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Economics

Busting the Myths of the American Dream and Rising Tides Arguments

Let’s just call it like it is.  I think we’ve successfully gotten to the point where people acknowledge that income inequality is high in the US and is growing.  Which is a tremendous first step.  However, the next step, if we are ever going to be real about addressing inequality in the US (and globally for that matter), will likely be getting to a point that does not include false myths to explain why our current situation is “acceptable.”  And I do mean false myths.  Whether willingly, or unwittingly, too many people still believe that inequality is not that big of a deal in the US due to the following false myths:

  1. That everyone has a chance to get ahead…the so called American Dream
  2. That even if there is (growing) inequality, increasing the size of the pie will benefit those at the bottom, even if it doesn’t benefit them as much as those at the top…the so called Rising Tides argument

If those are the underpinnings for making an argument for why we should be cool with inequality, it is important to dispel of each of them…and so we shall…

AMERICAN DREAM MYTH
The first argument is just plain false.  Economic mobility in the US is lower than in other developed countries, including in Europe and Canada.  That’s just a fact.  If you are born to poor parents, you are considerably more likely to remain poor in the “land of opportunity’ than in those “socialist” countries of Europe.  As the article (and accompanying graphic) make clear:

At least five large studies in recent years have found the United States to be less mobile than comparable nations. A project led by Markus Jantti, an economist at a Swedish university, found that 42 percent of American men raised in the bottom fifth of incomes stay there as adults. That shows a level of persistent disadvantage much higher than in Denmark (25 percent) and Britain (30 percent) — a country famous for its class constraints.

Meanwhile, just 8 percent of American men at the bottom rose to the top fifth. That compares with 12 percent of the British and 14 percent of the Danes.

Despite frequent references to the United States as a classless society, about 62 percent of Americans (male and female) raised in the top fifth of incomes stay in the top two-fifths, according to research by the Economic Mobility Project of the Pew Charitable Trusts. Similarly, 65 percent born in the bottom fifth stay in the bottom two-fifths.

There goes the American Dream myth…Horatio Alger stories notwithstanding.

RISING TIDES MYTH
Rising tides lift all boats.  Or so we’ve been told ever since JFK said so back in 1963.  And then a chart like this (which is part of a series of “11 Telling Charts from 2011,” which the Economic Policy Institute recently published) just blows that myth away…

Wow. So about 50% of the country is actually moving backwards since 1980?  Wow again…

That’s certainly not how rising tides are supposed to work.  We have a larger pie than in the 1980s, and yet, lower-income people are actually losing ground, while tremendous gains at the top are occurring. It’s extremely hard not to see the correlation.  And this is measuring wealth.  For income, the story is eerily familiar as demonstrated by this chart from Mike Konczal


This chart masks some real differences within the quintiles, particularly at the top 1% and at the top 0.1%, but the it clearly shows that for 40% of the population, their incomes haven’t grown at all since 1979.  I’m not sure if this analysis is adjusted for inflation, but if not, it would mean that incomes for the bottom 40% went even further backwards over that time period as well.

And by the way, it only gets worse for Black people.  Economic mobility is considerably worse for Black people as a recent study by the Economic Mobility Project found that:

  • Startlingly, almost half (45 percent) of black children whose parents were solidly middle class end up falling to the bottom of the income distribution, compared to only 16 percent of white children. Achieving middle-income status does not appear to protect black children from future economic adversity the same way it protects white children.
  • Black children from poor families have poorer prospects than white children from such families. More than half (54 percent) of black children born to parents in the bottom quintile stay in the bottom, compared to 31 percent of white children

And why would economic mobility (i.e., the American Dream) be lower for the Black community than others?  Well, a nice place to start would be to analyze wealth.  According to EPI, since 1983, Black median net worth has fallen from a paltry $6K to $2K, compared to growth in White net worth from $94K to $98K over the same period.  Furthermore, 40% of Black households have zero or negative net worth.  How did the rising tide miss us?

The purpose here is not to continue to hit people over the head with statistics, but just to make it clear that to get people to address income inequality, it’s probably not enough not enough to just show that inequality is rising at an alarming rate. I wish it were that simple…and, morally, it probably should be.  Instead, we need to seriously confront the myths of the American Dream and Rising Tides, get our facts straight first, and make those facts known far and wide so that everyone knows we’re being sold on a product based on false advertisements.  And for too many, the product is actually defective…

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