Trade-offs Are Required

Lots of people have already weighed in on the "mommy war" aspects of Anne-Marie Slaughter's Atlantic cover story "Why Women Still Can't Have It All". In it, Slaughter decries the necessity of a high flying career woman having to make decisions that involve putting either her family or her career aspirations first. The opening makes it clear that we're talking about a very rarified group of people from the get go:

EIGHTEEN MONTHS INTO my job as the first woman director of policy planning at the State Department, a foreign-policy dream job that traces its origins back to George Kennan, I found myself in New York, at the United Nations’ annual assemblage of every foreign minister and head of state in the world. On a Wednesday evening, President and Mrs. Obama hosted a glamorous reception at the American Museum of Natural History. I sipped champagne, greeted foreign dignitaries, and mingled. But I could not stop thinking about my 14-year-old son, who had started eighth grade three weeks earlier and was already resuming what had become his pattern of skipping homework, disrupting classes, failing math, and tuning out any adult who tried to reach him. Over the summer, we had barely spoken to each other—or, more accurately, he had barely spoken to me. And the previous spring I had received several urgent phone calls—invariably on the day of an important meeting—that required me to take the first train from Washington, D.C., where I worked, back to Princeton, New Jersey, where he lived. My husband, who has always done everything possible to support my career, took care of him and his 12-year-old brother during the week; outside of those midweek emergencies, I came home only on weekends.

As the evening wore on, I ran into a colleague who held a senior position in the White House. She has two sons exactly my sons’ ages, but she had chosen to move them from California to D.C. when she got her job, which meant her husband commuted back to California regularly. I told her how difficult I was finding it to be away from my son when he clearly needed me. Then I said, “When this is over, I’m going to write an op-ed titled ‘Women Can’t Have It All.’”

She was horrified. “You can’t write that,” she said. “You, of all people.” What she meant was that such a statement, coming from a high-profile career woman—a role model—would be a terrible signal to younger generations of women. By the end of the evening, she had talked me out of it, but for the remainder of my stint in Washington, I was increasingly aware that the feminist beliefs on which I had built my entire career were shifting under my feet. I had always assumed that if I could get a foreign-policy job in the State Department or the White House while my party was in power, I would stay the course as long as I had the opportunity to do work I loved. But in January 2011, when my two-year public-service leave from Princeton University was up, I hurried home as fast as I could.

A rude epiphany hit me soon after I got there. When people asked why I had left government, I explained that I’d come home not only because of Princeton’s rules (after two years of leave, you lose your tenure), but also because of my desire to be with my family and my conclusion that juggling high-level government work with the needs of two teenage boys was not possible. I have not exactly left the ranks of full-time career women: I teach a full course load; write regular print and online columns on foreign policy; give 40 to 50 speeches a year; appear regularly on TV and radio; and am working on a new academic book. But I routinely got reactions from other women my age or older that ranged from disappointed (“It’s such a pity that you had to leave Washington”) to condescending (“I wouldn’t generalize from your experience. I’ve never had to compromise, and my kids turned out great”).
...
I still strongly believe that women can “have it all” (and that men can too). I believe that we can “have it all at the same time.” But not today, not with the way America’s economy and society are currently structured. My experiences over the past three years have forced me to confront a number of uncomfortable facts that need to be widely acknowledged—and quickly changed.

To give her credit, Slaughter realizes that she's talking about a very small group of people who are already incredibly well off in terms of money, power and bragging rights:

I am well aware that the majority of American women face problems far greater than any discussed in this article. I am writing for my demographic—highly educated, well-off women who are privileged enough to have choices in the first place. We may not have choices about whether to do paid work, as dual incomes have become indispensable. But we have choices about the type and tempo of the work we do. We are the women who could be leading, and who should be equally represented in the leadership ranks.

However, she goes on to claim that it is only by making it easy for women who are at the pinnacle of money and power to feel like they can balance their family and professional responsibilities that things will get better for the rest of American women who have real problems.

I'm deeply unsympathetic to Slaughter's line of thinking here. Long time readers certainly know that I am not an absolute opponent of income and social inequality, but what Slaughter advocates here is essentially a subsidy to the richest and most powerful in our country. Right now the equations is roughly that if you are smart, skilled, willing to give up most of your life to the endeavor, and well connected, you can enjoy living at the top of the American pyramid. Lots of people are smart and skilled, so two of the big filtering mechanisms are the extent to which people are willing to sacrifice all else to the quest for advancement, and the extent to which they are well connected. If, as Slaughter proposes, we remove the necessity of sacrificing one's time and balance in order to "reach the top", we leave being well connected as the primary remaining filter. That doesn't strike me as in improvement.

Income Inequality: 1945 Edition

I guess it's a sign that I'm a hopeless econ wonk that one of the things that I came away thinking about after watching The Best Years of Our Lives with MrsDarwin the other night (a good movie, which I'd strongly recommend) was how the income situations of the major characters would translate into modern terms.

Released in 1946, when it won the Academy Award for Best Picture, The Best Years of Our Lives follows the return to civilian life of three service men who all came from Boon City (a fictional Midwestern city) but didn't meet each other until they were hitching a ride on a B-17 back to their home town after the war.

Sailor Homer Parrish went straight into the Navy from high school, in which he had been an athlete, but he lost both his hands in a fire when his aircraft carrier was hit, and he now has a set of hooked metal prosthetics instead of hands and forearms. Before leaving he got engaged to his high school sweetheart, but he doesn't know how she'll react to his disability.

Capt. Fred Derry is slightly older. He comes from a fairly poor family and worked as a soda jerk before the war, but during the war he was the bombardier on a B-17. During training, he got married, but he and his wife had only a month together before he shipped out and he hasn't seen her since.

Sgt. Al Stephenson is in his 40s. Before the war he was a loan officer at a bank in town, and during the war he served as an infantry platoon sergeant in the Pacific. He's been married 20 years and has two children: a son just finishing high school and a daughter who graduated and has been working in a hospital for the last two years.

Much of the drama stems from the efforts of these three characters to integrate back into normal, civilian lives. However, a good portion of this conflict also relates to jobs and what place these characters will take in the post war economy.

Al comes back to a promotion: his bank puts him in charge of the small loan department, tasked with dealing with GI loans. He's given a salary of $12,000/yr. I wanted to get a feel for how large an income that was. Running it through a basic inflation calculator, 12,000 in 1945 translates to $143,792 in 2010 dollars. That's very good money now. Compared to how most people were doing, it was even better money then. I discovered that although many of the more detailed historical income tables on the Census.gov website only go back to 1967 (or in some cases even just 1991) it's possible to access scanned copies of the original Current Population Surveys dealing with income back to 1946. According to the 1946 report, the median income for a man engaged in full time civilian work in 1946 was $2600, which translates to $28,714 in 2010. By comparison, the median income for a full time, year round male worker in 2010 was $50,063. According to that 1946 report (page 15) only 2% of city-dwelling families in 1946 had incomes over $10,000 ($110,440 in 2010 dollars) putting Al very close to being in "the 1%" despite working for a very small bank by modern standards. Clearly, material want is not going to be among Al's problems. The conflict he deals with centers around the different experiences he's had over the last three years compared to the other managers at the bank -- and the personal difficulties of integrating back into family life.

If Al comes back to a cushy job, job woes are very much center stage for Fred. During the war, Fred was making $400/mo as a Air Corps bombardier. That's $57,517 in 2010 dollars. It also would have put him in the top 20% of incomes according to the 1946 income distribution tables. (By comparison, the threshold for the top 20% of incomes now is right around $100k.) Returning to civilian life, Fred is determined to find a good job, but in the post-war labor glut he finds that his status and pay from the Air Corps don't translate to many advantages in civilian life. At one point we see him in a job interview:

Manager: Did you do any work with supply or logistics in the Air Corps?
Fred: No.
Manager: Did you do any staff work? Did you lead men?
Fred: No.
Manager: Just what did you do, Captain?
Fred: My job was to sit behind the Norton Bomb Sight and get the bombs onto the target every time no matter what happened.
Manager: Well, we don't have much call for that here.

In the end, Fred finds himself back at the store where he had been a soda jerk, now working as an "assistant floor manager", a position more galling because the floor manager he is assistant to used to be his assistant at the soda fountain. This job pays $32/wk, which in turn works out to $1,664/yr. Run that through the inflation calculator and Fred is now making $19,939 in 2010 dollars. This now puts him in the bottom 33% of incomes in 1946. If we assume that the $32/wk rate is for the equivalent of 40 hours, Fred is making an hourly rate of $0.80, which makes an inflation adjusted $9.59/hr. I'm struck by the inflation adjusted hourly rate for Fred, since it's probably moderately close to what you'd make in retail now, though with his "assistant floor manager" title, perhaps he'd make closer to $12-$13/hr now (as compared to the $8-$9 which is common for basic retail). I was curious how other major expenses compared then to now. Table 7 of the 1946 census report shows median rents paid by income. For families making $1,500 to $1,999 per year, the median monthly rent was $25. That works out to $299/mo, a good deal less than you'd be able to find even a very cheap apartment for in most Midwestern cities now. Fred is making a little bit below the median for a man in Retail Trade, according to Table 17 of the 1946 census report, which gives the distribution of income by employment sector and lists the median income in retail at $1,927. I think it's probably arguable, at least from those few facts, that living on a retail job was significantly more possible then than now.

Homer, meanwhile, is trying to adjust to ordinary civilian life with his prosthetic hands (the actor playing Homer was a real veteran who had lost both hands in an explosives accident, he was one of only two non-professional actors ever to win an Oscar.) Income is not an immediate issue for him as he receives a disability payment from the government for his war injuries: $200/mo (which translates to $28,758/yr in 2010 dollars.) This actually puts Homer pretty much right at the median income for full time civilian workers. Given the sacrifices he'd made for his country, it's good to see that set of worries being taken care of.

The Oft-Repeated Lie About Warren Buffet's Secretary's Tax Rate

For last night's State of the Union Address, President Obama invited Warren Buffet's secretary, Debbie Bosanek, to sit in the First Lady's box during the speech and specifically promised in that speech to support tax changes in order to mend the injustice Buffet claims occurs allowing him to pay the lowest tax rate of anyone in his office, including his secretary. This line of attack is doubtless partly designed to pave the way millionaire Barrack Obama to make populist attacks on multi-millionaire Mitt Romney during the upcoming presidential campaign. Romney is, after all, very, very rich, and his income comes primarily from investments.

David Leonhardt at the NY Times asks both right-leaning economist Greg Mankiw and the left leaning Center on Budget and Policy Priorities to comment on this alleged tax injustice. Mankiw makes a fairly reasonable case that the reason capital gains are lower is that investment income is based on corporate profits and corporate profits have already been taxed. Companies would have more profits to pass on to investors (either as dividends or in the form of being worth more) if they didn't pay corporate taxes, and so the tax on investment income is set lower to avoid this "double taxation". Chuck Marr of the Center on Budget and Policy Priorities must know the facts aren't on his side, because instead of answering the question he provides a canned response about income inequality and how tax rates are lower than in the '70s. The column is worth a read.

However, there's another issue here which I think is worth pointing out. Progressives writing on this issue usually act as if billionaire investors such as Warren Buffet are all paying right around 15% (the capital gains rate) in taxes -- Buffet claims that he pays 17.4% -- and that "middle class Americans" are paying the top marginal income tax rate of 35%. However, that top marginal income tax rate only applies to taxable income (for 2011) in excess of $379,150 a year of which "middle class" families by any reasonable definition have exactly none. If you think in terms of gross income, a lot of middle class families probably fall in the 25% bracket, which is applied to married couples with a combined income of $69,000 – $139,350. Many others fall in the 15% bracket, which is applied to married couples with a combined income of $17,000 – $69,000.

Even that, however, is not the whole story. That tax rate is applied to your adjusted taxable income. If you have kids, a mortgage, medical expenses, 401k contributions, student loans, etc., your taxable income can be significantly lower than your gross income, plus you may qualify for tax credits which apply directly against your tax liability.

So, to take one concrete example, although our total household income falls neatly in the middle of that 25% bracket range, by the time we took all deductions and tax credits into account last year I ended up paying actual taxes equal to 5% of my gross income. This is pretty typical. According to Congressional Budget Office numbers, the average effective income tax rate for all American households was 8.7% in 2005. Those in the bottom 40% of households got more money back then they paid (they had negative effective income tax rates) and those in the top 10% paid an effective income tax rate of 15.9% and those in the top 1% paid 19.7%. Even if you look at total federal taxes (including both the highly regressive payroll taxes that fund Social Security and Medicare and the corporate income taxes which tend to his only the more wealthy), the total federal effective tax rate is progressive all the way up the income stack, with the bottom 20% paying 4.3% and the top 1% paying 31.4%

I don't doubt that Warren Buffet pays tax lawyers a lot of money to make sure that he doesn't pay more taxes than he has to, and as a result he may well manage to pay a lower effective tax rate as a member of the top 0.000001% than a member of the top 0.01% would, but to claim that he is paying a lower total effective federal tax rate than members of the middle class is, to put it bluntly: a lie.

Income Mobility Means Some People End Up Worse Off

Megan McArdle has a thought provoking piece on how income mobility is a popular concept, except that no one really wants their kids to be the ones who end up much worse off than their parents.

Many people apparently agree with me: the issue of income mobility has become more prominent in policy debates over the last few years. And yet I submit that this agreement is entirely theoretical. How many of the people reading this blog would actually tolerate a one-in-five chance that their children would end up poor?

Because that's what income mobility actually means. It doesn't just mean giving a lift to the folks at the bottom--superior health care, better K-12 education. Everyone in the country cannot be above average. For the poor to have a better shot at ending up in the top quintiles, the folks in the top few quintiles have to run the risk of ending up in the lowest.

Who among the parents fighting so hard to get their kids into a good school is going to volunteer to have their kid give up the slot in the upper middle class?

It strikes me that this becomes less of an issue if mobility is more an issue of reverting to the mean: people who are poor having a decent chance of their children doing better than them, people who are quite rich having a good chance their children will be middle class rather than wealthy. But, the thing is, most people live in moderately restricted social sets, so the falling half of the equation seems like "being poorer than everybody".

The piece itself is rather long and worth reading. I'm trying to make up my mind what I think about it. Certainly, the "American Dream" tends to be all about your children being better off than you -- not about half of your children being worse off so that half of someone else's can be better off. In this sense, the American Dream is highly dependent on the assumption that the country as a whole will become increasingly well off, and that that increase will be widely shared.

Thoughts? (Are you still out there, Joel? This one seems right up your alley.)

The Occupy Movement as Intra-Upper-Middle-Class Strife?

I was somewhat struck by this post the other day by Kenneth Anderson at Volokh Conspiracy, dealing with the Occupy Wall Street (and elsewhere) movement. He maintains that much of the angst driving the Occupy movement comes from the growing disparity between segments of the upper middle class -- people who have gone to good colleges and expect to have while collar jobs. Some in this group have continued to do very, very well. Others have struggled to do as well as those who lack their educational background -- and the student debt and expectations that often come with that.

Megan McArdle links to the piece, and adds a good deal more discussion, including an apropos quote from George Orwell on the perils of the early 20th century English lower upper middle class. (That a class should require three modifiers seems terribly English.)

In the kind of shabby-genteel family that I am talking about here is far more consciousness of poverty than in any working class family above the level of the dole. Rent and clothes and school-bills are an unending nightmare, and every luxury, even a glass of beer, is an unwarrantable extravagence. Practically the whole family income goes in keeping up appearances. It is obvious that people of this kind are in an anomalous position, and one might be tempted to write them off as mere exceptions and therefore unimportant. Actually, however, they are or were fairly numerous.

How on point this is is hard to say. It is true that the prevalence of both college and advanced degrees among the OWS protesters appears to be about twice that of the general US population. (And 25% of the protesters say they are still students.)

What did ring true to me in Anderson's piece are two points, both of which strike me as relating to misperceptions common in my generation. (And since the average OWS protester is white, male and my age, I guess I can speak to the situation as well as anyone.)

First off, a number of interviews I've read have expressed the sentiment, "I did everything right. I got a college degree, and the debt that came with it. Now I can't find a good job." This seems to sum up several major problems we seem to have at the moment in regards to college. On the one hand, employers too often expect college degrees for jobs which pretty clearly do not require them. Instead, having a college degree has become a sign of being somewhat intelligent and having enough persistence to actually finish a degree. (Something which, increasingly, doesn't even necessarily require much brilliance or hard work.) My grandfather used to tell a story about how at the height of the Great Depression he was turned down for a job as a gas station attendant on the basis of not having a college degree -- there were so many people applying for the job that they decided to look only at college graduates. We're not quite to that point, but it seems at times like the combination of the tough economy and the expectation that every person worth employing will come with a degree is getting us close to that. On the other hand, this association with college degrees and employment seems to have generated the idea in many people that if you just get a bachelors degree, someone can be expected to simply give you a job that will be sufficient to sustain you at the level to which you are accustomed. To my knowledge, this has never been a realistic expectation, and it certainly isn't now. Although most levels of the education process may have come around to an "automatic pass" way of doing things, employment most certainly does not work that way.

Second, the trend which Anderson notes of a large number of young college graduates being convinced they have a near entitlement to work in a non-profit or government job is something that I've very much noticed among others my age. Indeed, at times it seems a little like the odd prejudice one finds in Jane Austen characters against those who are "in trade" -- a late breaking US class system based on idealism. Of course, this leads to a lot of heartbreak, because the funny thing about non profit work is that... it's not very profitable. I remember a co-worker back in my first job out of college lamenting that she couldn't find, "A fun job at a non-profit paying at least 70k and including occasional travel." At the time, that sounded totally pie in the sky, as that was twice what either of us made. And to be honest, it still sounds pretty pie in the sky. (I believe she eventually found a solution in marrying a guy who made plenty of money and focusing on mothering and volunteering.)

Increasing Inequality and Winner-Take-All Economics

One of the mildly worrying economic trends of the last thirty years has been the increasing gap between rich and poor in the US. Many policy analysts conclude that this is the clear result of not following whatever policies they advocate, and thus demand quick action. However, as a recent OECD study shows, most countries have seen increases in inequality since 1980:

Given that countries as varied as Israel, Germany, New Zealand, Sweden and Finland have all seen increases in inequality of similar or greater scale (though not to the same absolute level, since they started lower) to that of the US over the last 30 years, it seems hard to imagine that it is simply a matter of US tax or social safety net policy which is the cause of the trend.

A more likely cause, to my mind, would be that the combination of transportation and technology with decreasing trade barriers have made it possible for there to be "winners" on a larger scale than was possible in the past. A blockbuster movie in 2011 has literally billions more potential paying viewer than a blockbuster in 1970, due to technology, the economic growth the developing world, and the global marketplace for arts and culture. The web allows single sites/services such as Google and Facebook to dominate not just one country or region but the entire world, thus allowing the founders and owners to become richer than they could have if infrastructure and other barriers. And if it seems odd that Finland is among the countries in which inequality has grown a good deal, check to see if you're carrying a Nokia phone. In a whole range of products and services, it's possible for a small number of winners to win bigger than was possible thirty years ago. For ordinary workers, on the other hand, the number of customers their work reaches has not necessarily increased. Thus the growth in inequality.

And on a minor side note, it's interesting that one of the highest levels of inequality on the chart is in Mexico -- a country which has a tendency to increase its own inequality and that of it's neighbor to the north at the same time by exporting many of its lowest earners across the border. Given that this benefits those who cross the border a good deal, I don't really see this source of inequality as a problem. Poor immigrants from Mexico are generally better off in the US than they would have been at home, even if, in large numbers, their presence can make the US look like it's inequality is increasing (since the population is not held constant.)

Do The Wealthy Pay Their Share?

Having linked last week to some discussion on whether the US is really becoming "Of the 1%, by the 1%, for the 1%", I was struck by this chart, which I saw a link to this morning, over at Carpe Diem, showing top marginal income tax rates versus percentage of income tax paid by the top 1% of earners since 1980.

However, I thought it would be a lot more interesting if the chart showed the percentage of total income earned by the top 1%, and also showed the total federal tax liability (including Social Security and Medicare) rather than the just the income tax. Luckily, all this information is available easily on line. (Percent of taxes paid. Percent of total income. Historical tax tables.)

Here's the chart I produced with that data:

The blue line is the share of total federal tax liability paid by the top 1% of households by income. It doubled between 1980 and 2007 from 14% to 28%.

The green line is the share of total adjusted gross income earned by the top 1% of households. It increased by 2.7x from 1980 to 2007, from 8% to 23%.

Whether this means the wealthy are paying "their share" or not probably depends a lot on one's point of view. On the one hand, the share of income earned by the very wealthy has increased more than their share of total tax liability. On the other hand, their share of total tax liability remains greater than their share of income. Personally, I would tend to think that this represents the right balance, but there are sure to be those who think this means the wealthy are not paying enough (their income grew faster), and others who think it means they are paying too much (their share of tax liability is greater than their share of income.

Perhaps another way to look at the extent to which our tax system is adjusting for growing inequality is to look at the share of total federal tax liability for the bottom quintiles (A quintile is a 20% range, so the bottom three quintiles of income distribution are 0-20%, 20-40%, 40-60%) versus the share of total adjusted gross income earned by the bottom 50% of households. (I don't have this by quintile in the above sources, but I think the bottom 50% should compare moderately well if we look at all three bottom quintiles, representing, in sum, the bottom 60% of earners.)

The result is as follows:

The share of adjusted gross income earned by the bottom 50% of households went down by about a third from 1980 to 2007, from 18% to 12%.

During that same period, the percentage of total federal tax liability (including Social Security and Medicare) went down by over half for the bottom quintile, from 2% to 0.8%; by a third for the second quintile, from 7% to 4.4%; and by nearly a third for the third quintile, from 13.3% to 9.2%.

Finally, it's perhaps worth noting that the main "drag" on the progressiveness of the US tax system at this point are is the pair of "universal" programs (Social Security and Medicare) which tax all income up to ~110k at the same rate and then provide all citizens (rich and poor) with benefits. If those programs were made to work more like a welfare program and less like a fixed benefit pension, the solvency of these programs would no longer be in question and the tax burden on the poor and middle class would be lighter.

Responding to Stiglitz on Inequality

There's a Vanity Fair piece on income inequality by Nobel Price-winning economist Joseph Stiglitz, "Of the 1%, by the 1%, for the 1%", which has been cited again and again in the commentariat lately, and it's a frustrating piece because of the extent to which is makes logical leaps or simply distorts reality. Scott Winship of The Empiricist Strikes Back does a good job of going through the piece and addressing it point by point, including taking on a few of the talking points which are increasingly becoming things "everybody knows" in the wonk community but which don't actually mean what they seem to.

One of the problems with our modern society's fixation on "data" is that people, even very educated people who should know better, often fixate on a given metric (for example, the claim that "While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone.") without taking the time to dig into what we can discover of the realities that underlie that measure. Sometimes those realities do not fit with the ideological picture which makes the original metric so appealing. (Winship's responses to the just quoted claim, both in the main article linked above and in this older one, are fascinating.)

Definitely worth a read.

Inequality, Heritability and the American Dream

Ever since people finished identifying "the American Dream" -- the idea that in the US in particular and the New World in general somehow allowed people to escape the hidebound social structures of the Old World and better themselves via their own efforts -- people have been worried that it is on the point of dying. Americans continue to show an an unusual degree of belief in the ability those who work hard to better themselves by their own efforts. For instance, in the 1999 International Social Survey, 61% of Americans agreed that "people get rewarded for their effort", whereas only 41% of Japanese agreed, 33% of British and 23% of French. This belief has actually increased in recent decades. In 2005 the New York Times reported that while in 1983 only about 60% Americans agreed that "It is possible to start out poor, work hard and become rich" by 2005 nearly 80% of Americans agreed with that statement.

And yet, those who study inter-generational income mobility have been increasingly worried in recent decades that despite American's belief that people can work hard and get ahead, that it is becoming increasingly difficult for people to actually achieve this in the US. In a lengthy report by the liberal think thank Center for American Progress, Tom Hertz of American university brings together a number of the recent studies on intergenerational income mobility in the US as compared to other countries, showing how people who are born into the lower income quartiles in the United States are less likely to reach the top levels of income than in other countries such as Germany, Sweden or Denmark.

To give an idea of what is meant by this intergenerational mobility, it helps to look at a particular study which Hertz quotes in detail. In this study, researches tracked 4000 children originally surveyed in 1968 and compared what the household incomes of their parents were in the 1967 to 1971 period to what those children's incomes were in 1994 to 2000. The intergenerational correlation in family income between parents and children was .42, and the implications of that for the children themselves are shown in the this chart:

Family incomes are inflation adjusted.  On the left column you see quintiles of parental household income in the original 1967 to 1971 window.  In the column headers you see the quintiles of household income for the children.  (The numbers are higher despite inflation adjustment because the group as a whole was better off in the late 90s than in the late 60s.  On average, people within the bottom 20% had higher incomes in the 90s than people in the bottom 20% in the 60s.)

In regards to intergenerational mobility, you can see that of the children of parents in the bottom income quintile in the late 60s, 41% of those children wound up in the bottom income quintile themselves in the late 90s.  24% made it into the second quintile, 15.5% into the third, etc.  Only 6% made it into the top quintile.  Of those born to parents in the top income quintile in the late 60s, 42% were themselves in the top income quintile in the 90s, while only 6% were in the very bottom quintile.

Now, it seems to me that a lot of the question as to whether the American Dream still holds true relies on to what extent we can assume that there is an equal distribution of ability and effort among all children across all income ranges in a study such as this. Yet, when we start to look at this, we (particularly because as Americans we have a great attachment to a variety of ideas relation to the American Dream) run into all sorts of contradictory emotions.

For example, let's take two typically American Dream statements:
1) If you work hard and save, you can work your way up and become rich.
2) If you get your kids a good education and teach them how to work hard, they will do as well as or better than you.

Let's assume for the sake of argument that both of these are true, and look at what happens over two generations. In generation A, people work their way up and become rich to the extent that they work hard and save. They have children: generation B. Now, generation A does a great jobs of getting generation B a quality education and teaching them to work hard, with the result that the children of B who work hard and save all do as well as or better than their parents. A few children of people in A whose parents did not work hard or save also work hard and save, and they become rich too, so we see some movement upwards movement from the lower earning families in generation A -- but given that the middle and upper earning families of A did such a great job of teaching their kids and giving them a solid work ethic, we have the appearance of very little social mobility -- because people are doing a very good job of teaching their children the skills that allowed them to achieve their current space on the income ladder, and so the only room for movement is if some people who themselves did not work hard or save manage to teach their children to do differently.

So, if the kind of abilities and behaviors that result in doing well economically are heritable or teachable, then after the first generation we would probably expect to see less intergenerational income mobility. If your abilities and work ethic are fairly similar to your parents, and if your parents economic success was determined by the extent to which they worked hard and saved, then in all probability your success will be a lot like your parents'.

On the other hand, if there is a great deal of chance involved in how one's ability to work hard and save translates into household income, then one would actually expect more intergenerational variability in income. If your parents worked very hard, saved, etc. but through bad luck or lack of opportunity made very little, and yet they taught you to also work hard and save, then if you experienced better luck in translating your hard work and saving into higher income, you would do significantly better than your parents.

Similarly, if until recently people's economic success in a given country did not reflect their efforts, but then something changed so that in future greater effort resulted in greater success, one would expect to see a period with a lot of intergenerational income mobility, and then a settling out.

Of course, all this is working off the assumption that the traits which might result in higher earnings are heritable. Some characteristics such as measured IQ appear to be quite heritable. One's adult IQ has a .75 correlation to the average of one's mother's and father's IQs -- a significantly stronger correlation than the one between one's income and one's parents' in the US. But other determining factors in how much one makes (willingness to work hard, the amount one is interested in making more, the type of career one is interested in, etc.) are much harder to quantify and may quite possibly be less heritable.

All of which is to say: It seems to me that discussing whether or not Americans are right in believing that "anyone can succeed in America" with hard work and ability is much more difficult than simply looking to see how often people whose parents were in the bottom income quintile end up in the top income quintile. Moreover, the fact that one country has higher intergenerational income mobility in recent years does not necessarily mean that it is more of an opportunity society than the United States (though that's one of the possible meanings of that statistic), especially if the two countries have significantly different histories in recent decades.

Is The US Destroying the Middle Class?

With a certain frequency, commentators see fit to worry as to the extinction of the US middle class. One among these, it seems, is one Edward Luce, who composed a piece on "The crisis of middle-class America" for the Financial Times. The piece profiles two families making about $70k/yr each, and worries as to the future of them and families like them. Both are, by coincidence, families of loyal Democrats, and the piece sports the requisite concerns about the potential dangers of tea party barbarians howling at the gates of the US order.

I feel myself in an odd position in regards to such stories. The particular definition of "middle class" picked for the story is a family income threshold which five years ago was frustratingly above our families income, and which now is embarrassingly below it. In this regard, I recognize myself to be uncharacteristically fortunate. However, having recently made a good deal less than this (and coming from a family which never exceeded such a total, even adjusting for inflation) I feel that I have some familiarity with the sort of middle class world being discussed -- while I can't escape the feeling that this seems a very squalid and foreign world to the Financial Times writer.

Added to this sense of class conflict is that Luce seeks to build up his story with juxtapositions of facts which sound like they mean more than they do. For instance, he says:

People in Europe and Canada are subjected to the same forces of globalisation and technology. But they belong to unions in larger numbers and their healthcare is publicly funded. More than half of household bankruptcies in the US are caused by a serious ­illness or accident.

Now, all of these individual facts are true, but they are assembled in a way which suggests things which are not. For instance, you might get the impression from this that it is the cost of medical care which causes most bankruptcies in the US. However, it isn't. Most people who declare bankruptcy have at least some medical bills, but it is often not the size of the bills but the fact that their income has been disrupted by missed work due to an illness or accident which leads to the series of problems that ends in bankruptcy. This is why illness remains a major cause of bankruptcy in Canada just as in the US, despite the fact that health care is state funded in Canada.

And while it's true that US workers have much lower union membership levels than in many European countries, it's not as if the workers in heavily unionized countries in Europe (Greece? Spain?) are not experiencing any uncertainty. Indeed, if anything, the global recession and financial crises has been hitting harder in many of the countries with the most comprehensive union systems and welfare states, and this has been causing greater anxiety because people have planned their entire lives around fixed work and pension benefits remaining in place indefinitely.

Another standard concern is inequality. Certainly, inequality is something which rubs us Americans the wrong way, and as is often observed: inequality is currently at its greatest levels since the "gilded age" of the 1920s. From the sound of the complain, one might imagine that the 20's were some world nadir of inequality, but in fact, although it's true that in the 20's the rich had been getting richer for the last several decades, while an agricultural depression had been afflicting the half of the country which still lived in rural areas for nearly a decade by the time the stock market crashed, the early 20th century was in many ways much less unequal than the centuries which had come before, and certain gave more opportunity for people to move between economic classes.

I was struck recently by the degree of economic and social inequality which used to be utterly unremarked upon when reading Bill Bryson's At Home: A Short History of Private Life. (To my great annoyance, the Columbus classical station plays NPR news during the commuting hours, which is precisely when I could use a little musical serenity, but the happy result of this was that I heard an interview/book review of Bryson's latest.) The book centers (perhaps a strong term for its wandering course) around a country vicarage built in 1851 in England which Bryson lived in while writing the book, and while edging gradually into a history of house design and home life, it pauses to examine the history of income trends which allowed the vicar of a rural parish with 250 parishioners too build such a beautiful and lasting structure. The vicar who build the house in 1851 had an income as vicar of 500£, an amount which was 25x the average English household income at the time and which translated into modern terms is $400,000k/yr.

This was real social and economic inequality, of the sort which has predominated through much of history. By comparison, I'm not sure that the degree of variance between the 1920s, the 1950s and today represents a great deal of change, other than the ability of the global market place to make a truly tiny number of people exceedingly rich, and of the global media to then publish the foibles of those rich people widely enough to fuel to our collective envy and astonishment.

Inequality and the New Aristocracy

Running into this article the other day, I was startled to find how many of my own intellectual hobby horses it touched upon. Arnold Kling and Nich Schulz are economists, and their topic is in equality in the modern economy. They cite Google co-founder (and billionaire) Sergey Brin as an example of many of the forces they believe are driving inequality and list the following major forces:

Technology: Brin’s wealth comes from the famous search engine he pioneered with cofounder Larry Page. Their company is a mere ten years old. And yet in the blink of an eye, he has become one of the richest men in the world.

Winners-take-most markets: Certain mass-market fields tend to simulate tournaments in that they produce just a few big winners along with many losers. These include technology/software, as in the case of Google, but also entertainment (Céline Dion), book publishing (Stephen King), athletics (Tiger Woods), and even some parts of academia, finance, law, and politics (as the impressive post-presidential earnings of George H. W. Bush and Bill Clinton demonstrate).

Family structure: Both of Brin’s parents were highly educated mathematicians. This increased the likelihood that Brin, too, would be well educated. He studied computer science at the University of Maryland and was in graduate school at Stanford when the Internet business he had built lured him away.

Immigration: Brin was born in Russia, and his family moved to the United States when he was six. He and other foreign-born executives such as Andy Grove of Intel have built wealth at the top of the income distribution. At the same time, a large influx of hard-working but low-skilled immigrants has enlarged the bottom of the income distribution, at least until they achieve the assimilation that historically has required a couple of generations.

There are, I think, a pretty good list of the factors that lead to inequality in the modern economy. Particularly incisive too, I thought, was a distinction they make between kinds of inequality:

Income inequality in the United States consists of two gaps. The first gap is an upper-lower gap, between those with a college education and those without. The second is an upper-upper gap, between those with high incomes and those with extraordinarily high incomes.

The upper-lower gap reflects changes in the structure of the economy. New technologies place a premium on cognitive ability. Harvard University economists Claudia Goldin and Lawrence Katz have dubbed this “skill-biased technological change.” In today’s economy, more value added comes from knowledge work, and relatively less comes from unskilled labor.

The widening gap between the incomes for college graduates and those for workers who never attend college raises a question. Why doesn’t the supply of college graduates increase? Indeed, despite the benefits that come with higher education, the rate of high school graduation is actually falling, according to the American Bar Foundation’s Paul A. LaFontaine and Nobel laureate James Heckman of the University of Chicago.

It's a little simplistic to use college education as a stand-in for skilled versus unskilled workers, but you get the point. What I do think is quite important, though, is the three-way distinction drawn between lower, upper and upper-upper. The upper-upper group is honestly very, very small. And since one only gets that rich by owning or running companies (directly or via investments) the fact that the upper-upper group is so rich doesn't strike me as worrisome. They may make a good bloody shirt to wave for those wanting to stir up class envy, but they are not "keeping us down" in any economic sense.

The upper group is not keeping the lower one down either, but it is a more troubling barrier because it is in some ways less porous. There are still plenty of jobs to be had that rely primarily on direct manual labor (skilled or unskilled) but as productivity increases, the number of people required to do the work goes down. This has been happening in the manufacturing sector over the last half century:

And happened in agriculture in the first half:

[Source]

Compounding this is the danger for those going into highly manual work of this kind, is the danger that if one's industry dries up when one is middle aged, it is a lot more difficult to switch to one of the more productive "knowledge worker" industries in middle age. One is more likely to be sucked down into low wage service industry work, which is less amenable to being eliminated through productivity gains -- but tends not to be valued very highly.

The predictor of where one will fall in this income spectrum is, they write, family structure much more than class, ethnicity or nation of origin:

The Manhattan Institute’s Kay Hymowitz, in her book Marriage and Caste in America, has documented that for upper-income Americans marital stability has recovered from the disruptions of the 1970s. But for lower-income Americans the problem remains. Since 1980, the proportion of never-married mothers among college graduates has stabilized near 3 percent, while the proportion among high school graduates has risen from 3 percent to 10 percent, and the proportion among high school dropouts has doubled to nearly 15 percent. These figures are important because, as Hymowitz points out, “Virtually all—92 percent—of children whose families make over $75,000 are living with both parents. On the other end of the income scale, the situation is reversed: only about 20 percent of kids in families earning under $15,000 live with both parents.”

Their next argument is, however, a bit of a reach:

A trend is underway in America for marriage to be increasingly “assortative.” That means children of well-educated parents tend to marry one another and the children of less educated parents tend to marry one another. This was less the case a few generations ago. For example, sociologists Christine Schwartz of the University of Wisconsin and Robert Mare of UCLA found that beginning in the early 1970s there was a striking “decline in the odds that those with very low levels of education marry up.” And they found that between 1940 and the late 1970s the likelihood that someone with only a high-school diploma would marry someone with a college degree dropped by over 40 percent.

What they're not taking into account here, I think, is that there was a major change in social conventions between the 40s and the 70s. In 1940, it was not at all required that an upper class young woman go to college, though she certainly might. By 1970, it was an absolute assumption that members of the upper class would send their daughters to college. So I doubt that we're seeing increased like-to-like marriage here so much as that a college education has become more universally the marker of a certain social and economic class.

It's true that once a family tree moves into the upper tiers they are unlikely to send many members back down again, but the reason is, I think, cultural rather than class-based in the sense in which "class" was used in the past. As the society of the US and other developed nations becomes ever more affluent, it becomes necessary to work in very high productivity, high skilled occupations in order to "keep up". And as research increasingly shows, one of the determining factors for education and the ability to deal with knowledge intensive work is the extent to which one is read to and otherwise placed in a learning-friendly environment during one's first four years of life. Thus, people who do "knowledge work" have a much increased propensity to raise children capable of doing the same.

The good news in regards to this kind of class barrier is that it's eminently bridgeable. Any parent with the determination to do so can raise his or her children to be readers and learners (and workers of sums and figures). But it's a much more difficult task for those who lack that background themselves, and thus come to it late. In that sense, the truism that education is today's civil rights issues is... true.