Hi everyone, Shawn with jasphyscasebreaks.com and jasphys.com for personal breaks doing a quick 19-20 penini chronicles blaster box for Christopher. He's already picked out his box, here we go, let's rip it for him. Yeah, let's see something crazy. No, don't feel bad. I wanted to be here. If I didn't want to be here, I would have called it hours ago. I promise. Oh, this is Chris. Seekers. Cool. Good luck, Chris. Starting off with RJ Barrett Luminance, Tyler Hero Playbook Pink, Tyler Hero Rookies and Stars, Yannis Aunta Tecumpo, Seiku Demboya Marquis, Terrence Davis, Eric Pascal, Kai Bowman, Prism Update. These ones are, I'm not sure of the Kai Bowman but I know Prism Update cards are going for quite a bit. Kevin Love, Pishka, Chris Pishka, Jackson Hayes, Recon, Cam Reddish Luminance, Yannis Chronicles Bass Pink Parallel, Eric Culver, James Harden, Luca Dancic Marchi, that's nice, Goga Pataze, Nas Reed, Carson Edwards, Keldon Johnson Essentials, Tyler Hero Essentials Pink, DeAndre Hunter, Jackson Hayes Pink, Camerant Rookies and Stars, Chris Paul, Carson Edwards, and then guys, the stream on Instagram is going to end in about a minute so we'll get through the rest of this pack and then we'll restart the stream. Jackson Hayes Prism, sorry, not Prism, Panini, Tyler Hero Playbook, Brandon Clark Crusade, Darius Garland, Prestige, Tyler Hero XR, Anthony Davis Luminance, Romeo Langford Prestige, Zion Lamesson's Rookies and Stars, DeMonson Savonis Chronicles Bass, LeBron James Essentials, LeBron James Luminance, Brandon Clark, Darius Garland, Jared Culver Recon, and Brandon Clark Marchi Pink to end it off, that was nice, thanks Christopher. And guys that was a 1920 Panini Chronicles basketball blaster box, personal break available on jaspys.com for Christopher, Sean with jaspyscasebreaks.com and jaspys.com, we'll see you next time.


Welcome to the New America Foundation. I'm Reed Kramer. I direct our asset building program. And we're very pleased that you're here to join us for this event in the room and on our online audience as well. The event is titled Economic Mobility. What's the problem and what to do about it? Very timely topic, obviously, these days. For those of you in Twitterland, and I think you know who you are, we'll be using the hashtag econ mobility. And if people do weigh in with comments or questions, one of my colleagues is going to come up and let me know. So maybe your questions and contributions will be worked into the conversation as well. My colleagues and I in the asset building program, we focus a lot of our work on advancing policy ideas to help families with fewer resources and lower incomes move forward in their lives and move up the economic ladder. So we do care about very poor people. We also care about many other people in our society as well, and that there's a functioning safety net that's there for them and many others. We recognize that the safety net has to work for many different kinds of people with different circumstances at different points of their lifetime. So it's not just the very poor. It's many more of us that come into contact with the safety net. And certainly, the safety net has to provide the cushion that's there for a basic level of resources and support for every member of society. I think there's a moral, there's an ethical obligation to look after each other, especially those of us that have less in this prosperous society. So the cushion has to work. But the safety net also needs to be the trampoline that is there for when families kind of fall on hard times and then need to boost back up to get on their way. The safety net also needs to work as the springboard that is there if somebody is kind of exerting themselves and aspiring upward, it's there to launch them forward in their lives. So anyway, these are some metaphors to think about that we can use in our discussion when we talk about the safety net and what kind of related public policy programs are in play. Recently, there have been questions about how we structure the safety net, what it can do, what it doesn't do, and perhaps it's about time that we have this conversation at a broader level. I've long argued that the trampoline and the springboard portions of the net need to consider how families can save and build up resources and assets over time so that they can be deployed strategically to deal with unexpected events, emergencies, job loss, a lot of the things that have come up with the great recession. And with discussions of the recession, we've certainly had an awareness that some other trends are happening in the society, such as the perception that there's growing inequality of income and concentration of wealth at the very top. So I think the focus on inequality, both with wealth and income, is relevant to our collective aspirations as a democracy and as a meritocracy as a society. Now, some conservative leaders in this conversation have said we should care less about inequality per se in its own right and more about mobility. And here they emphasize that America still leads the world. The problem is, as I've looked at the data, and maybe we'll talk about this today, that might not be true anymore. We might lag substantially if it was ever true in the recent past. President Obama has also begun talking about these themes and looking at the prospects of upward mobility. He's talked about it in his speech in Kansas, a child having kind of dimmed prospects over time to advance someone that was born into poverty. He's also identified the path to inclusive prosperity as the defining issue of our time. And in doing so is connecting the conversation around inequality to poverty and to mobility. So there's a lot of claims going back and forth at this time. And I think it is high time then to track down some data and some facts, put them into the discussion. And that's why we're here today. That's what the event is designed to do, to elevate the discussion of mobility by considering some basic questions. What's mobility? How do we define it? How is it connected to intergenerational poverty and inequality? How does America compare with other countries? Has the climb become more arduous? Or is it just persistently difficult? And then finally and importantly, what do we do about it? How do we repair the safety net and modernize it, make it work for all of us as a cushion, a springboard, as the trampoline? And there's a lot of challenges here in addressing these questions. There's data limitations. The data is not as good or as timely as we'd like it to be. This is also a very politically charged space to have this conversation. But we're here anyway. And we've invited Scott Winship to join us to help address some of these challenges and share some of his work in his perspective, address some of these challenges, maybe create some new challenges and obstacles along the way. So he's going to offer his perspective on some work that he's been doing. He's currently a fellow of economic studies at the Brookings Institution. And he's former research manager of the Economic Mobility Project at the Pew Charitable Trust. Before that, he was at Third Way while he was finishing his PhD from Harvard. What program were you in? Social Policy at Harvard, I've heard of that. And let's see, the Pew Economic Mobility Project has done very good work. They've created a real catalog of research, Scott really helped lead some of those efforts. I serve actually as a principal on that project and co-authored a paper a couple of years ago looking at the role that savings plays in mobility. But really, it's a broad catalog of work now that is really helping to inform this discussion. And Scott helped shepherd that through. He's also looked at mobility and economic security from a number of different angles. So he's got a story to tell. And in fact, to show you that it's such a timely topic yesterday he was testifying on the Hill before the Senate Budget Committee on this very topic. And I think that testimony is available publicly on the website along with your other work is available on the Brookings Institution web page. And we're fortunate to have a really excellent discussant for today's session. Sean Firmstead is an attorney and senior research associate at the Center for Economic Policy Research, C-E-R-P. So I always complain about their acronym because I think it's really awkward. But they do excellent work. They're a really valuable source for a lot of good analysis. And Sean has really been thinking about and writing about mobility issues for a number of years. He's incubated policy ideas into the discussion. And he's kind of thought about how to connect them to larger political discourse. So we're going to hear from him as well. So Scott's going to come up first. So we'll start the proceedings. Hill have a PowerPoint. Then Sean will come up with his remarks in a PowerPoint. Then I'll pop back up. And we'll have an extended discussion, including all of you. So Scott, welcome. Thank you very much. OK, well, thank you very much, Reed. I'm excited that we're on Twitter, although I think it's unfortunate that we're competing with health policy valentines as a hashtag. My entry in that was this Valentine's Day. Let me treat you to an individual mandate. There are others which are much better. Let's see. But thanks again to Reed and to the New America Foundation. I really appreciate the opportunity to speak today. I think this is a topic that is tough to tell a complicated story on in the environment that is DC. All the sort of incentives and pressures, I think, to tell an uncomplicated story. And it's, I think, fairly rare that you have an event like this where you sort of get a chance to hear a more complicated version of course have a great discussion at the end. I'm going to focus in my talk on just sort of the basic facts around economic mobility and ways to think about it. It's a huge topic. I'm some of this happy to come back to during the Q&A as well as talk about policy during the Q&A or broader issues around inequality or insecurity. But broadly speaking, I'm going to start big and narrow it down. And largely the way that I'm narrowing it down is driven by the research that's been done. So you can think of economic mobility in terms of earnings, in terms of income, in terms of wealth, education, and occupation. I'm going to focus today on earnings and income. I am familiar with the wealth education occupation literature that we can chat about if folks are interested in that. But by far, the bulk of the research has been done on earnings and income. Further, you can distinguish between intergenerational mobility and intragenerational mobility. So whether kids do better or worse than their parents or if you just look at workers over, say, a 10 or 20-year period, how much upward and downward mobility do they experience? Again, here most of the research is in intergenerational. But there's a fair amount of research in intragenerational as well. I think the two generally show similar results. So again, we can come back to that if folks want to talk about it. And of course, you have this issue of direction. You have upward mobility. You have downward mobility. You have just kind of general churn that adds another layer of complication. And then you have this issue of relative mobility versus absolute mobility versus the persistence of gaps. So let me say a little bit about that. The idea behind relative mobility is do you end up roughly in the same place in terms of rankings that your parents did? So if your parents were in the bottom fifth when you were a child, is it likely that you will also remain in the bottom fifth? Now note that over time, the bottom fifth can actually become a more richer group because of economic growth. So there's this other idea of mobility that you can think of as absolute mobility. And that's just do you end up better off than your parents? Even if in terms of rankings, you don't end up moving at all. Or do you end up worse off than your parents? And then finally, there's this concept I'm calling persistence of gaps. The idea is that if you have two parents who vary by some factor in terms of how much income that they have, how much of a gap does that translate into in the next generation for their kids? And I'll talk about each of these things as I go along. Okay, so I'm gonna frame this around how we assess whether we have a problem or not. And I think there are broadly three ways. You can look at trends and say, are things getting worse? Are things getting better? We can compare ourselves to other countries and see how we fare on that basis. Or we have what I'm calling the Potter Stewart criterion, Supreme Court Justice who said of a very different problem that I know it when I see it. I said this at the committee yesterday and there were no laughs. I don't know if it's just not a good joke or if people didn't get, this is porn. It's edgy, it's edgy. That's my, much like my Valentine's health policy. So I'm gonna run through the evidence on each of these things and kind of make a case that for some ways of thinking about whether we have a problem and that there's more compelling evidence than for others. So first starting with trends, big caveat. With two exceptions, the previous research comes from a single data set. It's a workhorse data set that everybody in academia and in the think tank world uses, the panel study of income dynamics. But nevertheless, most of it comes from that single data set. Because of that, generally we're restricted to looking at trends for people born in the late 1940s, at the earliest in the late 1960s, at the latest, and specifically for men. I think many of you who do research know that kind of trying to figure out how you interpret trends among women, kind of flummoxes researchers because of this issue of taking time out of the workforce for child rearing and things like that and the dramatic extent to which that has changed over time, which complicates how you interpret a lot of these numbers. So I'll say you can go back to before the late 1940s if you look at things like occupation mobility and we can chat about that if folks are interested. All that said, looking at upward and downward relative mobility. So are you able to transcend the ranking that your parents had or if you start off well, do you fall in terms of rankings? There's probably been little change in the last 60 years. The bulk of the evidence, you find individual studies that find a small increase, a small decline. But if there's any consistent finding in the PSID, this one data set, it's that there are probably small increases in mobility over time. But I don't think anybody would really bank too heavily on that being a real result. And actually for upward and downward mobility, there's only been two or three studies that have been done. Now the administration, some of you may remember in the Osawatomi speech in December, I had this really provocative claim that I ended up spending some time looking into and I think debunking, which was that for people who start out in the bottom, the chances that they would make it to the middle class had actually, the chances that when they become adults, they're there in the middle class have fallen from about 50% kind of mid century down to 40% around 1980. And then they projected to 33% for today's kids. Those were based on a very elaborate and clever modeling exercise, largely because we don't have information for people born after the late 1960s. And so that's in some ways, that's the only way you can figure out what the mobility of kids born in, say, 1980 was. But in a piece that I wrote for National Review showed that that model turned out to be pretty fragile, I think. I used some actual data to kind of look at this. It's not ideal. It looks at people in their 20s. Ideally you wanna look at sort of older folks who have had some times, especially the ones that went to school to kind of take advantage of the extra income that their schooling brought in. But I found that generally between kids born in the early 1960s and kids born in the early 1980s that there hadn't really been any decline. And if anything, there had been a small increase in upward mobility from the bottom. Okay, so that's upward and downward mobility. You also have this thing called the intergenerational elasticity. This is this idea of whether gaps in one generation translate to similarly sized gaps in another generation. That also probably hasn't changed much in 60 years. There's been more research done on this than for upward and downward relative mobility. The big caveat is that the two studies that don't use this workhorse data set find that there has been a decline in mobility. Those two end up having to use some pretty technical and I would say kind of controversial strategies for getting around the data problems that makes everybody use the other data set. So two out of about eight that have been done show that there's been an increase over time. And then finally, if you look at absolute mobility, it's almost surely risen, I don't know, of any studies that have actually looked at it. Again, this has been an issue in recent weeks with the administration, the chair of the Council of Economic Advisors, Alan Krueger, gave a talk in which he argued, so it's related to this idea of a shrinking middle class, right? So Alan Krueger presented estimates that showed that if you define the middle class as being at least half of median income and no more than 1.5 times median income, that that group had declined from about 50% of the population in 1970 to about 42% of the population today. And so this is a chart that I just took directly from his talk, dramatic chart. It turned out when I looked into that, that this is actually a function of, so if you define the middle class as between these two thresholds, there's two ways it can shrink. People can get poorer or people can get richer. And what's actually happened is that people have gotten richer. And so these are the numbers that I crunched. The dates are a little bit different, but it doesn't matter if you use the exact same dates. They compare peak years in each case. So the first side, I was able to replicate exactly the results that were presented. So I knew that I understood what he was doing, but then I sort of looked at whether people end up at least middle class. So middle class are better. That hasn't changed over time at all. You can do it a bunch of different ways. I sort of have had an internal debate with some folks at Brookings and coming out of that. I came up with this other set of estimates which uses people instead of households. It adjusts for household size, household size of declined over time. That means that any given household is sharing a given amount among fewer people. So they're better off. Health insurance has become a bigger part of income and compensation over time in rising Hispanic immigration, which has certainly benefited the immigrants. And I mean, there's debate about whether it's hurt native-born workers or not. I don't think the evidence is that compelling. But what it clearly does is it pulls down in the data what the typical American has an income. And so if you don't adjust for that, you sort of don't. You might attribute that something, you might attribute the things haven't improved to something about the labor market or what have you, but in reality, it's partly because we've admitted a lot of folks who are lower income, which helps them, which helps the American economy. But if you take those folks out, which you can't do it as cleanly as you would, if you just take all Hispanics out, then you get this increase over time in the number of households that are at least middle class. Okay, turning to cross-national comparisons. This is a chart that I pulled from a report that the Economic Mobility Project funded by Miles Korak, who's a researcher at the University of Ottawa. This just shows you for a number of different countries, European and English-speaking, this intergenerational elasticity, the way to interpret these things. So for the U.S., this number of 0.47 means that if you have a man in his neighbor where one has twice the income, the earnings of the other, if you then look at their sons when they're the same age, the son that had the richer dad will have about 47% more than the son who had the poorer dad. So about half of the gap is retained over these generations. That number actually is probably, and Miles says this in his report, if you do the best estimate, that number is actually probably closer to 60% rather than 50% for the U.S. Interestingly, Canada, which is very similar to the U.S. in a lot of ways, the number is 20%. So again, two dads, one is twice as rich as the other, look at their kids, the one from the richer dad will only have income 20% more than the son of the younger dad. So pretty dramatic differences cross nationally. It turns out that to the best we know, and essentially this is the only study that's been done, the way that we're unique, the way that we're uniquely bad is that we don't lift poor men out of poverty as well as other countries do. So this is a study from Marcus Yanti, who is a Finnish economist, kind of the expert in this area. Looked at the U.S., the U.K., Denmark, Finland, Norway and Sweden separately, sons and daughters. And this is a little bit of a noisy chart. Over on the left, you see sort of what happened. If you had perfect mobility, then for kids who start at the bottom, 20% of them would end up occupying each fifth in adulthood. So that you can sort of think of is what each of these other sets would look like if there were perfect mobility. And what you can see is there's not, the countries sort of have very similar patterns in that very clearly for every country, you know, if you start at the bottom, you're more likely to stay in the bottom than to end up at the very top, for instance. So you see these patterns across the countries for both sons and daughters. But between the countries, they don't actually differ all that much with the one exception that I don't have to point out at all. So there's evidence suggesting that we have a very specific problem when it comes to mobility versus other countries. Whoa, I didn't realize that was animated. Okay. So the great thing about Marcus is that he's very, very rigorous. So they tried to look at men and women roughly around the same time. In the US, it's using a survey called National Longitudinal Survey of Youth. So it's kids who were born in the late 50s and early 1960s who were then adults 30-ish years later, roughly. But there are definitely comparability issues. And actually, one point that I wanted to mention is that we don't have any evidence on cross-national differences in absolute mobility. I don't know if I can tease or not that there may be a study coming that would be funded by a foundation called the Pew Charitable Trust. So the Economic Mobility Project actually has commissioned work by Marcus to get at this question of, all right, so we look terrible on relative mobility. What if you compared us on absolute mobility? What would you find? So that hopefully will be out at some point soon. Okay, so related to, I had no idea this was animated. I cut this from the Krueger presentation. So this came up in Alan Krueger's speech, this idea that cross-national differences in mobility are related to cross-national differences in inequality. And so you can see along the x-axis, this is for each of 10 countries, their inequality levels by a widely used measure of inequality. And then on the y-axis, you have immobility. So kind of higher numbers there are worse. What you find is the more inequality you have, the more immobility, the less mobility that you have. And then they did this exercise where they kind of projected what inequality, what had happened inequality since 1985 to estimate this point that shows that mobility in the US is falling over time. So I bring all this up just because it relates to figuring out whether things are changing over time. I had some criticisms of this. They're also, they're on Raihan Salam's, the agenda blog at National Review that I would encourage folks to read. Essentially, this is an exercise in correlation. So it turns out if you can actually plot population size for these countries across the bottom, and you get an almost exactly strong relationship between the two. So it's this basic idea of correlation. It's not causation. I would argue this is a pretty weak case to argue that mobility is falling over time. Okay, so the last criterion is do we know it when we see it? So first for absolute mobility, this is research also from EMP that was done by my colleagues at Brookings, Julie Isaacs, Isabel Sahill and Ron Haskins. Essentially, if you look at kids in the, you can actually see in the data what their parents made when they were growing up and you can see what they made as adults. Turns out when you adjust for the decline in household size, 80% of Americans have higher incomes than their parents did. So I think I don't wanna understate how important that is. So regardless of what's happened with relative mobility, that this is just this very striking finding. Now, I don't think anyone's dug in to see how much better off they are than their parents. That's something that I'm interested in taking a look at. But, so this is where I sound complicated and not raw, raw USA. We do have this problem of relative mobility, I would argue, from the bottom. So again, on the left is what you would see if you had perfect mobility for kids who start out anywhere. If you start out in the bottom, if you start out in the top, then 20% would end up in each of the fifths as adults. Instead what you see is for kids who start in the bottom, 42% of them will remain in the bottom. Now what's interesting is that number, you will see cited by some conservatives and they'll say this is fantastic. 60% of people make it out of the bottom. So there's room for different perspectives here. I don't wanna diminish that. The point that I always raise is if you look at those last two bars, the 11 and the six. So if you start in the bottom, you have about a 17% chance of making it to the upper middle class. Now all of us in this, not all of us, most of us in this room either are there or will be there by age 40, which is when the kids are examined. It's about $90,000 for a household. So not for an individual, for a household. But you only have a 17% chance of actually getting that far if you start in the bottom. Meanwhile, if you start in the top two fifths, if you start upper middle class, then your kids have about a 60% chance of staying there. So that's kind of the difference between picking the right parents. It's a 60% chance versus a 17% chance. I think that is something that none of us should be satisfied with, regardless of whether things are getting better or whether we look good or bad versus other countries. So wrapping up my bottom line, economic mobility is alive and well. Kind of a theme running through this and some other things that I've written lately. I had a piece in the New Republic on their website earlier this week with the unfortunate title of something like, don't worry, the middle class is doing just fine. It was a little more overstated than what I would have titled it. But I do think that we worry too much about the middle class on this issue of the middle class shrinking, that the American dream is fading for the broad middle. It's not true. And I would argue that scaring the middle class into thinking that things are worse than they are, which is a real strategy for some folks. It is not likely to produce the outcomes that you want. There's arguments that when people are insecure, they, rather than kind of inspiring more solidarity, people hoard and you become less generous to other folks. So that's my take home there. However, limited opportunity for kids who start out poor should concern everybody. Absolute mobility doesn't guarantee that opportunity will expand in terms of this idea of being able to grow up to be whatever you want. This is a pretty powerful point to me that I think probably a lot of our parents said, oh, when we were kids, you can grow up to be whatever you want. This is I think a really important idea. And you could have absolute mobility and everyone could end up quite a bit richer than their parents were. But if you don't have the opportunity to occupy one of those top slots, in some sense, your opportunity really is diminished. Personal responsibility matters, but kids don't choose their parents. Teenagers are not distinguished by far-sighted decision-making. So that's it. As I said, I'm happy to talk about policies or any of the other issues that I didn't chat about here, but thank you for your attention. Oh, okay, great. Okay, great. Oh, this, okay. That's me, Sean. Okay, thanks a lot. Reed happy to be here at New America and to have the chance to address this important issue. I should start by saying, I think Reed's last slide kind of summarizes the difference. I mean, Scott's last slide kind of summarizes the differences between us. I think sort of summarize. We should care about mobility at the bottom, but it's poverty, not inequality that is the issue. We shouldn't overstate the problems of the middle class. It's really, again, sort of this focusing on the bottom that matters. Now, I'm a good Rawlsian social Democrat. It's not even very popular anymore, I know. So I certainly have no quarrel with the idea that improving the economic security and opportunity of the least advantage is not only extremely important. It's really kind of this most important criterion for how we should judge our economy and how we should just kind of social justice more generally. But I disagree with Scott about pretty much everything else he has to say in this speech. So I'm gonna say a lot of what I have to say here is keyed as much to Scott's testimony. Yesterday I got this, Scott was up late last night. I know like I was putting this together, but I think it hits pretty much the same point. So I think in particular I disagree with him. On this issue of the linkage between inequality and mobility. And also really about the scale and effect of inequality which gets again to this issue of how it impacts mobility. Now, here's somebody who takes the threat, I think, of inequality seriously for mobility. Somebody who's pretty actually far to the right from me and who, you know, we probably don't disagree much on the actual policy solutions. But as she says, this is Belle Sahill, senior fellow at Brookings, growing inequality is a threat to social mobility. When the rungs of the ladder become too far apart, it becomes exceedingly difficult to climb that ladder. The data on this relationship are quite clear. This is actually some of the data that's in dispute I should note, however. And the nations with less inequality have more mobility. So let me just say a little bit about where I think the disagreements are between at least Scott and I on this issue of the scale and effect of inequality. And here I'll start with the scale. So going back to the congressional testimony yesterday, Scott argues that if we just look at the bottom 99% inequality has grown only modestly, if at all. And basically what he does, again, is this is kind of put the 1% to the side focused just on that 99%. Now there's really no good reason, of course, to ignore the extraordinarily large income gains of the top 1%. According to CBO, income just for the top 1% is grown by about 280% cumulative over 79 to 2007. This I should say is using a very comprehensive definition of income. We've got here, this is after-tax household income. It includes in-kind benefits, including health insurance, Medicaid, Medicare, an employer-sponsored health insurance, some of the things conservatives always want counted. So this is about as good as you can get in terms of income. By contrast, you've got the median household growing at 35% to that. So you've got a pretty good gap. I think there are a lot of good research-based reasons to think that this has had a detrimental impact on middle-class democracy, on economic growth, but we can just bracket those for the moment and look at this specific claim that among the 99% there hasn't been this increase in inequality. So here we've got, again, the CBO, the gold standard, the most recent report. This is the 99%, so it's by quintiles. 1979 again to 2007, so about 20, I think it's 28 years there. Sure, there's been, I guess, absolute income growth here across the quintile. So for the lowest, it's 18%. But compare that and you see this real dispersion across the income groups. This is a growing apart in income terms anyway. You look at it. So one question here is, is this modest? In one sense, you compare it to the 280% for the 1%, it may seem modest in terms of the differences, but these are still pretty large differences. Another thing just to remember about these, this is 28 years cumulative growth. So if you wanna look at kind of an annual growth rate, you've gotta divide that. So you're looking at about 0.5% a year in terms of real income growth on the bottom, maybe about 2% at the very top. Now, I think the other sort of standard and the way to think about this in terms of is it modest, is to think about this sort of golden era of income growth, the post-war era. This is 1949 to 79. I'm sure people are familiar with this chart. You've seen it. EPI, others have done a very good job of kind of making sure people are aware of this data. So this is the growth in before tax household income. So it's not totally comparable. We don't have as good a thing as the CDO data here, but what you see, this is what broadly shared prosperity looks like. So the lowest quintile actually has the strongest growth, 116% over that 30 year period. The top quintile of course does pretty well too, but everybody has income growth. You know, this is not, of course, also I should say a quality of outcomes or results. You know, the people on the top are seeing a lot more in terms of dollars. This is just kind of a quality in terms of a rough and quality in terms of percentage gains. So that's I think what you really have to kind of think about and have in the back of your head when you're thinking about how are we doing now and are we having modest or not at all in terms of inequality. Okay, now Scott does another move in his testimony. He says to dispute the growth among the 99%, he actually argues that the cost of living has risen less for the poor and the middle class than for upper income households. Now this is I think a pretty extraordinary claim when you think about it. Basically the idea is, you know, you have to give people cost of living increases as human resources manager and to be fair, you've got to get your most highly compensated people a bigger raise so that they can keep cost with their inflation rate than you give to the people at the bottom. You know, I don't think that's right, but that's the claim basically. So I should actually say, the research cited here is by somebody called Christian Broda. He's now a hedge fund manager, a place called DeKent's Capital. I actually took a pretty close look at this research in a CEPA report two years ago. And the first thing to know about it is that even if this is accurate, you know, this finding is accurate, it really doesn't change the inequality story much. Broda himself says, this is in published research, it's maybe reduces income inequality by two to 5%. But even this is really probably going too far because the research really just is incredible at least as to this claim. The short story here, Broda uses research, basically private data collected by the Nielsen Corporation from households that volunteer to scan in their grocery purchases. They're mainly signed up through the internet. Other researchers have found all sorts of problems with the representative, basically, of the low income people in this sample. Nielsen acknowledges it's a problem. As I've detailed, there are really good reasons to believe that careful comparison choppers are disproportionately represented among the low income households. And, you know, when you look at that, basically that's kind of what produces this strange result in the Broda research. One last thing about the Broda research, just to give you a sense of how fringy I think it is, he also says, he makes this argument, if we properly look at inflation and the differences between, you know, for the low income people, the income poverty line would be much, much lower than it currently is. So the current income poverty line in 2006, $20,000 for a family of four and not a, you know, a terrifically generous sum by any means if we think about trying to live on that. But the correct income poverty line, according to Broda, is about $10,000 if you properly adjust for inflation. So the argument is here, if you believe this research, a family of four has to have a meaningful standard of living on $10,000 a year. I don't think there's any body who would really seriously make that argument. You know, I mention this partly because I think, you know, partly what we see as a sort of central strategy in a lot of the denialism that goes around about inequality is this idea that we have to, you know, people going out of their way basic to the lower the bar when it comes to assessing the performance of the economy for middle and working class people. And the idea is you have to, you know, kind of pull the bar down for the working class, for the middle class, and then judge it. And I think, you know, that's partly what you see here in this attack on Kruger and the middle class. I actually think the problem with Kruger's claim about the middle class is he sets the bar too low. We didn't have much growth at the median. I don't think that's the right bar to use for judging the size of middle class. I think it's much more sensible to use something like average income growth. And think about that as being the bar you should set to judge on the middle class and average income growth really outpace the median. Okay, now, next point. Another area we disagree about is the effect of inequality on the middle and working class basically, and also on mobility. And understanding why inequality increases growth in inequality can come at the expense of working in middle class people is actually pretty simple. Here's a chart from Jacob Hacker, Paul Pearson's recent book, Winner, Take All Politics, I think an important book. And basically what you see here is there's the assumption what if inequality didn't increase over the last 30 years and we had the same level of economic growth? What would have happened to incomes for the working class, for the middle class?  The bottom fifth would have had about $6,000, not a ton, but a lot if you're at $16,000. This is for 2006, by the way, just a year of sense. The middle would have had about $12,000 more, so about a 20% gain here. Even the third fifth would have seen these increases. The response that Scott makes to this is what I would think of as really kind of the boogeyman government argument. What he has written is that you have to assume that whatever draconian regulation or redistribution government might have enacted differently would not have had a negative impact on growth. I think the real question here is why do we have to assume that we can moderate inequality without lowering economic growth and quality of life? Think about the experience of Europe, kind of the core OEC countries of Europe during the same period. They grew at the same overall rate as the United States, but they had much more moderate growth in inequality. It's possible to do these two things, and it is not hard, in fact, to come up with a very long list of things that US policymakers could have done differently over the last 10, 20, 30 years, things that they could have and should have done that would have had either a neutral or positive effect on economic growth, but at the same time would have moderated the growth in inequality. And I don't wanna go through the long list. You think about things like the estate tax. That certainly would have moderated the growth of state pass repeal of wealth inequality. I don't see how it would have had any real effect on economic growth. Think about financial policies, and both the things government did, the bad things in terms of deregulation and the things it could have done. So wouldn't have been better from a growth and inequality perspective for policymakers to not have deregulated the financial markets in ways that cost middle and working class Americans billions of dollars? If, for instance, Berkeley-Born had gotten her way and had been able to go forward with proposals to regulate the financial derivatives market, didn't get plowed over by Robert Rubin, by Larry Summers during the Clinton administration, wouldn't we have had more economic growth and probably less severe financial problems in this decade? I think that is just very difficult to argue with. Health insurance the same thing. If we had done the Nixon health insurance plan in the 1970s, instead of a couple years ago, would we have had both less, fewer uninsured, less inequality, and probably more economic growth? I think that's the case. Okay, so now the other thing to say here, and this is kind of my last point, growth in inequality isn't just a drag on absolute incomes of working middle class families. There are also very good reasons to believe, as I think Scott is disputing here, that it has a negative impact on the class mobility of the lease advantage. I don't want to get into the details of the great Gatsby chart, that's kind of been really, you know, there's been a graduate seminar on the web, on that with people like Miles Korak and Justin Wolfers ably addressing a lot of these points. But I do want to note some recent research that I think hasn't been connected to this particular debate yet. And this is actually John Smith from CEPR, who's here, a great labor economist, brought this to my attention and kind of pointed out the implications of this chart. So this is from Martha Bailey, Susan Darnasky of the University of Michigan. And you know, part of the issue we're talking about are the children of the 80s gonna have a harder time in terms of mobility than the children of the 60s. And I think this is actually directly on point here. And so basically what you see are these two cohorts, people who reached age 25, so the blue are people who reached age 25 in the mid 1980s without completing college. And then the gray are the ones who reached age 25 in the mid 2000s without completing college. And this is by income talk tile. So basically what you're seeing here is that income inequality rose and sort of rippled through the opportunities of the well-off children born at the beginning of the Reagan era, the ones in the beginnings of their career now are almost certainly gonna have basically increased disproportionately in a way that will also almost certainly reduce mobility for the lowest quartile. So the blue bars here show what you see if you look at that lowest quartile group. So the ones that turned 25 in the mid 80s, some 95% of them hadn't completed college by age 25. There was a little bit of movement there for the ones who turned 25 in the 2000s, 91%. So a 4% decline. Maybe if that same absolute same change happened for all the other groups, you could say, yes, it's likely that we'll have mobility staying the same. But look what happened. I mean, there is this widening disparity all the way down, and especially for the top half. So at the top quartile, you've got 64% of the top quartile group not completing college by age 25 in the 80s, whereas in the 2000s, it's down to 46. So an 18 percentage point difference compared to this 4% one. And so basically for upward mobility to have stayed the same, and to stay the same for this group coming of age in the 2000s, you have to believe that this small drop in non-college graduates in the bottom somehow allows them to really hold their own with the group in the top, where you've got this much larger disparity. I think this just does not seem plausible to me, especially given, as we know, sort of educational attainment has gotten even more important during this period. So I will kind of leave it there. The next kind of question is some issues about policy and what are the implications for us thinking about this in policy. Okay, great. Let's open up the discussion here. We'll start with Scott giving some response, and then I know we've got some ringers in the room, so I do wanna open it up quickly to some audience engagement and questions here, and we'll have a mic going around the room. So Scott, do you wanna take some time to respond? Sure, that would be great. I appreciate that. Is this working? Yeah. Okay. Well, I appreciate the comments from Sean. He's right. We disagree about a lot, and I would say we disagree as much with the information that he's presented as he did with the information I presented. So let me just kind of clarify a few points. So it's certainly the case that growth has slowed in the United States since the golden age. Actually it's slowed everywhere around the world, and so to the extent that we wanna explain why that's happened, it's nothing that's unique to the United States. This is sort of, Tyler Cowan has argued we're at a technological plateau. There are cross-national reasons for why income growth has slowed. Nevertheless, it remains the case based on Luxembourg income study data that from everywhere, from about the 20th percentile of the income distribution. So the person who is poorer than 80% of Americans up to the top, that at any point along the way, Americans are actually better off than people in most European countries. So again, it's this issue of at the bottom where we very clearly do look different. On inequality, my testimony that I gave yesterday said that the quote was that inequality had risen modestly, if at all, since the early 1980s. And I think that is based on data by Rich Berkhauser, which shows that if you compare the person at the 90th percentile of the person at the 10th percentile, that person has about six times the income of the person at the 10th percentile, big number, but it doesn't look like it's actually changed that much since the early 80s. Now there was a run-up in inequality in the early 80s. So I would qualify the, it's been pointed out to me since that the Berkhauser study doesn't include capital gains, so I think that is a very valid issue to raise. But the CBO data is not just positive. So the way that the CBO estimates are estimated is that they match IRS data, which is where the unit is a tax return. So if you file married jointly, it's one tax return. If you file married separately, it's two tax returns. If you're a 17-year-old with a job at McDonald's and you file taxes, that's a tax return. They take that and they match it statistically to a survey called the Current Population Survey, which is another one of these workhorse surveys, which by the way has a pretty big problem with under-reporting of income at the bottom. Research by Bruce Meyer has shown that if you look at people in the bottom half, they report that they spent about a quarter more than they report that they actually made an income. You might think some of that is people going into debt to make purchases, but they've actually looked at this very carefully. The expenditure data actually correlates with a lot of the poverty problems that we care about much better than the income data actually does. So you have these two data sets that are very different tax returns and households. They statistically match them, and it is a very comprehensive measure of income. I'm not saying you should not trust the CBO results, but it's not dispositive. There are these other data sets out there. The Broder research, I think, with all respect, Sean, you just completely mischaracterized. What Broder reports is that if you look at the inequality between the 90th percentile and the 10th percentile, that shows a pretty clear increase. If you don't sort of do the adjustments that Berkhauser has done since 1979, if you account for this differential inflation, that entire increase goes away. I'm happy to send the paper out to anybody who's interested in it, but it's... Is that his published paper or the unpublished paper? This is the unpublished paper, but I don't think he's actually published results on inequality. He has, actually. Okay. So, and this isn't fringy. The Bureau of Labor Statistics, and if you want to consider them fringy, then you can do that, but they actually have two different papers that have shown the same thing, that inflation has risen less at the bottom than elsewhere. Your illustration of sort of what Broder is assuming about the poverty line is exactly wrong. Broder isn't taking the $20,000 poverty line and saying it should be $10,000. He's saying that you should keep the $20,000 poverty line, but the poverty line in the past actually should have been higher than it was because inflation was lower than it was. So if inflation is lower than it was, then that means that the increase in income over time in real terms was bigger than what the official data show. If the increase is bigger than what the official data show, then it turns out that incomes were higher in the past. I'm sorry, we're lower in the past. So it's not that you should take the current $20,000 poverty line and drop it down to 10. It's that you should keep the $20,000 poverty line as it is, go back to say 1970 and raise that one. So that, I mean, that's just completely contrary to what Broder argues. Last on sort of the hacker Pearson stuff about if income growth had been broadly shared. I mean, it's absolutely true that mathematically if the numbers that he showed, you can't dispute math, but the real question that's just sort of assumed away is whether in the absence of these gains to the top, whether any of that actually would have ended up in the pockets of the middle or folks at the bottom. In my testimony before the Senate Budget Committee, I gave two examples from 2007 to 2009. The top 1% share of income dropped by a pretty good amount. It went back to its early 2000s level after having increased quite a bit during the 2000s. If you think that that benefited anybody at the middle or at the bottom, that's, I think that's a tough case to make. The second example I gave Mark Zuckerberg. So I think this is fascinating. So if Mark Zuckerberg found her Facebook caches in his stock options this year, he stands to make $5 billion with a B. 80,000 times what the typical household in the US has. I mean, these are incredibly bracing numbers, right? I'm not trying to sugarcoat them or anything. But the case that Sean has to make is that if somehow he were prevented from cashing out those shares, that somehow that $5 billion would trickle through to the middle and the bottom. Or maybe Sean believes that in 2013 when Zuckerberg won't have such a windfall, that we'll all be better off because he doesn't get that windfall. I just don't, you know, the connection between what folks at the top make because of global investors that somehow that money from around the world works its way into the pockets of the middle and the bottom, it can't be assumed, I guess. And I guess I'll just close there. And this is one of the very contemporary challenges that we face is that how we're going to approach and define inequality really does matter. There's a lot of different ways to slice it and explain it. And I think the focus on what's happened at the very, very top, which has garnered a lot of attention in recent years, is very hard to ignore right now because the trends have been so extreme where, and it might be consequential both to the overall distribution, to some of the issues of economic growth. But it's also a very different issue about whether or not we're creating the same kind of opportunity for people at the bottom to move upward and what the safety net looks like. OK, so let's open it up for some questions and dialogue here. Please, give me your hands. Let me know so I can flag it around. Hannah's going to deliver the mic. Let's start with one of our ringers. We're going to give Tim Noah the mic in the front. And here, Sean, you want to hand the flag, the New Republic issue that is on the table outside? And Tim has a piece in there. Tim Noah from the New Republic. And I wanted to ask both of you to discuss, neither of you really discussed in much detail Bell Saw Hill's conceit, which has been repeated by others, that as the rungs grow further apart, it becomes harder to climb. I know there are a lot of people who feel that, instinctively, that feels like it makes a lot of sense with the caveat that we can cite at least one period when rising inequality was the price of rising mobility. And that would have been the American Industrial Revolution of the late 19th century, early 20th century. Clearly, Saw Hill's paradigm didn't apply there. But under usual circumstances, it does seem instinctively true that what she is describing would pertain, that as there's a further distance to travel, mobility would become more difficult. So I could ask you both to address that. I think this gets back partly to that last chart I showed, the Narnasky-Bailey stuff. And there's also, I talked about Scott's testimony yesterday. There's lots of good testimony from Heather Boucher, Jared Burdstein that really gets deep into this wealth of research puzzling out the mechanisms. How does inequality, basically, not just in the simple way, how does it dynamically reproduce greater inequality? So I think it's just part of this is just if you have inequality that has translated also into inequality and educational opportunity, you've got a more highly educated group that has a lot more advantages at the top in their 20s. And then you've got this group at the bottom that has not gained as much in terms of education and other sorts of advantages. It just stands to reason that there's going to be less mobility. That's going to translate into less mobility, both because they have farther to go to reach that top quintile, but also because they have fewer of the sort of advantages that are being transmitted to the parents of those who are better off. I would agree that logically, it's a compelling metaphor. The rungs of the ladder growing further apart, it's harder to climb the ladder. But I think it sort of elides all these questions about where is income inequality increasing? Where is mobility then decreasing? Two other things I would say, the kind of genie coefficients that are the standard measure used, which are perfectly respectable, but they are driven by these changes at the very top. So it is the case that as the top 1% and even more, the top 1.5%, the top 100th of 1% have pulled away, it has an outsized effect on the genie coefficients. You still get increasing inequality, but the levels of the genie coefficients are quite a bit different if you exclude us. What does it look like if we take the very top out? I bet you have looked at that on the genie coefficients.  Do we still, I assume we're still on the edge, but less so? Yeah, I haven't looked at it myself, but certainly I think Rich Berkhauser has and others. It lops at something like eight or nine genie points off. So the genie ranges from zero to one, where one is disaster, where basically the Mark Zuckerberg gets everything. How old is 27? What is he now? So Mark Zuckerberg gets everything, not just $5 billion. Not just a capital gains tax cut. Yeah, so that's the genie of one. The genie of zero is perfect equality. So on that scale, other people in the room probably know the actual levels offhand better than I do, but it has an impact of about eight or nine percentage points. It's my recollection. And it still increases over time. I'm not arguing that this makes the increase go away. The other point that I was going to make is that theoretically, people disagree lots of times. And if you push economists, they say what really matters is wealth, actually, not income. And it turns out that the wealth measures tell different stories in some ways than the income measures do. For instance, Sweden actually looks as bad as we do on wealth inequality, whereas we look much worse than they do on income inequality. So I think the logic of the metaphor shouldn't cloud the extent to which this is really an empirical question. And I think, unfortunately, that's what happens is people start with a metaphor and then don't go further than that. And we have some data limitations here. I mean, we know the recession has had an impact. We don't have the data yet to reflect that. I think CBO actually does have. So 2009. Yeah. And I think we're waiting for some 2010 data to come out from the Survey of Consumer Finances. And I've tried to argue recently that although we might see some declines at incomes at the very top, which might compress some of the income inequality data, the wealth inequality data, I think we're still going to see some divergence at the very top. Because the middle class owns a lot of housing wealth that is really still under water and is evaporated. But a lot of the securities, the stocks have come back, or at least to levels, along with capital gains at the very top. And I think we'll see continued divergence through the gray recession with wealth inequality, and less so possibly. Now, whether that's just a blip and it's going to continue to come back to trajectory, we'll see. Stephen? Other hands? Let me know. Other hands? OK. Come on, more questions in the back. Yeah, right here, Stephen. Steve Crawford, George Washington Institute of Public Policy. Hi, Scott. Hi, Sean. I want to raise the issue of differences or variations by gender and race, but especially gender. Sean, you showed that slide from the Bailey and Denarski article. And I think one of their key points, if I recall, was that much of that expanded payoff to the upper quintile, their relative greater gains in college entry and college completion was driven by dramatic gains by daughters. And there are all sorts of questions raised about black guys in the lowest quintile and what's happening to them, and perhaps especially in single family households and role model issues, that that article raises and have been addressed elsewhere by Jacob, et cetera. Would you both just comment a little bit on the relevance of variations by gender and race in these mobility issues? No, I think that's an important point. In some ways, the vexing question, I think, for trying to figure out how we improve our mobility outcomes is figuring out what's going on with guys. So even not just confine the guys at the bottom, what's clearly happened over the last 30 years is that the labor market has sent this bright flashing signal to people that if you want to make a lot of money, you're going to have to get a college degree. And women have responded in kind. So you see college graduation rates for women rising pretty strongly over the last 30 years. For men, we sort of have petered out. There hasn't really been any increase in college graduation, not just among men at the bottom, but just among men in general in 30 years. So I think it's a mystery. The social genome project, which is a project at the Center on Children and Families of Brookings that I direct, we're trying to build a life cycle model that actually looks at kids from birth to age 40 and to try to figure out what's going on. It's a challenging methodologically. But one thing we're finding very clearly is that, particularly on behavioral kinds of outcomes that gaps between boys and girls open up at age five. They're there. And then you get to adolescence. And there's all sorts of problems with conviction and incarceration. So I think that is the great challenge because my read of the cross-national data is that's where we're falling down is with the guys. I think the paper by Marcus Yanti that I cited actually did look at black and white men at the bottom and found that, even if you look at white men at the bottom in the US, that we still look pretty bad against other countries. And yes, there's a big difference between the male wage levels of the median and the women's levels. And it's a different world that we're living in. And so it does make it harder. Not only don't we have the data, but conceptually, what should we be looking at 20 years, 30 years in the past, comparing till now? OK, right. Do you have a question here? Yeah, you. Yep. There's the mic. I'm Basil Scarlus. I actually deal more with European political and economic issues, but I wanted to bring. We had a cross-national chart here. Yes. I wanted to bring in some aspect of that with Europe's essentially free education, a system of free education all through university and also free access to health care. And I should also add reliance on essentially the public school to educate virtually everyone, less reliance on private schools. Is that perhaps a major factor in some of the differences in income between the United States and European societies? I think it gets back to this question of, can you have less inequality with the same amount of growth or more growth? I think that is partly a story about educational and other institutions, including other labor market institutions. So certainly I'm not an expert on Europe's educational institutions. The other thing I'd bring in to that is when you think about some of the early childhood educational institutions in Europe where they start very young and those are often universal, I think that is very much a template, a direction that we need to be going in. But I also think you have to think about what are the labor market, connecting back to Steven's point about some of these issues about young men. I do want to say gender inequality is still a real problem out there when you look at wage inequality and things for women. But I do think we have to think about everybody can't go to college. What are the other sorts of institutions? Beneficial institutions, not prison, that we want to expand and allow people to come of age in in their 20s that give them a real fair shot of competing.  I'm afraid. And we've left them for so many years. Don't underestimate the health care cost. Oh, absolutely. Yeah. In burdening some income sector. So that's huge. I think that's another thing about the CBO stuff. We can go either way on the CBO stuff. They add in insurance. They don't necessarily take out disparate impacts of health expenditures out of pocket expenditures on here. And to emphasize something, you just said about we've identified male wages at the median at the lower end, and then you've identified the criminal justice system, which is grown to really, I think, horrific proportions. That's a real challenge. And what think tank in DC or across the country is going to look at criminal justice issues in serious ways to look at that. These numbers are really just appalling right here. And hands in the back. Anyone let me know, OK? Others? Hi, Austin Nichols from the Urban Institute. And I'm just I'm wondering if each of the speakers could address what they think their findings or claims, I guess, would mean for federal income tax policy. So it's very hard to evaluate any of these findings or assertions without talking about specific policies, I think. So we heard of a little bit of education across Europe and the US. But federal income tax policy has some pretty clear implications. We've changed federal income tax policy a lot over the past 30 years, many, many times in different directions, which is all tied up with the findings about pre-tax and after-tax income inequality and mobility. And I'm just wondering, for example, the statement about Facebook's founder is that it doesn't hurt anyone else if he realizes $5 billion in exercise of stock options and realizes $5 billion in gains. That's only true if it doesn't affect anyone else's tax liability, right? So the way that we've done, if you think about how the tax treatment of stock options has evolved over time, we've essentially decided to allow corporations to write off whatever costs they like for people to claim a very, very small amount of that income as taxable income as well. So clearly, those decisions about tax policy have implications for how we interpret how the 1% or the top 30% are doing relative to the rest. And just say a few words, at least, about what each of these findings has to do with tax policy. That's a great question. So the first thing I would say is that what I don't think, so the first thing I'll say is that I think your views about tax policy probably ought to not hinge on their impact on mobility and inequality is kind of my priors. No, I mean, if you think taxes should be higher than they are at the top, that's a perfectly valid point to have. But I'm not sure that there's a ton of evidence to show that that would reduce inequality. Exhibit A is if you look at the CBO figures that are pre-tax and post-tax, the first order effect is not going to be to change how striking these charts actually are. They look just as bad after-tax as they do pre-tax, or they look just as bad pre-tax as they do after-tax. The second order effects are, so if we put, you can imagine, at the extreme, we put some 100% tax rate on income above some amount, that would certainly affect the way that corporations compensate their CEOs. It would have some second order effects. You know this literature a lot better than I do Austin, but my sense is that it's not a slam dunk, despite what Hacker and Pearson would have us all believe that this would necessarily bring income and equality closer together, or that it would increase mobility. I mean, a big question is what it's used for, right? If you taxed away Zuckerberg's capital gains, does that money go towards bigger mortgage interest deduction, or does it go towards more public education, or what have you? So I don't actually really know what to say about that. Unless you feel like the evidence is there, that there actually are these second order effects. To my mind, it's just a big open question. But it would matter what the tax reform looked like. I just think, you know, the evidence is so clear here, that you can affect inequality and mobility through the tax system, and to kind of put it off the table, it just seems, let's separate them. Let's talk about inequality first. Whether you can do it in good ways that increase economic growth and reduce inequality and increase, you know, kind of all the things. You can just go example, we could spend an hour pulling out examples of how this is the case. I mean, think about one kind of recent one. So we're having this big debate over the payroll tax break.  I think to remember is that actually, before it became the payroll tax cut, it was something called the Making Work Pay Tax Credit, which was much more progressive. And this was part of the Recovery Act. It was really targeted, it was a working in middle class tax cut where people at the bottom, working class people at the bottom, got the biggest gains, but everybody up through the middle of income distribution also benefited. It was much more progressive. The payroll tax cut was kind of a compromise just to get it past Republicans that made it less progressive. And now we're kind of at this question of, do we even go further? I mean, and part of the consequence, obviously, is when you get less progressive, one of the things you're doing is you're doing less to stimulate demand. So you've got less in terms of economic growth. I just, this is, I think, an absurd debate to even be having when I think, it's much better to kind of debate. I think one thing, let me just get back. Somebody like Elizabeth Sawhill, we disagree a lot on policy, but I think at least if we can kind of say, here are kind of the clear parameters of the issue. And let's have a debate about policy, but I think, with any bit of research, you can come up with 78 different ways why that's flawed, but we wouldn't have any debates then if we go through this exercise. So I think at some point we have to kind of say, there's this reasonable body and consensus, and where do we go from there in terms of policy? Yeah, this gentleman here. I'm from the British No. 1 Foundation. I have a question concerning education. With education being such a vital part of it, it's basically lowering inequality in the US, but tuition costs at the same time skyrocketing, outpacing inflation, and also wage increases. How can you get more people to study it? For me, coming from Germany, you know it's, tuition is free, and we have actually a three-tier school system, so there is kind of a lot of inequality, but there are more and more people graduating, more and more people entering universities, and conditions are good, but at least everyone has the opportunity. So now, with especially the financial crisis, making it harder to actually access, have access to student loans and so on, how can you get more people into good universities? I think that's a really important question. I think we're starting to hit on programs that work. I'm thinking of things like Success for All, which is kind of aimed at young and middle school kids to improve their reading skills and other skills. There's a program in New York called Small Schools of Choice that's having pretty big impacts on high school graduation rates. A place for Sean, I do agree, is I do think that we do have to figure out how to help people who are not gonna make it in college, and there are I think encouraging signs there too, things like career academies. So I think we're discovering what works slowly over time. I also think there's probably a grand bargain to be had, maybe this is naive, that would involve more spending on education coupled with governance reforms that Republicans would support, but I may be naive. Yeah, I think the German example I think is good because it is an example of a country that I think thinks much more comprehensively about young people and youth development. I do think I'm not an expert on increasing higher education. I think part of it is just at a minimum you try to remove some of the financial barriers that exist. I also think though that a big part of this is about job quality and how do we have better jobs for the majority of jobs out there are not gonna be college educated jobs either now or in the near future. And so you really do have to think about how can we make those better jobs? And again, I think this is an institutional, I think it's partly about restoring collective bargaining rights and the ability of workers to unionize. I think it's about, I guess it's, even Mitt Romney now I think is on board with this idea of indexing the minimum wage. I think it's about other things, other elements of job quality. It's not just about wages, it's about time, it's about benefits, making sure people have paid sick leave, paid time off, and that that's something available to people in the bottom third kind of tier of jobs and not just at the top third of tier jobs. Yeah, I do think it would be very constructive to move the conversation eventually at another session broadly in terms of some of the policy levers that can be pooled at this time that can address some of the issues of growth and mobility over time, looking at how maybe some of the safety net operates. That is a separate issue though from looking at what the data and our conceptions of inequality and mobility are. And so I think we've begun touching on some of that material today, that there's a lot of information on the respective websites of Scott and Sean and some of the other organizations. As I mentioned earlier, the Pew Economic Mobility Project really has been trying to produce a very sophisticated catalog of material from a lot of different perspectives. And I'm not sure Erin's still in the room, but it really, there's a lot of resources there that I'd invite you all to consider. All right, well thanks for your time today. We appreciate it. Thanks Scott and Sean, and thank you. Sure. Thank you.


Hello and welcome to the session in which we would look at the present value of an annuity. This topic is related obviously to the present value of a single amount. In other words, if you don't understand the present value of a single amount, I strongly suggest you take a look at the prerequisite because if you don't understand how to compute the single amount, you will find difficulty understanding the present value of an annuity. Also based on the prerequisite session, you need to understand the difference between simple and compounding interests. The present value of an annuity is an extremely important topic for accounting students, whether you are dealing with bonds, leases, notes, payable. You have to understand how the present value of an annuity works. So it's critical for your success also as an accounting student. Whether you are an accounting student or a CPA candidate, I strongly suggest you take a look at my website, farhandlectures.com. I don't replace your CPA review course. You keep it. I am a useful addition. I explain the material differently. I show you the theory behind the concept. I go a little bit more in details than your CPA review course. You keep your CPA review course, it's going to help you understand it better. Your risk is one month of subscription. Your potential gain is adding 10-15 points to your exam and passing the exam. I do have resources for other college accounting courses as well and my CPA supplemental resources are aligned with your Roger, Wiley, Becker, Gleam. So it's very easy to go back and forth between my CPA review courses, my CPA supplemental review courses and your CPA review course. Please take a look also at my website for the AI CPA supplemental questions. These are all the AI CPA previously released questions, which is approximately 1,400 of them with detailed solution. If you haven't connected with me on LinkedIn, please do so. Take a look at my LinkedIn recommendation, like this recording, share it with other, connect with me on Instagram, Facebook, Twitter and Reddit. So let's talk about the present value of an annuity and what is an annuity because the assumption here is you know how to compute the present value of a single amount. So we're going to change the single to an annuity. An annuity is a periodic payment or receipt of the same amount of money at the same interval. Basically, we are looking at an interval. Let's assume this is year year one, two, three, four, you are either paying or receiving the same amount of money at the same interval. This is what an annuity is. And all we're going to try to do is to find the present value of the annuity, which is what? Which is discounting dose payment to the present value. This is what the present value of an annuity. It's a discounting process to find what's the value of those serious payment giving a certain interest rate. Now we're going to have two types of annuities. We're going to have the present value of an ordinary annuity and as I just showed you, year one, two, three, four, basically the payments or the receipts will start at the end of the first period or at the end of the first year. And we have the present value of an annuity due and we dealt with the same concept with the future value. And the present value of an annuity due, the first payment or the first receipt will start today. So we would still have one, two, three, four payments, but one of the payment, it's either received earlier or paid earlier. So we have to deal with both starting with the present value of an ordinary annuity. And the best way to illustrate this is just to work an example to show you the concept. How much will you pay for an investment that will pay you $10,000 for five years, assuming you want to earn 5% interest. So this is five years. So I define the period as five years. So the question is, here we go, I'm offering you an investment and I'm telling you, here's what's going to happen. I'm going to pay you $10,000, $10,000, $10,000, $10,000 and another $10,000, so those $5,000 in the next five years. How much will you pay for this investment? How much is this investment worth? What's the question to you? How much is it worth? Well, if you want to earn 5%, it means I want to earn 5% on my money. So I have to discount those investments. In each one of them, it has to earn 5%. Well guess what? I can do that. I can go to the present value table that we learned about, and I can discount the 5, the 10,000 separately, the second 10,000 separately, the third, the fourth and the fifth. And I can do that. I will discount them. The first 10,000 I'm going to be receiving, which is going to be a year from now. If I'm earning 5% a year from now, I'm going to discount it at 0.95238 or 0.952. It doesn't matter. This is rounding. So I will pay for that $9,523. For the second 10,000, I'm willing to pay 0.907, 0.9073, 10,000 times 0.9073 will give us 9,000, I'm willing to pay for that second 10,000, $9,070. For the third 10,000, I'm willing to pay 0.86384 or rounding 0.864, I'm willing to pay $8,634.40 and the fourth payment, I'm willing to pay 0.823 and the fifth payment, I'm willing to pay 0.784. So notice what I did. I discounted those payments individually, like if it's a single payment. But what do we know about this series of payment? It looks like an annuity. It's the same payment every time. And guess what? If I add all those single factors, they're going to give me 4.3295. And this is the present value of an annuity factor. So simply put, if I take $10,000 multiplied by this factor, the 4.3295, I will find out that the present value of this series of payment is 43,294. Now simply put, if I want to compute this 4.3925, this is the formula. The present value factor of an ordinary annuity. I just have to compute this formula, which is 1 minus 1 divided by 1 plus i raised to the number of periods, which is 5 and divided by i. Then what I would do is I will take my payment times what I found in this formula to find the present value of the annuity. This is the long way. This is if you want to do it manually. The good thing about your accounting course or your finance course, you might be using a calculator, which I don't show you the calculator here. I show you how to use the tables. Using the tables, you will go to the present value of the annuity table. This is ordinary annuity. Ordinary annuity. Make sure you are dealing with the proper table, present value of an ordinary annuity. And it's five years. So the period is 5 and the interest rate is 5%. And they cross at 4.3295. And this is the 4.3295. And we find the present value of the annuity. So rather than going through the computation, those factors will be giving to you. And if you really want to prove this, that this is what would happen, well, we're going to invest 43295 today, give it to someone, to an investor. This money is going to grow at 5%. And it's going to accumulate the 45459.54 after a year. We're going to take out the 1,000. What's left is 35459.54. I'm going to round it. So this is going to be 35,460 at the beginning of the second year. It's going to earn 5%. And the amount will be 37,232.52. I'm going to take out 10,000. I'm going to be remaining balances 27,232.52. And if you keep going, by year five, you should have zero. This is four pennies, it's surrounding, but you'll have zero. So indeed, if you invest 43295, let it grow at 5%, take in 10,000 out, you will earn exactly 5% on this investment. Let's take a look at another example. What is the present value obligation? What's the present value obligation? This is basically, we're looking to find the value of an obligation, you have to pay a five annual payment of 6,000 paid at the end of the period given 6% interest rate. So here we go. We have an obligation to pay 6,000, 6,000, rather than receiving, we're going to be paying. So we have an obligation 6,000, and it's 1, 2, 3, 4, 5, and another 6,006. And in the interest rate, we're going to be charges 6%. So this is basically, we can say what's the value of this or what's the obligation because we are discounting payment. So we have an obligation. It doesn't matter. The point is you have to discount those $6,000 back to the present value. How do we do so? Well, we just learned. We can go to the tables and we have five annual payments. So five is the end and we are earnings. We have to pay 6%, so the factor is 4.2124. So it will take 6,000 times 4.2124. We record the obligation at 25,274, and we have to pay it back in $6,000 increment. Let me show you the proof. If we start with 25,274, we're going to be charged interest 6%. It's going to accumulate to 26,790, we're going to pay 6,000, and we're going to the remaining balance will be 20,791, rounding 7,91. Well, we're going to be charged 6%. The balance will be $22,038, and $0.32, we're going to pay 6,000 again. The balance will go down to $16,038, then the $16,038 will increase at 6%. The balance will be $17,061, we're going to pay off $6,000, so on and so forth.  Now let's talk about the present value of an annuity due. Well, as I told you, the difference is you're going to start either to receipt a payment earlier or you're going to pay the first payment immediately today, which is a payment earlier. So payment or receipt is starting today. So you're going to have one fewer period to discount. So the cash flow comes one period sooner if you're receiving the money, and the cash payment will come one period sooner. To find the present value of an annuity due, most tax book, they do have this table, but sometimes they don't have the table. So what you do is you'll take the present value factor of an ordinary annuity, what you learned on the prior slide, you multiply it by 1 plus i. So if it's not giving, you can find it. So it's the present value obligation of five annual payment of 6,000, giving 6% interest rates, starting today, not staring, starting today, starting today. And here's what's going to happen. We're going to find the factor. This is for an ordinary annuity. So this table is ordinary, ordinary annuity, because I'm going to assume your textbook, don't provide an annuity due. So you'll take your ordinary annuity, which is we already figured it out, 6%, 6 period, 4.214, and you multiply it by 1.06. So the present value of the annuity due, the present value factor of the annuity due is 4.651. You would record the obligation initially at 26,790.86. And annuity due, you will see it later on when you are dealing with leases, with the chapter of leases, because the first payment of the leases usually do immediately. Now, we're going to have to find sometime the interest rate in an annuity situation, okay? So it will be something like this. Assume that you own $527, $28.77 on your Visa card. The lender offer you 12 equal monthly payments of $50 to pay off the balance. What interest rate is the lender charging you? So here we're looking for I. Well, let's look at it from a present value annuity problem. The present value of the annuity equal to the payment times the present value factor of the ordinary annuity. We know, what do we know? We know the, let's look at the numbers. We know the present value of the obligation right now, $528.77. $50 is the payment. We have to multiply it by the present value of an ordinary annuity. And this is how we find $528.77. So we have everything except the factor. Can we find the factor? Sure we can. We are told, you have to be careful here. You are told that the payments are monthly payments, okay? So it's 12 monthly payments. Therefore, the period equal to 12, okay? And we are dealing with $50 payment. So if we have to find the factor, we have to go through the computation. $528 divided by 50, the factor is $10.575. Now dealing with 12 periods, we're going to go across and find the closest thing to this factor. So the closest thing to this factor is $10.573. It's right here. Therefore, we implied that the interest rate we are being charged is 2%. So you are being charged 2% on this loan. And this is a monthly rate. Remember the monthly, you can convert it into, you know, this is the nominal rate 2%. So monthly 2 is 24%. They're going to quote you 24%, then the 24%. You know, if it's compounded monthly, you have to find the effective rate because this is the nominal rate, okay? So it's 2% monthly. And this is the proof that this will happen. So if you have rounding $529, you are being charged 2%. At the end of the first month, your balance will accumulate to $539.35. You're going to pay $50. The remaining balance is $489.35. Then this amount, $489.35, it's going to accumulate at 2%. It's going to end up to be $499.13. You're going to pay $50. The balance will go down to $449.13, so on and so forth. And if you do this for 12 months, you will pay off the balance after 12 months. You really don't want to do that because that's a very expensive credit card balance. But the point is to show you that if you do pay $50 in the interest rate we computed 2%, you will be able to pay off your loan. Sometime you have to find the payment. So how do you find the payment and an annuity problem? Let's assume Marjan Homer have saved $36,000 to finance leases for your education and a local bank earning 4%. So they have $36,000. They're going to invest it at 4%. What amount can Lisa take out every six months during her four-year college year? So basically what we're looking for is what's the payment? What payment can Lisa afford every six months? So remember, the period is semi-annually every six months. So let's take a look at our general format. The present value of an ordinary annuity equal to the payment times the present value factor of an ordinary annuity. Let's see what we have. What we have here is the following. We have 36,000. The present value of an ordinary annuity. We don't know the payment. We know the factors are 7.325. How did we find the factors? Well, if it's a four-year, four-year times two is eight. So the period we are dealing with is eight. And we have to find the factor at 4%. But remember, 4%, that's annual rate. It's this. This is semi-annually. Therefore, we have to look at two. And we find the factor is 7.3255. So 36,000, which is the present value of the annuity, equal to the payment, which is we don't know the payment times the factor should equal 36. Well, if we solve for the payment, we see that the payment is approximately 4,914. So Lisa again would draw 4,914 when she attended her school. So basically something like this. So every one, two, three, four, five, six, seven, eight, Lisa again would draw this amount every period. If Marge and Homer can put that money in an account earning 36,000, earning 2% semi-annually. And this is the proof for it. So they start, they deposit the money, 36,000. They earn 2%. That money will accumulate to 36,720. Lisa would withdraw this balance, 4,900, and $35. What's left in the balance, 36,805.65. This amount, 3,805.65 will earn 2%. The balance will become at the end of the year, 32,441.76. Lisa will withdraw 4,914. The balance will become 27,527. And if we go like this for the next four years, the withdrawal every six months, will have two pennies in the account, which is technically zero, this is a rounding issue. So here you see also that you can prove it. The best way to learn the present value is to kind of just see if you can, see if you understand it. And if you understand it, you should be able to do it in an Excel sheet real easily. At the end of this recording, I cannot emphasize the importance of the present value of a single amount and the present value of an annuity.  If you are a candidate, I don't replace your CPA review course, you keep it. I am a useful addition. I explain the material differently so you can take advantage of your review course to prepare for fully for the exam. Studying for the exam is a one-time investment in your life. Take it seriously. The CPA exam is worth it. Good luck, study hard, and of course, stay safe.