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Krieg Barrie

Climbing the ladder

Money | It’s income mobility, not inequality, that really matters

Issue: "Getting paid not aid," Feb. 22, 2014

President Obama said in his State of the Union address on Jan. 28 that he wanted to end income inequality in this country. In December he called economic inequality the “defining challenge of our time.”

Ending income inequality was a focus of the recent World Economic Forum in Davos, Switzerland—a focus many pundits noted was ironic since it costs more than $40,000 per person to attend the conference. The relief organization Oxfam added fuel to the debate by releasing a report saying the 85 richest people in the world are as wealthy as the poorest half of the world’s population. 

But is income inequality really bad? Would ending income inequality—even if that were possible—really eliminate poverty? A growing body of evidence suggests the answer to both these questions is “no.”

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The real issue is not inequality, per se, but mobility: What chance does a poor person have of moving up the economic ladder? What economic and social conditions are most likely to increase that upward mobility? The Equality of Opportunity Project at Harvard and Berkeley—two institutions not known for their conservative ideas—suggests that income inequality plays almost no role in increasing or decreasing income mobility. 

Over a 30-year period, when income inequality has moved up and down, mobility has remained more or less constant. Raj Chetty, a Harvard economist and principal investigator at the Equality of Opportunity Project, calls this both good news and bad news. The good news is that increased income inequality hasn’t hurt mobility. The bad news is that mobility has not increased during that time. He asserts that the “single strongest correlate of upward mobility” is family structure and what his study calls “community religiosity.”

Bradford Wilcox, who leads the National Marriage Project at the University of Virginia said “inequality itself is not a particularly potent predictor of economic mobility.”  Wilcox studied the Harvard and Berkeley data and concluded that “high percentages of two-parent families, and high local government spending—which may be a proxy for good schools—are the most likely to help poor children relive the Horatio Alger story.”

A series of new studies on the gentrification of neighborhoods further debunks the idea that rich people getting richer is the cause of poor people getting poorer. One study, from the Cleveland Federal Reserve Bank, asked whether affluent people moving into a neighborhood forced the poor out. The study concluded that “gentrifying neighborhoods may be a boon to longtime residents as well.” Poor neighborhoods are already transient. They are displaced not by more affluent people, but by a lack of opportunity in those neighborhoods.

When rich people move into poor neighborhoods, they bring their money and opportunities with them. It turns out that all those affluent yuppies, Gen-Xers, and millennials support local businesses, volunteer in the community, and generally do things that help their poorer neighbors. They start businesses and hire long-time residents. In short, the income of the rich really does “trickle down,” or at least out, to the poor in those same neighborhoods. According to the Cleveland Fed study, all this economic activity makes the poor actually more likely, not less likely, to be able to stay in their neighborhoods.

Of course, not all wealth is created equally. A technology entrepreneur who creates an industry and becomes a billionaire in the process is different from a despot who throws slave labor into a diamond mine in a developing country. But Bob Lupton, author of Toxic Charity and someone who has devoted his life to helping the poor, told me that “we don’t do enough to celebrate the wealth creators of the world.” He said someone like Bill Gates “may have a net worth that puts him among the richest in the world, but his wealth is just a small fraction of the total wealth he has created.” 

Lupton goes so far as to say that “wealth creation can be a spiritual gift. God gives people certain abilities to create wealth. It can be a wellspring out of which shalom can emerge. Wealth creators play an essential role … in a healthy society and a just world.” 

Warren Cole Smith
Warren Cole Smith

Warren, who lives in Charlotte, N.C., is vice president of WORLD News Group and the host of the radio program Listening In. Follow Warren on Twitter @WarrenColeSmith.

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