Economic Mobility and Meritocracy

There seems to be a little debate going on between Tyler Cowen, Paul Krugman, and others so I thought I'd add my two cents. While people in America like to think of ourselves as a bootstrappy country where someone can rise from the depths of poverty into a world of wealth, there is actually less income mobility in the US than in Europe. Tyler argues, rather ineloquently even if I might agree with him, that income mobility is overrated because if someone is moving up in class then someone else must be moving down in class. Thus, we are overall no better off and may even be worse off from a utility standpoint because of habit formation and reference effects. Basically, poor people are OK being poor because they've never known anything else. Alex tries to support his colleague, again rather ineloquently even if I agree, that growth is more important than mobility. Paul Krugman objects to Tyler's argument and frames it as if Tyler is arguing in favor of a regimented caste-like state while Brad DeLong mischaracterizes Tyler's remarks as being against income mobility.

The real issue (in my humble opinion) is not mobility but meritocracy. The relationship between mobility and meritocracy really depends on the relationship between ability and heredity. If ability and heredity are highly related, then able parents will have able children (and less able parents will have less able children). If they live in a meritocracy, then the able parents and their able children will both be successful (and the less able parents and their children will be less successful). Thus we will have no mobility. If there is a weaker relationship between ability and heredity, then you will have more mobility even if we have a meritocracy. Less abled and unsuccessful parents can have able and successful children. If success depends on parentage regardless of ability (a caste sytem or aristocracy instead of a meritocracy), then there will be less mobility no matter what the relationship is between ability and heredity.

So, is America's relative lack of mobility the result of a lower level of meritocracy or the result of a greater relationship between ability and heredity? I think you can make a stronger case for the latter rather than the former (although I would love to see any studies on this). I would argue that Europe still has a much greater social aristocracy even if they've moved to a more economic meritocracy. This reults in people marrying members of the same social class even if they have different abilities  producing a weaker relationship between ability and heredity. In America, parents are more likely to marry someone with the same level of abilities which results in a stronger relationship.

Again, this is just conjecture and I'd love to see the evidence, but the main point is that a lack of mobility does NOT mean that there is a lack of meritocracy.