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The State of the “American Dream”

When we think of the “American Dream” we think mostly in terms of a nice/comfortable single-family house on a quiet street.  But that single-family house is just a symbol of the “American Dream”.  The “American Dream” is a belief that because of our hard work and effort we will have an opportunity to climb that economic ladder to a “better” life and that the next generation will be better off than the last one.  The “American Dream” has been ingrained into our culture and society.  But how real is the “American Dream”?

George Carlin once said:

“It’s called ‘the American Dream’ because you have to be asleep to believe it.”

Harsh, but was he right?  Obviously, the Great Recession (of 2007-2009) has taken its toll on the “American Dream”:

1) 6.9 million jobs have been lost

2) 14.9 million people who are unemployed.

3) 26.4 million people who are underemployed, unemployed, marginally attached and involuntary part-time workers.

4) Real median income dropped 3.6%.  Now, $50,303.

5) An estimated $2 trillion in retirement savings had been lost due to the financial crisis.

6) Mortgage Delinquencies and foreclosures have hit record highs.

The devastating impact of and the destruction of wealth resulting from this financial crisis sets families back years possibly decades.  But despite this bad economic news we are still working hard as shown by the increase in labor productivity.  What do we have to show for our hard work? How about more debt:

(HT: LA Times - Tom Petruno)

But what about before this Great Recession?  What was the status of the American Dream prior to 2007? 

Remember, if we work hard we have an opportunity to climb that economic ladder to a ‘better’ life.  But that was not happening.  We were (and continue) working harder but, again, our efforts were not rewarded with an increase in income which is necessary to move up the ladder:

This graph shows labor productivity compared to real median income.  Notice that around 1980 the gap between productivity growth and real median income growth begins to grow.  So, how can people achieve that American Dream and improve their quality of living when their incomes are not increasing enough to save or invest?  This separation between productivity growth and income growth was intentional and a direct result of policy changes that started in 1980’s.

The American Dream is about economic mobility for a family and future generations.  In February 2008, The Brookings Institute published a very interesting report about economic mobility in the U.S.: Getting Ahead or Losing Ground: Economic Mobility in America.  Here are some the key findings:

• Two out of three Americans have higher incomes than their parents, while one-third are falling behind. Compared to their parents, they also live in families that are smaller and where there is more often a second earner.


• One’s economic position on the income ladder in adulthood is heavily influenced by that of one’s parents.  Children born to parents with income on the bottom rung of the ladder are highly likely (42 percent) to also be in the bottom rung in adulthood, while those born to parents on the top rung are very likely to stay at the top (39 percent).


• One-quarter of all Americans (27 percent) are riding the tide – making more than their parents’ income but remaining on the same income rung as their parents. A small number (5 percent) are falling despite the tide, making more than their parents‟ family income, but slipping to a lower rung. The remaining (33 percent) are downwardly mobile, making less than their parents and falling down the income ladder.


• For most of our history, Americans have experienced rapid economic growth and therefore upward absolute mobility. Over the last generation, however, economic growth has slowed without evidence of an offsetting increase in relative mobility.


• In every income group, blacks are less likely than whites to surpass their parents’ family income and more likely to fall down the economic ladder. These trends are particularly startling for children born to middle income black parents – the analysis suggests that black parents who achieve middle income status are not able to pass their economic advantages onto their children in the same way as white parents.

Much of the income gains of the current generation are a result of a second earner in the household - that is right women:

Men’s earnings have grown little, if at all; but women have entered the labor force in record numbers and their earnings have risen along with their greater involvement in the work world. So, yes, today’s families are better off than their own parents were in the late 1960s or early 1970s. But they are also working more and struggling with the greater time pressures of juggling work and family responsibilities.

This quote sums it up:

Many members of the middle class are only one earner away from poverty.

George Carlin was right.

We have to stop this blind faith in our economic system.  We are operating in what is quickly becoming a caste system.  We tolerate huge income inequality and economic immobility because of this blind faith in the American Dream.  This “we” definitely includes policy makers.  In order to improve our situation we have to start by questioning long held beliefs such the American Dream.

Good luck.