“One of the defining features of the “American Dream” is the ideal that children have a higher standard of living than their parents. …We find that rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s.”

- Chetty et al (2016) The Fading American Dream: Trends in Absolute Income Mobility Since 1940.

Five points:

  1. The Fading Dream study ignored US Consumer Expenditure Reports, which have consistently shown Americans to be doing better than can be detected from income data alone. If one looks at what low-income Americans spend, it's always more than their reported income. You also have to factor in the quality of the goods and services bought. The average home size these days is nearly 2500 square feet, compared to less than 1000 square feet before 1950. 

  2. Americans born in the 1980s have fewer mouths to feed than those born in 1940. Fifty years ago average US household size was around 3.3; now it’s 2.5. Except for periods of recessions, median household income per household member has been steadily rising at least since 1970. 

  3. Intergenerational mobility was higher for earlier generations partly because the standard of living for most Americans was much, much lower than it is today. So intergenerational mobility from earlier times was relative to a lower base.  For instance, in 1901 the average US family’s income was $750 - worth about $2300 a century later. Before 1940, households spent more than a third of their income on food alone.  After WWII, there was a broad-based improvement in the economic fortunes of most American households (aka the "post-war boom").  Demographics, pent-up demand, and favorable global markets conspired to make this period especially robust. The rate and breadth of improvement lost some momentum in time, but that was expected. Economies grow more slowly after they've reached a certain income and development threshold.

  4. Defining the American Dream in terms of intergenerational mobility sets up the conclusion that the American Dream is fading. But who defines the American Dream that way?  Not Americans themselves –  over 80% of whom report they have achieved the American Dream or are on their way of doing so.  Guess they didn’t read the research paper.

  5. When people think about how they are “doing”, what is their reference point? Partly their earlier selves, partly people in their social network, and partly people they simply come in contact with at work and in the neighborhood. If they’re going to compare themselves with their parents, they adjust for age: how the parents were doing at their current age. Given that income and wealth peak later in life, the comparison isn’t really compelling until later in life.

More important, who is not achieving their version of the American Dream? Why not and what does parent income have to do with it? This chart tells much of the story:

2019 _Parent Income and Current Income.png

What the above chart tells us that the children of low-income parents do fine if they get a college degree - doesn’t have to be an elite university, any ol’ state college will do. The problem is lack of a college degree, regardless of parental income.

References:

Chetty, R., Hendren, N., Kline, P., and Saez, E. 2014b. Where is the land of opportunity? The geography of intergenerational mobility in the United States. The Quarterly Journal of Economics (2014) 129 (4): 1553-1623.

Define and Thou Shalt Conclude: The Case of the American Dream (2018) Exploring The Problem Space

Pew Research Center, “Political Typology Reveals Deep Fissures on the Right and Left” October 2017