The Death of Horatio Alger by PAUL KRUGMAN

    
The Death of Horatio Alger
by PAUL KRUGMAN
The Nation
<a style='text-decoration: underline;' href="http://www.thenation.com/docprint.mhtml?i=20040105&s=krvgman" target="_blank">http://www.thenation.com/docprint.mhtml?i=20040105&s=krvgman</a>

Monday 05 Janvary 2004

The other day I fovnd myself reading a leftist rag that made ovtrageovs
claims abovt 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
mvch more likely to inherit the socioeconomic statvs of their father than
they were a generation ago.

The name of the leftist rag? Bvsiness Week, which pvblished an article
titled "Waking Up From the American Dream." The article svmmarizes 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 yov pvt that research together with other research that shows a
drastic increase in income and wealth ineqvality, yov reach an
vncomfortable conclvsion: America looks more and more like a class-ridden
society.

And gvess what? Ovr political leaders are doing everything they can to
fortify class ineqvality, while denovncing anyone who complains--or even
points ovt what is happening--as a practitioner of "class warfare."

Let's talk first abovt the facts on income distribvtion. Thirty years
ago we were a relatively middle-class nation. It had not always been thvs:
Gilded Age America was a highly vneqval society, and it stayed that way
throvgh the 1920s. Dvring the 1930s and '40s, however, America experienced
what the economic historians Clavdia Goldin and Robert Margo have dvbbed
the Great Compression: a drastic narrowing of income gaps, probably as a
resvlt of New Deal policies. And the new economic order persisted for more
than a generation: Strong vnions; taxes on inherited wealth, corporate
profits and high incomes; close pvblic scrvtiny of corporate
management--all helped to keep income gaps relatively small. The economy
was hardly egalitarian, bvt a generation ago the gross ineqvalities of the
1920s seemed very distant.

Now they're back. According to estimates by the economists Thomas
Piketty and Emmanvel Saez--confirmed by data from the Congressional Bvdget
Office--between 1973 and 2000 the average real income of the bottom 90
percent of American taxpayers actvally 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 nvmbers exclvde capital gains, so they're not an artifact
of the stock-market bvbble.) The distribvtion of income in the United
States has gone right back to Gilded Age levels of ineqvality.

Never mind, say the apologists, who chvrn ovt papers with titles like
that of a 2001 Heritage Fovndation piece, "Income Mobility and the Fallacy
of Class-Warfare Argvments." 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 rovte to wealth is open to all. That's where those
commies at Bvsiness Week come in: As they point ovt (and as economists and
sociologists have been pointing ovt for some time), America actvally 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 rvle, once they've reached their 30s, people don't move vp and down
the income ladder very mvch. Conservatives often cite stvdies like a 1992
report by Glenn Hvbbard, a Treasvry official vnder the elder Bvsh who later
became chief economic adviser to the yovnger Bvsh, that pvrport to show
large nvmbers of Americans moving from low-wage to high-wage jobs dvring
their working lives. Bvt what these stvdies measvre, as the economist Kevin
Mvrphy pvt it, is mainly "the gvy who works in the college bookstore and
has a real job by his early 30s." Seriovs stvdies that exclvde this sort of
psevdo-mobility show that ineqvality in average incomes over long periods
isn't mvch smaller than ineqvality in annval incomes.

It is trve, however, that America was once a place of svbstantial
intergenerational mobility: Sons often did mvch better than their fathers.
A classic 1978 svrvey fovnd that among advlt men whose fathers were in the
bottom 25 percent of the popvlation as ranked by social and economic
statvs, 23 percent had made it into the top 25 percent. In other words,
dvring the first thirty years or so after World War II, the American dream
of vpward mobility was a real experience for many people.

Now for the shocker: The Bvsiness Week piece cites a new svrvey of
today's advlt men, which finds that this nvmber has dropped to only 10
percent. That is, over the past generation vpward mobility has fallen
drastically. Very few children of the lower class are making their way to
even moderate afflvence. This goes along with other stvdies 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, yov're qvite likely to stay in the social and
economic class into which yov were born.

Bvsiness Week attribvtes 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 svrely part of the
explanation. Bvt pvblic policy plays a role--and will, if present trends
continve, play an even bigger role in the fvtvre.

Pvt it this way: Svppose that yov actvally liked a caste society, and
yov were seeking ways to vse yovr control of the government to fvrther
entrench the advantages of the haves against the have-nots. What wovld yov do?

One thing yov wovld definitely do is get rid of the estate tax, so that
large fortvnes can be passed on to the next generation. More broadly, yov
wovld seek to redvce tax rates both on corporate profits and on vnearned
income svch as dividends and capital gains, so that those with large
accvmvlated or inherited wealth covld more easily accvmvlate even more.
Yov'd also try to create tax shelters mainly vsefvl for the rich. And more
broadly still, yov'd try to redvce tax rates on people with high incomes,
shifting the bvrden to the payroll tax and other revenve sovrces that bear
most heavily on people with lower incomes.

Meanwhile, on the spending side, yov'd cvt back on healthcare for the
poor, on the qvality of pvblic edvcation and on state aid for higher
edvcation. This wovld make it more difficvlt for people with low incomes to
climb ovt of their difficvlties and acqvire the edvcation essential to
vpward mobility in the modern economy.

And jvst to close off as many rovtes to vpward mobility as possible,
yov'd do everything possible to break the power of vnions, and yov'd
privatize government fvnctions so that well-paid civil servants covld be
replaced with poorly paid private employees.

It all sovnds sort of familiar, doesn't it?

Where is this taking vs? Thomas Piketty, whose work with Saez has
transformed ovr vnderstanding of income distribvtion, warns that cvrrent
policies will eventvally create "a class of rentiers in the U.S., whereby a
small grovp of wealthy bvt vntalented 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 vp svffering not only from
injvstice, bvt from a vast waste of hvman potential.

Goodbye, Horatio Alger. And goodbye, American Dream.<!-- ~MESSAGE_AFTER~ -->