One method by which social scientists have tested this belief is to compare, among different countries, the correlation coefficients between incomes (or income ranks within people of their generation) of adults and the incomes of their parents. A correlation coefficient of 1.0 would mean that relative incomes of parents and of their adult children are perfectly correlated: all high-income people are children of high-income parents, all low-income people are children of low-income parents, kids from low-income families have zero chance of achieving high incomes, and socio-economic mobility is zero. At the opposite extreme, if the correlation coefficient were zero, it would mean that children of low-income parents have as good a chance of achieving high incomes as do children of high-income parents, and socio-economic mobility is high.
The conclusion of such studies is that socio-economic mobility is lower, and family intergenerational correlations of incomes are higher, in the U.S. than in other major democracies. For instance, 42% of American sons whose fathers belong to the poorest 20% of their generation end up in the poorest 20% of their own generation, whereas only 8% of sons of those poorest fathers achieve rags to riches by ending up in the richest 20%. Corresponding percentages for Scandinavian countries are about 26% (below Americans’ 42%) and 13% (above Americans’ 8%).
Sadly, the problem is making itself worse: economic inequality has been increasing, and socio-economic mobility has been decreasing, in the U.S. over the course of recent decades. American governments at all levels are increasingly influenced by rich people, with the result that governments pass laws (such as voter registration rules and tax policies) favoring rich people, making it increasingly likely that candidates favored by rich people will win the next elections and pass more laws favoring rich people, with the result that American governments will be increasingly more influenced… with the result that… etc. That may sound like a bad joke, but it’s a truth of recent American history.
In short, our American belief in the feasibility of rags to riches is a myth. The rags-to-riches path is less feasible in the U.S. than in other major democracies. The likely explanation is that wealthier American parents tend to be better educated, to invest more money in their children’s education, and to provide more useful career connections to their children than do poorer parents. For example, children of wealthy American parents are 10 times more likely to complete college than are children of poor parents. As Richard Reeves and Isabel Sawhill wrote, “Pick your parents carefully!”
Now, let’s return to the query that I posed at the beginning of this discussion of inequality. Granted that it’s a huge moral problem, and that it’s unfortunate for those individuals who happen to be poor—so what? Is it also an economic and security problem for the U.S. as a whole? Does it cause any harm to affluent Americans that they live surrounded by poor Americans?
I choke at posing that selfish question about harm. Isn’t the moral problem alone sufficient reason to be concerned about inequality? But the cruel reality is that people are driven not just by moral considerations but also by self-interest. Many affluent Americans would be more concerned about inequality if they realized that it affects them personally, as well as being an abstract moral issue.
My wife and I received a personal answer to that question “So what?” on April 29, 1992, after we arrived at a Chicago hotel for a conference following an airplane flight from Los Angeles, where we had left our children with a baby-sitter. When we encountered friends in the hotel lobby, they told us, “Go back to your hotel room and turn on the TV. You won’t like what you see.” We did as we were told, turned on the TV, and saw that uncontrolled rioting, looting, fires, and killings (the so-called Rodney King riots) had broken out in poor minority districts of Central Los Angeles and were spreading along the streets into other neighborhoods (Plate 10.1). At that moment, we calculated that our children would be in a car with our baby-sitter, being driven home from school. We spent an anxious couple of hours until our baby-sitter phoned us to confirm that she and our children had gotten home safely. All that the vastly outnumbered LA police could do to protect wealthy areas of LA from rioters was to string up yellow plastic strips of police tape asserting the closure of major streets.
On that particular occasion, it happened that the rioters didn’t attack wealthier districts, nor had they in LA’s previous major riots, the 1965 Watts riots. (Both the Rodney King riots and the Watts riots were race riots, motivated by racial discrimination resulting in economic inequality and feelings of hopelessness.) But one can be sure that the future will see more riots in LA and other major American cities. With increasing inequality, persisting racial discrimination, and decreasing socio-economic mobility, poorer Americans will perceive correctly that the vast majority of their children have low chances of achieving a good income or even just of modestly improving their economic status. Within the foreseeable future, the U.S. will experience urban riots in which plastic strips of police tape won’t suffice to deter rioters from venting their frustration on affluent Americans. At that point, many affluent Americans will receive their own personal answer to the question, “Does it cause any harm to rich Americans that they live surrounded by poor Americans?” One answer is: yes, it causes personal insecurity.
Even those affluent Americans who live at a safe distance from rioters will receive another answer to that question “So what?”—a less violent answer, but one that will still have a big effect on their pocketbooks and lifestyles. That answer involves the last of what I see as the four fundamental problems now facing the U.S.: the economic consequences of declining American investment in our human capital and other public purposes. Those consequences will be felt by all Americans, including affluent ones.
The necessity of investing in one’s future, whether for individuals or for nations, is obvious. If one is rich today but just sits on one’s money without investing it, or if one invests it unwisely, then it will be just a matter of time until one is no longer rich. Is that really a concern for the U.S. today?
One’s first answer may be: of course not! Many people consider U.S. private investment to be high, bold, imaginative, and extremely profitable. It’s relatively easy in the U.S., compared to other countries, to obtain funding to start a new business and to test an idea’s commercial potential. The result has been Microsoft, Facebook, Google, PayPal, Uber, and many other U.S. businesses that were founded only recently but that have already become international giants. Through friends in the venture capital business, I’ve seen second-hand why U.S. private investments succeed so well. Venture capital funds raise millions (or hundreds of millions) of dollars, which they then divide into investments in many new start-up businesses. Most of those businesses will fail, but one or a few may succeed on a grand scale that brings big profits to the original investors. The ideas in which my venture capital friends make bold investments include not just variants on familiar financial technologies, but also far-out high-risk ideas. That ease of obtaining private start-up investment funding is a big reason for the U.S.’s world dominance among explosively growing new businesses.
To illustrate that ease, I’ll now list eight ideas that I would have considered crazy and high-risk a dozen years ago. Two of those eight ideas (which I’ll designate as category A) have now become successful and created businesses worth tens of billions of dollars; two (category B) have attracted wealthy backers but haven’t yet been shown to work; two (category C) have been shown to work and have attracted venture capital funding but aren’t (yet) big businesses; and two (category D) are hoaxes that I thought up myself just now and that haven’t attracted any funding (as far as I know). The ideas are: 1. an electromagnetic shark repellent for swimmers; 2. a dog collar that electronically transmits your dog’s activity and health as well as its GPS location; 3. DNA intra-uterine technology to enable your dog to give birth to a silver fox pup with valuable fur; 4. a social medium that posts your photos and texts on-line but automatically erases them in 24 hours or less; 5. a pod that transpo
rts people at airplane speed through a vacuum tube; 6. technology by which you can rent a room in your house to a complete stranger sight unseen, should you actually want to do so; 7. technology to freeze you quickly as soon as you die, so that you can be brought back to life some day in the future when doctors have figured out how to cure the disease that killed you; and 8. a chemical to spray on your skin that lets you “breathe” underwater for 15 minutes.
Can you assign these ideas correctly to categories A, B, C, and D? The answers are listed at the bottom of this page. I’ll bet that few of you readers assigned all eight ideas correctly to the four categories. That illustrates how even ideas that initially sound crazy can attract start-up funding in the U.S., can get the chance to prove themselves, and (if successful) can expand around the world as multi-billion-dollar businesses.
Another reason for initially dismissing concerns about American investment in our future is the world dominance of American science and technology, which account for 40% of U.S. economic output: the highest percentage for any major democracy. The U.S. leads the world by far in output of high-quality science articles in every major area of science: chemistry, physics, biology, and earth and environmental sciences. Half of the top science and technology research institutions in the world are American. The U.S. leads the world in absolute spending on research and development (though not in relative spending: Israel, South Korea, and Japan all invest a higher percentage of their GDPs in science and technology than does the U.S.).
1C, 2C, 3D, 4A, 5B, 6A, 7B, 8D
Offsetting those reasons to feel optimistic about the U.S.’s investment in our future is a reason to feel pessimistic: the decline of American government investment in public purposes, such as education, infrastructure, and non-military research and development; and our large government expenditures for economically unprofitable purposes. Increasingly large segments of the American populace today deride government investment as “socialism.” On the contrary, government investment is one of the two oldest established functions of government. Ever since the rise of the first governments 5,400 years ago, they have served two main functions: to maintain internal peace by monopolizing force, settling disputes, and forbidding citizens to resort to violence in order to settle disputes themselves; and to redistribute individual wealth for the purpose of investing in larger aims—in the worst cases, enriching the elite; in the best cases, promoting the good of society as a whole. Of course, much investment is private, by wealthy individuals and companies expecting to profit from their investments. But many potential pay-offs cannot attract private investment, either because the pay-off is so far off in the future (such as the pay-off from universal primary school education), or because the pay-off is diffused over all of society rather than concentrated in areas profitable to the private investor (such as the diffused benefits of municipal fire departments, roads, and broad education). Even the most passionate American supporters of small government do not decry the funding of fire departments, interstate highways, and public schools as socialism.
The result is that the U.S. is losing its former competitive advantage that rested on an educated workforce, and on science and technology. At least three trends are contributing to this decline: the decreasing amount of money that we devote to education, the declining results that we get for the money that we do spend on education, and large variation among Americans in the quality of education that they receive.
As for government funding of education (especially higher education), that has been dropping since at least the turn of the century. Despite our growing population, state funding of higher education has grown at only 1/25th of the rate of state funding for prisons, to the point where a dozen U.S. states now spend more on their prison systems than they do on their systems of higher education.
A second trend concerns the declining performance of American students, by world standards. In math and science comprehension and test scores, American students now rank low among major democracies. That’s dangerous for us, because the American economy is so dependent on science and technology, and because math and science education plus years of schooling are the best predictors of national economic growth. But our educational spending per student, although in decline, is still high by world standards. That means that we are getting a poor return on our educational investment. Why?
A big part of the answer is that, in South Korea, Finland, Germany, and other democracies, the teaching profession attracts the very best students, because teachers there are highly paid and enjoy high social status, which leads to low job turnover of teachers. South Korean applicants for training as primary schoolteachers have to score in the top 5% on national college entrance exams, and there are 12 teachers applying for every secondary school teaching job in South Korea. In contrast, American teachers have the lowest relative salaries (i.e., relative to average national salaries for all jobs) among major democracies. In the American state of Montana, where my wife and I spend our annual summer vacations, schoolteacher salaries are near the poverty level, and teachers have to take one or two additional after-hours jobs (e.g., working as box-packers in supermarkets) to make ends meet. All schoolteachers in South Korea, Singapore, and Finland come from the top third of their school classes, but nearly half of American teachers come from the bottom third of their classes. In all my 53 years of teaching at the University of California (Los Angeles), a university that attracts good students, I have had only one student who told me that he wanted to become a schoolteacher.
The remaining trend contributing to the decline in our educated workforce is the great variation in American education, both among and within American states. In contrast to most other major democracies, where the national government funds education and sets standards, in the U.S. that responsibility falls on the individual states and local government. State spending per student on public higher education varies 11-fold among American states, depending on variation in state wealth, in tax revenues, and in political philosophies. Within the same state, it varies among districts: poorer districts and poorer states have less-well-funded schools. That fact tends to make geographic variation in poverty within the U.S. self-perpetuating, because education is so important for economic performance. Quality of education also varies enormously between private and public schools within the same district, because private schools that charge tuition attract children of wealthy parents, pay teachers better, have smaller classes, and provide a much better education. That’s impossible in Finland, where the national government itself pays the salaries of teachers of private schools as well as the public schools and pays the same salaries to teachers at both types of schools, so Finnish parents (unlike American parents) can’t buy a better education for their children by sending them to private school.
What’s the takeaway message of declining American government investment in public schools, and of the great variation in educational opportunities available to American children? It means that the U.S. is stinting its investment in the future of most Americans. While we have by far the largest population among wealthy democracies, most of that population is not being trained for the skills that are the engine of our national economic growth. But we are competing against countries like South Korea, Germany, Japan, and Finland, which invest in the education of all of their children. In case you take comfort in the fact that those countries have smaller populations than the U.S.—e.g., in case you feel reassured that 20% of American schoolchildren still slightly outnumber 100% of South Korean schoolchildren—remember that China, whose population is five times that of the U.S., is now embarked on a crash program to improve the educational opportunities of its children. That bodes ill for the future of the competitive advantage that the U.S. economy has hitherto enjoyed.
All of these facts raise a paradox. The United States is the world’s richest country. Where is our money going, if it is not being invested by our government in our own future?
Part of the answer is that most of our money stays in ta
xpayers’ pockets; our tax burden is low compared to most other wealthy democracies. The other part of the answer is that much of our tax money is going toward government expenditures on prisons, the military, and health. In all three of those categories, our expenditures far exceed those of other major democracies. No one could claim that our prisons, which emphasize punishment and deterrence rather than rehabilitation and retraining, constitute investments in our future. Granted, our military expenditures do constitute investments in our future: but why do we spend so much more on our military than does the European Union, whose population is nearly double ours, but whose costs of military protection to ensure its future are ultimately shouldered disproportionately by us? As for our expenditures for health, it would seem natural to consider them as investments in our future—until one examines their uses and outcomes. In health outcomes the United States ranks below all other major democracies, by measures such as life expectancy, infant mortality, and maternal mortality. That’s because the U.S. has high health-related expenditures for purposes not leading to healthy outcomes, such as high insurance premiums charged by our for-profit health insurance companies, high administrative costs, high costs of prescription drugs, high costs of medical malpractice insurance and defensive medicine, and expensive emergency room care for our large uninsured population that cannot afford non-emergency care.
Upheaval: Turning Points for Nations in Crisis Page 36
