Decline of Upward Economic and Social Mobility in the U.S.

The American Dream and the Mobility Gap

One of the most fundamental and defining elements of the American way of life in the modern age has been the belief that economic and social mobility are possible for every individual and family. Regardless of a person's heritage or the economic circumstances of his or her birth, there has always been the perception that hard work and education would pave the way to a better life than the one in which the individual started out. According to economic columnist Rana Foroohar's November 14, 2011 article "What Ever Happened to Upward Mobility?" (Time, Vol. 178, No. 19: 26–34), upward economic mobility is no longer a reasonably likely possibility for most Americans who are not already part of the middle class.

More specifically, Foroohar explains that an American born in 1970 to parents in the bottom two-fifths of the socioeconomic spectrum had only a 17% chance of making it into the top two-fifths of that same spectrum as an adult. As a result, many European nations that have traditionally been less upwardly mobile than the U.S. are now more upwardly socioeconomically mobile than American society. Whereas the U.S. led the world in upward socioeconomic mobility from the end of the Great Depression through the rest of the 20th century, today countries such as Australia, Britain, Canada, Denmark, France, Germany, Norway, and Sweden are all more socioeconomically mobile than contemporary America.

For example, Foroohar presents the statistical finding that 42% of Americans whose parents are in the bottom two-fifths of the earning curve will remain there throughout their lives. By contrast, the probability of remaining at the same socioeconomic level for individuals born in Denmark and Sweden is only 25%, and for individuals in similar circumstances in Britain it is only 30%. These comparisons suggest that the American Dream of intergenerational advancement is increasingly difficult to achieve in practice.

Foroohar offers an explanation that includes several different causes for this ongoing change in the socioeconomic landscape of American society. First, the concept of social mobility encompasses a complex set of factors and includes a perspective element that accounts for much of the reason most Americans do not consider themselves wealthier than their parents were at comparable ages — even though two-thirds of Americans who are 40 years old today have higher incomes than their parents did at the same age after adjusting for inflation. In that regard, principles of behavioral economics suggest that it is human nature to assess one's own fortune by comparison to the fortune of others. In principle, this may be an inherent weakness in the American emphasis on upward socioeconomic mobility: if everyone becomes middle class, nobody appreciates the achievement as much as within a society where comparatively fewer can reach the same status. However, Foroohar also provides a more empirical, macroeconomic explanation for the decline in American upward mobility.

The Rise of Finance and Its Macroeconomic Consequences

The first cause of the decline of socioeconomic upward mobility in America identified by Foroohar was the "rise of the money culture" during the 1980s and 1990s, in conjunction with the simultaneous deregulation of the banking industry during that period. Foroohar describes the evolution of a "winner-take-all" American economy in which the financial sector grew out of proportion to the rest of the economy. As salaries within the financial services sector ballooned, the middle and lower classes saw no gains from that ever-increasing segment of the American economy.

Meanwhile, as finance became the fastest-growing segment of the economy, job growth necessarily slowed as a direct and proportionate result — mainly because the financial services sector does not produce jobs commensurate with its growth. Traditional macroeconomic principles have always linked national economic growth to job production, because the growth of traditional businesses (such as in commercial sales and manufacturing) has always directly stimulated employment. Today, the percentage of the economy represented by the financial sector — which produces no goods or services and does not increase employment proportionally as it grows — amounts to an all-time high of 8% of the American economy.

In principle, this dynamic exposes the continued viability of the American economy to the observations and predictions of the late 18th- and early 19th-century political economist Thomas Malthus. He predicted that unrestricted population growth would result in mass poverty and starvation. The artificial shifting of wealth to the top, in conjunction with the severe reduction in employment opportunities for the middle class, seems to have triggered what Foroohar refers to as "Malthusian" consequences in the U.S.

Conclusion

Rana Foroohar's article highlights the manner in which recent trends in American society have demonstrated classic macroeconomic principles — in relation to the connection between business sector growth and jobs, between technological evolution alongside simultaneously emerging global markets and the loss of middle-class jobs, and between the failure of education to keep pace with technology in the U.S. — and how these forces have combined to severely reduce upward socioeconomic mobility in America. Some of Foroohar's ideas merely document the history and causal connections between changes in American society and their inevitable macroeconomic results. However, other ideas presented by the author — such as the dire need to improve American education and to revise the American tax code — seem to provide the most logical approaches to pulling the American economy out of the hole into which it has fallen over the last several decades.

Reference

Foroohar, R. "What Ever Happened to Upward Mobility?" Time, Vol. 178, No. 19 (2011): 26–34.