It's not just anecdotes or polls. The most extensive research yet shows that the chances the next generation will get ahead have diminished drastically over recent decades.
Flying under the radar is a recent study from Stanford University economist Raj Chetty and colleagues showing that the economic mobility in the United States has been nearly cut in half since 1940.
Using a sophisticated set of data from the Census Bureau and tax records, the researchers found that the probability of children reaching a higher living standard than their parents was only 50 percent for those born in the 1980s, compared with 92 percent for those born in 1940. The data were adjusted for inflation and other variables.
To be sure, growth in gross domestic product had slowed by the 1980s, but after modeling this in, the study found it wasn’t an adequate explanation. “Together, these simulations show that increasing GDP growth without changing the current distribution of growth would only have modest effects on rates of absolute mobility.”
Harvard economist Lawrence Katz and Princeton’s Alan Krueger offered several responses. “In essence, they characterize five classes of policy interventions to consider: fostering faster productivity growth, raising human capital, raising wages and employment of low-income households, updating taxes and transfers, and making place-based policies to address geographic mobility.”
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The response would certainly not be more tax cuts for the richest, as the Trump administration is proposing. One can also blame the financialization of the economy, the so-called shareholder rights movement, concentration of industries and union busting for the lower mobility. I would love to see the rigorous research that uses Chetty’s methods to bring us up to the 2000s. It wouldn’t be pretty.
Meanwhile, a new Pew Research Center study found that from 1991 to 2010 the middle class shrank more in the United States than in seven Western European nations. In four, including the Netherlands and France, the middle class grew. The decline here was from 62 percent of households to 59 percent.
All of these nations have felt the effects of globalization and some have seen incomes stagnate for most people, as is the case in the United States. The difference: While the European countries have vigorous market economies, they also tend to have more state intervention for the common good. (We have it too, though mostly to benefit large corporations and politically powerful industries).
For now at least, America is doubling down on the policies that have shredded the American dream.
Today’s Econ Haiku:
Nordy’s muddy jeans
Loyal shoppers finding less
Smears an honored brand