The End Of US Upward Mobility? Economic Stagnation, Growing Inequality A nasty political battle is shaping. Who will rebuild America?


WASHINGTON – Good-bye Horatio Alger, and good-bye to all the (mostly but not entirely) mythical “rags to riches” American stories. Farewell to an America where truly determined people could go as far as their dreams would take them. The unpleasant new reality is that opportunity and upward mobility no longer exist in America. This is a hard fact. By many measures, many “socialist“, sclerotic, welfare bound European countries have more upward mobility than America –and far less income inequality.

Faded American Dream

If not entirely dead, the American Dream is fading. This is no longer the land where everything is possible for people with drive and determination. And this unpleasant reality is made more stark by the feeble recovery that followed the massive 2007-2009 recession. At a time of prolonged stagnation people are more sensitive to what they do not have or no longer have, while they look at the fabulously well to do and wonder how they got where they are. And, as the stagnation continues, wonder easily turns into resentment. Those who have a lot, it is easy to conclude, have rigged the system. No way that they got there because of merit.

Stagnation and Inequality

And so we have two separate but by now commingled narratives: a stagnant economy that no longer favors mobility and social tensions (the Occupy Wall Street movement is an example) due to growing income inequalities. All this was brought about by a variety of factors, including technology, the bad side of globalization, and the exponential growth of the financial sector as a driving component of the American economy.

Political ramifications

From a political stand point, it is not entirely clear which message will resonate the most in this election year. Is it going to be the Mitt Romney Republican theme that it is time to get America moving again, and that he knows how do this? Or is it going to be the Democratic party message that it is time to create more equality in this society so that the poor and the out of breath middle class will get more?

I am not sure as to which message will be more powerful. A lot, of course will depend on the messenger. President Obama looks weak and beatable. But I would not count him out. Half of America feels dispossessed. If Obama can sell the idea that by taxing the rich the poor will get more, that by itself may be a powerful vote getter. If you vote for the Democrats you may not get rich, but they will make sure that the spigots will stay open and so some benefits will keep flowing. Vote Republican and it will be all over, as they will want to rebalance the national accounts on your back.

The Republicans may claim that they understand the economy and that they know business. But everybody remembers that the business friendly Republicans were in charge when the most devastating recession since the 1930s came about in 2007-2009.

It takes some nerve to state that the private sector and its Republican cheerleaders know what they are doing, after all what happened. But, there again, this was a few years ago. Barack Obama, not George W. Bush is the incumbent running for re-election right now.

Still, all in all, politically I would say that it is a toss-up. Mitt Romney, (I assume he will be the GOP candidate), may claim that he knows about business. But how deeply credible is this claim?

On the other side, Obama may not have stellar credentials as a steward of the economy. But he is a powerful steward of the entitlement state. And, in this capacity, he has legions of public employees, teachers and other unionized workers who see him as the champion of their social justice cause.

Add to that mix most minorities, single mothers, millions of retirees concerned mostly about keeping all their benefits and you have a pretty strong coalition. And I haven’t even mentioned the inherent political advantages of any incumbent president.

How did this happen?

But, politics aside, how did all this happen? How did social mobility end in America? ironically, in large part this is due to American technology and know how that spread all over the world, Asia in particular, enabling workers in emerging low wage countries to perform the functions of their American counterparts at a fraction of the cost.

Massive jobs losses are the nasty effect of globalization for a big chunk of what used to be the American middle class. Another big part has to do with the impact of sophisticated technology on domestic industries, making many functions and thus functions performed by humans redundant. The massive introduction of IT simplified processes, and automation eliminated jobs. The jobs that survived are at the top, managers and engineers, and at the bottom, for the unskilled doing menial labor. The somewhat skilled, but not super skilled functions in the middle are gone or going, replaced by machines or made redundant by increased IT enabled productivity.

Public education is a massive failure

In the meantime, the American public education system, the designated social escalator that used to allow people to go places, and an essential tool for all those who need help to climb the socio-economic ladder, is broken.

Let’s be clear, a bad education is a passport to nowhere in this economy in which all the good paying jobs require sophisticated skills that only a good education can provide. Without good education it is next to impossible to climb the social mobility ladder.

Many intelligent people are fully aware of this huge public education gap and are working on it. Big corporations also understand the value of a large pool of skilled human capital; and so they fund initiatives aimed at improving public education. And, to its credit, the Obama administration has pushed this issue very hard, thanks to Arne Duncan, the Secretary of Education.

But the problem is that the damage is huge. Even with our best efforts, we have to repair at least 30 years of neglect. So this will take a long, long time.

In the meantime, a big chunk of the public education system will continue to roll out semi-illiterate or at the very least mediocre graduates who cannot possibly aspire to much. In today’s unforgiving world, hard work and elbow grease are still welcome. but a good degree from a top-tier university in computer science or electrical engineering gets you much farther.

We have done this to ourselves

In the end, while globalization certainly took a toll, we have done this to ourselves. We have cuddled and rewarded special interests. (Think corn-based ethanol. Think teachers unions stuck in the Middle Ages). We have neglected education; and we have done almost nothing to retrain people, our human capital, displaced by globalization and by technology.

At the same time, we have favored financial activities, while neglecting productive sectors. The sad outcome of all this is that those who manipulate money, without adding a lot of value in the process, profit by taking fat commissions for their efforts. And in so doing they have become inordinately rich.

Political fight: growth or equality?

And this state of affairs of economic stagnation, plus exponentially high inequality, now legitimizes a political confrontation in which a losing president Obama who did little to improve the economy can still have a good fight by claiming that he is here to counter the heartless Republicans who sold their souls to Wall Street. This strategy may very well help Obama win re-election, but it will do little to improve the economy. Socializing misery is not a pro-growth strategy, nor does it help upward mobility.

This being the picture, and thinking about the nasty political campaign just about to unfold, I do not see anybody laying a good foundation on which to build a national consensus on broad-based, pro-growth policies that most people could embrace, because they genuinely speak to their aspirations. And, without such a consensus, a fractured society will continue to bicker and fight, while America’s competitiveness will be further eroded.

Again, good-bye Horatio Alger. We shall miss you.

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