Obama's 'Opportunity' Makes Everybody Less Well Off

It's easier to climb a ladder that's been cut-off by politicians.

Obama 2014CFRAt a speech in December to celebrate the 10th anniversary of the left-leaning Center for American Progress, President Barack Obama declared, “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American Dream.” He added, “And greater inequality is associated with less mobility between generations.” Never let it be said that our president doesn’t learn to trim his rhetoric. Earlier this month, a new study by researchers at Harvard University and University of California, Berkeley concluded that, in fact, income mobility in the United States has not decreased. Consequently, in his State of the Union address on Wednesday, President Obama more circumspectly stated, “Inequality has deepened. Upward mobility has stalled.”

However, the Harvard and Berkeley researchers also argued that it is harder for Americans to change their relative level of income than it is for people living in other rich developed countries, specifically mentioning Denmark. In his December speech, the president declared “that it is harder today for a child born here in America to improve her station in life than it is for children in most of our wealthy allies—countries like Canada or Germany or France.  They have greater mobility than we do, not less.”

People living in Denmark, Germany, and France have a relatively easier time passing through various income quintiles than do Americans largely because of greater income equality in their countries. Basically it is easier to change quintiles because the differences in the amount of income between the quintiles are much smaller than in the United States.  Using Eurostat data, let’s take a look at that paragon of income mobility, Denmark.

In 2011, the cut-off point for household income for the bottom income quintile in Denmark was $25,000 compared to $20,000 in the United States. The cut-off points for the next quintile up were $32,000 and $38,000 respectively. The middle quintile cut-offs were $40,000 versus $62,000. The fourth quintiles were $50,000 in Denmark and $102,000 in the U.S. The cut-offs for the 95th percentile were $72,000 and $186,000.  And the cut-offs for the top one percent were $115,000 and $368,000. 

Below is a table using 2011 Eurostat post-tax income data converted from current Euros to current dollars. I could find no U.S. income data that provided post-tax quintile thresholds so I have included 2011 pre-tax quintile thresholds on the top row and 2010 average post-tax income data in the second row. The starred figures are average post-tax U.S. incomes for households between the 96th and 99th percentiles and the top one percent respectively. Comparing these data give a rough idea of how U.S. income quintiles compare with those of other wealthy countries.

Quintiles 1st 2nd 3rd 4th 95% 99%
U.S. cutoffs before tax $20,000 $38,000 $62,000 $102,000 $186,000    $368,000
U.S. average after tax 2010 $24,000 $41,000 $58,000   $81,000 $215,000* $1,013,000*
Denmark $25,000 $32,000 $40,000   $50,000   $72,000    $115,000
Germany $17,000 $23,000 $29,000   $50,000   $57,000      $86,000
France $19,000 $24,000 $31,000   $41,000   $68,000    $123,000
Sweden $21,000 $28,000 $34,000   $42,000   $58,000      $82,000
 

Also bear in mind that in 2011, the U.S. pre-tax median household income was $50,000. The post-tax median household income for Danes was $36,000, for Germans was $26,000; French $27,000, and the Swedish median income was $31,000.

One way to think of the comparison between the U.S. and Denmark is that, in absolute terms, it takes only an increase in income of $47,000 for a Danish household to rise from the bottom quintile to that country’s top five percent.  A comparable rise in the United States would mean that a household’s income has increased by $166,000 to cross the pre-tax threshold or $190,000 to achieve the average post-tax income of Americans who are between the 96th and 99th percentile of incomes. In some sense, it’s easier to appear “mobile” when you have a lot less distance to travel.

Another way to think about comparing the U.S. and Denmark is that with an increase of $47,000 an American household would rise from the bottom quintile to the middle quintile of the U.S. income distribution. In other words, a solidly middle class American income is comparable to an income that would put a Danish household in its country’s top five percent of households. 

The Harvard and Berkeley researchers observed, “Scandinavian economies have much greater relative intergenerational mobility than the United States.” But they added that that “does not necessarily mean that children from low-income families in Denmark do better than those in the U.S. in absolute terms.”

That is true. One oft-cited statistic is that 16 percent of Danes born into households in the bottom quintile rise to the top quintile in their country—an income journey of $25,000 dollars.  Whereas only eight percent of similarly poor Americans make to the top quintile in the U.S., an income journey of $82,000. 

However, a study by economists at the U.S. Treasury Department published in the May, 2013 American Economic Review reported that 27 percent of American teenagers who were living in households with incomes in the bottom quintile in 1987 were now in households with incomes above $62,000 (fourth and fifth quintiles) by 2007. In other words, in terms of absolute income gains, poor Americans were almost twice as likely as poor Danes to make incomes found in the top Danish income quintile.  The rungs of the income ladder are further apart in the U.S., but successfully climbing each one takes an American a lot farther than a Dane or a German ascending his country’s income rungs. 

Income LaddersHarvard study

So why are the rungs on the income distribution ladders in other rich countries so much closer together? One word: redistribution. For example, the marginal income tax rate in Denmark tops out at 60 percent at $55,000.

Inequality is often measured by the Gini coefficient in which a score of 0 indicates perfect income equality and a score of 1 means that one household gets all the income. In December, the Pew Research Center published data showing how the pre-and-post redistribution Gini coefficients of various rich countries stacked up. Below is a table with selected values.

Gini Coefficient Pre-redistribution Post-redistribution
U.S. 0.499 0.380
Denmark 0.429 0.252
Germany 0.492 0.286
France 0.505 0.303
Sweden 0.441 0.269
 

Taking from the rich to give to the poor clearly shrinks the distance between income rungs. In his State of the Union address, President Obama declared, “Opportunity is who we are.” Yes, but it’s hard to see how shortening the income ladder provides more opportunity for income mobility. It just makes everyone equally less well off.

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  • playa manhattan||

  • ||

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  • playa manhattan||

    Yes it's good. Top Dog is well know for being a libertarian establishment in an otherwise ultra-progressive neighborhood.

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  • Sevo||

    Sy,
    Did you see the 'politicians not welcome' sign?

  • ||

    I didn't catch it. Makes it worth it, I suppose. I'll have to check it out when I'm in the area.

  • silent v||

    If you are not a fan of long lines that end with shitty customer service, the East Bay is not for you.

  • silent v||

    Love me some Top Dog, but I graduated a year before this guy started, so I don't know him.

  • playa manhattan||

    I remember him from the late 90's. Which is surprising, since I don't think I ever set foot in the place sober.

  • sarcasmic||

    After 23 years I don’t have that much spare time. But when I do, I spend it with my dogs, or I’m watching MSNBC. Got a huge crush on Rachel Maddow.

    Double-you tee eff?

  • playa manhattan||

    I took that as a joke.

  • sarcasmic||

    Yes, but it’s hard to see how shortening the income ladder provides more opportunity for income mobility. It just makes everyone equally less well off.

    Ironic how the those who claim capitalism is a "race to the bottom" advocate for a system where everyone is reduced to the lowest common denominator.

  • ||

    I can't say this enough times: projection. Virtually every thing they accuse opponents of, they themselves do, advocate for, or end up causing.

  • 110 Lean||

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  • JD the elder||

    Oh, I dunno. They usually claim that their way will make everybody better off. Somehow. Exactly how is never proven.

  • sarcasmic||

    By better off they mean everybody is poorer with a lower standard of living, especially the rich. Oh, and free abortions. Must have those free abortions.

  • waffles||

    Equality will doom us all. I really liked the comparison John made between the American and French Revolutions. We are revolving and will continue to revolve. Twirling, twirling towards freedom!

  • Zeb||

    Liberty, equality and fraternity are pretty much all mutually exclusive.

    As nice of an idea as revolution sounds in some contexts, history shows that they don't usually work out to well, particularly if freedom is what you are after. The American revolution is pretty unique in its success, even with all of the slavery and Indian treaty breaking. And that is probably mostly because of the culture that existed before the revolution.

  • paranoid android||

    The Irish seem to have done alright for themselves.

  • Zeb||

    Yeah, that's not a bad one. I was trying to think of other examples that didn't end terribly and was coming up blank.

  • Calidissident||

    I'd say it depends on what one means by "equality." Equality under the law is a core tenet of liberty. Equality of outcomes, certainly not.

  • Zeb||

    Oh certainly. I was being cute about the French Revolution's motto.

  • Sevo||

    ..."It just makes everyone equally less well off."

    The unstated goal of the egalitarian (except for the specific individual claiming to be so)

  • BakedPenguin||

    Pol Pot's Kampuchea was probably the most egalitarian society ever.

  • Pro Libertate||

    You know, he should be called President Scare Quotes, because none of his words seem to mean what they're supposed to mean.

  • BakedPenguin||

    Usually the exact opposite.

  • Ayn Random Variation||

    A liberal lesbian just called into Rush to talk about how bad she's being screwed by Obamacare. I have my biggest schadenboner ever.

  • fish_remote||

    Well if it lasts longer than 4 hours contact your Obamacare approved physician.

  • steedamike||

    Been waiting for an article on this topic...going in my favorites.

  • 110 Lean||

    “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American Dream is one of the biggest whoppers I've told in awhile. And let me be clear, I've told some Doozies!"

  • sarcasmic||

  • BakedPenguin||

    It's amazing how they made envy into one of their main political planks, and that no one has called them on it.

  • 110 Lean||

    Democrats, the party of envy. Pass it on.

  • wareagle||

    the man is even less economically literate than I imagined possible. He's just a fucking moron.

  • sarcasmic||

    “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

    ― Thomas Sowell

  • wareagle||

    and when some quote is published outlining the first lesson of demagoguery, I'm somewhat sure either Obama or one of his mentors will be tied to it.

  • Francisco d Anconia||

    Good article. Wish I'd had this data a few nights ago.

  • Freddie||

    A valid analysis I am sure, but....

    We who advocate free markets and limited government need a better message on "inequality". An eye-glazing statistical analysis won't cut it. Neither will finger wagging over "envy" and "class warfare". Clearly, emotion is not on our side.

    The concise - and legitmate! - message needs to be that Big Government = More Inequality. Whether it's lousy government schools holding back poor kids or crony capitalism shoveling undeserved wealth to the wealthy, or "quantitative easing" inflating stocks and real estate while leaving small savers with zero interest, the message to those concerned about inequality is that the goveerment is not your friend.

  • Killaz||

    Actually, I glossed over the article after reading the synopses which didn't supply enough meat to keep my attention, but then came back to it just now and read it in its entirety. We should rethink the strategy of assuming the average reader wont get it if we don't talk down to 'their level.' Most libertarians I know have a moment when it clicks for them, and epiphanies don't come with a spoonful of sugar to ease them down, they come through a struggle with difficult subject matter.

  • Zeb||

    Very interesting. The big trick for the left seems to be using relative measures rather than actual measures of people's standard of living and purchasing power.

  • sarcasmic||

    So what if poor people in America have food, shelter, name-brand clothing, cell phones, computers with internet access, air conditioning, flat screen televisions, microwaves, heat and hot water...

    The rich haven't paid their fair share because if they had then they wouldn't be rich!

  • Brian||

    Pretty much. They never talk about standards of living. It's all Gini coefficients, quantiles, and counts.

    Their problem aren't related with quality of life. Instead, they think that any inequality is unfair. It makes them feel bad, so it must be rooted out.

  • AdamJ||

    This is how Krugman proves the debt is not a problem. Because spending went down by 1% last year (after increasing by 15% in prior years).

  • Tommy_Grand||

    We must have more quintiles. It's unAmerican for dirty DANES to have as many quinitles as we have. How can you ask honest, God-fearing American workers to climb the ladder if its rungs are too far apart? Answer me that, mr math.

  • Rasilio||

    It doesn't but it sure does a great job of making sure those almost rich and smart/creative/talented/driven enough to become rich never come close to getting there or threaten the comfy positions of the rich

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    I have yet to grasp how taking from the rich and giving most of it to the government makes poor people appreciably better off.

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    Derp doesn't even begin to cover it.

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    Virtually every thing they accuse opponents of, they themselves do, advocate for, or end up causing.

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    Given Reason's tires to Russia Today, perhaps they should just maybe not talk about anything involving Russia? Because it makes you look like Putin's stooges

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    The Harvard and Berkeley researchers observed, “Scandinavian economies have much greater relative intergenerational mobility than the United States.” But they added that that “does not necessarily mean that children from low-income families in Denmark do better than those in the U.S. in absolute terms.”

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    Virtually every thing they accuse opponents of, they themselves do, advocate for, or end up causing.

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