To Most People, the American Dream Is, in Fact, Just a Dream

Top economists Paul De Grauwe and Koen Schoors take turns writing about people, the world and economics. Today it is Schoors’ turn.

In the United States, 15 percent of the population is living below the poverty line. The economic crisis is not responsible for this high figure. Even at points in time when economic conditions were optimal, a good 12 percent of the American population was living in poverty. This number never got any lower. Currently, a total of 50 million Americans are not earning a sufficient amount of money to sustain a normal way of living. What this means is that there is not enough health care; people are hungry and, in some cases, even without a home. Fifty years ago American poverty figures were even higher. The rates varied between 19 and 26 percent, depending on the kind of parameters taken into consideration. In the last 50 years, poverty has been reduced, but it has never really disappeared.

In the same period of time, the wealthiest layer of the population saw its share of the total distribution of wealth increase dramatically. The most affluent percent of the American population already has more than one-fifth of the total wealth. There may have been a point in history when this disparity in the distribution of wealth was even greater, but this is such a long time ago that there is not really anyone who is able to report on this. After the economic crisis of 2008, the richest part of the population really prospered, given that returns on capital made a much faster recovery than returns on labor; the rich really reaped the benefits of this. However, if poverty has decreased in the last 50 years, then this can only mean that the middle class will be taking more of the strain. This is the case for Belgium and Europe, but particularly applies to the United States.

Some glorify this inequality by saying that it lies at the heart of American success. It is said that it is inequality that inspires and motivates people to give it their all, and which functions as the driving force behind the American dream, which holds that anything is possible, as long as one tries hard enough. Unfortunately, to most people, the American dream is just that: a dream, a Hollywood-like kind of opiate for the public. In the United States, opportunities to climb the socio-economic ladder — i.e. social mobility — have been in free-fall for decades, and these clearly arise a lot less often in the U.S. than they do in most European countries. The line that separates the middle class from the poor has become very thin. All it takes is one setback, and one ends up being poor.

For decades, inequality has been the blind spot of economic policy. All of the figures show that inequality has risen drastically. This is why the American economy has been suffering from insufficient purchasing power for 15 years: The middle class does aspire to earn and spend more and to acquire greater economic security, but is no longer able to accomplish this.

For a long time, it appeared as if no one at the policy level, in so many words, wanted to say that inequality was at the heart of the problem, especially not during the first couple of years after the economic crash of 2008. Things are beginning to change. In the United States, people are now calling for an increase in the minimum wage, so as to give those with the lowest wages a bigger portion of the economic cake. De Blasio was only recently elected as mayor of New York City, the most capitalist capital of the world; the main point of his political program is to reduce the gap between rich and poor. As an emergency measure, the U.S. Senate has offered to extend the duration of unemployment benefits — in the U.S. these are constrained for time. Europe is stepping up its game in the fight against tax havens. Something is happening.

A solution to all this can be found by creating opportunities and mobility for everyone, regardless of race, origin, religion, skin color or social class. This is done by providing everyone with better access to education, giving everyone a fair shot on the labor market. This is done by both banning and taking down big multinational business empires, which are run by a handful of people through a pyramid structure. This is done by stimulating shareholding and spreading it among the public. This is done by means of implementing fair taxes, which obligate the big fish to pick up their share of the bill. This is done by breaking down the barriers that discourage small businesses from undertaking ventures. This is done by lowering taxes on labor and consumption and by increasing taxes on capital. We had better start doing this now, before the game of monopoly comes to an end.