Description of The Great Gatsby Cow

What is the Gatsby Curve?

The Great Gatsby Curve shows the relationship between income inequality in a country and the ability of its residents to achieve upward mobility. Figures showing these two differences show a positive correlation between inequality and the lack of upward progress from one generation to the next.

The term “Great Gatsby Curve” was first coined by Alan Krueger, then chairman of the Council of Economic Advisers under President Barack Obama, during a 2012 speech to the Center Left for the American progress. The name refers to the classic novel by F. Scott Fitzgerald, which represents the gap between middle class wealth and modern wealth during the Jazz Age.

Main carriers

  • The term “Great Gatsby Curve” was coined by Alan Krueger, chairman of the Council of Economic Advisers under President Barack Obama.
  • The Great Gatsby Curve shows the relationship between income inequality and the ability of its citizens to achieve upward mobility across many countries.
  • The idea has received attention from progressive economists, who believe that there is a causal relationship between inequality and lack of progress at higher levels.
  • Critics of Krueger, including academics and economists on the right, believe that factors other than inequality can explain the lack of upward mobility.

Understanding the Great Gatsby Plot

The Great Gatsby Curve shows the relationship between income inequality – that is, the difference between the rich and the poor in a country – and the ability of people from different countries climbing the economic ladder is slow.

Among developing countries, low income is strongly associated with lack of upward mobility.

Center for American Progress

In Krueger’s original representation of the curve, the horizontal (X) axis represented income inequality. The countries on the left side of the chart show the distribution of wealth among citizens. But the nations seen on the right are those whose wealth is concentrated among a small portion of the population.

Meanwhile, the vertical axis (Y) shows the intergenerational income – known as “elasticity” or “stickiness.” The higher on the Y-axis a country is, the greater the correlation between the income of parents and their children. Therefore, countries with higher elasticities tend to have lower levels of upward mobility.

To show inequality by country, Krueger used after-tax income data from the mid-1980s. It is calculated using a statistical tool called the Gini coefficient, which shows the relationship between different economic units in the population and their income levels.

As the chart above shows, countries with less inequality, such as Finland and Norway, have the least. In other words, those born into low-income families are more likely to succeed as parents. In contrast, countries with greater inequality, such as the United States and the United Kingdom, experience less upward mobility.

The word “curve” to describe this relationship between these two inputs can be misleading, because the trend line between different developed countries shows a straight line.

The Great Gatsby Rock Ideas

In statistical analysis, causal correlation is not necessary. So, the fact that social income inequality means less upward mobility does not mean that inequality is, in and of itself, the cause of stagnation. of income.

But Krueger and other successful economists are, if not directly, level-headed. In the same speech in which he introduced the Great Gatsby Curve, for example, Krueger cited support for measures aimed at reducing income inequality in the United States, including Affordable Care Act and expanding unemployment benefits.

David Vandivier, chief of staff of the Council of Economic Advisers during the Obama administration, echoed Krueger’s sentiment. Writing on the White House blog, he used the connection between inequality and lack of immigration to push for programs like universal college and low wages. high.

Progressive economists often point to the growing disparity between low- and high-income earners as evidence that such policies are necessary. A Pew Research Center report found that from 1970 to 2018, the average income of members of the middle class increased by 49%. For those in the lowest income bracket, the income is 43%. However, people in the highest bracket saw their income increase by 64% during that same period.

The income gap between the top earners and the rest is widening.

Pew Research Center

Criticism of The Great Gatsby Rock

Some economists and pundits have tried to poke holes in Krueger’s conclusion, arguing that inequality does not hinder upward mobility.

Writing for conservatives National Review in 2013, Hillbilly Elegy Author JD Vance has suggested that the demographic and cultural differences in each country are more important than income. “The Gatsby chart, with one failure, reduces those differences to a single liberal discourse,” he wrote. “That’s a good deal if you want to score political points; It’s almost useless if you want to understand what drives the economy (ie, very high).

This point seems to be supported, at least, by a 2019 meta-analysis conducted by sociologists at Texas A&M University and Delaware State University.

They found that inequality was significantly related to wealth between generations when looking at different countries; however, when examining changes in regional inequality over time, the relationship with upward mobility was not significant.

What is the shape of the Gatsby Curve?

The Great Gatsby Curve is a graphic representation of the relationship between income inequality in a given country and the ability of its residents to achieve upward mobility. When looking at developing countries around the world, a positive correlation is found between inequality and wealth “stickiness” – that is, the lack of movement up the wealth ladder.

What are the effects of the Great Gatsby Curve?

Progressive economists—including Alan Krueger, who coined the term in 2012—theorize a fundamental connection between inequality and upward mobility. This argument has been used to support a number of policies aimed at reducing income and educational inequality. That list includes everything from raising the minimum wage to providing subsidies for health insurance through the Affordable Care Act.

How does the Great Gatsby Curve represent inequality?

The Great Gatsby Curve shows inequality by showing that citizens in countries on the far right of the horizontal axis and high on the vertical axis have a harder time moving from a lower class to a higher class. a higher class of wealth. Conversely, citizens in countries to the left of the horizontal axis and the bottom of the vertical axis do better.

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