Thursday, December 06, 2007

Income distribution and generations

On November 13, 2007, The Economic Mobility Project, an initiative of The Pew Charitable Trusts issued a report on economic mobility in the U. S. Included in the findings was the fact that two-thirds of American families are earning more today than their parents did a generation ago, yet the likelihood of these younger families moving up—or down—the economic ladder still depends in large measure on their parents’ position.

Researchers for the study included a group of experts from The American Enterprise Institute, The Brookings Institution, The Heritage Foundation and The Urban Institute. The project issued three research reports. One reports on family mobility over the past three decades, while the other two investigate differences in mobility by race and gender.

According to the first report, “Economic Mobility of Families Across Generations,” two-thirds of Americans saw increases in income, adjusted for inflation. the report also notes that Americans live in smaller families today, so higher incomes are spread over fewer people. In percentage terms, income gains were highest for children born to parents at the bottom of the income distribution.

An extremely significant aspect of the findings centers in the fact that Americans’ ability to move up or down the economic ladder is tied closely to their parents’ economic position.

Forty-two percent of children born to parents at the bottom of the income distribution remain at the bottom, while 39 percent born to parents at the top, stay at the top.

“Two out of three Americans have higher family income than their parents,” report author, Julia B. Isaacs of The Brookings Institution, noted. “Individuals can surpass the income of their parents either because economic growth has boosted all incomes or because individuals have moved to a higher step on the income ladder. So, there is considerable mobility but it’s also the case that a child’s economic position is heavily influenced by that of his or her parents.”

Looking at economic mobility outcomes by race calls into question whether the American Dream is a reality for black and white families alike. In every income group, blacks are less likely than whites to climb the ladder, and the majority of blacks born to middle-income parents are slipping out of the middle class, according to the research data analyzed in the report, “Economic Mobility of Black and White Families.”

While black children are experiencing some of the income gains that all Americans do—63 percent make more today, after inflation, than their parents did—there are dramatic differences between blacks and whites at each income level. The report found that only 31 percent of black children born to parents in the middle-income group have family income greater than their parents, compared to 68 percent of white children in the same circumstance. Almost half (45 percent) of black children in the middle-income group fall to the bottom of the income distribution in one generation, compared to only 16 percent of white children. In fact, for every parental income group, white children are more likely to move ahead of their parents’ economic rank while black children are more likely to fall behind.

“Much of my research is focused on the challenges faced by low-income black families, but these data are very disturbing, because they suggest that most middle-income black families are having difficulty transferring their hard-earned gains to their children,” said Ronald B. Mincy, the Maurice V. Russell Professor of Social Policy and Social Work Practice at Columbia University and a member of the Economic Mobility Project’s Advisory Board.

“We are hopeful that this report will provoke some serious discussion about what is driving these very troubling findings.”

The report on the comparative economic mobility of men and women, spotlights the fact that the growth in family incomes is largely due to the fact that far more families now have two earners. Male earnings have been stagnant over the past generation. The report found that sons and daughters have approximately the same likelihood of moving up or down the economic ladder. The exception is women whose parents were at the bottom of the income distribution. Partly because they are more likely to be single mothers, nearly half (47 percent) of daughters born to parents at the bottom remain at the bottom, compared to 35 percent of sons.

The reports also introduce a new typology, developed by John E. Morton, Pew’s managing director of economic policy and director of the Economic Mobility Project, and Ianna Kachoris, senior associate at Pew, in collaboration with Isaacs, which describes how families experience mobility. According to the typology, thirty-four percent of Americans are upwardly mobile, meaning they surpass their parents’ family income and economic rank. Twenty-seven percent are riding the tide, children who surpass their parents’ family income but remain in the same economic position as their parents relative to others in society. Five percent of Americans are falling despite the tide, meaning they are making more than their parents’ family income, but are actually falling behind their parents’ relative economic position. Thirty-three percent are downwardly mobile, making less than their parents family income and falling behind their economic position.

“Today’s reports should give us both reasons for optimism and cause for concern,” said Morton. “The overall trends are generally upward and positive, but there are significant numbers of Americans for whom this is not the case, and for whom the American Dream seems to be out of reach.”

More information about the project is available at http://www.economicmobility.org/.

I've "lifted" the language for much of this post from the press release issued by The Pew Charitable Trusts. The report's significance for our work in Dallas relates to what we see among the growing urban underclass. The growing gap between the well-off and the urban poor continues to be a troubling and incredibly difficult reality in the inner cities of the United States.

21 comments:

Chris said...

The next election will not be about Iraq, it will be about the future of this country. It will be about whether we rush headlong into socialism, with government run health care or even more federal redistribution of wealth, or will we remain the bastion of liberty, the engine of capitalism that keeps us free and prosperious, and is a light to the whole world.

Heck, with the Democrat vision of America as a soup line, it's a wonder Mexico doesn't have hoards of alien Americans sneaking across the border to escape the economic hell that is the United States.

The truth is:
We have had 23 quarters of positive economic growth since 9/11

On Sept. 27,we learned that that second quarter 2007 GDP growth was 3.8 percent, despite downturns in the housing market.

In the past 12 months, overall wage growth has been a solid 4.1 percent.

100.000 new jobs per month were created in August and SAept.

More than half Americans are invested in the market, either owning stocks or mutual funds or through a 401(k); the Dow is up 12 percent on the year.

I can't imagine the average person not doing better finacially than their parents, unless their parents were wealthy. One has to remember the rules: Stay in school, keep out of the legal system. don't make babies until marriage, and even then, don't have more than you can afford.

Larry James said...

Chris, from your comments what am I to conclude about the poor among whom I work and live daily? Are they evil or are they just really stupid and lazy?

My experience--overwhelmingly--tells me that they are neither. Laziness and evil are spread at about the same depth across the entire socio-economic continuum.

The data is clear: the wealthy are growing incredibly more wealthy. The middle is shrinking and the bottom is deeper in poverty.

You speak of the "average" guys. I'm glad you are happy there. But watch out, the averages are shifting.

You are right about the redistribution of wealth--it is just going up, not down. And, by the way, America today is no soup line--ask my friends who drop by here once or twice a month to figure out how to feed their families.

You need to get out more.

Chris said...

There is always someone who has more and someone who has less than you. But this is good. The people who have more inspires you to get where they are. Inspiration moves throughout the chain providing the inspiration and incentive for entrepreneurs and inventors to come up with better services and products at lower cost, all of this rooted in competition. If the Democrats succeed in taxing the rich, punishing the achievers and instituting a wealth tax so much that the gap is narrowed and the distance between rich and poor is much less than it is today, that would translate into mush less opportunity in the country. That would mean the higher you get, the more the government will take from you. So what incentive is that? That is why tax cuts work every time. This is Economics 101. Class envy is the only card the libs know how to play.

Justin said...

Chris,

It frustrates me so much when I agree to some extent with the premise you are arguing, but you do such a poor job of it.

PLEASE--- for the sake of all true intelligent conservatives in the world, read some economic theory. Don't get your economics from entertainment radio.

bpb said...

Larry, YOU are right on. Chris and Justin must be FOX news guys.

chris said...

Justin,

I'm open to learning. Let's hear some of your economic theory.

Larry James said...
This comment has been removed by the author.
Karen Shafer said...

I used to live in 'chris's' beautiful dream world -- it's quite a lovely world of ideas which are pure, theoretical and mostly untouched by messy human realities. I believe I was in high school at the time -- I had just read, digested and adored every one of Ayn Rand's books (Atlas Shrugged, etc.) and was even a subscriber to her newsletter. The world was the way I wanted it to be -- I lived in my head, everything made sense, and it was glorious.

Then I did what Larry suggested for 'chris' -- I 'got out more.' The world is still quite beautiful, but, boy, is it complicated, uncertain and, at times, overwhelming in its complexity, range and depth of difficulties.

There are moments when I miss the comforts of the complacency that goes with the uncomplicated certainty of 'chris's' way of thinking. Now that I know, however, I can't not know.

Oddly, I wish the same for 'chris,' though it seems on the surface a cruel wish. When you're sticking up for what's real, right and true -- as are Larry and so many people on this blog -- things are no longer tidy, and the certitude of self-righteousness begins to recede on the far horizon.

Nonetheless, in the world's imperfection lies it's perfection -- the opportunity for redemption.

Justin said...

OK Chris,

You are right, in that capitalism is the best way to get the most resources in the cheapest way.

But the poverty and suffering that Larry talks about is real in this country. Its different than 3rd world poverty, but it is poverty none the less.

But the fix isn't higher taxes and more federal government. The fix is to get rid of the federal reserve, because it is a transfer of wealth from the poor to the rich through initial easy credit which leads to inflation.

chris said...

Justin,

Surely you don't want congress to manage our monetary policy, I mean, they've done such a fantistic job since the Dems took over. I'm thinking you get your ideas from Ron Paul.

Anonymous said...

chris, just for the record, the Dems "takeover" has been sorely limited by their very narrow margin in the U. S. Senate and by the President's willingness to veto everything significant.

Justin said...

I want the market to manage our monitary policy.

If we legalize competing currencies, as well as back up our current currency with gold and silver, economic booms would help everyone. Not just those with first access to newly available credit.

Anonymous said...

Amen, Karen. I've ben down the same road. It is messier out here in the wind and the rain - and the light - but it is always better to see things more clearly, more "really", more truly. I too would wish that for Chris and Justin, despite the pitfalls.

Charles said...

Justin,

Other points aside, 1) thanks for adding a non-talk-radio idea to the conversation instead of just pooh-poohing everyone who doesn't agree with you, and 2) hasn't inflation been much lower under the Federal Reserve? Just want to understand the recommendation.

Those of you bashing Justin (as opposed to disagreeing with him), he lives his life with the poor in a more helpful way than most of us. Don't lump him in with the talk radio folks.

Thanks!
Charles

Justin said...

I don't quite understand why I'm being lumped in with Chris on this.

I know things are not tidy. I know the world is a messed up place, and I know people get bad shakes in life. And I don't deny that its not so easy to pull yourself up by your boot straps. Many people need help.

I just take issue with the "theoretical" idea that government handouts do anything to alleviate the problem.

You're right Karen. Life is not tidy. Its messy as hell. But, the fact is, that you cannot ignore economic theory when dealing with these sorts of issues, like poverty. When you ignore the realities of economics, more often than not, you harm those that you are trying to help.

That's the problem I have with social justice movements today. There aren't enough people who are well versed in economics involved in such endeavors. There are people with a heart for the poor, (of which I consider myself one) who are creative, but often times ignorant in the way economies function. This leads to propositions to fix problems that end up making them worse. Its the law of unintended consequences. I don't think that "liberals" (well, not liberals but socialists really. cause I'm a classical liberal) are bad people. I think they are good people with good hearts who want to do, and often do, very good things. But the policies they seek to implement, in my opinion, are counterproductive. But to mention that, or to even ask the question "Is what we are doing making this problem go away" gets one automatically labeled as heartless.

Debate is needed in these areas. Not debate of partisans, but debate of learned people who really want to find solutions. There aren't many of those anymore.

Justin said...

Charles,

It depends on which camp you're in as to what you believe about the subject.

Monitarists, such as myself, believe that the biggest cause of inflation is increase in the money supply. That is, when you have a fiat currency and a central bank that can create money out of thin air, you have inflation.

What the fed tries to do is to print enough money, and offer it at a low enough interest rate (the discount rate) that the easy credit grows the economy. This undoubtably causes inflation, but what the hope of the Fed is, is that the easy credit then expands economic production, makes things more efficient, leading to wealth being created, hopefully negating the impact of the inflation that occurs.

The problem is, that while this "works" to an extent, it creates more problems than it solves. One, it gives the government the opportunity to spend money that doesn't exist, whenever they want money for social programs... or wars. Now, some may argue that its good that the government can do both of those things. I disagree. It is not sustainable. If it were, the government could just print money all over the place, and give it to the poor, and they would no longer be poor. The problem is, the more money they print, the less the money is worth. Its simple supply and demand. Lets say that our little mini economy has a total money supply of 1000 dollars for all the people that read this blog. The dollar is used as a bartering tool, so rather than trying to determine how many of my eggs are worth a gallon of your cows milk, I am able to sell my eggs for a dollar amount and you are able to sell your milk for a dollar amount. It makes the trade of goods and services more efficient.

But say, I decide we need more than 1000 dollars floating around. So I print 1000 more. Eventually, as that money gets around the our economy, if it doesn't grow fast enough, the amount of work that your dollar is worth will drop, because there are more dollars in circulation, and less work being done (or wealth being created).

And because our system operates the way it does, the first people to gain access to the newly printed money are the wall street guys, the bankers, etc. They reap the most benefits off this newly printed money, because, at the time of printing, the inflation has yet to take place. Once the boon of that new credit gets to the poor, prices will have risen on the goods that are the most needed (food, shelter) so the raise in wages received by the poor is negated by higher prices.

The Fed's increase of easy credit also causes malinvestment, because rates are artificially low and because the wall street types know that because they keep this ponsi scheme going, when credit runs dry because of malinvestment, they can clamor to the fed to print more money, which once again makes them more wealthy and doesn't help the poor at all.

When the value of money is tied to a commodity, prices will drop as productivity increases, and markets will set interest rates, yielding the most efficient use of resources. So with our hypothetical 1000 dollars in our economy, as I gain capital from selling eggs, I invest that in figuring out how to do it more efficiently, I then can make more eggs for a lower price, thereby allowing me to sell the eggs for less, increasing the purchase power of those in the community, whose savings have now increased in value, rather than decreased.

I realize that's longwinded, but its pretty complicated. I appreciate your listening Charles.

Daniel Gray said...

I agree, Justin and Chris shouldn't be looped together. Chris does not understand the experiences of those in poverty and assumes everyone is lazy.

Justin, on the other hand, understands some of the issues faced by the poor and has tried to be a part of the solution.

Justin's main flaw is his political ideology. :)

Charles said...

I know the economic theory behind it, but hasn't the Fed kept inflation lower for the last 35 years than it ever had been before?

Justin said...

That it has ever been before? I don't know about that. There wasn't a true gold standard in the United States for very long, from my reading, it looks like 1900-1933, when FDR outlawed private ownership of gold except for jewelry.

This is the pros/cons of a gold standard

http://economics.about.com/cs/money/a/gold_standard_2.htm

The downside, for some, is that the government doesn't have control over the value of the money supply. That means, in the short term, there is price volatility that doesn't exist in a fiat system.

However, the long term effects of a gold standard, in my opinion, are a major cause in the poverty cycle in our country. Because wealth stays in the hands of those that can get east credit first, and in a fiat system, even with "stable" inflation, just saving money brings penalties. Those that have access to mutual funds and stocks put their money in those, because they yield interest rates that are typically above the rate of inflation. A person in the inner city who scrunches and saves in their bank (or under their mattress) is in essence robbed by the government of 4-5 percent of their savings annually. In the last 5 years, the dollar has lost 25 percent of its value. Since we started the Federal Reserve, I wanna say that the dollar has lost something like 95 percent of its value.

Its at least something to think about for people out there. I, just like most people, had been fed the line that the Federal Reserve kept inflation low, but that's really not true. It keeps inflation steady, and postpones the small hiccups in the economy until, because of malinvestment, it cannot fix itself. Its why we have the dot com bubble, or the housing market bubble. Artificially low interest rates combined with a constant 4 percent inflation cause people to max out their credit lines on investments, such as houses or stocks, because putting money in a CD or in your savings account is a bad investment. Your money loses its value sitting in there.

So you end up with a small blip, that the fed fixes by lowering interest rates and pumping monopoly money into the system, and things continue on... for a while. I think the subprime dilemma combined with the weak dollar may be the end of our getting away with fiat currency and inflationary tendencies.

The government put pressure on banks and mortgage companies to give loans to those who didn't have the best credit (I'm sure with the best of intentions) and they artificially lowered interest rates after the 00-01 recession, which caused poor and not so poor people to buy property that was at the edge of what they could afford. Cause, you know, the market has been going up for years and years and years. You can't lose.

This malinvestment causes house prices to skyrocket, which continues this buying cycle. But when people who took out too much start defaulting on loans, suddenly houses are being sold for much less than originally paid for. This lowers the prices of other homes on the market, many being sold by investors as well. Then, more foreclosures, more forced sales, more dropping prices.

The only way for this to fix itself is to let the market correct prices. But that means some people are going to lose their shirts. Which no one wants to see. So the Fed starts pumping money into these banks that have run dry of credit. They lower the discount rate. They lower the regular rate, to try and encourage.... more debt! This might have temporarily stopped the free fall except, because we're spending money we don't have by printing it up, the dollar's value starts to plummet. Which means the prices of houses and other goods go up, while wages stay the same or fall.

Basically, its not gonna be good. And the problem isn't capitalism. The problem is the government trying to run the economy, bail out every person who makes a bad economic decision, and finance wars that are unecessary.

SeriousSummer said...

“You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.”

William Jennings Bryan

Some ideas have faced the test of time and failed. No modern country backs its currency with gold or any other hard commodity. No serious economists advocates such an idea.

It's going to be very hard to move forward if we are forced to debate the validity of every discarded, disproved and shopwarn idea that has appeared in the last two hundred years.

Money is only an abstract medium of exchange. At least since John Maynard Keynes we've understood how to manage economic cycles with at least some success.

And Charles, yes, our economy has been much more stable in the last 75 years since the creation of the Federal Reserve than ever before.

Justin said...

The only way the Gold Standard failed, Summer, was that it didn't allow for an Empire. Its much harder to finance war, and to finance massive government spending on a Gold Standard.

The gold standard (or something like it to anchor currency) is the only way to keep the elites from getting richer while the poor get poorer.

And Keynes is an idiot.

Ludwig Von Mises on Keynes

"The essence of Keynesianism is its complete failure to conceive the role that saving and capital accumulation play in the improvement of economic conditions."

Keynes also said something to the effect of "in the long run, we are all dead". Because, even he knew that his inflationary system, while through good management, can stay afloat for a while, will eventually destroy itself.