American Dream? Wham, Bam and Thank you Sham
by, Jun 13 2012 at 09:28 AM (311 Views)
The US is a harvester of poverty. We know that because of the abundance of cross-country analysis, made possible following the development of data sources such as the Luxembourg Income Study. The researcher now has available to him/her rich micro-data that is harmonised and standardised to enable international comparison of income and wealth variable. As an example of this literature, try Smeeding (2006, Poor People in Rich Nations: The United States in Comparative Perspective, Journal of Economic Perspectives, Vol. 20 Issue 1). This notes that: [I]"n most rich countries, the relative child poverty rate is 10 percent or less; in the U.S., it is 21.9 percent. The only country that can compete is the UK, which has a higher rate but has made a substantial push toward reducing child poverty".
The typical “head in the sand” merchant will employ a two fold method to ignore this evidence. First, they will mutter that relative poverty is a Marxist concept and it really only has a practical application to the developing world. For example, folk will crow about how the so-called poor have a car, a computer, an annual holiday and an air conditioning unit. Poverty, according to this view, should be defined as ‘insufficient funds to eat’. A distinction between poverty and a goody-2-shoes general whine about income inequality should be made. Second, they will splutter that the American Dream operates whereby class is irrelevant and the hard worker will succeed. Both arguments therefore stress the importance of referring to mobility, rather than a static account of poverty/income inequality. So does the US do well in the mobility stakes? Can we support the jolliness of the American Dream or is it another myth to add to the ranks of the right wing abuse of economics?
The literature on mobility can be broken down into two aspects: social mobility and intergenerational mobility. Social mobility suggests that individuals face a steeper age-income profile, where over time they are able to escape temporary poverty via rapid income growth. Intergenerational mobility, on the other hand, suggests that there are opportunities available such that sons, grandsons and great-grandsons face increasingly lower risk of suffering daddy’s woeful position in the income distribution. However, once we look at these issues, the available cross-country empirical research remains glum and suggests that the US is actually an underperformer. A pertinent example is Gangl (2005, Income Inequality, Permanent Incomes, and Income Dynamics: Comparing Europe to the United States, Work and Occupations, Vol. 32 No. 2, pp. 140-162). This makes the following remark: "[I]n most of Europe, real income growth was actually higher than in the United States, many European countries thus achieve not just less income inequality but are able to combine this with higher levels of income stability, better chances of upward mobility for the poor, and a higher protection of the incomes of older workers than common in the United States”. A bad start methinks! Another offering, to add to this misery, is provided by Corak (2004, Do poor children become poor adults?, Lessons for public policy from a cross country comparison of generational earnings mobility). The assessment is again depressing reading: "The United Kingdom, the United States, and to a slightly lesser extent France, are the least mobile countries with 40 to 50% of the earnings advantage high income young adults have over their low income counterparts being associated with the fact that they were the children of higher earning parents." Next try the article provided by Blanden et al (Intergenerational Mobility in Europe and North America). This makes the following unfortunate comment: "the extent of intergenerational mobility for sons is lowest in the UK and US, is at intermediate levels for West Germany and is highest for the Scandinavian countries"
Perhaps we should look at something more specific to the US, given the charge that somehow the US experiences economic problems that fortunate Old Europe escapes from? How do a specific immigration population progress in the good ole USA? The American Dream, given problems such as incompatible human capital and weaknesses such as low English proficiency, would predict that second generation Mexican-Americans will flower. However, the evidence suggests otherwise. Livingston and Kahn (2002, An American Dream Unfulfilled: The Limited Mobility of Mexican Americans, Social Science Quarterly, Vol. 83, pp. 1003-1012), for example, finds that"the wage pattern becomes one of steady decline across generations for men, and stagnation or marginal decline across generations for women". The American Dream, in terms of the ability to progress according to work effort and ability, can therefore be condemned as a myth. The US, if anything, apes the uselessness of their class ridden Limey cousins. But am I indulging in a snitch of ignorant and a snatch of naïve in my use of the concept? Could the American Dream reflect something much more specific to the US economy? Why yes! And here’s why…
The origins of the welfare state, in general, can be traced back to two aspects. First, we have failures generated by the evolution of capitalism (i.e. severe inequality, with the extreme example being too little resources going to the low income such that the physical efficiency, and therefore the productivity, of these workers cannot be maintained). Second, we have the pesky rebellious nature of the working classes (i.e. we should give them peanuts in order to eliminate the threat of Bolshevik revolution). Modern labour markets then open up an additional gain. Full employment would ensure the existence of uppity workers that demand a redistribution of available economic rents. Capitalism will therefore naturally find an equilibrium where unemployment continues and worker discipline is maintained. The welfare state supports that process. It is ironically conservative in nature as it supports the status quo and the general income inequalities generated by jolly capitalism. Despite this rationale for the welfare state, the US is notorious in its relatively stingy provision. This, on the face of it, looks irrational. Perhaps the rampant right wingers that inflict this great nation have ensured an under provision of welfare benefits? I suggest not! The answer is in the exact nature of the American Dream. It is neither about social mobility nor intergenerational mobility. The US is characterised by a long tail of low skilled labour such that the majority of the population are condemned to a relatively poor standard of living. The important aspect is then actually the extreme inequalities that exist. Hope, in terms of achieving one of those few high income yielding occupations, keeps the herd in their ‘chewing the cud’ place. The American Dream may be a myth, but it is a myth that ensures compliancy. Whilst high income inequality will normally ensure labour militancy, encouraging the consumerist American Dream ensures that the individual follows a “it could be me” attitude. We do something similar in Britain. We call it the lottery.