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Home Publications Blogs Beat the Press The Post Gives Another Defense of the One Percent: Mobility

The Post Gives Another Defense of the One Percent: Mobility

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Sunday, 29 January 2012 08:43

There is a big market in defending the One Percent these days and the Post is rising to the challenge. It presented a front page Outlook piece by James Q. Wilson that tells readers that inequality is not a really big deal because of the all the mobility in U.S. society. Furthermore, it tries to tell us we would be worse off with less inequality because inequality fell in Greece over the last three decades.

Wilson's main source for his claims about mobility is a study from the St. Louis Fed which in turn relies on data from a study from President Bush's Treasury Department. Wilson tells us that less than half of the people in the top one percent were still there 10 years later. This reflects the findings of the study. However 75 percent of the top one percent were still in the top 5 percent 10 years later and almost 83 percent were in the top ten percent.

Much of the mobility found in this study was likely simply the result of life-cycle effects. Earnings peak between ages 45 and 65. If we assume that people in these age groups are twice as likely to be in the top one percent as people who are younger or older, then we would expect 25 percent of the people in the top one percent to fall to a lower income category over a 10 year period simply because they have aged out of their peak earnings years.

Unlike most other studies of income mobility, the Treasury study did not restrict itself to prime earners (ages 25-55 at the start of the 10-year period). This would lead it to find greater mobility than other studies. Also, since this study is based on tax filing, some of the mobility may reflect the ability of individuals to game the tax system so that they show very low income in either the first or last year. If had restricted itself to the 25-55 age group it like would have found less mobility. [Thanks Stuart.]

Wilson's claim about Greece as an example of a country that has not seen an increase in inequality is the sort of argument by anecdote that people make when the data will not support their case. There were other countries, such as France, which have not seen an increase in inequality without obvious negative economic impacts. In fact, the rise in inequality across most European countries has been quite modest over the last three decades.

In addition, the most obvious factor that undermined Greece's economy seems to have been its decision to join the euro. This prevented it from allowing its currency to devalue in order to remain competitive. It is difficult to see how greater inequality would have improved its situation. Furthermore, since one of the country's main problems is a huge amount of tax evasion, data on income inequality is probably not very reliable.

It is also worth noting that this piece exclusively discusses the loser liberalism approach of taxing the income of the top 1 percent to redistribute income to the rest of the population. It does not address an agenda of reversing the policies that lead to the enormous upward redistribution of the last three decades. The Post appears to have a ban of any discussion of this approach.

Comments (14)Add Comment
Paradox of Nobility Mobility Confused with Paradox of Utility Futility, Low-rated comment [Show]
Possible Correction
written by Stuart Levine, January 29, 2012 11:27
Dean--You say "Unlike most other studies of income mobility, the Treasury study did not restrict itself to prime earners (ages 25-55 at the start of the 10-year period). This would lead it to find greater mobility than other studies."

You may want to clarify these two sentences. What I believe you are attempting to say is that the Treasury study, by not limiting itself to the 25-55 age group, result in a finding of greater mobility. If it had limited itself to that age group, the mobility would have been lower.

I had to read the sentences twice to figure out what you were saying. At first, I understood the passage to mean that if the survey had been limited to the 25-55 year old age group, it would have found GREATER mobility, which, of course, is directly opposite to the concept you were (I think) attempting to convey.

If my assumption as to what you meant is correct, you may want to edit the passage slightly.
how much mobility do we want?
written by Andrew Clearfield, January 29, 2012 1:22
What is the optimal amount of income mobility? The current level is surely too low, but do we want complete mobility so that the sons of rich and poor people alike have identical probability of ending up in a given income bracket? Surely not. If workers thought that their financial success would not significantly improve their children's chances for financial success, then workers would not work as hard as they currently do. (Does that sentence have a whiff of Reaganomics to it? maybe, but it's still true). Also, it is well-documented that going from rich to poor decreases happiness by a much greater amount than going from poor to rich increases happiness.

We're nowhere near having to worry about possibly overdoing the mobility in this country, but I still think the notion that there can be something as too much mobility is interesting to consider.
This part is breathtaking
written by breathless, January 29, 2012 1:27
From wapo:
"Making the poor more economically mobile has nothing to do with taxing the rich and everything to do with finding and implementing ways to encourage parental marriage, teach the poor marketable skills and induce them to join the legitimate workforce."

That explains it. The poor are poor because they won't get married, have no skills and refuse to work. That also explains why so many pols are very wealthy: Multiple marriages, are highly skilled liars and practice their skill constantly.
...
written by Bloix, January 29, 2012 4:06
The article isn't really meant to be read. It's just a bunch of lorem ipsum to fill the space under the headline - have you ever seen such a gigantic headline in the Post outside of 9/11 or a presidential election? - and the purpose of the headline is to tell you to ignore the DFH's and believe what's good for you.
Mortality rate of top 1%
written by Robert Salzberg, January 29, 2012 4:21
I would think that the mortality rate of the top 1% over 10 years would be substantial. Was that taken into account?
1% vs 99% ??
written by Gerry Flaychy, January 29, 2012 5:53
Seen from the last 1% in the bottom, there is not much difference between the people of the first 1% and the second 1%, or even between the people in the 75 firsts 1%. There is no such thing as an upper 1% on one side and a 99% on the other side.
izzatzo
written by JSeydl, January 29, 2012 6:02
When I first started reading this blog, I found myself eagerly awaiting all of Dean's posts. Now, I find myself eagerly awaiting all of izzatzo's responses to Dean's posts. They are hilarious.

Question: izzatzo, are you someone on the inside at cepr? The speed with which you are able to comment is very suspect.
...
written by PeonInChief, January 29, 2012 6:15
Lordy lord! The parental marriage thing has been around forever. I remember back when Reagan was first elected President that there were people promoting that ****. But then you saw the young man who was the prospective bridegroom, and you said to yourself, "Young woman, it is too bad that you went out with this idiot, even worse that he's the father of your child. Please, please, don't ruin your life by marrying him, I beg of you, no matter what some right-wing petty moralist suggests."
It's not the top 1% stupid!
written by Luke Lea, January 29, 2012 8:23
It's the top 1% of the top 1%, the ten thousand wealthiest families in America. They bankroll both political parties, set the political agenda, and between them avoid paying over $300 billion a year in taxes they legally owe (according to NYT financial correspondent David Cay Johnston).

Why is this important? Because you don't want to multiply your enemy unnecessarily. The billionaires are hiding behind the millionaires, and ripping them off to boot.

Consultant p&D
written by brhaman, January 30, 2012 8:27
Inequality and gap in between poor and rich is a tough subject to discuss , The rich won't leave its rights to be rich , which they earned through years and created a system , which is difficult to reak,The poor when at the brink of break down comes on road, the system goes on , equality never exists, but inequality can be reduced through available models ?
mobility & tax rates
written by eightnine2718281828mu5, January 30, 2012 10:57
Let's assume conservatives are being honest with their professed belief in mobility (ie, life cycle events.)

Progressive tax rates would have a net zero effect since one derives the benefits of low rates when you are young, allowing you to accumulate capital and become more productive quickly.

And once you become established, your rates go up to lend a hand to those coming up behind you.

The fact that they screech so loudly over progressive tax rates is an acknowledgement that they don't believe this to be the case. They understand the mobility argument is just a facade, and that the well-connected Mitt Romney's of the world would never be reduced to living in a 1500 ft^2 tract home in Hoboken.

The well-connected will always be well-protected by conservatives, not because they believe in mobility, but because they know it to be a fiction.
Any sufficiently small slice of the population will show "mobility"
written by M.Boli, January 30, 2012 1:58
First of all, the income mobility study seems not to have accounted for randomness.

Any sufficiently small slice of the population will show "mobility." If you looked at what happened to the 1% wide slice in the middle---49.5-50.5 percentile---hardly anybody would be in the same slice 10 years later. The slice is too narrow, year-to-year random variation in incomes ensures that most people won't hit that narrow slice again.

The same argument holds for the upper 1%. Simple randomness will mix up the people in the 1% with, say, the rest of the upper 5% every year.

The next problem, of course, is that you needed to file two returns 10 years apart to be in the study group. This isn't as egregiously biased as the 1992 Treasury department study, which required 11 consecutive years in a row of returns. But it does mean that the study is biased toward people who were stably employed, at jobs that earned enough income to file.

Those two more problems that this casual observer notices, in addition to the ones that Baker comments on.
Better to be young and poor than old and rich
written by Floccina, January 30, 2012 5:39
Earnings peak between ages 45 and 65.


Better to be young and poor than old and rich.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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