space for people to move up. I grew up in one of the two lowest quintiles, was in the lowest quintile for most of my twenties, moved up to the top quintile by my forties, retired early and live in the third or fourth in retirement.

Of real interest would be the mobility in total life span income and its dependence on which generation of Americans we are talking about since the new immigrants or the first native born generation may very well get stuck at lower levels than their “merit” would predict.

JohnGalt January 18, 2012 at 12:48 pm

Aren’t the mobility stats largely repetitious of the inequality stats?

If the rungs of the ladder are further apart, won’t fewer people make the step in either direction?

Not arguing about whether inequality is good or bad, just saying these are far less independent findings than it may seem.

Pat January 18, 2012 at 12:58 pm

How does the statement, “Measured mobility in the United States does not seem to be falling, or at least not falling much,” explain why economic mobility measures are overrated”?

Bill January 18, 2012 at 1:18 pm

Don’t ask, and no one will tell.

jdm January 18, 2012 at 1:43 pm

I find the MR typical post to be interesting and informative. There is one genre of post however that I don’t get much out of, the “just so story” post.

This entire post has a “just so” feel to it. One example is illustrated by the phrase in point 4 “here is one mechanism”. Just saying “this is one mechanism” without making some quantitative, ideally, measurable, claim about the importance of the mechanism (“e.g. this mechanism accounts for 50% of x and here is the data which supports this conclusion”) amounts to armchair theorizing. It doesn’t advance our understanding of the topic at all.

Duane Johnson January 18, 2012 at 2:01 pm

It may be that upward mobility of the economically poor is not as important as downward mobility of the powerfully rich. Being able to remember what poverty was like is an important element of good policy decision.

CBBB January 18, 2012 at 2:55 pm

Death to the rich

StataTheLeft January 18, 2012 at 3:39 pm

Has anyone done anything to adjust for differing price and income levels across the United States when measuring mobility in the U.S.? Haven’t totally thought through how this would change things, but it seems important that someone living in NYC could drop from the top NYC decile to the second NYC decile without changing their national decile at all. Could probably say similar things about the bottom deciles in poorer areas.

Andreas Tirez January 18, 2012 at 4:55 pm

In all recent discussions on social mobility it strikes me nobody refers to the very interesting research that Chicago-economist James Heckman and others have done about improving opportunities for disadvantaged children (with the best results for programs when the kids are very young). If you learn about their research, you will find out there’s plenty of room for social mobility in the US _and_ Europe (France, Germany and Belgium are not very mobile, for instance).

Andreas Tirez January 18, 2012 at 5:03 pm

Ok, here you asked for some help about Heckman’s research, but the comments are inconclusive: http://marginalrevolution.com/marginalrevolution/2010/12/james-heckman-bleg.html

Dave January 18, 2012 at 7:04 pm

The primary resource in any society is power, status, women. Increasing GDP doesn’t effect these, they can only be supplied via inequality.

Floccina January 19, 2012 at 11:08 am

This is yet another USA problem that could be solved by letting 50,000 Chinese immigrate.

Presto January 19, 2012 at 5:03 pm

Here’s one argument for income mobility that directly addresses Tyler’s 3rd point. Schumpeterian destruction and entrepreneurship (indicators that capitalism is working) should to some degree manifest itself via a higher level of income mobility. Obviously creative destruction is far from the only factor but this is something to keep in mind when considering whether or not mobility is a good thing; I’d argue that Tyler’s wrong on this. I do like his 5th point but I believe that (for now at least) mobility is definitely something societies should strive for.

I should point out that capitalism can be working fine even with modest income mobility, i.e. if there’s a good level of mobility among the higher quintiles (disproportionately made up of college graduates) but a low level among the lower quintiles. In this case capitalism would appear to be working fine and the problems are cultural issues, a poor education system, and other failures of government policy.

AlanDownunder January 19, 2012 at 10:57 pm

“For a given level of income, if some are moving up others are moving down.”

This holds true if incomes are smoothly distributed. I note that incomes have become markedly less smoothly distributed.

Recommended remedial reading:
http://noahpinionblog.blogspot.com/2012/01/scott-winship-fails-to-prove-that-alan.html

Matt January 25, 2012 at 2:42 am

Wow. This post is so weak it almost makes me want to unsubscribe. A bunch of unsubstantiated assertions that only illustrate the sadly distopic universe Tyler wishes were the one we actually lived in. The only real point made here is the accentuation of how incredibly obvious it is that inequality and immobility are a problem in the U.S. Even smart conservatives can’t make better than a lot of plain sad hand waving.

kharris January 25, 2012 at 10:49 am

At the top of the list of excuses for not taking persistent inequality seriously is this:

“If the general standard of living is rising (and I am more than willing to admit problems in this area for the United States), mobility takes care of itself over time. I find it more useful to focus on slow growth, if indeed that is the case. Just look at income growth for non-wealthy families and that is more useful than all the mobility measures put together.”

There is huge begging of the question going on here. All that “takes care of itself” is the average absolute level of material welfare over time. The rest of the list of excuses seems to recognize that there are good things to be had beyond material possession, but those good things must be ignored in order to make the first point. Power, opportunity, stability, security – those are all at risk or unavailable for members of a permanent under class. Having more toasters, but having no say in how society runs, is what our host is arguing for. It’s what everyone who argues that a rising tide is a cure-all necessarily argues.

If one is new to these issues, I can understand how one could think risking tide arguments are a-political and neutral. Our host is not new, and so seems to be willfully ignoring the plutocratic implications of low income and social mobility. If our host insists on ignoring such points, then his list is a list of excuses for a static social structure, rather than what an even-handed consideration of the issues. Honesty requires taking the other side’s arguments seriously.

Thomas Zaslavsky January 25, 2012 at 8:35 pm

Immediate reaction:

0. Quintiles are a statistical artifact, not natural boundaries. Let’s look at actual income.

1. Unsupported assertion, making not much sense. It needs solid proof.

3. a. Yes, some moving up the quintiles make others move down. What is happening to their income? If it rises slightly, that’s not income mobility in a meaningful way. b. The relevance of wage rigidity? c. “might”? “probably”? Those are standard weasel words meaning “I don’t know, but I’m sure it’s true.”

4. Is there any evidence at all to back up all those asserted “facts”? I find them straining my credulity.

5. We know a heck of a lot about exogenous barriers to immobility, e.g., racial and ethnic and (gasp) class discrimination; the inheritance of poverty; etc. They account for a whole lot. As for the assumption that smart people have higher incomes, let’s see the proof. My experience doesn’t support it at all; my experience suggests that education correlates with higher incomes. As for the assumption that the children of smart people are smarter, I suspect you’re really talking about educational level.

6. Your definition of a serious argument seems pretty narrow. And what justifies those particular criteria? Don’t keep it a secret!

7. There’s a good point here about separating immigrants from native-born, but the statement about Denmark makes no sense. Letting in few immigrants means that the effect of immigrants’ income mobility is small, not large.

Verdict: Think harder. Do more background research. Be ready to change your ideas.

anti-twitter January 26, 2012 at 12:28 am

This cheered me up. The fact that Tyler Cowen felt it necessary to jump into the battle against the Occupy Wall Street Mentality is a good sign. The rich and powerful want to keep their privileges. Naturally they claim that these privileges are deserved. Naturally, they see no problem in starving the public schools, increasing the percentage of children who drop out and become criminals…
No sale, Mr. Cowen

brum joe January 26, 2012 at 10:43 am

Boy does this post by Cowen stink of a search for rationalisations. I particularly liked the one about European offsprings of the wealthy seeking employment in soft govt careers.

Datahead January 26, 2012 at 11:32 am

Wow, just wow!! You are such an apologist for the wealthy.

Eclectiv Obsvr January 26, 2012 at 1:58 pm

I think your post is alot of silly speculative gymnastics. Social Mobility in the US has declined relative to Europe for several reasons.

1. The nature of Government provided opportunities has declined. For example, the frontier is no more and the transition to a larger military is not there and we’ve now gotten to diminishing returrns for the early infrastructure investments e.g. National Highway system.. The impact of the expansion of military with skills training has declined and the generosity of the educational opportunities it afforded such as GI bill has also declined.

2. The technological effects of automobiles, washing machines. telephones et al doesn’t have the same leveraging — cell phones and the internet don’t have have the same family effect on social mobility.

3. Social equality through civil rights and womens rights in the workplace is not progressing so this was a defined period of social mobility opportunity. I don’t mean to say this from a social policy perspective but more to state– once a discrimination bar is lifted and realized you don’t get the same mobility effect down the road.

4. Costs to educate have escalated since the mid 20th Century without public or charitable financing relative to needs. A college degree is where a High School degree was in many respects as a qualificatiion and so now graduate degrees take on much more employment opportunity importance.

5. The need for two incomes has an effect on family interaction and the ability to help children prepare for adult life.

None of these are necessarily causative. However, if we want to give all children with merit the same opportunities it requires the same Government financing policies that exist in those countries with better mobility.

seo January 31, 2012 at 1:39 pm

We absolutely love your blog and find the majority of your post’s to be just what I’m looking for. Does one offer guest writers to write content in your case? I wouldn’t mind publishing a post or elaborating on many of the subjects you write about here. Again, awesome weblog!

Benson Sundheim February 8, 2012 at 10:21 am

What’s at stake

An examination of political structures occurring in various societies throughout the history of the human race suggests that there are two quite different kinds of organizations. On the one hand small groups frequently form tand societies where important decisions are taken by the group as a whole–the common picture is of the elders of the society thrashing out their problems sitting around a campfire. Although there is private ownership of such things as tools, living quarters, and perhaps small plots of land or hunting preserves, large differences in resources do not occur. Larger groups tend to split up into tribes or families. On the other hand larger populations have always led to a hierarchy of power – kings, priests, powerful families, and in recent years business interests. Apparently the removal of direct personal interaction which is occurs with the formation of larger groups facilitates the establishment of separate power centers.

As the population grows the division of labor makes possible such specialization that leads to trade. The invention of money depersonalizes the interactions and also facilitates further the establishment of separate power centers. But it appears that there are two generally different models of political organization: one which we may for convenience call egalitarian
and in the other hierarchal.

Some may take the view that the development of the hierarchy is inevitable given the increasing size of the population. Others may consider that the organization of society should come about by deliberate free choice of the people themselves. Our American revolution had embedded in it the idea that the government should be designed by the governed and that careful arrangements should be included to assure that the Individual was protected from the disproportionate power of the government and that the various arms of the government should be arranged so as to restrain each other’s power.

At the time of the establishment of the United States much of the population farmed; the framers of the Constitution were largely well-to-do landholders; the open frontier to the west beckoned, promising success to any who applied themselves. The term “Freedom” carried the connotation that material success was available to one and all. It seems to carry the same connotation today although the circumstances are quite different. The opportunity to make a living depends very much on the circumstances of one’s parents, the color of one’s skin, the nature the current business cycle, etc. For most people freedom of opportunity is an illusion. The power centers are large and deeply embedded in our financial structure. The disproportion in the distribution of wealth has been growing steadily larger and larger. Very wealthy people are in a position to further increase their wealth and to distribute it to their children and thus tend to form dynasties. It is in just this way that ruling families and eventually aristocracies have come to pass.

This is a crucial time for the bold American experiment in representative democracy. Nothing is more important then the decision which is made implicitly as to whether we will end up with the usual hierarchal structure in which a few hold power and wealth as a consequence of their births and those in the subsurvient group are permanently barred from the aristocracy.

Naturally no one is positing that all Americans sit around a campfire to reach a consensus on all questions. Our American political and economic systems for function well and are not challenged here. The essential step proposed is the prevention of the establishment and maintenance of dynasties leading to the occurrence of wealthy class which has inherited rather than worked for it’s position. It should be possible to establish inheritance laws and accessory conditions to roughly obtain that end. Of course the wealthy will employ phalanxes of lawyers to circumvent this kind of law but it should be possible to arrive at a working and satisfactory result.

Sam Baker February 13, 2012 at 2:21 pm

Why are “complaints about mobility … so infrequently accompanied by an analysis of …” the role of “‘inherited talent plus diminishing role for random circumstance’?” Because it was all hashed out twenty-five years ago. Please read the late Stephen J. Gould’s comments on Charles Murray and Richard Herrnstein’s The Bell Curve. You say you “don’t know” how important heredity is in inequality in the U.S. Well, read the literature and you’ll find out!

Sam Baker February 13, 2012 at 2:24 pm

My bad! I meant 15 years ago. The Bell Curve was published in 1994.

Comments on this entry are closed.

Previous post:

Next post: