Contributor Post Created with Sketch. Is the American Dream in Trouble? And If So, Is the Answer Opportunity or Redistribution?

 

stallingIn 2014 researchers had some reassuring news about whether America was still the Land of Opportunity. As the New York Times characterized the findings, “The odds of moving up — or down — the income ladder in the United States have not changed appreciably in the last 20 years.” So a pleasant surprise — of course it could be better — on the issue of relative social mobility. Stable was the new up.

But what about absolute mobility? It’s a slightly different question. Do kids earn more than their parents? Here, according to new research from the same group, the findings are disheartening. From the Wall Street Journal:

Economists and sociologists from Stanford, Harvard and the University of California set out to measure the strength of what they define as the American Dream, and found the dream was fading. They identified the income of 30-year-olds starting in 1970, using tax and census data, and compared it with the earnings of their parents when they were about the same age. In 1970, 92% of American 30-year-olds earned more than their parents did at a similar age, they found. In 2014, that number fell to 51%. … The percentage of young adults earning more than their parents dropped precipitously from 1970 to about 1992, to 58%, found Mr. Chetty and David Grusky of Stanford University, Maximilian Hell, Nathaniel Hendren and Robert Manduca of Harvard University and Jimmy Nrang of the University of California at Berkeley. The percentage steadied for around a decade and plunged again starting in 2002, according to the economists.

The numbers were even worse for men, especially those from the industrial Midwest and thus more exposed to Asian trade and advancing automation. Superfast — and super-unlikely — growth might reverse the trend, say 6% year after year. Yet even growing nearly 4% annually — still pretty aspirational — “would only increase the percentage of children able to outearn their parents to 62%.”

High-profile findings like these are sure to attract much attention from policymakers and fellow academics. But I also found fascinating how the researchers propose improving absolute mobility:

Mr. Chetty and Mr. Hendren urged the U.S. to take greater measures to reduce income inequality and make sure more of the benefits of economic growth go to the middle class and the poor. Such measures can include increasing payments to the working poor under the earned-income tax credit, improving education, starting with elementary schools, and helping poor families move to higher-mobility areas. “You need to improve the education and the environmental opportunities for kids while they are growing up,” said Mr. Hendren.

Revamping the tax code so that it taxes the wealthy far more heavily and gives bigger breaks to those in the middle class and below could also work, said Mr. Chetty, but he doesn’t advocate that strategy. “It’s actually not clear to me that a more progressive tax code is necessarily the solution,” Mr. Ready said. “Many think of the American Dream as ‘earning’ more than their parents, not getting more transfers from the government than their parents.”

Opportunity over redistribution. This really isn’t about hedge fund managers and CEO pay and out-of-touch Silicon Valley founders. People want a job, not a check — though this doesn’t rule out things like wage subsidies or spending that enables work such as relocation assistance. An important point, one that should not be lost on those who see the universal basic income as a key part of their “post-work” equality agenda.

There are 16 comments.

  1. I Walton Member

    We had war time real income growth, then post war monopoly wages then the favoritism we built into the system to help the rest of the world recuperate kicked in and we have been very slow to figure it out. Lower wages for low and semi skilled workers is the norm throughout history. The war post war was an anomaly. Train those we can, encourage entrepreneurial activity, and make it easy for folks to return to the crafts all of us find becoming too expensive, and that includes medical practitioners who control their little oligopoly as do lawyers and ivy league professors. There is only one thing we know that works in the right direction, it’s called freedom under the rule of law. We also know that empowering our government to fix income outcomes we don’t like not only doesn’t work it has made matters worse everywhere always.

    • #1
    • December 9, 2016, at 9:01 AM PST
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  2. Misthiocracy grudgingly Member

    Problem with that stat:

    A person born in 1940 was very likely born to parents who lived in utter poverty. Of course they would grow up to be wealthier than their parents.

    A person born in 2000 was much more likely to be born to parents who lived in comparative luxury. Of course it would be harder for them to earn more than their parents. The bar is set much higher right from the get-go.

    The only metric we should care about is keeping people out of poverty. Whether they’re doing better than their parents, or doing better than some other demographic group, is almost entirely irrelevant. These are first world problems.

    The American Dream isn’t to be richer than one’s parents. It’s to be free to pursue happiness/financial independence. I’m not less free/happy simply because my father was better at making money than I am, as long as I make enough to remain independent.

    • #2
    • December 9, 2016, at 9:19 AM PST
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  3. KC Mulville Inactive

    What worries me is that these statistics don’t include the debt. Quite a few of today’s statistics don’t take into account the important role of transfer payments and the social safety net, which may help keep people afloat now, but still have to be paid for eventually. That is, a contemporary person who stays out of poverty today may be doing so only with the help of the safety net – but that skews the statistic, because that safety net comes at a cost, and the reckoning of that cost hasn’t been factored in. Accounting for the debt, we may be in much worse shape today than we were before. Twenty trillion dollars is a lot of money, and the fact that we will soon have to spend more on servicing the debt than anything else ought to be considered.

    • #3
    • December 9, 2016, at 9:39 AM PST
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  4. Jamie Lockett Inactive

    Misthiocracy:Problem with that stat:

    A person born in 1940 was very likely born to parents who lived in utter poverty. Of course they would grow up to be wealthier than their parents.

    A person born in 2000 was much more likely to be born to parents who lived in comparative luxury. Of course it would be harder for them to earn more than their parents. The bar is set much higher right from the get-go.

    The only metric we should care about is keeping people out of poverty. Whether they’re doing better than their parents, or doing better than some other demographic group, is almost entirely irrelevant. These are first world problems.

    The American Dream isn’t to be richer than one’s parents. It’s to be free to pursue happiness/financial independence. I’m not less free/happy simply because my father was better at making money than I am, as long as I make enough to remain independent.

    This is very important.

    We should also keep in mind that it is dramatically cheaper to live at a higher quality of life than it was for our parents. I keep reminding people that it is very easy for the average blue collar worker to have a middle-class lifestyle like their parents so long as they are willing to have a quality of life similar to what their parents had. A 1960s middle-class quality of life is worse on almost every measure compared to even a lower class life today. Houses are bigger, food is better, amenities are better, entertainment is cheaper and more plentiful, etc. etc. The average home size today is 1000 square feet bigger than it was in 1973.

    • #4
    • December 9, 2016, at 10:03 AM PST
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  5. Nymeria Inactive

    @misthiocracy & @jamielockett You both made excellent points. What is considered a “middle class” lifestyle was previously regarded as a upper class level of comfort. How would a young person compare to the current two parent income norm? It is utterly unreasonable and causes the millennials believe that they deserve the same level of income as their dual income parents which contributes to discontent. It still shocks me when I encounter what are in all purpose upper middle or upper class income families bemoan their “middle class” difficulties.

    • #5
    • December 9, 2016, at 10:26 AM PST
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  6. should_be_studying Inactive

    Its also important to consider how much longer people are spending in school these days. Younger people are delaying their careers for more college and post graduate training/study. It might be a more useful metric to look at this study with 40 year olds and not 30 year olds.

    • #6
    • December 9, 2016, at 10:27 AM PST
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  7. Susan Quinn Contributor

    Misthiocracy: The American Dream isn’t to be richer than one’s parents. It’s to be free to pursue happiness/financial independence. I’m not less free/happy simply because my father was better at making money than I am, as long as I make enough to remain independent.

    This. I wonder when it became important to make more than one’s parents? What makes that a meaningful measure? If a person makes enough to live more than hand-to-mouth, does something he or she loves, feels that he or she is making a contribution–isn’t that what matters?

    • #7
    • December 9, 2016, at 10:27 AM PST
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  8. Misthiocracy grudgingly Member

    Susan Quinn:

    Misthiocracy: The American Dream isn’t to be richer than one’s parents. It’s to be free to pursue happiness/financial independence. I’m not less free/happy simply because my father was better at making money than I am, as long as I make enough to remain independent.

    This. I wonder when it became important to make more than one’s parents? What makes that a meaningful measure? If a person makes enough to live more than hand-to-mouth, does something he or she loves, feels that he or she is making a contribution–isn’t that what matters?

    It was once an important metric, back when the phrase “I’m the first person in my family to ever go to college” was uttered much more frequently.

    Income growth is, pretty much by definition, a progressive metric rather than a conservative one.

    • #8
    • December 9, 2016, at 10:46 AM PST
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  9. James Gawron Thatcher

    JimP,

    What is the main source of jobs in America?

    1. Large Corporations & Government
    2. Small Business

    What holds small business back?

    1. Lack of the newest and best technological innovation.
    2. Tax Code & Regulatory Policy that favors big business.

    What results in income inequality for the average person?

    1. Greedy employers who won’t pay a living wage.
    2. Obsessive environmental & other regulations that raise the price of the basic commodities of life that the average person spends the majority of their income obtaining.

    The number 1 answer is the feel good fantasy left wing answer. The number 2 answer is the hard truth right wing answer. The number 1 answer will make you feel good right up until it kills you. The number 2 answer will give you a headache but slowly it will improve your life.

    Regards,

    Jim

    • #9
    • December 9, 2016, at 11:38 AM PST
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  10. WI Con Member

    Some good points made here though I’d still argue that the graph and study are indeed measuring an actual phenomenon. How many intact families with two incomes find them selves as well off as their parents or grandparents were with one income? Granted, I fully acknowledge factors like: two cars, larger homes, services not even imagined in previous generations, the ability to buy loads of inexpensive ‘stuff’, family formation (or lack thereof) – say we scrap ‘income’ for opportunity or security, I’d still argue that prospects for the typical American have been reduced.

    • #10
    • December 9, 2016, at 12:50 PM PST
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  11. David Foster Member

    Jamie Lockett: A 1960s middle-class quality of life is worse on almost every measure compared to even a lower class life today. Houses are bigger, food is better, amenities are better, entertainment is cheaper and more plentiful, etc. etc.

    Certainly not true of public schools.

    • #11
    • December 9, 2016, at 1:05 PM PST
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  12. David Foster Member

    should_be_studying: It might be a more useful metric to look at this study with 40 year olds and not 30 year olds.

    Also, though, the cost of student loans needs to be factored in…whether you use 40 or 30 as the measurement point.

    If someone has $100,000 in student loans to pay off, and does so over a period of 10 years, then (assuming that the interest is included in the $100K figure), their *true* comparable income is $10K/year less than the calculated value.

    • #12
    • December 9, 2016, at 1:08 PM PST
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  13. David Foster Member

    James Gawron: What results in income inequality for the average person?

    Runaway education-based credentialism has played a huge role in reducing social mobility.

    This is one of 12 factors I discussed in my post The decline of American prosperity–Causes and Cures

    • #13
    • December 9, 2016, at 1:11 PM PST
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  14. Misthiocracy grudgingly Member

    David Foster:

    Jamie Lockett: A 1960s middle-class quality of life is worse on almost every measure compared to even a lower class life today. Houses are bigger, food is better, amenities are better, entertainment is cheaper and more plentiful, etc. etc.

    Certainly not true of public schools.

    That depends on the metrics you use. Sure the schools aren’t as good at teaching reading or math, but the graduation rates are way higher.

    • #14
    • December 9, 2016, at 1:12 PM PST
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  15. Manny Member

    This is why I’ve soured on free trade agreements. Have we actually improved economically since NAFTA? And how many free trade agreements have we had since then? Blue collar jobs being sucked out of the US is not a good thing.

    • #15
    • December 10, 2016, at 5:29 PM PST
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  16. Joe P Member

    Manny:This is why I’ve soured on free trade agreements. Have we actually improved economically since NAFTA? And how many free trade agreements have we had since then? Blue collar jobs being sucked out of the US is not a good thing.

    NAFTA entered into force in 1994, during the period in this graph where the percentage of young adults earning more than their parents stayed level for over a decade, so I’m pretty sure NAFTA has very little to do with what’s being described here.

    • #16
    • December 10, 2016, at 8:54 PM PST
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