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White House: Here's Why You Have To Care About Inequality

I was surprised by how little coverage White House Council of Economic Advisers Chairman Alan Krueger got for his speech yesterday about income inequality (text, video). It was the second major White House speech on income inequality, the first of course being President Obama's widely covered Dec. 6 speech in Osawatomie, Kansas (which I wrote about here). Krueger's speech was important, but it didn't get much attention because:

a.) Krueger is not President Obama;

b.) even as CEA chairmen go, Krueger keeps a fairly low profile;

c.) Krueger's delivery of the speech, which was really half economics lecture, was a tad lackluster (at one point, weirdly, he referred to New York Times reporter Jason DeParle as "Jason DeParla," even though DeParle's wife, Nancy-Ann DeParle, happens right now to be White House deputy chief of staff!);


d.) the reporters in attendance likely assumed everything Krueger talked about was already common knowledge to anyone interested in the topic. When it came time for questions, most of the press queries were variations on the question, "When the hell will the economy recover fully from the 2007-2009 recession?" and most of Krueger's replies were (more polite) variations on the answer, "How the hell should I know? I'm an economist, not a psychic."

As the author of a forthcoming book about income inequality, I'm supposed to know everything Krueger said, but in fact I was unfamiliar with what Krueger called "the Great Gatsby curve." Take a moment to look at page 8 in Krueger's slide presentation (which I've embedded at the bottom of this post). This scatter diagram (itself derived from an earlier, somewhat less tidy one in a 2011 paper by the University of Ottawa labor economist Miles Corak; the CEA staff plugged in some fresh data from the OECD) plots "intergenerational income elasticity" (i.e., the likelihood that you will inherit your parents' relative position on the income scale) against the Gini coefficient (the most common measure of income inequality). It documents, albeit informally, that a rise in income immobility correlates with a rise in income inequality.

This is news. Economists have long suspected that you can't really experience ever-growing income inequality without experiencing a decline in Horatio Alger-style upward mobility because (to use a frequently-employed metaphor) it's harder to climb a ladder when the rungs are farther apart. Krueger calculates based on the Gatsby curve (admittedly, somewhat speculatively) that "the persistence in the advantages and disadvantages of income passed from parents to the children" will "rise by about a quarter for the next generation as a result of the rise in inequality that the U.S. has seen in the last 25 years."

Translation: If we don't get growth in income inequality under control, the next generation will see about 25 percent less upward mobility than the current one. So even if you don't give a damn about income inequality (or if, like Mitt Romney, you think it a topic appropriate only for discussion in "quiet rooms" where scientists in yellow biohazard suits are protected against contamination from "class warfare" and "the politics of envy"), you'd better start giving a damn or else it will strangle economic opportunity. I think that's a promising campaign message for Obama in 2012.

Correction, Jan. 14: In the original version of this post I misspelled "Ottawa." It's fixed now.

The Rise and Consequences of Inequality in the United States: charts