Words of the Day: “Logic” & “Mobility”

Words of the Day: “Logic” & “Mobility”

Yesterday Jesus at Gizmodo shared his thoughts on this post from NPR: 40 Years Of Income Inequality In America, In Graphs. Wow, do things look grim…

The graphic above on household income over the last 40 years is particularly striking: After adjusting to inflation, you can see that the lowest incomes have barely moved. In fact, they went down.

By contrast, the top layers of the population skyrocket despite any economical crisis. Basically, the upper percentiles keep absorbing more and more money while the lower ones, the largest parts of the population, fight for the crumbles while carrying the weight of productivity.

Logic

This is tragic and outrageous! Those poor people at the bottom of the ladder have been struggling just to get by, while the greedy few at the top take more and more! The robber barons are oppressively stifling the productive classes, only offering them crumbs from the table. It’s unconscionable!

Unless you actually think about it. You see there are some logical problems with this analysis. Sit back and I’ll educate you on them.

First is that, as you can see, the least a person can make on this graph is -0-. The most is unlimited. So you have a situation where there is a floor, yet no ceiling. those at the bottom will, much like water on the ocean floor, be compressed ever tighter, while the top is free to expand. You would naturally expect the gap above each line to be larger than the one below it.

Second, these are adjusted for inflation. Of course the lines at the bottom have stayed stagnant! Unadjusted, they would have increased quite a lot, but instead, they’re normalized so that poor in 1975 = poor in 2013. Logically, no matter how much higher the wages or standard of living, the bottom 5% will still be the bottom 5%. When adjusted for inflation, that line will be flat. Always. And the angles of the lines above will remain as they are.

Don’t believe me? The poverty threshold for a family of four in 1973 was about $4,500. In 2013 it was $23,550. That’s an increase of 422%. But it’s the assigned poverty level, so it remains flat on these graphs. So you are logically guaranteed that the incomes for the bottom 20% will stay flat over time, when adjusting for inflation. You should expect this:

Stop being surprised when you see it:

Because it’s only logical:

Mobility

We’ve reached the second word of the day. And this is the big one for this discussion. In 2007 the US Treasury published this study, saying, in part:

  • There was considerable income mobility of individuals in the U.S. economy during the 1996 through 2005 period as over half of taxpayers moved to a different income quintile over this period.
  • Roughly half of taxpayers who began in the bottom income quintile in 1996 moved up to a higher income group by 2005.
  • Among those with the very highest incomes in 1996 – the top 1/100 of 1 percent – only 25 percent remained in this group in 2005. Moreover, the median real income of these taxpayers declined over this period.
  • The degree of mobility among income groups is unchanged from the prior decade (1987 through 1996).
  • Economic growth resulted in rising incomes for most taxpayers over the period from 1996 to 2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups.

If you’re struggling to put meaning to what you just read, I’m here to help.

Poor people don’t just stay poor. Few become rich, of course, but the opportunities are there for advancement, and you can see that by the nature and prevalence of their success. Half of those in the bottom 20% moved up. A fourth of them moved up to the middle or upper middle quintile. Not only that, this wasn’t some unusual period of mobility; it was the same in the ten years before. This is the reality.

You may be thinking that if so many moved up, that an equal number would have had to have moved down. You’d be wrong. Where does a teenager, or a recent high school grad, or a low skilled immigrant fall on this chart when they enter the workforce? Invariably in the bottom 20%. And there are more and more entering the workforce every day. In 1973 the labor force was 62 million strong. In 2013 it was 155 million. And that’s not just 90 million new workers. Most of that 62 million have retired. A generation has passed and we’ve got a new workforce. Where did most of those people start? At the bottom.

So as existing workers move up, new workers enter the workforce below them and also move up. Over generations this creates even more significant mobility. My great grandparents grew up in the south after Reconstruction. My siblings and I are all among the top 10ish percent of wage earners. And, we hope, our children will be among the top 5%.

Even NPR’s original report included this: “To be clear, as we reported earlier this year, many households move up and down the income ladder over time.” This is the reality of income “inequality” in the US. These numbers aren’t about individuals, or even distribution. They’re simply displaying what will always be true in a strong economy. When someone tells you different, they’re trying to sell you something, or get elected.

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