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The End of the American Dream?

July 8, 2013

Niall Ferguson in Newsweek/Daily Beast:


“The United States is where great things are possible.” Those are the words of Elon Musk, whose astonishing career illustrates that the American dream can still come true.

Musk was born in South Africa but emigrated to the United States via Canada in the 1990s. After completing degrees in economics and physics at the University of Pennsylvania, he moved to Silicon Valley, intent on addressing three of the most “important problems that would most affect the future of humanity”: the Internet, clean energy, and space. Having founded PayPal, Tesla Motors, and SpaceX, he has pulled off an astonishing trifecta. At the age of 42, he is worth an estimated $2.4 billion. Way to go!

But for every Musk, how many talented young people are out there who never get those crucial lucky breaks? Everyone knows that the United States has become more unequal in recent decades. Indeed, the last presidential election campaign was dominated by what turned out to be an unequal contest between “the 1 percent” and the “47 percent” whose votes Mitt Romney notoriously wrote off.

But the real problem may be more insidious than the figures about income and wealth distribution imply. Even more disturbing is the growing evidence that social mobility is also declining in America.

The distinction is an important one. For many years, surveys have revealed a fundamental difference between Americans and Europeans. Americans have a much higher toleration for inequality. But that toleration is implicitly conditional on there being more social mobility in the United States than in Europe.

But what if that tradeoff no longer exists? What if the United States now offers the worst of both worlds: high inequality with low social mobility? And what if this is one of the hidden structural obstacles to economic recovery? Indeed, what if current monetary policy is making the problem of social immobility even worse? [More]

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