The DecodeDC podcast aired a discussion (episode 67) with English economist Richard Reeves of the Brookings Institution who talks about ways to measure the (in)equality of opportunity in America. His study divides the population into slices of 20% each – families who are in the top 20% of earners (about $150,000/year for a family of four) are 1s, the next 20% are 2s and so forth. The research found that if you’re a 1, your children will also be 1s and if you’re a 5, your children will remain in that state as well. Not too counter-intuitive, these days. He then brings up the obvious point that  there are several gaps: Marriage, Education, Neighourhood, and Race, like so:

  • Children raised by  two parents are more likely to move up than children raised by one.
  • Children raised by parents who earn degrees are more likely to move up.
  • Children raised in poor neighbourhoods are more likely to stay in them
  • Non-white children are more likely to remain in their quintiles or slip into lower ones than white children.

What I missed from the podcast clip (but is well-covered in Reeves’ own reporting below) was how these numbers have changed over the last hundred years.

income_inequalityMy guess was that 100 years ago, the numbers were a little better than they are now – mobility of immigrant populations especially was based a lot on making it by the sweat of their labours. However, poor blacks were more likely to remain poor blacks. There was probably a little more mobility in the post-WW1 boom time for non-blacks, but this was probably exaggerated, much as the mobility of the late 90s mini-boom was.

The period I’m most interested in is from 1945-1990, during which time there was a great deal more mobility and a much smaller gap between the richest and the poorest. The gap started to expand again during the Reagan years, but I think the real damage of his policies came after he left office. There were inklings in the Clinton years that things were going to go horribly wrong in the inequality department, but they only hit high gear in the Bush Jr. years.

Reeves goes into much greater detail regarding the history in his essay Horatio Alger: Equality, Opportunity, and the American Dream: ‘In the first half of the 20th century, after the closing of the frontier, the rapid growth of the nation slowed, with the result that both income and wealth gaps widened to European proportions, and the engines of upward mobility stalled.’

Post-WW2, the combination of social mobility programmes like the GI bill, and relatively high rates of taxation at the top of the scale meant that there was a bit more mobility, but that the wealth gap was much smaller.

As noted, the inequality trends returned with the Reagan years, but their trajectory was stunted somewhat by the stronger economy of the Clinton years. Bush Jr.’s tax cuts and financial deregulation (begun in the 90s – some of the fault does go back to Clinton) did in what was left of general upward mobility.

So those are some of the big political issues that affect the gap, but every day we see things that are built to make it bigger. Easy credit is one – possibly non-existent 100 years ago, but everywhere in the US today. (My ex worked in secure card customer service back in the 90s – people who had no business with plastic in their wallets were bankrupting themselves. There has been no effective tightening of those rules in the intervening 20 years either.)

Another one is health insurance. While Obama’s done astounding work making the cost of insurance lower and easier to bear for many, health insurance firms have always been for-profit ventures and this has exploded in the last 25 years or so. A business that raises rates even 10% year on year and predicates itself on denying the service it purports to be selling is not health, but is likely to be very profitable if the service it sells is required. Even if you pay into the system, in states that haven’t implemented ACA, one good accident can bankrupt you. (Combine that with the ever-relaxing rules on gun ownership and the goose that lays the golden eggs just got a dose of fertility drugs.)

Note that big medicine has fought single-payer health in the US for over 100 years. Didn’t think the argument went back that far? Franklin Pierce vetoed a bill calling for federally funded asylums for the blind, deaf, and insane in 1854. Both Theodore and Franklin Roosevelt supported plans for state-funded or federally funded health schemes which the American Medical Association opposed. The AMA and the insurance industry opposed Medicare and Medicaid, but President Johnson managed too push those through in the 60s. And all attempts to expand on those propositions has been vehemently opposed ever since. Even the summaries in Wikipedia of this fight churn the stomach.

The Tories have been taking these ideas and running with them. How to get more money out of the pockets of the middle classes in return for next to nothing? Privatise national health. For decades, everyone has paid into the NHS and for the last decade or so the NHS has been shrinking its services. My in-laws live in an area of scattered small villages. There used to be a good hospital relatively nearby. Shut. Should there be an emergency in any of half a dozen villages, and possibly more, it’s at least an hour to the nearest major hospital.

Have their taxes gone down? No. And even if they had, the whole point of health insurance (at the national or private level) is that of collective risk. And bearing a collective burden for the greater good. Sort of like vaccination, but that’s another discussion.

I’ve probably discussed tuition fees before – Ronald Reagan instituted tuition payments on the public college/university system in California back in the 60s. These were still low when I enrolled at San Francisco State University in 1985. $300/term for the first year. When I left in 1989, my final semester cost $1300. It’s now about $6300 per term. In the UK, all of the universities were free until Cameron found another way to reward the bankers. My wife’s degree from Cambridge had no tuition. She had to be brilliant enough to get in, but family wealth wasn’t a consideration. Now? £9000/term. Add interest to those student loans, and it’s a windfall.

So, yeah, the movement of wealth from the bottom rungs to the top is, among other things, about college, credit, and coronary risk. It’s also about the ownership of legislatures and electoral processes by moneyed interests (whose wealth isn’t decreasing).