Climbing the Income Ladder

http://www.nytimes.com/2013/07/22/business/in-climbing-income-ladder-location-matters.html?emc=eta1

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"I suppose leadership at one time meant muscles. But today it means getting along with people." (Mahatma Gandhi)

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According to a new study that other researchers are calling the most detailed portrait yet of income mobility in the U.S., "where you grow up matters." The study is based on millions of anonymous earnings records and is the first to compare upward mobility across metropolitan areas.

So, climbing the income ladder occurs less often in the Southeast and industrial Midwest with the odds notably low in places like Atlanta and Charlotte.

According to Nathan Hendren, a Harvard economist: "There is tremendous variation across the U.S. in the extent that kids can rise out of poverty." The variation does not come simply from the fact that some areas have higher average incomes: upward mobility rates, Hendren notes,  often differ sharply in areas where average income is similar, like Atlanta and Seattle.

The "interactive map" alone is worth the time to look at the study data. A sweep of the color coded U.S. map yields (by county) the chances a child raised in the bottom fifth rose to the top fifth ($70,000 by the age of 30 or $100,000 by the age of 45) in his/her career.

The researches identified four factors that appeared to affect income mobility, including the size and dispersion of the local middles class. All else being equal, upward mobility tended to be higher in metropolitan areas where poor families were dispersed among mixed-income neighborhoods.

In previous studies of mobility, economists have found that a smaller percentage of people escaped childhood poverty in the United States than in several other rich countries including Canada, Australia, France, Germany and Japan. This latest study is consistent with those findings.

For me, I find it especially interesting that children who moved at a young age from a low-mobility area to a high-mobility area did almost as well as those who spent their entire childhoods in a higher-mobility area. But children who moved as teenagers did less well.

For economists, the comparison of metropolitan areas allows researchers to consider local factors that previous studies could not.

Brilliant work!

Defining Prosperity Down

http://www.nytimes.com/2013/07/08/opinion/krugman-defining-prosperity-down.html?src=recpb&_r=0

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"A man who views the world at 50 the same as he did at 20 has wasted 30 years of his life." (Muhammad Ali)

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Paul Krugman defines last Friday's employment report as "not bad." He has reservations. I do too. Krugman defines his overall problem as the jobs picture. So do I.

The U.S. economy should be adding more than 300,000 jobs per month at this point, not fewer than 200,000. Krugman's "Economic Policy Institute" attachment provides an excellent perspective on that: we would need more than 5 years of job growth at this rate to get back to the level of unemployment that prevailed before the Great Recession. And, to quote Krugman: "Full recovery...may never happen."

We're certainly not going to get more "fiscal" stimulus from the federal government. With the austerity politicians in power, we're actually getting job eliminations in government. So, when we see the BLS (the U.S. Bureau of Labor Statistics) reports each month, the "plus jobs" numbers are now really private sector "up" and public sector "down."

Then, of course, there is the Federal Reserve which has done as much as it could with monetary policy stimulus and linking that to the unemployment rate. This "linkage" is an outstanding move but I've seen no numbers that show the U.S. unemployment rate is down to 6.5% (the Fed's magic number). And, whenever we get there, is 6.5% the new normal? "Normal" used to be 5% for full employment in the U.S. according to economists generally.

Again, according to Krugman, investment in equipment and software is already well above pre-recession levels basically "...because technology marches on and businesses must spend to keep up." And "housing" is definitely staging a comeback.

But, if housing is staging a comeback, then mortgage interest rates will go up (and are) so that means a somewhat slower growth in home sales, which is what we don't need.

I agree with Krugman's conclusion that there's a real risk bad policy will choke off our already inadequate recovery. It's like "Murphy's Law."

Krugman gives us the perfect definition of an example of what I call "political economics:" "If unemployment rises from 6% to 7% during an election year, the incumbent will probably lose. But, if it stays flat at 8% thru the incumbent's whole term, he or she will probably be returned to power. And this means that there's remarkably little political pressure to end our continuing, if low-grade, depression."

I was happy to see that Krugman supported what I've been saying lately: "I can't help recalling that the last time we were in this kind of situation, the thing that eventually turned up was World War II."