I certainly found Prasad Krishnamurthy’s post at The Hill thought-provoking. His subject is social mobility and he paints a pretty bleak picture of our future:
In recent years, there has been an explosion of novel and sobering research on intergenerational mobility and equality. We have learned that a child born in 1986 to parents whose income was in the bottom fifth of earners had only a 9 percent chance of ending up in the top fifth. We have also learned that these aggregate figures mask troubling differences across race.
For example, a white male born to parents in the bottom fifth had a 10 percent chance to end up in the top fifth, while a Black male had only a 2 percent chance. Black males born to parents in the top fifth are also far less likely to remain in the top fifth (17 percent) than are white males (40 percent).
How should we make sense of these stark facts, which describe the class dynamics of our capitalist society? Karl Marx and Friedrich Engels believed that class dynamics and conflict were the driving force of human history. Modern economics embraces mathematical models rather than the dialectical method, but even a simple model – an economist’s parable – can reveal two truths about the deeper, long-run structure of class society with which Marx and Engels might agree. First, class mobility ultimately determines class structure. That is, class mobility determines the relative fractions of rich and poor in a society. Second, class interests are fundamentally antagonistic.
He goes on to present a simple mathematical model which strongly suggests that social mobility in the U. S. is declining sharply and will continue to do so. I can see that in my own family. My parents were more prosperous than their parents had been and I am more prosperous than they. Here’s a rather famous graph that illustrates what has been happening:
It’s pretty clear that a dramatic change took place in the mid-1960s. What happened?
I don’t honestly know but I will suggest four possibilities:
- the Great Society programs
- The Civil Right Movement
- immigration reform
- the women’s movement
There are others. There might even have been synergy among one or more of those factors. The closest I can see to a straightline causal relationship with social mobility is immigration policy which is why it’s such a hot button issue for me.
An additional two possibilities.
One is leaving the Gold standard in 1973; and the persistent trade deficits thereafter. I’m not a gold bug; but the last couple of years is undeniable proof that a monetary system where the Federal Reserve is unconstrained in its policy choices lends itself to social mobility issues.
The other one is demographics. It is plausible that an elderly society is one that is hard for its youngest members to socially climb up. Notice the baby boom ended in 1966.
My theory is that the early half of the chart can be explained by the Great Depression and the post-war boom.
Just my personal example – my grandparents, born about 1900, spent their peak years in the Depression and the forced austerity of WW2. They were already in their 50’s by the time the post-war boom appeared. My parents born in the mid-late 20’s had their peak years in the 60’s and benefitted greatly from the post-war boom. It’s hard to see how they could not have done better than my grandparents.
The 1960’s is when economic conditions started to normalize and become more steady-state with a business cycle, which would even things out.
In short, I think the early part of the graph is a historical anomaly and not something that could be sustained.
Overall gains in productivity should cause a general increase in overall wealth over time, but those who benefit first have no interest in sharing outside of their own families.
That requires organizing efforts and sometimes violence or the wealth pyramid only gets steeper and narrower until the inevitable backlash.
“Overall gains in productivity should cause a general increase in overall wealth over time, but those who benefit first have no interest in sharing outside of their own families.”
I don’t think that’s true, Grey. Wealthy people give to charitable organizations by a huge margin. I do think that higher tax burdens, the decline in religious organizations and the notion that government is the nation’s nanny have all contributed to a decline in private charitable giving.
Drew:
Charitable giving is nice, but it falls far short of letting other people and their families into the club, the 10%.
I know, work hard, do the best you can, but I’ve said before there are millions of ways to work hard without improving your lot one whit.
People at the top share things, knowledge, like the Federal Reserve Presidents, Senate finance committee members, do you think they give tips to their gardeners?
Will effort get you into the Council on Foreign Relations?
Do you really think gardeners can save enough to buy a home? Retire?
Actually be buried in the ground?
You have every right to take pride in and enjoy that which you have achieved, but most people, most Americans will never know what it’s like.
And not for lack of effort, the wealth pyramid effect is real.
About that wealth pyramid-
I’ve long thought that the distortions created by consolidation, corporate mergers and takeovers is what makes this so problematic. If our economy consisted of millions of small pyramids instead of a thousand or so large ones, the distribution would be far more equitable while still allowing for the return on capital that motivates investors.
As for the decline in social mobility, growth can’t be expected to increase indefinitely and the postwar boom was likely a ceiling, give or take the ability to add a floor or two over time. Policy should shift to attempts to achieve steady state rather than pushing for artificial economic growth- but no lobby exists for maintaining the status quo.