A trifurcation rather than bifurcation of society

An interesting but incomplete article, 1% v. 99%? No, It's Affluent, Squeezed, and Entrenched Poverty by Richard Reeves. Interesting in that Reeves does open the box on the very rich discussion of how it is that we might want to define concepts of middle class, rich and poor. Incomplete because it still treats the system as static.

At the very least, recent economic and social trends suggest a trifurcation rather than bifurcation of society, with two consequent divides. At the top, we can see an elite doing well in a labor market offering big returns to human capital. This is perhaps not the just the top 1% (much though politics might be easier if that were so) but, say, the top decile, or 10%, of the income distribution.

This stratum is not only prospering economically. For the people on this top rung, education levels are high and rising. Families are planned, marriages strong, neighborhoods safe and rich in social capital, networks plentiful, BMIs low and savings rates high.

Below this affluent class is a broad swath sometimes dubbed the ‘squeezed middle.' This group have decent labor market participation rates, but wages that are rising slowly. In many cases, two wages are needed to support the family. They own a home, but are not otherwise wealthy. Savings exist for emergencies or one-off expenditures, but run out fast if the households has a serious downward shock to income. Private schooling is rarely an option, financially. (This is a group that might benefit from one of the schemes of wage insurances currently being discussed, most recently by Prof Miles Corak).

At the bottom of the social scale are those whose poverty is entrenched. Labor market attachment is weak, with many people in long-term unemployment. Teen pregnancy is still heard of, unlike in most communities today. Poverty is felt in most domains of life - crime, health, education, parenting, drug addiction and housing. The growing economic segregation of neighborhoods further isolates this group from chances of work, better schooling or valuable social networks. Upward intergenerational mobility rates are low.

But what about the difference between averages of populations and individuals? This is Thomas Sowell's critique of the inequality debate. People don't live in a particular income quintile all their life. They move up, they move down, they move around, they have different starting points.

Is the child of 1% parents who graduates from high school, goes off to college, comes home, drifts through a series of unpaid internships, eventually ends up in grad school before finally becoming employed ever meaningfully in poverty? They may have no or little earned income for the better part of a decade and therefore are technically in poverty, but are they really? Obviously not. They may live in the bottom quintile for ten years but soon thereafter they are in the top one or two quintiles.

So it is not even about trifurcation, though that is a valid point. It is about what do we mean by poverty in a world of plenty and of legal equality. I would argue that we always ought to be looking at how policy can help people improve their own individual productivity. Beyond that, what we probably ought to be most concerned about are volatility (propensity to move between quintiles in short time frames) as well as stasis.

So if someone spends a very large percentage of their life in one quintile, it may indicate some barrier. Even this though is problematic. The 25 year old of high income parents, getting her first paid job may have spent 100% of her adult life in technical poverty but not been poor. And by the time you can begin to be certain that they really are in poverty, say by 35 years of age, is there much that can be meaningfully done to change that circumstance?

That suggests to me that perhaps this is then also an issue of forecasting rather only about definition. What are the circumstances that are reliable predictors of future unintended poverty? And when would they trigger an intervention? And how probable would that intervention have to be to be acceptable?

This likely would get very challenging if not problematic very quickly but I suspect focusing on productivity and focusing on long term probabilities are about the only two options available, other than to simply let emergent order arise. And the latter is not in itself an unacceptable outcome and might actually be the preferred outcome.