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The American Dream and the Future of Employment

The recent Economist article The rich, the poor and the growing gap between them looks at the often quoted American Dream.  The author critically remarks "The fruits of productivity gains have been skewed towards the highest earners, and towards companies, whose profits have reached record levels as a share of GDP."  Here, after adjusted inflation "the wages of the typical American worker - the one at the very middle of the income distribution - have risen less than 1% since 2000."
It comes clear that overall statistics are smoothened by top earners whereas the middle class worker is losing out.  Moreover, income disparities are often passed on to the next generation.  According to a poll in Foreign Affairs, Americans look for the culprits outside of their country: almost 90% worry about their jobs going offshore. A main contributor to the uneven distribution of income growth has been the greater demand for skilled workers relative to their supply. But there are also measures that at least indicate a narrowing gap for low-wage employees: During the 1990s "real wages rose faster for the bottom quarter of workers than for those in the middle." The income of the top 1% continuously rising is what some scholars call "a polarisation of the labour market. The bottom is no longer falling behind, the top is soaring ahead and the middle is under pressure." But whatever the statistics, it seems that the trend of a strained middle class will not be reversing soon.
So who is to be blamed?  Is it China, India or globalisation?  Experts disagree.  Will further inequality cause any reaction by the American public?  According to the author this will depend on the speed of change, the health of the economy and a tolerance for ongoing inequality.
Analysis: The article refers some interesting phenomena:  Not only do statistics prove some staunch believers in the American Dream wrong; it also indicates that the US, who has been one of the greatest beneficiaries of free trade and globalisation, is turning towards greater protectionism as a result of global trends such as outsourcing to India and offshoring to China. The author's conclusions of how the American public might react to a challenge of the American dream are rather weak.  Basically, the question remains whether the speed of change can be met by changes implemented by policy makers or balanced with adaptations to a globalising world. The increasing societal rift, in part caused by the knowledge economy", enhanced by technological innovation, may be a causal effect similar to the one that occurred when the Industrial Revolution brought a shift from the agricultural societies.  Changes brought by the Industrial Revolution overturned not only traditional economies, but also whole societies.  So perhaps, this is only the beginning of such a paradigm shift towards a more complex system that demands more complex answers.
So what does this mean for the American Dream? To perpetuate the rags-to-riches story the US has to reclaim its strengths that has made her a superpower and the wealthiest nation (in absolute terms) in the first place: openness to immigration in general and specifically directed at attracting the "best and the brightest", playing by the rules of the international market, a level playing field and equal chances for everybody. Only such an environment provides the right climate for innovation in which new ideas can prosper and hence promote the ideal that at least those (few) can make it knowing how to take advantage of market conditions that encourage entrepreneurship and creativity.



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Don on :

Unfortunately the economic statistics are seriously dubious, fellas. Don't take my word for it - take Alan Greenspan's and the Federal Reserve. Here is a link to a debate about what is called the 'dark matter' controversy over on Daniel Drezner's blog: If you're not aware of Drezner you should be. He's a political scientist with a background in economics now moving from Chicago to a tenture position at Tufts Fletcher School. The synopsis of that debate is that the official economic statistics aren't catching an awful lot and what they aren't catching is - significant. One example: I work in designing and creating custom software for busineses. It is an enormous business in the US with more than 1 million people employed doing it. Yet until 1999 very little of this activity was captured in economic statistics - at all! I argued in that blog debate that the tech depression of 2001-2004 was almost entirely ignored by the economic statistics. Despite Worldcom, Enron, and other companies going bankrupt and many (!!!!) other huge and large companies going to the very edge of bankruptcy in those years - offial US GDP GREW 0.4% in 2001. At the bottom of the cycle. 2 million highly-skilled workers were 'downsized' and US GDP grew?!!! 'Dark Matter' might begin to explain what happened, because surely the official stats failed abysmally. If you don't count activity in the first place you also don't count it when it goes away - and I think that is what happened.

Joerg on :

Thanks, Don. We are aware of Dan and his blog. I will read the article you mentioned and follow all links. However, the statistics the Economist mentioned concerning the growing gap between the rich and poor and the increasingly unrealistic American Dream are solid! We will write more about it soon. There is so much to write about, but not enough time...

Don on :

I don't disagree with the Economist piece exactly. I've seen the effects in my own life - personally. But count me a skeptic about the policies which have been proposed to 'fix' the problem - such as higher taxation of income of the so-called 'rich'. Do you remember the Kerry plan to do so proposed in 2004? The plan was loudly endorsed by a number of no doubt public-spirited billionaires like George Soros, and Warren Buffet. But when I analyzed the plan it appeared that the actual effect of the plan would be to punish mere millionaires and those who weren't (the mere well-off) while the impact upon the billionaires would be quite minimal. This because there was no proposal to tax wealth - merely income. So Mrs Soros, Kerry, and Buffet were effectively arguing that other people's taxes should be increased with tiny effects on their own. Hmmmm - somehow that doesn't sound right....

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