I belong to an online University of Nebraska football discussion board because Husker football has long been one of my passions. During the current off-season many non-football posts are allowed. There are actually quite a few smart folks on this board, but also a disturbing number of pseudo-intellectuals who may understand the nuances of a spread offense but are incapable of a coherent thought on public policy. Believe it or not a few days ago someone posted about the recently released 2017 Report on the Economic Well-Being of US Households published by the Federal Reserve Board. The poster focused on one particular troublesome survey conclusion: 44% of American survey respondents said they didn’t have enough savings to pay an unexpected $400 expense.
I knew from previous non-football posts that the average poster on this board did not share most of my political views. I view it as a digital extension of living in South Carolina! But I still naively expected at least a moderately intelligent discussion on the limitations of an economic system that apparently denies almost half of its population the ability to pay a minor unplanned auto repair bill. Much to my surprise the follow-up posts almost immediately turned to a narrative that I hadn’t even contemplated, and the Report itself failed to mention. Here are two representative comments as brief examples:
“The really mind-boggling part of this is the number of people with jobs . . . who are part of this 44%. A lot of people spend every dime they earn (or more) no matter how much they make . . . to show off.”
“I will never get why we teach high level math or other courses before teaching basic personal finance. Teach them about taxes, budgeting, insurance, investments, etc.”
In other words, the almost unanimous explanation for why huge numbers of Americans don’t have $400 to spare was their own personal irresponsibility and/or ignorance, rather than the market system/income inequality cause that immediately came to my mind. Since I know these folks are not morons (ok some are, but certainly not all), I was forced to contemplate what seems to be an increasingly frequent phenomenon: widely divergent ideologically-based explanations (alternative realities?) for the same set of facts.
The underlying and frequently asked question here is why do so many Americans who seem to be consistently losing the economic game nevertheless strongly support the rules and results of the contest? A 2011 series of articles in the New York Times asked it this way: Why do Americans seemed relatively unperturbed about growing income inequality? The answers seemed to fall broadly into two explanatory categories:
- The have-nots are relatively content and still feel ‘rich enough’ to lead the kind of life they want, especially since (a) the median US household has more income than about 95% of the rest of the world; and (b) easily available credit permits them to live beyond their means anyway whenever they want (sound familiar?).
- Americans still believe in and value the American Dream of upward social mobility, especially what Arthur Okun refers to as the ‘jackpot prizes of making it big.’ In the NYT series Chrystia Freeland calls this ‘the lottery mentality.’ In her words “For many Americans, the nation’s rowdy form of capitalism is a lottery that has bestowed fabulous rewards on the Everyman.”
The first answer, relative contentment, has been widely disputed. When Okun wrote in the mid-1970s the richest 1% of US families owned about 1/4 of the country’s total wealth, but by 2012 that 1% owned more than 40%. Over the same period the share of wealth owned by the bottom half remained relatively constant at – ready for this? – 1%! Michael Norton and Dan Ariely recently found that most Americans are unaware of this degree of wealth inequality or its trend, and that given a preference they would opt for a much more equal distribution. So the population may be uninformed but they are not content.
So let’s focus on the second – the validity of the American Dream today. In a nutshell the Dream is not grounded in much reality, nor has it been for several decades. In the most comprehensive recent study by Chetty, Hendren, Saez, Kline and Turner (2014) the authors found no real change in intergenerational mobility between the early 1970s and today. That may sound like good news since the American distribution of income and wealth, as noted above, has become much more unequal over that time period. But the odds of a child moving from the bottom income quintile to the top quintile has remained less than 10% for more than 40 years, and worse yet the odds of moving to the top from the second quintile actually fell from around 18% to 14%.
In short, the American underclass (define that however you want so long as you exclude the top 5-10%) has not shared in the prosperity of the last 40 years, its status is not based primarily on personal failings (sorry Husker fans), most are not content with the status quo, and their hopes for the American Dream jackpot are very unlikely to come true. As Chrystia Freeland notes “. . . the problem with lotteries is that there are only a few winners. That is the story the numbers tell us about American capitalism today – – and unless that underlying reality changes, at some point all those folks . . . will realize that they live in a winner-take-all society, and that most of us aren’t winning.”
There are several important remaining questions – How much inequality is acceptable and/or desirable? How much is too much? Why is excessive inequality a problem? And what can be done to lessen it? But alas I’ve now exceeded my self-imposed word quota for this entry, so I’ll need to formulate a follow-up in the next few weeks. For now, don’t forget ‘A Dollar and a Dream!’ (the old theme of the New York State lottery) and ‘Go Big Red!’
Garygrams 
I laughed and I learned! Great post!
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An excellent description of the most urgent and pressing problem in the U.S. In the past two days, we have received news that the redistribution of income will become even worse. The release of the budget by the Trump administration would drastically cut programs for low-income people (e.g., Medicaid, Head Start, food stamps, etc.) and cut tax rates for high income people and corporations. Also, the current administration supported the passage of the American Health Care Act (AHCA) to replace the Affordable Care Act (Obama Care). The major impetus behind the AHCA is to cut taxes for very high income people and cut benefits for older sicker individuals. Although the AHCA would reduce the federal deficit, it would increase the number of uninsured by 23 million. In essence, these legislative and budget proposals would greatly contribute to the redistribution of income.
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