The New American Dream in an Age of Uncertainty

Higher inequality of wages and opportunity aren't just aren't just the new reality of the U.S. economy. They were the old reality, too.

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Reuters

In a major speech this week on the economy, President Obama emphasized that while the United States has recovered substantial ground since the crisis of 2008-2009, wide swaths of the middle class still confront a challenging environment. Above all, the past years have eroded the 20th century dream of hard work translating into a better life.

As Obama explained, it used to be that "a growing middle class was the engine of our prosperity. Whether you owned a company, or swept its floors, or worked anywhere in between, this country offered you a basic bargain -- a sense that your hard work would be rewarded with fair wages and decent benefits, the chance to buy a home, to save for retirement, and most of all, a chance to hand down a better life for your kids. But over time, that engine began to stall." What we are left with today is increased inequality, in wages and in opportunity.

The assumption is that this is unequivocally a bad thing. There have been countless stories about the "death of the American dream," and Detroit's bankruptcy last week was taken as one more proof. Yet lately the unquestioned assumption of a better future based on hard work has not served America well. If anything, today's version of that dream has been the source of complacency rather than strength, and its passing may be necessary in order to pave the way for a constructive future.

But you wouldn't know that from the president's speech and from continued news stories and academic studies. The inequalities of opportunity were underscored by a recent study that was brought to national attention by the New York Times this week that showed wide variations in income mobility depending on what part of the United States you live in. Those who live in metropolitan areas, as well as those with more higher education and wealthier parents, have significantly more upward mobility than many in rural areas.

The wage stagnation for tens of millions of working Americans over the past decades combined with the financial crisis has been painful and even calamitous for millions. In truth, however, the middle class security that has now disappeared only existed for a very brief period after World War Two, when the United States accounted for half of global industrial output and achieved a level of relative prosperity and growth that was substantially higher than in any other country. Before the Great Depression and World War Two, there was no assumption in the 17th, 18th or 19th centuries that the future would be inherently better for one's children.

As for income inequality, that is hardly a new issue. The presence of inequality in the past did not impede economic growth. After the American Revolution, income inequality began rising sharply along with economic growth. And it continued to rise well into the early 20th century, when more people became rich and even more people became mired in a level of poverty that does not exist today. Inequality then wasn't a barrier to mobility. If anything, it might have been a spur. Seeing how the Robber Barons of the Gilded Age lived provoked both the reforms of the Progressive Era and the ambitions of millions of immigrants and citizens who wanted a better life and saw that one was possible

Before the mid-20th century, the American dream was that if you worked hard you had the potential to craft a good life. You could be free from repressive government, and you could be able to watch your children do better via education and their own hard work. That potential was absent in other societies, and its presence -- along with tens of millions of acres of unclaimed land -- was what drew so many millions of immigrants.

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Zachary Karabell is Head of Global Strategy at Envestnet, a financial services firm, and author of The Leading Indicators: A Short History of the Numbers that Rule Our World. More

At River Twice Research, Karabell analyzes economic and political trends. He is also a senior advisor for Business for Social Responsibility. Previously, he was executive vice president, head of marketing and chief economist at Fred Alger Management, a New York-based investment firm, and president of Fred Alger and Company, as well as portfolio manager of the China-U.S. Growth Fund, which won a five-star designation from Morningstar. He was also executive vice president of Alger's Spectra Funds, which launched the $30 million Spectra Green Fund based on the idea that profit and sustainability are linked. Educated at Columbia, Oxford, and Harvard, where he received his Ph.D., he is the author of several books, including Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It (2009), The Last Campaign: How Harry Truman Won the 1948 Election, which won the Chicago Tribune Heartland Award, and Peace Be Upon You: The Story of Muslim, Christian, and Jewish Coexistence (2007), which examined the forgotten legacy of peace among the three faiths. In 2003, the World Economic Forum designated Karabell a "Global Leader for Tomorrow." He sits on the board of the World Policy Institute and the New America Foundation and is a member of the Council on Foreign Relations. He is a regular commentator on national news programs, such as CNBC and CNN, and has written for The Wall Street Journal, Newsweek, Time, The Washington Post, The New Republic, The Los Angeles Times, The New York Times, and Foreign Affairs.

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