washington outlook
A Growing Economy Increases
Opportunities for the 100 Percent
Richard S. Davis
The political focus on income inequality fails to address the important challenge of our time:
Creating more opportunity for people to move up the economic ladder.
From its earliest days, America has been the place people
come to create a better life for themselves and their
children. That buoyant optimism found full expression in
the West, where entrepreneurs built great companies, tamed
the wilderness, and continue to excel in developing and
harnessing new technologies to improve the global quality
of life. Many of those firms began here in Washington, a
place of enormous possibility.
The Congressional Budget Office found that the
wealthiest 1 percent saw its share of the nation’s income
grow from 8 percent to 17 percent between 1979 and
2007. The CBO notes changes in technologies that benefit
superstars, executive compensation and the increased
size, complexity and scale of corporate activity, including
the financial sector. Wall Street made out, but so did Bill
Gates, Johnny Depp, and Oprah Winfrey. Underscoring the
volatility at the top, economist Alan Reynolds finds that
by 2009, the share of after-tax income fell from the CBO’s
reported 17 percent to 11 percent.
Of more interest is the question of how freely people
move up (or down) the income ladder. Overall, we remain a
mobile society. The U.S. House Budget Committee reports,
for example, that economists at the Minneapolis Federal
Reserve Bank found that “44 percent of families in the
lowest income quintile in 2001 had moved up to a higher
income point by 2007, while 34 percent of those in the
highest income segment had moved down.”
Intergenerational poverty, however, poses a different
problem. As Brookings Institution fellow Scott Winship
reports, only 17 percent of children with parents in the
bottom fifth in 1970 made it to the top two-fifths by the
early 2000s. That’s not a function of the rich getting richer,
it’s a reflection of policy failures. There will
always be a bottom quintile, but you shouldn’t
be consigned to it forever by birth.
Winship emphasizes the importance of
education, writing that “just 16 percent of
those who start at the bottom but graduate
from college remain stuck at the bottom,