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PERSPECTIVE ON THE ECONOMY : The American Dream vs. the American System : That the U.S. had a 'golden age' is myth; inequity has been and will be the rule, without basic political change.

April 15, 1996|BENJAMIN SCHWARZ | Benjamin Schwarz is a senior fellow at the World Policy Institute

The American dream is endangered. So say politicians and pundits. They cite evidence of a widening gap between rich and poor and of a shrinking middle class. They say we must find a way to bring back the optimism and widely shared prosperity that, they maintain, traditionally characterized American life.

The real problem is that in trying to get back the American dream, they are trying to retrieve something that most Americans never had.

Since the early 1970s, technological change, new management methods and globalization have contributed to widening disparities of wealth and income. The pundits and politicians argue that America must return to the more equitable situation that prevailed in the 1950s and 1960s. Back then, it seems, U.S. working families had a nice house in the suburbs, two cars in the garage and a fat college savings account for the children.

But even if the trend of the past 25 years could be reversed, the American dream, for most Americans, would still be a chimera.

America in the '50s and '60s had not melded into one middle class. After all, Michael Harrington's "The Other America," which revealed that one-third of Americans lived in poverty, was published in 1962, the middle of the supposed "golden age." Discussing the current trend toward greater economic inequality, Harvard economist Richard Freeman warned that the U.S. could "become a class society like those in Latin America."

In 1962, during the height of generalized prosperity in the U.S., the richest 20% of American households received a greater share of aggregate national income than did the richest 20% of Venezuelan, Chilean, Costa Rican and Argentine households (the share of the richest 20% of Mexican households was only 0.5% more than the share of the richest 20% of American households). At the same time, the middle 20% of U.S. households received a smaller income share than did the middle 20% of households in all these Latin American countries, plus Mexico.

In 1970, at the apex of middle class prosperity, the Bureau of Labor Statistics defined a "moderate" budget for a family of four. This budget allowed for clothes to be replaced over a period of two to four years, one used car, a movie every two to three weeks. The education allowance covered only books and paper; it permitted no savings for higher education. This middle class budget was far from extravagant--yet, according to the bureau, half of America's families couldn't afford it.

Even at its best, then, the United States fell miserably short of the American dream. And although, as journalist Herbert Croly wrote in 1909, "The success of this democratic political system is indissolubly associated in the American mind with the persistence of widely distributed economic prosperity," at no point in our history has the wealthiest 10% of U.S. households failed to receive a larger income than the bottom 50%.

For most of U.S. history, the dominant economic idea, embraced by both liberals and conservatives, has been to increase the economic pie rather than to divide it more equally. But today's social and economic situation clearly shows the consequences of that idea. While increased productivity, corporate profits and a rising stock market indicate that the pie is obviously growing, only the wealthiest 20% of U.S. households enjoy a surge in their incomes. The incomes of the poorest 45% of U.S. households, on the other hand, have declined. A political economy governed by the idea that a rising tide lifts all boats reinforces the existing structure of privilege and power; it cannot lead us to the American dream.

That dream, of which our candidates speak so eloquently and nostalgically, will not be achieved by a return to a mythic golden age, nor by the deregulation that conservatives advocate, nor by the desirable but anemic reforms, such as better job training programs, that liberals support. If Americans truly want to achieve what Croly called "the promise of American life," then we must recognize that an economic system that has never given us what we profess to want will never fulfill that promise, no matter how much we tinker with it. The promise of American life will be realized only by the most fundamental changes in our political economy. Americans must therefore choose between the American economic system and the American dream.

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