BrinkLindsey.com – The Age of Abundance

The second highlight of the Pew report on economic mobility is the finding that, for men in their thirties, median income has fallen slightly between 1974 and 2004. The implication is that American men today are doing worse than their fathers.

The most obvious problem with this analysis is that it doesn’t appear to control for the big demographic shift that’s occurred over the past 30 years. Specifically, the share of the total population born in foreign countries has jumped from 5 percent in 1974 to 12 percent in 2004. Relatedly, people of Hispanic origin have climbed from 5 percent of the population in 1974 to 14 percent in 2004.

The huge wave of Hispanic immigration over the past generation has been good for the immigrants and their families, and good for the country as a whole. But this big influx of relatively low-skilled immigrants has to have depressed median income compared to what it otherwise would have been. Unfortunately, I’m not aware of good studies that quantify the effect.

But there is a much deeper problem, I think, than the comparison of demographic apples and oranges. And that is the comparison of purchasing power apples and oranges.

The issue here is the one of calculating “real income” in constant dollars. The problems associated with such calculations are usually framed in terms of correcting for inflation — i.e., for changes in the overall price level. But a far bigger problem, especially when you are comparing incomes over relatively long time periods, is that an increasingly major component of purchasing power in the later time consists of the power to purchase goods that weren’t available at any price in the earlier time.

Let’s take an easy case. Do your best job of coming up with a deflator that takes care of changes in the price level, and calculate the dollar income in 1800 that is the “equivalent” of an income of $100,000 in 2007. Then try with a straight face to convince somebody that the earner in 1800 and the earner in 2007 are equal in terms of material well-being.

Now let’s go to the comparison that’s at the heart of the stagnating median incomes argument: incomes today and incomes in the early 1970s. Do what you want as far as adjusting for inflation, but there’s still the problem of all the goods that simply weren’t available back then: personal computers, the World Wide Web, cell phones, cable and satellite TV, DVDs and iPods, airbags, anti-lock brakes, automatic teller machines, aspertame, LASIK surgery, CAT-scans, home pregnancy test, and ibuprofen, just to name a few.

Of course economists do their best to deal with this problem, but I believe the task is hopeless. I’ve come to the conclusion that, in today’s technologically dynamic world, the concept of real income has a useful time horizon of no more than a couple decades. Stretched beyond these limits, calculations of trends in real income simply aren’t worth very much.

I don’t see how anybody without an ideological axe to grind can maintain seriously that ordinary people in the ’70s had the same material well-being as their counterparts today — yet that’s the implication of saying that median real incomes have been stagnant.

A new report from the Pew Charitable Trusts’ Economic Mobility Project — an initiative that brings together experts from Pew, the Brookings Institution, the Urban Institute, the American Enterprise Institute, and the Heritage Foundation — suggests that the American Dream of upward mobility is in trouble. In particular, the report makes these two attention-grabbing findings:

1. Americans have less relative income mobility (as measured by the relationship between parents’ and children’s incomes) than many other industrialized countries, including France, Germany, Sweden, Canada, Finland, Norway, and Denmark. In other words, the so-called land of opportunity isn’t all it’s cracked up to be.

2. The median income of American men aged 30-39 in 2004 is slightly lower than that of their counterparts in 1974. In other words, American men today are worse off than their fathers’ generation.

In predictable response, Kevin Drum expresses gloating schadenfreude here.

In this post I’ll focus on the first claim about intergenerational mobility. Here are some preliminary thoughts:

1. First, the bottom line: is measured income mobility between generations really on the decline in the U.S.? Not according to Gary Solon of the University of Michigan, who is probably the leading American researcher in the field. (He is on the advisory board of the Economic Mobility Project.) His most recent research on the subject, in a paper co-authored with Chul-In Lee, concludes that “intergenerational income mobility has not changed dramatically over the last two decades.”

So, to the extent that the vitality of the American Dream has something to do with measured intergenerational income mobility, that dream seems alive and well.

2. OK, so how do experts measure intergenerational income mobility anyway? Using survey data that tracks the income of the same individuals and families over time, researchers compare the income of parents at some specific age or age range to incomes of children at the same or other ages. As I understand it, perfect correlation between parents’ and children’s incomes is measured as an “elasticity” of 1, whereas a lack of any correlation would correspond to an elasticity of 0. In other words, the lower the elasticity, the more random the pattern of parents’ and children’s incomes — and the higher the measured level of intergenerational mobility.

So mobility means both upward and downward mobility. This isn’t a measure of how much better kids are doing than their parents. Rather, it’s a measure of the lack of connection between how parents did and how their kids are doing.

3. What factors can influence the level of measured mobility? Solon has developed a model based on the insight that income is a return to human capital. According to Solon’s model, intergenerational income elasticity is a function of: (1) the heritability of human capital; (2) parents’ investment in their children’s human capital; (3) returns to human capital; and (4) the progressivity of public investment in human capital (public health, education, etc.). Elasticity varies positively with factors (1) through (3) (i.e., the higher the values for factors (1) through (3), the higher the elasticity and the lower measured mobility) and inversely with factor (4) (i.e., more steeply progressive public investment in human capital reduces elasticity and ups mobility).

4. OK, let’s turn now to the Pew report’s finding about relative mobility in the U.S. and Europe. The data cited by Pew come from this study by Miles Corak. Let’s assume for the sake of argument that Corak’s numbers are rock solid. The question then is: what do they mean?

Using Solon’s model, let’s look at the four factors that influence mobility. Presumably heritability of human capital is the same on both sides of the Atlantic, so that can’t explain the differences in measured mobility. That leaves three other possibilities: (1) American families invest more heavily in their kids’ human capital than do European families; (2) returns to human capital are higher in the U.S. than in Europe; and (3) public investment in human capital is more progressive in Europe than in the U.S. I don’t know about (1) and (3), but (2) certainly looks plausible.

But if that’s the case, it means that, at least to some extent, measured intergenerational mobility in the U.S. is relatively lower because the payoff for talent and hard work (surely conscientousness and diligence are forms of human capital) is higher here.

Which suggests that the concept of measured intergenerational income mobility might not always be terribly illuminating. After all, what we’re trying to get at here is whether we live in some kind of rigid class structure where kids of poor parents are doomed to be poor themselves. And a system where the rewards for talent and hard work are relatively high seems like the opposite of a rigid class system.

If continental Europe truly were more open and less stratified than we are, then why are Europeans worried about a “brain drain” to the supposedly class-stratified U.S. and U.K. (the only country in Corak’s survey to score lower than the U.S. on intergenerational mobility)? Why in particular did Nicholas Sarkozy make a campaign stop in London and urge the estimated 300,000 French expat’s living in the U.K. to come home and “make France a great nation”?

The second big claim in the Pew report — that American men in their thirties make less than did men in their fathers’ generation — is just a rehash of the familiar argument that median real incomes have been stagnating since the ’70s. I’ll have a thing or two to say about that in my next post.

UPDATE: I should point out that Solon and Lee’s estimate of intergenerational mobility trends is by no means the only one out there. Indeed, they write:

The research conducted so far on intergenerational mobility trends has produced wildly divergent estimates. In this paper, we argue that this confusing array of evidence is partly an artifact of imprecise estimation, which in turn has stemmed from inefficient use of the available data. By drawing more fully on the information in the Panel Study of Income Dynamics, we generate more reliable estimates of the recent time-series variation in intergenerational mobility.

It appears to me that Solon and Lee’s estimate represents the state of the art, and therefore that stability in measured intergenerational mobility is the (lack of) trend best supported by the evidence. But I must say that I wouldn’t be surprised if measured mobility had declined over the past couple of decades. Consider, after all, the factors that drive the values. We’re pretty sure that returns to human capital have risen — that’s what is behind the rise in the college premium. And it seems plausible that, with the rise of the parental style of “concerted cultivation,” parents’ investment in their kids’ human capital has increased as well. So for intergenerational elasticity not to rise (i.e., for mobility not to fall), there must have been a big increase in the progressivity of public investment in human capital.

Which, come to think of it, doesn’t seem that unlikely. Think about a thirtysomething man in the mid-’70s, born in the early ’40s, and compare the situation of a thirtysomething man in 2004, born in the early ’70s. It seems likely that, for people in the lower half of the socioeconomic scale, there were dramatic improvements between those generations in health care, nutrition, and education.

Today’s presidential TV spot is a Nixon ad from 1968. Change “Vietnam” to “Iraq” and the script could be repeated verbatim by the 2008 Democratic nominee:

Thirty years ago today, Star Wars opened in 32 theaters. It was late June, though, before the movie got to Tallahassee where I grew up. I vividly remember the time I first saw it; all kinds of random details about the day have somehow stuck in my memory.

I remember walking out of the theater in a daze, completely blown away. You know that feeling when the real world outside somehow seems less real than the movie still buzzing around inside your head? I don’t think the buzz wore off till the next day.

In an age bloated with special-effects blockbusters, it’s impossible to recreate how it felt to see something so completely beyond what we were used to. The best context I can provide is to point out that the craptastic Logan’s Run — which won an Oscar for visual effects! — came out just the year before. I mean, the movie was filmed in a freakin’ mall and it won an Oscar!

Here’s the Logan’s Run trailer, just for giggles:

I like to bore my kids with tales of the good old days “back before we invented safety.” In that distant land, parents took a, well, decidedly more Darwinian approach toward caring for their young charges.

Examples below:

 No childproof lids!  (They were mandated under the Poison Prevention Packaging Act of 1970.)

 I don’t know when bike helmets became the norm.  All I can say is they wouldn’t have been a safety feature when I was a kid — anyone caught wearing such a thing would have been beaten savagely.

When did high dives start disappearing?  I think they’re all but gone now — thanks, Mr. Lawyer!

Ah, monkey bars.  Can you even imagine how parents would react today if one of these things went up in their kids’ school playground?

 ”I think there were seven of us when we left.”

An oldie but a goodie — the shoe-fitting fluoroscope!  These things were even before my time.

Today’s presidential TV spot is an LBJ ad from the blowout election of 1964. The spot takes advantage of Barry Goldwater’s gaffe about sawing off the Eastern seaboard.

There were plenty of gaffes to choose from. Goldwater, lionized in later years for his role in launching conservatism’s rise to power, ran a spectacularly inept campaign. He would begin speeches by listing the kinds of people he didn’t want to vote for him, including the “lazy, dole-happy people who want to feed on the fruits of somebody else’s labor.” He called the War on Poverty “plainly and simply a war on your pocketbooks” — in poverty-plagued West Virginia. He railed against cotton subsidies on a swing through North Carolina and Tennessee. He warned of an explosion in crime — in geriatric St. Petersburg.

The particular comment lampooned here played perfectly into LBJ’s campaign. Johnson ran as the candidate of centrism and unity against the divisive insurgency of Goldwater and his band of right-wing extremists. And, in an era of peace and prosperity, he rode that message to a landslide victory. Although Goldwater’s stumbles and the borrowed halo from the slain JFK doubtless padded Johnson’s margin of victory, his win was all but inevitable for one simple reason: the times were far too good for Goldwater’s doom-and-gloom jeremiads to have broad appeal.

But times would quickly change. LBJ’s historic triumph (he won 44 states and 61 percent of the vote) would prove a pyrrhic victory. Vietnam on the one hand, and urban and campus unrest on the other, would wreck the liberal consensus for good. It has never been restored.

In light of James Comey’s amazing testimony about Alberto Gonzales and Andy Card’s candy-striper-from-hell act, John Ashcroft is starting not to look so bad.

But lest we forget:

Stupid beats evil, to be sure. But it’s still stupid. 

I’ll be appearing on The Daily Show on May 17 to discuss my book. The program airs on Comedy Central at 11 pm Eastern.

Check it out!

UPDATE: Here’s the segment:

To his enduring shame, here’s the quote for which he’ll probably be best remembered. He was talking about the 9/11 attacks:

I really believe that the pagans, and the abortionists, and the feminists, and the gays and the lesbians who are actively trying to make that an alternative lifestyle, the ACLU, People For the American Way, all of them who have tried to secularize America. I point the finger in their face and say “you helped this happen.”

I’ve followed Jerry Falwell’s career for a long, long time. As a teenager in the Deep South during the ’70s, I had a peculiar fascination with the then-new breed of televangelists. My friends and I used to watch and goof on Falwell, Jim Bakker, and Pat Robertson years before they became household names. And I can tell you, they toned down their act considerably after reaching the national spotlight.

It’s easy for someone like me to bash Jerry Falwell. I reject his brand of religion, and I reject his backward social views. But in the spirit of not speaking ill of the dead, let me say this. In that fulcrum year of American politics, 1980, Jerry Falwell stood on the right side of history when he rallied evangelical support for Ronald Reagan. Notwithstanding his retrograde ideas and hateful intolerance, he thus made an important contribution to the restoration of American economic vigor, military strength, and national self-confidence.

R.I.P.

This installment of the presidential TV spot of the day is a two-for-one special. First, here’s the actual Willie Horton spot, an independent ad by an outside conservative group called the National Security Political Action Committee:

And here’s the Bush campaign’s official “revolving door”spot on Dukakis’s weekend furlough program, with no picture or even mention of Horton:

It’s difficult to overestimate how important the crime issue was in boosting conservatism’s political fortunes during the ’60s, ’70s, and ’80s. And one of the main reasons for its potency was the tendency of liberals to dismiss the “law and order” issue as a smokescreen for racism (as they tried to do with the prison furlough ads). Yet the explosion in criminality was all too real, and conservatives were right to take the problem seriously. Between 1965 and 1980, the nation’s murder rate exactly doubled; the rate for aggravated assaults jumped by 165 percent; robberies, by 244 percent; burglaries, by 155 percent; car thefts, by 94 percent. Over the same time period, however, the share of robberies cleared by arrests sank from 38 percent to 23 percent; for burglaries, the drop was from 25 percent to 14 percent. Meanwhile, between 1960 and 1980, the number of prisoners per 1,000 arrests declined from 232 to 124.

For a variety of reasons, the crime issue has lost much of its juice in recent years. First and foremost, crime rates have been dropping. The rate of violent crimes peaked in 1992 at 758 per 100,000 people; by 2003 it had fallen 37 percent to 475 per 100,000. Also, “New Democrats” like Bill Clinton strove to defuse the issue by backing capital punishment and other pro-law-enforcement measures. More recently, a related issue — protecting the right of people to defend themselves — has begun to fade as Democrats have been backing away from their old support for gun control.