A recent study claims that social mobility in the U.S. hasn’t changed for the last several decades. (See “Upward Mobility Has Not Declined, Study Says” by David Leonhardt, New York Times, January 23, 2014.) The paper received a lot of attention; after all, most of us think it’s harder to get ahead than it used to be.
And we’re right. The paper looks at one type of social mobility, and not the important type.
Think of a ladder with a hundred rungs, with a person on each rung. The paper looks at our ability to climb the ladder—the chance that, say, someone born on rung 20 can climb to rung 80.
And it’s true that it’s no harder for a child born at the bottom to climb to the top than it was in the 1970s. (It’s not easy, compared to other countries, but it’s no harder.)
But that type of mobility isn’t what we should be looking at. After all, it’s a zero-sum game—you can’t climb up a rung without pushing someone else down.
By contrast, here’s what social mobility used to look like. Check out how real after-tax incomes increased just from 1941 to 1950 (in constant dollars):
Change in After-Tax Income, 1941-1950
Source: The Review of Economics and Statistics, Selma Goldsmith, et. al., Vol. 36, No. 1, The MIT Press, Feb., 1954.
So if you were on, say, the 40th rung, your income improved even if you stayed on that rung. An entire generation rose into the middle class, not because other people dropped out of it, but because more people could afford a middle-class lifestyle.
That’s the type of social mobility we want, and that’s what we’ve lost. Where the ladder used to lengthen, carrying us up even if we stayed on the same rung, now we’re lucky to stay even. All too often, people who stay on the same rung fall out of the middle class. (See “The Middle Class Is Steadily Eroding. Just Ask the Business World.” by Nelson D. Schwartz, New York Times, February 2, 2014.)
Why did this happen? Was it, as Time says (in “Time to Talk About Inequality” by Rana Foroohar, February 10, 2014), the unavoidable result of “the forces of globalization and technology?”
If that sounds odd to you, you’re right—we had technology and trade in the mid-20th century, and economic law hasn’t somehow completely reversed itself since then. And other countries share our technology, and trade in the same world, without squeezing their middle class out of existence.
What’s really changed is our politics. In the mid-20th century our economic policies were designed to expand the middle class. Since the 1980s, our policies—whatever their official justifications—have been designed to concentrate wealth at the very top. In both cases, the policies worked.
For instance, check out the income tax, circa 1948:
Income left over after federal income tax
Source: Paul Samuelson, Economics, McGraw-Hill, 1948, p173.
To turn that into current dollars, add a zero—a 1948 dollar had roughly ten times the purchasing power of a 2013 dollar (see this CPI Inflation Calculator). So someone who made the equivalent of $10 million would get to keep only a little more than a million and a half.
In the government’s hands, that money became spending and jobs.
Today, billionaires pay lower tax rates than their secretaries (see “Buffett says he's still paying lower tax rate than his secretary” by Chris Isidore @CNNMoney, March 4, 2013) and that’s if they pay taxes at all (see “Millionaires Don't Pay Taxes?” by Dennis Romero, LAWeekly, Mon, Aug 8, 2011). They sit on that money (see “How the rich save today” by Lora Shinn, Bankrate.com), while the government can barely afford to stay open at all.
So we get two things wrong about social mobility. It is falling, and it’s not due to the impersonal operation of economic laws. If we want to return to the sort of mobility we used to have—where “getting ahead” didn’t mean leaving someone else behind—we should try returning to the sort of policies that favor the middle class.
Certainly, favoring the rich hasn’t helped anyone except the rich.