February, 5th 2014

New data on inequality and economic mobility. And what I think it may mean.

– Liz Mair

I've long been skeptical of liberal arguments that inequality in America is out of control and needs to be addressed as the or a top economic concern facing the current generation of policymakers.

My position has largely been that economic immobility, to the extent that it exists, is a greater concern.

Ultimately, pervasive, long-term economic immobility speaks to a problem with regard to fulfillment of the American Dream. The general idea behind America is that here, anyone who is hardworking (and especially anyone who is hardworking and talented) can make it, irrespective of the economic status into which they were born. Lose that and you lose a lot of our national character and much of what makes, and has historically, made this nation great.

To which I find that liberals typically reply something along the lines of, "yes, we agree, but we have no mobility here anymore, either, because the inequality problem is so out of control." Inequality leads to immobility, in many of their minds. And in the minds of those who don't see it quite that way, I find there is generally at least a belief that inequality correlates directly with immobility, across the board.

I have long suspected that in fact, the extent of inequality in many parts of America does not correspond with or indicate equivalent immobility problems. I don't spend hours a day analyzing studies about this stuff (I have a day job, and it doesn't involve extensive economic policy analysis on a par with, say, what you'd find in a policy job at Brookings or CATO), but anecdotal evidence suggests that this is not so, at least in many major cities and metropolitan areas, as does other evidence upon which I stumble from time to time. Like this, from Crain's NY:

Last summer, the nation's foremost researchers on inequality issued a provocative report which said that economic mobility—supposedly one of the victims of the growing inequality in America—varied dramatically across the country and in ways that defied linkages to the gap between rich and poor and the politics of the local region.

Recently they issued a second, advanced version of their work in which they ranked the nation's cities according to their economic mobility. New York, the nation's capital of inequality, ranks sixth best among U.S. cities. The researchers gauged economic mobility by figuring out the chances that someone in the bottom 20% of income will reach the top 20%.


New York is the most unequal city in the nation when the percentage of income of the top 1% is the determining number. (This is a controversial but probably correct way to do it.)

Inequality in New York City is concentrated in Manhattan. Queens, the Bronx and Staten Island have the same inequality as the rest of the nation. Brooklyn is slightly more unequal, but not as much people think.

Economic opportunity remains very high in the city as the economy continues to add near record numbers of jobs. Maybe that is despite the chasm between the rich and the rest. Maybe it is because of it. No one really knows.

Other cities where mobility is high include tech centers like San Jose, San Francisco and Seattle. Also on the top 10 list in terms of mobility are Washington, DC, Salt Lake City, Boston, San Diego, Newark and Manchester, NH. The quickie post to which I have linked doesn't assess or state inequality levels in those places, however, it does note that inequality is deemed a problem in San Francisco and Boston (something that seems right, anecdotally; I suspect the same could be said of DC and Newark).

What does this tell us? Not necessarily anything definitive, but I think it suggests that a lot of the rhetoric we hear-- especially out of, ahem, certain New York politicians-- about the extent to which inequality is the economic problem that needs to be addressed may be just slightly overblown.

It does not appear that in New York's instance, or that of San Francisco or Boston, general inequality issues do mean a lack of economic immobility, even if that can be demonstrated in other parts of the country.

Therefore, it would seem to me that the emphasis should be on continuing to pursue policies that preserve and ideally enhance economic mobility, as opposed to focusing on trying to make everyone more economically equal.

To be clear, I do not think the policy prescriptions for each issue are the same or overlap as much as some may.

As an economic conservative, I do think that conservative tax and spending policies are generally conducive to ensuring a certain level of mobility, because ultimately, high spending paid for by high taxes, usually with a good dose of regulation dumped on top, will inhibit a non-wealthy entrepreneur's ability to get a business going, hire people, and make lots of money (therefore enabling the born-poor, hardworking entrepreneur to rise up the economic ladder, ideally bringing some employees with him/her) just as much as they will curtail Paris Hilton's ability to amass even more money to do whatever with.

Without regard to my philosophical preferences, I also think it's obvious that if we don't have a decent education system (which I am unconvinced we do, across the board), it's going to be awfully hard for those born in the bottom 20% to rise up to the economic level of the top 20%, unless we attempt to address the challenge by simply making rich people a lot poorer (the direction and effect that I think a lot of liberal policies would have, but one that doesn't properly or fully address inequality or immobility concerns).

But as a libertarian (and a social liberal who generally likes immigrants and weirdos of all types, as well as cultural diversity), I think it's interesting that the cities listed above that appear to have the most mobility are ones that generally tend to have a good bit of that diversity and tend to be more socially libertarian. Perhaps this contributes to a fostering of entrepreneurial values or at a minimum, the development of weird and wonderful new ideas drawn from non-traditionally American sources to which significant economic value ultimately attaches, irrespective of economic policy constraints that otherwise might inhibit entrepreneurship. Entrepreneurship and a willingness to take risks and do things differently than they have traditionally been done seems to result in economic reward, in at least a good percentage of cases. Entrepreneurship correlates strongly with status as an immigrant or the child of an immigrant (perhaps unfortunately for us native-born Americans).

I would also note that this need not mean a run towards rampant secularism or political correctness, either; it seems, again from anecdotal evidence, that places in the South that remain "traditional" as gauged against, say, New York City, but which have taken in a lot more immigrants or have seen more integration, appear quite entrepreneurial and to have decent economic mobility prospects. Here, I am thinking parts of Virginia, North Carolina, and South Carolina.

Or maybe my thinking on this is all just skewed because I spent most of my formative years growing up in Seattle, an area which evidently does not have the immobility problems of which many liberals complain (though like everywhere, I'm sure Seattle too could do better on mobility). It's quite possible that growing up in the era of Microsoft, Amazon, the grunge music boom and so on affirmed my belief that yes, one can be born poor and retire extremely rich at age 40; I am not yet retired, nor would I describe myself as extremely rich, but suffice to say that my economic circumstances today are significantly better than those into which I was born. I am an entrepreneur, and have benefited from living (apart from a couple years of my life) in rather culturally diverse environments; I have also had the benefit of an excellent education; and apart from living in the UK and dealing with high costs of living and high tax rates while working there, I have had the benefit of generally also functioning in a relatively free market society where regulation is lesser than in many parts of the world, taxes are lower (or at least they were, until recently), and where social spending is not as great (though defense spending clearly is more extensive).

In sum, I could be seeing all of this through highly personalized, rose-tinted glasses. 

But I do think this data is interesting and suggests that policymakers' focus should be less on inequality than on preserving and enhancing social mobility; and that the policy prescriptions for the latter are probably not synonymous with those for the former.


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