Michael Strain: The American Dream Isn’t Dead

Chancellor: Hello and thanks for joining us for the Poverty Research and Policy Podcast from the Institute for Research on Poverty at the University of Wisconsin–Madison. I’m Dave Chancellor. This episode is for November 2019 and we hear from Michael Strain, the Economic Policy Director at the American Enterprise Institute. I was able to talk with Dr. Strain over the phone after he gave a talk at IRP earlier this year titled “The American Dream isn’t Dead.” It’s a provocative title and Strain says that this line of work is really growing out of concerns he has about the narrative around the American Dream. So, when we started talking, I asked him to tell us about what he sees as the current narrative and where it’s gone wrong.

Strain: Over the past few years, it seems like there’s actually less and less disagreement and more agreement around a narrative. And the narrative is that America is no longer an upwardly mobile society, and that in America incomes are stagnant, and that in America, workers don’t enjoy the fruits of their effort and of their labor and that the game is rigged to use a common expression—and that living standards aren’t improving. I think that we’ve kind of crossed into a different moment in our national conversation where instead of talking about whether we should be satisfied with the rate of upward mobility and how to measure mobility, etc., etc., we’re now just saying we’re no longer upwardly mobile. Instead of talking about trends in income growth over time or things of that nature, we’ve just kind of concluded that income growth isn’t happening. And so I think the narrative has become sufficiently detached from the kind of underlying reality of the situation that there really needs to be a corrective.

Chancellor: One of the challenges of talking about the status of the American Dream is just being able to define it. So, I asked Strain how he’s defining it and thinking about it in this work.

Strain: It’s a very hard thing to define. And I think the American Dream means a lot of things. And to some people it means the ability to live your life the way you want to and for other people it means having a rewarding career and a good family and a good community. And for other people it means home ownership and for a lot of people it means all of the above. I think that no matter what your definition of the American Dream is, a common element that runs through most of those definitions—maybe not all, but most—has something to do with your economic situation. And am I doing better when work I work harder? Am I doing better this year than I was five years ago? Will my kids be inheriting an economy where they will do better than I did? Those sorts of simple economic standards I think are a big part of the American Dream for a lot people.

Chancellor: And Strain says that if we’re going to look at simple economic standards, he has three main points that he doesn’t think should be that controversial.

Strain: One is that America is still an upwardly mobile society for people who are born and raised near to the bottom of the income distribution. The second is that income and wages have not been stagnant over decades. There has been growth in income and there has been growth in wages, particularly if you go back to the 1990s—if you go back 25 years ago to the mid-1990s rather than to the late 1970s, and the quality of life and standards of living have clearly improved over the last three or four decades.

Chancellor: So, part of what Strain is doing here is asking what counts as a meaningful definition of mobility when it comes to how Americans think about how they’re doing.

Strain: The two broad ways that people measure mobility are relative concept and an absolute concept. So, relative mobility looks at rank orderings and whether or not people’s rank changes. So, imagine that you have 10 people in an economy or a society or a city or something like that. And you rank them from highest income to lowest income and you look at the 7th wealthiest person, highest income person, and then you say that ok, next year is that person still the 7th highest income person, is that person the highest income, is that person the lowest income? And you look to see how people’s ranks change. And if there’s a lot of rank changing then you have a lot of mobility, and if there’s not a lot of rank changing then you don’t. You can do that within a person’s lifetime, you can also look to see whether or not there’s intergenerational relative mobility, so whether or not kids who are born relatively near the bottom end up being raise at the top when they grow up they end up near the top. So it’s all about your rank. The second kind of broad concept is absolute mobility and there you’re looking at whether or not people’s absolute condition improves. So it’s not a rank system. In many ways it’s conceptually much simpler. You look to see, ‘Am I earning more income this year than I was last year?’ or ‘Am I earning more income this year than I was 5 years ago?’ ‘Do children grow up to earn more income than their parents?’ So it doesn’t matter what other people are doing, it’s just a question of whether or not you are personally gaining. And if a lot of people are earning more money every year or if a lot of people’s children grow up to earn more money than their parents, then you say you have a lot of absolute economic mobility. And if there’s relatively little of that then you don’t have a lot of it.

Chancellor: I asked Strain how he went about looking into this and specifically the types of data and indicators he used to look at mobility and income.

Strain: Some of the data is kind messy and complicated microeconomic panel data and there’s a dataset called the panel study of income dynamics that gathered up a whole bunch of people in 1968 and has followed them and followed their kids and spouses who marry into the family ever since then, ever since the panel was started. And so that really kind of allows you to track not only people over time, but also families over time. And we were able to use that data to kind of ask the seemingly simple question of—do today’s adults earn more money than their parents did? And there we find that depending on the measure we’re looking at, 85–90 percent of adults today who were born in the bottom 20 percent, born and raised in the bottom 20 percent of the income distribution, are doing better than their parents were. And we find maybe 2/3rds–3/4s of people who were raised in kind of the working class are doing better today as adults than their parents did. To me that suggests a very high degree of upward economic mobility, particularly for people who were born in the bottom half of the income distribution. Born and raised in the bottom half of the income distribution. We also used much simpler data to look at whether or not wages are growing, for example, we used the standard average hourly earnings for production and nonsupervisory employees wage series from the Bureau of Labor Statistics and there we found that again, that there’s been growth in wages and it’s not spectacular growth. It’s something like 25 percent over the last four decades or so. Again, if you look—if you go back 25 years ago and you start looking at the mid-1990s, there’s been considerably faster growth. But it’s perfectly reasonable to say, that’s not fast enough or we should better wage growth. Certainly, we should have policies that we hope would lead to faster wage growth. But I think the conclusion that wages haven’t grown or wages are stagnant is more wrong than it is right.

Chancellor: But a critique of Strain’s take here is that some groups seem to get left out when it comes to the country’s economic growth, and so I asked him how he thinks about that.

Strain: Well I think that’s an important consideration. For the wages series for example, that covers about 80 percent of the workforce and it basically covers workers, not managers. So, we’re kind of kicking out the really high wage people already, but of course if wages are growing seven tenths of a percent per year on average or something like that, they’re growing faster for some people and slower for other people. And it’s important to look at those differences. We find 85–90 percent of adults today who were born in the bottom 20 percent are doing better than their parents did, but some much better than their parents did. Some are doing a little bit better than their parents did. And, 10 or 15 percent are doing worse than their parents did. And so it’s important to not gloss over that heterogeneity, it’s important not to ignore particular groups of people who are doing particularly poorly in the economy, in terms of their wages or their employment. And we absolutely should focus on that. My concern and motivation for this work is that we are confusing those pockets of trouble and those groups that are faring relatively worse for the broader story. In other words, we are looking at individuals and groups that are having a particularly rough time in the economy and we are concluding that that’s the common experience. And so, I’m trying, I’m explicitly trying not to focus on the problems areas and on the groups and individuals that are faring particularly poorly in today’s economy and I’m instead explicitly trying to characterize the broader picture.

Chancellor: And Strain says that another criticism of his argument is that there’s more to quality of life and standard of living than earning more than your parents did for example.

Strain: And that, the broader picture of upward mobility in American life is about more than income. And I think the broader picture is about more than income. And so I quickly looked up some statistics from books by Steven Pinker and Robert Gordon—Pinker is a psychologist at Harvard and Robert Gordon is an economist at Northwestern—and they’ve published some really good books in the last few years on somewhat related topics I guess. If you look at things like air travel safety, if you look at things like advances in the treatment of diseases like heart disease for example. If you look at things like access to air conditioning and if you look at things like access to leisure and other sorts of consumption goods, the kind of experience of households today is just really much better than what people were experiencing 40 years ago at this kind of—when people kind of point to things heading south. I don’t think many people would voluntarily go back and live in 1978. If you told me, well, you’re in the 80th percentile or the 70th percentile in America today and you can go back in 1978 and be in the 95th percentile, I think that would be a bad deal. That’s a point that I’m trying to illustrate through some specific examples.

Chancellor: And Strain says that, beyond the economic arguments, the narrative that we hear and that we use around the American Dream matters.

Strain: I think it matters because I think that messages matter. It’s a hard thing to study and to gather empirical evidence for, but there’s good reason to believe that anti-smoking campaigns that governments have put on have had impacts on smoking rates and, there’s some reason to believe that what people see on television affects behavior around important things like having children or not and you’re—before you’re married and when you’re younger. Even though it’s a difficult thing to study and pin down empirically, it seems to me that the messages that leaders send to people matter. And if all you’re hearing is that we’re not an upwardly mobile society, that incomes are stagnant, that if you work hard, you won’t be rewarded for it, that the game is rigged for everybody but people at the top… I think that’s unhelpful and I suspect that there are a lot of people that hear those messages and that those messages affect their behavior and affect their motivation to go out into the world and to strive—and their aspirations for what their life can be like and their sense of what the rewards to hard work are. And I think that’s unfair to those people. The fact is that for most people in the United States today, if you work hard then you can better your lot. You can create a better situation for yourself and you can create a better situation for your kids. And I think that that needs to be the message that people are sending and not the opposite.

Chancellor: But as he mentioned before, there are challenges facing the U.S., so I asked him to talk more about this.

Strain: I think there are challenges that face specific groups. Low-income African Americans have a lot of challenges. We have challenges from the opioid epidemic. We have an increasing rate of suicides. There are problems that are plaguing towns and local communities that have been left behind from globalization and we have major challenges ahead in dealing with the effects of technological change. There are a lot of challenges; there are a lot of challenges. And then there are longer standing challenges. How do we fix our schools so that our children are better able compete in the labor force. There are just all sorts of challenges and we shouldn’t minimize them or ignore them. There are other challenges as well that are kind of stemming from this current political moment. There is a lot of bad policy that’s being pushed by populists on both the left and the right and some of that policy has been enacted and more of it probably will be. There’s a broader concern about a decline in dynamism and energy in American life and that’s going to continue to have economic effects. There are all sorts of challenges and we should take those challenges seriously, but we should recognize that we are tackling those challenges from a position that’s a lot stronger than the common narrative would make you think.

Chancellor: Strain says that public policy has come to treat the American Dream like it’s a “comfortable retirement” and that if we’re serious about addressing the challenges—especially for people who feel like the American Dream is out of reach, we should orient policy towards the dream side of it.

Strain: If you look at where we spend money, we spend a lot of money on pension and health care benefits for middle class seniors. And that’s going to continue over the next few decades, it’s going to only become a bigger and bigger challenge over the next few decades because the retirement of the boomer generation, but also because the baby boomers are living a lot longer. And because health care costs are going up. And those programs really crowd out—at least political space—for investments in children and investments in younger workers who are much closer to the beginning of their career. And I think the American Dream seriously, by which I mean if we really believe that America should be a society characterized by rapid upward mobility and if we believe that America should be a society that’s characterized by rapid income growth, then we should look at how we’re spending public policy dollars. In my view, we should be spending a lot more on the earlier stages of life relatively and a lot less on retirement. And I think that’s something to take seriously and hopefully to have a serious conversation about.

Chancellor: Thanks to Michael Strain for taking the time to talk with us. You can read about his work on the AEI website and on his regular column for Bloomberg Opinion. This podcast was supported as part of a grant from the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation but its contents don’t necessarily represent the opinions or policies of that Office, any other agency of the Federal government, or the Institute for Research on Poverty. To catch new episodes of the Poverty Research and Policy Podcast, you can subscribe on Apple, Stitcher, or Google Play Podcasts. You can also find all of our past episodes on the Institute for Research on Poverty website. Our theme music for this episode is “Staring Straight” by Maarten De Boer. Thanks for listening.