The Death of Horatio Alger By Paul Krugman, The Nation December 23, 2003 The other day I found myself reading a leftist rag that made outrageous claims about America. It said that we are becoming a society in which the poor tend to stay poor, no matter how hard they work; in which sons are much more likely to inherit the socioeconomic status of their father than they were a generation ago. The name of the leftist rag? Business Week, which published an article titled "Waking Up From the American Dream." The article summarizes recent research showing that social mobility in the United States (which was never as high as legend had it) has declined considerably over the past few decades. If you put that research together with other research that shows a drastic increase in income and wealth inequality, you reach an uncomfortable conclusion: America looks more and more like a class-ridden society. And guess what? Our political leaders are doing everything they can to fortify class inequality, while denouncing anyone who complains – or even points out what is happening – as a practitioner of "class warfare." Let's talk first about the facts on income distribution. Thirty years ago we were a relatively middle-class nation. It had not always been thus: Gilded Age America was a highly unequal society, and it stayed that way through the 1920s. During the 1930s and '40s, however, America experienced what the economic historians Claudia Goldin and Robert Margo have dubbed the Great Compression: a drastic narrowing of income gaps, probably as a result of New Deal policies. And the new economic order persisted for more than a generation: Strong unions; taxes on inherited wealth, corporate profits and high incomes; close public scrutiny of corporate management – all helped to keep income gaps relatively small. The economy was hardly egalitarian, but a generation ago the gross inequalities of the 1920s seemed very distant. Now they're back. According to estimates by the economists Thomas Piketty and Emmanuel Saez – confirmed by data from the Congressional Budget Office – between 1973 and 2000 the average real income of the bottom 90 percent of American taxpayers actually fell by 7 percent. Meanwhile, the income of the top 1 percent rose by 148 percent, the income of the top 0.1 percent rose by 343 percent and the income of the top 0.01 percent rose 599 percent. (Those numbers exclude capital gains, so they're not an artifact of the stock-market bubble.) The distribution of income in the United States has gone right back to Gilded Age levels of inequality. Never mind, say the apologists, who churn out papers with titles like that of a 2001 Heritage Foundation piece, "Income Mobility and the Fallacy of Class-Warfare Arguments." America, they say, isn't a caste society – people with high incomes this year may have low incomes next year and vice versa, and the route to wealth is open to all. That's where those commies at Business Week come in: As they point out (and as economists and sociologists have been pointing out for some time), America actually is more of a caste society than we like to think. And the caste lines have lately become a lot more rigid. The myth of income mobility has always exceeded the reality: As a general rule, once they've reached their 30s, people don't move up and down the income ladder very much. Conservatives often cite studies like a 1992 report by Glenn Hubbard, a Treasury official under the elder Bush who later became chief economic adviser to the younger Bush, that purport to show large numbers of Americans moving from low-wage to high-wage jobs during their working lives. But what these studies measure, as the economist Kevin Murphy put it, is mainly "the guy who works in the college bookstore and has a real job by his early 30s." Serious studies that exclude this sort of pseudo-mobility show that inequality in average incomes over long periods isn't much smaller than inequality in annual incomes. It is true, however, that America was once a place of substantial intergenerational mobility: Sons often did much better than their fathers. A classic 1978 survey found that among adult men whose fathers were in the bottom 25 percent of the population as ranked by social and economic status, 23 percent had made it into the top 25 percent. In other words, during the first thirty years or so after World War II, the American dream of upward mobility was a real experience for many people. Now for the shocker: The Business Week piece cites a new survey of today's adult men, which finds that this number has dropped to only 10 percent. That is, over the past generation upward mobility has fallen drastically. Very few children of the lower class are making their way to even moderate affluence. This goes along with other studies indicating that rags-to-riches stories have become vanishingly rare, and that the correlation between fathers' and sons' incomes has risen in recent decades. In modern America, it seems, you're quite likely to stay in the social and economic class into which you were born. Business Week attributes this to the "Wal-Martization" of the economy, the proliferation of dead-end, low-wage jobs and the disappearance of jobs that provide entry to the middle class. That's surely part of the explanation. But public policy plays a role – and will, if present trends continue, play an even bigger role in the future. Put it this way: Suppose that you actually liked a caste society, and you were seeking ways to use your control of the government to further entrench the advantages of the haves against the have-nots. What would you do? One thing you would definitely do is get rid of the estate tax, so that large fortunes can be passed on to the next generation. More broadly, you would seek to reduce tax rates both on corporate profits and on unearned income such as dividends and capital gains, so that those with large accumulated or inherited wealth could more easily accumulate even more. You'd also try to create tax shelters mainly useful for the rich. And more broadly still, you'd try to reduce tax rates on people with high incomes, shifting the burden to the payroll tax and other revenue sources that bear most heavily on people with lower incomes. Meanwhile, on the spending side, you'd cut back on healthcare for the poor, on the quality of public education and on state aid for higher education. This would make it more difficult for people with low incomes to climb out of their difficulties and acquire the education essential to upward mobility in the modern economy. And just to close off as many routes to upward mobility as possible, you'd do everything possible to break the power of unions, and you'd privatize government functions so that well-paid civil servants could be replaced with poorly paid private employees. It all sounds sort of familiar, doesn't it? Where is this taking us? Thomas Piketty, whose work with Saez has transformed our understanding of income distribution, warns that current policies will eventually create "a class of rentiers in the U.S., whereby a small group of wealthy but untalented children controls vast segments of the US economy and penniless, talented children simply can't compete." If he's right – and I fear that he is – we will end up suffering not only from injustice, but from a vast waste of human potential. Goodbye, Horatio Alger. And goodbye, American Dream. Paul Krugman, an economics professor at Princeton and a columnist at the New York Times, is the author, most recently, of "The Great Unraveling: Losing Our Way in the New Century" (Norton).
Note to conservatives who wish to try to debunk this article. Please use facts and evidence as the author did and cite your sources. It is truly sad that many of the New Deal policies are being rolled back by the rich. I guess they just can't stand for anyone else to break into the upper classes. They must be pissed about the rap stars and athletes.
All I'd like to say is why can't individuals help themselves? Why do so many require government aid? I sure as hell know I would never put myself in that position. I couldn't respect myself if I did. It must be because we're all equal .
Any second now, people will post that the reason this happened is that govt programs have made people too dependentd and not willing to work, even though welfare has been drastically cut over the years.
Well I sure as hell hope they would say it because it is absolutely true. While there is definitely an advantage for people growing up in upper class families, the size of that advantage is blown way, way, way out of proportion in this country. If you work hard, your background will not matter in this country anymore. Anyone saying otherwise is using past problems in this country for political or personal advantage. There are winners and there are losers. If you're a winner, you will prosper in this country unlike many countries in the world. If you're a loser, you will spend all of your time and energy blaming others for your shortcomings instead of doing something about them. It's called survival. It's hard but it is true.
Please back up this with facts (i.e. studies that show a correlation between receiving government aid and laziness, polls where people receiving government aid demonstrate laziness through their answers). Furthermore, by your reasoning, everyone who makes up the bottom earning 90% (BTW, most of whom are NOT receiving government aid) are somehow "losers" and aren't working hard. Do you really believe that the top earning 10% are ALWAYS more deserving of their money? Because you must in order to explain the gap in wealth that has increased in this country over the past 30 years. Also, you ignore the reality of what I would call "upper-class nepotism." If you grow up in a rich family and around rich people, you're more likely to receive the benefits of their wealth. You'll go to the best schools with the children of other rich families. This (and other aspects of your privileged life) will allow you to make contacts that will allow you to participate in money-making activities unavailable to the average person (case in point - our President, with his history of failed oil ventures, would never have been invited to be a partner in the Texas Rangers if it weren't for his family). Because of your inherited wealth, you will spend less money on the necessities and will be able to invest more. This is not a luxury that someone whose parents were dirt poor will ever enjoy. Because of these advantages, the average son of a rich man will be able to keep (and usually increase) his wealth, while the average son of a poor man will likely see his earnings go toward basic survival. Speaking of heirs, watch an episode of The Simple Life and tell me that Paris Hilton (who actually does earn millions through this show and appearances on Hollywood Squares) deserves her millions more than the farm family with whom she and Lionel Ritchie's daughter reside. As we see in professional basketball, thoroughly lazy and mediocre players can luck into big contracts due to factors beyond their control (height, leaping ability, playing on a team with a great player that allows them easy looks). Is it so hard to believe that there aren't more examples of such luck in the business world. Why should a CEO of a computer company reap all the benefits of prosperous business and not the techs who build the products? Why would any tech even be motivated to work harder than the minimum required when the payoff won't differ either way? Haven't you watched Office Space and heard it's all too true mantra "It's not that I'm lazy - it's that I just don't care." The environment of today's businesses (with their enormous executive salaries and privileges and minimal incentives for the workers) totally foster this kind of attitude. All this doesn't mean that we'll never see another Ragged Dick again. But we will see less and less of them, unless you somehow recreate the frontier (which was the origin of many "rags to riches" stories). Without the land giveaways and new markets that it afforded, you can't realistically believe that hard work guarantees financial success.
BTW, I actually don't have any trouble poking holes into some of Krugman's points (while I do agree with others). Krugman implies that the New Deal was a great equalizer in the Class War. He is right to some extent but ... I put more weight in the economic landscape of post WW II. We right now may very well working ourselves back to the mean. I also don't care for his argument for income redistribution via estate taxes, mainly since death seams to be a bizarre taxable event. Not does a family loss a loved one, they also may loss some of their wealth. I can not come with a reasonable justification for this type of tax. What problem does it solve besides raising money for the treasury?
Bill Gates Mark Cuban Daniel Snyder (?) Unnamed Others What is this passion for penalizing or ridiculing those who come from privileged backgrounds?
Excellent post subtomic. The passion for ridiculing is not actually a passion for ridiculing - it's a passion for pointing out the obvious fact that most wealthy people are not as exceptionallly talented, or particularly valuable to society, as one is led to believe by their wealth. Most of the men you named came from fairly well-to-do backgrounds, and were of age at a point when there was wealth to be made, and maybe they just got lucky, but more to the point: Why is it that most of us recognized every name on that list? Because we know their stories. And why do we know their stories? Because they're exceptional - the exception to the rule. Just pointing out a few billionares hardly proves or disproves the practicality of the "American Dream." It's possible to win the lottery too. I can give you names. And, I have to agree with subtomic - the idea that people who are poor are poor because they're lazy is not only dead wrong, it's an arrogant and deluded self-justification for those who say it. It goes like this: Everyone wants to believe that what they've achieved is due solely to their hard work, their personal talents, or maybe some personal blessing from Jesus. So, from the need to believe that their success has come from some transcedent personal quality, they MUST declare anyone who isn't as successful as they are to be lazy, dumb, etc.,. - because to admit that it's just the luck of the draw that determines what social strata one is born into, and that one's birth tax bracket then determines one's success, is paramount to saying that your success was just luck of the draw as well. "Well, those poor people [unlike me] should help themselves [like I did] and work hard [like I do] if they don't want to be poor. There are winners [like me] and losers [like lazy poor people] in society. Some people are just winners who are smart and work hard [like me] and some aren't [like lazy poor people]." Most of these lazy poor people are working well over fulltime, and are still just meeting their survival expenses. You know why? Because they have no choice. It's not only arrogant and ridiculous to believe that poor people are poor because they lack some important and valuable personal quality [unlike you of course, you who have succeeded because you're so incredibly exceptional], but it's completely irrational and totally unsupportable. So, why do so many people believe it? Because they NEED to believe it, they need to be able to take credit for what they have. I got news for you cupcakes - unless you're some super-genius theoretical physicist or artist or something, anyone could do your job. Even a lazy and dumb poor person. Give them the same opportunities you had, and most of them will become just as successful as you are. Some would become even more successful than you. (And maybe THAT is what's so frightening about this whole thing, right? )
Who made you guys king? I didn't know that people needed anyone's approval to live out their life under the circumstance of their birth. You want to belittle the upper class and deny them their birthright. The men I named, I believe, came from modest backgrounds. I'm not too sure about Snyder actually. That's why I named them. They conquered a new frontier (The Internet) which someone indicated could only be done by rolling back time to the days of western expansion. Yeah it is possible to win the lottery but it takes no skill whatsoever to win the lottery. To carve out a successful career in any field takes character, talent, vision, and dedication. Ask Eddie Griffin.
Actually what it looks like to me is that we are moving back towards pre New Deal policies where the rich get taxed (as a percentage of income) a LOT less than anyone else. The New Deal put us on a more level playing field which doesn't seem good enough for the rich people. They want more and more tax cuts despite the fact that we are running HUGE deficits, are in the middle of a billion dollar a week war, and are increasing spending more than at any time in the last 20 years. We are not working back to the mean, we are rolling back the policies that leveled the playing field. As far as I am concerned, the estate tax is one of the best taxes there is. We do not tax anything under 3 million, ensuring that family farms and small businesses do not go under as a result of the tax, but on super rich estates, we collect half of the money that would have gone to super rich kids. Add that to the fact that the estate taxes are very easy to minimize through trusts and shelters (and by giving the money away before death) and you are looking at a tax on rich kids who did absolutely NOTHING to earn that money. The rich in this country owe a HUGE debt to society as it is the society and economy that have contributed to that growth of wealth. How is the estate tax "bizarre?" It is a tax on free money that the heirs will never have to put an ounce of energy into earning. It is a gift which SHOULD be taxed and not passed on from one generation of fabulously wealthy loafers to another. Look at an episode of "The Simple Life" and tell me that you think that those girls (especially Paris) truly DESERVE the millions (or billions) that they will inherit someday.
So it is now their BIRTHRIGHT??? You are truly deluded. Apparently you think that it is perfectly fine to have an aristocracy that inherits their money and never has to work for a living, but I think that people should earn their way by their actions and ability as well as their willingness to work hard and sacrifice. Or ask George Bush. No talent, no vision, no dedication and the jury is out on character. It also takes no skill to be born to a wealthy background and yet you seem to argue that those people deserve, nay have a birthright to that money. The estate tax also does not take ALL of the money one would inherit, but does recoup for some of the advantages that the rich person had when building their wealth.
Provided an economic landscape conducive to building that wealth. It also provided advantages (tax breaks, government influence, etc.) that must be repaid to society. The super rich in this country would not be anywhere near as rich as they are without our government's handouts, influence peddling, and tax breaks. They owe some of their wealth to society. The real question is, what did the HEIR do to earn that money.
What's wrong with a birthright? You have to invent a government and then enact wealth redistributing laws to take away portions of family wealth and you call me deluded!!!!!!!!!!! Yes, people born into a family wealth deserve it. Who deserves it more? Who deserves it more? Yes, I repeated the question for emphasis. Why do you need to recoup the advantages that were enjoyed one or two generations previously? Let's go out and kill all the aristocrats...
The rich pay taxes according to the tax code and their ability to take advantage of what the tax code allows. Do you think that money just came out of thin air. Someone somewhere back in time had to earn it. Not everyone is descended from wicked English Lords or southern slave owners. They pay SOME of their money to Society in the form of taxes and gifts. They don't have to do anything to earn it; it is in posession of their family. That is the default position. What they did to earn it is a matter to be resolved between the heir and their parents.
Yes, you are deluded if you cannot see that "birthright" is a way to create a permanent upper class who do not have to pay their fair share like the rest of us do. When those people have to pay the same percentage of their wealth in taxes that I do, I will feel some sympathy but until then, they need to pay their share even if it is post mortem. Someone who works hard and sacrifices for their money. Someone who works hard and sacrifices for their money. I repeated for emphasis because you are so seriously misguided. Who deserves that money more than Paris Hilton (for example)? I could write up a list of thousands of people who are more deserving of splitting up half of the Hilton fortune. Even so, Paris would not end up a pauper, she would still have HALF of the Hilton billions to play with and would never miss it. People born into family wealth should STILL have to work hard and sacrifice in order to build wealth. To give those advantages to ANOTHER group of young people so that they can work hard and sacrifice to make it to the level of the super-rich. Scholarships, educational grants, small business loans, and other assistance are going to be cut by killing the inheritance tax. Those advantages were enjoyed by the rich person and that same rich person should pay back the debt for those advantages. I am not talking about one or two generations removed, I am talking about taxing the rich person who dies for the advantages that THEY received as they built that wealth. I never said anything of the like and would never. You are obviously more interested in hyperbole than meaningful debate. You deserve this: .
