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Absolute versus relative mobility: A Primer


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May 16, 2005

Absolute versus relative mobility: A Primer

Michael Mandel

I'm coming back to the same point because it's an important one: Absolute mobility matters more than relative mobility.

*Absolute mobility means that living standards are increasing in absolute terms: You are better off than your parents, and your children will be better off than you.

*Relative mobility means that if your family is poor, you have a decent chance of moving up the relative income ladder. That is, the rank order of people in society is malleable.

The two have very little to do with each. You can have an economy with a lot of absolute mobility, and little relative mobility. Or an economy with a lot of relative mobility, and little absolute mobility.

Most writers blur the distinction. Brad DeLong does a better job of laying out the issues:

To the extent that goods are valued not for the services they provide by themselves but as indices of exclusivity, it is pointless to produce them for more people because then they become less exclusive and so less valuable. Paul Krugman, for example, has placed himself on Orwell?? side: he would rather be middle-class in the fifties than working poor in the nineties-??ven though the material standard of living of America's working poor in 1990 is higher than that of America's middle class in 1950. He:

know[s] quite a few academics who have nice houses, two cars, and enviable working conditions, yet are disappointed and bitter because they have never received a [job] offer from Harvard and will probably not get a Nobel Prize. The live very well... but they judge themselves relative to their reference group, and so they feel deprived. And on the other hand, it is an open secret that the chief payoff from being really rich is, as Tom Wolfe once put it, the pleasure of "seeing ??m jump." Privilege is not merely a means to other ends, it is an end in itself.

It may be a very big mistake to think that human happiness is necessarily and significantly increased by piling up larger and larger heaps of material goods. Richard Easterlin in his Growth Triumphant points to evidence from public-opinion surveys that suggests that money does not buy happiness over time or across countries, and believes (though I think he is wrong) that people are no happier in the U.S. today than they are in India today, or were in the U.S. a century ago. Happiness is attained when you achieve your dreams and solve your problems. Material abundance helps you do so, but it also teaches you to dream bigger dreams and pose yourself more complicated problems. Easterlin thus concludes that modern economic growth is a "hollow victory": the "triumph of economic growth is not a triumph of humanity over material wants; rather, it is the triumph of material wants over humanity."

On the other hand, it may not be a very big mistake to think that human happiness consists in expanding our powers and capabilities to accomplish things (not the least of which are maintaining our comfort and satisfying our curiosity), and that wealth is a powerful tool to those ends.

Personally, I vote with Brad's last thought, and against Krugman and Easterlin. Over the long run, dreaming bigger dreams and posing more complicated problems is the right thing to do.

01:33 PM

Income Distribution

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I would surmise that there's a categorical difference between what any given family hopes to achieve and what kind of overall wealth distribution is healthiest for the economy.

For example, I suspect that in the late 1990's we had an unstainable bulge of higher-income workers while at the same time we had the beginnings of a much more sustainable surge in lower-middle class workers (which I might call "the rising class"). As the pace of growth peaked with the boom in 2000, a modest slackening of demand had to come at somebody's expense and the sad fact is that energetic younger and lower-income workers are more than happy to fill in for any "loss" of higher-income workers. Some of us are indeed "mobile", but in the reverse direction, even as lower-income groups are enjoying more generous opportunities.

Ongoing business restructuring over the next two or three years (airlines, technology, telecom, cars, etc.) and general corporate "cost-cutting" will probably further shift the overall distribution from upper-middle to "rising class". Both will likely experience a change in mobility, but in opposite directions.

Children of "boom" workers are likely to experience better relative mobility in their own careers even as their parents may simultaneously experience negative relative mobility as a result of corporate "cost-cutting" and even though it is technically illegal for businesses to engage in age discrimination. Children of rising class workers will likely experience better absolute mobility relative to their parents even as the children of boom professionals experience lower absolute mobility than their parents.

It will be rather crazy over the next two decades, in both an absolute and relative sense.

-- Jack Krupansky

Posted by: Jack Krupansky at May 16, 2005 03:23 PM

Even before you research the question, common sense tells you absolute mobility has risen substantially. Almost all the growth companies have been the producers of luxury goods - the kind of goods that one person doesn't consume more of just because he's rich. Starbucks - do the rich drink more coffee? Polo - do the rich change their clothes several times a day? Toll Brothers - the rich might have more houses but not in affluent bedroom communities surrounding major US cities.

And the raw data clearly show upward mobility in the absolute sense. Not only university economics department studies, Federal Reserve studies, Treasury studies, but private sector studies. All these "new millionaire households" - there are over half a million new ones each year - were by definition previously not millionaires. And before you chime in about housing prices, this is excluding home equity. Seriously, it's about 1/11th of the country, over half of whom were middle class 10 or 20 years ago.

Krugman attempts to mask this by referring to things only relative to the top.

My first problem with Krugman is not his present explanation that he is more concerned with the relative than the absolute but that before he was cornered on the issue his references to the relative were deliberately made in such a way as to make the casual reader, who lacks either or both the time or inclination to seek the raw data, believe that what he was saying was true of the absolute.

My second is that he refers only to the top 1% or 5% - - in terms of the top 10% or 20% relative mobility hasn't changed at all, and is the same as it is in Scandinavia, as Sawhill et al pointed out, while the income "gaps" among the groups are bigger in the US now than in the US before or in Scandinavia now - to wit, pretty high. So, to get from 70th to 20th is as easy here now as it was here then and as it is in a socialist country now, but here now that gap is $45K whereas it was $15K in the US then and is $12K in Scandinavia now. That means that if Bob is in the 70th percentile in the US now, his father Fred was in the 70th percentile in the US a generation ago, and Sven is in the 70th percentile in Scandinavia now, Bob's chances of increasing his income by $45K are the same as Fred's chances of increasing his income by $15K, and are the same as Sven's chances of increasing his income by $12K.

Which would YOU rather be?

Posted by: Patrick Trombly at August 6, 2006 12:02 AM


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