Abacus: The Inaccessibility of the American Dream

“The history of all hitherto existing society is the history of class struggles”

                                                                              -Karl Marx

Marxism is based in the theory that all of human history has extended from the fundamental divide between classes, who battle each other in protection of their own interests. Our own great nation is not devoid of these class confrontations. Whether it be former Presidential Candidate Bernie Sanders and his grouping of the 99%, the ongoing divisions between races, from Martin Luther King Jr, to the OJ Simpson trial, to the recent shooting of Michael Brown, or the current President highlighting the wide class divide in urban v. rural America.

These are all inherently economic divides. However, Brookings Institution scholar Richard Reeves hypothesizes that class conflict is  “rooted in the inaccessibility of the American dream.” His new book, “Dream Hoarders,” pinpoints the somewhat hidden, yet most significant, national class divide between the top fifth American tax bracket, and everyone else. I.e., the upper middle class is leaving the rest of the country in the dust. To make matters worse, America’s obsession with other divides (see examples above) allows the upper middle class convince the bottom 80% that they are all in the same, sinking, boat. However, as Reeves mentions in the first chapter of his book (PDF here), most or all inequality comes at and above the 80% line. Upper middle class America has pulled away economically, and they are fighting like hell to keep their piece of paradise.

The Economist published an article examining and summarizing Reeves’ theory. Firstly, Their economic separation, or, bank accounts and salaries: “between 1979 and 2013, average incomes for the bottom 80% of American households rose by 42% (adjusted for price changes). By contrast, those of the next richest 19% rose by 70%, and of the top 1% by 192%.” That “next richest 19%” figure is the most important in examining the evermore important political idea of inequality. According to economist Edward Wolff: Yes, the top 1% owns 35% of our Nation’s total wealth, but the next 19% owns more than half of it, leaving a measly 11% of America’s wealth to the bottom 80% of the country. Relevant graph below:

Source-  "The Asset Price Meltdown and the Wealth of the Middle Class", by Edward Wolff

Source-  "The Asset Price Meltdown and the Wealth of the Middle Class", by Edward Wolff

But the class divide between the upper middle class and the rest of America doesn’t end there. Reeves argues that their status stands apart not only in economic terms, but in family structure, health and longevity, their level of education, all the way down to things like civic and community life. As The Economist’s article states, the upper middle class: A) Restrict house building in their “well-groomed” neighborhoods, making many cities unaffordable for the rest of the population. They B) “lobby for tax benefits for higher education and home ownership, which disproportionately benefit the upper middle class.” They C) use their socioeconomic status and network to place their children in the most valuable positions that lead to intergenerational success. While you can’t condemn their efforts to take care of their children, these exuberant efforts to preserve their ring in the socioeconomic ladder amounts to “opportunity hoarding.”

To put it another way: the patrimonial middle class’ “prosperity gives them a crucial stake in political [and economic] stability.” Their efforts are proven in their reluctance to roll back political privileges in the current economic scheme. Reeves uses the example of their political backlash to Obama’s efforts to remove tax benefits from 529 college savings plan, which “disproportionally help affluent families.” The results: “More than 40% of the children of the wealthiest 20% of households will themselves end up among the wealthiest 20%. And nearly 50% of those born to fathers who are among the best educated 20% will themselves end up among the best educated 20%.”

Therefore, the upper middle class’ economic separation begins in childhood and continues through generations. I.e., they pass on their privileged opportunities to their children by sending them to the highest level Prep schools and Universities, which becomes especially valuable considering how much of today’s economy is tied up in levels of human capital. Reeves goes as far to say that today’s postsecondary education has become something of an “inequality machine.” And the most dangerous part: The upper middle class are wealthy enough to have political influence, and numerous enough to be a significant voter bloc, which makes it difficult to silence their monopoly on the American Dream.

While not widely understood, this 19% is so important to understanding economic inequality and divides in America. For the reason that it undermines the notion of economic opportunity, and therefore the accessibility of the American dream. This 20/80 division “makes a mockery of America’s vision of itself as a land of opportunity.” Reeves ultimately argues that the upper middle class has attempted to delete downward class mobility, and has partially succeeded. And, for the American dream to work as we expect it to, some of the children in this class have to take on this role.

Reeves concludes: “Progress is possible but only if the upper middle class gives some stuff up.” And, The Economist expands by essentially saying (I’m interpreting here) that the solution to this high level of economic inequality is dulling the incentives that reinforce the “glass floor” between the haves and have-nots. Because right now, the actions of the upper middle class equate to not just “opportunity hoarding”, but turns them into “economic villains.”