RedCeltic
21st December 2003, 18:37
The following is a good article I recently read, I thought I'd share it here...
--------------------------------------------------
[ A revealing article that analyses functional economics (actual practice) in the US that shatters the myth of the so-called "American Dream" ("everyone can become rich in Amerika," "pulling yourself up by your own bootstraps," etc, etc) ... Sorry for the length, but especially read the 2 intro and last 7 paragraphs and be shocked to discover the 'how' and 'why' of Bush, Schwarzenegger, and Republican policies ... james ]
The Death of Horatio Alger
by Paul Krugman
Posted December 18, 2003
<http://thenation.com/doc.mhtml?i=20040105&s=krugman>
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 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 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' 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.
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.
--------------------------------------------------
[ A revealing article that analyses functional economics (actual practice) in the US that shatters the myth of the so-called "American Dream" ("everyone can become rich in Amerika," "pulling yourself up by your own bootstraps," etc, etc) ... Sorry for the length, but especially read the 2 intro and last 7 paragraphs and be shocked to discover the 'how' and 'why' of Bush, Schwarzenegger, and Republican policies ... james ]
The Death of Horatio Alger
by Paul Krugman
Posted December 18, 2003
<http://thenation.com/doc.mhtml?i=20040105&s=krugman>
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 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 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' 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.
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.