Inequality in America, and what to do about it.

Good, long article in the Santa Fe Reporter on economist Samuel Bowles’s 42 years of research on economic inequality.

Again with the numbers:
30

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The first number is the likelihood, expressed as a percentage, that a child born to parents whose incomes fall within the top 10 percent of Americans will grow up to be at least as wealthy.

The second is the percentage likelihood that a person born into the bottom 10 percent of society will stay at the bottom.

Just to drive the point home, here’s a third number: 1.3

That’s the percentage likelihood that a bottom 10 percenter will ever make it to the top 10 percent. For 99 out of 100 people, rags never lead to riches.

These estimates come from research by one of Bowles’ former students, American University economist Tom Hertz, published in Unequal Chances, a 2004 book co-edited by Bowles. To arrive at these figures, Hertz mined the Panel Study of Income Dynamics, a survey of 4,800 American families that’s been updated each year since it began in 1968, the year Martin Luther King inspired Bowles to study inequality.

It may not come as a shock that rich kids who grow up learning to sail eventually buy yachts, while the offspring of burger-flippers might hope to rise to be the night managers for whole crews of burger-flippers. What’s troubling about this research is that poverty tends to persist through generations, no matter how individuals try to improve their circumstances.

So, much of what Americans tell their children is wrong. It doesn’t really matter how long you go to school or even necessarily how hard you work. The single most important factor to success in America is “one’s choice of parents,” as a contributor to Unequal Chances wryly put it.

Bowles’s solution: give every person in America $250,000 when they turn 18.

Santa Fe Reporter: Born Poor? Santa Fe economist Samuel Bowles says you better get used to it

Interesting stuff. Even pro-welfare state pundits are sometime swayed by the myth of American upward mobility. Take this pro-Netherlands article from the New York Times:

Another corollary of collectivist thinking is a cultural tendency not to stand out or excel. “Just be normal” is a national saying, and in an earlier era children were taught, in effect, that “if you were born a dime, you’ll never be a quarter” — the very antithesis of the American ideal of upward mobility. There seem to be fewer risk-takers here. Those who do go out on a limb or otherwise follow their own internal music — the architect Rem Koolhaas, say, or Vincent Van Gogh — tend to leave.

But is this accurate? As stated above, most Americans are never able to actually pull themselves up by their bootstraps. And according to this study the Netherlands actually lead in economic mobility amongst several developed nations, at least as of 1999:

economic mobility graph

The lack of outliers who become hugely successful has obscured the greater truth: the Dutch are far more successful than Americans.

5 Comments

  1. Some questions that beg to be answered:

    – What will gambling/drug/alcohol junkies will do with $250k?
    – When wealth redistribution fails (and it will), what then?
    – Why is it the job of the government to address this?
    – How does this address the “guard labor” issue? Will this suddenly remove the need for labor altogether?
    – Will this suddenly make all employers moral and ethical and thus lead to the end of “guard labor”?
    – For that matter, will this suddenly level incomes across the board for the entire lifetime of individuals for generations to come?
    – How does this prevent “guard labor” from taking this $250k through various, clever schemes such as consulting services to help you start up your very own widget shop with their assistance, their wiz-bang point-of-sale system, etc?

    What this article proves to me is that successful parents pass on skills to their children that enable them to become successful and unsuccessful parents pass on skills to their children that don’t enable, and in many cases actively prevent them from becoming successful.

    Ergo give an 18 year old who grew up in poverty $250k and he’s statistically more likely to blow it on a tricked-out car and a fly wardrobe, while an 18 year old who grew up with parents who own their own business is statistically more likely to invest in his own small business or even better; the family business.

    Give $250k to an 18 year old who’s mother is a prostitute and whose father is a drug dealer and you’ll be lucky if the kid even keeps the money from them for longer than 2 minutes, let alone does something responsible with it.

    No, I don’t think wealth redistribution is a solution, regardless of how “radical” it’s packaged.

  2. I don’t necessarily agree with Bowles’s $250k for everyone plan (I’m more interested in a guaranteed minimum income)0, but I certainly think it’s interesting. I think 18 is too young to give it out, though.

    Why are you so sure that redistribution of wealth will fail when we can see many examples of welfare states in which the impoverished are more likely to improve their situations than here in the US?

    I would, however, like to know what accounts for some of the differences. My understanding is that Great Britain’s dole is pretty liberal, but they are down the US on that list. Canada is not that much more generous than the US with welfare and education (universal health care being the primary difference) but they are near the top of the list.

  3. Redistribution of wealth will always fail for one very simple reason; the wealth-generators will cease to be inclined to generate wealth. Why would I willingly generate wealth that is going to be taken from me and given to someone else based on a third parties’ idea of a person’s worth? Sure, you can list all the moral reasons about the common good and the end of poverty and suffering, but at the end of the day that’s all rendered moot thanks to existentialism. If I was wrong, we wouldn’t even be having this debate and Plato’s Republic would be a history book and not a book on philosophy.

    If we are to truly find out why certain people have a certain exit rate from poverty, we need to study each individual as an organism-in-its-environment-as-a-whole and start searching for any systemic, social commonalities that can be affected.

    The style of number crunching and statistical massaging that Bowles has used is misleading and ineffectual at identifying causality and I find his solution a sort of deus ex machina. He fails to explain how wealth redistribution will address the problem of “guard labor” and he completely avoids discussing any problems that may be caused by giving a poorly educated or otherwise inexperienced individual (regardless of age) a quarter of a million dollars. He doesn’t even take into account cost of living differences within the same country. $250k buys a lot more in Chicago, Illinois than it does in Alexandria, Virginia.

    It boils down to this; you can’t buy success, it must be learned and earned. A lump sum of money doesn’t address educational disparities, differences in mental capacity, physical handicaps, etc.

  4. Rick – Redistribution of wealth has yet to stop anyone from trying to get rich.

  5. This is a rhetorical question; how much of your wealth do you give away in order to help others?

    I find that a lot of people who agree with wealth redistribution are perfectly content to enjoy their own wealth and wait for the government to decide how much to take in taxes and what to do with it. They argue that by merely paying taxes, they’ve contributed to the betterment of society and that it’s more the responsibility of the the super-rich, like Bill Gates, to help out more because the super-rich have more money than they can possibly spend and therefore that surplus should be given to others.

    If enough people instead opted to spend some of their wealth in support of their extended family and their community, there would be less need for a third party (the government) to step in and take action. The government, especially the federal government, is too far removed from the individual in need to be able to act with any precision, whereas those closer to the individual in need can be far more accurate and effective in their aid. I’m not saying there aren’t those without any type of support system and who need help. I do believe there is a place for government assistance but I do not believe it is the right or the responsibility of any third party to decide how to redistribute wealth.

    It’s a truism to say that “redistribution of wealth has yet to stop anyone from trying to get rich.” The fact is that the more a government over taxes the rich, the more the rich move away to avoid over taxation. There’s a point of negative returns in wealth redistribution and that is statistically and empirically undeniable.

    Wealth redistribution does absolutely nothing to address the underlying social issues that contribute to wealth distribution.

    Why bother with the $250k in the first place? Why not instead implement an affordable and effective education system that reaches deeper into the lower income brackets? That would benefit society exponentially, as those newly educated citizens would then move on to help advance science and industry, help create more jobs for others, and they’d help raise the human development index of the country. Poverty is closely linked to education, or the lack thereof. To try to combat poverty with a one time, lump sum payment is naive. Yes, poverty is the absence of wealth, but what we should be concerned about is the *cause* not the effect.

    Bowles has good intentions but he proposes no solution.

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