Friday, November 21, 2014

The Decline of Upward Mobility

NEW YORK – Concern about economic inequality is in the air almost everywhere. The issue is not inequality between countries, which is actually down in recent decades, thanks in large part to higher growth rates and longer lifespans in many emerging countries (especially China and India). Rather, the focus nowadays is on inequality – sometimes called income disparity – within countries.

One reason is that the problem of inequality is real – and growing worse in many places. In recent decades, wealth and income have become more concentrated at the top – the so-called 1% – while real incomes and standards of living for the poor and middle class in many developed countries have stagnated or declined.

This was true before the global financial crisis erupted in 2008, but the crisis and its aftermath (including prolonged high levels of unemployment) have made things worse. And, despite a few notable exceptions in northern Europe and parts of Latin America, the rise in inequality has affected the developed and developing worlds alike.

Prominent people are calling attention to the problem as never before. Pope Francis exhorts the world to say “‘thou shalt not’ to an economy of exclusion and inequality,” because “such an economy kills.” US President Barack Obama speaks about an American economy that has become “profoundly unequal.” The recently elected mayor of New York City, Bill de Blasio, made the issue the centerpiece of his campaign, repeatedly referring to a “tale of two cities” and an “inequality crisis.”

The emphasis is understandable, but there is a real danger in framing the problem as one of inequality. What should matter is not inequality per se – to paraphrase the gospel according to Matthew, the rich will always be with us – but rather whether citizens have a genuine opportunity to become rich, or at least become substantially better off. It is the lack of upward mobility, not inequality, that is the core problem.

Seeing inequality as the problem can lead to all sorts of counter-productive “remedies” that in fact would make the situation worse. The most obvious temptation is to try to reduce inequality by taxing the rich. The flaw in the politics of redistribution is that it emphasizes shifting wealth rather than creating it. Making the rich poorer will not make the poor richer.

There are of course exceptions to this principle. For example, in cases of extreme corruption and crony capitalism, the state’s resources are hijacked by the few. Many energy-rich countries fall into this category, which is why many observers speak of energy and mineral endowments as a “curse” rather than a benefit.

But, fortunately, such cases are exceptions. As a rule, smart policy consists not in bringing down the rich but in raising up the poor and middle class. Reducing (or, better yet, eliminating) discrimination on the basis of race, religion, gender, and sexual orientation is one way to accomplish this, as is ensuring property rights, in part so that people can borrow money against their homes to start businesses.

Education is also vital. But this does not imply the need to spend much more on education; here (and elsewhere), how money is used is more important than how much is spent. The most critical variable affecting students’ performance is the quality of teaching. The resources that are required for additional teacher training and for paying more to talented people to become and remain teachers can be offset by a willingness to shed those teachers who are not up to the task. Even if some costs were to rise, it would be worth it if the result were better-educated and more productive citizens.

Reforming curricula is equally important. High schools and what are known in the United States as community colleges – post-secondary institutions that typically offer a two-year degree – need to provide courses tailored for jobs that exist or soon will. Close cooperation between employers and schools should be fostered, as is often done in countries like Germany. And education has to be made available inexpensively and efficiently to people throughout their lives, not just at the outset of their careers.

It is also important to be wary about some ideas often put forward as solutions, such as requiring large increases in the minimum wage paid to hourly workers. The danger is that it will discourage businesses from hiring. It would be better to keep wage increases modest so that people get jobs and to look for other ways to subsidize education and health care for those who need such help.

Inequality is real. But it can be addressed effectively only with policies and programs that foster growth and meaningful opportunities to benefit from it. The stakes are great, as economic growth and social cohesion depend on getting this right. But getting it right requires understanding that inequality is not so much the cause as it is the consequence of what ails us.

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    1. CommentedLeo Arouet

      Paul Krugman habla sobre la reducción de la desigualdad de los Estados Unidos durante el gobierno de Roosevelt, donde elevó los impuestos a los ricos, subió los salarios, creó sistemas de seguros para la gente. Todo ellos se llegó a llamar The Golden Age.

    2. CommentedGe Malagaris

      economy = good jobs like in the 1960s
      unemployment = people seeking work + and people that have given up in dispair + the destitute = approx 30%. Here is the labour participation rate this is a graph of shame.
      successful society = large middle class
      succesful government = the one that makes these happen without an artificial boom in housing, banking, or any other ponzi scheme, and doesn't start any more wars in order to deflect attention from the above like G.W.Bush did. If i was someone associated with bush i would just cry in shame...
      Also McJobs are not jobs, if you cannot live on the wages you make then that is not a job. Walmart who does this is the biggest private employer in the USA.
      Its employees are so poor that they qualify for food stamps that were introduced to prevent malnutrition during the great depression.

      greetings from planet earth btw, nice of you to drop by

    3. CommentedMatt Smith

      "It is the lack of upward mobility, not inequality, that is the core problem."
      What an interesting take on the world's problems; It's not widespread poverty that 'ails' us folks - it's just the lack of movement! Mr Haass' ideal scenario seems to be a sort of musical chairs of poverty. As long as we keep rotating who has to work for starvation wages- all is well.
      Since he's saved so much time in the shoddy construction of this op-ed, perhaps Mr Haass can review the ever-growing abundance of papers finding that inequality is indeed an inherent problem - which harms economic growth, endangers democracy, and harms everyone involved. As others have commented - it's time for an economic reset, rethink, and remaking.

    4. CommentedMusical Missionary

      "... in cases of extreme corruption and crony capitalism, the state’s resources are hijacked by the few... fortunately, such cases are exceptions."

      Holy disingenuous misinformation Batman! Crony capitalism is the ROOT CAUSE of growing income inequality, in America and around the world. Capital concentration at the top wouldn't be such as big problem if that capital wasn't being used to buy politicians and laws that catalyze further concentration of wealth at the top. Discussing income inequality without discussing the role of crony capitalism (or glibly dismissing it), is pointless. The latter causes the former. And meaningful campaign finance reform can begin to fix both.

    5. Commentedtemesgen abate

      the article is so ``nuanced `` it skirts the immediacy of the question consigning it to ephemera.if the gospel is vouchsafed ,there exists in the sacred text an ``institution ``of a ``year of jubilee`` celebrated every fiftieth year.the day is not a window dressing time through rigmarole but a return of ``real-estates `` to their ``original`` owners which had changed hands in debts .it is more than debt relief but a cyclical re-start of an economy on an equal footing.

    6. CommentedProcyon Mukherjee

      The question is never about making the rich poorer, a semblance of balance is being sought where capital formation need not be done at the cost of declining real wages, where import of cheap labor is the key determinant.

      But the deeper question is the apparent mismatch between what jobs the economy tends to create and the direction in which college education thrusts the students into channelizing their interests.

    7. CommentedMike Adami

      does narcissism and internet effect upward mobility? ratio scale of success, if 1/3rd indulgence, 1/3rd browsing, whats left--enough to improve social economic mobility? posting this comment is taking 1/3rd of my energy.

    8. CommentedKen Presting

      MR. Haas has nothing to say which can't be heard any afternoon on the Rush Limbaugh talk radio show. I don't know why Project-Syndicate bothers to give space to this.

      He (like Rush) ignores the growth in productivity over the past 40 years, while working people's wages stayed stagnant.

      The fact is, the concentrated wealth of the present 1% was itself "redistributed" from those who create it with their sweat and their ingenuity, up the ladder to those who control not only the investment banks, but also the campaign finance industry.

      America has become precisely a resource-exploitation, plantation-style economy. The resource being exploited are the human resources. What we need is precisely redistribution, since the exploiters are firmly in control of every means of wealth creation - including our own labor, and our creativity.

    9. CommentedDavid Huber

      I tend to agree with the article, however would like to expand on a few points.
      Education: Our college/university education is very expensive and appears to becoming dominated by private universities that sell an education that is marketed without concern to the realities of job openings. Our primary and secondary schools are hampered with discipline problems, teachers are prevented from effectively controlling students and are at risk from disruptive students. I would think that a concerted public awareness campaign stressing that parents need to be involved and supportive of teachers instead of disruptive children, (kids learn how to play the victim card early on).

      In the USA there are, according to official estimates, between 1 and 2 million high paying skilled technical jobs that are not being filled, and those that are filled are filled with applicants from out side of the US. These jobs, because they are so hard to find qualified applicants command a much higher wage than they should. It was noted in a report on NPR several years ago that 1 out of every 11 immigrants from India has become a millionaire in the USA. This is because they have the education in the right field to meet the demand of high-paying jobs.

      I have read that in western states jobs for line-men building and maintaining the high energy transmission lines are not being filled; of course this is hard work.

      The author's point that colleges are not pinpointing areas of need is well placed. This needs to be addressed, the jobs are there, the qualified applicants are not. Of course we are wanting McDonalds and the like to supply "living wages" but this is ridiculous. This is not a skilled position, it is a resume building position, a foot in the employment door, not the end all.

        CommentedWalter Gingery

        You may be interested in a 2009 study by Rutgers University, the Urban Institute and Georgetown University showing that the personnel problems that you mention (technical jobs going unfilled) about which industry complains, were caused by the high-tech industry's own off-shoring strategies. American high-tech firms fired vast numbers of American STEM workers, and then they out-sourced the work to India. Additionally, they imported enormous numbers of foreign workers at low wages.
        Is it surprising that the best math and science students choose other careers because they offer higher pay, better prospects for advancement and more job security, while being "less susceptible to offshoring?"

    10. CommentedTim Chambers

      We've been growing the pie for thirty years along with the share of it that goes to the richest few, which is why you need to be a deca-billionare today to be among world's wealthiest. The centa-millionaires of thirty years ago no longer need apply.

      Growing the pie is not the solution, dividing it more fairly among those who produce it is the solution. The question is, what is the optimum share of the pie that stimulates growth, both by encouraging entrepreneurs, and guaranteeing adequate and growing markets without putting people into debt peonage.

      Somewhere between profit max (a slave system, or the virtual slave system of today) and profit min (in which the workers and unemployed unite in getting out the pitchforks) there has to be a happy medium of contentment. Figuring out where that point is and how to implement it ought to be worthy of a Nobel prize.

      If we continue along our present path, we will end up as the sort of country with which we share out high gini coefficient. All of them are fourth world.

    11. CommentedKir Komrik

      Apologies for the grammatical train-wreck below but I realized afterward there was no edit feature.
      In any case, one point I could have added is that "borrowing money" is precisely the grossly negligent moral hazard placed on the public that got us here in the first place. Borrowing money for non-commercial purposes, such as for consumption, is never prudent. If people made enough income. otoh, they could save and invest. But even that meager ability has been wiped out when rule of law doesn't exist, courts demand whatever they please without guideline, precedent, logic or reason (i.e. total unpredictability of the justice system - unless you know which party has more money beforehand), taxes are screaming upward, the fines and "fees" incurred are rising, medical costs are astronomicall medical costs which are caused by the food industry (more moral hazard), and the cost of children or child support has become so extreme only the wealthy can afford children anymore.
      As I stated, I've seen Mr. Haas' articles at CFR and I'm curious why he never allows replies to his articles, then writes as if he is oblivious to objective reality. I do not mean that disrespectfully, I just think that this very bright person is missing a profound point which, if true, I have no doubt he would not want to do.

    12. CommentedKir Komrik

      Thank you for your views on this subject,
      I've read may of your stuff over at CFR and its always interesting.
      Anyway, I do not agree that the topical areas you engage have much causal bearing on the problem. Discrimination is not the cause of this problem. Certainly it exists, in the same way that asteroids exist in a conversation about Miley Cyrus.
      But I do agree that there are knee-jerk reactions that don't address the issue well either, and can be counter-productive. And I agree it is primarily an issue of upward mobility. But the causes of this are much, much deeper than what you deign to consider, imo.
      The causes of this are a lack of genuine rule of law in western countries (everything is relative), the moral hazards that nurtures and the decadence that follows. This nation, and the West generally under neo-liberal western "democracy" is slowly crumbling because we've destroyed every semblance of virtue and justice.
      The system is corrupt, is RIDDLED with crony capitalism (apparently the author and I live in two completely different worlds because I see it everyday, firsthand) and differs from its counterparts overseas only in the sophistication of how it conceals this reality from the public.
      But the public is suffering badly enough, and the internet is loud enough, that the public is beginning to understand what is really going on, even when those who throw blinders up deflect the conversation into areas ignoratio enlenchi and red herrings.

    13. Commentedrick tono

      "in part so that people can borrow money against their homes to start businesses"

      This would be awesome.

      Unfortunately only the rich, and the decrepit old farts of the world even own a house.

      Too bad the poor and the youth actually can't ever afford a house, and are already so indebted they couldn't even take on more debt if they wanted.

      Sadly, this is just more poor economics which believes that somehow getting more people into debt will solve all of the problems of us poor realizing the only thing time the rich have ever attempted to listen to us poor folk is when their neck was in a guillotine.

      Sorry. You'll need a better solution to satisfy the poor, or we'll come up with one for you.

    14. CommentedWalter Gingery

      More "Magical Realism" "Let's all have less inequality, but we don't want to inconvenience the wealthy, now do we?" Specifically, the author doesn't explain (because he can't, really) how to impart a good education without spending money on good teachers, supplies, supportive home environments, food, non-descriminiation programs, etc., etc.

        CommentedRobert Snashall

        Exactly my feelings. What an incredibly intellectually lazy article that shows a complete lack of understanding of what many of the barriers to social mobility are.
        This article typifies the thinking of the elite. That the one thing you can never do is burden the wealthy, whilst the reason for poor people is that we have been educating wrongly in some vague way and that a tiny increase in spending might fix everything.
        The fact is that the problems in public services since the 80s and the Reagan era tax cuts, combined with deindustrialisation due to neoclassical trade policy has led poorly educated workforces lacking in employment or elevator industries like manufacturing.