End Of A Dream

Given this rich history, today's environment does not paint a rosier picture for tomorrow. The very foundation of the American dream looks very shaky . Many economists think of this age as that of return of the gilded era with huge concentration of wealth but without the engine of growth. If the gap between the rich and the poor is too low, the middle class does not have much incentive to work harder to move up the ladder. On the other hand, if it is too high, then dream of catching up fades away. Several studies show that the earnings gap remained relatively stable from the 40s to 80s' when huge number of Americans had achieved their dream. However, starting from the eighties, a drift towards the upper class and away from the middle is palpably discernible. For example, for every additional dollar earned by the bottom 90 per cent, the top .01 per cent had earned $162 between 1950 and 1970. In 2006, the top .01 earned almost $18,000 compared to the same dollar earned by the bottom 90 per cent.  An average CEO of a company used to earn about 20 times more than a worker in 1970. Now, the CEO earns more than 400 times. 

An interesting find is this year's Forbes list of the 400 richest Americans. Only 16 faces are new entrants compared to 50-60 even 15 years ago. Many in the list dealt in coal, natural gas or even casinos but not a single person was from new technology. There are ample evidences to show that pace of upward mobility has slowed down and the middle class America is finding it hard to breathe today. Globalization, outsourcing, declining power of unions, rise of skill-intensive industries replacing the old ones have contributed to growing misery of the middle class but the biggest factor behind this inequality leading to disappearance of the middle class was the huge tax cut during the Bush regime. Between 2002 and 2007, the median income of the non elderly American households went down and pre tax income of the top 1 per cent increased by 10 per cent every year. In 2007, 23.5 per cent of nation's pretax income went to their purses. Yet, under the Bush tax cut, the top 400 tax payers, earning $87 million or more virtually paid the same percentage of their income as tax as people earning between $50,000 and $75,000.

The crisis of the 2007 had given President Obama a chance to rise above the politics of concession towards rich and to halt the tax breaks for the top 1 per cent and then use the proceeds for retooling the country with investment in new technology and fixing crumbling infrastructure and funding social security and offering a temporary debt relief to millions. Rahm Emanuel, President Obama's trusted aide had famously said: "You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before''.

But the inability of the President to take a strong stance against the permanence of Bush tax cut for the wealthiest, his half-hearted attempt at instituting a comprehensive financial regulation incorporating both sticks and carrots and the lack of a well directed plan to design an infrastructure appropriate for this century reveal that the crisis is probably going to waste. A diminished image of the country and the president in the recently concluded G-20 meeting show that US dominance is on the wane. The huge stock of wealth amassed from the prosperity of last two centuries and the presence of world class institutions in almost every walk of life will still make the country a better place than many others. Though the gleaming lustre of the past is about to fade.

The writer teaches at Essex Business School. He can be reached at sbanerji(at)essex(dot)ac(dot)uk