But the critical question for supply-side is whether these high-end marginal tax rate reductions lead to faster income growth (we've already seen that they lead to more income inequality). The bottom figure shows that they do not. Real per capita income growth across these countries is unrelated to the changes in tax rates.
The above points emphasize an economic rationale for a growth model more favorable to the middle class. More broadly shared growth would not only score higher on a fairness criterion; it would provide a more reliable and durable structure for overall growth itself. It is no accident, in this regard, that the era of heightened inequality coincides with the arrival and persistence of what I've called "the shampoo economy:" bubble, bust, repeat.
But our emphasis on growth should not crowd out that of fairness, and in this regard, some of the most important recent work in this area has stressed the relationship between inequality and mobility, the latter being the extent to which individuals' and families' economic positions change over the life cycles. Again, I will briefly summarize the relevant findings.
Economic mobility. Some policy makers, often in seeking to dismiss the inequality problem, argue that the US has enough income mobility to offset increased inequality. We may start out further apart, they argue, but we change places enough that it doesn't matter. This argument fails, however, both in terms of logic and evidence. The existence of mobility cannot offset increased inequality; for that to occur, mobility itself must be accelerating. There is no evidence to support such acceleration and some new, high-quality work suggests a slight decline in the rate of mobility.
The US has considerably less income mobility than almost every other advanced economy. In particular, as stressed in a recent New York Times article, parental income is a stronger predictor of the success of grown children in the U.S. relative to other advanced nations -- i.e., we have less intergenerational mobility than other nations.
Putting some of these themes together, I have hypothesized that there are causal linkages between inequality and immobility. To the extent that those who have lost income share in recent years suffer diminished access to the goods, services, and general living conditions that would enhance their mobility, we would expect to see economic results like those cited above.
Here, I'm thinking about everything from access to quality education, starting with pre-school (such early educational interventions have been shown to have lasting positive impacts), to public services, like decent libraries and parks, to health care, housing, and even the physical environment. The new research linking mobility and inequality may well find that as society grows ever more unequal, those falling behind are losing access to the ladders that used to help them climb over the mobility barriers they faced.
Hanauer's feedback loop is key to this model. It's not just that we need growth to reach the middle class. It's that when it does, the growth is more durable. There's room for a lot more research here, but this feels like the right economic model for the present and the future .
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