Report of the Demise of the American Dream Greatly Exaggerated
The headline of this article in the Financial Times is "The Crisis of Middle Class America," and later in the article, we learn that it is in fact a "slow-burning crisis of American capitalism." This, I think we can safely assume, is meant to suggest a crisis of capitalism, period, since America is universally understood to be a metaphor for capitalism. It's bad news for capitalism, apparently:
Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.
Alexis de Tocqueville, the great French chronicler of early America, was once misquoted as having said: “America is the best country in the world to be poor.” That is no longer the case. Nowadays in America, you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy – even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe.
Combine those two deep-seated trends with a third – steeply rising inequality – and you get the slow-burning crisis of American capitalism. It is one thing to suffer grinding income stagnation. It is another to realise that you have a diminishing likelihood of escaping it – particularly when the fortunate few living across the proverbial tracks seem more pampered each time you catch a glimpse. “Who killed the American Dream?” say the banners at leftwing protest marches. “Take America back,” shout the rightwing Tea Party demonstrators.
Statistics only capture one slice of the problem. But it is the renowned Harvard economist, Larry Katz, who offers the most compelling analogy. “Think of the American economy as a large apartment block,” says the softly spoken professor. “A century ago – even 30 years ago – it was the object of envy. But in the last generation its character has changed. The penthouses at the top keep getting larger and larger. The apartments in the middle are feeling more and more squeezed and the basement has flooded. To round it off, the elevator is no longer working. That broken elevator is what gets people down the most.”
Let's start with the low-hanging fruit here; that apartment block analogy comes from Schumpeter, not Larry Katz, though I'm glad to know he's familiar with it. Now, as for the claim that someone killed the American Dream, it would be awful if it were true, but it's actually just not. Take, e.g., this US Treasury study of income mobility from 1996-2005, which uses as data individual tax returns. Key findings:
• There was considerable income mobility of individuals in the U.S. economy during the 1996 through 2005 period as over half of taxpayers moved to a different income quintile over this period.
• Roughly half of taxpayers who began in the bottom income quintile in 1996 moved up to a higher income group by 2005.
• Among those with the very highest incomes in 1996 – the top 1/100 of 1 percent – only 25 percent remained in this group in 2005. Moreover, the median real income of these taxpayers declined over this period. [In other words, no, the rich weren't getting richer and the poor getting poorer--just the opposite.]
• The degree of mobility among income groups is unchanged from the prior decade (1987 through 1996).
• Economic growth resulted in rising incomes for most taxpayers over the period from 1996 to 2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups.
Right. So, over the past generation, the American Dream has been holding up just fine. It may be dead by the time we finish trying to cure this non-existent crisis in capitalism, but let's not pretend the elevator's been broken for so long that we may just as well give up waiting for it and mope despairingly in our flooded basements.
Next point. I'm not being snotty here, I just genuinely don't understand this part of the article. I'm not in America right now, and my finger isn't really on the pulse. There may be something unstated but obvious in this story that I'm not getting. But why exactly are the Freemans of this story living so close to ruin? They're earning $70,000 between them, and apparently the state pays for their son's care. The article never says what, exactly, is costing them so much that they can't live on this. They're not unemployed. They do have health insurance. There's an intimation that the drain on their budget that nearly cost them their home was the fee they had to pay for their son's health insurance, although that's not stated explicitly. Even assuming that this was an astronomical fee--say, half their annual income--there's no hint of any other massive unexpected financial burden on this family. So why exactly are they unable to manage? It's entirely possible that there's a good reason, even one relevant to the writer's case, but I don't see it. Do you?
Having been offered no evidence that the lachrymose Freemans are exemplars of a crisis in capitalism itself, I think one might wish to focus on the first paragraph, the one followed by the "Yes, but."
Technically speaking, Mark Freeman should count himself among the luckiest people on the planet. The 52-year-old lives with his family on a tree-lined street in his own home in the heart of the wealthiest country in the world. When he is hungry, he eats. When it gets hot, he turns on the air-conditioning. When he wants to look something up, he surfs the internet. One of the songs he likes to sing when he hosts a weekly karaoke evening is Johnny Cash’s “Man in Black”.
That's not just "technically speaking." Mr. Freeman should, indeed, count himself among the luckiest people in the world, because he is. Find me a system other than capitalism that can produce a country in which this standard of living is cause for this level of despair--just one, ever, in history--and we can revisit the issue. Gloomy times? Sure. A nasty recession? No doubt. A crisis in capitalism itself? Give me a break.
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Jun '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
Good morning, Claire.
I saw a photo yesterday of left wing protesters at an Arizona immigration rally. One of them held a sign saying "we don't have an immigration crisis; we have a capitalism crisis." Uh-huh. I reckon the idea is just another part of the "narrative."
One of the arguments I like to use with liberal colleagues runs like this: "Capitalism is completely voluntary, totally spontaneous, self-regulating, and self-correcting. It's like an ecosystem. Dude, it's totally organic!" End of discussion.
Jun '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
Claire, I think quite a bit is left out of the article. As for the autistic son's care, I didn't assume the state paid for his care. Just sounded like he went to the local community college for free. Mrs. Freeman lost her health care for a time, and had to pay a large fee to have it reinstated. Vague reporting, but possibly enough to really send a family on the brink into a downward economic spiral.
I think the author tried to present the typical American family as beer swilling, karyokee singing, dollar store shopping rubes. Nothing wrong with any of those things, but I could read the smirk between the lines.
Jun '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
We still have those bootstraps, that people on the bottom use to pull themselves up, and people are using them. A lot of those people just happen to be illegal immigrants from Mexico, and when they go back home, their social mobility will be a Mexican statistic--not an American statistic.
Re: Report of the Demise of the American Dream Greatly Exaggerated
Not even Hunter S. Thompson, Claire, could find the Death of the American Dream, as he agreed to do for a full-length book some time in the late '60s. The Death of the American Dream book became Fear and Loathing in Las Vegas, the most important line of which is:
That's a harsh indictment of a theme casino, and we all know that it's possible to have an okay time or even big fun in Vegas, but for Thompson the death of the American Dream wasn't some major malfunction of capitalism but a soul problem, a thing that sent America's rubes -- with whom he always had a deeply ambiguous relationship -- in droves to a place where "reality was too twisted" for drugs. This FT article tries and fails to explain that Mr. Freeman (get it?) knows the facts show he's living the life of a happy person, but his heart and soul suggest otherwise. Anyone who can only quote Tocqueville wrongly in this context has a lot of catching up to do.
Jun '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
By the time Hunter S. Thompson got around to the "American Dream" his brain was the world's biggest rice crispy. Having snapped, crackled, and popped his last and best in Rolling Stone, Thompson became a football commentator/odds-maker, talk about getting kicked through the goal posts of the surreal. Nice thing about the American Dream is that it is what you, the individual, make it, even Hunter S. Thompson would have to agree with that. Who knows, maybe the realization that there was more to life than a drug induced coma is why his life ended the way it did--tragically.
Jul '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
So the Freemans are taking home, what, 4,700-5,000 a month? Their mortgage is probably 500 (certainly no more than 600) a month. What's to be confused about Claire? The math just doesn't add up when "Mark spends large monthly sums renting a machine to treat his sleep apnea." That's got to run at least 3k a month. Oh, wait it's about the size of a small car payment: http://www.advanscpap.com/cpap-rental/.
Nobody has been saving Claire, that's what you're missing. I'm not picking on the Freemans (Freemen?); profligacy is the default. I live in a very similar neighborhood. There are many pizza deliveries, cable hook-ups, & rent-a-center deliveries. Every third car is ludicrously expensive. It's fine to splurge on any of these from time to time, of course. The problem is any desired expense is often presumed to be actually affordable if it is literally affordable.
One last point, I'll bet dollars to doughnuts (not so generous an offer as it used to be) that both families are carrying massive credit card balances.
Jul '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
Oh, and how absent is the American Dream in this story anyway? Both families nearly have their houses paid in full. If they don't like what's becoming of their neighborhoods, they can sell their places for songs, and still have 40% downpayments (or 20% with enough left over to remove a good 25k in credit card & other debt) for small places in better locales, for roughly the same payment.
The American Dream requires contemplating the future. Ignoring something doesn't mean it's extinct.
May '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
Anyone who thinks that there is income inequality in the US has never been to any third world country. In China, Vietnam, Africa, etc., there are massively wealthy plutocrats and other massively wealthy-living "public servants", and a bunch of starving serfs.
The question, as VD Hanson explains, is how well do the "poor" live?
http://pajamasmedia.com/victordavishanson/a-weird-sort-of-depression/
Aug '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
When I visit my mother (who lives in the house that I grew up in -- it's in a lower middle-class neighborhood in Philadephia), I can go from house to house to house for a long time before coming to one where the children are being raised by both a mother and a father living together. Is being raised in a stable family part of the American dream? In my mind, it is.
Conservatives naturally have different perspectives than liberals. I don't agree with all the suggestions put forward in this article. But I do see the American dream as being in jeopardy. And the threat to the American dream is an issue that resonates with voters. If liberals are promising to do something about it and conservatives are not, liberals will win votes that they wouldn't have won had we been more caring and involved.
Rob
Aug '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
It's not capitalism that has disrupted the lives of the Freemans, it's their politics. Of their $70,000 in gross, they take home $36,162, after their "friendly" federal and state withholding. From that they must pay 6.875% sales tax on their purchases, 27.2 cents per gallon state gasoline tax, property taxes on their 700 square foot home... oh, and that beer Mr. Freeman was drinking? 9% sales tax.
The problem isn't capitalism and the death of the American Dream, it's the birth and continued gluttony of Big Government - the American Nightmare!
May '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
"Cluttered with chintzy memorabilia, it was bought with a $50,000 mortgage in 1989. It is now worth $73,000. “At one stage we had it valued at $105,000 – and we thought we had entered nirvana,” says Mark. “People from the banks kept calling, sometimes four or five times an evening, offering equity lines, and home improvement loans. They were like drug pushers.”"
This is a joke of a piece of socialist propaganda! I have had equity in my house in Washington DC since the day I bought it and NOBODY has ever called my house offering a loan or equity line of credit... Woe is him that he has to fend off phone calls, or be smart enough to know that he can't afford such a loan. It's all those bad bad capitalist pigs raping the workers!!!
Jul '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
The income mobility that is cited does not go to the heart of the problem as I see it. My neighborhood has gotten gentrified over the last 30 years, and it is not so much the differences in income I notice, but the huge differences in capital.
Clearly a rich person could "suffer" from downward income mobility while a poor person could "benefit" from upward income mobility. This could happen over a lifetime, and yet the poor man could continue to live a poor man's life and the rich man could continue to live a rich man's life.
I definitely question the "American Dream", a questioning which would unlikely originate from the top of the pile, I might add.
Jul '10
Re: Report of the Demise of the American Dream Greatly Exaggerated
income vs. capital?
Anyone, a rejoinder?