The
"American Dream" Is Now A Myth
One
of the most distressing aspects of the state of the US economy is the
decrease in social mobility
Henry Blodgett
Henry Blodgett
In other words, if Americans are born poor, they're overwhelmingly likely to stay poor.
Similarly, if Americans are born rich, they have a much better chance of staying rich than someone born poor or middle class.
No one minds inequality as long as one's station in life is a function of one's own decisions and effort.
When inequality becomes the luck of the draw, however, if becomes much more profoundly unfair.
America's social mobility is now not only one of the lowest in the country's history--it's one of the lowest in the first world.
If that doesn't change, the fundamental promise of America for the past 250 years will disappear. The country will no longer be a place in which you can control your economic destiny. Rather, it will become the sort of society that so many of those who emigrated here sought to escape: A country in which your destiny is determined at birth.
Earlier this week, professor Joseph Stiglitz sat down with my Yahoo colleague Aaron Task to talk about this issue.
Here's the video and Aaron's writeup:
Income
inequality has become the subject of much debate in this country, in
large part because of the Occupy Wall Street movement.
In
his latest book, The
Price of Inequality, Columbia Professor and Nobel laureate Joseph
Stiglitz examines the causes of income inequality and offers some
remedies. In between, he reaches some startling conclusions,
including that America is "no longer the land of opportunity"
and "the 'American dream' is a myth."
While
we all know stories of people who've moved up the social
stratosphere, Stiglitz says the statistics tell a very different
story. In the last 30 years the share of national income held by the
top 1% of Americans has doubled; for to the top 0.1%, their share has
tripled, he reports. Meanwhile, median incomes for American workers
have stagnated.
Even
more than income inequality, "America has the least equality of
opportunity
of any of the advanced industrial economies," Stiglitz says. In
short, the status you're born into — whether rich or poor — is
more likely to be the status of your adult life in America vs. any
other advanced economy, including 'Old Europe'.
For
example, just 8% of students at America's elite universities come
from households in the bottom 50% of income, Stiglitz says, even as
those universities are "needs blind" — meaning admission
isn't predicated on your ability to pay.
"There's
not much mobility up and down," he says. "The chances of
someone from the top [income bracket] who doesn't do very well in
school are better than someone from the bottom who does well in
school."
Because
the children of those at the top of society tend to do better than
those at the bottom — thanks, in part, to better education, health
care and nutrition — the income inequality that's slowly emerged
over the past 30 years will only widen in the next 10 to 20 years.
If
the root causes of income inequality go unaddressed, America will
truly become a two-class society and look much more like a third
world economy, Stiglitz warns. "People will live in gated
communities with armed guards. It's a ugly picture. There will be
political, social and economic turmoil." (Hence
the book's subtitle: 'How Today's Divided Society Endangers Our
Future')
The
good news is Stiglitz believes this "nightmare we're slowly
marching toward" can be avoided, citing Brazil's experience
since the early 1990s as an example of a country that has reduced
income inequality. Among other things, he recommends improving
education and nutrition for those at the bottom of society, and
eliminating "corporate welfare" and other policies which
"create wealth but not economic growth."
For
example, he cites the provision in Medicare Part D which forbids the
federal government from negotiating prices with the drug companies.
Over 10 years, that rule will generate approximately $500 billion for
the industry, he estimates, but no tangible benefit for taxpayers or
the economy as a whole.
Importantly,
Stiglitz believes inequality of wealth and opportunity are hurting
the overall economy, by limiting competition, promoting cronyism and
keeping those at the bottom from reaching their potential.
"What
I want is a more dynamic economy and a fairer society," he says,
suggesting income inequality is ultimately detrimental to those at
the top, too.
"My
point is we've created an economy that is not in accord with the
principles of the free market."
THE
MOST IMPORTANT STORY IN AMERICA: Family Net Worth Collapses 40% In 3
Years
Henry
Blodgett
12
June, 2012
Yesterday, the Fed released its latest Survey of Consumer Finances.
The report included a lot of depressing data about the financial situation of average Americans. But nothing was so shocking and depressing as this:
- The median net
worth of American families dropped nearly 40% from 2007 to 2010.
(Yes, the situation has improved in the 18 months since 2010, but only modestly. House prices are about where they were back then.)
Most of this decline came from the collapse of the housing market. But we can't just write this one off to the housing bubble. The median net worth of households has now fallen to the same level as it was two decades ago, in 1992.
What does that mean?
It means America just isn't working right now.
Not just Americans. America itself, a country whose economy once worked for almost everyone.
In the old America, if you worked hard, you had a good chance of moving up.
In the old America, the fruits of people's labors accrued to the whole country, not just the top.
In the old America, there was a strong middle class, and their immense collective purchasing power drove the economy for decades.
No longer.
Over the past couple of decades, the American economy has increasingly mostly worked for the richest Americans, at the expense of everyone else. As a result, the disparity between "the 1%" and "the 99%" has hit a level not seen since the 1920s. And there is a widespread and growing sense that life here is not fair or right.
The middle class--the average American families--drive most of the spending in this country. Thus, when the middle class suffers, the whole economy suffers. And, right now, America just isn't working for the middle class.
If we are to get this country headed in the right direction again, we need to fix this problem. We can start by appreciating how bad it is.
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