The Fading American Dream

Raj Chetty is a professor of economics at Stanford University and has been recognized by the American Economic Association as the best American economist under age 40. His current research focuses on equality of opportunity: how can we give children from disadvantaged backgrounds better chances of succeeding?

Professor Chetty’s research shows that the American dream of upward mobility is fading. An American child from a household with an income in the bottom quintile has a 7% chance of achieving an income in the top quintile. By comparison a Canadian child in the same situation has a 13% chance, almost double. Several other nations lead the US in social mobility. This is in spite of America’s prowess in producing private wealth.

Another finding is that the odds of a child earning more than his or her parents are declining. In 1940 there was a 90% chance that an American child would earn more than his or her parents. By the 1980s   chances were about 50/50. Only time will tell but there is no reason to think that millennials will fare better.

The potential for upward economic mobility used to be the unique promise of American society. Unfortunately this potential is being realized by increasingly fewer people.

The reasons for the fading American dream are complex. Professor Chetty’s research shows that geography is a factor. Children in the southeast states are not as upwardly mobile as children in most other parts of the country. There is also a correlation between neighborhoods and mobility. A child from a racially integrated neighborhood has a better chance. Causes for this can be debated. However, the value of education as a vehicle for social mobility is something that everyone can agree on. There is a direct correlation between the amount of education a person acquires and the amount of money they earn over a lifetime.

JSF’s mission is to “assist disadvantaged people to obtain education and employment.” We can equate the word “disadvantaged” to households with incomes in the bottom quintile (the upper limit for these households is about $21 thousand per annum). JSF focusses on the education and employment of these people. We seek to address the problem of inequality of access to good education. The evidence that this makes a significant difference is overwhelming.

Last month I referenced a survey, in which only 13% of Foundation CEO’s said that they believed Foundations make a “significant difference.” Some of the CEO’s (and the surveyors) cited the “sheer magnitude and complexity” of the problems as one reason for not making a significant difference. It seems trite to say that a foundation, or anyone else, can only make a significant difference if it directs its attention to a discrete aspect of a problem.

No foundation (or government) can “fix” the American dream. A foundation can, however, play a part in the movement to assist disadvantaged people to advance economically and thereby make a significant difference.