The American Dream Is Alive and Well

The American Dream Is Alive and Well

– By Howard Sierer –

Who you gonna believe, woke progressive handwringers or the data?

Almost all Americans today are substantially better off than their parents, and surprisingly, the vast majority of them are in different income quintiles than were their parents. [Note: In statistics, a quintile is one of five equal groups into which a population can be divided according to the distribution of values of a particular variable, in this case income.]

Left-leaning media and liberal politicians would have us believe that American living standards have stagnated since the 1960s and that poverty is little changed since then, routinely blaming rising income inequality. Even the respected Economist magazine in 2020 called income inequality “a truth that is universally acknowledged.”

Yet this conventional wisdom is false.

A recent article by John Early titled “The Myth of Income Inequality” – an extract from his book of the same title – explains why these media claims fail to tell the whole story. The key is the difference between earned income and total income.

Early tells us, “The Census Bureau does not count two-thirds of government subsidies to households (called transfer payments) as income or any taxes taken as reductions to income, so it overstates both income inequality and poverty. Counting all subsidies and taxes shows that income inequality is far less than claimed and continuing to fall.”

He quotes Mark Twain when he reminds the media that “It ain’t what you don’t know that gets you into trouble. It’s what you know that ain’t so.”

A striking and surprising result of generous government transfer payments is the near equality of consumption of goods and services by those in the bottom quintile of incomes and those in the middle quintile.  Yet only 36% of prime-age people in the bottom one-fifth work while 92% of prime-age people in the middle quintile work.

Early explains that overstating income inequality has “justified higher subsidies to lower-income households, which in turn have caused twice as many work-age adults in lower-income households to stop working.” CBS News reported in January that “millions of men have dropped out of the workforce leaving companies struggling to fill jobs.”

Our robust economy has made all this social transfer spending possible. Over the last 35 years, inflation-adjusted median household income rose by 89%. This unprecedented growth has made the American Dream a reality for the vast majority of our citizens.

Early’s study reports that real total income of the bottom income quintile grew more than 681% from 1967 to 2017. The percentage of people living in poverty fell from 32% in 1947 to 15% in 1967 to only 1.1% in 2017. Our prosperity is widely shared: 94% of households in 2017 were at least as well off as was the top quintile in 1967.

An even more important indicator of the American Dream’s reality is the ever-changing makeup of our upwardly mobile society.

Three independent research studies have measured relative mobility: the extent to which children reared in families in one income quintile stayed in the same income quintile as adults, rose to a higher quintile, or fell to a lower quintile. Using a variety of methodologies, the Pew Charitable Trust, Harvard’s Prof. Raj Chetty, and Michael Strain of the American Enterprise Institute all came to very similar conclusions.

We might expect their results to show that children would tend to end up in the same income quintile as their parents. But in fact, the share of adult children who grew up to live in a household in the same income quintile as their parents is surprisingly small.

The studies show that 63% of children who grew up in bottom-quintile families rose to a higher quintile, with 6.1% rising all the way to the top quintile. Of children reared in the top quintile, 62% fell to one of the lower quintiles, including more than 9% who fell all the way to the bottom quintile.

So much for the idea that adult children of rich parents stay rich while poor children stay poor.

Measured by inflation-adjusted total household income, 93% of children who grew up in the bottom income quintile are better off than their parents. Of children in the middle three-fifths, 86% grew up to live in families with higher incomes than their parents. Even among those in the top income quintile, 70% were better off.

I believe the American Dream is one of equal opportunity and individual upward mobility. Abraham Lincoln described America as “an open field and a fair chance for your industry, enterprise and intelligence.” As the three studies show, Lincoln’s vision is being realized by a vast majority of Americans.

In contrast, progressives see anything less than equality of outcomes as prima facie evidence of discrimination. Historian Will Durant wisely observed that “freedom and [economic] equality are sworn and everlasting enemies and when one prevails the other dies.”

The next time you read about America’s supposedly-unconscionable income inequality, look carefully to see if the author is describing earned income or total household income. And while you’re at it, ask yourself why your taxes are allowing the 64% of non-working adults in the lowest income quintile to enjoy a middle-class lifestyle.

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