Mobility Stupidity

If everyone earned no less than $30,000 and no more than $50,000 a year, we'd have far greater "mobility" between classes. So argues the chattering class, most of whom occupy the evil top one percent. No, that's not what they are saying and writing, but they are complaining that the United States has less social mobility than other nations.

The problem? Those nations have less mobility because they have artificial floors and social limits on how far people can climb.

To which nation was the U.S. compared by the New York Times? Denmark.

American men born in the bottom quintile are more likely to stay there than the Danish, according to a study of earnings across generations. — http://www.nytimes.com/interactive/2012/01/04/us/comparing-economic-mobility.html?ref=us

Denmark? Compare education attainment. Compare the makeup of the society, including such factors as immigration and emigration. This is a strange comparison. Denmark, unlike the United States, is incredibly homogenous. Even today, 92 percent of residents are of Danish descent, according to Denmark's official website. By comparison, 16.8 million Americans were born outside of the U.S. and nearly a third of American children are first-generation citizens. You cannot compare a nation of immigrants, many of whom are non-native English speakers, to European nations with minuscule immigration.

Meanwhile, just 8 percent of American men at the bottom rose to the top fifth. That compares with 12 percent of the British and 14 percent of the Danes.

When the distance from top to bottom is as vast as in the U.S., it is a challenge to move from the bottom to the top. How wide is the gap between the U.S. and Europe? Even the New York Times admits:

G.D.P. per capita (an insufficient indicator, but one most economists use) in the U.S. is nearly 50 percent higher than it is in Europe. Even Europe's best-performing large country, Germany, is about 20 percent poorer than the U.S. on a per-person basis (and both countries have roughly 15 percent of their populations living below the poverty line). 

While Norway and Sweden are richer than the U.S., on average, they are more comparable to wealthy American microeconomies like Washington, D.C., or parts of Connecticut — both of which are actually considerably wealthier. A reporter in Greece once complained after I compared her country to Mississippi, America's poorest state. She's right: the comparison isn't fair. The average Mississippian is richer than the average Greek.
— http://www.nytimes.com/2012/01/08/magazine/the-other-reason-europe-is-going-broke.html

But, but, but… America isn't fair! Ignore our relative wealth, and focus on the gaps!

The Brookings Institution reports that "there is growing evidence of less intergenerational economic mobility in the United States than in many other rich industrialized countries."

How to make it fair? Taxes, supposedly.

The New York Times and a host of great minds tell us the relative mobility of Americans is now less than that of most Europeans. A study, I am assured by a column in the Minneapolis Star-tribune, finds that we need a top tax rate of 83 percent and everyone will benefit.

An examination of 18 countries in the Organization for Economic Cooperation and Development found "little empirical support for the claim that reducing the progressivity of the tax code has spurred economic growth, business formation or job growth."

Indeed, the rigorous analysis by Piketty, Saez and Stantcheva came to the opposite conclusion. Our economy may be growing more slowly because we are taxing the rich too little, not too much.

Yes, let's turn to economists from Paris (Piketty), Berkeley (Saez), and a grad student (Stantcheva). Piketty is an active member of the French Socialist Party and argues for increased deficits. I suppose France is a great model of equity — just ask the French Muslim immigrant population. Piketty mixes theory with selective data, which is pretty standard in modern university economics departments.

Emmanuel Saez is the E. Morris Cox Professor of Economics and Director of the Center for Equitable Growth at the University of California at Berkeley. He is not merely an economist, he is a political creature. Again, that's the norm on left and right, sadly.

So, two well-off professors in the social elite suggest we need higher taxes. How high? Very high:

They estimated that the optimal top tax rate -- that is, the tax rate that would maximize revenue without slowing economic growth -- could be as high as 83 percent.

What utterly simplistic stupidity. I know, these professors have dozens, if not more than 100 publications. I'd rather they try running a business, though. They'll learn more and be more credible. But, you can show a lot about how "unfair" life is if you define unfair with a set of statistics.

Also, it must be wonderful to be a rich socialist or an academic in the Bay Area, a place my wife and I could never afford. From their ivory towers, these economists care a lot about inequality. (The truth? They know they would remain in a special privileged class in their envisioned utopia.)

You increase taxes to a certain level, you either end up with countless loopholes and a lower effective rate (see my post on the 90% Tax Rate Myth
http://almostclassical.blogspot.com/2011/03/90-tax-rate-myth.html ) or systemic tax avoidance as in Greece, where avoiding taxes is a national sport.

I'm not opposed to taxes: we have to fix our roads, bridges, and general infrastructure. Government has a role to play, but I don't see a role that requires anywhere near the taxes the left suggests. Higher taxes aren't going to solve problems, anyway.

I do support tax reform. I want to end all deductions, for example. I want to reform our tax code so large corporations don't have unfair advantages. I want to end the need to hire accountants every year just to file tax returns.

But, the wealthy and the high-income earners are not evil. People are people, and most of the wealthy people I know work hard, long hours (the New York Times found the top one percent work, on average, 20% more hours than others). They are not keeping anyone else from doing the same. They are not keeping others out of school.

To imply the lack of mobility is the result of some people earning a lot? The implication is that the rich are intentionally, and diabolically, oppressing the lower classes. Is that really the cause of declining mobility? And is this mythical equality so wondrous?

If we were oppressing the poor, would we be spending more on education per student than other nations? It turns out education is key to mobility. Other nations with greater "equity" (which we could debate as a "good" for several reasons) have higher average academic achievement.

Children of school dropouts are more likely to be dropouts. Children of single parents are more likely to be single parents. Guess which two variables correspond to poverty?

How are the one percent or even the top 20% responsible for ridiculously high failure rates among our urban and rural schools? Washington, D.C., schools spend more per student than 99 percent of school districts. The D.C. schools are also a notoriously disfunctional failure. The rich aren't oppressing these students. Their local schools and political leaders are.

A Pew Trust study published in September 2011 found:

If men and women raised in a middle-class home obtain education after high school, they are less likely to be downwardly mobile. — http://www.pewtrusts.org/news_room_detail.aspx?id=85899363670

I'd rather see everyone given real opportunity to rise or fall. I fear we could tax at any rate, give any amount of money to our current schools, and we wouldn't change the mobility gap.

Again, it goes back to education, education… and education. In the right fields, of course, too. Science, technology, math, and engineering. Sadly, I don't know how to get every student to finish high school and at least two years of vocation training or higher education.

Mobility is not the result of tax rates. Mobility is the result of opportunities. We aren't giving our youth enough opportunities — and that might mean challenging them in ways they don't appreciate at the moment. I've never had a student tell me, "Wow, I love how hard this assignment is." But, I've had them tell me the assignment mattered a year or two later.

Our system has serious problems, and we must admit to those challenges to overcome them. Until then, only those taught to expect the most of themselves will rise. Those taught to expect failure, will continue to fail.

The economists and chattering class? They are telling people that success isn't the result of hard work and effort. The elites are telling the lower-class that life is simply fate, random luck and nothing more. It's a very dark, defeatist view of existence.

In this bleak worldview, the only way to make things fair is to be oddly unfair.

Thankfully, many of us know that personal choices do matter. Even President Obama, while complaining about the lack of mobility, embodies that very possibility. You won't find that same mobility represented to the same extent in most European governments.

Let's stop the mobility stupidity of whining about unfairness and start searching for better solutions.