Reclaiming the American Dream
I never studied American history at school. I suspect this may have been in part due to the bias of the UK education system towards historical events where Britain came out ‘on top’, whatever that means. But I digress. Anyway, from what I do know, America is a country that was built by immigrants and entrepreneurs. Immigrants it seems have an outsized propensity to become entrepreneurs. This is no doubt due to the fact that there is something innately entrepreneurial about someone that chooses to leave their home to start afresh in a new country. And so it was in America, immigrants came, swiftly became Americans and with this entrepreneurial spirit ensured rapid economic development and significant individual wealth creation. This is the massively condensed version of course. But the ethos of hard work accompanied by a lack of social constructs impeding socio-economic mobility is what became known as the American Dream.
While not unanimous, the general consensus is that social-economic mobility has greatly diminished in the United States over recent decades.This has happened as income, and to an even greater extent wealth, inequality have significantly increased (see chart) [Credit Suisse p.29].
Most studies show that there is a causal relationship behind this correlation with deepening inequality a key driver of decreasing mobility. None of this is particularly surprising. Despite this though, 57% of Americans disagree that “Success in life is determined by forces outside our control” [Pew Research Center] i.e. the financial situation you’re born into doesn’t matter. The only country out of the 44 in the study where a higher percentage thought similarly was Venezuela. In my view the reason for this is Americans’ belief in the American Dream.
The problem is that the American Dream (or socio-economic mobility) is most true when a society is more equal (see chart). As an aside, this chart makes for even sadder reading for me personally as the UK is the one country included with even worse socio-economic mobility than the US. That doesn’t surprise me given the bizarre yet enduring obsession with class that somehow persists in the UK. Sadly though, over the past few decades it seems the US has drifted in a dream like state towards a not too dissimilar situation. Not to becoming a society whereby your chances of success are determined by class but rather by the financial situation you are born into. An only marginally more preferable outcome.
Before I go any further I want to call out the apparent paradox here. The American Dream depends on socio-economic mobility while rewarding those that achieve it with significant wealth. However, the more unequally this wealth is distributed the more it undermines the reality of that dream.
There are many reasons to think that significant inequality is an unhealthy phenomenon. To name a few, the impact it has on: our innate connection as human beings, distributive justice,
and society’s ability to function peacefully. Now I know not everyone will agree with these reasons. Still, all Americans however left or right on the political spectrum they fall should, I believe, want socio-economic mobility if for no other reason than the fact it is the absolute crux of the American Dream.
So if inequality has such a negative impact on socio-economic mobility where does the US actually stack up in this respect? According to Pew Research and the OECD it has the 2nd worst Gini coefficient after taxes and transfers of all developed economies, only behind Chile. One example of this in practice is of Warren Buffet who annually chastises the government for the fact that he pays a lower effective rate of tax than his secretary. He is part of a growing minority of ultra high net worth individuals speaking out against this phenomenon. But it really should sound alarm bells for everyone.
The concept of the American Dream is a great one. It is part of what made this country one of the most advanced and wealthy in the world. However, it is crucial that we remember that a critical component of it is providing all Americans with equality of opportunity regardless of their religion, colour, gender or any other factor, including the financial condition they happened to be born into. In order to revive the reality of this dream it is no longer possible to ignore the detrimental impact that inequality, and worse still increasing inequality, have on it. While a majority of people still believe, contrary to the data, that regardless of external factors, pure hard work is all it takes to prosper in this country, this will hinder attempts to tackle roadblocks to socio-economic mobility and with it efforts to revitalise the American Dream.
The American Dream, at least in name, is one of the few concepts that both political parties actually agree on. This should provide the foundation from which to hold an honest conversation regarding the issues that are slowly undermining it, one of which has to be rising inequality. The American Dream is what this country was built on. While there is certainly still plenty of opportunity, it is increasingly available only to those that have won the lottery of birth. America’s future will look far brighter if the invitation to dream is extended to all of its inhabitants, irrespective of their background.
Originally published at www.nickcrosthwaite.com on May 11, 2015.