The not so great Gatsby

Interesting new chart from the White House that is based off of Alan Kreuger’s notion of a Great Gatsby curve—essentially, the curve tracks the correlation between income inequality in a country and inter-generational economic mobility. It turns out (perhaps to be expected) that in countries with high income inequality, a child’s income as an adult depends much more on the income of their parents than in countries with low income inequality:

The curve shows that children from poor families are less likely to improve their economic status as adults in countries where income inequality was higher – meaning wealth was concentrated in fewer hands – around the time those children were growing up.

The White House then ties these results to equality of opportunity: “It is hard to look at these figures and not be concerned that rising inequality is jeopardizing our tradition of equality of opportunity. The fortunes of one’s parents seem to matter increasingly in American society.”

I wrote a post a while back making the argument that equality in outcomes (substantially reduced income inequality) wasn’t necessarily required to have equality of opportunity, so long as access wasn’t dependent on socioeconomic status. I stand by that argument, although, like I said at the time, I don’t think the United States has a system that even approaches equality of opportunity right now.

More generally, though, I think it’s pretty clear right now that countries with lower income inequality have systems that are closer to equality of opportunity. However, I haven’t seen any definitive evidence for whether the actual distribution of income is the causal factor, or whether these countries have robust social-welfare states whose educational, early-childhood care, and health care systems that allow for more equal opportunity, (where the reduced income inequality is a byproduct of the taxes needed to finance such a system). I would make the case that equality of opportunity depends more on access to education and health care than simply not having high income inequality: as an example, I find it hard to believe that two countries with the same levels of post-tax income inequality: one being a country that spent the vast majority of its tax revenue on the military, the other being a country that financed a robust social-welfare state with its tax revenue, would have the same levels of inter-generational economic mobility. But, without more evidence, I have no proof. I would be really curious to see more research in this area.

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