Despite a highly partisan crowd of voters, Ed defeated the IQ2 Motion: “Income Inequality Impairs the American Dream of Upward Mobility.”
If income inequality truly impaired mobility, there would be telltale signs:
- Growing inequality would have reduced mobility. It hasn’t. Even Emanuel Saez, of the liberal Piketty and Saez duo, admits, the chance of a low-income child reaching any higher level of income has increased.
- Economies with more equally distributed incomes would have greater mobility. They don’t. Even Miles Corak, whose findings the Obama Admiration claimed underpinned their infamous “Great Gatsby Curve,” admits, there are “almost no differences in upward mobility between Canada, Sweden, and the U.S.”
- Transferring more money to the poor would increase mobility. It hasn’t.
- Spending more money on education would increase test scores. It hasn’t.
We may not know how to increase mobility, but we do know that growing prosperity raises the living standards of the poor.
This isn’t really a debate about whether inequality impairs mobility. It’s really about whether the success of America’s top-earners hurts the middle and working class.
Our opponents see the economy as a pie to be divided. They believe Steve Jobs’ success takes income away from others. We see his success as growing the economy and the demand for labor.
It’s true that productivity has grown faster than median wages. Our opponents see this as evidence that lesser-skilled workers no longer share in the success of our economy. They overlook the fact that growth can manifest itself in two ways: where the supply of labor is restricted—like it was in the 1950s and ‘60s—growing demand drives up wages; where the supply of labor is unrestricted—like it is today—growth drives up employment.
The baby boom, the increased participation of women in the workforce, immigration, and growing trade deficits have created an enormous increase in the supply of labor. As a result, employment grew instead of wages.
U.S. employment has grown 50% since 1980—twice as fast as Germany and France, and three times faster than Japan. Two to three times faster growth is an unheard-of difference in performance. This difference would have been even greater if those countries hadn’t benefited from the disproportionate share of innovation produced by the United States.
And America achieved this employment growth at median incomes that were 20 to 30% higher than Germany, France, and Japan.
Because of this growth, today, America is home to 37 million adult immigrants, their 16 million native-born adult children, and all the young children of these 53 million adults.
Perhaps wages would have grown faster if the supply of labor had been more restricted. But it’s disingenuous to close one eye, ignore America’s extraordinary employment growth relative to its peers, and claim that income inequality hurts the middle and working class.
No other high-wage economy has done more to help the middle class and working poor. That’s why you should vote against the motion that “Income Inequality Impairs the American Dream of Upward Mobility.”
To persuade you that the success of America’s top-earners subtracts from everyone else’s income,
our opponents will claim successful Americans used cronyism to misappropriate their earnings. If these Americans had misallocated resources on a scale necessary to achieve their success, growth would have slowed relative to economies with more equally distributed incomes. The opposite occurred. America’s growth accelerated relative to its peers. Rising crony capitalism can’t explain America’s faster growth.
That’s not to say there isn’t crony capitalism. There is. But the status quo is under assault from innovation more that it’s ever been. The turnover of CEOs, Fortune 500 companies, and the Forbes 400 wealthiest Americans have all accelerated—a far cry from evidence of rising crony capitalism. It wasn’t crony capitalism that produced America’s success. It was hard work and entrepreneurial risk-taking.
Information technology made knowledge workers more productive and opened a large window of low-cost investment opportunities. This increased the productivity and pay of our most talented workers and gave rise to a growing number of successful entrepreneurs. Americans were uniquely successful at capitalizing on these opportunities. Their success didn’t hurt America; it made us stronger.
To avoid debating this truth, our opponents will retreat to a more ambiguous claim —that perhaps we could have raised living standards even more if we had taxed success more heavily. Even if that’s true, “upward mobility has not been impaired” and therefore you should vote against the motion.
Even if you believe that higher taxes distribute more income to the middle class than they destroy, you should at least recognize there is little evidence supporting this highly speculative claim. In the real world, Germany, France, and Japan all distributed income more equally and none of them produced faster employment growth than America. Nor did they grow their median incomes faster than the U.S. since the early 1990s, despite more restricted supplies of labor.
In the academic world, there have been six highly regarded cross-country studies on the effect of income inequality on growth by economists at Harvard, MIT, the OECD, the World Bank, and the IMF. All of them have reached the same conclusion: inequality is correlated with faster growth in high-wage economies.
The IMF’s most recent study—whose headlines insisted that redistribution does not slow growth—admitted, “Redistribution above the 75th percentile is indeed harmful to growth, as the Okun ‘big trade-off’…suggests.” Guess which country lies at the 75th percentile? America.
Another one of these studies also examined Okun’s ‘big trade-off’ and found that, by 2001, the growth-promoting effects of inequality had pushed the income of the bottom 90% above what it would have been, if their share of income hadn’t fallen.
Even if this briefly-stated evidence fails to persuade you, it does not mean the success of our top-earners has hurt America. Quite the contrary, not only has America’s much faster growth created employment for tens-of-millions of additional workers at much-higher median incomes than other high-wage economies, it has improved every capable child’s chances of earning a higher standard of living. Even Emanuel Saez agrees.
The success of America’s top-earners is an asset, not a liability. Vote against the motion that “Their Success Impairs Upward Mobility.”
Germany is the second most prosperous major economy in the world. In Germany, the 99% earn 47% of GDP. In the United States, they earn the same share of GDP—47%. And that’s 47% of a faster growing economy, with median disposable family incomes that are 20% higher.
With America’s 1% earning a larger share of GDP than their counterparts in Germany, how can the 99% in both countries earn the same share of GDP? Relative to Germany, the additional share of GDP earned by America’s 1% comes entirely from the investors’ share of GDP, not the share earned by the 99%. For those of you who continue to believe the economy is a pie, please recognize that the larger slice of America’s 1% come entirely from investors and not from the 99%.
With valuable on-the-job training at companies like Google and access to networks of experts like Silicon Valley, the productivity of America’s top earners is higher than the rest of the worlds’. Given these advantages, it should come as no surprise that America’s 1% creates a greater share of GDP relative to investors than their counterparts elsewhere. And given these advantages, it should also come as no surprise that the returns to a college education are significantly higher in the United States than in any other country in the world, according to the OECD.
Ultimately, this debate boils down to whether the outsized success of America’s talent is an asset or a liability for the rest of the country. By every measure–employment growth, median incomes, returns to education, and opportunities for immigration–the U.S. provides more upward mobility than any other economy. Even ultra-liberal Emanuel Saez agrees: mobility has not declined.
Even if you believe we ought to tax the rich more, you should vote against the motion that “The Success of America’s Top-Earners, Impairs the American Dream of Upward Mobility.”
Watch the debate here.
See all the details at IQ Squared.