Is the American middle class doing well economically?
Belief in the American dream is struck. The election of Donald Trump as US President is interpreted by many scholars as the revenge of the suspended, who are bitter that income inequality has increased since the financial crisis began in 2008. Despite good economic figures, most American workers and large parts of the middle class feel that their standard of living is stagnating while the situation of high earners has quickly recovered.
Two considerable studies on the development of income and wealth in the USA now show that this feeling is no coincidence. The authors paint a comprehensive picture of social inequality, which did not only worsen with the recent economic crisis, but has been growing for generations. Six scientists from Stanford and Harvard wrote "The Fading American Dream" on their paper, the fading American dream.
What is meant is the dream of a country in which life should be "better and richer and fuller" for everyone, as the American journalist James Truslow Adams put it in his 1931 book "The Epic of America". This belief that anyone - if they work hard enough - can make it to the top has held the United States together from the start. In the decades following the Great Depression, that dream became a reality. Unusually strong economic growth improved the standard of living for all Americans, whether they were rich, poor, or middle class. 92 percent of all children born in an average household in 1940 earned more at 30 than their parents earned at 30. Even the children who did not succeed in doing this were often doing well: they were not infrequently raised in a wealthy household, the father was a board member in a company and worked as doctors, lawyers or professors themselves.
40 years later, the promise of advancement no longer applies to everyone: only half of the children born in 1980 later earned more than their parents. "Basically, a coin toss decides whether you are better off than your parents," says Raj Chetty, economics professor and one of the study authors. Almost 80 percent of those born in 1950 managed to exceed their parents' wealth. Around 60 percent of the generations born in 1960 and 1970 still realized their hopes for a better life. The American dream is actually fading. The chance of participation and happiness is no longer the same for all Americans. Given these numbers, it should come as no surprise that frustration has gradually built up over many years and decades.
Thanks to the new data, one can follow the development of families
The dates are a bit of a sensation. Despite all the statistics available to scientists today, it has not yet been possible to measure how many Americans are wealthier than their parents. To do this, the researchers would have to accompany individual families over many decades and meticulously collect all their economic data. The breakthrough came when Chetty and other economists gained access to millions of anonymized tax data spanning several decades a few years ago. Now it was finally possible to compare the generations with one another. Income was considered, adjusted for inflation, taxes and state transfer payments.
Not only does the data provide a fresh look at the economic and social situation in the United States, it also shows how Adam's dream could be revived. So what would have to be done so that more people succeed in ascension. Anyone who thinks that stronger economic growth alone will solve the problem will be disappointed. Even more decisive than a strong increase in gross domestic product is the question of how the growing prosperity is distributed.
To find out, the scientists calculated two scenarios for the 1980s, the 37-year-olds today. In the first scenario, they assume economic growth will be as high as in the 1940s and 1950s - with the same distribution of what has been achieved across the various income groups as in 2010. In this case, the rate of those who earn more than their parents rises from 50 to 62 Percent. In the second scenario, it was assumed that economic output will be distributed across the various income classes as in 1940, i.e. much more evenly than today - while economic growth remains at the comparatively low level of 2010. In this case, the rate of climbers increases from 50 to 80 percent.
So it is less a question of growth than of the distribution of the prosperity achieved, if one wants to keep the promise of the ascent of the hardworking and able in the present. A study by Thomas Piketty, Emmanuel Saez and Gabriel Zucman also shows how much inequality has increased in the USA. The scientists not only looked at income, but also the effects of taxation, social expenditure and income from capital investments. Result: The share of the poorer earning half of the American population in national income has remained at around 16,000 dollars (before taxes) since 1980. The income of the lower classes has stagnated for two decades.
In the same period, the average American increased its share by 60 percent to $ 64,500, while the one percent of top earners increased their slice of pie from $ 420,000 to $ 1.3 million. As a result, the national income is distributed more unevenly in 2014 than in 1980: the proportion of the population with poorer income shrank from 20 to twelve percent, while the share of one percent of top earners in national income jumped from twelve to 20 percent.
State redistribution has remained largely ineffective
Even if taxes and social benefits are taken into account, surprisingly little changes in this picture. State redistribution remains largely ineffective. According to economists, the most important reason for the increasing inequality of recent times is the rapid increase in capital income since the late 1990s, which benefited above all the top earners with large stock and pension accounts.
The new studies once again shake the myth of the social permeability of American society. In the United States, work is no longer a guarantee of prosperity and justice, as Adams had thought.
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