Tuesday, July 8, 2014

The American Dream: Just a Dream?

American Dreams at Little Duck Key/US National Archives
The American writer and historian John Truslow Adams coined the term "The American Dream" in his 1931 book The Epic of America and called it "the greatest contribution we have made to the thought and welfare of the world." His American Dream is "that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. ... It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position."

Well, it has become increasingly clear that this American Dream is harder to attain for most in the U.S. A recent Harvard study found that "contrary to popular perception, economic mobility has not changed significantly over the last fifty years" - so it is not as bad as many people believed, but not as good as it could after fifty years of economic progress. In addition, the famed mobility of the U.S. is consistently lower than in most developed countries.

Also, we've seen several studies on increasing inequality around the world. For example, an OECD study shows how income gains between 1975 and 2007 were divvied up in 18 OECD countries: in the U.S., its top 1 percent of earners accounted for 47 percent of all pre-tax income growth over that time period, while for example in Denmark, the vast majority of gains during the same period of time went to the "bottom" 90 percent.

In addition, the French economist Thomas Piketty's bestselling book Capital in the 21st Century, has drawn attention this year to the growing inequality in wealth like no other economics book before.   Piketty's  research is based on reviewing tax returns in over twenty countries since the 18th century, and more directed at the effects of capitalism in general, than the situation in one single country. Still, Piketty said the following about the situation in the U.S. in an interview with CBS:

"The U.S. is the country that invented progressive taxation of income and of inherited wealth in the 1910s and '20s. And largely these fiscal institutions were invented in America because the U.S. didn't want to become as unequal as the patrimonial societies of 19th century Europe. There was this strong feeling of American identity, of a country where everyone gets a chance, and you don't want to perpetuate extreme wealth concentration across generations. You want people to be able to become rich, of course. But you also don't want the wealth to perpetuate itself over time and across generations without constraint. This is why progressive taxation was first invented in the United States."

When CBS asks why the U.S. experienced a sharp increase in inequality starting in the early 1980s, Piketty states:

"The book is trying to shift attention from the rise of top income to the dynamics of wealth accumulation. But to begin with, what happened in the 1980s and 1990s is a big rise in top income shares in the U.S. The share of total primary income going to the top 10 percent was about 30-35 percent of total income until the 1970s. That started to increase a lot in the 1980s and is now around 50 percent."

And after all these academic studies, now USA Today released an article "Price Tag for the American Dream: $130k per year" showing that "living the American Dream would cost the average family of four about $130,000 a year. Only 16 million U.S. households — around 1 in 8 — earned that much in 2013, according to the U.S. Census Bureau." Mind you that the median income in the U.S. is $51,000.

USA Today ends its article by saying obligatory: "Nonetheless, it's clear that though the American dream is still alive, fewer and fewer of us can afford to live it."  It seems that the quote of well-known comedian and social critic George Carlin is more appropriate: "The reason they call it the American Dream is because you have to be asleep to believe it."

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