Extreme inequality has finally made it to prime time. Occupy Wall Street helped focus attention on the problem last Fall, and President Obama finally rose to the challenge with what was perhaps the best speech of his presidency. He spoke forthrightly about the massive and continued growth in inequality, linking this to the collapse of the middle class and to the obstructionism of the Republican-controlled Congress.
Concern over rising inequality has even made its way into the Republican presidential primary debates. While Mitt Romney has announced (with the Supreme Court) that “corporations are people” (see Stephen Colbert’s hilarious PAC advertisement), he has also said that he is really concerned about the poor and that we should address income inequality, but only in “quiet rooms.”
The argument on the right has always been that people should not bemoan extreme inequality as long as America remains the land of opportunity, where anyone who goes to school and works hard can make it. Those of a certain age will remember the 1960s pop hymn to American mobility “Only in America” by Jay and the Americans (who else?). Did anyone question the reality behind these uplifting lyrics? At least for white people?
But now the reality behind mobility promise of America has also hit prime time. The New York Times ran a front page story on the compelling evidence, quite well-known for some time among labor economists (at least progressive ones), that Americans actually have far lower chances of moving up the income ladder than those in other rich countries. Extreme inequality and low social mobility have become definitive of the American social condition, an apparent refutation of the American dream.
The latest contribution to a better understanding of inequality as “causing an unhealthy division in opportunities and a threat to economic growth” is a fantastic recent speech at the Center for American Progress by Alan Krueger, Obama’s new Chairman of Economic Advisers. He makes his case with the help of 11 powerful figures, some of which will look familiar to those who have followed recent discussions of inequality, and especially to those who have read earlier Metrics of Protest posts.
Krueger presents what he calls the “Great Gatsby Curve.” The basic message is the mirror-opposite of the conservative “Only in America” mantra about American mobility: extreme inequality is associated with dramatically reduced economic mobility. There is a close correlation across countries between income inequality and income mobility. The Gatsby Curve, reproduced below, shows that those countries with the greatest inequality in the mid-1980s also have the lowest income mobility across generations.
To be more specific, Krueger’s figure shows that in the middle of their working careers, fathers and sons tend to have much closer incomes in countries with the highest income inequality (the UK and US) than in more egalitarian countries (Germany, and especially the Scandinavian countries). The figure also includes Krueger’s projection for the U.S. to 2010, which is based on the relationship shown on the graph (the regression line) together with the increase in the U.S. inequality since 1985. Growing inequality begets class lines increasingly locked in place – a sort of Feudal Capitalism.
This is no accident. As Krueger puts it:
“… because of rising inequality the happenstance of having been born to poor parents makes it harder to climb the ladder of economic success. There is a cost to the economy and society if children from low-income families do not have anything close to the opportunities to develop and use their talents as the more fortunate kin from better off families who can attend better schools, receive college prep tutoring, and draw on a network of family connections in the job market” (p. 6).
So what’s to be done about it? Take a look at Krueger’s conclusion for his proposals and judge for yourself whether these will turn back the inequality tsunami. What can be said with some certainty is that there is no plan (and little concern) on the Republican side.