Decreased social mobility and the increasing wealth gap becoming a major problem in the US

Wednesday, January 22, 2014

I normally don't wade very far into economics, but I thought this opinion piece in El País (a Spanish-language newspaper) on growing income inequality in the US was very interesting. It draws attention to the decreasing social mobility (often referred to as the "American dream") in the world's wealthiest nation and discusses how the economic recovery strategies implemented by Congress after the 2008 recession tend to favor wealthy asset-holders.
The reduction of social mobility in the U.S. is becoming a serious problem. Today, a child born in a family within the top 20% of income distribution has a probability of over 60% to remain in that top 20% as an adult. However, a child born into a family in the bottom 20% of income distribution has a probability of only 5% to 20% to progress to the top of the distribution. The American view has traditionally been that it is more important to increase the amount of total wealth than that the wealth be divided more symmetrically, but, as the division becomes more unequal, the debate is shifting to improving the distribution without reducing growth wealth.

...

Using data from the Congressional Budget Office, Paul Krugman has recently argued that rising inequality has been more important than the warmth of recovery in explaining the fall in income of the middle class since 2007.

It is an open debate. The constellation of policies adopted to overcome the recession with fiscal adjustment and monetary expansion initially benefits the owners of financial assets, which tend to be more concentrated in the upper classes though, once recovery is established, increased employment and wages should compensate. The obsession with deficit reduction, including welfare cuts and fiscal discipline can be seen as necessary or as disregard for the poorest strata of the population. The fact that the U.S. Congress has an overrepresentation of millionaires (representing a majority of Congress, even if only 3% of the population) has been introduced as an additional factor to explain the lack of sensitivity to inequality.
Translation provided by Google translate, with my own minor corrections.

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