The American Dream, Quantified at Last
The phrase “American dream” was invented during the Great Depression. It comes from a popular 1931 book by the historian James Truslow Adams, who defined it as “that dream of a land in which life should be better and richer and fuller for everyone.” In the decades that followed, the dream became a reality. Thanks to rapid, widely shared economic growth, nearly all children grew up to achieve the most basic definition of a better life — earning more money and enjoying higher living standards than their parents had. These days, people are arguably more worried about the American dream than at any point since the Depression. But there has been no real measure of it, despite all of the data available. No one has known how many Americans are more affluent than their parents were — and how the number has changed. It’s a thorny research question, because it requires tracking individual families over time rather than (as most economic statistics do) taking one-time snapshots of the country.
The beginnings of a breakthrough came several years ago, when a team of economists led by Raj Chetty received access to millions of tax records that stretched over decades. The records were anonymous and came with strict privacy rules, but nonetheless allowed for the linking of generations.
The resulting research is among the most eye-opening economics work in recent years. You’ve probably heard some of the findings even if you don’t realize it. They have shown that the odds of escaping poverty vary widely by region, for instance, an insight that has influenced federal housing policy.
The index is deeply alarming. It’s a portrait of an economy that disappoints a huge number of people who have heard that they live in a country where life gets better, only to experience something quite different. Their frustration helps explain not only this year’s disturbing presidential campaign but also Americans’ growing distrust of nearly every major societal institution, including the federal government, corporate America, labor unions, the news media and organized religion. Yet the data also helps point the way to some promising solutions.
In the 1980s, economic inequality began to rise, a result of globalization, technological change, government policies favoring the well-off and a slowdown in educational attainment and the work force’s skill level. Together, these forces pinched the incomes of the middle class and the poor. The tech boom of the 1990s helped — slowing the decline of the American dream — but only temporarily.
For babies born in 1980 — today’s 36-year-olds — the index of the American dream has fallen to 50 percent: Only half of them make as much money as their parents did.
How, then, can the country revive Adams’s dream of a “better and richer and fuller” life for everyone? The solution has to involve some combination of faster economic growth and more widely shared growth. The bad news is that lifting G.D.P. growth is terribly difficult. Trump has promised to do so, but offered few specifics. If anything, he favors some of the same policies (deregulation and tax cuts) that have failed in recent decades. The better news — potentially — is that lifting growth is the less important half of the equation, notes Nathaniel Hendren of Harvard, another of the researchers: The rise of inequality has damaged the American dream more than the growth slowdown. One way to think about inequality’s role is to remember that the American economy is far larger and more productive than in 1980, even if it isn’t growing as rapidly. Per-capita G.D.P. is almost twice as high now. By itself, that increase should allow most children to live better than their parents. They don’t, however, because the fruits of growth have gone disproportionately to the affluent.
“We need to have more equal growth if we want to revive the American dream,” Chetty says.
The painful irony of 2016 is that nostalgia and anger over the fading American dream helped elect a president who may put the dream even further out of reach for many people — taking away their health insurance, supporting ineffective school vouchers and showering government largess on the rich. Every one of those issues will be worth a fight. If the American dream could survive the Depression, and then thrive in a way few people imagined, it can survive our current troubles.
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