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Chronicle of Higher Education
The American Dream sounds like apple pie and motherhood. Everyone is for it.
But when everyone endorses an ideal, whether it's the American Dream, equal opportunity, or justice, you can be pretty sure that they disagree about what the ideal means, and that the appearance of agreement is being achieved by talking past one another.
There are at least two competing versions of the American Dream, and they are not only different but mutually incompatible. Perhaps even more alarming is the fact that they will both need to be reinvented if our children and grandchildren are to inhabit a livable planet.
In one version, this country is the place where anyone who builds a better mousetrap can get rich. To do that, the mousetrap builder will need a lot of help: workers to make the mousetraps, salespeople to put them in the hands of consumers, and security guards to prevent the world from beating a path to the inventor's door and helping themselves. In order to get rich, mousetrap developers will also have to pay their workers far less than they make themselves. Otherwise there won't be enough money left over from mousetrap sales to make the inventor rich.
This version of the American Dream emphasizes individual talent and effort. It favors freedom and opposes government regulation. And it belongs to the Republican Party.
Democrats have another version of the American Dream: Everyone who works hard and behaves responsibly can achieve a decent standard of living. But the definition of a decent standard of living is a moving target. For those who came of age before 1950, it usually meant a steady job, owning a house in a safe neighborhood with decent schools, and believing that your children would have a chance to go to college even if you did not.
True, lots of people who worked hard and behaved responsibly didn't realize this dream. Blue-collar workers were laid off during recessions through no fault of their own, and their jobs often disappeared when technological progress allowed employers to produce more stuff with fewer workers. Still, more and more people achieved this dream between 1945 and 1970, so the Democratic version of the American Dream had broader appeal than the Republican version, in which a smaller number of people could get much richer.
Since the early 1970s, however, all that has changed.
The American economy has been under siege. Real per capita disposable income has continued to grow, but the average annual increase has fallen, from 2.7 percent between 1947 and 1973 to 1.8 percent between 1973 and 2005. Of course, even a 1.8-percent annual increase in purchasing power is far more than the human species achieved during most of its history, and it is also far more than we are likely to achieve in the future unless we do a lot of creative accounting.
What transformed the political landscape was not the slowdown in growth but the distributional change that accompanied it. From 1947 to 1973, the purchasing power of those in the bottom 95 percent of the income distribution rose at the same rate as per capita disposable income, about 2.7 percent a year. Among families in the top 5 percent, the growth rate was 2.2 percent. From 1973 to 2006, however, the average annual increase in the purchasing power of the bottom 95 percent was only .6 percent. The top 5 percent, in contrast, managed to maintain annual growth of 2.0 percent, which was almost the same as what they enjoyed before 1973.
That's a lot of numbers, but what my students at the Kennedy School call the "take-away" is pretty simple: After 1973, when economic growth slowed, America had a choice. We could have tried to share the pain equally by maintaining the social contract under which living standards had risen at roughly the same rate among families at all levels. Or we could have treated the slowdown in growth as evidence that the Democratic version of the American Dream didn't work, and that we should try the Republican version, in which we all look out for ourselves, some people get rich, and most get left behind.
We chose the Republican option.
That formulation is deceptive, of course, because voters did not have a clear choice. Many Democratic politicians accepted the Republican argument that the cure for slower growth was to make markets more competitive and government regulation less onerous. Very few Democrats argued that an adverse shift in the distribution of private-sector earnings was something the government should insure Americans against, like a Mississippi flood or a terrorist attack on the World Trade Center. In that respect the Democrats were very different from the parties of the left in Western Europe, but quite similar to the parties of the left in most other English-speaking countries.
One reason for Anglophone caution about protecting the citizenry from an adverse shift in the distribution of income is that English-speaking economists (which is to say almost all economists, even in non-English-speaking countries) were mostly blaming the rise in economic inequality on what they called "skill-biased technological change." That argument was correct as far as it went, but it didn't go very far and was therefore deeply misleading.
In their new book, The Race Between Education and Technology (Belknap Press/Harvard University Press, 2008), Claudia Goldin and Lawrence F. Katz argue — convincingly, in my view — that demand for skilled workers has indeed risen since 1973. But they also argue that demand for skilled workers rose no faster after 1973 than it had between 1910 and 1973.
What changed was that before 1973, the supply of skilled workers grew at about the same rate as demand, so relative wages were fairly stable. After 1973 the supply of skilled workers grew far more slowly, even though demand kept rising. That imbalance played a significant role in raising inequality, at least between 1975 and 2000.
Between 1940 and 1980, the number of years of school completed by the average worker rose almost one year every decade (actually, .86 years). Between 1980 and 2005, the increase was only half that (.43 years per decade). If you exclude GED's, administrative data indicate that high-school graduation rates have hardly changed since the early 1970s. At the same time, immigration has increased the supply of unskilled workers.
Those changes might not have led to a deterioration of wages and working conditions among unskilled workers if we had tried to protect their livelihoods, but we didn't. Congress and presidents let the minimum wage lag farther and farther behind inflation from 1981 to 2006. Large employers and the National Labor Relations Board made it harder to organize unions. Weaker unions found it harder to protect their members, and that, in turn, reduced the number of workers who wanted to join.
Again, this is a complicated story, but the take-away is pretty straightforward. Since 1973 both the federal government and the states have made less effort to raise the educational attainment of the young. They have also made less effort to protect the incomes of the less educated.
Why should that be? I'm not sure, but I have a hypothesis. Forty-some years ago, I was attending a White House conference on higher education and ran into Edmund G. (Pat) Brown, who was then governor of California, as we waited for an elevator. I had been studying at the University of California, and I asked him about the university's budget problems.
Brown, a Democrat, said the university always had budget problems when the Democrats controlled the state. Having always thought of Democrats as big spenders and friends of education, I was startled and asked why, just as we reached his floor. His parting answer was (roughly): "Democrats want to spend money on everything; Republicans only want to spend money on highways and the university, where they went and expect to send their children."
I don't know if that hypothesis holds up empirically, but I do think one big reason we have done so little to raise educational attainment since 1973 is that both federal and state budgets are much tighter. We cut the share of the gross domestic product going to national defense from 10 percent in 1959 to 5.5 percent in 1973 to 4.0 percent in 2006. But since 1973, that reduction has been more than offset by the government's increased spending on health care and Social Security. Even expenditures per student on K-through-12 education have risen faster than expenditures per student on higher education. According to the National Center for Education Statistics, expenditures per student in public elementary and secondary schools doubled between 1970-71 and 2000-1, even adjusted for inflation. Real expenditures per student in public colleges and universities rose only 35 percent during that period.
One alternative to keeping young people in school longer might have been to regulate the economy in ways analogous to what Germany, France, the Low Countries, and Scandinavia did to keep wages relatively equal. In truth, though, we would have had to both expand education and regulate the labor market to keep alive the Democratic version of the American Dream. Regulation arouses even more resistance from employers than does taxation. And unlike their European counterparts, American employers usually have something close to a veto over policy changes that don't involve national security.
Employers argue that regulating the market drives up costs and slows job growth. Growth statistics for the past 50 years offer some support for that claim. But since 1970, annual growth has been only about a tenth of a percentage point higher in inegalitarian countries than in egalitarian countries. To be sure, income is not all that matters, and dumb regulations can certainly slow job growth and generate high unemployment. But there is no reason why egalitarian regulations have to be dumb.
In any case, few Democratic politicians think voters would accept that approach to solving the economic problems of the bottom 95 percent, and I think they are right, at least in the short run. In the long run, a concerted effort to revive a Democratic version of the American Dream might change the rhetorical environment, but meanwhile, the Democrats would have to resign themselves to a long period in the wilderness, with no assurance that their strategy would ever appeal to most voters. Few politicians want to take such a risk.
In the long run, moreover, both the Democratic and Republican versions of the American Dream will have to be rethought. They both focus heavily on income and material consumption. The idea that we can keep raising our material standard of living without making most of the planet too hot for human habitation is, I think, mistaken. Even the idea that we have 20 or 30 years to make the necessary adjustments appears wrongheaded.
So I'm afraid reinventing the American Dream really means trying to wean ourselves from the illusion that we all need and deserve more stuff. If we are to survive, we need a different definition of progress. That definition will need to focus on human needs like physical health, material security, individual freedom, and time to play with our children and smell the roses.
I'm not saying that material goods are unimportant. People need food to sustain them, a home in which they can afford to live until they die, and medical advice when they are sick. But I'm not sure people my age (71) need a million-dollar machine to keep us alive another year or two. And I am quite sure that most of us could live without 85 percent of the stuff we buy in places other than grocery stores and gas stations.
An American Dream that doesn't destroy the planet will have to involve a more-equal distribution of basic material goods. It will also have to involve more emphasis on the quality of the services we consume than on the quality of our possessions. Perhaps most important, it will have to involve more emphasis on what we can do for others and less emphasis on what we can get for ourselves.
There is just one small problem. I have no idea how to get from here to there. That makes me a pessimist.
Christopher Jencks, professor of social policy
"So I'm afraid reinventing the American Dream really means trying to wean ourselves from the illusion that we all need and deserve more stuff. If we are to survive, we need a different definition of progress. That definition will need to focus on human needs like physical health, material security, individual freedom, and time to play with our children and smell the roses."