Like many other economists and social scientists, I’ve spent decades analyzing the issues of inequality, immobility, wage stagnation and “sticky” poverty rates that are unresponsive to overall growth. In that sense, it is important and gratifying to hear pundits and politicians from all sides — many of whom assiduously avoided such topics in the past — talking with fervor about these issues.
But, to state the obvious, there’s a difference between rhetoric and true intent. Too often, what we’re hearing is the same old policy agenda with a new set of words attached to it. Instead of “To liberate the job creators and boost growth and productivity, we must cut taxes on the wealthy, deregulate, shutter the IRS, EPA, etc.,” we hear, “To create a path of upward mobility for the middle class and the poor, we must cut taxes, deregulate, etc.”
For example, Sen. Marco Rubio (R-Fla.), who is running for president, talks personally and compellingly about the need for greater upward mobility, a goal that is highly consistent with the data of Reeves and Sawhill showing “stickiness in the tails” of the lifetime income distribution: Significant shares of both rich and poor children, once they’re grown, end up in the same income class in which they began.
And yet Rubio and his fellow Republicans want to repeal the estate tax and defund the safety net, surefire ways to ensure that the tails get even stickier.
As this debate progresses, I’ve begun to observe a set of what poker players call “tells” — things people do that reveal their hand, or in this space, identify their hypocrisy or lack of understanding of the economic dynamics at play. Here are a few to watch out for:
–“Public policy should not be concerned with the inequality of outcomes; it should focus instead on the inequality of opportunities.”
Sounds good, and even comforting for those for whom going after inequality feels like “class warfare” (although I’m with Warren Buffett on this one: “There’s been class warfare going on for the last 20 years, and my class has won”). But the two — inequality of outcomes and that of opportunity — are intimately linked and the causality runs both ways.
There is extensive evidence that the inequality of income, wages and wealth severely constrains the opportunities of those on the wrong side of the divide (Ben Spielberg and I present such evidence in a forthcoming paper, but for now see Robert Putnam’s excellent new book on this point). Residential segregation into neighborhoods with inadequate investments in mobility-enhancing public goods, restricted educational access, and simply the direct, negative impact of inequality-induced poverty on the ability to get ahead, all must be targets of policy if we want to strike a blow against immobility.
–“We must eschew redistribution and pursue growth . . . productivity growth in particular will lift the middle-class.”
Obviously growth is necessary, but is it sufficient to offset the impact of inequality on wages, incomes, and as noted above, mobility? By definition, it is not. Whether we’re talking about median incomes or mid-wage compensation, their path has sharply diverged from productivity since the mid-1970s, as shown in the figure above. To assert that faster productivity growth will raise middle-class incomes or reach the low-wage workers “fighting for $15” on the streets is to leave out the qualifier: “assuming the relationship between growth and wages reverts back to the pattern that prevailed before inequality took off.” It assumes away the problem.
–“To raise the upward mobility of the poor we must diminish the safety net.” Rep. Paul Ryan (R-Wis.) has referred to the safety net as a hammock; he and others cite the old Reagan quip that “we fought a war on poverty, and poverty won.” His budgets have included large cuts to low-income programs, often to offset the revenue costs of tax cuts such as the estate tax repeal.
But besides the falsity of the claims — anti-poverty programs have had considerable success — a fascinating strain of new research shows that Medicaid, SNAP (food stamps), housing vouchers, and wage subsidies such as the Earned Income Tax Credit don’t just fill a stomach and fill out a paycheck today. They have positive effects on health, educational attainment, earnings and employment years later. In other words, these programs do not simply push back on inequality today; they lead to achievements that can boost mobility tomorrow.
— “Unions (especially teachers’ unions), minimum wages, and other labor-supporting institutions suppress mobility.” Unions, minimum wages, overtime rules and similar institutions often are accused of leading to slower growth, fewer jobs, and thus less opportunity, but in fact there’s little evidence to support such claims (and the growth connection itself is dubious, as noted above). Their impact is on distribution, and in this regard, their weakening is certainly implicated in the growth of wage inequality. Certainly, decades ago in their heyday, unions provided a reliable ladder to the middle class for many of their members.
Today, teachers’ unions are often accused of blocking educational progress that the unions’ opponents argue worsens educational outcomes and thus upward mobility of less advantaged children. But charter schools — with non-unionized teaching staffs — have not yielded consistently better results, at least on average, than traditional public schools. It’s also difficult to interpret these findings, as even the best charter school studies typically don’t distinguish school effects from the effects of student demographics, or the benefit to students of attending small, better funded schools, with higher performing peers. The tactic here — the “tell” — is to blame teachers and their unions for broad, mobility-blocking inequities that kids bring to school with them.
— “We can tax the rich and redistribute our way out of this.” Most of those are right-leaning memes, but it is not uncommon for those on the left to argue that taxing the top 1 percent and channeling the proceeds to the middle class will solve the problems of inequality and mobility. There certainly is room for more progressive taxation — and no room for regressive changes such as the estate tax repeal. But much of the increase in inequality is tied to market outcomes: job quality, earnings and the severely reduced bargaining power of middle- and low-wage workers, all pre-tax phenomena. Redistribution is thus an incomplete strategy, not to mention politically infeasible. The problem of higher inequality and its impact on mobility cannot be wholly solved by punting on unequal market outcomes driven by weak worker bargaining clout, and just hoping to ratchet up the redistribution through the tax code year in and year out.
It is my sincere hope as well as strongly held belief that these debates will continue to heat up in coming months, particularly as the presidential contest gains steam. That, as I said, is a very positive development. The candidates and the punditry are finally playing some important chin music. But some are singing while others are just lip syncing, and it’s essential that we can tell the difference.