Depriving the well-off is not right

Many Americans are worried that the US is becoming a class society. The country’s founding mythology holds that it began as an egalitarian alternative to the hidebound, class cultures of Europe—a place where even the lowliest of birth rise through hard work and ingenuity. Of course, that rosy image was never quite accurate, but in the mid-20th century the US did manage to build a middle-class society with a decent amount of social mobility.
Now that mobility is fading, and that middle class has bifurcated, and it’s causing much consternation. Many writers have bemoaned the plight of the working class, which has been losing ground. To this growing list we must now add Richard Reeves, a senior fellow at the Brookings Institution, whose new book “Dream Hoarders” claims that the upper-middle class is hogging most of the country’s economic opportunities. Though Reeves’s book correctly identifies a major problem in American society, it ultimately falls short of offering a comprehensive solution.
Reeves’s critics like Mike Konczal, at the Roosevelt Institute, a think tank, argue that instead of the upper-middle class we should be focusing only on the very wealthy—the top 1 percent, or even the top 0.01 percent of the income distribution. But as Reeves points out, this exalted group isn’t always the same set of people. Many wealthy people have highly variable incomes—hedge-fund managers who make money when their funds do well, or entrepreneurs who reap a bonanza when they sell their companies. Also, incomes tend to rise as people age, especially for the wealthy—most chief executive officers started out in much less lucrative positions.
Sociologists Thomas Hirschl and Mark Rank estimate that 11.1 percent of Americans will spend at least one year in the top 1 percent by age 60, and more than a third of Americans will manage to reach the top 5 percent. So although there are certainly some top earners who reliably rake in millions, Reeves is right when he says that many of the rich are just upper-middle class people “having a good year.”
Reeves is also right that money doesn’t capture the full importance of class divergence. Educated Americans live longer, get married more and stay married more, and indulge in fewer self-destructive behaviors like smoking. Research has also found that when a person’s income rises past about $75,000 a year—right about the 80th percentile as of 2016—the link between money and happiness becomes weaker.
And Reeves is right to focus on college education as a determinant of class status. The college wage premium has risen substantially in the US since 1980:
This earnings premium has happened despite a steady rise in the percent of Americans with higher education. In 1980, 24 percent of Americans held bachelor’s degrees—by 2015, it was 33 percent.
A simple economic model would suggest that as the supply of college-educated American workers increased, the wage premium should have been competed away. And if college were merely a way to signal high natural ability, the return on college should have vanished as lower-ability people entered the ranks of degree-holders. That the college premium has held steady or even climbed as more people have gotten degrees implies that not enough Americans are going to college. Reeves’s focus on college is further supported by the research of Stanford University economist Raj Chetty, who has found that higher education is associated with increased mobility.
So while the concentration of wealth in the hands of the super-rich is certainly cause for worry, the divergence of the middle class into upper and lower ranks, partly divided by education, is also an important issue. Reeves is right that addressing the former shouldn’t mean ignoring the latter.
But when it comes to offering solutions to the middle-class divergence, Reeves falters. He focuses mainly on ways that upper-middle-class Americans give their children a leg up. Three methods of “hoarding” get singled out in particular—legacy admissions to elite colleges, exclusionary zoning laws and unpaid internships.

—Bloomberg

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs atNoahpinion