The Dangerous Assumption that Economic Status Equals Merit

During the past few weeks I have examined and critiqued recent U.S. government policies of maldistributed tax cuts and proposed limits on food stamp benefits. 

Income inequality word cloud concept

These policy changes, I have argued, emerge from the fundamental — and deeply flawed — assumption that economic stratification is based on merit.

Advocates of much greater tax cuts for the wealthy insist higher taxes “punish” success and destroy incentives for hard work and wealth creation; programs like SNAP that provide marginal assistance for the poor discourage effort among the able-bodied.

What does the evidence tell us about economic stratification and merit?

A positive relationship between economic standing and merit – the belief that someone born into any circumstances can succeed economically through striving and cunning — is supposedly the bedrock of American social cohesion. During the past decade doubt about this relationship has risen sharply, especially among the young.

A majority of Americans now expect the next generation to be worse off, though such pessimism is shared by other wealthy democracies.

Deepening inequality, along with this fraying of belief in American social mobility, helps explain the divisive and chaotic politics recently unleashed in the U.S. and in other societies like the UK, where a deep social divide continues to fuel bitterness over British exit from the European Union.

Studies of intergenerational income mobility typically place the United States low in international comparison. Along with the UK, in the U.S. the correlation between parental income and the income position of the next generation is quite high.

The U.S. position contrasts with a group of high mobility wealthy countries (Canada, Finland, Norway, Denmark), and those in a middle group (Germany, France).

Conservative analysts typically dismiss these findings. Among other things, they argue that comparing dynamics between income categories – typically measured in slices each containing one-fifth of earners, or “quintiles” – is a poor measure of mobility. Instead, we should focus on absolute mobility, the trend of income within each quintile. In other words, the relevant question is whether people are becoming better off in an absolute sense rather than relative to others. Conservative commentators tend to portray this as “a more complete opportunity story”.

In fact, such a measure represents the lowest possible threshold for any concept of mobility — ultimately it is not really a measure of mobility at all – so it is hardly a “more complete” story, only a more convenient one.

Let’s nonetheless give the benefit of the doubt to this perspective and examine claims made by proponents of a focus on “absolute mobility.” The conservative social welfare theorist Neil Gilbert objects that attention to upward social mobility neglects the point that this is simultaneously a demand for downward social mobility, since a movement of some earners into a higher income quintile means others must move out.  However, unless we assume the existing distribution is a product of pure merit, this displacement of high earners by those with greater merit is precisely what we should want to see.

Citing a definitive 2014 study by Harvard and Berkeley economists as well as analysts from the U.S. Treasury Department, Gilbert notes that “the findings showed no decline in the rate of social mobility among children born in the U.S. over the last 40 years.” Ironically, while this is technically accurate, the authors of the study themselves emphasize an entirely different point: the absence of a change in intergenerational mobility between income quintiles, coupled with substantial increases in the degree of inequality between quintiles, amplifies the consequences of a low level of income mobility between generations. (Or, as the authors put it, the “birth lottery” effect increases.)

Furthermore, like other conservative social theorists, Gilbert engages in slight-of-hand with the implications of the findings: while admitting that the odds of someone born into the bottom fifth of the income distribution making it into the top fifth, at less than 9%, are low, he underscores that the range of income has grown in the United States. This means the distance the lower income person must travel to reach the top quintile has increased, and is greater for the U.S. than for most other societies. Precisely.

Related to this point, and damning for the entire “absolute mobility” argument generally, this graph from the U.S. Census Bureau reveals dramatically that income gains have accrued much more rapidly at the top of the distribution than toward the middle or the bottom:

real-hh-inc-67-14

But how much do we really know about the extent to which the income distribution reflects effort and merit? A recent academic study of intergenerational income mobility in the U.S., UK and Sweden published in the journal Social Forces addresses this question.

The study reveals that parental income determines about 60% of the income status of the next generation in the U.S. The figure for the UK is 55%, and for Sweden 33%. The authors of the study seek to identify the extent to which merit contributes (or doesn’t) to the intergenerational reproduction of economic status. To do so, they use measures of educational attainment and performance on cognitive tests to control for education level and cognitive ability.

The authors find that for the U.S., nearly three-fifths (57%) of the rate at which inequality is reproduced cannot be explained by educational attainment and cognitive ability. Put differently, even at constant levels of educational attainment, the accident of birth is a powerful predictor of where one winds up in the income distribution.

Policies that implicitly embrace a direct correlation between wealth and merit, then, seem gravely misguided.

3 thoughts on “The Dangerous Assumption that Economic Status Equals Merit

  1. ndarecca

    Mitchell,

    A very good piece, well written, argued and documented. I’ve been following your blog for a few weeks now. What is your academic background? You’ve said in previous posts that you run a restaurant? This is very impressive work for a chef!

    I’m starting a blog called “Inequality Kills” on WordPress. I’ve written a few posts and have many ideas for more but I’m frustrated because I don’t understand the technology & how to work it. I follow their directions but often nothing happens. Can I send you the blog (when I figure out how to do that!) for your comments & perhaps some technical suggestions? Thanks in advance.

    Nick D’Arecca

    On Sun, Mar 4, 2018 at 5:29 PM, The Great Misallocation wrote:

    > mpsmith927 posted: ” During the past few weeks I have examined and > critiqued recent U.S. government policies of maldistributed tax cuts and > proposed limits on food stamp benefits. These policy changes, I have > argued, emerge from the fundamental – and deeply flawed — assu” >

    Like

  2. Thanks so much for your comment, Nick, and for following my blog. I encourage you to share it with others as I build readership.

    The restaurant story is in fact an invention designed to give scope to metaphors about society and the economy. I also used the critique of libertarianism in my post on the SNAP program as a means to include links to the Regional Food Bank of Oklahoma — an excellent organization — as well as the Oklahoma Policy Institute, which provides extremely insightful, clear, informed analyses of policy problems in the state of Oklahoma, such as hunger. But while I very much like good food, I am in fact a professor of political economy.

    WordPress does not always follow instructions. My principal piece of advice would be to begin by selecting a different “theme.” Themes control formatting, and that may be the source of the problem you face.

    I’d be happy to have a look at your blog when you’re ready.

    Like

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