海角大神

The Chairman of the White House Council of Economic Advisers, Alan Krueger, gave a great聽talk聽on inequality the other day, definitely worth a read (slides聽here, though why they鈥檙e not in the same doc as the talk is beyond me).

What鈥檚 particularly notable about Alan鈥檚 approach to the issue is his emphasis on the consequences of such high levels of income inequality as have developed here in the US.聽聽 Too often, analysts just cite the problem without explaining聽飞丑测听it鈥檚 a problem.

Alan focuses on inequality鈥檚 negative impact on macroeconomic growth, and thus job growth.聽 That鈥檚 obviously extremely important, given our recent history (predating the Great Recession) as shown聽here.

But the consequence I wanted to amplify was one I鈥檝e discussed frequently: the link between higher inequality and diminished mobility.聽 Check out this slide from Alan鈥檚 talk (above).

This scatter diagram compares something called the 鈥渋ntergenerational earnings elasticity鈥� (y-axis) with a measure of income inequality on the x-axis.聽 The former measure links kids鈥� earnings when they鈥檙e adults to that of their parents.聽 It鈥檚 one of those 鈥渉ow-far-does-the-apple-fall-from-the-tree鈥� metrics, wherein higher numbers represent less mobility.聽 So, basically, this figure is asking whether countries with higher inequality are countries with less mobility.聽 Clearly, the correlation is strong.

The points cluster around an upward sloping line, indicating that countries that had more inequality across households also had more persistence in income from one generation to the next鈥�Countries that have a high degree of inequality also tend to have less economic mobility across generations.

This is extremely important in the political debate.聽 We often hear politicians claim that we shouldn鈥檛 worry about growing inequality鈥擱omney鈥檚 taken to聽calling聽such concerns 鈥渢he bitter politics of envy鈥濃�攂ecause we鈥檝e got the mobility to offset it.聽 Not only is that wrong on the facts鈥攜ou actually need聽more聽mobility to offset聽more聽inequality, and mobility has certainly not been increasing.聽 But it also appears to be the case that higher inequality is itself associated with less mobility.

The transmission mechanisms for this are not well known, but surely have to do with educational access, employment networks, and so many other mobility enhancers that grow further from the reach of the have-nots in a highly unequal society鈥�things like quality pre-school, good libraries, safe neighborhoods, environmental benefits, stimulating vacations and summer camps, and so on.

One of the saddest things is life鈥攁nd one of the most wasteful, from the economy鈥檚 perspective鈥攊s a child blocked from realizing his or her potential.聽 聽That鈥檚 what鈥檚 embedded in the slope of that graph and it鈥檚 something this nation needs to elevate to its top problem.

Here鈥檚 a thought: instead of all these budget deficit commissions that never amount to anything anyway, how about we get serious about tackling income mobility?