Essays On Inequality And The American Dream

Foundation essay:This article is part of a series marking the launch of The Conversation in the US. Our foundation essays are longer than our usual comment and analysis articles and take a wider look at key issues affecting society.

Every morning schoolchildren across America pledge allegiance to the flag and its promise of “liberty and justice for all.” “Life, liberty and the pursuit of happiness” is probably the best known phrase of the Declaration of Independence. These words and their promise about the opportunity to seek fulfilling lives are the basis of the American Dream.

But there is now increasing debate – and not only among politicians – about the extent to which the American Dream and the right to the pursuit of happiness are equally available to all citizens.

The fact is that US trends in opportunity are becoming more unequal by any number of measures.

American attitudes towards inequality and opportunity have historically been exceptional in comparison to other countries. The question is, do these attitudes, which are closely linked to how happy people feel, affect their choices about the future?

Measuring happiness

I approach these questions through measuring people’s well-being or through the study of – as it’s sometimes referred to – “the economics of happiness.”

This research shows, among other things, that if inequality is a sign of future mobility then it tends to have neutral or even positive effects. However, if it is indicative of persistent advantage for some and disadvantage for others, then the effect is negative.

People with more positive attitudes about their future mobility have higher levels of well-being. As a result, they are more willing to invest in the future. People with limited opportunities focus primarily on the short term. They discount the future not only because they have less time, energy or money to set aside but also because they have less confidence that those investments will pay off.

So how does increasing inequality in the US affect the way Americans think about the future? Is the happiness for all implicitly promised in the Declaration of Independence an elusive dream?

Well-being analysis has become increasingly accepted in economics and in the social sciences. Well-being metrics, which are based on individual responses to surveys, are particularly useful for exploring questions that data based on standard “revealed preference” theory (whereby people’s preferences are revealed by their purchasing habits) cannot answer.

These include situations where respondents do not have the capacity to reveal a preference or when behaviors are driven by beliefs or self-control problems (as in the case of excessive consumption of cigarettes or junk food). This, for example, is the case when people are asked about the impact of institutional arrangements that they are powerless to change, like inequality. So-called happiness metrics give us a novel tool to measure the linkages between well-being and attitudes towards mobility.

There are two distinct ways of measuring well-being. “Evaluative well-being” looks at how people think of their lives in their entirety, including their ability to find purpose and meaning. “Hedonic well-being” captures how people experience their daily lives and what happiness, stress, or anxiety they are feeling at a given moment.

Individuals with higher levels of evaluative well-being, who have more of a sense of what their futures look like and more control over them, may experience lower levels of hedonic well-being (because, for example, of being under greater pressure) as they work to make investments in those futures. Individuals with less agency to craft their futures focus more on day-to-day well-being both because their future outlooks are far less certain and because simply getting by each day can be a struggle.

Two Americas

What is striking about the results of our research is how differently poor and rich Americans look at the future.

There are two Americas: a wealthy group with high levels of life satisfaction and corresponding ability to plan for and invest in the future, and a poor group with lower life satisfaction, higher levels of stress, and much less optimism about the future.

Even the words most commonly used by people in poor places versus those in wealthy places reflect these very different outlooks. A recent analysis based on a Google search by David Leonhardt found that the most common words in the poor locations were religion, hell, guns, video-games, and diabetes. The most common words in the wealthy ones were baby joggers and baby bjorns, iPads, and exotic travel destinations. Getting through the day in one America; investing in knowledge and the future in the other.

Equally telling, the starkest gaps we find between the scores of poor and rich Americans are when we measure attitudes towards the belief that hard work can get you ahead. These beliefs, one might argue, are the pinnacle of the American Dream. And yet, according to a recent Pew poll, the number of Americans who still hold true to that belief has dropped - from 68 to 61% - over the past decade.

What is perhaps more remarkable, we find that the gaps between poor and rich Americans are much greater than those between poor and rich Latin Americans, a region long known for its high levels of income inequality. Why is this so?

Less stress down south

First, differences in experiencing daily stress between the rich and the poor in the US are significantly higher than they are in Latin America.

While there is very little difference between the poor and the rich in Latin America when it comes to belief in the value of hard work, the gap between the rich and the poor in the US is twenty times greater. Or, put another way, the poorest in the US are much less likely to believe that hard work can get you ahead than are the poorest in Latin America while the richest in the US are much more likely to believe that hard work can get you ahead than are the richest in Latin America.

There are a number of complex explanations for these differences.

Most simply, it is a fact that Americans have experienced a weakening of social welfare and other public institutions in the past decades. Latin Americans, meanwhile, are finally reaping the benefits of investments in progressive social policies and conditional cash transfer programs for the poorest. Poverty rates are falling dramatically and along with them – albeit more slowly – overall inequality.

It is also the case that Latin America probably had greater room for upward movement, given its higher levels of absolute poverty, than did the US in the same time period.

An increasing body of well-being research is demonstrating that individuals with higher levels of well-being have better future outcomes. They have better productivity, health, and social behavior. This is in part because they are intrinsically motivated but also in part because they are able to have longer time horizons and preferences.

If one translates current patterns in well-being and attitudes about the future in the US into behavioral outcomes it seems likely that the gaps between the lives of the rich and poor will only grow larger.

This is why well-being research is so important. It highlights the critical importance of variables, such as health, education, social networks and optimism to individual and societal well-being. These are precisely the variables upon which well-being metrics show how divided Americans are.

In a recent paper, we find that living in neighborhoods with higher levels of average happiness is good for individual happiness. In contrast, living in neighborhoods with higher levels of average income is associated with lower levels of individual happiness (controlling, of course, for a host of confounding factors).

Greater focus on societal well-being may be one of many ways to begin to narrow these divides. The American public has been surprisingly tone deaf to discussions of increasing income inequality. Perhaps attention to the unequal “pursuit of happiness” will stir broader public debate.

During the last four decades, socioe-conomic inequality has widened significantly in the United States of America and it has led the shattering of the American Dream for millions of hard working Americans who strongly believe in the upward mobility. The American Dream is mainly depend on economic equality. When economic prosperity is equally shared by all groups of citizens, the American Dream is a reality for all. Unfortunately, right wing economic and political policies’ decisions made by Republican White Houses have led this country into a grave economic inequality in recent history. This economic justice mainly hits the low-income groups and minorities and the American Dream is dying for millions of them.

The general understanding of the American Dream is the belief of the US-American Society that each individual can, through hard working and strength of mind, achieve middle class success. William E. Hudson, who authored American Democracy in Peril, described the American Dream “It is a narrative about ordinary people striving for material success and social acceptance in a new kind of society where such striving is actually rewarded”. Both native-born Americans and American immigrants pursue and can achieve the American Dream, which leads to middle class social life.

During the post Second World War period, 1945 to 1973, the US achieved its greatest economic success. Nobel prize-winning economist Paul Krugman who authored The Age of Diminished Expectations pointed out that ordinary American people directly benefited from the post’s war prosperity. During this time period, median family income doubled and the poorest American’s national income share increased by 0.7 percent and the income of the wealthiest 5% decreased by nearly 3 percent. During this economic boom, productivity grew by 3.3 percent annually, inflation-adjusted wages increased by 2.5 to 3 percent per year and real wages grew by 75 percent. During this period American workers worked few hours per year compared to European countries. The distribution of advances of economic productivity during this period led to increase income equality and the poorest Americans increased their annual income and stepped into middle class level.

Low-income groups

In his famous article, “The Death of Horatio Alger” to The Nation magazine, Krugman indicated that during the first thirty years after World War II, the American Dream of upward mobility was a real experience for many people and they achieved the American Dream. In addition Hudson also argued that American Dream, which concentrates only on individual and collective material prosperity, was a possibility for all, only when prosperity of the economic growth was equally distributed among all income groups. During this period, manufacturing sector was steadily growing and low-income groups got well paid union jobs with benefits in this sector. Through those well-paid secure jobs, their income increased and they reached to middle class social status. Surprisingly, only the male members of the family joined the labor forced those days and his income was enough to accomplish the American Dream.

Super-rich Americans

This upward mobility was largely initiated by the government policies, which led to protect workers and the US manufacturing sector. They gave incentives to manufacturing sector and encourage unionization. In addition, government invested significant capital in education and vocational training sector to create a skilled work force.

In contrast to 27- year post war economic prosperity period, the four decades that followed recorded the worst economic inequality in the US history. While the wealthiest five percent of Americans doubled their income between 1979 to 2009, the poorest 20 percent saw their income drastically decline. In 2003 two French economists Thomas Piketty and Emmanuel Saez disclosed, the top one percent of super-rich Americans grabbed nearly 25 percent share of national income in 2007, compared to 10 percent in 1980. They also revealed that even among the richest 10 percent of Americans, top one percent accounted for half of their group’s income. The US economy recorded the worst annual rate of productivity average less than half a percent during 1973 to 1988. During the last four decades, productivity stagnated and wage growth deteriorated for low income workers. From 1979 to 2001 the poorest 10 percent of workers’ wages declined by four cents per hour and ten top 10 percent of wage earners increased their earning more than 23 percent. However during this period CEO- to- worker compensation skyrocketed.

In year 2000, CEO earned 310 times the pay of an average worker. Hudson argued that rising income inequalities during last four decades were related to productivity stagnation and the decline in wage growth. During the last four decades, low income and middle class workers’ earnings reduced significantly. In these circumstances female partners were forced to join the work force to meet their family needs and one partner had to do more than one job. Even with this kind of hard work and sacrifices, they could not get into the success ladder.

Beside the unequal income distribution, inequality in wealth also rapidly increased, during the last few decades. The New York Times columnist Nicholas D Kristof disclosed in his article “America’s Primal Scream” that, the top one percent of super-rich Americans had a net worth of 225 times the worth of median households and this was a record wealth inequality in US history.

Greater prosperity

Compared to European countries, the US recorded worst wealth inequality, where top one percent of super-rich acquired 40 percent of the country’s total wealth. In recent years, rich got richer and poor got poorer, and the recent economic recessions also hit bad on low-income groups. In 2010, 46.2 million Americans were recorded as poor and this was a 52-year record high. Hudson described impact of unequal income distribution. He writes as “the rich families wealth have significant advantage over poor, when their children try to climb the social ladder and existing grave wealth disparity in the society, has shattered the American Dream”. The American Dream basically depend on the myth that as a nation we are moving together toward greater prosperity, greater equality, which any hard worker can achieve without any discrimination. But unequal income distribution and inequality in wealth destroyed the level playing field to achieve the American Dream.

If we consider minority groups in the US, during the last four decades, racial income and wealth inequality also have significantly increased. According to the US Census Bureau, in 2009 median Black family income was recorded as 57 percent of median white family income and Hispanic Americans earned 64 percent of median white family income. Today, minorities like Blacks and Hispanics are more than four times likely to be poor as whites. During the 1960s it was widely assumed that ending the discrimination would improve the economic as well as legal status of minority groups. Over the course of the 1960s and 1970s substantial numbers of black families moved into the middle class, and even into the upper middle class; the percentage of black households in the top 20 percent of the income distribution nearly doubled. However the Black families’ American Dream was disturbed after Second World War period.

Around 1980 the relative economic position of blacks in America stopped improving because income disparities in the United States began to widen dramatically, turning America into a society more unequal than at any time since the 1920s. Nobel prize-winning economist Paul Krugman described adversely affecting black economic progress in two ways: “First, because many blacks were still on the lower rungs, they were left behind as income at the top of the ladder soared while income near the bottom stagnated and second, as the rungs moved farther apart, the ladder became harder to climb”. As a minority, Black families have faced the upward mobility hurdle.

Minorities are attracted to the American Dream to success in their lives. Because they strongly believed that any hard working American can achieve the American Dream without racial discrimination. However the growing racial economic gap could destroy the racial economic equality, which is a significant part of the American Dream.

In his famous article, “The Death of Horatio Alger”, Paul Krugman concluded that the American Dream was now simply dead and the American economy didn’t provide any incentives and encouragements for upward mobility.

People would find it extremely difficult to be able to move up in life in order to achieve their dreams, Kruman explained, “The myth of income mobility has always exceeded the reality: As a general rule, once they've reached their 30s, people don't move up and down the income ladder very much.” Alan Krueger, chairman of the president’s Council of Economic Advisers, showed that highly unequal countries have low mobility; the more unequal a society is, the greater the extent to which an individual’s economic status is determined by his or her parents’ status. According to Krueger projections, the America will have even less mobility in the year 2035. He predicted that children, who will be born to lower economic segment, would stick to the same group in their life.

David I Levine, a Berkeley economist and mobility researcher indicated that income inequality is greater in the US compared to European countries and there is a wider disparity between rich and poor parents who can invest in their children. A recent study found that children’s economic backgrounds are a major factor on their school performances in the US rather than in Denmark, the Netherlands or France. He further describes unequal income distribution crisis in the US, “Being born in the elite in the U.S gives you a constellation of privileges that very few people in the world have ever experienced and being born poor in the U.S gives you disadvantages unlike anything in Western Europe and Japan and Canada”.

Manufacturing powers

What are the actual reasons behind the increasing economic inequality, which has shattered the American Dream? The long- term structural economic change may have caused this economic inequality. During the pre-1973 period, America was the world’s largest manufacturer and the world’s number one economic powerhouse. This global position has been increasingly changing during the last four decades. China, Japan, South Korea, India and other new manufacturing powers have posed competition on the US. As a result US manufactures started the “deindustrialization” process, which led to the closing of thousands of US plants and moving the production to countries with a lower labour cost. From 1973 to 1986, 1.7 million US manufacturing jobs were lost to “deindustrialization”. Globalization and technological innovations also pressured the US manufactures to downsize their plants, outsource services and to lay off thousands of US workers. In addition “skill-based technical change”, which demanded new technical skills for manufacturing sectors, also caused job losses and led to higher economic inequalities in the US society. But the US is not only the country faced this “deindustrialization” challenge. While European governments took drastically bold decision to protect their work force but the US right wing policy makers encouraged the job killer “deindustrialization” process without concerning their workforce.

Wrong public policies

Furthermore, the wrong public policies caused drastic economic inequality in the U.S. As Princeton political scientist Larry Bartels, who authored Unequal Democracy, pointed out, economic inequality grew more rapidly during Republican controlled White Houses because of their pro-business public policies. Bartels further argued that the introduction of business influenced public policies of right-wing political groups, which helped create rapid inequalities in 1970’s. The policy makers encouraged deindustrialization, downsizing and other economic restructuring tools without being concerned about the impact on workers’ wages; they supported anti-union policies, which destroyed worker rights and economic justice. They have been campaigning for “reducing the size of government” policy for the last four decades and tax cuts for rich people. These policies threaten the social safety net and dismantle the institutions, supporting low-income people. Hudson argued that the US education system failed to invest in new technological changes. In spite of investing in public education, they drastically cut funds for public education and raised college tuition during the past few decades. This policy had the dramatic impact on minorities and low-income groups where they lost equal opportunity to climb up the social economic ladder. The author argues that a policy of progressive taxation needs to be implemented to reduce inequality in the US society. But the right wing government’s policies gave tax cuts to the wealthiest Americans and put more tax burden on the middle class and low-income groups. The other industrial countries in the world faced similar economic restructuring challenges as the US during the last four decades. Nonetheless, US recorded significant and growing economic inequality compared to other countries, but these countries developed policy decisions to counter inequalities in their societies. They never dismantled their existing social safety and gave economic incentives to local manufactures, investors, who protected their labor force. But the US policy makers failed to ensure that kind of policies to protect their work force.

In his article, The Death of HoratioAlger, Krugman also sharply criticized right wing government policies towards to economic inequality and blocking the upward mobility to hard working Americans. He said “just to close off as many routes to upward mobility as possible, you'd do everything possible to break the power of unions, and you'd privatize government functions so that well-paid civil servants could be replaced with poorly paid private employees”. He further slammed right wing tax policies, which benefitted rich over lower income earners, stating “You’d also try to create tax shelters mainly useful for the rich. And more broadly still, you'd try to reduce tax rates on people with high incomes, shifting the burden to the payroll tax and other revenue sources that bear most heavily on people with lower incomes”. Past Republican governments reduced tax rates both on corporate profits and on unearned income such as dividends and capital gains, so that those with large accumulated or inherited wealth could more easily accumulate even more. The Bush expansion from 2002 to 2007, 65 percent of economic gains went to the richest one percent.

The right wing spending cut policy on education and health sector caused significant damage to upward mobility that cut back on healthcare for the poor, on the quality of public education and on state aid for higher education. This would make it more difficult for people with low incomes to climb out of their difficulties and acquire the education essential to upward mobility in the modern economy. During past four decades upward mobility in the economy and the American Dream has been gradually destroyed by right wing economic and political policies. Krugman concluded his essay by declaring “Goodbye, Horatio Alger, and goodbye, American Dream!!!”

Occupy Wall Street movement

The Occupy Wall Street movement’s “WE ARE THE 99%” slogan and current election cycle slogans perfectly matched with the ground realties of the economic inequalities in the US and the frustration surfaced in Krugman’s article. Actions of the Occupy Wall Street movement surfaced a new discussion about social economic and political inequality in the US. But the majority of policy makers paid a very little attention to this discussion. Right wing stubbornly believes in establishing a social equality by allowing tax breaks to wealthiest Americans, with the expectations of trickling down of benefits to the middle class, a failed policy, aggressively promoted, upon frustrated Americans for yet another election cycle!

Actually, the country needs a real progressive approach to halt fast growing social and economic inequality. We should expand social welfare state, introduce a new public policy focusing on higher wages for all workers and raise the income for the middle class, encouraging unionization and a new progressive programme for fair asset distribution in the US society. If we want to continue with the democratic path, we have to establish social economic equality in the society. To achieve this goal we have to reduce current social and economic inequality, which has risen to an intolerable level. That is the path to realize the American Dream for everybody, not only for the wealthy and affluent. 

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