Great Gatsby Curve- Trumps- Horatio Alger’s Rags-to-Riches: Society– More Unequal, Less Mobile– Income Disparity…

The Great Gatsby: A novel by F. Scott Fitzgerald highlights the inequality and class distinctions in U.S. during Roaring 20s… whereas, the Great Gatsby Curve illustrates the connection between inequality of wealth in one generation and the ability of those in the next generation to move up the economic ladder, compared to their parents… Some economist and policy makers use the Great Gatsby Curve to make rough forecasts of mobility across generations by the projected rise of inequality…

The Gatsby curve was introduced in a 2012 speech by Alan Krueger using data from economist Miles Corak; the curve plots inter-generational income elasticity, i.e., the likelihood that someone will inherit their parents’ relative position of income level and inequality… By contrast Harvard economist Greg Mankiw noted– this correlation is not particularly surprising, curve is an artifact of diversity… According to Alan Krueger; because of rising inequality the happenstance of having been born to poor parents makes it harder to climb the ladder of economic success…

According to Timothy Noah; you can’t really experience ever-growing income inequality without experiencing a decline in Horatio Alger-style of upward mobility because (to use a frequently employed metaphor) it’s harder to climb a ladder when the rungs are farther apart… Horatio Alger’s ‘rags-to-riches’ narrative is about impoverished boys that rise from humble backgrounds to lives of middle-class security and comfort through– hard work, determination, courage, honesty…

According to Miles Corak; Great Gatsby Curve is the outcome of a whole series of gradients between socioeconomic circumstances and the outcomes of young people as they make the transition from infancy to school readiness and ultimately from school to the job market… The stronger and more enriching the family environment, the more equal life chances, the more equal the labor market, the more equal life chances, and the more progressive public policies in place, the more equal the life chances…

According to Jonathan Hopkin; U.S. has long had higher inequality than other advanced democracies, although many Americans see this as part and parcel of the ‘American Dream’ of rising living standards and social mobility. But recent research established that social mobility between generations has in fact remained quite stable in U.S. over recent decades…

This means that ‘young people’ entering the labor market today have the same chances of moving up in the income distribution (relative to parents) as those born in the 1970s. So what exactly does this study show, and how reliable is it? It depends on how you define ‘mobility’… If you think it’s about relative positions in a stratified society, it has stayed roughly the same, but if you think it’s about relative incomes, it has gotten worse… So what’s to be done about it?

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In the article New Research Finds No Evidence of Great Gatsby Curve by William McBride writes: New research indicates that there is no Great Gatsby Curve, at least not in the U.S. over the last several decades… Raj Chetty of Harvard and others use previously unavailable data from tax returns and elsewhere to show that economic mobility remains remarkably constant since 1971, while income inequality appears to have increased during the 1980s– they find children born to parents in the lowest quintile of income earners (bottom 20%) have about a 9% chance of eventually making it into the top quintile of income earners (top 20%) and that has essentially not changed since 1971…

According to researchers; high mobility areas have, for example; (1) less residential segregation, (2) less income inequality, (3) better primary schools, (4) greater social capital, (5) greater family stability… All of this makes sense, except income inequality stands out as a function of other factors, indicating that the way to address economic mobility at its core is to fix underlying problems, i.e. failures of primary schooling, breakdown of family structures, prejudice… This is not complicated stuff its been well-known for decades by experts and non-experts alike. We appear to have simply gone off the rails of late in attributing all sorts of ills to tax policy…

In the article Why Gatsby Curve is Poor Measure of Income Mobility by Philip Cross and Ian Lee write: Great Gatsby Curve asserts that more income inequality in one generation leads to less income mobility for the next generation… Every generation expects to achieve more than the one that came before it and for many years those expectations came true; but a disquieting trend has emerged over the past two decades, as the gap between the richest and the rest has grown in the U.S…

The question is whether more inequality, by itself, triggers a mechanism that reduces mobility for the next generation, and why this mechanism would exist across societies with different institutions and demographics… But if we carefully examine the Gatsby curve it exists with a wide range of mobility outcomes…

That is to say, the importance of other factors is why reducing inequality in the U.S. and other nations would not change mobility significantly without changes to institutional such as; health care, education, criminal justice system, family structure… Without taking these factors into account, the Gatsby curve begins to look more like convenient narrative stringing together unrelated facts, posing as a meaningful insight into income and class dynamics…

A further limitation of the Gatsby curve is that it measures inter-generational mobility only between fathers and sons. Doing so, however, exaggerates the importance of the long-run deterioration of incomes for young men while ignoring the gains made by women… While restricting data to men is technically appropriate to preserve sanctity of assumptions underlying the equations, it means sacrificing any relevance to policy…

Policy makers must live in the real world: If labor market outcomes for sons are deteriorating, but daughters are doing better, is there really a problem of inter-generational mobility?

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In the article U.S. Social Mobility Is Not Decreasing by Rebecca Strauss writes: There is no question that income inequality has been increasing since the 1970s in most of the world. And it has been the general assumption that as inequality went up, class mobility between generations would go down. This relationship cleverly named– the Great Gatsby’s Equality of Opportunity Project, finds that the chance of going from the bottom quintile to the top quintile has in fact remained relatively constant at about 8 to 9% for everyone born in the second half of the 20th century.

If you dig further into the details and count decimal points, social mobility on average may have improved (slightly) for Americans born in the early 1990s. We can likely trust these results more than any other social mobility study to date; its datasets are more precise and claim a larger sample size… The findings do not mean the picture is all rosy– even if Americans are no more stuck in their economic class than they used to be, rising inequality means that the ‘birth lottery’ of– who your parents are– matters more now than before…

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In the article The Great Gatsby by Maura Pennington writes: So, how did Gatsby become great? Where did he get his money? To figure out how exactly Gatsby became rich, you have to actually read the end of Fitzgerald’s book. It’s revealed that a businessman of dubious means took him under his wing, saying: I raised him up out of nothing, right out of the gutter… I saw right away that he was a fine appearing gentlemanly young man… It was quite an act James Gatz (Gatsby) was playing, but it paid off: He was able to execute his new polished, Oxford-educated, but entirely false identity because he put work into it… He filled his days with exercise, sports, study, hygiene, financial saving. Most importantly, he sought to– practice elocution, poise and how to attain it and read one improving book or magazine per week…

It wasn’t a lack of inequality that gave Gatsby his lucky break in business; it was his daily schedule and resolve to keep it. It had nothing to do with how much money his father had or how much of an improvement that was on his grandfather’s situation. Jay Gatsby was, in essence, the truest kind of American. One who made himself; and not just his fortune, out of nothing…

Given that some pundits think– Great Gatsby is a tale of social mobility and not one of a self-created hero, these pundits seem to think that inequality is the root of all evil, that no one can move in society because the rungs of the ladder are too far apart, so to speak. That’s not to say there isn’t anything to remedy in this country; it’s just not what some pundit suggest… Gatsby had personal benefactor and it was not the government… He earned good-will by being an upstanding person, by proving the quality of his character. When it’s government administering equalizing funds, there’s no test of character. Gatsby worked every day of his life to be the person he created…

The trouble with social ladders is that no matter how high the first person gets who climbs it, there will never stop being a person at the bottom who has not or cannot climb it. We are human beings, a competitive species: It’s a race to get to the top… That’s how Gatsby bought his mansion. That’s how inner city drug lords buy their Escalades. This only goes to show that social equalization is a policy minefield… Jay Gatsby was socially mobile in a world vastly different from ours. The essence of how he was able to do it is universal, though. He was his own person and he made opportunities… There’s no chart that can show how to do that…

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The Gatsby Curve illustrates an important point and one that over time is likely to produce profound consequences; there is a negative relationship between how unequal a country is, and how difficult it is to change the social statusAccording to Thomas Mucha; one of the major themes of The Great Gatsby, loosely defined, is the ‘American Dream’– but more broadly it’s the idea that it’s possible to transcend your current economic and social circumstances if you dream big enough and work hard enough. That profound notion has fueled dreams of millions in U.S. and around the world…

But as The Great Gatsby Curve warns, this dream is much harder to achieve in a country with high inequality… According to Will Wilkinson; the issue is not so much income disparity as economic well-being… no one doubts that income inequality is a fact and that it may be growing; but few have explained exactly why it’s a problem… According to David F. Ruccio; clearly inequality has increased in U.S. since mid-1980s but income mobility hasn’t much changed…

However, what is not considered for example; (a) income inequality did in fact increase over time (which means the consequences of the ‘birth lottery’ are larger today than in the past), (b) major source of inequality over the course of the past three decades is the growing gap between the top 1% and everyone else… Inequality of opportunity is bigger problem than income inequality because the latter should be discounted due to individual choices, individual effort… Unfortunately, equality of opportunity is a highly problematic concept…

The bottom line: Society is more unequal but not more mobile, so the fact that only 8-9% of bottom fifth make it to top fifth is now far more important than it was when inequality was lower. The stakes are getting higher but chances of winning haven’t budged… We must think about– more important understand; ‘how’ inequality and ‘what kind’ of inequality– influences opportunity…