Economist Stiglitz: “American Dream is a myth”

Nobel winning economist Joseph Stiglitz discusses the effects of income inequality in the United States:

In his latest book, The Price of Inequality, Columbia Professor and Nobel laureate Joseph Stiglitz examines the causes of income inequality and offers some remedies. In between, he reaches some startling conclusions, including that America is “no longer the land of opportunity” and “the ‘American dream’ is a myth.”

While we all know stories of people who’ve moved up the social stratosphere, Stiglitz says the statistics tell a very different story. In the last 30 years the share of national income held by the top 1% of Americans has doubled; for to the top 0.1%, their share has tripled, he reports. Meanwhile, median incomes for American workers have stagnated.

Even more than income inequality, “America has the least equality of opportunity of any of the advanced industrial economies,” Stiglitz says. In short, the status you’re born into — whether rich or poor — is more likely to be the status of your adult life in America vs. any other advanced economy, including ‘Old Europe’.

For example, just 8% of students at America’s elite universities come from households in the bottom 50% of income, Stiglitz says, even as those universities are “needs blind” — meaning admission isn’t predicated on your ability to pay.

Social mobility is key to American Dream as the idea goes like this: work hard and you should be able to rise from the lower ranks to the top. This is linked to recent comments sociologist William Julius Wilson made about promoting “affirmative opportunity.” In America, we assume that people with good traits and skills, such as hard work, motivation, creativity, etc., will be able to move up the social ranks. However, this “rags-to-riches” tale obscures the fact that relatively few people are able to do this. We love to hold up examples of people like Bill Gates or Steve Jobs as people who didn’t even need college to become fabulously successful and wealthy but we forget that their cases are rare, we likely wouldn’t advise our own kids to drop out of college, and both of them had some advantages (read Outliers for some details about how Gates’ background helped him get ahead).

If social mobility is much more limited today, how long is it before this part of the Dream falls apart? I wonder how long it takes for a national mythos to catch up with reality.

From this brief excerpt, it doesn’t sound like Stiglitz is saying much new about inequality. Others have been talking for years about growing inequality with commentary about American headed for a “two-class society” stretching back to the early 1960s.


The value of kindergarten (and kindergarten teachers)

Several economists recently presented a paper analyzing the effect of  kindergarten performance on adult outcomes. The New York Times summarizes the findings:

Students who had learned much more in kindergarten were more likely to go to college than students with otherwise similar backgrounds. Students who learned more were also less likely to become single parents. As adults, they were more likely to be saving for retirement. Perhaps most striking, they were earning more.

All else equal, they were making about an extra $100 a year at age 27 for every percentile they had moved up the test-score distribution over the course of kindergarten. A student who went from average to the 60th percentile — a typical jump for a 5-year-old with a good teacher — could expect to make about $1,000 more a year at age 27 than a student who remained at the average. Over time, the effect seems to grow, too.

The study still has to go through the peer-review process and the researchers aren’t sure what the link is between kindergarten performance and the adult outcomes.

Based on these findings, the economists suggest excellent kindergarten teachers are worth $320,000 a year.

This analysis is based on data from a Tennessee study, Project Star, from the 1980s. By randomly assigning kids to kindergarten classes, they set up an experiment where differences between classes could later be examined.