Monday, December 12, 2016

How to restore the American dream - and why it might (not?) happen

Economics researchers have quantified the American dream, or, more precisely, they have produced evidence that the American dream has been lost to many Americans. And they know the culprit: income inequality.

The research and results are reviewed in a NY Times op-ed The American Dream, Quantified at Last and reviewed by AZBlueMeanie at Blog for Arizona in Restoring The American Dream Both are good reads and I recommend them to you. I’ll just post a few snippets that give you the flavor of the research findings and related policy issues.

How … can the country revive [the] dream of a “better and richer and fuller” life for everyone? The solution has to involve some combination of faster economic growth and more widely shared growth.

The bad news is that lifting G.D.P. growth is terribly difficult. Trump has promised to do so, but offered few specifics. If anything, he favors some of the same policies (deregulation and tax cuts) that have failed in recent decades.

The better news — potentially — is that lifting growth is the less important half of the equation, notes Nathaniel Hendren of Harvard, another of the researchers: The rise of inequality has damaged the American dream more than the growth slowdown.

One way to think about inequality’s role is to remember that the American economy is far larger and more productive than in 1980, even if it isn’t growing as rapidly. Per-capita G.D.P. is almost twice as high now. By itself, that increase should allow most children to live better than their parents.

They don’t, however, because the fruits of growth have gone disproportionately to the affluent.

The researchers ran a clever simulation recreating the last several decades with the same G.D.P. growth but without the post–1970 rise in inequality. When they did, the share of 1980 babies who grew up to out-earn their parents jumped to 80 percent, from 50 percent. The rise was considerably smaller (to 62 percent) in the simulation that kept inequality constant but imagined that growth returned to its old, faster path.

So what happened in the last election is that those who have the most to gain from a more equitable economy voted in those who have the most to gain from inequality.

The painful irony of 2016 is that nostalgia and anger over the fading American dream helped elect a president who may put the dream even further out of reach for many people — taking away their health insurance, supporting ineffective school vouchers and showering government largess on the rich. Every one of those issues will be worth a fight.

If the American dream could survive the Depression, and then thrive in a way few people imagined, it can survive our current troubles.

But the BlueMeanie observes:

This requires rejecting “Reaganomics,” the trickle-down fantasy that has driven government policy since 1981. Donald Trump and the Tea-Publicans show no signs of wavering from this false economic religion orthodoxy. And the American public has consistently rewarded the very people who are responsible for undermining the middle class and their upward mobility. Like Pogo surmised, “We have met the enemy and he is us.”

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