Wednesday, November 14, 2007

Just another kick to the myth

The American Dream has been that children have a high probability of doing better than their parents. It is a near foundational myth in American poltiical best emphasized by the Horatio Alger stories that there is inter and intragenerational social mobility as measured by economic mobility. Some of our embrace of this myth may derive from our initial Calvinistic and deterministic morality in which election, goodness and virtue could be discerned by hard work that translated into success. And to someone of my age, it is becoming more and more of a myth.

Ian Welsh at the Agonist flagged this Washington Post article on how well American families are doing today compared to thirty five years ago are doing and it is not a pretty story. Despite amazing productivity increases, median family incomes for prime working age groups are basically flat despite a massive increase in hours worked due to the highly probable additional of female paid work:

Family incomes have grown slightly because the increase in women’s earnings has more than offset stagnant male earnings. Between 1974 and 2004, median
family income for men in their 30s and their families increased by 9 percent
(0.3 percent per year).emphasis is mine

Furthermore, the findings are showing significant nesting. Improving relative position is difficult without significant family support. This means success or lack of success is correlated with initial starting position of one's parents. Throw in the preferential tax treatment of non-labor/non work income, most egregriously the estate tax, and hedge fund carried interest income as a capital gain, this is a good pathway to near hereditary social structures. In most cases people could be stuck where they (relatively) start.

So what does this mean besides Ian's observation that at least a significant chunk of this is the result of a deliberate series of policy choices on taxation, regulation, and spending. Simple --- if one can not afford or achieve graduate level education or find a position in a highly skilled, hard to relocate trade, economics becomes a near zero-sum game with few cooperation incentives. This dynamic worsens due to the higher levels of income and expenditure volatility as people have to devote more of their good years' incomes either paying off bad years or hedging against future downside risk.

This means politics becomes nastier because the side-cutting deals that could previously be made to compensate losers from good policies aren't being made. Screaming bloody murder works, and it was a central insight of Karl Rove that a large minority screaming bloc could gum up the works of everyone else and create a temporary wedge in the American political process... and even after a potentially very good 2008 for Democrats, unless 90% of the population sees economics as a non-zero sum game, the same basic playbook is there for anyone else to use.

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