New Research: American Dream is Mostly Fantasy—Class Matters More

October 6, 2016; Washington Post

Go to school, study hard, get a job and earn a good living—your destiny is in your hands. This is the American dream. But what if what matters most is being born into the right family? When the data says that the gap between rich and poor is growing to historically large levels, this is a very relevant question for political leaders, policy makers and human service providers.

As a nation, the U.S. appears to be much less financially mobile than we might wish. In 2014, economists Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez found “fewer than 10 percent of people in the bottom fifth of the wealth distribution will make it into the top fifth [and] only about 20 percent of people in the middle fifth would rise into the top fifth over the course of their lives.” Moreover, according to the National Bureau of Economic Research, this isn’t a new state of affairs: “Young adults entering the labor market today have roughly the same likelihood of moving up the income distribution ladder relative to their parents as those who were born in the 1970s and entered the labor market two decades ago.”

Prior research had compared children to their parents. The new study, by Joseph Ferrie of Northwestern University, Catherine Massey of the University of Michigan, and Jonathan Rothbaum of the U.S. Census Bureau, was able to look back over three generations. Focusing on educational achievement, the authors concluded, “Any measure of mobility we have is too high. Whatever you thought, it’s worse….If the U.S. were to be a fairly unequal place but also have a lot of social mobility, that might be less worrying for economists, ethicists and others.”

If further research bears out this work, we may need to rethink our approach to poverty. Writing in the Washington Post, Ana Swanson summarized these findings and the challenge they place before us.

Unfortunately, evidence now abounds that this idyllic version of America—a place where men and women can attain their highest potential regardless of the circumstances of their birth—is not one that many Americans experience…If exposure to a good role model is enough to lift educational outcomes in children, that would have very different implications for public policy than if inequality stems from deeper, more intractable reasons.

Lead researcher Thomas Ferrie “cautions that their research does not yet provide clues as to why this is occurring. It could be that grandparents and parents are passing on financial resources, or intangible resources like information and values. Or it could be something else entirely.”

Our tax system, our educational reform efforts, and our economic development policies have all been built on the assumption that the American Dream is alive and well. Our approach to improving the lives of those at the bottom of the economic ladder has been to ensure everyone has an equal opportunity to climb. If jobs are there—even entry-level, minimum wage jobs—they provide a path up. If schools can prepare a child to take one of those jobs, it will have done its job. And if someone does not seize these opportunities, so the thinking goes, they are personally responsible for the quality of their life—however bad it may be.

But if upward mobility is more a matter of financial inheritance, then our policies need to be redirected and may need to focus on closing the gap between rich and poor directly. Finding the cause for this widening gap becomes critical and urgent, as the lives of the rich and the rest continue to move apart.—Martin Levine