The Corner

How to Make It in America

Brian Beutler at TPM thinks he caught Paul Ryan ignoring, or getting wrong, basic facts about relative income mobility in the United States and Europe in his Heritage speech:

[Ryan argued] policy should be geared toward allowing high earners to grow the economy, and to facilitate upward mobility for the working class.

America, he argued, exemplifies the latter model while European economies illustrate the perils of the former.

“We are an upwardly mobile society with a lot of income movement between income groups,” he argued. “Telling Americans that they’re stuck in their current station in life, that they’re a victim of circumstances beyond their control, and that the government’s role is to help them cope with it — that’s not who we are, that’s not what we do.”

That is what they do in class-riven Europe, he said, where “Top-heavy welfare states have replaced the traditional aristocracies, and masses of the long-term unemployed are locked into the new lower class. The United States was destined to break out of this bleak history.”

Turns out that is — not true.

There are a lot of data available on this issue, but the clearest chart comes courtesy of the Economic Mobility Project, which looked at the correlation between parent and child income in various countries. Turns out in America, you’re more likely to stay rich if born rich, and stay poor if born poor, than you are in most European countries.

Here’s the chart he reproduces from the Economic Mobility Project:

I don’t think this study is dispositive. Consider that for the purposes of correlating a parent’s income with his/her child’s, the study treats upward and downward income mobility the same, which means it is compatible with a Europe where lots of people who were born to rich parents die poor. And as my colleague Robert VerBruggen just pointed out to me, there are just too many wrinkles in the social dynamics, both across classes and across countries (lower classes are more fecund than upper, European populations are more homogenous than U.S., etc.) to accept this kind of study without a grain of salt. (Indeed, it took me five minutes of clever Googling to find this paper, from the Institute of Social & Economic Research, arguing — rather technically — for a methodology that calls for teasing out “equivalent adults” between populations as a way of mitigating class/country distinctions. And wouldn’t you know it, using this methodology produces outcomes that are pretty much the opposite of the above: It finds that the U.S. and U.K. have the highest income mobility among a group of seven Western countries).

On the other hand, I’ve learned from Ryan’s office that the speech relied in part on two studies that do parse upward from downward mobility, do focus on the U.S. context, and do show positive trends. The first is this Treasury study, which looked at tax-bracket movement over two (pre-recession) periods: 1987–1996, and 1996–2005. The top lines:

  • There was considerable income mobility of individuals in the U.S. economy during the 1996 through 2005 period as over half of taxpayers moved to a different income quintile over this period.

  • Roughly half of taxpayers who began in the bottom income quintile in 1996 moved up to a higher income group by 2005.

  • Among those with the very highest incomes in 1996 – the top 1/100 of 1 percent – only 25 percent remained in this group in 2005. Moreover, the median real income of these taxpayers declined over this period.

  • The degree of mobility among income groups is unchanged from the prior decade (1987 through 1996).

  • Economic growth resulted in rising incomes for most taxpayers over the period from 1996 to 2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups.

The second is a Kauffman Foundation report based on interviews with 500+ entrepreneurs, which found among other things that:

More than 90 percent of the entrepreneurs came from middle-class or upper-lower-class backgrounds and were well-educated”

So it’s hardly fair for Beutler to say Ryan made claims that were “not true.” At worst, it’s a case of dueling studies. Welcome to every policy debate, ever.

Also, for what it’s worth, I think the study Beutler cites, even if it were definitive, tells a much different story than the one he thinks it does. Taking into account the world-historically high standard of living of the American poor, and the fact of real (though admittedly top-heavy) absolute income mobility for Americans over the last generation, the dearth of relative income mobility could just as well paint a picture of a society in which the middle class and lower class are protected from decline into abject poverty. In a way, the whole project of the entitlement state can be seen as the effort to decrease relative economic mobility by providing the basic necessities of life and insurance against destitution. The other side of that coin, of course, is that the system makes it hard for the lower classes to get rich. But it’s still very much an open question whether that’s because it fails to provide them with the means (broadly, what the Left thinks) or because it fails to provide them with the incentives (broadly, what the Right thinks).


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