The Inequality That Matters

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of “The Up Side of Down: Why Failing Well Is the Key to Success.”
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I've written more than once that I don't care about inequality. I care a lot about the absolute condition of the poor...but I don't care whether Bill Gates is living in a house that cost 19 squintillion dollars. I care whether everyone else in the country has a warm, dry abode with indoor plumbing and all the other mod cons.

That view changed while I was researching an article on late marriage. Marriage has basically followed the same path as income over the last 50 years. The college-educated have it better than ever -- they are enjoying what Harvard researcher Kathryn Edin calls "superrelationships," characterized by extremely high levels of rapport, cooperation and satisfaction. The bottom two thirds, on the other hand, are in unstable relationships that tend to break apart under stress. They typically have at least one child before they marry, experts told me, and when they do marry, it's not to the father of their child. This is bad for the people in these relationships, and for the children they produce.

This pattern of relationships is partly due to economic change -- as more than one person told me, to people at the bottom of the income distribution, telling them to wait to have children until they've found a stable partner and a steady job seems about as reasonable as telling them to wait until after they've won the Heisman Trophy. There aren't a lot of jobs that a high-school graduate can count on to deliver long-term, full-time employment. Why risk falling fertility to put off childbearing until after you've gotten to Never-Never Land?

"If you're a guy in the inner city and you can find a job making $8 an hour, you're a prince. If your girlfriend can pull minimum wage," Edin told me, you're set. But "that's the best-case scenario because almost no one is able to work full-time, full year."

However, that isn't the whole story. My grandfather worked as a grocery boy until he was 26, in the depths of the Great Depression. For six years, he supported a wife on that salary -- and no, it's not because You Used To Be Able To Support A Family On A Grocery Boy's Wages Until These Republicans Ruined Everything. He and my grandmother moved into a room in his parents' home, cut a hole through the wall for their stovepipe and set up housekeeping. They got married on Thanksgiving, because that was the only day he could get off. My grandmother spent six years carefully piecing his tiny salary into envelopes -- so much for food, for rent, for gasoline for the car he needed to get eight miles into town. And they stayed married for 67 years, until my grandfather's death in 2004.

"We didn't have a dramatic increase in unwed childbearing back in the Great Depression," sociologist Brad Wilcox told me. "That's in part because we had a very different understanding of family life and sex and marriage back then. That tells us that it's not just economic. It's also about culture and law."

Almost everyone I interviewed, from conservative to liberal, viewed what's happening to the family at the bottom as a problem. The people in these unstable families lose out on the life-improving benefits of marriage. They drastically increase their financial insecurity, because of course it is more expensive to support two households than one, and the legal battles to get money for the kids are time consuming and may even discourage men facing child support garnishment orders from working. And an unstable family is less able to invest in kids, which harms their chances in life. If you're a nice upper middle-class writer with loads of social support and cultural capital, this may not matter much. But for folks without college degrees, it can be disastrous. It makes all the other problems harder to fix: It's hard to get three kids from three different fathers through high school and college if you're the only adult in the household, and your credit cards are always maxed out.

Almost everyone viewed this disaster as a product of both cultural and economic change that would need both cultural and economic solutions. And not just taxes and transfers, because those don't fix the problem -- Swedish kids from single-parent homes also have higher rates of depression, substance abuse, and so forth, despite a generous welfare state. What's needed are jobs, and the cultural institutions that sustain strong families and other social relationships. But how does such cultural change take place?

Conservatives have called for elites to lead on the issue -- to speak out for the values that they actually practice (marriage before children, fidelity, heavy investment in family), rather than a more libertine set of values that they claim to believe (there are lots of good ways to raise children, and we shouldn't judge). But Kathryn Edin pointed out that with inequality at record highs, there's not even a common cultural place for such a discussion to take place.

"It's hard to have a shared set of cultural norms when inequality is so high," she told me.

This rings true to me. And yet, I'm still not clear on why Bill Gates's house makes it impossible to articulate a value that's obvious to pretty much every upper middle-class person I know: It's sub-optimal to have a kid unless you have two stable parents in a committed relationship to raise it.

Last weekend, I was on Fareed Zakaria's "GPS" with Professor Raj Chetty, one of the authors of a new study onincome mobility that came out last week. The team looked at income mobility within the U.S. -- in which cities do people born into the bottom quintile have the best chance at moving into the top 20 percent?

Source: The Equality of Opportunity Project

The map above shows the results. The highest income mobility in the country, it turns out, is found in Salt Lake City -- almost three times higher than the rate in Atlanta, the lowest-ranked city.

There's unlikely to be one reason that cities vary. But as I pointed out on the show, social capital is clearly one of the factors. Salt Lake City is in the reddest of red state places -- not a lot of taxes and transfers going on there. And yet it's highly mobile, presumably because of the influence of the Mormon Church, which essentially runs the most comprehensive and effective social welfare system in the country...maybe in the world. There's money and other help to tide you over in bad times, but arguably more importantly, there's all the efforts of your ward to get you back on your feet. Churches do this sort of thing everywhere, of course, but in few places is it so comprehensive and organized. And unlike the government system, it's combined with intense social support, and a community whose norms about things like work, marriage and family (and drinking and drug abuse) encourage what you might call a prosperous lifestyle.

Does that mean that Red State Mormonism is the best way to promote mobility? Not exactly -- San Francisco, the bluest of the blue, is #3. Social capital comes in many forms.

Here's something interesting that didn't predict mobility: the share of income enjoyed by the top 1 percent. Scott Winship of the Brookings Institution pointed out that inequality does seem to be correlated with lower income mobility across countries, so it's very interesting indeed that the share of income held by the very top doesn't predict inequality within the U.S. But Chetty hastened to point out that this doesn't mean that inequality doesn't matter. In fact, inequality is inversely correlated with mobility -- the higher inequality is, the lower the chances that a child born in the bottom will end up in the top. But the problem is not the top incomes; it's the distance between the 25th percentile, and the 75th. "So, our takeaway," said Chetty, "is that it seems to be something that's related to the extent of which the middle class exists and is pulling away from the poor rather than upper tail extreme concentration of wealth."

In other words, it probably doesn't matter whether Bill Gates has a house that cost a squintillion dollars. But it may matter that a mid-level manager has a lovingly restored Victorian in the heart of a revitalized arts district . . . while the guy who washes his car is living in a rundown apartment on the wrong side of the tracks.

Yet this distance rarely gets much play in the media, or the public policy debate. Occupy Wall Street didn't rail against "the 25 percent"; President Obama doesn't deliver speeches complaining about people who pay too much for homes in top school districts. Those are people like us -- nice, well-educated folks who are just trying to do the best for their children and have a nice retirement. It's much easier to focus on the folks who are making it so mind-bogglingly expensive for us to get a nice house in a good school district.

And to be fair, that is where the money has disproportionately gone over the last few decades. But to state the obvious, money is not the most important thing in life. Once you are in a warm, dry abode with enough food, almost everything else matters more: family, friends, employment, civic engagement, and purpose. We can't tax Bill Gates to transfer those things to the two-thirds of the country that doesn't have a college degree.

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Megan McArdle at