The Great Gatsby Curve
by Benjamin Studebaker
Today, Paul Krugman drew to my attention some interesting work by economist Miles Corak on what is called “the Great Gatsby curve”, the tendency for economic inequality to lead to decreased social mobility. The curve is fascinating, because it illustrates a genuine negative empirical consequence from the present distribution of wealth in the United States. This negative consequence is no more negative if you’re on the right or if you’re on the left. The most committed right-winger still thinks that we should have a high degree of social mobility–capable children born to poor parents should be successful, while incapable children born to rich parents should fail. The Great Gatsby curve indicates that this does not happen–our outcomes directly influence the next generation’s opportunities. This connects equality of outcome with equality of opportunity in a way that should be disturbing to the right.
What does the Great Gatsby curve look like? Here’s Corak’s:
Here we see that in countries like the United States or the UK, relatively high inequality produces reduced social mobility while the low inequality in say, the Scandinavian countries produces much higher mobility.
What this really means grows more obvious when we compare two countries relatively similar in culture but apart in income disparities. Corak runs the United States side by side with Canada. First, he looks at where on the income distribution the children of the very rich are likely to end up in the two countries:
Here we see that if you are born to someone in the top 10% in the United States, you are overwhelmingly more likely to yourself end up in that bracket than if you are born to a similarly wealthy person in Canada. He also looks at outcomes in the bottom 10%:
If you are born to one of the poorest families in the United States, your chances for moving up the income scale are much poor than if you are born to a similar family up north. And keep in mind–Canada is only a bit more equal and a bit more mobile than the United States. A country like Denmark would produce an ever larger difference.
The relationship between mobility and inequality is very close–in order to dispute it, one would have to claim that rich people in the United States were just better at producing similarly talented offspring than rich people in other countries, and that America’s poor were worse than the poor in other parts of the world, and that the real variable was quality of genetics/parenting in the different classes in the different countries. That’s a rather large assertion, and I see no way of proving it. In any case, it would still be a rather suspicious coincidence that those capacities happened to line up with inequality.
Looking at the data, this data should equally alarm all of us, regardless of where we sit on the political spectrum. Unless some of you are genuine feudalists or advocates of a caste system, it’s highly unlikely that any of us believe that the principle determinant of one’s economic outcome ought to be the economic outcome of one’s parents. The right loves the “pull yourself up by your bootstraps” mythology, the “started from the bottom, now I’m here” sentiment. What this data shows is that it is significantly harder to escape one’s parents’ class. The bootstraps are made of lead.
Many relatively well to-do boomers dispute the increased difficulty of social mobility. They blame a decay in moral character, in personal responsibility. But the data shows that there are other countries in the world that are more mobile despite having social policies that are further to the left. The Scandinavian countries are not wedded to “traditional values”. The countries that do better on mobility are less Christian, less traditional, and less conservative more broadly.
Corak also shows that the ageing affluent grew up in a fundamentally more mobile society–they believe the same opportunities exist for those willing to seize them, but it’s just not true. For instance, here’s the gap between the top 25% and the bottom 25% in the United States for parental investment in education over the last 40 years:
In the 70’s, the affluent spent 4.2 times as much on educating their children as the poor did. By 2008, the gap had swelled to 6.7 times as much. This follows the increase in inequality during the same period:
The ageing affluent believe that the country has the mobility it had when they were coming up, in the 60’s and 70’s, and use that to justify policies that will widen the inequality gap further. In reality, those very policies have eliminated the mobility the ageing affluent enjoyed. They condemn the younger generation for not taking advantage of opportunities which they themselves have destroyed, albeit likely inadvertently.
This mobility problem is not just an issue of fairness–we have capable people who are being born to poor backgrounds and whose capacities we are unable as a society to fully unlock. At the same time, we have less capable people born to rich backgrounds who are able to retain their more capable parents’ positions. This decreases the efficiency of our economy, the efficiency of the rich’s ability to invest with skill. If the mansions are full of those who inherited their wealth rather than gained it by merit or skill, they cannot be expected to use that wealth to maximum economic effect.
In sum, this is not simply a justice problem, it is an economic problem. Like a dynasty of hereditary kings that eventually produces more nincompoops than Alexanders, our economic system produces a class of rich people that grows steadily less impressive. In an economy driven by private investment, the skill of the private investors is critical to long-term health. When we put our society’s money in the hands of people whose only claim to it is parentage instead of in the hands of those with merit or skill, we undermine our collective future. We gave up hereditary politics, let’s do something about hereditary economics.