What Happened to the American Dream?
By Benjamin Landy
“I don’t try and define who’s rich and who’s not rich; I want everybody in America to be rich,” GOP frontrunner Mitt Romney explained in a recent presidential debate. “I want people in America to recognize that the future will be brighter for their kids than it was for them.”
The line received enthusiastic applause from the audience even as there was a collective eye-rolling on the Left. Romney had not answered the question of what constitutes being rich—but his dodge on income inequality was more noteworthy for the change in tact that it anticipated. As populist anger has focused on the inequities of the one percent, Republicans have adapted their messaging to emphasize that anyone can become rich, a strategy they believe places the party on surer footing. “[We want to] promote income mobility and not excoriate some who have been successful,” Representative Eric Cantor recently told Fox News host Chris Wallace. “We want success for everybody.”
Unfortunately, the latest research on social mobility suggests that few middle class Americans or their children can expect to be as successful as Mr. Romney or Mr. Cantor. According to a new report by the Federal Reserve Bank of Boston, “the evidence indicates that over the 1969-to-2006 time span, family income mobility across the distribution decreased, families’ later-year incomes increasingly depended on their starting place, and the distribution of families’ lifetime incomes became less equal.”
That is significant.The “American dream” is predicated on the possibility of economic mobility, and we rely on such mobility to offset longer-term inequalies. Less mobility actually amplifies the problem of income inequality, invalidating Romney and Cantor’s argument that inequality is irrelevant so long as anyone can become rich. And economic mobility is indeed slowing, as the latest evidence shows.
In fact, according to the Center for American Progress, children from low-income families in the United States now have only a 1 percent chance of reaching the top 5 percent of the income distribution, while the children of the rich have about a 22 percent chance. Children born into families in the middle quintile of the income distribution (the 40th-60th percentile) actually have a higher chance of ending up in a lower income bracket (39.5 percent) than a higher one (36.5 percent), while their chance of reaching the top fifth percentile remains under 2 percent. Such class rigidity both accelerates and deepens existing inequalities, reinforcing a positive feedback loop of unequal opportunity for the middle and lower class.
As Economist Jared Bernstein observes,
This notion that where you start is an increasing determinant of where you end up poses a fundamental challenge to a basic American value. Most of us don’t seek policies to ensure equal outcomes, but we do seek equal opportunities. The combination of increased inequality and decreased mobility suggests the violation of both: less equal outcomes and diminished opportunities.
If you want to find the American dream today, you might be better off looking in Denmark or Australia, where the average child’s future income is far less dependent on that of his or her parents. Internationally, the United States ranks among the least socially mobile countries in the OECD, and has the highest income inequality of them all. To argue that our unique national character allows us to ignore such inequality, as Mr. Romney and Mr. Cantor suggest, is not borne out by the evidence.
America’s Rigid Class Structure
By Benjamin Landy
Social mobility in the United States has fallen as the country’s income distribution has grown more unequal, meaning that it is now less likely that children of the lower and middle classes will grow up to live better lives than their parents did. According to the Center for American Progress, children from low-income families in the United States now have only a 1 percent chance of reaching the top 5 percent of the income distribution, while the children of the rich have about a 22 percent chance. Children born into families in the middle quintile of the income distribution (the 40th-60th percentile) actually have a higher chance of ending up in a lower income bracket (39.5 percent) than a higher one (36.5 percent), while their chance of reaching the top fifth percentile is under 2 percent.
International comparisons show that along with Italy and the United Kingdom, which also have relatively rigid class structures, the United States ranks among the least socially mobile countries in the OECD, and has the highest income inequality to boot. This graph looks at various countries based on a measurement of intergenerational income elasticity in which a level of one indiciates that the average child’s eventual income will be the same as that of his or her parents, ranging to zero when there is no correlation between family background and adult earnings.
Source: OECD
Although the “American Dream” has long been a critical facet of our national identity, by international standards, the United States actually has an especially poor degree of intergenerational mobility - worse than France, Germany, Canada, and Australia, not to mention the “social” market economies of Sweden, Norway, and Finland.
The Center for American Progress also found that education, race, health and state of residence were the four key factors in determining to what degree economic status was transferred from parents to children, with race and education being particularly important. In the United States, African American children born into the bottom quartile are nearly twice as likely to remain in that position as their white peers, and four times less likely to advance into the top quartile.
Reposted from my Graph of the Day Series at Taking Note.
