One strand of the great controversies about this subject is social mobility, or rather its loss of vigour. Those who believed that inequality was a moral wrong, as well as the down-to-earth utilitarians who held that it reduced aggregate material welfare and was the source of most ills from short life expectancy, poor health and delinquency, to teenage pregnancy and school failure, sought consolation in social mobility. If it was at work, inequality was condemned to gradual erosion. According to the "Shirtsleeves to shirtsleeves" doctrine, the great frequency of cases of the great wealth amassed by the grandfather was barely maintained by the son and lost by the grandson, and this lent support to the theory, advanced by Milton Friedman, that capitalism had a built-in tendency to reduce inequality. The last thirty years or so has cast much doubt on this appealing theory. Throughout the Western world income distribution was getting more skewed in favour of the top deciles of society. Oddly, this was particularly true of English speaking countries, which were less illiberal and more inclined to let markets do their work than other countries. Friedman's theory was falsified. There must have been a reason. Social mobility appears to have failed. Shirtsleeves seemed to lead to Saville Row suits but not shirtsleeves. Incomes went to the top and stayed there.
Playing his customary role, Joseph Stiglitz seeks to persuade us that in the U.S.A., the very rich have conspired to use their money and their influence to rig in their favour just about everything that money and influence can rig to perpetuate their privileges and further to accentuate inequality.
This conspiracy theory deserves no more credit than any other. However, the decreasing social mobility is not an accident and merits a look for plausible causes.
"The Shirtsleeves to Shirtsleeves" adage has been used in popular discourse to argue that the rich should, vote for a more or less egalitarian redistribution of incomes by the state so that their progeny should be protected by a safety net against the ravages of the wheel of fortune. This is arrant nonsense. If the rich were smart enough to get rich, they will find countless ways, from the piggy bank to the trust fund, to protect the comfortable future of their heirs and need not offer themselves to be plumed by a welfare state. They had ridden to wealth on the updraft of social mobility and are cleverly evading the downdraft. However, the rest of us who are neither rich nor smart may want some defense against it.
Modern political thought seeks to meet their need and offers the egalitarian solution. The theories of the four most influential egalitarian thinkers of the second half of the 20th century are not quite identical, but they use the same principal assumptions. William Vickrey, John Harsanyi, James Buchanan, and John Rawls all are contractarians; their solutions are not imposed by a majority on a minority nor by a dictator, but are accepted by all in a hypothetical agreement. They reach the solution they do because it best serves their own interests, defined as the expected utility of their income. Thus, they do not have to regard equality as a moral imperative, except for John Rawls who employs some idea of fairness in addition to the assumption that the contracting parties put little value on riches but would be unhappy if their income of primary goods fell below that of a reasonable target. Rawls's is a belt and braces theory. His followers pay more attention to the belt of fairness than the braces of the strong dread of adversity, though it is the latter that does most of the work of getting the desired result. Strong risk aversion, it should be noted, is common to all four theories, and seems to be doing most of the work.
These theorists in fact reason as if both rich and poor members of society were expecting from tomorrow on to spend a life time in a fixed income slot. There are as many slots as society has members. Some are most desirable, others of reasonable comfort, and yet others miserable. People do not choose their slots, do not merit them, and do not fight or work for them.
Before the event, the mathematical expectation of everybody's income is equal to the average slot. The expected utility, of falling into a good slot however, is supposed to be much less than the disutility of falling into a bad one. Since everybody feels the same way, the best possible outcome for all is when every slot offers the same comfort and the same shelter from adversity as every other.
There is, as a consequence, unanimous commitment to an albeit fictitious social contract which provides for the remodelling of the slots until each is as comfortable as any other.
A person is upwardly mobile, not when his income (or status ) rises, but when it rises more than the incomes of his class or society. The same goes for the downwardly mobile who falls harder than his class or society.
Conventional wisdom has it that social mobility makes for greater equality of incomes, and is a good thing or believed to be one. This, to put it politely, is not quite right.
A rough-and-ready measure of inequality is the excess of the average over the median income. When an individual rides the updraft of mobility, he increases equality as he rises to the median level, but increases inequality if he rises any further, for his move widens the gap between the median and the average. The reverse is true when the individual is caught in the downdraft. His descent from some high level to the median increases equality, while any further descent below the median augments inequality. When updraft and downdraft form a complete cycle, shirtsleeves to shirtsleeves cancel each other and income distribution is left unchanged. When the updraft is stronger income tends to concentrate in the top deciles of the income spectrum. Something of the sort seems to be happening now —the rich are getting richer to a greater extent than every body else. The downdraft is not being effective.
The egalitarian ethos has penetrated modern society as deeply as, if not more so than, the utilitarian one in the hundred years after Jeremy Bentham and John Stuart Mill. The modern ethos, however, has a corollary in the condemnation of risk and in the promotion of social arrangements, as well as fiscal and regulatory policies, to reduce or exclude risk of most kinds. "Security" has become a supreme value almost regardless of cost, and a mantra to direct our conduct. Success in life came to depend less on daring, intuition and luck, and more on prestigious diplomas, networks, and standardised behaviours. At the top of business, medicine, and the law, there seems to be more mutual admiration and buttering up and less bare-knuckle competition. Risky conduct is condemned as reckless and lightweight. There is probably less of it. Government policies are directed to temper both the riches of the rich and the poverty of the poor, but despite progressive taxation, are notoriously unsuccessful in reducing inequality at the top. The updraft is still doing most of its work. Welfare measures to help the poor are far more powerful. The purge to expel risk has at least not weakened the updraft but lessened the downdraft by eliminating the losses that did not occur because certain risks had been purged. All in all, the shirtsleeves-to-shirtsleeves adage no longer really works.
Even if updraft and downdraft were balanced, forming a perfect cycle, everybody could be getting richer with society on its way to becoming a second Luxemburg or poorer on its way to becoming like Somalia. When income distribution in a society changes markedly, we may say that there has been imbalance between updraft and downdraft. We could praise social mobility if we welcomed the change in distribution, or blame it if we disliked it. But without much further evidence, we ought to abstain from praising or blaming social mobility, for the apparent up or downdraft may simply be a symptom of a changing income distribution, and not its cause.
Nevertheless, much as we may lean over backwards lest we should confuse effect with cause, it is hard to resist the conclusion that if we make great efforts to stop downward mobility we may in fact be adding an extra reason for inequality at the top to become both greater and more stable. All this, insufficient evidence as it may be, strengthens the guess that the downdraft part of social mobility has been powerfully reduced without much of a weakening to the updraft. Social mobility, then, must ineluctably be producing an inegalitarian outcome, pushing wealth and income ever upward to settle at the very top, without enough downdraft to pull it down. Once again, our progressive thought and progressive policies may be producing a result which is both the contrary of what we wanted, but also too shaming to be confessed.