Despite what the skeptics say, the American dream is alive and well.
Friday’s bipartisan Cassandra caucus included Democratic senators Bernie Sanders (“Our standard of living has fallen”) and Elizabeth Warren (“The rich get richer while everyone else falls behind”) and Republican senators Marco Rubio (“We have been left with an economy and a society no one is happy with”) and Josh Hawley (“Over the last several decades, inflation- adjusted wages for the working class have barely budged”). The caucus says America’s economy is primarily producing disappointment, even misery. This narrative is largely false, yet can be self-fulfilling.
Fortunately, Michael Strain’s just- published The American Dream Is Not Dead (But Populism Could Kill It) is an inoculation against politically motivated misinformation. Strain, of the American Enterprise Institute, acknowledges that many towns damaged by automation and globalization are struggling, “But most towns are not former manufacturing towns.” Since September 2010, the last month with a net job loss, the American economy has added an average of about 200,000 jobs per month, and today there are more job openings than unemployed workers, which is one reason wage growth is accelerating and already is over three per cent. For the bottom 10 per cent of earners, weekly earnings have grown 20 per cent over the past four years. The unemployment rate for workers without even high- school diplomas is further below its long- term average than is the rate for college-educated workers.
Hawley says 70 per cent of Americans — those with neither family wealth nor four- year college degrees — “haven’t seen a real wage increase in 30 years.” Wages for typical workers, Strain says, have risen 34 per cent over the past three decades. Using the personal consumption expenditures price index as a more accurate measure of inflation than the consumer price index, wages increased by 21 per cent between 1973 and 2018, and 34 per cent in 30 years. In this period, Strain says, wages for the 10th percentile have increased 36 per cent, for the 20th percentile 34 per cent, for the 30th percentile 29 per cent. The picture is brighter still when the focus is broadened beyond wages to include, for example, employer-provided health care, which is untaxed compensation.
The Congressional Budget Office calculates “income after taxes and ( government) transfers” which is income available to save and spend. Since 1990 it has increased 44 per cent for the median household, for the bottom 20 per cent it has increased 66 per cent. Furthermore, Strain says, the gap between rich and poor “has stopped growing and might even be declining.”
The argument that the typical household’s and individual’s quality of life has not improved for decades, says Strain, “borders on the absurd.” Leave aside the vast but difficult-to-quantify product quality improvements (e.g., cellphones before and after smartphones; automobiles in 1990 and 2020).
Between 1983 and 2016, the median net worth for an American family increased from approximately $52,000 to $97,300.
It is true, Strain says, that “employment in middle- skill, middle- wage occupations has been shrinking” as robots have replaced some manufacturing workers, ATMS have replaced bank tellers, software has replaced bookkeepers. Yes, between 1967 and 2018 the portion of households in the middle fell from 54 per cent to 42 per cent — but the share of low-income households ( earning less than $ 35,000, measured in constant dollars) also fell from 36 per cent to 28 per cent, and the share of households earning over $100,000 has tripled, from, 10 per cent to 30 per cent.
Upward mobility remains real. About seven out of every 100 Americans raised in the bottom 20 per cent reach the top 20 per cent. Seventy- three per cent of Americans in their 40s have higher ( inflation- adjusted) family incomes than their parents had, including those raised in the second quintile of income distribution — the principal target constituency for populists left and right. Two-thirds of children raised in the bottom quintile rise above it in their prime earning years. And more than 60 per cent of the children raised in the top quintile do not remain there.
Strain says “the populist message of economic and social despair” causes diminished expectations: when vociferous members of both parties say Americans are helpless victims of a system rigged by elites, this enervating message dims aspirations and reduces effort in an increasingly risk- averse nation that already is showing reduced restlessness and geographic mobility.
Intellectual trends — including the idea that human agency and personal responsibility are radically attenuated in complex societies — have produced a curdled politics emphasizing victimhood and resentments. These sour preoccupations make people susceptible to the infantilizing temptation of tantrum populism that demands the benefits of economic dynamism with none of its inevitable frictions and dislocations.
It is unfortunate that the Cassandra caucus might prosper politically by misdescribing America’s economic prosperity. It is unforgivable that the misdescription might be self-fulfilling.
THE RICH GET RICHER WHILE EVERYONE ELSE FALLS BEHIND.