Higher inequality of wages and opportunity aren't just aren't just the new reality of the U.S. economy. They were the old reality, too.
FROM THE ATLANTIC | JULY 26, 2013
In a major speech this week on the economy, President Obama emphasized that while the United States has recovered substantial ground since the crisis of 2008-2009, wide swaths of the middle class still confront a challenging environment. Above all, the past years have eroded the 20th century dream of hard work translating into a better life.
As Obama explained, it used to be that "a growing middle class was the engine of our prosperity. Whether you owned a company, or swept its floors, or worked anywhere in between, this country offered you a basic bargain -- a sense that your hard work would be rewarded with fair wages and decent benefits, the chance to buy a home, to save for retirement, and most of all, a chance to hand down a better life for your kids. But over time, that engine began to stall." What we are left with today is increased inequality, in wages and in opportunity.
The assumption is that this is unequivocally a bad thing. There have been countless stories about the "death of the American dream," and Detroit's bankruptcy last week was taken as one more proof. Yet lately the unquestioned assumption of a better future based on hard work has not served America well. If anything, today's version of that dream has been the source of complacency rather than strength, and its passing may be necessary in order to pave the way for a constructive future.
But you wouldn't know that from the president's speech and from continued news stories and academic studies. The inequalities of opportunity were underscored by a recent study that was brought to national attention by the New York Times this week that showed wide variations in income mobility depending on what part of the United States you live in. Those who live in metropolitan areas, as well as those with more higher education and wealthier parents, have significantly more upward mobility than many in rural areas.
The wage stagnation for tens of millions of working Americans over the past decades combined with the financial crisis has been painful and even calamitous for millions. In truth, however, the middle class security that has now disappeared only existed for a very brief period after World War Two, when the United States accounted for half of global industrial output and achieved a level of relative prosperity and growth that was substantially higher than in any other country. Before the Great Depression and World War Two, there was no assumption in the 17th, 18th or 19th centuries that the future would be inherently better for one's children.
As for income inequality, that is hardly a new issue. The presence of inequality in the past did not impede economic growth. After the American Revolution, income inequality began rising sharply along with economic growth. And it continued to rise well into the early 20th century, when more people became rich and even more people became mired in a level of poverty that does not exist today. Inequality then wasn't a barrier to mobility. If anything, it might have been a spur. Seeing how the Robber Barons of the Gilded Age lived provoked both the reforms of the Progressive Era and the ambitions of millions of immigrants and citizens who wanted a better life and saw that one was possible
Before the mid-20th century, the American dream was that if you worked hard you had the potential to craft a good life. You could be free from repressive government, and you could be able to watch your children do better via education and their own hard work. That potential was absent in other societies, and its presence -- along with tens of millions of acres of unclaimed land -- was what drew so many millions of immigrants.
In short, the equation of American economic success until the mid-20th century was not that if you worked hard you would have a stable material life. It was that if you worked hard, you could create such a life. The difference is not semantic; it is fundamental, and for Obama and many, many others, it has become blurred. The equation articulated by Obama and likely shared by a significant majority of Americans is that if you work hard, you should receive economic security and see the same for your children. The flip side of that theory is that if you don't gain economic security, something is wrong with the system, and government has a responsibility to provide when that system fails.
The belief that something is a given simply by birthright is never a formula for long-term strength. Yet at some point in the last half of the 20th century, the American dream morphed from the promise that you could realize a comfortable life, to a promise that being American meant you would and should realize that. Hence the feeling, held by so many, that promises have been betrayed and the system is broken.
In truth, the passing of that false certainty is a positive. Urgency and uncertainty are not negatives, at least not inherently. They can provide the necessary fuel for ambition and for creativity and work. Urgency and uncertainty were the norm in the late 19th century and look what those produced in America: the very power and prosperity that catapulted the country to the center of the globe.
The United States, like many affluent nations, has reached a juncture where the model that succeeded is not likely to be the model that will succeed going forward. 19th century agricultural societies gave way to 20th century industrial ones, and 20th century industrial ones are giving way to 21st century service and idea economies. None of that happened without significant pain and disruption. Nor is our transition today without substantial pain for many.
Government can and should be active in providing basic security for those disrupted by these changes. But the contract that has now been broken did not actually serve America well. It served the post-war generation and their children, but it does not serve a United States now embedded in a world where other societies are providing the same potential that the United States did two centuries ago when that was extremely rare.
What's needed is a sense the United States is a place where dreams can be made manifest, not that it is a place where everyone will be safe and secure. America remains a place where hard work and ambition and creativity can translate into a good life. It is not a place where hard work and ambition are guaranteed to yield results. And if we want a vibrant, pulsing society in the 21st century, the passing of that version of the American dream is not something to be mourned. We've reached the end of complacency, and not a moment too soon.