The American Dream is arguably an amorphous concept, but it is certainly rooted in the basic promise of “life, liberty and the pursuit of happiness” and has been a driving force in the evolution of the American way of life. It is embodied in the mythology of Horatio Alger, whose “rags to riches” stories have inspired generations of poor and working-class people to strive for upward mobility. American history is filled with amazing true stories of natural-born citizens and immigrants alike who have pulled themselves up by their own bootstraps and made a better life for themselves, and bestowed a higher standard of living than they had to their children.
A report from the U.S. Treasury entitled “Income Mobility in the U.S. from 1996 to 2005” has been touted by some as proof that the Horatio Alger myth is alive and well.
From the report:
“Economic growth resulted in rising incomes for most taxpayers over the period from 1996 to 2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups.”
The data does seem to show that a majority of Americans have moved up, but what of those who see no improvement in their lives, or who fall through the cracks? Are they merely the collateral damage of a thriving capitalist economy, the lazy bums who just didn’t try hard enough?
Looking at the bottom quintile, we see that 55% remained within that same income bracket, the lowest level of mobility of any group on the chart besides the top 20%. More people in the middle class moved down into the lower income brackets (34.2%) than moved upward (31.7%), even slightly more than remained in the middle (34.1%). While according to this data, many Americans’ lives improved in those ten years, many others saw stagnant or declining incomes. Is it still the American Dream if it’s only accessible to a fraction of the population, and one that is disproportionately white?
More importantly, we have to look at the findings of the report with a critical eye. The Bush Treasury fudges the numbers to imply that poor people did generally better than rich people during this decade. On November 17, 2004, Berkshire Hathaway CEO Warren Buffett explained that in reality the richest 400 Americans have seen an increase in collective wealth of 700% from 1987-2007, while the increase in wages for the average American barely kept pace with the increase in the core CPI (Consumer Price Index) – an index that does not include costs of food and energy.
The conservative think-tank known as the Heritage Foundation, attempting to prove that “a rising tide lifts all boats,” points out that the current definition of “poverty” in America includes many comforts unknown in the third world, or even in the United States just a few generations ago. It’s true that we have made a great deal of progress with poverty in America, and even a person making only $15,000/year is in the top 12.25% of the richest people in the world. But there’s an important point worth noting in that same article:
“Today, the expenditures per person of the lowest-income one-fifth (or quintile) of households equal those of the median American household in the early 1970s, after adjusting for inflation.”
The implication is that the bottom 20% today are doing as well as the middle-class of the 1970’s, but what’s being discussed is expenditures. What they don’t mention is that these expenditures are outpacing income, and therefore are increasingly paid for with money borrowed – often at usurious rates.
“Credit is a dual-edged sword. Access to credit gives low income families a private safety net when something goes wrong. It means they can put groceries on the table even when they don’t have a paycheck this week. But that safety net comes at an extraordinary cost. The credit itself can end up sinking them financially.” – Harvard law professor Elizabeth Warren
As debt piles up, low income families find themselves in a downward spiral. The poor and working class pay more in interest and late fees, payday loans, overdraft and NSF bank charges, and are even more likely to be audited by the IRS. We’ve allowed both the public and private financial sector to create a new form of indentured servitude, a wage slavery.
Further, the poor are more likely to rent or take out ballooning adjustable-rate mortgages, pay more in “sin taxes” on things like tobacco and alcohol, and are less likely to be able to acquire health care or higher education at affordable rates.
If you’re utterly devoid of compassion, consider the cost to you. All of society pays for poverty, not just in the sense of being taxed to provide a public safety net. The costs of increased crime, drug addiction, poor nutrition and lack of education in low-income communities affect even the most affluent, if only in higher taxes for police, prisons, and entitlements.
The prevailing theory for too long has been that more wealth at the top necessarily means more wealth at the bottom. It is true that the economy is not a finite pie, wealth is created, but what we need to understand is that in the same way that rich people’s wealth can create jobs, wealth among the poor, working and middle class drives the engine of demand and consumer spending. Supply-side economics is a nothing but a Trojan Horse for a massive upward redistribution of wealth – without enough demand, everything stops.
There’s a lot we can still do. A few simple suggestions:
- Balance food production subsidies to improve nutrition. Corn subsidies have helped the price of soda fall 30% over the last 25 years, while the price of fruit has risen 50% – there’s no way that can be good for the poorest Americans’ health.
- Provide financial education to increase savings and investment. All children should be required to have a basic competency of budgeting and financial planning by the time they are old enough to enter the workforce (16 or so).
- Return to community banking, restoring the focus of wealth from corporations to individuals and small businesses.
- Modernize banking regulations. In the age of “exotic options,” we can’t still rely on Depression-era regulation to keep the markets in check.
- Invest more money into a social safety net; health care, education and the kind of temporary assistance that is excellent short-term economic stimulus to boot.
- Person-to-person lending and micro-lending are rapidly proving to be the wave of the future, and deserve greater public awareness.
Most important of all, get involved, and prove you love your country and your fellow man with blood, sweat and tears – not just lip-service.
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