The American dream, such as it now is

A YouTube video and a magazine have a somewhat related theme.

Facebook Friend Bryan Caplan, a George Mason University economist, did this video …

… the response to which ranges from unconvinced to quite hostile:

  • Sure, you might be underemployed due to inflation raising prices on everything or a college graduate struggling with impossible debt you’ll never pay off, but at least we can all watch videos on YouTube on our iPhones telling us that that everything is perfectly fine.
  • This video is giving false hope and does not take into account the cost of living during the 1900’s compared to today. In the 1900’s people did not need to make much money because everything was cheaper than it is today. The only reason why its hard for us to distinguish the poor and the rich on the street is because even when you are poor, you have still been trained to go out and buy expensive clothes and toys to play with.
  • Surely human’s natural inclination to moan about absolutely everything is the reason why we’ve come so far? The wooden stick’s working just fine, why put a bit of flint on it? “CAUSE IT TAKES 80 STABS TO KILL A MAMMOTH WITH A STICK, do you know how tiring that is?” So voila, flint spearheads, if we were complacent as a species, we’d be in a different place, look at chameleons, they’re pretty smug with their superpowers, but they’ll never invent Flowbee.
  • High inflation and a major correction in the DOW will just be little bumps on the overall uptrend…  Hmm.  What about the trend over the last decade for less economic freedom and more government spying in the US?  What about the massive government debt globally?  I guess in the long term we are all dead… So the short term is kind of important to We the Living.

I’m not an economist, but I think comparisons are kind of meaningless. Not that long ago in the scheme of human history our ancestors had daily fights for survival. So compared to then, of course things are better. Anyone who didn’t die from an infection thanks to antibiotics should think things are better. Your being able to read this on a computer sized somewhere between a box of 3×5 cards and a suitcase should think things are better, at least in an overall sense.

Note the comment that infers that you need a college education for certain professions. The concept of professional licensing is a topic that deserves more space than this, but to say that things are worse because people feel compelled to improve themselves through education is bizarre.

Democrats nationwide and statewide are fixating right now on income inequality, which is interesting given that income inequality has worsened during the current administration in Washington, and given that there are more really, really rich Democrats than Republicans. And those really, really rich Democrats are not putting their money where their mouths are by altruistically sharing their wealth, with the possible exception (depending on how you define “sharing”) of Warren Buffett and Bill Gates. Besides that, the rich will always take care of their own money (which is how they became rich in the first place); the bigger question is how are the non-rich doing.

As a UW student I was taught macroeconomics and microeconomics separately within the same class, but it seems likely to non-economists that someone’s perception of the latter influences that person’s feelings about the former. Caplan also doesn’t really address today’s rampant unemployment and underemployment, which is at levels that do not make noticeable economic growth that benefits most people sustainable. (Great legacy you’re leaving there, Barack.) Employment, doing something productive, is key to one’s happiness (to the extent that we’re supposed to be happy), and private-sector employment is the key to real live economic growth.

Caplan essentially is arguing that because things are better now than 100 years ago (and even pessimistic readers must admit that none of us is going to die fighting World War I, nor are we going to die from the 1918 influenza outbreak), they will be better in the future. That brings to mind the fine print in financial planning ads: Past performance does not necessarily predict future results, particularly when bad people advocating bad policies are in power in Washington. (This means you, Barack, on both scores.)

All this brings to mind a question that was actually asked before Caplan’s video. I commend to readers the Wisconsin Policy Research Institute‘s May issue, the theme of which is “Can the Dream Be Restored?”.

Editor Charles J. Sykes introduces two of the many must-reads in the magazine:

In a thoughtful interview with WPRI President Mike Nichols, [U.S. Rep. Paul] Ryan explains how entrenched poverty is a symptom of the decline of the American Dream. Ryan is careful to distinguish between two frequently conflated terms: inequality and mobility.  While President Obama focuses on the need for spreading wealth around, Ryan asks a very different question:  What are we going to do to remove barriers to allow more people to be where they want to be and do with their lives what they want to do? 

In a related piece, Robert L. Woodson, Sr., founder of the Center for Neighborhood Enterprise, reflects on a listening tour that he arranged for Ryan to learn from community and faith-based leaders about the problems of poverty. “My goal in arranging these visits,” explains Woodson, “was to move beyond the traditional conservative and liberal understanding of how to address the needs of the poor.”  

Nichols’ interview with Ryan can be read here, and Woodson’s piece can be read here.

Rick Esenberg also writes about the pluses and minuses (yes, there are some) to a market economy:

Economic arguments only go so far in the face of the natural desire of people to have more of what they do not have and their sense that the wealth enjoyed by others is “unfair.”

But we can hardly decide whether inequality is a problem and, if so, what to do about it, without understanding what we are talking about.

Our envy is not really over the 1% — a group that begins at somewhere in the neighborhood of $400,000 to $500,000 in annual income. This is a tidy sum, to be sure, but not nearly enough to finance the life of the rich and famous. We are actually green over some fraction of the 1% — those who earn millions every year and enjoy private jets and villas in Martinique.

But even then, we aren’t bothered by all of these people. We complain about CEOs and investment bankers. We don’t complain about pop stars and utility infielders. There’s a reason for that.

Most of us understand that someone who can play in the NFL or star in “Breaking Bad” is highly talented and earns huge sums of money for those paying the bills. We can’t see that with CEOs who seem to be doing something less extraordinary — sitting behind a desk and managing an organization. It doesn’t seem so special.

But, in economic terms, we are wrong about that. Liberal economist Robert Frank, in his book The Darwin Economy, explains that the only thing surprising about CEO salaries is that they are not higher. The reason, he says, is that the quality of the decisions made by people who run extremely large entities can add or subtract hundreds of millions of dollars to or from the bottom line. It is, Frank argues, perfectly rational to pay huge salaries to maximize the possibility of getting the right person to make the right decisions.

This doesn’t mean that companies will always choose wisely. The argument for markets is not that they are perfect, just better than command economies. To be sure, there was a time when the most highly paid earned less than they do today. Many on the left long to return to those days, calling it the Great Compression. This is more than a tad ironic. Back in the ’50s and ’60s, when that world still existed, the left hated it. …

As Frank and others point out, the old economy was riddled with regulatory and cultural barriers that tended to protect established producers and discourage competition. The freer global economy that we have today tends to reward people at levels more commensurate with the economic value of their contributions, and that certainly increases income inequality.

There is a robust debate among economists as to whether globalization and the turn to markets have helped the majority. While we hear claims that wages have been stagnant over the past 30 years and that mobility of generations is not what it should be, measuring these things over time is far more complicated than the sound-bite critics allow.

When you peel this statistical onion, I think you’ll find that the standard of living for almost all Americans is far better than it was when I was young.

Having said this, I think it’s fair to say that the new economy places a premium on marketable skills in a way that makes it more difficult for those lacking these skills to keep up.

This will require policy responses. But, as [Alexis de] Tocqueville and [James] Madison noted long ago, the greater challenges may be political. They saw that envy could trump reason. Avoiding that will require a conversation rooted in fact and not passion.

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