The inequality incentive

By Josh Tyrangiel

HUNGER TO SUCCEED The American system offers extreme incentives, if not always fair ones, to those who strive

PHOTOGRAPH Fred R. Conrad/The New York Times/Redux

If there’s a lesson from Occupy Wall Street, it’s that anger, tents, and drumming are no threat to the global financial system. Which is not to say that the Occupiers missed their mark. They wielded a brilliant array of indicators and statistics, held aloft for the world’s cameras and honed to inflict maximum damage to American self-esteem. For instance: “The U.S. has greater income inequality than Russia, China, and Cameroon.” In a dozen words the whole premise of American exceptionalism — that only here, under liberty, do fortunes rise and fall on merit — gets body-slammed. It’s a picket sign that leaves bruises. It also happens to be true.

The Gini index, devised by Italian statistician Corrado Gini in 1912, measures income distribution on a scale of 0 to 1. Zero is a perfectly shared pie; one is a population in which a greedy actor hoards it all. In 2011 the U.S. Gini stood at 0.475, a 1.3 percent rise over the previous year and the first significant annual increase since 1993. The 1.2 million households that make up the top 1 percent of wealth saw their earnings increase by 5.5 percent last year, according to the U.S. Census Bureau. In the 96 million households that made less than $101,583, roughly 80 percent of Americans, earnings dropped 1.7 percent. It has not been an equal-opportunity recovery.

Shift the light, however, and even severe income inequality has its virtues. If wealth at the top motivates people at the bottom, the gap is less relevant. If the state refuses to let citizens slip from lower class to underclass, it assures a level of dignity. And if the journey from poverty to prosperity is an open road, free of prejudice and corruption, then no one can say that class is fate. Which is why the focus on income inequality is a little misguided. It’s opportunity we need to watch.

Unlike income, opportunity is a synthesis of disparate things, only some of which are concrete: access to the polls and public schools; reliable social services; stable markets; penalties for those who would cheat to get ahead.

Over the past four years the federal government has been more aggressive in defending opportunity. The Affordable Care Act promises that, eventually, no one will lose their savings when they lose their health. Pell Grants for college remain funded, with bumps for inflation, despite serious congressional threats. And while dropout rates still track inversely to income, thousands of students remain enrolled in public colleges only because the feds picked up the slack when state schools raised fees and cut their budgets.

Opportunity feeds on symbols, too, and America has never stopped manufacturing those. Barack Obama is one symbol of the possibilities in American life. Lloyd Blankfein is another. To the Occupy signmakers, Blankfein’s scowl and pay package offered proof of the financial industry’s disdain for the little guy. But symbols, like statistics, change with perspective. Goldman Sachs’s chief executive officer was born in the Bronx to a postal clerk father and a receptionist mother. He grew up in public housing and earned his first pennies as a 13-year-old vendor at the old Yankee Stadium. “Three cents per soda,” Blankfein recalls. Not surprisingly, Blankfein, 58, says that America is still the land of opportunity. “C’mon, where are you going to go?” he asks. “Is there a block in Copenhagen that I haven’t heard about? We’re noisy and crazy and provide great theater to the world, but we’re actually pretty stable in our extremes.”

The key word is extremes. Almost all top universities in the U.S. are need-blind, ensuring that the brilliant poor will be catapulted into a world of new possibilities, even as average low-income students fight to cover community college costs. A new dry cleaner may struggle to get a small business loan, but innovators at the front end of the bell curve can call on venture capitalists regardless of their age and qualifications. Asks Blankfein: “Where else could you have a guy like Zuckerberg, where in his dorm room he can find people to give him money, and go out into capital markets and get a first, second, and third funding? Where else in the world does that exist? And when else in the United States did that exist?”

These extreme American incentives attract the hungriest people from all over the world. They always have. And it’s not always going to feel fair. A new Yankee Stadium opened in 2009, this one with a concrete moat separating the top-price ticket holders in the first nine rows from anyone who might try to sneak up for a better view. “I don’t remember being too successful at sneaking down to the first row in the olden days either,” says Blankfein. “Not that I didn’t try.”

SOURCE U.S. Census Bureau


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