The most depressing thing with Chetty et al.

The Chetty et al. paper has been on my mind over the weekend (see Saturday’s post). The one thing that has moved more or less in line with the absolute mobility measure of Chetty et al. has been…the size of government.

I know that as soon as some of you read the last four words on the previous paragraphs, your eyes rolled. However, even from a social-democratic perspective, it is depressing! It is not the first time I make this observation.   In the pages of Essays in Economic and Business HistoryI recently reviewed Unequal Gains (authored by Peter Lindert and Jeffrey Williamson and published at Princeton University Press) and I observed that the “great leveling” they observed from the 1910s to the 1970s had a lot to do with the northward migration of American blacks, the closing of the gender wage gap and the convergence of the southern states. I also observed that the increase in inequality in the United States after 1970 occurred at the same time as an the state grew more in size and scope (see blog post here).

However, as I mentioned elsewhere, I am very skeptical of the tax-based data on inequality in the United States and I am afraid to push that point. However, the Chetty et al. data provides further confirmation: trends in inequality/social mobility deteriorates as the state becomes more active (see the graph below).

sizegov

Now, I am aware that the causality can cut both ways. It may be that inequality (economic mobility) is rising (falling) in spite of increasing state action, it may be that state action is fueling the the rise (reduction) of inequality (economic mobility) or it may be that the state has no effects whatsoever on the evolution. Regardless of which of the three viewpoints you tend to adopt (I lean towards a mixture the second option – see my paper with Steve Horwitz here which is under consideration for publication), the implications are immensely depressing with regards to social policy in the last 75 years.

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