In the attached analysis, Jeff Madrick explains why the very real problems in the United States associated with concentration of wealth, growing income inequality, and low rates of social/income mobility should not be separated from the larger problem of stimulating overall economic growth.
Inequality Is Not the Problem
In his celebrated book Capital in the 21st Century, Thomas Piketty notes that Napoleon justified concentrations of wealth and high levels of inequality in France because, he claimed, the nation was a meritocracy. If you worked hard and had talent, you could rise—even back then.
Such inflated claims about income mobility have long been the refuge of the privileged at the top of the distribution of wealth. The American dream is of course built on this central assertion. Since the beginning of the year, however, the powerful findings of Piketty and other economists have entered mainstream debate as never before, challenging long-held assumptions that America is a meritocracy. Bringing into focus how lopsided the income distribution is, these findings have not only shown that inequality is widespread. They have also demonstrated that there is relatively little opportunity for those in the lower quintiles of earners to move up to a higher bracket.
Traditionally, economic conservatives have maintained that inequality is fine as long as income mobility is robust. So what if a few people make huge fortunes; everyone else has a fair chance at the opportunity to do so. But these days, even important members of the Republican Party, the traditional bastion of America privilege, have given up on this argument.
Economic data gathered since the early 2000s have shown conclusively that American social mobility is low and has been so for half a century—indeed, it is considerably lower than the nation’s supposedly stultified European competitors, where social safety nets are much larger and taxes much higher. Among the most impressive of the new work is a comprehensive study, led by Raj Chetty of Harvard and Emmanuel Saez of Berkeley, among others, published this January. It shows that income mobility has remained at roughly the same low levels since the 1970s.