Moving Up The Economic Ladder Versus Moving The Economic Ladder Up

Zachary Goldfarb has a depressing piece in the Washington Post about Democrats shifting away from "inequality" and towards "opportunity." It's depressing because, in politics at least, "opportunity" is a vague catch-all that signals a desire to do nothing of any substance. It is also a wrong thing to exclusively focus on. As I wrote before, "the goal of increasing opportunity is to help the poor rise above their class, while the goal of inequality reduction is to help the poor rise as a class." Both are good, but the latter is far better.

In his piece, Goldfarb quotes a Heritage Foundation fellow who talks about "mov[ing] up the economic ladder," which reminded me of a point I have been meaning to make about that concept. So I will make that point here.

Conundrum

One of the conundrums of the politics of income stagnation is that it is not experienced on the individual level. As I discussed before, an individual's income tends to increase as they age. That is, they "move up the economic ladder."

Imagine a dot that slides along that line. That's how a representative individual tends to experience income in the economy as they age. This is because people get promotions and raises and such as they age and replace older folks who are retiring out. Consequently, individuals may accurately say to themselves "I am making $5,000 more at age 35 than I did at age 25, so that's progress."

This is a very deceptive experience though. As the economy grows, all of the additional national income could flow to a tiny percentage of people, but that line (and the year-over-year progress it means for individuals as they age) would remain. Regular people would still "move up the economic ladder" as they age and experience the progress inherent in that, even as none of the benefits of growth flow to them. Median incomes could be stagnant for the rest of history, but individuals would ride that line above and therefore experience life as if things are always improving.

Moving The Economic Ladder Up

Riding that line up and up is what moving up the economic ladder means. But the proper aim of distributive policy should be to move that entire line up (and flattening the line in some cases), like this:

That you are making $5,000 more at 35 than you did at 25 is important for you individually, but if you are making the same at 35 as 35-year-olds did last year and the year before and 15 years ago, then that's stagnation, even though it doesn't feel like it personally. Moving up the economic ladder doesn't end income stagnation. Moving the economic ladder up does.

As a policy matter, it's not clear what we need to do to "help people move up the economic ladder" in the sense described above. They already do that as they age. Income life cycles are constant features of capitalist market economies. Moving the economic ladder up (at the median or lower percentiles) is a ripe source for policy, but that's what inequality-reduction policies like tax-and-transfers do. Yet, Democrats don't want that.

To refocus the policy agenda away from inequality and towards "helping individuals move up the economic ladder" is to turn away from something policy can help on and towards something that is already working fine in the status quo.

Conclusion

Though it rarely gets a mention, the conundrum of the income life cycle is a serious one for the politics of inequality and income stagnation. If individuals literally had the same stagnant income their entire life and saw all the yearly economic gains flowing to a particular set of people, then you'd probably have a serious political fire. But they don't. Instead, they individually ride an escalator of increasing income across their life, which experientially masks macro income stagnation. So long as the median person starts out low and sees their income increase year to year, you could have rapid inequality escalation and 100% of the income gains flowing to a tiny fraction of the structural locations in our economy, without individuals experiencing it that way.

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