Yesterday Jamie Dimon, CEO of JP Morgan, released the firm's annual report in which he noted, in what was a generally positive and optimistic report, several problems hindering economic growth in the Socialist Democracy of Amerika. He wrote, "Businesses are overburdened with regulations, the nation's infrastructure needs help, and the education system is leaving too many behind, he added. Among the other ills: Taxes are making U.S. companies less competitive globally, income disparity is widening, and social mobility is decreasing." I happen to believe that Dimon is a pretty sharp guy. In fact, I think he is one of the sharpest businessmen in the world today. Despite my admiration for Dimon I am constrained to point out that two of the economic "ills" he has diagnosed my country as having are merely phantoms that do not exist in the real world. Those two errors pertain to what he calls social mobility (I call it economic mobility) and income disparity. Let's consider those two items for a while today.
Economic mobility is the ability for one generation to rise to an income cohort higher than its parent's generation. Income cohorts are typically divided into five groups of 20 percent. A person born into the bottom income cohort is said to be economically mobile, or socially mobile if you wish, when he rises to any level above the one he was born into. Socialists and other haters of freedom like to proudly assert that economic mobility is decreasing in our country. They like to believe this untruth because it gives them yet another reason to run to their god of civil government and beseech it to intervene into the economy. On the item of economic mobility Mr. Dimon is simply wrong. Consider the following study:
"The study, by a clutch of economists at Harvard University and the
University of California, Berkeley, is far bigger than any previous
effort to measure social mobility. The economists crunch numbers from
over 40m tax returns of people born between 1971 and 1993 (with all
identifying information removed). They focus on mobility between
generations and use several ways to measure it, including the
correlation of parents’ and children’s income, and the odds that a child
born into the bottom fifth of the income distribution will climb all
the way up to the top fifth."
find that none of these measures has changed much (see chart). In 1971 a
child from the poorest fifth had an 8.4% chance of making it to the top
quintile. For a child born in 1986 the odds were 9%."
As you can see, we do not live in a country with a caste system. Just the opposite is the case. People born into the lower income cohorts have a slightly better chance at rising to the upper income cohorts today than they did in the past. Those seeking to use this excuse for more government intervention into the marketplace had better search elsewhere.
Income disparity is Dimon's second hobgoblin. An article on income disparity, found here, has this to say about the apparent problem:
"In 1928, the top 1% of families received
23.9% of all pretax income, while the bottom 90% received 50.7%. But the
Depression and World War II dramatically reshaped the nation’s income
distribution: By 1944 the top 1%’s share was down to 11.3%, while the
bottom 90% were receiving 67.5%, levels that would remain more or less
constant for the next three decades. But starting in the mid- to late 1970s,
the uppermost tier’s income share began rising dramatically, while that
of the bottom 90% started to fall. The top 1% took heavy hits from the
dot-com crash and the Great Recession but recovered fairly quickly:
Saez’s preliminary estimates for 2012 (which will be updated next month)
have that group receiving nearly 22.5% of all pretax income, while the
bottom 90%’s share is below 50% for the first time ever (49.6%, to be
precise). A century ago, Saez notes that the highest
earners derived much of their income from earnings on the accumulated
wealth of past generations. By contrast, '[t]he evidence suggests
that top incomes earners today are…working rich, highly paid employees
or new entrepreneurs who have not yet accumulated fortunes comparable
to those accumulated during the Gilded Age.' Americans aren’t unaware of these trends.
More than half (61%) of Americans said the U.S. economic system favors
the wealthy, while just 35% said it’s fair to most people, according to a
Pew Research Center survey conducted in March. A similar share (66%) of
Americans said the gap between rich and poor had increased in the past
five years; nearly three-quarters of respondents said the rich-poor gap
was either a 'very big' (47%) or 'moderately big' (27%) problem."
So let me get this straight....The top 1% of the income population today is earning less of the total income than that same group earned in 1928 and this is a problem for some reason. I don't know if the people in the bottom 99% complained about this fact as much as those people do today but it did not appear to be a major social problem at the time. Everyone's income was rising so rapidly during the "roaring 20s" that only the most hardened socialist had any inclination to complain about the differences in rate of increase. In addition, the primary reason the top 1% of the income population earned 23.9% of the total income in 1928 was due to the fact that those folks had high net worth figures that created massive amounts of income from what are unfairly called "passive" income sources, namely investments. What were those people expected to do to avoid the fake problem of too much income? Were they expected to simply destroy their investment portfolios so the income derived was more in line with the expectations of the people beneath them?
Today's rich person, in contrast, earns his money the old fashioned way, he works for it. Despite the fact that today's rich person rises into the top 1% of the income population because he earns a high salary, envy filled citizens of this immoral land hold that against him and declare his income to be a "very big" problem. Now why should that be? Should high earning entrepreneurs be punished for giving people things they want to buy for a price they are willing to pay? Should entertainers, sports figures and celebrities be robbed of their incomes simply because they have the misfortune of having millions of fans? What have these highly productive people done that requires them to be punished for the sin of making more money than others?
The problem that Dimon refers to is not a problem of income inequality. The problem is really about general human sinfulness and the sin of envy in particular. People are making more money than ever so who cares if the gap between the highest and the lowest is widening? Only an envy filled person would see that as a problem. Consider this:
Real disposable personal income per capita has been steadily rising for generations. Those who complain about the gap between the various groups of income earners are nothing more than socialistic malcontents who want the government to intervene in the free market to equalize things. The motivation for that desired action is sinful envy. In case you are not aware, sinful envy is not a good motivation when formulating public policy. Anyone remember the story of the little red hen?