My critique of Tyler Cowen’s post arguing the unimportance of social mobility has started off, or maybe merged into, of those old-fashioned blog firestorms we used to have back in the day, now also reticulated through Twitter – a few links here, here and here. But rather than criticise Cowen further, I thought I would try to work through the bigger issues involved from a social democratic perspective[1]. In particular, as discussed in comments here, should social democrats favor policies to enhance social mobility, or does mobility between generations make inequality even worse, for example by justifying what appears as meritocracy?

It’s helpful to start with some facts, and the big one is that inequality of opportunity and inequality of incomes (or, more generally) outcomes are strongly positively correlated. The US and UK are notable as being highly unequal societies in both respects. More precisely, as would be expected on the basis of even momentary thinking about the ways in which parents try to help their children, highly unequal outcomes in one generation are negatively correlated with intergenerational mobility in the next.

That brute fact kills off one of the central ideas put forward by lots of ‘Third Way’ advocates among former social democrats, namely that it’s fine to have the highly unequal outcomes produced by free-market liberalism if you can get a modest amount of extra growth in aggregate, since governments can use education and similar policies to ensure that everyone has a fair chance at the big prizes. If a highly unequal society allows parents to give their children an unbeatable headstart, then the idea that we can offset greater inequality of outcomes by more efforts to promote equality of opportunity becomes problematic at best.

Matt Cavanagh in Against Equality of Opportunity takes the dilemma seriously and argues for the abandonment of equal opportunity on the basis that it is inconsistent with a market society. That’s pretty much the actual position of most Third Way supporters[2] though not too many are willing to say so.

Moreover, the factual basis for the claim that free-market liberalism actually produces higher growth is weak, though the evidence isn’t as clear-cut as for the relationship between unequal outcomes and unequal opportunities. The time-series evidence goes the other way – the strongest period of economic growth for the US and other (then) leading countries was during the post-1945 ‘Great Compression’. The comparison is even sharper now that we’ve had a few years of highly unequal austerity.

So, the Third Way position appears unsustainable in every way. On the other hand, as long as you accept some role for markets, or even just for individual choice, different people will experience different outcomes in life. It seems obviously sensible, for example, to allow people a choice between working hard in paid employment, and buying goods and services in the market, or spending more time at home, providing directly for themselves and their families[3]. And, if people are allowed to take real risks, some will turn out relatively well and others relatively badly.

There is no reason, however, why freedom of choice, even within a generation, requires the grotesque inequalities produced by market liberalism. In fact, by punishing any choices that don’t produce a high income, market liberalism reduces the range of effective choices. Tyler Cowen makes this point, using the examples of the US and Europe, here (his point 4, though of course it’s not intended this way).

Once we have unequal outcomes in one generation, there will be a tendency to transmit them to the next. But if the distribution of income within a given generation is reasonably equal, there is lots of scope for government action to give everyone in the next generation access to the same broad set of choices and opportunities.

The most obvious measures relate to wealth and education. Taxes on inheritance and capital gains can discourage the transfer of large accumulations of wealth from one generation to the next. As regards education, the crucial element is centralised funding, with a commitment to offset, rather than reinforce, inequalities in starting points. That is, schools in poor communities should get more resources rather than less, to offset both the poorer starting position of the students and the greater opportunities of schools in wealthy areas to secure support of various kinds for parents.

How does this relate to concerns about meritocracy? The more that differences in outcomes reflect different choices from a given set of opportunities, rather than differential success in climbing a well-defined hierarchical ladder, the less this seems to me to be a concern.

As always, I’m hoping for comments to point out (preferably in a non-snarky fashion) weaknesses in my argument and to help me clarify my thoughts. So, go to it.

fn1. I’m not going to attempt a definition of social democracy. But I’m thinking about a policy view that would take the best elements of the Keynesian/welfare state polities that was developed in the decades after 1945 and extend it to cover a much wider range of people and concerns than those of the developed-country male-earner households who were taken as the model participants in those polities.

fn2. The term is pretty much dead, along with the idea that the Third Way would transcend the divide between social democrats and free marketeers, rather than just split the difference as many times as the opinion polls appeared to require. But the political tendency it represents is very much alive, as shown by the general capitulation to the zombie economics of austerity.

fn3. This glosses over all sorts of problems, from involuntary unemployment to the distribution of work and consumption within households. But however these problems are resolved, the choice I’ve described will remain important.