Income Inequality & Social Mobility

America (the concept, not the country) has several striking paradoxes. One of those paradoxes keeps coming to mind as we hear both parties bloviate incessantly about the fiscal cliff.

The fundamental concepts in America are rooted in liberty and equality. The founders saw the concept of “equality” as a function of treatment under law. If a rich man and poor man are suing each other for a right to a slice of property, the fact that one is rich and the other is poor shouldn’t matter. The history of America has been a history of hypocrisy on this score, with citizens denied rights according to race, gender, sexual orientation, etc. Yet we strive to make it better for everyone, and indeed the genius of the American experiment was that the founders realized that we would continue to strive to make it better.

One of the goals of the American experiment (especially among the Jefferson-led anti-Federalists) was social mobility. The existence of an aristocratic class had plagued Europe, and the atrocities of the French Revolution made the point all the more poignant.

Now to the paradox: it is difficult to marry the most acceptable economic system for a freedom-loving people (capitalism) with an antipathy for the rise of an aristocratic class. Indeed, capital accumulation is both a central tenet of capitalism and aristocracy.

The graph below depicts the so-called Gatsby Curve, which illustrates this well.

great_gatsby

The United States is outperformed by other advanced economies on social mobility and economic equality, which many lament as an economic problem. It seems that it is more an illustration of the schizophrenia of American ideals.

This begs the question: is liberty more desirable, or is equality?

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