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CLASS FEATURE JANUARY 5, 2004 ISSUE
By Paul Krugman
DECEMBER 18, 2003
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The Death of Horatio Alger
Our political leaders are doing everything they can to fortify class
inequality.
The other day I found myself reading a leftist rag that made
outrageous claims about America. It said that we are becoming a
society in which the poor tend to stay poor, no matter how hard
they work; in which sons are much more likely to inherit the
socioeconomic status of their father than they were a generation
ago.
The name of the leftist rag? Business Week, which published an
article titled “Waking Up From the American Dream.” The article
summarizes recent research showing that social mobility in the
United States (which was never as high as legend had it) has
declined considerably over the past few decades. If you put that
research together with other research that shows a drastic increase
in income and wealth inequality, you reach an uncomfortable
conclusion: America looks more and more like a class-ridden
society.
And guess what? Our political leaders are doing everything they can
to fortify class inequality, while denouncing anyone who
complains–or even points out what is happening–as a practitioner
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of “class warfare.”
Let’s talk first about the facts on income distribution. Thirty years
ago we were a relatively middle-class nation. It had not always been
thus: Gilded Age America was a highly unequal society, and it stayed
that way through the 1920s. During the 1930s and ’40s, however,
America experienced what the economic historians Claudia Goldin
and Robert Margo have dubbed the Great Compression: a drastic
narrowing of income gaps, probably as a result of New Deal
policies. And the new economic order persisted for more than a
generation: Strong unions; taxes on inherited wealth, corporate
profits and high incomes; close public scrutiny of corporate
management–all helped to keep income gaps relatively small. The
economy was hardly egalitarian, but a generation ago the gross
inequalities of the 1920s seemed very distant.
Now they’re back. According to estimates by the economists
Thomas Piketty and Emmanuel Saez–confirmed by data from the
Congressional Budget Office–between 1973 and 2000 the average
real income of the bottom 90 percent of American taxpayers
actually fell by 7 percent. Meanwhile, the income of the top 1
percent rose by 148 percent, the income of the top 0.1 percent rose
by 343 percent and the income of the top 0.01 percent rose 599
percent. (Those numbers exclude capital gains, so they’re not an
artifact of the stock-market bubble.) The distribution of income in
the United States has gone right back to Gilded Age levels of
inequality.
Never mind, say the apologists, who churn out papers with titles
like that of a 2001 Heritage Foundation piece, “Income Mobility
and the Fallacy of Class-Warfare Arguments.” America, they say,
isn’t a caste society–people with high incomes this year may have
low incomes next year and vice versa, and the route to wealth is
open to all. That’s where those commies at Business Week come in:
As they point out (and as economists and sociologists have been
10/4/2018 The Death of Horatio Alger | The Nation
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pointing out for some time), America actually is more of a caste
society than we like to think. And the caste lines have lately become
a lot more rigid.
The myth of income mobility has always exceeded the reality: As a
general rule, once they’ve reached their 30s, people don’t move up
and down the income ladder very much. Conservatives often cite
studies like a 1992 report by Glenn Hubbard, a Treasury official
under the elder Bush who later became chief economic adviser to
the younger Bush, that purport to show large numbers of
Americans moving from low-wage to high-wage jobs during their
working lives. But what these studies measure, as the economist
Kevin Murphy put it, is mainly “the guy who works in the college
bookstore and has a real job by his early 30s.” Serious studies that
exclude this sort of pseudo-mobility show that inequality in average
incomes over long periods isn’t much smaller than inequality in
annual incomes.
It is true, however, that America was once a place of substantial
intergenerational mobility: Sons often did much better than their
fathers. A classic 1978 survey found that among adult men whose
fathers were in the bottom 25 percent of the population as ranked
by social and economic status, 23 percent had made it into the top
25 percent. In other words, during the first thirty years or so after
World War II, the American dream of upward mobility was a real
experience for many people.
Now for the shocker: The Business Week piece cites a new survey of
today’s adult men, which finds that this number has dropped to
only 10 percent. That is, over the past generation upward mobility
has fallen drastically. Very few children of the lower class are
making their way to even moderate affluence. This goes along with
other studies indicating that rags-to-riches stories have become
vanishingly rare, and that the correlation between fathers’ and sons’
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incomes has risen in recent decades. In modern America, it seems,
you’re quite likely to stay in the social and economic class into
which you were born.
Business Week attributes this to the “Wal-Martization” of the
economy, the proliferation of dead-end, low-wage jobs and the
disappearance of jobs that provide entry to the middle class. That’s
surely part of the explanation. But public policy plays a role–and
will, if present trends continue, play an even bigger role in the
future.
Put it this way: Suppose that you actually liked a caste society, and
you were seeking ways to use your control of the government to
further entrench the advantages of the haves against the have-nots.
What would you do?
One thing you would definitely do is get rid of the estate tax, so that
large fortunes can be passed on to the next generation. More
broadly, you would seek to reduce tax rates both on corporate
profits and on unearned income such as dividends and capital gains,
so that those with large accumulated or inherited wealth could
more easily accumulate even more. You’d also try to create tax
shelters mainly useful for the rich. And more broadly still, you’d try
to reduce tax rates on people with high incomes, shifting the
burden to the payroll tax and other revenue sources that bear most
heavily on people with lower incomes.
Meanwhile, on the spending side, you’d cut back on healthcare for
the poor, on the quality of public education and on state aid for
higher education. This would make it more difficult for people with
low incomes to climb out of their difficulties and acquire the
education essential to upward mobility in the modern economy.
And just to close off as many routes to upward mobility as possible,
you’d do everything possible to break the power of unions, and
you’d privatize government functions so that well-paid civil
servants could be replaced with poorly paid private employees.
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Paul Krugman Paul Krugman, an economics professor at Princeton and a columnist at the New York Times, is the author, most recently, of The Great Unraveling: Losing Our
Way in the New Century (Norton).
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It all sounds sort of familiar, doesn’t it?
Where is this taking us? Thomas Piketty, whose work with Saez has
transformed our understanding of income distribution, warns that
current policies will eventually create “a class of rentiers in the U.S.,
whereby a small group of wealthy but untalented children controls
vast segments of the US economy and penniless, talented children
simply can’t compete.” If he’s right–and I fear that he is–we will end
up suffering not only from injustice, but from a vast waste of human
potential.
Goodbye, Horatio Alger. And goodbye, American Dream.