I want YOU for the U.S. dream

The beauty of the American Dream is that the accident of birth does not determine a child's life chances. Those born into a poor family can become rich. Those raised by parents without education can go to college. Those growing up in rented homes can become homeowners. The future is in one's own hands.

Source:  The Pew Charitable Trusts (2012)

But there is strong evidence that the American dream is, well, just that, a dream. Social mobility is low. Children born into the poorest quintile are more likely to earn below average incomes (Figure 1, left, shows that 70 per cent of Americans born into the bottom quintile will remain below the middle in adulthood). They are less likely to go on to higher education. They are less likely to own their own home.

How then do we tackle a problem that appears to be ingrained in our society? One excellent suggestion is for Congress to create an Office for Opportunity. Establishing such a Federal institution would protect social mobility from the waxing and waning of political attention. The Office would define and target a single measure or set of measures. These could cover early childhood development, K-12 and college results, labour market participation and / or family circumstances, to track progress over a lifetime. It would also publish commentary on how well the USA was doing against these measures.

But this might not be enough. The UK government has set up a similar body, the Social Mobility and Child Poverty Commission. The Commission sets out targets for, and reports on progress against, a set of indicators. The trouble is that the general public have little awareness of its existence and so do not protest when goals are not met. Few know that the UK government has also committed in legislation to eradicate child poverty by 2020. Fewer still know that because of severe cuts to social security, the number of children in poverty could rise to 5 million by that time. For this reason, Save the Children UK recently launched its campaign, "A Fair Start for Every Child", asking for specific measures to ensure that a child's birth does not determine its chance in life. (Disclosure:  I was the lead author on their report).

What is required is a society-wide strategy to hold governments to account on their commitments. Such an approach was taken with the Millennium Development Goals (MDGs), which were publicly agreed by participating members. Armed with the knowledge of what their government had promised, developing country citizens were empowered to push leaders to deliver on specific promises. Learning from this, the US government should publicly commit to a set of SMDGs (Social Mobility Development Goals). It should undertake an extensive public awareness campaign to garner action by civil society. This would also ensure that ruling parties are held to account by the public. Only by doing so can we get America moving and have a decent shot of turning the American dream into a reality.

An earthquake on inequality is coming….

In the debate about rising inequality, the behaviour of Chief Executive Officers (CEOs) has been cited as a major cause.  They are accused of putting short-term (shareholder) interests ahead of long-term (firm) interests.  Their actions are hardly surprising considering that CEO remuneration has historically been tied to short-term objectives such as annual shareholder returns.

But are politicians equally guilty of short-termism?  Consider that their time horizon is the electoral cycle.  Their objective is to be re-elected.  Their method is policies that target the median voter.  A problem that, until recently, affected only a minority, is unlikely to be adequately addressed by the political process.  Cue civil society.  Over the past few years, as a direct response to the discontent caused by rising inequality, we have seen the emergence of the Occupy movement, the UK Living Wage campaign and the Arab Spring. 

Grass-root movements have a long history of affecting change in the United States and beyond.  Giving women the right to vote in the UK, the campaign for equal rights in the US, the fall of the Berlin Wall in Germany.  Activists were drawn together by a shared set of principles, which helped spread their reach and eventually spurred national and global campaigns. 

But in generating a sufficient mass, they also drew the attention of political parties.  The slow rumblings of discontent transformed into substantive political pressure, that forced the hand of politicians into declaring an active policy response.  Such events mimic the “stick-slip” dynamics of an earthquake, where the forces below the earth’s surface eventually generate enough strength to push against the forces holding the plates together, to produce an earthquake (Jones and Baumgartner (2012)).  In this case, the political system with its procedures, rules and norms acts as a retarding friction against the public movements that generate information about pressing issues of the day that require action.

 

The rise of the Occupys, the election of Bill de Blasio to Mayor of New York on an agenda of tackling inequality, the rejection of the Conservative-led coalition in recent UK elections, all suggest that the time is ripe for a major political earthquake.  Yet, the world is still waiting for a major set of policies to resolutely tackle income inequality in the US and beyond.  In the language of our earthquake analogy, what further information is required to overcome such political frictions, taking into consideration the time horizon over which politicians operate? 

First, dispelling the myth that monetary and fiscal stimulus have put the economy on a path of stable, inclusive growth and that no further action is required.  In the US, the wealthiest one per cent captured 95 per cent of post-financial crisis growth between 2009 and 2012, while the bottom 90 per cent became poorer (Oxfam (2014)). The vulnerabilities that formed the basis of the 2008 financial crisis still exist and could generate another crisis in the near-term.  

 

Second, agreeing that reducing inequality can be growth enhancing, as the IMF has strongly argued.  Elections have been won and lost on the state of the economy.  The 2015 election in the UK and the 2016 Presidential election in the US will be no different.      

Third, an acceptance that, because of the nature of technological progress that is driving rising income inequality, for the first time, our children could be worse-off than us (Kotlikoff and Sachs (2012)).  This, unlike the first two, may fall outside of a politician's traditional time horizon, but is surely the strongest argument for action.