The roots of this enduring notion we call the American Dream lie in the Declaration of Independence, which states that everyone has the inalienable right to pursue happiness ––which can be found, at least partly, in economic prosperity. Put another way, everyone is born with an equal chance of success.
It has always been an oversimplified notion. Founding Father James Madison, son of a plantation owner, for example, began life with an advantage over a pauper’s child. A child of Bill Gates enters the world today with different odds than a chambermaid’s offspring.
Those, of course, are extremes. For the middle class ––which can be defined as the middle 60 percent of income, households that are neither rich nor poor –– the American Dream (at least since the Second World War) has been closely tied to home ownership, a college education and a nice car, the iconic symbol of status. Successive generations have expected to do better than their parents as they move socially upward. That scenario, economists say, has been recast by declining income and other economic changes over the last several years. After peaking in 2000 at $69,102 in inflation-adjusted dollars, Rhode Island median household income in 2010 declined to $52,254 –– a drop of almost 25 percent.
“The American Dream is fading,” said James Hoopes, distinguished professor of history at Babson College and author of the recent book “Corporate Dreams: Big Business in American Democracy from the Great Depression to the Great Recession.”
“The American Dream is being redefined by profound changes in the labor market and the accessibility of credit,” said Mark D. Naison, professor of African American studies and history at Fordham University in New York City.
In analyzing the national data, Seton Hall University economics professor Christopher W. Young finds a momentous decline in middle-class purchasing power over the last several years.
“The annual growth rate in household income for the middle 60 percent of the United States is about 0.57 percent annually,” Young said. “This small growth rate has been offset substantially by the inflation of other products, such as automobiles, new homes, natural gas, college, and et cetera.”
In the period from 1967 to 2010, Young said, new home prices have increased about 5.2 percent every year –– far outstripping the incremental increases in income. During the same period, automobiles have increased about 5.43 percent a year, and the cost of college has gone up at an even higher annual rate, about 6.5 percent, according to Young.
As a percentage of total household income, the professor said, the disparity is even more striking. Calculated in 2010 dollars, an average new home in 1967 cost approximately 60 percent of the median household’s total annual income, which was about $41,000 –– but in 2010, a new home cost about 438 percent of total median income. An average new car has gone from about 7 to 54 percent of total annual income, while one year of tuition at a four-year college has risen from about 7 to 92 percent.
Although some economists cite overextension of credit as a factor imperiling the American Dream, Babson historian Hoopes places less emphasis on it.
“Wasteful consumption and keeping up with the Joneses via debt are not good things,” he said, “but they are not the reason for today’s painful sense of inequality.
“It’s that after a quarter-century in which 80 percent of the country’s population has not shared in the country’s productivity gains, people are emerging from denial and recognizing the reality that income mobility does not exist to the degree that it once did and that many will lag farther and farther behind if they continue to make a living in the only way they know how –– a job.”
Hoopes blames such factors as global outsourcing and economic decentralization. “The information revolution has reduced the advantages of large organizations,” he said. “Business is done in smaller units today, with new jobs occurring in small business, making it much harder for workers to unionize and negotiate middle-class wages.”
Fordham professor Naison recalls his younger years, when the postwar notion of the American Dream remained a middle-class reality.
“My generation,” he said, “bought their own cars, mostly used, as soon as they got their first full-time job. And they were usually able to buy their own homes within 10 years of graduation. Let me use myself as an example. My wife and I bought half of a brownstone in Park Slope [in Brooklyn] in 1976, two years after I graduated from college, for the princely sum of $42,000 –– on a college professor’s and editor’s salary.
“We could afford this not only because house prices were so low, but because we had no student loans to pay off. Most of our friends who worked in ‘helping professions’ were in the same situation: they were car owners right out of college and house owners in their early 30s. Now, I think there are far fewer people able to achieve those things at the same age we did.”
Expectations have shifted. Naison says that with his younger students today –– those in their 20s and early 30s –– electronic devices such as iPads, smart phones and computers are more coveted than the items those of his generation wanted. Taken together, all are cheaper than cars or houses.
“Home ownership and car ownership, former markers of middle-class status, have become less significant than possession of electronic devices and the ability to travel and work globally,” Naison said. “Most of my students, even those with excellent grades and recommendations, cannot find full-time jobs with a career ladder and benefits … this makes home ownership unrealistic, and car ownership a burden.
“They live singly or in groups, ride bikes or share automobiles, and move from place to place and country to country with great frequency. Perhaps they may purchase homes in their middle or late 30s. But they do not have the income, or the creditworthiness, to do so in this economy.”
Hoopes wonders if what might be called the Golden Age of the American Dream will ever return.
“Entrepreneurship is one possible path,” he said, “and it is a good one for many people. But it will not restore a middle-class society. Not everyone can be self-employed. … Labor unions ––still powerful in some industries ––hold little hope for enlarging the middle class because of economic decentralization and internationalization.”
Given today’s political climate, the Babson professor sees little chance of American government revitalizing the American Dream. “Northern European countries have created a strong middle class through heavy government involvement in their economies,” he said, “but that seems unlikely to emerge in the United States anytime soon due to ideological and cultural reasons.”
And so, he posed a question: What’s left?
“The only possibility seems to be ‘civil regulation’ of our economy in which citizens use their buying power and media power to try to compel better wages and working conditions,” Hoopes said. “Take the Occupy Wall Street movement of last fall, remove its anarchist streak, and give it a strong focus on creating permanent watchdog groups to ‘name and shame’ via the Internet, and you might have the beginning of a bottom-up movement with a shot at restoring the American Dream.
“Will such a thing actually happen? Your opinion is as good as mine.”
With data analysis by Journal Staff Writer Paul Edward Parker. gwmiller@providencejournal.com
