14A007 In and Out of The 1% by Jim Davies, 5/2/2014    


A recent book, Chasing the American Dream by Prof. Mark Rank, busts several common myths about the social structure of America; and I must thank Rush Limbaugh, to whose radio show I very occasionally tune in (to discover what the conservative statists are saying that the socialist statists aren't) for drawing it to my attention on April 25th.

It explores income mobility in America, and finds that our social structure is much less rigid than some allege. America  is not a plutocracy; there is movement up and down the income scale over time, so opportunity for career advancement still remains. Here's how Rush summarized the findings:

  • Only 2% of the super rich (the top 400 taxpayers) remain there for 10 years. 98% move out!
  • Among those earning more than $1 million a year, most earned that much for only one year of the 9-year period studied, and only 6% earned that much for the entire period
  • More than half of all adult Americans will be at or near the poverty line at some point during their lives
  • 73% will also find themselves in the top 20 percent, at some point in life
  • 39% of Americans will make it into the top 5% for at least one year
  • 12% of Americans will be in the top 1% for at least one year of their working lives

Politicians love to generate envy between classes and groups, so as to play one off against others; and they have fomented fervent envy on the Left against "The 1%" who are said to run everything, and Occupiers of Wall Street accordingly froth at the mouth with that passion. But it's not so; over time, different people make up each of the segments surveyed.

Notice that this kind of analysis is relative; it says nothing about absolute values of income. It would be possible to show a comparable picture for Haiti or North Korea, without revealing that the lowest income segment here is equivalent to the highest segment there. Similarly it tells us nothing about how much richer everyone in America will be, when government has evaporated - along with its laws, regulations, restrictions, taxes and appalling misallocation of resources.

So, in the coming zero government society, what can we expect about earnings, disparity and mobility?

First, no government schools will dumb down children - so real education will produce graduates much faster. Many more will join the work force, better qualified to produce and earn, in response to whatever the market demands.

Second, no government wage laws will prevent less-talented youngsters getting their first jobs and so mounting the first rung on the ladder of success.

Third, rewards will exactly equal the value to the buyer, of the work performed. There will be no "ceilings" and no sinecures; everyone will earn what his or her work is worth.

Fourth, there will be zero unemployment; anyone wishing to offer his labor for whatever it is worth to an unfettered buyer, will be able to find a job. The labor market will clear.

Fifth, no government taxes will hinder the practice of saving, which is the foundation of prosperity, personally and in total. By saving some of what is earned and investing prudently, everyone will be able to gain the option of early retirement, living off the yield from the capital he has put aside.

Sixth, the aggregate of those savings will form a capital base that will be invested in the most profitable manner feasible, because nobody invests someone else's money as carefully as he does his own. That factor alone will turbocharge the prosperity of the whole society, by allocating resources where they most likely to produce what people wish to buy.

And seventh, the few who cannot compete in the labor market, due to some crippling disability, will be assisted by true charity; compassion will reappear, after a century or more of suppression by the process of taxation and "entitlement." This item alone will produce a much more peaceful, caring community.

These factors will, I think, increase income mobility - especially upwards - but, far more important, they will radically increase absolute incomes. It's impossible to say by how much, but in our own time the very modest relaxation of government controls in China has generated growth rates of 10% a year; the effect of scrapping government altogether can hardly result in less than 15% and possibly 20%. A 15% rate would double living standards every seven years; that is, in a single generation, we would be eight times better off.

That's the kind of growth rate, and wellbeing,  that denial of liberty has prevented. So far.


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