Income inequality and economic immobility
are often lumped together, but they shouldn’t be. Consider the two
concepts positively: Income equality is about bridging the gap between
the rich and the poor, while economic mobility is about elevating the
poor as rapidly as possible. Finding ways to increase economic mobility
should be our greater concern.
And as it turns out, there is a great deal of mobility between income
groups in the United States. Today in MarketWatch, Prof. Steve Horwitz
of St. Lawrence University reminds us that, because of the dynamic nature of a capitalist economy, anyone can end up at the top of the income scale:
What economists call income mobility
continues in this country over the course of any individual’s lifetime
and across generations. Being poor at any specific point in time, or
being the child of poor parents, does not mean people are unable to move
up the income ladder. In the same way, there is no guarantee that those
at the top will stay there.
The usual rhetoric about income inequality
focuses on how the share of total income held by the top 20% has grown
while that held by the bottom 20% has fallen over the last few decades.
That’s true, but it ignores the question of whether the same people are
in the top and bottom from year to year.
My former colleagues at the Tax Foundation have done an excellent job
illustrating this effect, in particular with the chartbook “Putting a Face on America's Tax Returns.” Between 1999 and 2007, for example, nearly 60 percent of taxpayers who started out in the bottom quintile moved up to a higher income group.
On the flip side, many people who report million-dollar incomes only do
so for a single year, often as the result of a sale of a single large
asset. As the chart says, millionaire status is fleeting!
Horwitz also reminds us that not only do the fortunes of individuals
vary widely over a lifetime, but the same is true of corporations.
Today, companies that barely existed ten years are dominating the market, while former behemoths
have withered away. And that’s as it should be. No matter how
“unequally” income, wealth, or market capitalization seem to be
distributed at any given point in time, as long as there’s the freedom
to compete for jobs and customers, the U.S. will continue to be a land
of opportunity."
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