Occupy Madison is already old news, having blended seamlessly into the city's broader protest infrastructure as well as the blight along the 800 block of East Wash. However, supporters maintain that the national Occupy movement has created a tectonic shift in the political landscape by focusing all eyes on the previously neglected issue of income equality. Last week in Kansas, even Barack Obama shifted gears and suddenly made "inequality" central to his reelection campaign.
As a blue-collar kid growing up in lower-middle-class surroundings, I never understood the left's fixation with the "distribution" of income. Unless you're Carlos Slim, someone in the world will always be richer than you. Is that really a problem?
No one can change the past, so it's pointless to worry about what others have earned (or saved and turned into wealth) in previous years. Future economic welfare depends only on whether earnings potential is expanding over time and whether those opportunities are available to everyone. To make a permanent, positive change in the lives of the less fortunate, the relevant issue to analyze is income mobility, not income "distribution."
The Pew Charitable Trust recently released new data on income mobility in the U.S., and the results are illuminating. Pew's Economic Mobility Project examines income changes since 1968 for a broad sample of American families. It measures "absolute mobility" as the percentage of children who, by the time they reach adulthood, have a greater family income than their parents (in inflation-adjusted terms). This is the key measure for assessing whether economic welfare is improving over time and the fruits of economic growth are enjoyed broadly.
Pew also measures "relative mobility," which reflects the extent that children over time move into higher income strata than their parents. For example, if a child's parents had income levels that were in the bottom third of the nation, and the child upon reaching adulthood had family income in the middle third, it would be measured as an increase in relative mobility.
It's possible for a child to experience absolute mobility but decline in relative mobility. This would occur if the grown child has higher family income than his or her parents (i.e. an increase in absolute mobility), but this increase was less than the average change in income across generations for all families.
Each of these mobility concepts can be related to different elements of the American dream. Absolute mobility measures the extent to which opportunities and living standards for each generation exceed those of the generation before. Relative mobility is more ambitious; it assesses the extent to which the sky is the limit and all opportunities are available to everyone, regardless of where they start in life.
So is the American dream still alive? In terms of absolute mobility, the answer is yes. Between 1968 and 2006, 81% of children had a higher inflation-adjusted family income than their parents did, with intergenerational income growing by an average of 84%. Income increased somewhat more rapidly (92%) for families in the highest income decile, but income increased across generations for families at every income decile by at least 61%. Pew's computations are also quite conservative and almost certainly understate the amount of absolute mobility in the U.S.
The data on relative mobility are more mixed. Forty-seven percent of children born to parents with bottom-third income levels climbed into the middle or upper thirds, while 53% remained in the bottom third. This is less upward relative mobility than would be expected if capabilities were distributed randomly across the population and there were no barriers to economic advancement.
However, one factor limiting upward mobility for the poor is family structure. Half of children born to parents with bottom-third income levels experience upward relative mobility when the parents remain continuously married; the figure falls to 26% when this is not the case. Intact family structure is also associated with a significant increase in absolute mobility for families with bottom-third income levels. Interestingly, this is not the case for families with middle- or upper-third incomes. The Pew study therefore shows that stable families are particularly important for enhancing the income mobility of the poorest Americans.
The Pew Economic Mobility Project tells a very different story about economic opportunity than the puerile tale peddled by the Occupy movement. Pew's data refute the claim that only the wealthiest "one percent" benefit in our economy at everyone else's expense. IIn the words of the research manager for the project (who is now with the Brookings Institution and no longer with Pew), "the finding of pervasive absolute mobility flies in the face of liberal accounts of a stagnant middle class." The benefits of economic growth have been shared widely across American society.
Enhancing upward mobility for the poor remains a challenge and should be an important objective across the political spectrum. However, the punitive redistribution policies favored by Occupy Madison will divert capital away from productive initiatives that enhance growth and earnings opportunities for all, while doing nothing to build the stable families and "bottom-up" capabilities that are particularly important for helping the poorest Americans escape poverty.
Larry Kaufmann is an economic consultant based in Madison.
Note: This article has been amended to reflect the fact that the Pew Economic Mobility Project's research manager was no longer with Pew when he stated "the finding of pervasive absolute mobility flies in the face of liberal accounts of a stagnant middle class."