Wednesday, July 11, 2012

Economic Mobility is Alive and Well in America



Video is from Reason.tv, which accompanies this article "84 Percent of Americans Are Richer than Their Parents Were at the Same Age."

23 Comments:

At 7/11/2012 11:31 AM, Blogger morganovich said...

i take issue with this notion that it is more difficult to become "a bazillionaire" now and that people have less of a shot at it.

it's easier than it has ever been in all of history.

to accumulate the kind of wealth the robebr barons had took a lifetime and even generations. a new college grad of middle class background had approximately a 0% of vaulting to that rung.

look at today.

bill gates, the google boys, zuckerberg, larry elison, a dozen hedge fund managers i could name and on and on.

i would be willing to bet that a greater % of the top 1% of richest americans are self made over the last decade than in any other decade in world history.

the power of an idea is far greater than it ever was and this creates more pronounced and extreme mobility than anyhting else possibly could.

in 10 years you can go from a dorm room project to the forbes 100.

 
At 7/11/2012 11:58 AM, Blogger Steve Hamlin said...

"A quick tutorial: the United States has a much lower rate of movement between classes than either Canada or Western Europe. According to the Pew Charitable Trusts, if a man is born into a family in either the bottom or top fifth of all earners, he is more likely than not to stay within either that grouping or next quintile than not."

Source: http://www.forbes.com/sites/helaineolen/2012/07/10/david-brooks-blames-women-for-income-inequality/

 
At 7/11/2012 12:24 PM, Blogger juandos said...

"Economic Mobility is Alive and Well in America"...

It sure is if the CBO knows what its talking about...

Average Before-Tax Income for All Households Fell 12 Percent from 2007 to 2009 in Real (Inflation-Adjusted) Term

 
At 7/11/2012 12:30 PM, Blogger Its GSATT said...

how to get that 17% to grow larger.

step 1: pull your damn pants up when you go out looking for a job.

step 2: talk like you at least tried to learn the English language

step 3: swallow your tongue the next time you're about to make an excuse for your crappy work ethic.

 
At 7/11/2012 12:35 PM, Blogger Krishnan said...

It is indeed what money can buy today compared to yesterday that is dramatic - today, a much larger fraction of the population enjoys goods, services that only the very rich used to be able to afford/enjoy - And this is all because of relentless innovation.

The real danger to improvement in the quality of live is the threats to innovation - If GOVERNMENT keeps assaulting the producers and innovators (through regulation, expropriation (taxes, penalties)), the producers and innovators will stop (or slow down). If the producers and innovators cannot keep claim on their products and innovations because GOVERNMENT takes it away for distributing to those "that do not have" - the system will come crashing down - We are witnessing the early stages of that strangulation at work today.

There has to be a fundamental change in the philosophy - if the politicians insist on playing class warfare, they would have nothing to expropriate from and nothing to hand over to others.

 
At 7/11/2012 1:21 PM, Blogger Steve Hamlin said...

"A quick tutorial: the United States has a much lower rate of movement between classes than either Canada or Western Europe. According to the Pew Charitable Trusts, if a man is born into a family in either the bottom or top fifth of all earners, he is more likely than not to stay within either that grouping or next quintile than not."

Source: http://www.forbes.com/sites/helaineolen/2012/07/10/david-brooks-blames-women-for-income-inequality/

---

See also this lengthy analysis of the Pew Economic Mobility report: http://economix.blogs.nytimes.com/2012/07/11/only-half-of-americans-exceed-parents-wealth/

 
At 7/11/2012 1:31 PM, Blogger james said...

I cannot say to what degree income inequality has increased. All That I can say is that it has increased over the last thirty years. What a lot of these folks on the right do not get is this. If the top 50% of the population has 90% of the income and the bottom 50% have the remaining 10%. Than the bottom fifty percent of the population must depend on friends family private charities and the government for theit basic needs. Even if both members of a two parent household are employed full time. The is not a good situation for anyone to have fifty percent of your population totally or to a very large degree dependent on everyone else for their basic needs. Thats where we are heading. We are not their yet but we will be their soon enough if nothing changes. The problem is in order for their to be support for the current and future economic system by the average citizen they must gain something from the economic system otherwise they will not support the current and future economic system. That is if non of the income gains are going to them. And if they are becoming poorer under the economic system even if the economy is growing.

 
At 7/11/2012 1:45 PM, Blogger bart said...

Comparing against a full prior generation is fine, if one doesn't compare to what has been happening for the last 10 years or so.

The trends aren't exactly up, even when only the bogus CPI "inflation" measure is used.

 
At 7/11/2012 1:47 PM, Blogger morganovich said...

james-

that argument is flawed in a huge number of ways.

first off, the bottom 10% of americans would be the top 10% of many nations. being at the low end of a country this rich does NOT imply that you starve or want for basic necessities.

our poor live in bigger houses with more appliances and are more likely to own a car than the middle class in the EU.

concentration of wealth is a natural result of productivity gains, global markets, and meritocracy.

those with the best ideas and implementation have seen productivity soar and markets reward that. people pay for production, period.

the productivity of a bricklayer is pretty flat. so, therefore, is real income.

the productivity of a computer programmer has doubled and doubled again many times over. thus, so have salaries for the best of them.

for all the left likes to pillory the wealthy like bill gates or larry elison, it's important to remember: the only way they could have gotten so wealthy is by making many, many people's lives better.

how do we know? because profit is a sign of service and value provision in a free market. the only way they get revenue or profit is to sell you somehting that you value MORE than the money you paid. if you did not, you would not buy it.

far from begrudging them their wealth, you should be thanking them for providing products so many people found useful.

 
At 7/11/2012 3:07 PM, Blogger Paul said...

Steve Hamlin,

"if a man is born into a family in either the bottom or top fifth of all earners, he is more likely than not to stay within either that grouping or next quintile than not."


Not much we can do for people who choose to make bad decisions. How Not to Be Poor: http://www.ncpa.org/pub/ba428/

 
At 7/11/2012 3:36 PM, Blogger rjs said...

Pew researchers also examined mobility trends within individual families: That is, regardless of what the generations as a whole look like, are today’s Americans better off than their own parents?

The answer depends on how you define “better off.”

http://economix.blogs.nytimes.com/2012/07/11/only-half-of-americans-exceed-parents-wealth/

 
At 7/11/2012 3:47 PM, Blogger bart said...

The answer depends on how you define “better off.”

Or inflation... in spite of the fact that the BLS states that the CPI is a real inflation measure, while not counting all of medical care, using OER which does not correctly track housing, under reports rent, doesn't use reverse hedonics, etc etc.

 
At 7/11/2012 3:48 PM, Blogger Ken said...

james,

If the top 50% of the population has 90% of the income and the bottom 50% have the remaining 10%. Than the bottom fifty percent of the population must depend on friends family private charities and the government for theit basic needs.

This does not make any logical sense. Say you make $100K this year and I make $100K as well. Then, assuming zero inflation, in 30 years you make $100K and I make $900K. Inequality between the two of has gone up dramatically. In fact, in 30 years, we went from a 50-50 split to a 10-90 split in income. Guess what? YOUR ARE NOT WORSE OFF!!!

Learn a little logic, take a stats class, and don't look like such an idiot in the future. Just because percentage points are ALWAYS zero sum (for someone to move out of the lower 10%, someone else has to move into the lower 10%), does not mean absolute wealth is.

Pull your head out of your ass.

 
At 7/11/2012 5:33 PM, Blogger morganovich said...

rjs-

well, this is a tricky time to look at numbers like that. the huge drop in home prices disproportionately hurt the wealth of the younger middle class who have more of their personal wealth in a home and less other savings than older folks.

i'd want to see data from before 2007.

also:

that pew report does not look terribly forthcoming on where they got their data and what their methodolgy was.

i have been told it has a large methodological flaw in that it compares current levels of income in 2009 to peak income of parents.

that gives a deeply skewed result.

it also flies in the face of two of the largest studies done in this space:

" The authors analyzed University of Michigan Panel Study of Income Dynamics data that tracked more than 50,000 individual families since 1968. Cox and Alms found: Only five percent of families in the bottom income quintile (lowest 20 percent) in 1975 were still there in 1991. Three-quarters of these families had moved into the three highest income quintiles. During the same period, 70 percent of those in the second lowest income quintile moved to a higher quintile, with 25 percent of them moving to the top income quintile. When the Bureau of Census reports, for example, that the poverty rate in 1980 was 15 percent and a decade later still 15 percent, for the most part they are referring to different people.
Cox and Alm's findings were supported by a U.S. Treasury Department study that used an entirely different data base, income tax returns. The U.S. Treasury found that 85.8 percent of tax filers in the bottom income quintile in 1979 had moved on to a higher quintile by 1988 -- 66 percent to second and third quintiles and 15 percent to the top quintile. Income mobility goes in the other direction as well. Of the people who were in the top one percent of income earners in 1979, over half, or 52.7 percent, were gone by 1988. Throughout history and probably in most places today, there are whole classes of people who remain permanently poor or permanently rich, but not in the United States. The percentages of Americans who are permanently poor or rich don't exceed single digits. "

for this to have gone up by 8X in such a short period seems highly unlikely.

i have seen some good work from pew and some really partisan and flawed stuff as well.

i would be cautious taking their claims at face value until you check the methodology and data sources.

it's a very small study (around 1000) and i have seen no evidence as to the sample set being representative etc.

the wealth metric is particularly bad as it is just a snapshot of one period against another an not a look at peak vs peak etc.

earnings has the same problem.

they look at dads then kids a couple decades later like that is somehow a meaningful comparison.

comparing a 55 year old dad to a 30 year old son is not meaningful.

all in all, this pew study looks badly designed and likely to produce some really questionable data.

 
At 7/11/2012 5:33 PM, Blogger morganovich said...

to be totally honest, i think it's methodology is garbage and the conclusion they are drawing from it totally unwarranted.

consider:

your data was a construction worker.

he had you at 30. at 30, he had 12 years on the job and was a foreman etc and making good money.

you went to yale then on to john's hopkins med. you were 28 by the time you got out of med school and were working your residency for a pittance at 30 with a pile of school loans.

of course you look really poor at 30 relative to your dad.

but at 50 when you are a neurosurgeon and hwas still a construction workers, you're miles ahead.

careers start much later now.

we go to college far more often. we go to grad school.

at 30, and additional 4-6 years of experience is a huge deal. that's what this study is looking at.

not peak earnings, earnings at 30.

careers start later and we run up more debt at school.

that says little about final earnings.

as studies go, this one seems really weak and poorly conceived and constructed.

 
At 7/11/2012 5:44 PM, Blogger Paul said...

Morganovich,

"but at 50 when you are a neurosurgeon and hwas still a construction workers, you're miles ahead.

careers start much later now."

Which is also one of the reasons why it's unfair to tax upper incomes at a higher rate. A neurosurgeon who doesn't begin his career until he's 30 missed out on years of income. Meanwhile, the same-aged construction worker was getting a paycheck the entire time.

 
At 7/11/2012 5:46 PM, Blogger bart said...

Oh, WTH...

Household net worth since 1952, both CPI and CPPI corrected

 
At 7/11/2012 5:59 PM, Blogger TradetheLeaders said...

Another issue often overlooked is that the people who were in the bottom income levels 30 years ago are often in the top level today. Someone who was fresh out of college in 1980 earning a low level salary may be running the business today. So there is a lot of movement between the 'rungs' in the ladder as time passes. In general, people who are young don't make much money and people who are older make more.

 
At 7/11/2012 6:07 PM, Blogger morganovich said...

bart-

it's a good chart. the really notable feature is the terrible wealth destruction since 2000 if you use a rational inflation measure (though cpi understating inflation is always contentious around here).

the greenspan/bernanke era at the fed has been a disaster. mistaking bubbles for growth destroys wealth at an astonishing rate.

 
At 7/11/2012 6:08 PM, Blogger bart said...

I'm very surprised that no one has mentioned the millions whose house has remained underwater for years and still is, and who have zero mobility.

That it was never given proper weight in the video speaks volumes about how much of the full truth is missing.

 
At 7/11/2012 6:16 PM, Blogger bart said...

it's a good chart. the really notable feature is the terrible wealth destruction since 2000...

Precisely my point

... if you use a rational inflation measure (though cpi understating inflation is always contentious around here).

Those who think that CPI measures real inflation have serious blinders on.
I don't recall if it was you or Ron (or whomever) that pointed out my old name (CPI w/o lies) by itself was contentious. That's one of the reasons I changed it to CPPI (Consumer Purchasing Power Index).

And the data behind it is fully supported by large quantities of virtually incontrovertible facts. Just the Case Shiller vs OER alone shows how badly the CPI tracked housing since 1983.

I'm just waiting for one of the deniers to pop up, so I can shoot them down in huge flames. -g-

 
At 7/12/2012 2:25 PM, Blogger juandos said...

Quoting David Brooks steve h, well that's hilarious...

 
At 7/13/2012 8:43 AM, Blogger Jax said...

It is NOT important that there is economic mobility. What is important is are there RESTRICTIONS to economic mobility. When data show economic mobility less than you like, find out why before crying foul. Does the system restrict mobility or are people deciding not to make necessary sacrifices? We have a very low voter turnout. Prior to the 60's, some people were forbidden to vote. That has changed and we still have low voter turnout. If someone chooses to stay in their current situation, we should not see evil in their decision.

 

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