with unemployment too high, economic growth too low, and the gap between the rich and poor widening, the American Dream is hurting. Adding to the gloom is the polarization in Washington, where even a simple task like raising the country’s debt ceiling nearly led to economic cataclysm this summer.
Yet the dream lives on for many Americans. Polling earlier this year indicates nearly 7 out of 10 Americans believe they have achieved or will achieve the American Dream. This bedrock devotion to the American Dream presents policy-makers in Washington with a way out of political gridlock, says the Pew Charitable Trust, which launched its Economic Mobility Project four years ago.
Pew assembled a group of Washington think tank scholars from across the political spectrum and asked them to lay out the facts on economic mobility and propose any necessary policy solutions. The project was the brainchild of Pew’s board, which still includes several descendants of Sun Oil Company founder Joseph N. Pew. “They were very aware of and cognizant of discussions around income inequality, but it’s a divisive topic,” says Erin Currier, the project’s manager. “So the question was: How could the organization begin thinking about the American Dream in a non-politically polarizing way? They settled on the frame of economic mobility.”
Given the personalities and ideologies involved, the think tank scholars have come to a striking degree of agreement. Policymakers in Washington who are serious about overcoming the polarization between the parties might want to give the project’s results a look.
Ray Bashara, a senior fellow at the New American Foundation and one of the project’s principals, says the key was framing the discussion properly. Talk about inequality of wealth, he says, and conservatives and liberals retreat to their respective corners. But orient the discussion around economic mobility and the American Dream and suddenly both sides are willing to talk.
“No one had to fight over the term ‘American Dream.’ If we’d talked about poverty or inequality, we wouldn’t have gotten far,” says Bashara. “But talking about economic mobility and the American Dream brought a lot of people together.”
The Pew team began publishing research in early 2008 on the state of class mobility in the United States and has more recently bored down to examine specific problems, such as the mobility gap separating blacks and whites, the economic problems facing the children of single-parent families, and the damage wreaked by the recent recession.
According to Pew’s research, the American Dream is not a myth, but it’s not nearly as vibrant as it should be. One of the more sobering findings: When comparing one generation’s incomes to the next, the United States is less economically mobile than many European countries, including Denmark, Norway, Finland, Sweden, Germany, and France. It is also less economically mobile than Canada.
Much has been made, of course, about the growing gap between rich and poor. The richest 1 percent of Americans now control a quarter of the nation’s annual income and more than a third of all wealth. Those numbers have been growing of late. But the Pew scholars downplay that trend, arguing that greater class stratification might be tolerable if it were also true that the American economy was improving the standard of living for all of its citizens and providing opportunities for the poor to become rich or at least to gain a measure of economic security and comfort.
But a slowdown in economic growth over the last 40 years means that the American Dream vision of upward mobility is in doubt. Indeed, Pew’s research found that while family incomes have risen because more women are working, men in their thirties—typically entering their peak earning years—are making about $5,000 less on average than their fathers did in their thirties, after adjusting for inflation.
The situation is far worse for blacks and women. Black children of the middle and upper middle class are likely to earn less than their parents, while girls born poor are 50 percent more likely than men to remain so as adults, according to Pew’s research.
Such statistics have taken a toll on the American psyche. Earlier this year, Pew found Americans are worried about their finances. Less than a third say their financial situation is “excellent” or “good,” down 23 percentage points from when the Great Recession began in 2007, according to Pew’s poll. And for the first time in years, less than half of Americans believe their children will enjoy a higher standard of living than they do.
Yet it’s Americans’ consistent devotion to the possibility of the American Dream that separates the United States from much of the developed world, says Stuart Butler, one of the Pew project’s principal researchers and the director of the conservative Heritage Foundation’s Center for Policy Innovation.
“If you ask people anywhere in the world, ‘where would you go if you want to succeed in life,’ they’d say the United States,” Butler says. “Are they all wrong, or is there something wrong with the way we measure economic mobility?”
Butler rejects the notion that the sky is falling, but at the same time he’s joined with his left-leaning colleagues on the Pew project to endorse some fundamental changes in the way the government spends what Pew calls the “mobility budget.”
That budget is about $750 billion—equivalent to one of every $5 that the government spends—and includes everything from tax breaks to encourage home ownership to welfare payments to single mothers. All of the scholars agreed that the funds are skewed in the direction of those who need it least.
Consider the many federal subsidies that benefit mostly more affluent Americans: tax breaks for contributions to 401(k) plans and for employer-provided health insurance; the mortgage interest tax deduction for homeowners; and the limits on capital gains tax for home sellers. Pew found that 72 percent of the mobility budget fell into these categories, which benefit mostly the middle and upper classes. By contrast, programs to help the poor, such as welfare, job training, and grants for university students, made up the remainder.
“You look at what we do to encourage mobility and it all goes to the wrong people,” says Butler.
And Butler isn’t the only one willing to cross ideological boundaries. Liberals on the Pew team agreed not to include cherished income support programs in the mobility budget—such as Social Security and Medicare —on the grounds that the proceeds flow almost exclusively to senior citizens, whose prospects for economic mobility are low. Nearly a third of the federal budget now goes to Social Security and Medicare alone and those two entitlements are slated to grow rapidly now that Baby Boomers are retiring.
“An opportunity society is not one that spends most of its public resources on the elderly,” says Isabel V. Sawhill, a left-leaning scholar at the Brookings Institution who was one of Pew’s original researchers. “It’s a society that spends more of its public resources on children and younger families.”
Don’t try telling that to some activist groups in Washington. Last summer, amidst the debate over raising the debt ceiling, left-leaning groups condemned President Obama for considering cuts to Social Security—the president had offered to reduce the rate at which benefit checks grow—and to Medicare. There, the president was willing to raise the eligibility age from 65 to 67. One group, The Campaign for America’s Future, held what it called an “American Dream rally” to protest the proposed cuts.
Conservative activists were just as big defenders of the status quo, refusing to back a deal Obama offered to scrap tax breaks for the wealthy in order to simplify the tax code and lower income tax rates. It was an indication of what stands in the way of some of the proposals by the Pew scholars on how the government should spend and collect taxes.
In a list of more than 25 ideas that Pew released in November 2009, the scholars suggested reorienting the mobility budget to help Americans improve their human, financial, and social capital in dramatic ways. Human capital, the Pew team says, covers everything from prenatal care to higher education. Under social capital, the scholars argue that government should take greater responsibility for ensuring families stay together. As for financial capital, the Pew group says that government should make it easier for lower income people to build nest eggs, with a solid bank account being a prerequisite for upward mobility.
In their proposals, goals of both the left and right are represented, as well as some ideas that will make their activist colleagues shudder.
To improve human capital, for example, Pew recommend both boosting funding for Head Start, the government’s pre-kindergarten program for the poor, and continuing to experiment with school voucher programs.
To improve social capital, Pew suggests eliminating requirements in the welfare program that discourage couples from marrying, as well as new funding for an advertising campaign on the importance of marriage to economic mobility.
To help the poor build up financial capital, Pew makes one of its most far-reaching suggestions: the creation of government-subsidized savings accounts for every newborn. The government would provide tax breaks and matching funds to encourage parents to put money into the accounts and the money would be invested in a structured savings plan like the retirement program for federal employees, the Thrift Savings Plan.
Sound far-fetched? Six years ago, a bipartisan group of senators, including Democrat Charles Schumer of New York and Republican Tea Party favorite Jim DeMint of South Carolina, introduced legislation to create such an entitlement.
The Pew scholars say they’re hopeful only because Americans believe so strongly in the idea of the American Dream. If some changes in the way government spends its money are sold as a way to bolster it, conservatives and liberals might be willing to sacrifice some of their sacred cows.
“I think that behind closed doors politicians understand some compromises are going to have to be made,” says Richard Burkhauser, a principal on Pew’s team and a visiting scholar at the right-leaning American Enterprise Institute. “One of the advantages we had because we’re not running for office is that we could acknowledge the tradeoffs.”