The stickiness of affluence

Brookings Scholar Richard Reeves has an important new book out on our problems with limited intergenerational mobility.  Typically, we think about this problem as not enough opportunity for the bottom 20%.  And that is a real problem.  But Reeves recasts it as an issue of the to 20% “hoarding” the American Dream.  Here’s his NYT Op-ed distilling the key points:

Beneath a veneer of classlessness, the American class reproduction machine operates with ruthless efficiency. In particular, the upper middle class is solidifying. This favored fifth at the top of the income distribution, with an average annual household income of $200,000, has been separating from the 80 percent below. Collectively, this top fifth has seen a $4 trillion-plus increase in pretax income since 1979, compared to just over $3 trillion for everyone else. Some of those gains went to the top 1 percent. But most went to the 19 percent just beneath them.

The rhetoric of “We are the 99 percent” has in fact been dangerously self-serving, allowing people with healthy six-figure incomes to convince themselves that they are somehow in the same economic boat as ordinary Americans, and that it is just the so-called super rich who are to blame for inequality…

Politicians and policy wonks worry about the persistence of poverty across generations, but affluence is inherited more strongly. Most disturbing, we now know how firmly class positions are being transmitted across generations. Most of the children born into households in the top 20 percent will stay there or drop only as far as the next quintile. As Gary Solon, one of the leading scholars of social mobility, put it recently, “Rather than a poverty trap, there seems instead to be more stickiness at the other end: a ‘wealth trap,’ if you will.”… [emphases mine]

On the one hand, upper-middle-class Americans believe they are operating in a meritocracy (a belief that allows them to feel entitled to their winnings); on the other hand, they constantly engage in antimeritocratic behavior in order to give their own children a leg up. To the extent that there is any ethical deliberation, it usually results in a justification along the lines of “Well, maybe it’s wrong, but everyone’s doing it.” …

The upper middle class is also doing lots right, not least when it comes to creating a stable family environment and being engaged parents. These are behaviors we want to spread, not stop. Nobody should feel bad for working hard to raise their kids well.

Things turn ugly, however, when the upper middle class starts to rig markets in its own favor, to the detriment of others. Take housing, perhaps the most significant example. Exclusionary zoning practices allow the upper middle class to live in enclaves. Gated communities, in effect, even if the gates are not visible. Since schools typically draw from their surrounding area, the physical separation of upper-middle-class neighborhoods is replicated in the classroom. Good schools make the area more desirable, further inflating the value of our houses. The federal tax system gives us a handout, through the mortgage-interest deduction, to help us purchase these pricey homes. For the upper middle classes, regardless of their professed political preferences, zoning, wealth, tax deductions and educational opportunity reinforce one another in a virtuous cycle.

 Also, a very nice summary of Reeves work from Annie Lowrey in the Atlantic:

The one percent have well and truly trounced the 99 percent, but the 20 percent have done their part to immiserate the 80 percent, as well—an arguably more relevant but less recognized class distinction.

Why more relevant? In part because the 20 percent are so much bigger than the one percent. If you are going to raise a considerable amount of new income-tax revenue to finance social programs, as many Democrats want to do, dinging the top one percent won’t cut it: They are a lot richer, but a lot fewer in number. And if you are going to provide more opportunities in good neighborhoods, public schools, colleges, internship programs, and labor markets to lower-income families, it is the 20 percent that are going to have to give something up.

Reeves offers a host of policy changes that might make a considerable difference: better access to contraception, increasing building in cities and suburbs, barring legacy admissions to colleges, curbing tax expenditures that benefit families with big homes and capital gains. Still, given the scale of the problem, I wondered whether other, bigger solutions might be necessary as well: a universal child allowance to reduce the poverty rate among kids, as the Century Foundation has proposed, say, or baby bonds to help eliminate the black-white wealth gapfostered by decades of racist and exclusionary government policy, as Darrick Hamilton has suggested. (So often, the upper-middle class insulating and enriching itself at the expense of the working class has meant white families doing so at the expense of black families—a point I thought underplayed in Reeves’ telling.)

Yet, as Reeves notes, “sensible policy is not always easy politics.” Expanding opportunity and improving fairness would require the upper-middle class to vote for higher taxes, to let others move in, and to share in the wealth. Prying Harvard admission letters and the mortgage interest deductions out of the hands of bureaucrats in Bethesda, sales executives in Minnetonka, and lawyers in Louisville is not going to be easy.

I had a smart FB friend comment on the Lowrey article, “my parents lifted me into the upperclass as defined here, my obligation is to — send my kids backwards?”

No.  Your obligation is to stop perpetuating the unfair advantages keeping them where they are.  If they fall back, chances are it won’t be that far.  And it will because somebody in a lower quartile actually earned their way up, displacing your children.  If it means we actually give Americans a real chance of lifting themselves out of poverty, I’m for letting my own kids fall back a quartile.  \

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About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

One Response to The stickiness of affluence

  1. Terrant says:

    I don’t see anything realistically happening. Many of the things that would have to happen would be unpopular and unconstitutional. The best that we are probably going to do is to get government to stop picking winners and losers (as what the phrase really means not what conservatives want it to mean).

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