The American Dream: You will find your place in the world, contribute to society and prosper.
You will do better than your parents did economically and your children will do better than you.
Everyone will have a chance to get rich and help the country prosper in the process.
That is the American Dream.
The following three graphs show how the American Dream has fared over the last 60 years.
The first looks at the years with high taxes, growing inflation and two wars that had horrific casualties (1949-1979) compared to the following three decades (1979-2009) that saw lower taxes, declining inflation and fewer years at war with many, many fewer casualties.
Before you look at the graphs, aren’t you thinking that the first three decades (1949-1979) sound a lot less appealing than the second three decades (1979-2009)? Well the latter 30 years have seen the American Dream battered.
Photo: Global Economic Intersection
The second graph looks at the individual decades and we can see that the battering of the American Dream actually started in the 1970s.
Average income becomes larger than median income as the number of high earners increases. The high earners are found in what is called the “fat tail” of the distribution curve, which is very appropriate in this discussion because that is where the fat cats are. The fat tail has not gotten fatter because 10 times as many people equaled the incomes of the former fat cats, but more because a few fat cats have received 10 times the income. This is exemplified by the often quoted statistic that average CEO salaries were 40x average worker pay 50 years ago and today are more like 400x.
For 30 years after World War II the wealth of the country increased in a balanced manner, although the 1970 with surging inflation and two energy crises did not fare as well as the two previous decades. However, even in the troubled 70s, both median and average incomes grew at not grossly dissimilar rates. The average income containing the greater contribution from the top earners of the day grew at a rate very similar to the income growth of the broader population, represented by the median.
When we divide the 60 years into three 20 year periods, the changes of the 1980s were sufficient to mask the “egalitarian” 1970s. The following graph shows the relative real income growth for the three 20 periods.
Yes there were “fat cats” in the early years and they had significantly larger incomes than the bulk of the population. And these top incomes grew over 1950s and 1960s, but at almost the same rate (96%) as the majority of the populace.
Then something happened. From 1969-2009 it appears that the American pie suddenly got smaller. In the later three decades the real median income growth was less than 10% of the rate seen from 1949 to 1979. See first graph. And as the pie got smaller, the fat cats took a much larger share. The average income grew at a rate 260% that of the median income in the years 1989-2009 as shown in the following graph.
You might say that, as the cow gave less milk, the top of the economic ladder skimmed more and more cream off the top.
Yes, something has happened to the American Dream. It has been shrinking and shrinking much faster for the vast majority of the population than for those at the top.