Al Gore's class warfare

Posted: Aug 23, 2000 12:00 AM
Much of Al Gore's acceptance speech at the Democratic Convention was devoted to class warfare. It was all about the rich versus the poor and the powerful against the powerless. Gore, needless to say, portrayed George W. Bush as the protector of the former and himself as the champion of the latter. The Wall Street Journal took issue with Gore's simplistic characterization in an Aug. 17 editorial. It pointed out that those who may be poor today are often well to do within a few years. In short, Gore treats people as if they are forever fixed in their position on the income distribution. Those who are poor today will always be poor, in Gore's view, unless government comes to their aid. By the same token, those who are rich today will always be rich unless government intervenes. The Journal pointed out, quite correctly, that Gore's implicit assumption is demonstrably false. Many academic studies have looked at the distribution of income and found that there is enormous mobility among income classes. Among the studies cited by the Journal is one by the University of Michigan in 1984, showing that between 1971 and 1978, almost half of those in the bottom 20 percent of families in the first year were in a higher quintile in the latter year, and almost half of those in the top quintile fell to a lower quintile over the same period. The Journal also cited a 1992 Treasury Department study which showed that between 1979 and 1988, 86 percent of those in the bottom quintile moved to a higher quintile, and that 35 percent of those in the top quintile moved to a lower quintile. Writing in the New York Times on Aug. 20, Princeton economist Paul Krugman disputed the Journal's argument. He made two rebuttals. First is that the studies cited were old and "ridiculed by serious experts" for "procedural errors." What he neglected to mention is that many other studies, done by reputable economists, have come to exactly the same conclusions. -- In the 1980s, the Census Bureau issued a number of reports on income mobility that consistently showed about 20 percent of those in the bottom quintile moving up one or more quintiles, and the same percentage of those in the top quintile moving down over just a one year period. -- In 1992, the Urban Institute published a study showing that between 1967 and 1976, and between 1977 and 1986, about half of all those in the bottom quintile moved up, and half of those in the top quintile moved down between the two periods. -- A 1993 study in the Review of Income and Wealth looked at families between 1969 and 1976 and between 1979 and 1986. It found that almost half of those in the lowest 10 percent of families moved to a higher decile, and about half those in the top decile moved down between the two periods. -- In 1995, the Federal Reserve Bank of Dallas issued a report showing that between 1975 and 1991, almost three-fourths of those in the bottom quintile the first year were in a higher quintile the second year, and almost 40 percent of those in the top quintile moved down to a lower quintile over the same period. I could cite other studies as well. The point is that if the studies cited by the Journal are so flawed, why is it that study after study keeps coming to the same conclusions? The answer is that Krugman cannot dismiss the mobility argument so easily. There is, in fact, very substantial movement up and down the income scale belying the liberal myth that the poor will always be poor and the rich will always be rich, thus justifying government redistribution. Recognizing the weakness of his first argument, Krugman makes a second one as well. Even if there is income mobility, it is meaningless, he says, because "those people who supposedly went from the bottom to the top were basically guys who worked part time in the college bookstore, then had real jobs by the time that they were 30." What happened to those who fell from the top of the income distribution into lower income levels is left unanswered by Krugman. I asked economist Brad Schiller of American University what he thought of Krugman's analysis. Schiller, unlike Krugman, has done original research in this area and is an expert on income distribution. He said Krugman's argument was "completely fallacious." Schiller's own research, which has been published in prestigious academic journals, finds that there is enormous income mobility even after adjusting for age. In short, Krugman doesn't know what he is talking about. Even so, the liberal Krugman makes an important concession simply by acknowledging that there is income mobility. Even if it was such that the data are simply measuring the natural rise in income that generally goes with increasing age, as he argues, it still undercuts much of the argument for income redistribution. That case is fundamentally based on the notion that everyone's relative income position is forever fixed and can only be improved with government action. Since even liberals like Krugman now admit that this is not true, the argument for redistribution basically collapses.