November 28, 2007
Opportunity and equality
Thomas Sowell questions the current US preoccupation with inequality.
Americans in the top one percent, like Americans in most income brackets, are not there permanently, despite being talked about and written about as if they are an enduring "class" — especially by those who have overdosed on the magic formula of "race, class and gender," which has replaced thought in many intellectual circles.
At the highest income levels, people are especially likely to be transient at that level. Recent data from the Internal Revenue Service show that more than half the people who were in the top one percent in 1996 were no longer there in 2005.
Among the top one-hundredth of one percent, three-quarters of them were no longer there at the end of the decade.
These are not permanent classes but mostly people at current income levels reached by spikes in income that don’t last.
And Robert Samuelson takes a similar line.
Contrary to media coverage, the findings in three recent Pew studies qualify mostly as good news:
— When compared with their parents in the late 1960s, families today have a median income that’s 29 percent higher at $71,900 (and this understates gains in living standards, because families are about 25 percent smaller and the income figures exclude fringe benefits and non-cash government benefits).
— About two-thirds of today’s adults have incomes higher than their parents did — a result that is roughly similar for both blacks and whites (the children of the middle-income group of blacks were not typical).
— Almost 60 percent of the children born of the poorest families moved up the income distribution (23 percent into the second poorest fifth and 6 percent into the richest fifth).
Indeed, the high degree of intergenerational economic mobility is Pew’s most interesting finding. What happens at the bottom of the income scale also happens at the top. About 60 percent of children born of the richest fifth of parents do not themselves end up among the richest fifth; about 23 percent drop into the next to highest group and 9 percent fall to the bottom. Parents influence their children’s destiny but do not determine it.
Everyone knows that economic inequality has increased in recent decades. The richest 10 percent to 20 percent of Americans have gotten richer faster than the rest. But the people at the top are not all the same people or even the children of the same people. This vindicates one version of the American Dream. There is opportunity. People do move up — in both total income and class rank. Economic success is not static.
All true, but as I have pointed out before, the most surprising evidence on economic mobility compares the United States with other countries. The findings do not give strong support to the idea that America is the land of opportunity. Movement out of the top and bottom quintiles is lower than in many other countries, including Canada and (maybe) Britain. Yes, there is opportunity, and people do move up–but not as readily (out of the lowest quintile, anyway) as elsewhere.
President George W. Bush must have anticipated the above comments by Thomas Sowell and Robert Samuelson to the effect that inequality either does not exist in America, or is not such a bad thing if it does exist, because the current administration has done everything in its power to create more income inequality.
Just compare the huge Bush/Cheney tax cuts for the richest Americans with the neglect of the poor, African-American citizens of New Orleans in the aftermath of Hurricane Katrina. Compare the scandalous war profiteering of well-connected companies like Halliburton in Iraq with the unconscionable neglect of seriously wounded veterans of Iraq and Afghanistan at Walter Reed Hospital, and the fact that many veterans are forced to live at poverty levels after their return home because of government stinginess.
Compare the hundreds of billions spent on America’s bloated military with President Bush’s veto of a bill that would have provided increased medical insurance for children from poor families, or the fact that so many Americans cannot afford health insurance, while the insurance and pharmaceutical companies make profits that show far more vital signs of health.
Compare the outrageous salaries and bonuses given to CEO’s at Merryl Lynch and other large companies thar have been nearly bankrupted by the same CEO’s incompetence, while millions of Americans have been laid off or forced to work at Walmart for seven dollars an hour.
Unfortunately, instead of a real discussion of the devastating effects of income disparities on American society and democracy, something that only John Edwards among the presidential candidates has talked about seriously, we only see the sort of sophistry typified by Sowell’s and Samuelson’s above comments.
Even more shamefully, as shown by Wednesday night’s Republican presidential debate farce (November 28), serious issues such as income inequality are drowned out by the chorus of demagogic and racist immigrant bashing (something which has also been a thinly disguised, but almost regular feature of Robert Samuelson’s Washington Post columns) that threatens to become the most “important” issue of the presidential campaign.
In 1988, George Bush Sr. became president with the help of campaign ads featuring a black criminal, Willie Horton, who had committed additional crimes after being let out of prison in Massachusetts while Mr. Bush’s opponent was governor. Now, the Republicans have millions of “Willie Hortons” in the form of mainly Mexican, Latin American and Asian immigrants, legal and illegal. The election campaign is now centered on these immigrant “Willlie Hortons”, while income inequality in America comes closer and closer to resembling that of third world countries, even as this vital issue continues to be largely ignored by this country’s political leaders.
Roger Algase
Posted by: Roger Algase | November 29th, 2007 at 9:46 am | Report this commentNew York NY 10024
Thomas Sowell’s comparison of average family income, totally ignores the fact that now both partners work just to survive, whereas previously one was able to look after the children. No mention either as to whether these figures are inflation linked.
Roger Algase seems to summarise a good response to this. The move towards a third world wealth distribution model in the US is certain.
I wonder if there is a strong correlation between the decline of empires and the move towards this model of wealth distribution (i.e. pockets of wealth surrounded by oceans of poverty). For example, late in the Roman empire, there was a move towards the Latifundia system (worked by slaves), which accumulated large land areas under few owners, buying up small holdings with the profits and dis enfranchising the population. This might reasonably be compared with the growth of Agri business in the US (and throughout many industries), whereby people who were once stake holders in a society see themselves being ruthlessly exploited for the profit and opulence of a tiny minority.
Posted by: James Sharpe | November 29th, 2007 at 1:13 pm | Report this commentI wonder about mobility comparisons. Is the highest quintile in the U.S. comparable in wealth to the other countries, or is it more comparable to the second quintile? And shouldn’t we use various medians instead of averages?
Income is a rough peg for comparison, anyway, because purchasing power varies tremendously.
Posted by: Bababooey | November 29th, 2007 at 5:27 pm | Report this commentIncidentally, no one is forced to work at Walmart for $7 an hour.
And any tax cut is necessarily going to benefit 60% of the taxpayers and do nothing for 40% simply by reason of the 40% don’t pay income tax at all. An across the board cut will necessarily benefit the top quintile since they pay the majority of taxes. There is no way around that.
Fortunately, most Americans take the moral view, and the historically American ethic, that a person’s earnings (whether achieved through risk taking, effort, innate intelligence, or just plain luck) belong to that person and no other person (who didn’t take risks, didn’t work hard, isn’t smart, or just has bad luck) should be able to hijack the government into confiscating those earnings for the hijacker’s benefit. Its just wrong and that’s how most people see it, notwithstanding Paul Krugman, Jonathan Edwards and other’s smarmy instigations.
Posted by: Bababooey | November 29th, 2007 at 5:42 pm | Report this commentBababooey, the Bush tax cuts have not been “across the board”, but have been specifically geared to the wealthiest taxpayers. This is something on which there is wide agreement among almost all experts, not just courageously outspoken ones such as Paul Krugman.
In the memoir of Bush’s first treasury secretary O’Neill, there is a telling exchange where President Bush himself asks at a White House conference whether it would not be possible to do something for less affluent taxpayers, instead of only giving relief to the rich. Vice President Cheney’s putdown was that there was no need to do anything for middle or lower class taxpayers, since the Republicans won the election. Obviously, Cheney carried the day.
Few people seem to have any doubt that the Bush tax cuts for the wealthy have been a major factor in turning the Clinton surplus into the current huge deficit, with the resulting effect of trashing the world’s reserve currency (for now), namely the US dollar. This in turn, according to the experts whose comments I have read in the FT and elsewhere, is threatening to disrupt the world’s economy.
Posted by: Roger Algase | November 29th, 2007 at 7:02 pm | Report this commentBush reduced all personal income tax rates and the largest reduction was at the bottom end of the marginal rates. A person making $45,000 realized, as a percentage of income and as a reduction in marginal rate, greater savings then someone making $300,000. (In fact someone (ahem) making $300,000 in California received tax reduction because of AMT). Its true that the gross dollar savings benefited the highest earners (plus $1,000,000), but that’s because they pay so much more in taxes (on a gross dollar basis) then anyone else. Even if you cut the richest’s taxes by 1% and the poorest by 100% and the rich would still save more gross dollars. Would you call that a cut aimed to benefit the wealthy? If so, its just rhetoric.
While I respect Krugman’s scholastic achievement, it takes no courage to bash Bush in the New York Times. I’d be more impressed if he actually delivered some credit for the very few things well done by this administration. That would swim against his river’s current.
The deficit and falling dollar have yet to tell their story, and I don’t think there’s any consensus on how it ends.
Posted by: Bababooey | November 30th, 2007 at 1:46 am | Report this commentSorry, that should read “a person making $300,000 in California received NO reduction in taxes because of the AMT.”
Posted by: Bababooey | November 30th, 2007 at 1:48 am | Report this commentRoger Algase says that, “Few people seem to have any doubt that the Bush tax cuts for the wealthy have been a major factor in turning the Clinton surplus into the current huge deficit…”
That simply is not true. Federal tax revenues have risen every year since 2003, both in gross numbers and as a percentage of GDP. Perhaps Paul Krugman has courageously omitted this fact from his NYT columns.
Posted by: BartJones | November 30th, 2007 at 2:14 am | Report this commentOne less Iraq war would not exactly have hurt the US dollar or made it harder to deal with the deficit. But then, where would Halliburton’s and Blackwater’s profits have come from?
Posted by: Roger Algase | December 1st, 2007 at 12:36 am | Report this commentBababooey lives in some alt-United States where only income is taxed.
BartJones should change his handle to PostHocErgoProctorHoc.
Vigorous social mobility in the US has only occurred with government intervention (see the WWII-era GI Bill). Programs to pull folks out of poverty rather than push folks into the middle class engender the sort of resentment demonstrated above, dooming them to ‘compromise’ and half-measures of the sort Don Rumsfeld could back (spend/send just enough to ensure failure).
Posted by: rickhavoc | December 1st, 2007 at 3:52 pm | Report this commentSure, tax revenues have risen as the economy has grown - but so has spending, largely on the military. So, tax cuts mean that the wealthy are not pulling their weight and the deficit has increased as a result.
In fact, some of the very wealthiest pay even less tax than those lower down because they have access to accounting expertise and mechanisms to reduce tax liability.
Incomes may vary over decades, but I suspect net wealth does not - the same people will have the most money 10 years hence. Furthermore, the prevalence of private education and elite social networks ensures that their descendents also remain among the wealthiest.
It is objectively seen that social mobility has gone down in the US as a result and now compares badly with other rich countries…
…put any gloss on it you like - this is not moral and does not reflect the American ethic.
Posted by: Dave | December 3rd, 2007 at 3:35 pm | Report this comment