Economists Chart 'Index Of The American Dream' In 'The New York Times'

New economic research shows Americans are no longer as likely to make more than their parents did at the same age. NPR's Ari Shapiro talks to New York Times columnist David Leonhardt about what he calls the "Index of the American Dream."

ARI SHAPIRO, HOST:

The American dream is harder to attain than it used to be. People may have felt that for a long time. Now there's a body of research to back that up. One definition of the American dream is that your children will make more money than you did. Now economists have charted the percentage of people who make more than their parents did at the same age, and the picture is striking.

David Leonhardt is a columnist for The New York Times, and he suggested that the economists do this research. Welcome to the program.

DAVID LEONHARDT: Hi, good to be on.

SHAPIRO: David, you call this the index of the American dream. First tell us what the economists looked at.

LEONHARDT: These economists led by Raj Chetty, a professor at Stanford, and also professors at Harvard and Berkeley - they managed to take records that track people over years to figure out whether people out-earn their parents once you adjust for inflation, which I think is a really good basic definition of the American dream because we know our parents for our whole lives. You can see their living standards. And so you get a sense for, am I making progress? Is my community making progress? Is my country making progress?

SHAPIRO: So you start in, like, 1940. And if you were born in 1940, what was the likelihood that you would make more money than your parents did?

LEONHARDT: That's what's remarkable. It's 92 percent, which is to say, if you were born in 1940, you were virtually guaranteed to out-earn your parents even if you encounter difficulties in your life, even if you didn't finish a level of school, even if you dealt with an illness. So really because the economy was growing so rapidly and its gains were being shared widely, nearly everyone could expect to have at least their parents' living standards.

SHAPIRO: When you look at people who were born in 1980, which is the most recent data - so today, you're 36 years old. What's the likelihood that you make more money than your parents did?

LEONHARDT: It's only 50 percent. And I know that people sometimes now talk so despairingly about the state of the economy, that they might say, wow, it's still 50 percent. But 50 percent to come down from 92 percent is really worrisome.

It's come down the most, maybe not surprisingly, in the industrial Midwest. And so we now have essentially half the country that is not out-earning their parents, that by this very basic standard is not achieving the American dream.

SHAPIRO: What fundamentally changed to make that number fall so dramatically?

LEONHARDT: Two things changed. The economy doesn't grow as rapidly as it used to. But that's not the most important change. The most important change is the rise in inequality. When you dig into the numbers, what you see is the main reason most people are not out-earning their parents is that the gains from our economic growth goes so disproportionately to a small group of people at the top. And that makes it harder for most people to get ahead.

SHAPIRO: What sorts of policies could reverse these trends?

LEONHARDT: I think the evidence says that the single most important policy is education. College graduates do appear to be out-earning their parents despite the scare stories you hear about student debt.

It's not just education, though. You also want to think about tax policy. If inequality is much higher than it used to be, it's not clear to me that you want to cut taxes on the rich rather than cutting them on the middle class and the poor.

There are a whole set of policy things to think about. They're not easy, but we do basically know how to reduce inequality if, as a society, we want to set our minds to that.

SHAPIRO: The group that did the best, that was born in the 1940s, lived through an incredible post-World War II boom before globalization and technology started taking away jobs. Is it realistic to believe that America will someday see an economy like that again?

LEONHARDT: That's a really important point. No, it is not realistic to think that we can get back to the economy of the 1950s and '60s. But I do think it's realistic to do better than we are doing now. Again, the main reason why this index of the American dream has fallen is that inequality has risen so much.

It is possible to have an economy with less inequality. It is possible to have a tax code that gives fewer of its benefits to the wealthy and more to the middle class. It is possible to spend more of our societal resources and attention improving education for kids in the middle and at the bottom. So while we're not going to get back to those nostalgic days of the 1950s and '60s, we can do substantially better than we're doing.

SHAPIRO: It's possible to do those things. Is it realistic to do those things? Do you see the country moving in those directions?

LEONHARDT: I don't, which worries me. One of the striking things about this moment is that Donald Trump won in part by tapping into the frustration of this declining American dream more effectively than any politician had in the last several years. It is not at all clear from his list of policies that he is going to do things to improve the situation. And so while I tend to be an optimist, I do not see huge reasons for short-term optimism about this turning around.

SHAPIRO: That's David Leonhardt, New York Times columnist. Thank you for joining us.

LEONHARDT: Thank, Ari.

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