American Exceptionalism has taken a few hits of late, with the country lagging in important measures of performance. We used to think America was the freest country in the world, but now the Heritage Foundation begs to disagree. It ranks America in tenth place, as “mostly free,” behind a group of “free nations.” We used to think that this was a country of small government, but that was before Obama. And we used to think that, more than any other country, this is a place where people can get ahead no matter where they come from. However, the Pew Economic Mobility Project 2011 tells us that that’s not true either.

Income Inequality and Income Mobility

The Pew study was produced by the Pew Charitable Trusts. While one wouldn’t describe them as a conservative foundation, they’ve co-partnered with our friends from the Heritage Foundation and the American Enterprise Institute on their mobility project. The table at right, from their study, measures income mobility, and reports that the U.S. is one of the least mobile societies in the first world. The study measures “intergenerational elasticity,” defined as the relationship between a child’s and his parent’s rank on the income ladder. An elasticity of 0 denotes a highly mobile society, with no relationship between the income levels of parent and child. An elasticity of 1 describes a society with no mobility between the two generations.

The study finds that, of the countries sampled, income mobility is greatest in the Nordic countries and least in the U.K., where half the earnings advantage is passed on by parents to their children. That’s not surprising, as we’re apt to regard Britain as a class-ridden society. The surprise is that we seem almost as immobile a society as they are. If so, this would strike at the heart of this country’s self-image, as expressed in the idea of American Exceptionalism.

Nothing is more central to the idea of America than the belief that anyone can move up the ranks with the proper amount of industry and discipline. What we don’t want are permanent classes of peasants and aristocrats. That’s our idea of what Europe is or was, and we’ve always seen the U.S. to be different from that. We see America, not Denmark, as the land of opportunity. If it turns out that we are more class-ridden than the Europeans, then a core understanding of what American Exceptionalism means will have been lost.

Income mobility can be expected to become a major issue in the coming decades. Progressives have already picked up on the problem, in their campaign to reshape our economy. This was the message behind the President’s Osawatomie speech last December. Here’s what he said:

We tell people—we tell our kids—that in this country, even if you’re born with nothing, work hard and you can get into the middle class. We tell them that your children will have a chance to do even better than you do. That’s why immigrants from around the world historically have flocked to our shores.

And yet, over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk. You know, a few years after World War II, a child who was born into poverty had a slightly better than 50-50 chance of becoming middle class as an adult. By 1980, that chance had fallen to around 40%. And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a one-in-three chance of making it to the middle class—33%.

The President repeated the same idea in his January State of the Union speech. In both cases, conservatives have wrongly taken the message to be about income inequality. That’s in there, but the deeper message was about income mobility.

For decades progressives have complained about income inequality, about differences in wealth and earnings in the U.S. That’s what the Occupy Wall Street folks mean when they talk about the 1 percent and the 99 percent. For the most part, however, those complaints have fallen on deaf ears. Income inequality doesn’t bother most Americans, so long as there is income mobility. We aren’t bothered by the fact that other people are richer than we are, provided that our children have an equal shot at the brass ring. We’ve always believed that this was true of America, more than most countries, and that is why, according to Seymour Martin Lipset, “it didn’t happen here” and socialism never took hold. Take mobility away and income inequality presents progressives with transformational opportunities. That’s the story of Venezuela.

The absence of income mobility might also weaken the sense one has of belonging to a single American nation. With separate classes of citizens, one loses the sense of a united country with commonly shared expectations in life. In the past Americans have been quick to volunteer their services in times of peace and enlist in times of war, and I suspect that one reason is the belief that we all have an equal chance at life, that this is a country of income mobility. Otherwise we’re left with the two nations of Sybil, Disraeli’s England of 1845, and that’s a possibility which should concern people, particularly conservatives, who think American nationalism valuable. At present, the left is claiming the income mobility issue. Concede that to them, and say goodbye to a good many Tea Party supporters.

Natural Aristocracies

If income mobility is desirable, just what is the best mobility ratio, on the Pew scale? Did Denmark get it right, with its figure of 15 percent? Or would a score of 0, denoting perfect mobility, be better still? Just what kind of mobility to expect was a subject that greatly interested the Founders. They were self-consciously creating a new nation, and with it a new society, and what they wanted was something different from what they saw as an aristocratic England.

There had been sharp social distinctions in the Ancien Régime of colonial America, and the Founders worried that these might persist. They knew nothing of statistics but nevertheless understood the idea of reversion to the mean, the tendency of exceptional parents to beget ordinary children, and as they opposed aristocracies took comfort in this. In a letter to John Adams, Jefferson described this process as the “natural degeneration” of mankind. The Chinese expressed the same idea with the saying “shirtsleeves to shirtsleeves in three generations.” Our modern version features a entrepreneurial grandfather with dirt under his fingernails, a father with a Harvard MBA, and a son on Ritalin.

Did the Founders think, then, that America would be a country of perfect mobility? That was the subject of a famous debate between Jefferson and Adams, after both had left politics and patched up their quarrels. Both opposed what they called an “artificial aristocracy” of wealth and privilege and applauded the “natural aristocracy” in which the self-worth of eminent men and women is recognized by all. In each generation such people emerge, and a just state should recognize their worth and employ their services. Jefferson thought that some of their virtues might be passed on to their children, but thought that “the equal rights of men will rise up against” a permanent aristocracy of this kind.

Adams would have expected a higher score on the Pew scale, for he thought that a famous name would confer on its bearers an eminence which, if decayed, might nevertheless last through generations. That wasn’t good enough for his great-grandson, Henry Adams, who a hundred years later bemoaned the decline of his family. Even in our own day, however, a name such as Kennedy or Clinton confers a wholly undeserved advantage in life.

Beyond the celebrity attached to a name are the genetic advantages that come from the wise choice of parents. This was the great theme of Charles Murray’s The Bell Curve, which the debate about the book’s racism obscured. Murray prized the idea of America as the land of opportunity and worried that the transformation of America from a manufacturing to an information economy would confer lasting benefits for smart gene pools. The winners in the new economy are the more intelligent people amongst us, and if 40 to 80 percent of what makes us smart is inherited, as Murray suggested, then a class of the more intelligent might persist over generations, leaving the generations of Little Brains in the dust. That message is reinforced by the Pew Economic Mobility Study, in which measures of parental intelligence are strongly correlated with the economic outcomes of their children.

We haven’t yet reached the point where people are penalized for their intelligence, and we’ll never reach the point where we shun John Adams’ celebrity families. That is to say that we should not expect or desire perfect intergenerational mobility, with a Pew score of 0, in any society. Those with more intelligent parents are more likely to be more intelligent themselves, and wealthier too.

The Puzzle: Why So Little Mobility in the U.S.

This doesn’t explain why the U.S. ranks so poorly on the Pew study, however. There are smart people everywhere, and we’d expect the same degree of mobility in each country, if intelligence were the only driver. Similarly, the move to an information economy can’t explain the differences, when this affects all first world countries in so similar a manner.

That leaves several explanations for the difference. For some people, the first thing to come to mind is racism. For some people the first thing to come to mind is always racism. In a racist society, the disfavored class finds it impossible to move up the ranks, and this would reduce mobility and increase the Pew ratio. I don’t know how to prove or disprove such claims, but nevertheless am skeptical that racism explains much of the difference. First, America is not the only diverse society around. Other countries, especially those which, compared with the U.S., have high immigration ratios, are also diverse, and often more racist than the U.S. Second, if racism explains the difference, what was affirmative action all about? What a waste all such efforts would have been, if it all comes down to irreversible racism.

Then there are cross-country differences in welfare systems. There is a strong positive correlation between economic mobility and a country’s top rate of marginal taxation. That might seem like a paradox, since the wealthy have less to leave to their children under progressive taxation. The paradox disappears, however, if the tax revenues are applied to level the playing field through welfare policies. Once again, however, I don’t buy it. As a percent of GDP, America spends less on welfare than most first world countries, but the value of the welfare payouts in America per recipient are among the highest in the world. One might think that government subsidies for higher education would account for much of the difference, since higher education is a powerful escalator for economic advancement, and since college tuition is much higher here than in comparable countries. However, university completion rates in the U.S. are the second-highest in the world. It may be expensive, but people still go to college here.

That leaves two things, which I think do help to account for the lack of income mobility in the U.S., and which conservatives in particular would find objectionable. The first is a culture of poverty in which the desire to get ahead is abandoned. To succeed, what children need are the habits of industry and learning, the willingness to defer immediate gratification, which professional and wealthier parents who are married to each other can more easily pass on to their children. That is the most important head start program society may offer, compared to which state-run Head Start programs are a joke.

Might this explain why America lags on cross-country measures of income mobility? Some evidence of this is provided by how America’s 15-year-olds fare on the OECD Program for International Student Assessment tests, where they rank 17th in science and 25th in math, with a statistically significant relationship between the science scores and the Pew mobility rankings. America’s kids do however lead the world in one category—self-esteem. The gap between performance and self-image is highest in this country, and the sense of self-contentment and happy mediocrity plausibly helps to explain America’s income mobility ranking. There is no need to pursue happiness if it comes without effort.

The second factor that might help account for the income mobility ranking is how America fares on measures of the rule of law. There is a broad understanding that the rule of law is crucially important in explaining economic development, without much agreement about what the term might mean. However, one thing it has always been taken to denote is a distinction between the rule of law and that of men. How the state treats one shouldn’t depend on whom one knows. In that sense, America seems not to rank particularly well, when compared with the other countries on the Pew mobility index. On measures of the rule of law, the World Justice Project ranks America about 9th or 10th out of the 12 countries surveyed in Western Europe and North America. Transparency International puts the U.S. in 24th place in its measure of perceptions of public corruption.

The Transparency International ranking is significantly correlated with the Pew mobility index. That’s what one would expect. The more corrupt a country, the more it matters whom one knows, and the less mobile the society. In highly mobile countries, it matters less whom one knows and more what abilities one brings to the table.

Explaining the Demand for Aristocracy

Jefferson thought that Americans wouldn’t tolerate the lack of income mobility I have described. Why was he wrong? Here I offer an explanation. Suppose that (1) people are concerned about how their children will fare; (2) people have relative preferences (they care about how they and their children rank compared to others); and (3) a class of people, small in size but large in influence, composed of opinion leaders and the very rich, has a disproportionate ability to shape our policies. Put all that in the hopper and don’t be surprised if what comes out is aristocracy.

Milton Friedman advanced a model in which people care only about themselves and not about their children. That was just a model, and it was inconsistent with the solid evidence that people do care about how their children fare. That’s why high estate taxes are wasteful. If people care about their kids, they produce more than they can spend on themselves during their lifetime in order to bequeath what is left to their children. Take away the right to pass on income on death, and people will react by producing a lot less. Caring about succeeding generations is not a vice. It’s a virtue, and conservatives in particular will recognize this.

We all care about our absolute wealth, about how many things we can buy. However, we also care about our relative wealth, about how wealthy we are when compared with other people. If so, we would be willing to accept a loss of absolute wealth in return for a gain in relative wealth. We’d be willing to suffer a small drop in income if everyone else took a much bigger hit. For the wealthy, then, income mobility is a bad and not a good. They are on top, and want things to stay that way, for themselves and their children, even if the country is the poorer for it.

Americans resist the idea that they can be divided into classes, but most would admit that some people exercise a disproportionate influence over our politics. These include opinion leaders in the media, members of the bar, the professoriate, the celebrities who turn up to testify in Congress, the very rich. They tend to hold progressive views, and this has been thought puzzling. It’s not. If they care about the relative status of their children, one would expect them to support policies that reduce overall societal wealth but serve to preserve their children’s position in society. They can’t have titles of nobility, but they can deny opportunities to the up-and-coming. Let’s look at how they might do this.

Public education has been vitally important in moving families up the economic ladder, and the American aristocrat would therefore favor policies that tend to destroy public schools. He would oppose state aid to parochial schools and the charter school movement that would give lower and middle class children a leg up. His own children will attend good private schools that are beyond the means of the middle class. They’ll also enroll in the kinds of programs that help them get into the better universities, to which they’ll apply as legacy students.

In the past, immigration propelled people up the income ladder, with the children of intelligent, hard-working immigrants going to college and moving into white-collar jobs. Aristocrats will want less promising immigrants, however, those they can hire as gardeners or maids. Above all, an aristocratic immigration policy will deny entrance to economic migrants who might compete with aristocrats for jobs.

Burdensome tax and regulatory policies will be of relative advantage to the rich and the professionals, who can employ specialists to work through the maze of rules that impose traps for unwary members of the middle class. The more complicated the rules, the easier it is for those who are plugged in, those who know the right people, to game the system.

Such policies are defended on grounds of social justice, not aristocracy of course. The aristocrat favors economic regulation, teacher unions, the separation of church and state, family unification immigration policies, a green environment. He hates parochial schools, flat taxes, and global warming “deniers.” For institutions that do promote economic mobility, such as the military, he harbors deep suspicions. He allies himself with an underclass that has lost interest in mobility, and against a middle class that seeks mobility. And now, without shame, he tells us he does all this in the name of mobility.

The wealthy progressives who support the policies I have described as aristocratic are not traitors to their class. They know exactly what is good for their class. And members of the middle class who oppose such policies don’t suffer from the false consciousness ascribed to them by progressives such as Thomas Frank. Both sides well understand that what divides them is the question of income mobility.

This is a new phenomenon. In the past, the fault lines I describe were largely absent. But no longer. The history of modern American politics is the history of class struggles.