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The Myth of the American Dream

The United States of America has always been regarded as a land of opportunity. Throughout its four-hundred-year history, it has provided refuge to those fleeing poverty and persecution. To this day, millions of people travel there every year in hopes of finding a better life. According to data by the U.S. Census Bureau, net international migration levels stood at 1.1 million people in 2016.


This perception of America as a beacon of freedom and opportunity is what gave rise to the concept of the American Dream. James Truslow Adams, the historian that coined the term in 1931, described it thus:


“…That dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement… a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable… regardless of the fortuitous circumstances of birth or position.”


In other words, in the United States, the level of success is solely determined by hard work and ability, and thus everyone has an equal chance at socioeconomic mobility. Ninety years on, this view is still popular with the American people. According to a 2014 study by the Pew Research Center, 57% of Americans disagree with the view that success is mostly determined by forces outside of our control, and 73% think that working hard is very important to get ahead in life.


Unfortunately, it seems the late, great George Carlin was right when he said that “it’s called the ‘American Dream’ because you have to be asleep to believe it.” According to research from the Brookings Institution, only 58% of Americans born into the bottom fifth of income earners move out of that category, and just 6% born into the bottom fifth move into the top. On the other hand, 39% of those born to parents in the top fifth remain at the top. Additionally, a paper by Corak (2013), finds an intergenerational earnings elasticity between father and son of 0.47. This essentially means that for every $100 increase in the income of the father, there will be a $47 increase in the income of the son. In a society with perfect equal opportunity, a father’s income would have no relation to that of his son.


It seems, then, that family background plays a significant role in socioeconomic outcomes in the United States. So what are the mechanisms behind this reproduction of inequality?


In today’s highly competitive job market, academic achievement is one of the main determinants of success. However, not everyone in America gets the same chance at a quality education. Public school districts are run by local governments and funded through property taxes. Homes in poor areas have lower values and so local governments cannot raise as much money, which translates into less funding for public schools. Underfunded schools cannot afford enough teachers, guidance counsellors, textbooks or equipment such as laptops or projectors. This lack of spending greatly affects the educational and economic outcomes of pupils. According to a paper by the National Bureau of Economic Research, a 20% increase in per-pupil spending a year for poor children can lead to an additional year of completed education, 25% higher earnings, and a 20-percentage point reduction in the incidence of poverty in adulthood.


There are other ways family background can affect educational achievement. For instance, wealthy parents can afford the high tuition fees of elite colleges, whereas poor students have to choose between cheaper, lesser quality community colleges or taking on massive debt in the form of student loans. It seems the former is generally the case, as a study found that only 1.8% of Harvard students come from a poor family. Wealthy parents can also afford the time to be more involved in their children’s education, as well as private tutors and extracurricular activities, all of which can affect academic outcomes.


Another factor that plays an important role in the reproduction of inequality is inherited wealth. According to a paper by Kopczuk and Lupton (2005), in the United States, an estimated 35 to 45% of wealth is inherited rather than self-made. Wealth is self-reinforcing, as you passively earn money from it. Property will earn rent and increase in value, savings accounts will earn interest, and investments will earn dividends and capital gains. Consequently, the more wealth you initially have, the more your wealth will increase.


This effect is exacerbated by the objectively lax estate and capital gains taxes in the United States. President Donald Trump’s new tax cuts allow individuals to inherit up to 11.2 million dollars without paying the federal estate tax. Similarly, the top federal tax rate on long-term capital gains (for assets held longer than one year) is a measly 23.8%. Clearly, inheritances give children of well-off parents an enormous—and unearned—advantage.


Lastly, one has to consider the role that social networks play in determining socioeconomic outcomes. French sociologist Pierre Bourdieu called this ‘asset’ social capital, and he defined it as ‘the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalised relationships of mutual acquaintance or recognition.’ This is, in essence, about having connections. Obviously, this is less quantifiable in numerical terms. However, it is reasonable to assume that members of the same social stratum know and help each other by exchanging influence and knowhow. Thus, children of well-off parents are more likely to succeed thanks to their family’s acquaintances and knowledge. A good example of this are political dynasties, such as the Kennedy and Bush families.


At this point, there are a few things that are worth mentioning. First, there are several other factors that can determine socioeconomic outcomes; among them are race, gender and luck. However, to my admittedly limited knowledge, the ones I previously mentioned are the most pervasive. Second, I realise hard work also plays a role, but it only gets you so far, as poor people working two or three jobs can tell you. Third, this doesn’t only apply to the United States, but to every modern society, to a greater or lesser extent. This is why, as future policymakers and researchers, it is our duty to work towards finding a solution so we can achieve true equality of opportunity; lest we continue living in a world ruled by privilege, and not by merit.

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