Inequality.org

connecting the dots on a growing divide

Wealthy Parents, Inherited Advantage, and Declining Mobility

Who is responsible for inequality?  Is it the 1 percent, soaking up the lion’s share of national income and wealth?  Or the failure of people in the 99% to boost their earnings by obtaining sufficient education and skills to compete in the labor market?

In a recent New York Times column, journalist Timothy Noah, argues that “The 1% is Only Half the Problem.”  He recites statistics regularly featured at www.inequality.org, including how the 1 percent’s share of the nation’s earnings doubled since 1979 –and how income since the 2008 economic meltdown has flowed primarily to the 1 percent.   Noah observes that this data “invites the conclusion that if we would just put a tight enough choke chain in the 1 percent, then we’d solve the problem of income inequality.”

But this wouldn’t solve the problem, according to Noah.  The other half of the story is the “rise of the educated class” and the ways that inequality is the result of insufficient skills on the part of lower and middle income earners. This includes the “college premium,” the earnings boost that graduates of college have over high school graduates.

Liberals, Noah argues, don’t like to talk about the skills-based gap because “they don’t want to tell the working classes that they are losing ground because they didn’t study hard enough.”  But to solve inequality, according to Noah, we have to look at both sides of the problem.

I like Noah –and his book, The Great Divergence: America’s Growing Inequality Crisis and What We Can Do About It, is a terrific contribution to our current understanding.

The “don’t blame the 1% for everything” framing, however, ignores the powerful interaction between the concentration of wealth within the top 1 to 5 percent and declining educational opportunities for everyone else.

The evidence for this is dramatic.  I just authored an article in The American Prospect called “The New Politics of Inherited Advantage.”

I summarize the mountain of growing research demonstrating how affluent families engage in what sociologists call the “intergenerational transmission of advantage,” a fancy way of saying, “helping their kids.”

The story goes like this: as wealth inequalities grow, two things happen that undermine equality of opportunity.  First, affluent families help their kids in dozens of ways to get a leg up in preparing for school, getting into selective colleges and launching decent paying careers.  They pull further and further ahead.  In my TAP article, I call it the “Born on Third Base” factor.

Secondly, extremely unequal societies historically disinvest the public sector and the social investments that give non-affluent households opportunities, such as 0-6 preschool, decent K-12 education and access to college or vocational skills.  Those who are not fortunate enough to have wealthy parents lose some of the tools needed to advance up the economic ladder.

The “politics of inherited advantage” is the dynamic between wealth holders and policy priorities.  Wealthy families have disproportionate wealth and power in our political system. But because they have privatized their education and opportunity needs, they have a reduced stake in paying progressive taxes and advocating for the kinds of social investments that fostered the period of shared prosperity in the 30 years after World War II.  Think debt free college educations, Head Start, fixed-rate subsidized home mortgages, and well-funded public universities and community colleges.

As wealth concentrates, this cycle worsens.  Affluent families confer more and more advantages upon their children.  At the same time, public investments decline, eroding the mobility opportunities of the non-rich.  Advantages accelerate for wealthy children while disadvantages compound for everyone else.

Part of the solution are public policies that directly reduce the concentration of wealth and restore public investments and charitable expenditures that expand opportunity for all.

I would certainly not advocate a “choke chain” on anyone.  But if we’re serious about inequality, we need a robust inheritance tax on wealth over $10 million, progressive income taxes, a financial transaction tax, and a tight leash on the off-shore tax system that enables wealthy people and global corporations like Apple to avoid their fair share of taxes.  We should eliminate taxpayer subsidies for bloated CEO pay and restore bargaining power for workers, so they can share in the productivity gains they have created.  A full program for reducing inequality can be found in my book, 99 to 1: How Wealth Inequality is Wrecking the World and What We Can Do About It.

The barriers to change are not working class people, most of whom would welcome the change to upgrade skills and education if it didn’t require a decade of debt servitude. The barrier is the plutocratic class that dodges taxes, institutes austerity for everyone else, and cuts education and opportunity spending.

 

  • http://www.gobbly.net/ Gobbly

    I dunno. To a certain point education will matter in lifetime income, but usually you quickly hit a point where it doesn’t. Inherited money where there is no link to the persons education and their wealth, plenty of people like Bill Gates for whom amassing the fortune interrupted their schooling. When you look at a situation where one person is making in a day what everyone else is making in a year, I really think it’s a stretch to say that this is in any way caused by a deficiency in the vast majority of the population. Even a well educated professional making 100-150k a year is no where near the 1%. We have many of the best educated people in the world working as teachers and professors and that’s an income range typically of 35-100k a year. Yes, I certainly agree that our public education system is horrid, but that doesn’t backup the argument that education is at all responsible for the disparity between the super rich and the rest of us.

    • Roger Wiseman

      To a large degree, describing public education as horrid is RW talking point. Tool to justify and gain support for charter and privatization of schools.

      • http://www.gobbly.net/ Gobbly

        I dunno, I don’t participate in propaganda or RW activism. I speak from experience. It took me years to recover from the damage done by a public education system that is dysfunctional at best. My ex-wife was a teacher. I’m no supporter of doing away with public education, but that doesn’t mean I am going to say that excrement doesn’t stink.

  • Z

    A huge contributor to wealth inequality since 2008 has undoubtedly been the artificial propping up of the financial markets through deliberate policies (bailouts, TARP). Considering the fact that the rich own a hugely disproportionate percentage of assets, natural market forces (the “free market” that they so claim to support) would have ruined their parade. Will it take Brazil-like protests to actually change anything??

    Educational imbalances certainly do play a role in all of this, bit that’s more of a long-term concern. Plus many rich people aren’t exactly Rhodes Scholars – maybe what we need to do is increase social education and try to shift values in society so that poor whites, blacks, and latinos can mimick the success the children of xhinese and indian immigrants have experienced (many of whom are the sons and daughters of cab drivers and small businesses)

    • CitizenWhy

      It’s true. Quantitative easing (QE) – that is, the policy of giving (technically loaned) huge amounts of money to a few banks induces the banks to invest that money in financial assets. That is why QE raises the stock market without producing much job growth in the USA.

      The justification for giving al this money to the banks is that their traditional role was to lend that money out to businesses so they could expand and hire. But that’s not an important feature any more of the big banks that dominate the US banking system and the entire economy.

      The big banks mainly invest in stocks, corporate bonds, foreign bonds, commodities futures (driving up the prices of food, metals, oil, gas, etc. ). They also buy up financial assets (like mortgages) to bundle into dodgy derivatives that they sell to investors. They also simply play the market, buying stocks and stock future prices (assuming the price will fall), then they dump the stocks and the prices fall, and then they buy the stocks gain and start the cycle all over agin. Nothing productive for the Main street economy comes out of all this.

      The current justification – since the President and the QE masters at the Fed know all this – is that the rise in the stock markets benefits retirees with a 401k plan (previously devastated in the collapse of 2008), pension funds (public and private), and university endowments.

      But again, no job growth from all this. And no reduction in the cost of higher education. And the huge bulk of the rising financial assets belong to the 1%.

      QE could have been done by directly “lending” (at 0%-1% interest) o universities, small businesses, charities,community colleges, and manufacturing businesses.

  • CitizenWhy

    Kids from rich backgrounds – and the upper middle class – do not simply inherit the helpfulness, private education, connections and wealth of the parents.

    In well ordered well-off homes (the only ones I know) the kids get schooled at home on how to invest, how to manage, how to budget, how to save for specific purpose, how to start a business or make it in a profession, how to be sexually prudent (which does not necessarily exclude hooking up), how to get people to like and trust you, how to make allies, how to host important people, professional savvy, and how to be realistic about the spouse you choose to fall in love with and commit to. In most cases they also learn ethical thinking. This may not be the case in the wealthiest homes since we know that many of the very wealthy have been shown to be ethically impaired. “Ethics” will vary based on whether a person is liberal or conservative. Conservatives will instruct in conservative ethics: protect our class interest, the only purpose of a business is maximizing profits, the losers (the poor, including the working poor and many middle class people) should never be be rewarded with unearned help. Liberal families would teach a different form of ethics, including the obligation of any society to provide at least an adequate safety net and take make sure that children and the elderly are helped to lead healthy lives.

    Example: At my middle class nephew’s college he had many hook-ups and relationships with very wealthy girls. This was common. But in junior year the girls dropped all the middle class boys and dated only boys from very wealthy families. Were any of us surprised? No.

    Example: The Wall street lawyer talks with his child who will be going to law school. They discuss the first year curriculum, how to master what is being taught, the most important things in the huge textbooks, how to ace a test, and how to use good trots (summaries) of standard textbooks to cut through the confusion and focus on what you need to know to get an A.

    These are real examples. I think you get the picture.

    • Kevin

      “kids get schooled at home on how to invest, how to manage, how to budget, how to save for specific purpose, how to start a business or make it in a profession, how to be sexually prudent…” Wow, must be great to be able to sit at home and get undivided attention from a parent who doesn’t have the burden of working one, two or even three jobs to make ends meet. Your statement clearly speaks to the fact that kids from rich backgrounds in fact do inherit their life of luxury and privilege in more ways than one.

    • jack

      conservatives donate way more money to charities than liberals. your lack of wisdom and experience illustrates a scary picture of such a misinformed illogical conclusion. because liberals pay attention to social issues is because they look to exploit them. Conservatives tend to have more money because they have learned that hard work brings wisdom, wealth, and because they have more money, they have more to give. not to mention the tax advantages to giving. The mindset that wealthy don’t build the bridges, buildings or other things requiring the labor of the poor shows how ignorant one can be. If the rich conservative didn’t have the incentive to create the vision and start the process of the project, as well as the funding to pay the architects to design it, the contractors who bid it, which creates the jobs of laborers to as your ignorance concludes, then how would it happen to start with? look at countries that have very little wealthy people. Are those countries building beautiful schools to educate? Are they building anything ? yachts, expensive cars, expensive goods of any description all have to be built and more importantly bought, so if wealthy people didn’t exist to buy them….? Ignorance of economies abound in these countries and Mexico exemplifies that more than most. 2500 miles of beautiful coastline, oil/bauxite/gold other natural resources yet they are a third world country. compared to many parts of North America. Mexico has a great climate that northerners envy, yet where do Mexicans migrate to? its because they are ignorant, and are not recognizing why America is so much better. apprantly neither do these detractors who only know class envy.

  • Wayne White

    About a year ago I was in a convenience store getting something to eat and drink while traveling. It was a vacation. Some people loitering in the store seemed to give deference to me and since we were near a college town they must have assumed I had a higher level of education. I attended a land grant school and worked part time, attended another land grant school with a scholarship and graduated with an advanced degree without debt. You have to be blind not to think that there is not a certain degree of animosity in our society as a result of the current plight of the majority of people in the United States. Money confers power but it seems to be a rather arbitrary method of deciding the worth of people. Too much of it is corraled by a small group and the advantages it confers are being squandered.

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