The Upside of Downward Mobility
Fortune, December 22, 2008
We Americans have long assumed that our kids will earn more than we do.
That idea is colliding with harsh economic realities. But that doesn't mean
the good life is gone. An exclusive book excerpt.
Original (and printable) version of article
The voters in the town hall meeting were
so silent you could almost hear them straining
to listen. No public official, let alone a newly
sworn-in President, had ever talked to them
this way. "Look," said the President, walking
across the stage with a microphone in hand,
"here's what no one wants to tell you. Structural changes in our economy, and new competition from countries like China and India, mean that we're in a different world
now. That pattern we once took for granted, in which our incomes
basically kept rising across the board, turns out to be something
we can't sustain. Many of you are earning less than your parents did, and the truth is, many of
your children will earn less than
you do." The President paused,
watching as the words sank in. "I
don't think denial helps any of us.
I know it won't help us come together to do the things we need to
do as a nation to thrive even amid
these new realities."
Don't worry, you didn't miss
the news; the scene above has
not happened yet. Few politicians
would say those things even if they
believed them to be true, because
it would challenge a notion at the
heart of the American dream: the
idea that the kids will earn more
than we do. This idea has been at
the core of American experience
for so long that it seems to us the
natural order of things, a brand of
progress to which we're practically
entitled. Political leaders plainly
believe we cherish this prospect,
because it is central to how they talk about our lives. It's as if relinquishing the certitude that the kids will earn more than we do
would be to give up something essential in the American spirit.
The problem, as new research shows, is that we have to face a
new reality. As many as 100 million Americans now live in families
that are earning less in real terms than their parents did at the same
age. The rise of such developing economies as China and India
means the earnings picture is only likely to get worse. One in three
American jobs may be exposed before long to competition from
workers overseas, putting an effective wage cap on large swaths
of employment even if jobs don't actually move offshore. New
research also shows that, contrary to popular myth, upward mobility is now lower in the U.S. than in
many European countries. People
sense what's unfolding, even if it
remains politically taboo to say so.
A July 2007 poll by the Pew Global
Attitudes Project found that 60%
of Americans surveyed say the next
generation will be worse off than
theirs, vs. 31% who say it will be
better off. Yet the truth is that these
developments, while hardly what
we would choose, are not something to fear. Yes, they represent
a jolt to our expectations and an
unsettling break with our history.
But if we approach the future with
fresh eyes, the tests we now face
will present an opportunity to fix
serious flaws in our economy. Liberating ourselves from this Dead
Idea will force us to reexamine a
fundamental question that is almost never explicitly discussed:
What is the role of the individual,
and what should be the role of the broader community, in assuring opportunity and security in a wealthy nation like the U.S.? As
events force us to consider fresh answers to this question, the result
will be a good life, and in some ways a better life, even for Americans who face wage strains. America will have gained the sturdier
brand of hope that comes from dealing squarely with unpleasant
realities rather than wishing them away.
Why do Americans think a better standard of living for their
children is a national birthright? Because this remarkable pattern
has largely been our experience since the nation's earliest days.
The new republic's official policy of classlessness and ethic of
equal opportunity made it unique in history. In short, America
was about upward mobility, the chance to rise
from the station into which you were born to
whatever heights your talents and efforts might
let you attain. This helps explain why America
came to lead the world in mass education. Yet all
this individual opportunity might have meant
little had America's early years not coincided
with the kickoff of the Industrial revolution.
This made the idea of economic progress something that applied on a grand scale, not just to
particular people with moxie and drive.
The twin tragedies of the Great Depression and World War II interrupted the general
march of progress, but the remarkable boom
that followed made earlier norms of generational
economic advance seem timid. real incomes
doubled in a generation. Americans at all income
levels shared in the gains. Yet in retrospect, despite the achievements of the boom, the entire
episode was in a real sense a historical accident,
the result of the U.S. being the only economy left
standing after a devastating global war. Foreign
competition was virtually nonexistent. Families
who'd been through two wars and a depression
in 30 years were bursting to enjoy life, and they
greeted American manufacturers with long-suppressed appetites for cars, refrigerators,
televisions, air conditioners, lawn mowers, air
travel, and more. "keeping up with the Joneses"
became something of a middle-class obsession, as the boom unleashed a competitive consumption spree.
Yet this wasn't just the magic of the market. A number of other
institutions helped assure that prosperity was broadly shared.
Labor unions, a robust minimum wage, progressive taxes, and a
sense of restraint on corporate boards regarding the salaries of
chief executives all contributed to a sense of a shared economic
destiny. As postwar prosperity unfolded, all this gave ordinary
people a greater sense of security. The rising tide kept rising.
The impact has been profound, and largely positive. Our "can
do" spirit and "anything is possible" determination tamed the
frontier, helped win two world wars, invented countless technologies, and put a man on the moon. But the way our success mutated
over time into the expectation that our kids would always do even
better has created three problematic ways of thinking:
The first is that we've overestimated the power of the individual
to shape his own economic destiny. The thread running through
our admiration of Benjamin Franklin and Abraham Lincoln on to
such modern icons as Bill Gates, ronald reagan, Bill Clinton, and
Barack Obama is the celebration of the self-made man: In America
you shape your own destiny via determination and hard work.
The corollary of our faith in the individual has been a tendency to
judge harshly those who fail. After all, with so much opportunity
for the taking, if you can't make it in America, it's probably your
own fault. The question is whether our instincts here have been
shaped by a faith that no longer accurately reflects the prospects of even many hard-working
Americans in the global economy.
The second problematic way of thinking is
what the author and
Washington Post columnist
robert Samuelson has called America's sense
of "entitlement." In this view, we became so
spoiled by progress that we presumed endless
growth was simply our dueand believed further that this growth would enable us to solve
virtually every social problem, from poverty to
racial animus to health inequities. This is the
economic face of American exceptionalism, the
idea that the U.S. is somehow destined to be
blessedly immune from the travails that ordinary nations face. The distrust of government
that has become the legacy of such hubris makes
the work of reform harder today, because a high
burden of proof is imposed on those who would
use government for new purposes.
There's a third worrisome attitude traceable
to our faith that the kids will earn more than we
do. This is the imprudent conviction that we can
live beyond our means, because somehow we'll
earn enough later to deal with any problems.
This outlook represents a dramatic shift from
earlier American thinking, as the sociologist
Daniel Bell noted in 1976. "Twentieth-century
capitalism wrought a ... startling sociological
transformation," he wrote, "the shift from production to consumption as the fulcrum of capitalism." Both as
individuals and as a society, we've been gambling on better days
tomorrow to make good on unsustainable borrowing today.
Such is the toll of a Dead Idea. These habits of mind leave us ill-equipped to cope with the economic realities we now face. One in
three Americans, of all races and at all income levels, now live in
families that earn less than their parents did, according to research
from the University of Michigan and the Pew Charitable Trusts.
This finding is more disturbing when you consider that families
work longer hours today thanks to the rise of two-earner families.
The U.S. now offers its citizens a smaller chance of rising from
their economic status at birth than do France, Denmark, Norway,
Sweden, Canada, and Germany. The contrast with the "good old
days" is stark. After World War II, about a quarter of the men whose fathers had been in the
bottom quarter of income distribution made it
to the top quarter of income earners over their
working lives. Now the figure is more like 6%.
So what will these new circumstances mean
for individuals and the country? The answer
will turn on the way the new downward mobility affects Americans' attitudes toward the role
of government. Public opinion surveys have
long shown that Americans see themselves as
authors of their economic fate, while Europeans
tend to believe that forces outside the individual's control have greater influence. Yet the forces
that are now undermining upward mobility in
America are in fact largely outside people's control. Does that mean Americans will be open
to more aggressive policies (to bolster health
care, pensions, and education, for example) that might promote
economic opportunity and security, even if they mean higher
taxes or "bigger government"? As the post-American Dream era
unfolds, it's hard to imagine that the growing disconnect between
the economic trajectory of millions of families and the nostalgia
of our public debate can be sustained much longer.
The comforting news, at least from history's perspective, is
that our challenge may in some sense be temporary. Britain,
after all, was said to be in "decline" from the
1870s onward, even as living standards for the
British rose massively over the ensuing hundred years. Many British families were hurt
in those decades when Britain lost its relative
economic edge, but once a new global equilibrium had been reached, the broad British
earnings escalator resumed its rise. Similarly,
a period of painful adjustment now for millions
of Americans as other powers rise and new
technologies are deployed is not inconsistent
with an eventual return to broadly shared long-term increases in our material well-being. In
other words, "The kids will earn more than we
do" is a Dead Idea that could come back to life
later in this century.
Or perhaps sooner, if President-elect Obama
aims high enough and we get lucky to boot. It
seems increasingly likely that Obama will meet the current crisis
not only with bold steps to spur near-term economic recovery,
but also by seeking the kind of transformative reforms required
if everyday Americans are to rise again. Again, Britain's example
is instructive. Everyone knows that the unifying trauma of World
War II helped forge a consensus in Britain under which basic
health care and pension security became universal. But in ways
that have gone little noticed in the U.S., this social contract
was recently deepened under Tony Blair and
Gordon Brown as the global economy posed
new threats. Consider: Blair introduced and
boosted Britain's first-ever minimum wage past
$9 an hour, an unthinkable level in American
debate (at least until Obama quietly proposed
to phase it in during the campaign). Yet British unemployment in recent years has been
lower than that of the U.S. Or take schools.
Britain shares the accountability fetish that
George W. Bush usefully enshrined in No Child
Left Behind. But there the resemblance ends.
In Britain, high-poverty schools receive more
per-pupil spending than other schools; in the
U.S. it's usually the opposite. Britain has hiked
teacher salaries 25% to lure new talent and
drive achievement gains; here, by contrast, little beyond lip
service has been paid to address America's teacher crisis.
This isn't to say Britain is nirvana. But it has begun to marry
economic efficiency and social justice in ways more likely to sustain a consensus for the open markets and technological change
that in the long run benefit most people. In the face of new global
challenges, in other words, Britain's political center has moved.
The question now is whether Barack Obama can move America's. Obama has pledged ambitious steps to make health care
affordable, improve college access, recruit an army of new teachers, boost wage subsidies, and more. Success
will depend partly on his ability to redefine our
obligations to those Americans who are fated to
lose out during the difficult transition ahead.
And that's a task that starts, first and foremost,
inside our heads. There has never been a nation
with so much of its self-image riding on the idea
that the kids will earn more than we do. The
death of this idea as the measure of American
progress will force us to rebalance American
capitalism and augment our romance with
the power of free men and free markets with
a deeper awareness of its limits. Psychologists
say that narcissists obsessed with their own
"specialness" can be cured only when they learn
to accept their ordinary humanity. Something
like this acceptance in the realm of economic life lies ahead for
the U.S. We can't control every aspect of our economic trajectory
in this new era. But with the right presidential leadership, we can
influence how we think about what is happeningand, more
important, what we do about it.