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.