Apr 20, 2020

Who Is Living the Dream?

In his new book, economist Michael Strain argues that the American Dream is still very much alive
Arnold Kling Senior Affiliated Scholar

A major threat to the American Dream is the rising tide of populism on both the political left and the political right.

—Michael R. Strain, The American Dream Is Not Dead

Economist Michael Strain has written a book that attempts to push back against those who claim that there has been widespread stagnation in household well-being. While acknowledging that there are communities undergoing economic distress, Strain insists that “we should not confuse pockets of serious problems with the norm.”

Strain fears that the misguided belief that most people can no longer afford the American Dream will lead to bad policies. On the one hand, he fears the left's initiatives for greater economic redistribution and regulation.

Proliferating entitlement programs, harmful regulation, and punishing the rich are not in the long-term interest of American workers and families.

On the other hand, he fears the populist right's animosity toward immigration and international trade, as expressed by President Trump.

The president's populist protectionism has proven to be a major risk to the stability of the global economy… Of course, the working class he rhetorically champions would be among the hardest hit…

In Strain's view, populists on both sides are offering a false narrative by claiming that typical American workers are suffering from adverse conditions that they cannot overcome. Strain argues instead that living standards are improving for most households, and that low-income households can still ride the escalator of upward mobility.

To attempt to measure the trend in the well-being of a typical worker or a typical household is to enter a statistical minefield. What time frame should one use? What cost-of-living adjustment should one employ? Should one use individual income or household income? Etc.

Strain looks at the evolution of wages from 1990 to the present. As for going back further, he writes,

Why should a politician, a commentator, or a worker care how much wages have grown since, say, 1973? That was 46 years ago. Very few of today's workers were in the labor force that long ago.

Using 1990 as the starting point makes a difference because real wages performed poorly from 1973 to 1990. Strain sees it as misleading to rely on that earlier period to make the argument that wages have stagnated recently.

As a cost-of-living adjustment, Strain prefers the Commerce Department's Personal Consumption Expenditures Price Index rather than the more widely-used Consumer Price Index compiled by the Labor Department. Over a long period of time, this makes a big difference since the Commerce Department’s price index has risen more slowly. Strain argues that the Consumer Price Index understates the way that over time people buy more goods and services that have increased in value relative to cost and less of goods and services whose prices have gone up relative to their value to the consumer.

Pessimists argue that middle-class jobs are disappearing. Strain points out that while employment is declining in some traditional middle-class occupations, other middle-class occupations have emerged or expanded. He presents data showing that from 2000 to 2018, the share of new middle-class jobs rose by almost enough to offset the decline in old middle-class jobs.

Strain invited two pundits to challenge his views, giving a chapter each to E.J. Dionne on the left and Henry Olsen on the right. This is an admirable idea in theory, but there are some indications that suggest that the writers are talking past one another.

At one point, Dionne complains that Strain makes it sound as if the left is dismissive of any progress made in the past 50 years. “But no one on the left is saying this.” For his part, Olsen says that “Strain presents a cartoon version of the conservative populist critique of modern capitalism.”

As for myself, I would offer a critique of Strain's analysis that is not populist. My concern is that I doubt that the notion of the American Dream is best captured by statistics on wages or employment. I prefer instead to rely on narrative versions of the American Dream.

One narrative version is what we might call the Immigrants' Dream. They dream of coming to this country, starting at the bottom, raising a family, and seeing their children grow up to enjoy their fair share of American prosperity. To see whether this dream is still alive, one would focus on studying the experience of immigrants over the past 30 years or so.

Another narrative version is what we might call the Fifties Dream. In the 1950s, the ideal for young Americans was to marry, have children, and move to a house in the suburbs. Today, marriage rates are low, fewer children grow up with married parents, and many young people are urban renters.

The decline of the Fifties Dream raises questions that go beyond Strain's statistical analysis. Has the Fifties Dream lost its appeal? Or has it become harder to obtain, and if so, what are the cultural or economic impediments that are standing in the way?

Photo by Paul Souders/Getty Images

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