I read an interesting article on economic mobility in National Review Online, which got me thinking. The article is good in that it points out some of the statistical challenges in measuring upward mobility. For example, who counts as poor? Who counts as middle class? Are we measuring intergenerational or intragenerational mobility? In acknowledging these questions, the article does well. Where the article falls short is in two key areas.
First, it assumes that upward mobility in the United States is lower than in many other countries. This may or may not be true, depending on how it is measured. For example, how much credit should be given to official statistics as reported by various countries? Certainly, focusing on the official “poverty” level will give bad results, as discussed here. But even using income percentiles poses challenges. For example, should welfare and other “benefits” in socialist European countries be counted as income? When I lived abroad, I routinely encountered people making more money than I did, for doing absolutely nothing. The individuals in question were not independently wealthy or trust-fund babies; they were merely beneficiaries of a very generous welfare state, which rewarded them for being unemployed and sitting around various public areas all day, which making no effort to find work. The artificial support given to such individuals may mask the natural cause-and-effect relationships between work and prosperity on the one hand and sloth and poverty on the other. The NRO article, like most discussions of economic inequality, also totally ignores wealth, focusing only on income. There are good reasons for this, chiefly the availability of data on income and lack thereof on wealth, but the distinction is still an important one and is totally ignored in the article in question.
The second and more significant failing is in the article’s assumption that increasing upward mobility is always a good thing. That’s not necessarily true. Certainly, increasing opportunities are always good, but one can easily imagine a very high-mobility society with an extremely dysfunctional economy. For example, imagine a tax system in which anyone whose parents were in the top 40% of the income distribution at the time of his or her birth pays a tax surcharge of 40% of his or her gross income, which funds are then distributed to those whose parents were in the lowest 40% of the income distribution. This would, at least temporarily, result in incredibly high mobility, but it would be manifestly unfair and strongly disincentivize anything resembling ambition or hard work. The point is that mobility is not the goal; opportunity is. Past a certain level, increased mobility can only be achieved at the cost of stability and fairness. For every person who moves up the income distribution, somebody else moves down, because rankings are a zero-sum game. Foster too much movement from the lower end of the distribution into the higher end, and you are by extension fostering an environment in which many of the highest earners suffer precipitous plunges in their incomes.
These are just some quick musings on the article; I would be curious to hear what others thought.
A number of people have asked me lately what I’m reading on economics and the financial markets right now.Â Truth is, I’m always reading such things, and no short list can even come close to covering the variety of material I try to read, from the scholarly and serious (e.g., Posner, Becker, Mankiw, etc.) to the popular and light.Â That said, I thought my other readers might appreciate a list of some of what I’ve been looking at on the internet in the last few weeks, at least.Â Without commentary, opinion, analysis, or even a particular ordering (in fact, the first list was intentionally randomized), here it is.Â I express no public opinion on the accuracy, validity, merit, or usefulness of anything below; these are just links I have found interesting – in some cases because I think the contents to which I’m linking are totally wrong or even bordering on insane… but I think I’ll decline to say which ones.Â Read the material for yourself, if you’re interested – it’s more likely to be useful, that way, anyway.
Sites or people with lots of information in general, some good, some bad, some possibly crazy:
Some interesting specific links:
When the Bank of England does anything for the first time – it’s 315 years old this year, after all – it’s worth noting.
I am glad to live in Texas, and glad I do not live in New York.
My favorite new (but not new favorite) blog is Evil Speculator (tagline, “bent on market domination, one nefarious trade at a time”). It posted a fantastic and disturbing chart from Gold-Eagle. The chart is one of the best demonstrations I’ve seen of a concept called the “slope of hope.” The idea is that (in significant declines) markets go down slopes of hope – long, bumpy slides in which optimism repeatedly kicks in early and causes dramatic, but short-lived and futile, rallies. In contrast, bull markets start by climbing a “wall of worry” – pessimism is so extreme near bottoms that most investors are late in realizing the worst is over.
In any case, this chart correlating Great Depression DJIA readings with news clips is an invaluable reminder of where we likely stand. Check it out.
That’s what the Fed is pledging to “rescue the financial system,” according to Bloomberg.com. That’s 50% of 2007 GDP, or 288% of 2007 federal tax revenues. Makes my prior post sound look like a praise of good budgeting.
That’s what the so-called “financial crisis” of 2008 has cost the federal government directly… so far.* Wonder how that stacks up to other crises? CNBC has a slideshow showing the costs (inflation-adjusted) of some of the biggest government projects ever.
There are many events not listed in that slide show, of course. Two of the most notable: the Civil War ($60.4 billion in 2008 dollars, for both sides) and World War I ($253 billion in 2008 dollars).
For comparison, $4.28 trillion is approximately 31% of 2007 US GDP. It’s also 167% of 2007 federal tax revenues. How’s that for deficit spending?
You may bring your eyebrows back to earth now.
* Some of this money is in the form of loans. Many of these loans are to companies hemorrhaging cash faster than they can borrow it and are explicitly designed as relief against bad assets, however, and the crisis is hardly over. So, counting this money as lost is only wise.
Elliott Wave International asks, “Are stocks really a bargain?” If you believe your eyes, the answer is pretty clear.
P.S. In case you were wondering what the current DJIA dividend yield is (click the link above to see why this is relevant), you can see that here.
Let’s all hope this, at least, does not repeat. It’s a miracle the American Dream has survived this long.