A progress report on the American dream

Inequality in our society is on the rise and is also frustratingly difficult to define while no single factor accounts for it.

As the presidential race clamors on and the economy looks dire, economic inequality is an issue always present but often given little attention. America is built around a collective dream of economic opportunity and upward mobility. If you work hard and follow the book, you can get ahead. In essence, America is a meritocracy as much as a democracy. Relatively speaking, Americans are less concerned about wealth distribution than the ability to become wealthy. Why worry about what the rich earn when you have the ability to become one of them?

Dreams always clash with reality. Inequality has risen in America over the decades and has recently created all sorts of political disquiet. Inequality is frustratingly difficult to define, and no single factor accounts for it. (The Democratic candidates cannot even agree on what constitutes the middle class.) Nevertheless, politicians vainly blame foreigners for a homebred problem, focusing on topics like trade and immigration.

American inequality has become ever more complex. Critics argue that inequality is inherently a moral affront, and if a system supports it, then the system is wrong. Insistently, we disagree. If society as a whole is getting wealthier, the poorest receive assistance and everyone has the capability to better themselves, then inequality is not inherently a bad thing. And America has indeed become richer overall, while income distribution has remained fairly stable. America’s rich now earn the same share of overall income, relative to the past, but their share of overall wealth is actually lower. Today, 60 percent of the rich became so from paid work, not inheritance. A century ago, that number was 1 percent.

The government’s policies have largely followed JFK’s adage, “a rising tide lifts all boats.” Average incomes have risen since the turn of the century, officials point out, but that claim is deceptive. Take, for example, four men riding an elevator. If on the next stop Bill Gates gets on, all men are, by average, billionaires. This is an exaggerated metaphor to be sure but still, much of the income divergence cannot be blamed on the government.

Income inequality has not been increasing continuously, but has come in bursts. Since 2000, however, the rich have been seeing incomes rising at a far faster pace than the rest (though the bottom is not falling behind). Until recently the meager rises in the average American’s income was diffused by high house prices that allowed people to borrow large sums of money. Now that the housing market has crashed, incomes are again an issue.

What accounts for this sudden growth in inequality? Trade and immigration are common scapegoats. Neither is the culprit, but that does not stop politicians. The Republican’s fear of immigration comes across as little more than nationalist histrionics. Trade is the favorite target for the Democrats, and they are sounding worryingly protectionist. And when Barack Obama ponders the wisdom in juche, North Korea’s policy of autarky, one is compelled to throw a shoe at the TV.

It is convenient to blame problems on foreigners. The populism espoused by all three candidates is getting annoying, and it is inexcusable that they focus on trade or immigration at the expense of the real problem – education. It is education that shows the American dream to be frayed. Roughly 30 percent of adults have a degree, and drop- out rates have risen as fast as enrollment rates. This relatively low number is partly responsible for income inequality; when there are fewer skilled workers to perform a needed task, wages remain high. The advances in technology widen the gap further. Skilled workers become more efficient and low-skilled workers become less needed as their jobs become automated.

A paper by the Brookings Institute, a think-tank, found that economic mobility has been reduced. A lack of secondary degrees has left some parts of America dependent on a single industry. It is calculated that half of income disparity in America is transferred through generations. Still, parental income is a good indicator of potential success. Certain institutions are much more respected than others. Fewer than 5 percent of Ivy League students come from the bottom of the economic demographic. Rarely are public institutions so respected.

Such a trend should not suggest that college be reserved for only the best and brightest. But it may bring into question the worth of pushing the liberal arts curriculum that so many universities are fond of. Quantitative degrees are better earners than most liberal arts. The skills-based jobs are there, but too few Americans earn the skills to work them. It need not be that way.

America’s economy and education system need some tinkering. Yet the American Dream should not die; for all the current ills, it still offers the best promise for the future. Harvard economists Lawrence Katz and Claudia Goldin have a forthcoming book about how greater education can reduce inequality. Education is the battleground and weapon of choice for America’s economic inequality war. Unfortunately, the topic is not nearly as sexy for politicians as illegal immigration or job outsourcing concerns.

Should money be the measure of equality? Evidence suggests so. Recently, some economists have been writing that overall happiness actually can be attributed to greater wealth because it increases choice in life. And Arthur Brooks, in his book “Gross National Happiness,” suggests conservatives are happier than liberals. Why does any of that matter? Because if the cliché holds true, conservatives vote the way they do because they are already rich.

Those at St. James’ Street welcome comments at [email protected]