Want to help people? Focus on economic mobility, not inequality

By Gonzalo Schwarz

This op-ed originially appeared in The Hill on August 7, 2017 (http://thehill.com/blogs/pundits-blog/economy-budget/345094-want-to-help-people-focus-on-economic-mobility-not).

Both in the United States and around the world, income inequality and economic mobility have been thrust into the center of the most relevant policy conversations of our time. Political leaders from President Obama and Pope Francis to Sen. Bernie Sanders (I-Vt.) and British Labour Party Leader Jeremy Corbyn are quick to discuss inequality as the main culprit of our current economic and social problems.

That focus on inequality, while well-intentioned, has resulted in policies that have taken a toll on a different policy goal: ensuring that everyone has a fair shot at moving up the income ladder. There is clearly a need for a broader discussion about which is the more important goal for public policy to pursue.

What happens when you ask people all around the world what is more important, reducing income inequality or having a fair shot at improving one’s economic standing? The Archbridge Institute recently commissioned a survey in more 60 countries asking this exact question. The survey was conducted in partnership with RIWI, a global survey technology and sentiment analysis firm, and included other mobility-related questions that we have analyzed elsewhere.

The response was overwhelmingly in favor of ensuring a fair chance to improve one’s economic standing. In total, 63 percent of approximately 85,000 people that answered the question thought that was more important than reducing inequality. Of the 60 countries that were surveyed, the majority of respondents in 58 of those countries said that ensuring a fair chance to improve their economic standing was more important. Notably, there exists a wide range of diversity between these 58 countries—including Angola, Argentina, Bangladesh, Chile, China, France, Germany, Kenya, Canada and the United States.

Our survey yielded similar results to another recent study that addressed similar topics. In a recent paper from Harvard University, Alberto Alesina and his co-authors found that more people favor equality of opportunity rather than of equality of outcomes. Their research was conducted in five different countries around the world, including France, Italy, Sweden, United Kingdom, and the United States.

Similarly, George Mason University’s Tyler Cowen has also discussed several studies gaging how Americans feel about inequality. The results clearly demonstrate that their focus is not on income inequality but on unfairness. In responding to our survey, 58 percent Americans said that they think it’s most important to ensure a fair chance at improving their economic standing. Gender, education level and work status did not significantly change the results.

Proposed solutions to income inequality typically assert that more redistribution of income and mandates on business compensation are needed; often financed by levying more taxes on the top 1 percent, 0.1 percent, or any other percent for which a case can be made. Rich people, it is often said, are not paying their fair share— despite the fact that “400 of America’s most successful earners in 2014, paid almost as much in federal income taxes as the entire bottom half of America’s nearly 140 million tax filers. A small group of fewer than 1,400 taxpayers paid $12 billion more in income taxes than the entire bottom 50 percent of all taxpayers in 2014.”

Certainly, “they” could pay more, but is fine-tuning those distribution ratios really something that the public considers the top policy priority?

The results from our survey and other similar surveys clearly suggest that the answer is no. These results call into question the perceived support for policies that promise to reduce income inequality while often reducing economic opportunity—particularly among low income earners.

For example, recent data from the Seattle minimum wage increase—the ordinance quoted Thomas Piketty and his work on the need to address income inequality—shows that the policy actually resulted in less take-home pay for low wage earners. In addition to leaving most low income earners in a worse position, the least skilled workers now find that first rung on the economic ladder is simply out of reach.

Similarly, calls to fight income inequality have justified expanding expensive universal preschool programs. Despite the high cost of such programs, potentially requiring a significant increase in tax burden to properly fund, the evidence that such programs are effective at achieving their goals is scarce and inconclusive.

Unfortunately, tradeoffs between decreasing inequality and increasing mobility often go unacknowledged. But given the results from surveys both in the United States and globally, there seems to be some agreement that our policymaking should focus more on how to address barriers to economic mobility rather than attempting to prioritize fighting income inequality. Perhaps helping more people move up the income ladder should be our focus instead of implementing policies that, under the rallying cry of reducing inequality, usually make it harder for people to climb it.