> A 17-year study of lifetime earnings by the Federal Reserve Bank of
> Dallas found that only 5 percent of people in the economy's lowest
> 20 percent failed to move to a higher income group. In a similar
> study by the Treasury Department covering 1979 to 1988, 86 percent
> of Americans in the bottom fifth of income earners improved their
> status.
I'm a bit embarrassed to find myself quoting myself quoting myself, but what the hell, it's been almost a year. Somebody brought up their names here last February, and here's what I said:
Ah, Michael Cox. He and his sidekick, Richard Alm, have been pumping out apologies for the U.S. income distribution for the Federal Reserve Bank of Dallas for years now. They're the authors of one of the most devious pieces of economic "research" I've ever seen - the Dallas Fed's 1995 annual report essay on upward mobility. Cox & Alm have a new book out, and this is part of the publicity campaign. I'm going to record an interview with Cox in about 10 days for later radio broadcast; it's going to be fun to give him a hard time.
Here's what I had to say about Cox & Alm in LBO #84 (based in part on a very helpful memo on the 1995 mobility piece by Peter Gottschalk of Boston College):
<quote> Inventing bootstraps. The right's sacred text on mobility is W. Michael Cox and Richard Alm's essay "By Our Own Bootstraps," published in the Federal Reserve Bank of Dallas' 1995 annual report. While the class position of Fed research may not be to everyone's liking, it's usually rigorous and informative. Cox and Alm's stuff isn't. It was a study designed to make a point, and it stacked all the numbers its way.
Mobility studies are very sensitive to definitions, time scales, and data quality. Honest researchers slice the data several ways to see how robust the findings are; not Cox and Alm. They used all the sensitivities to their own advantage. They're out to prove that America is "the land of opportunity," the incomplete sentence that serves as their opening line. "Opportunity pervades our folklore," and folklore pervades their economics. They say that of the bottom quintile (fifth) of income earners in 1975, just 5% were still there in 1991; 60% were in the top two quintiles
They stack their results in several ways. By making individuals, not households, the focus of their analysis - which they say is standard practice, though it isn't - subjects as young as 16 qualified. So the lower ranks were swelled by teenagers who contributed vastly to mobility just by growing up. To compare incomes over time, they used changes in real (inflation-adjusted) incomes over time, rather than comparing them to prevailing averages of each moment - that is, they measured changes in absolute rather than relative incomes. While absolute changes matter some, most people judge their status and well-being against the rest of society, not against an ancient base fixed by a statistician. Peter Gottschalk's reworking of the numbers massively deflates their claims. Cox and Alm found that just 2% of those in 1975's bottom quintile remained there in 1991; by Gottschalk's calculation, 36% were. And instead of 39% ending up in the richest quintile, just 20% did. With relative measures - which Cox and Alm don't use, of course - 43% of 1975's bottom quintile would have remained there in 1991, and just 11% would have hit the top.