A Non-Econ Concentrator’s Guide to Understanding Economic Opportunity in America Today

By Brinkley Brown

On Wednesday, March 6th, Harvard Professor of Public Economics Dr. Raj Chetty appeared in the John F. Kennedy Jr. Forum at the Institute of Politics at Harvard Kennedy School for a presentation and Q&A on the topic of improving economic opportunity in America using Big Data. As someone whose knowledge of the American economy does not extend beyond the tenth-grade economics class I took. So if you’re like me and haven’t taken Ec. 10a and may have missed this Forum event last week (don’t worry, there are plenty more this semester) you’re in luck. Here are four key takeaways about the state of the economy in America today, according to Dr. Chetty. 

“The Treadmill Phenomenon”

(A slide from Dr. Chetty's JFK Jr. Forum presentation illustrating "The Treadmill Phenomenon")

While showing a graph titled “Income Mobility for Black vs. White Men Raised in High-Income Families” that looked like a bunch of colorful, cascading dots, Dr. Chetty explained how black men in America who grew up in high-income families have a very high chance of ending up near the bottom of the income distribution compared to their white counterparts. “You might have thought that at some point, with a sufficient level of affluence, racial disparities become less pronounced,” said Dr. Chetty, “yet this shows that that is clearly not the case.” Okay, so why is this important? Well, according to Dr. Chetty, this income mobility trend is fundamental to understanding why racial disparities persist across generations in the United States. “If you think about achieving the American Dream visually,” he explained, it is “like climbing an income ladder for white Americans.” On the other hand, for black Americans “it is more like being on a treadmill.” Due to a variety of structural factors, “there is tremendous downward pressure on black Americans’ incomes across generations, such that even after you make it out of poverty, you have a very high tendency to fall back in the next generation.” The takeaway? To begin addressing racial disparities in America, fix the treadmill.

How does the neighborhood you grew up in determine your long-term prospects?

Want to find out? Just click here to learn how today’s affluence and poverty can be traced back to the neighborhood where you grew up. This interactive atlas, created by Dr. Chetty and his team of researchers at Opportunity Insights (an organization striving to develop “scalable policy solutions that will empower families throughout the United States to rise out of poverty and achieve better life outcomes”), is based on anonymous data that follow 20 million Americans from childhood to mid-adulthood and will show you just which neighborhoods offer kids the best shot at rising out of poverty. Also, take a glance at this NPR article “One Block Can Make All the Difference” that tells the story of Brownsville, NY and how moving to the other side of the street can dramatically influence life outcomes.

Why we should care about equality of opportunity?

If you’re a student or college graduate, I’m sure you remember when you got that acceptance letter. Remember that sense of elation, of joy, of hope, and yes of nerves? Okay, keep that goofy smile on your face and bear with me. Ask yourself: where did these feelings come from? For me, I don’t quite know for sure. I think in part the feelings came from knowing that I have a shot. Of the insane number of beyond-qualified applicants that apply to Harvard every year, I got a shot. Someone read my application and chose me. That, my friends, is why we should care: everyone deserves a shot, just like the one I got when I walked through Johnston Gate the fall of my freshman year. If I haven’t convinced you yet, maybe Dr. Chetty can. Principles of equality and justice aside, he explained, even if all you care about is maximizing GDP and economic growth, improving rates of upward mobility is in your best interest. Just think about innovation and what Dr. Chetty called “the phenomenon of lost Einsteins.” “If women, minorities, and children from low-income families invent at the same rate as high-income white men, the innovation rate would quadruple.” Put differently, not only would improving rates of upward mobility benefit those future Einsteins themselves in terms of earning higher incomes, but it would also benefit the world in terms of medical breakthroughs, technological innovations, and an overall improved economy

The American Dream—is it fading?

(A slide from Dr. Chetty's Forum presentation illustrating the decline of children earning more than their parents over time)

Despite what this chart might suggest, Dr. Chetty doesn’t think so. Though he acknowledged that the percent of children in American earning more than their parents has been on a steady decline, “there is a much more encouraging message when you dig further into the data. There are still many places in America,” assured Dr. Chetty, “that offer great opportunities for success.” He ended his address with this: “the challenge, for all of us in this room and, more broadly in the US, is to figure out how we replicate the successes of those places.”

To learn more about Dr. Chetty and to get involved in his work, check out Opportunity Insights. To watch the full conversation and presentation by Dr. Chetty in the JFK Jr. Forum last week, go to www.iop.harvard.edu.

For a full schedule of upcoming Forum and other IOP events, visit iop.harvard.edu/calendar