Were he around to talk to the Occupy Wall Street protestors and others concerned about income inequality, Heraclitus, the ancient Greek sage, might well say something to this effect: Just as no man can cross the same stream twice because it is never the same stream, no static snapshot in time of the distribution of wealth in American society tells the whole story, or even the most significant part of it. The reason is simple: The American free enterprise system is so dynamic and provides so many opportunities for enterprising people that the distribution of wealth in this country is constantly changing.
But don’t just take our word for it. Consider these data compiled by the Federal Reserve and put in a chart by the American Enterprise Institute’s Mark J. Perry in Tuesday’s Examiner. The data showed that fully 56 percent of those who in 2001 were in the lowest 20 percent quintile of income earners had moved up to a higher income quintile by 2007. At the opposite end of the spectrum, 66 percent of those who in 2001 were in the highest quintile of income earners dropped at least one quintile by 2007.
And, as Perry notes on his Carpe Diem blog, lest anybody think the period spanning those years might not be representative because of the housing boom that triggered the Great Recession of 2008, data cited by the Fed point to the same pattern of high income mobility from 1996 to 2005. Fully 57.5 percent of those in the top 1 percent of income earners dropped to a lower quintile by 2005, while 57.8 percent of those in the lowest quintile in 1996 moved to a higher one by 2005.
Since the Occupy Wall Street protestors took up residence in New York’s Zuccotti Park, Americans have been repeatedly assaulted by Democratic politicians, academics and members of the liberal mainstream media bewailing the growing income inequality in the country. They obsess about the accelerating gap between the amount of wealth held by the top 1 percent and the rest of the country. But such a static analysis misses entirely the more relevant question that has long been at the heart of the American economic miracle: To what degree can individuals change their economic status through their own labor and without having to overcome obstacles to their efforts by law or custom?
As Perry notes, “the dynamism of the U.S. labor market … is generally underappreciated, and has received almost no attention from those complaining about income inequality and stagnant household income.” So the key issue for policymakers worried about inequality of wealth ought to be what they can do to unleash that dynamism. The income mobility data above surely make clear that the right answer is not increasing federal taxes on the rich or expanding government regulation of business.
