Increasing Social Mobility Is Hard. Here's Why That's Not Changing Any Time Soon.

We shouldn't choose policies based on how they make us feel. And yet...


Bernstein, Reeves, Winship at the National Press Club
Stephanie Slade

A poor teenager with top math scores is no more likely than a rich teenager with mediocre math scores to complete college, according to a new study. To many, this is a poignant expression of America's lack of social mobility—a phenomenon in which those born into poverty, regardless of how hard they work, struggle and often fail to attain a better life.

There's broad agreement that low social mobility is undesirable. Yet if this morning's discussion at the National Press Club is any indication, the prospects for bipartisan consensus about what to do about it are nothing short of bleak.

To figure out how to avoid outcomes like the college-completion-rate gap cited above, the Peter G. Peterson Foundation recruited two scholars from opposite sides of the ideological divide to offer a set of concrete policy recommendations.

On the right was the Manhattan Institute's Scott Winship, who noted up front that his agenda offered "something for everybody to hate." But while much of the discussion focused on his "radical" proposal to expand the child tax credit only for married couples (an idea that is admittedly unlikely to garner much support around the Reason parts), I thought a more telling moment came when the conversation turned to higher education financing.

Winship's agenda calls for something known as "income share agreements," or ISAs, which he describes in his paper, "Up: Expanding Opportunity in America," as follows:

ISAs are contracts between students and investors whereby investors agree to a specific amount of financial assistance for higher-education expenses in exchange for a claim on a specific percentage of the student's future income for a specific number of years. Just as entrepreneurs are willing to pay future dividends to shareholders in return for capital to invest in their businesses, many students would benefit from voluntarily paying "dividends" to "shareholders" to invest in their own human capital.

Cool idea, right? Of Winship's seven policy proposals, this was the one that struck me as most interesting. (It's also the only real market-based reform in the paper.) The response it got from his sparring partner on the left, however, reveals a lot about just how divergent the two sides' worldviews are.

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities and a former Obama adviser. Along with his colleague Ben Spielberg, he authored the liberal counterpart to Winship's paper for the Peterson Foundation project, and he was there at the Press Club to present his recommendations and critique the latter's ideas. When it came to ISAs, here's what he had to say:

I generally don't like that idea. I don't think it'll work out nearly as well as Scott described it. I worry that we're trying to take what is a very important and valued public good and trying make it a private one, by setting up some kind of investment market. I don't view those markets as particularly efficient these days. I don't think they process information particularly well. And I think there'd be a real salient concern that investors would underinvest in students. There's also a kind of indentured servitude to the idea that strikes me as just kind of morally wrong.

Setting aside his, shall we say, questionable definitions of public vs. private goods, that last sentence is where I'd draw your attention. Bernstein's position is that it's morally wrong to allow someone to voluntarily enter into a contract he or she prefers to all available alternatives. And his rationale for that position is that the way the exchange is structured makes him feel squeamish.

It is perhaps unfair to hold a left-liberal Democrat to the standards of libertarian political philosophy. For all I know, Bernstein openly embraces a policy of paternalism—of government interventions aimed at saving people from themselves.

Given his stated objective of increasing economic mobility, the opposition to ISAs remains hard to make sense of. Allowing private investors to bet on students provides an additional avenue for securing financing for college. It empowers students to shop around and even negotiate the terms before deciding which contract is best for them. It offers the peace of mind of knowing that your loan payments will never rise as a percentage of your income, even if you end up needing to take a lower-paying job than you were expecting. And, as Winship pointed out, it creates an incentive for colleges to work hard at raising their graduation rates, so more investors will agree to finance their students.

Still, the ease with which naysayers can paint such a system as evil and exploitative virtually assures that Winship's proposal won't get off the ground. If even someone with a Ph.D. who works on mobility issues for a living is discomfited by the idea of ISAs, there's little hope of convincing the far-less-engaged voting public to get behind them. And politicians don't want to support a program that could be conflated, however unfairly, with indentured servitude.

In the end, it was Bernstein himself who pinpointed the real reason issues like this are so hard to address. Begins the last paragraph of his paper: "Our biggest barrier to economic opportunity for all Americans is neither structural, budgetary, nor evidentiary—it is political."

NEXT: A Pretty Goddamn Good Ode to Flyover Country

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  1. Social mobility has to work both ways (capitalism means failure).

    The reason there will be no social mobility is that those in the aristocracy aren’t allowed to fail. And those who are idiots within are kept or promoted within instead of letting them sink to where they belong for their current combination of skills.

    Often I hear about some total stupidity on government where they say “If this were a private business…” Solyndra and A123 were. The TARP banks were. The company producing that plane that is an order of magnitude over budget and still useless is. And they aren’t allowed to fail. No one ever goes to jail (except an occasional token – even if they cooperate with the Mexican narco-terrorists).

    The fools at the top have already donated millions to both Jeb Bush, but especially Hillary Clinton, and there is no shame or even concern about it. “Business as usual”. The USA is going like Italy, or the old communist block, or sub-saharan Africa at worst, or Japanese kieretsu or Korean chaebol at best.

    We used to be free – to succeed or fail based on our merits. Now the elite aren’t allowed to fail, and the plebes aren’t allowed to succeed.

    1. Opportunity may be shrinking, but it ain’t dead yet.

  2. Great article.

    Student loans are investments where the investors don’t care about what the student studies or what they plan to do with their education. The loans are government insured, so why care?

    Investing in students in a manner in which the investors; return is based upon the students’ return raises a nice set of incentives. The greedy investor will reap the most immoral profits if he dupes a naive college student into a field of study that will put that hapless student into a financial situation where the investor will reap the most profit when it comes time for the nave to get a job.

    Capitalists are so evil.

    1. nave dupe

      and yeah, that semicolon was supposed to be an apostrophe. Where’s the damn preview button?

    2. On a similar note, the author thinks these ISAs are morally wrong. How is the moral implication of this any different from the student loan?

      1. Because anything that the does is government is inherently good, apparently.

  3. good article, but I don’t understand the use of “social mobility” instead of “economic mobility”. Maybe it’s just me, but the former sounds like something that’s more of an emotional problem than a measurable problem, like an SJW came up with it to refer to fat people who aren’t invited to enough parties.

    1. Good catch, it slipped right by me as just another bit of jargon with little explicit meaning. That’s probably how a lot of SJ lingo makes it into common usage.

    2. That’s true. Or maybe they assume the USA has social classes like some other countries do, and the higher castes will pretty much automatically be richer, so they don’t have to mention the $.

      But assuming economic mobility is what they mean, & (importantly) they’re focused on the relative rankings (as it is w social classes), then it’s just as effective for high-income people to lose income as it is for low-income people to gain it. & as long as they are focused on the relative, then even if everyone gets richer, it does mean some have to move down in rank.

    3. Thanks for the feedback. In this post I’m using social mobility and economic mobility interchangeably. If it makes you feel better, think of the former as being derived from “socio-economic status,” which is a pretty common term of art in the social sciences.

      1. Makes sense, I have heard that term before. Unfortunately the social prefix by itself has some associations that may not be intended

  4. “much of the discussion focused on his “radical” proposal to expand the child tax credit only for married couples (an idea that is admittedly unlikely to garner much support around the Reason parts)”

    Hey, sounds great, what’s the problem?

    1. I’m for expanding credits any way they can be gotten. If allowing it for some & not others is the only way to make them politically feasible, I’m for it. Even if it were the other way around, reducing taxes on parents only for not being married (or not having their spouse survive), I’d be for it. Divide & conquer. The gains from simplifying the tax code (reducing computation work) are slim compared to the gains from piecemeal tax cuts.

  5. ISAs are contracts between students and investors whereby investors agree to a specific amount of financial assistance for higher-education expenses in exchange for a claim on a specific percentage of the student’s future income for a specific number of years.
    You know, if you had an investor who was an architect, he could directly assist a student wanting to be an architect by providing him training rather than financial assistance. You could call it an “apprenticeship”. Instead of spending 4 years and tens of thousands of dollars going to school to learn a profession, many students would be better off spending much less for a year or so of OJT. And I’ll bet many places would be happy to have somebody paying them to teach them the job.
    If you’re looking at higher ed as job training, you really don’t need all the BS courses that have nothing to do with the job training and the basic reading, writing and arithmetic you should have learned in high school. (The fact that colleges have to teach kids how to read and write and add and subtract is a pretty good indication that the public school system is an utter failure at its mission.)
    If you’re looking at higher ed as knowledge for the sake of knowledge – the original purpose of higher ed – it’s not necessarily going to translate into a higher income. That’s why you have to pay for that sort of education, nobody is going to make a buck off of teaching you to appreciate 18th century Norwegian nihilist poetry.

    1. And I’ve often thought of looking into getting government funding for the Jerryskids School of Construction Trades – I could teach kids to build houses just by building houses. After paying me to let them build me a house, the house would of course still be my property. Operating a racket like that, I’ll bet I could still be teaching kids cheaper and better than the current vo-tech system.

  6. Consider the teenagers who scored among the top 25 percent of students on the math test…

    Says Susan M. Dynarski, a professor of education. This strikes me as a rather arbitrary cutoff number. Imagine if professional musicians were selected from the top 25% of a broad sample. If your ears aren’t bleeding already, they would be then. I’m not sure where I’m going this brain fart, but I’d like to see the results of this study as the cutoff point approached 10%, 5%, 1%. My guess is that the social mobility curve would bend up.

    1. The stupidity of this is giving me a migraine. First, I disagree with you. Top 25% of strikes me as a reasonable cutoff for people who should probably get a college degree. But this ‘math=ability’ is clearly cooking the books. I’ve never heard of any research like this. ‘Ability’ is whole suite of traits. Some of these are hard to measure and can’t really be compared across classes BUT JESUS FUCKING CHRIST YOU CAN AT LEAST USE MATH AND VERBAL. And why would you expect math to matter more anyways? There’s like 8 majors that require advanced math and 100 or so where you have to write a bunch of papers. And the distribution of scores is different. The poor kids are going to be clustered closer the 75th percentile cutoff. And they’re going to, on average, be worse at everything else. It’s impossible to make any sense of the 33 percentage points difference with this data.

      1. There’s like 8 majors that require advanced math and 100 or so where you have to write a bunch of papers

        Of course, there is surely a massive number of jobs for someone who explain the “Socio-political implications established in ‘Goldilocks and the Three Bears’ because, like, patriarchy and hetero-normative expectations”.

        SAT spring 1981- taken 6 weeks after spending a year in jail where the judge specifically ordered that I not be allowed to advance my schooling while incarcerated.

        760 math, 640 verbal.

        ACT 1 month later– perfect 36 math, 35 overall.

        “All of us learn to write in the second grade. Most of us go on to greater things.”- Bobby Knight

  7. My best friend’s mother-in-law makes $85 hour on the internet . She has been out of work for 5 months but last month her pay was $16453 just working on the internet for a few hours.
    Visit this website ?????????

  8. How about the government stop subsidizing private business’ extremely costly and inefficient employability signal.

  9. “There’s also a kind of indentured servitude to the idea that strikes me as just kind of morally wrong.”

    So he’s morally against income taxes as well, right? Or does them not being voluntary somehow assuage his warped morality?

  10. yes. political problems do tend to have political solutions, and the ones short of war are political also.

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