It couldn’t be clearer that the American Dream is in trouble. Young people believe their prospects are lousy. The middle class has eroded. There’s a widespread feeling of disenfranchisement.
As a result, our politics is rancorous and volatile. Political division and economic division go hand in hand.
The young and middle class are not wrong to be dispirited and angry. The culture and economy that have developed over the last 40 years are not working well for them. Top-line numbers for employment can look pretty good. But when you look more closely at long-term trends, the numbers tell a tale of dashed hopes and a fading American Dream.
Economist Raj Chetty’s research shows that a child born in 1940 was overwhelmingly more likely to earn more than his or her parents at around the age of 30 (9 out of 10 did so). Not so for a child born in 1985. Only half of those who reached age 30 in 2005 earned more than their parents did at the same stage of their lives. We don’t yet know whether children born in 2000 will do better at age 30 than their parents did. But it seems very likely that their chances will fall well below 50 percent.
Wages have not been rising for male workers. According to economists at the Congressional Research Service, wages have been stagnating for 40 years. For the median male worker, real (inflation-adjusted) wages were actually slightly lower in 2019 than they were in 1979. For Black and Hispanic men at the median, they were lower by 8 percent and 9 percent, respectively.
What is going on? Hasn’t GDP grown pretty much year-in and year-out? Wasn’t employment robust before the coronavirus pandemic? Yes, but the problem is that job growth doesn’t do much for upward mobility anymore.
The real issue is not employment but ownership.
Most policymakers refuse to confront the hard truth that millions of Americans are being transformed into serfs. Like the serfs of the Middle Ages, they own almost nothing. For a large and increasing percentage of Americans, it isn’t possible to buy assets like a house or a college education—both bearing 2022 price tags—with wages that haven’t changed since 1982.
Economist Edward N. Wolff has developed the notion of “wealth poverty” or “asset poverty.” To be “asset poor” means that one does not have sufficient financial assets to eat, keep a roof over one’s head and remain clothed for three months without wage income. In other words, the asset poor have no margin for error for a stroke of bad luck. The asset poor do not own enough assets to stand on their own two feet.
The rate of asset poverty is high and rising. Research shows that it rose from around 35 percent of Americans in 1983 to around 47 percent in 2013. We have no reason to believe that this trend has not continued into the 2020s, making our situation worse.
Let’s state the obvious. If half of the country (and almost certainly more in 2022) is asset poor, the median American is no longer middle class. Asset ownership, especially through home ownership, has long been considered the foundation of middle-class life in America. In less than a lifetime, our country has been transformed from a middle-class nation with widespread asset ownership into a regressive society in which a majority of Americans appear well fed and well clothed, but in reality are serfs.
Declines in middle-class prosperity and wealth can be reversed. To accomplish that, we need policies designed to foster widely distributed ownership of productive assets. The idea is not to put what Marx called “the means of production” into the hands of the government. Instead of socialism, we need more widespread private ownership. Instead of a neo-feudal society, we need a wide ownership society.
Here are nine proposals to get policymakers started.
- Personal Data Ownership. Imagine if every man, woman, and child in the United States really owned their data and technology companies had to rent that data from a central clearinghouse. This would create an income stream for real people. It would also discipline technology companies toward social stances that are more consistent with Americans’ actual, centrist values, because Americans could choose not to rent their data to companies that attempt to force wokeness on them.
- Small Business Regulatory Regime. Regulation is especially bad for small businesses. A dirty secret among economists is that most regulations are lobbied for by large corporations, precisely because large companies know that small companies cannot afford the fixed cost of “compliance.” This should stop. If we want competition and if we want opportunity, then let’s have a small business regulatory regime—one that applies only to small businesses—that is simple and short enough to be read by a small business owner in a day. Let’s have something that doesn’t stifle new, small, businesses and that any small business owner can read and understand.
- Government Procurement. The U.S. federal government has (unfortunately) become the largest purchaser of goods and services in the world. Let’s require it to purchase a share of its goods and services from small businesses. Even if that share is only 15 percent, the effect would transform the American economy and renew Main Streets.
- Retail Policies. America used to have “fair trade” laws, which meant that manufacturers were allowed to set retailers’ prices. Small retailers and large retailers had to sell the same product at the same price—a market price determined by the manufacturer who produced the product. In turn, this allowed small retailers to compete with large ones. As a consequence, there was no Walmart giant, nor an Amazon. Local merchants often had an advantage, for they could provide more personal service. Fair trade laws were destroyed by the Democratic Congress of 1975, and the chickens have now come home to roost. Let’s bring back fair trade laws.
- Tax Policy for the Little Guy. We should make ESOP transactions (when business owners sell their businesses to employees) tax free. This would transform owner-employee relationships as owners recruit and train employees with the intention of eventually selling to them. Employees would be transformed from wage earners to future partners.
- Favoring the Franchise Model. We should also use taxation to favor franchising over corporate ownership of chain restaurants and stores, because small franchises are an important, and traditionally American, way to push ownership and opportunity down to the little guy.
- Patent Simplification. Patent law has become so complex and ridiculous that no one has any idea whose patents cover what products and services. How can anyone start a business in their garage when they are surrounded by a thicket of patents? We need to limit the growth of patents so that the U.S. Patent and Trade Office does not stifle growth and disenfranchise the young and middle class.
- Antitrust for the Little Guy. Antitrust used to be about size. Now it is about “efficiency” and consumer prices. Let’s reform antitrust law to recognize that “efficiency” and “consumption” are not the same thing as happiness. The American Dream depends on opportunity. Antitrust policy that encourages or allows bigness is the opposite of widespread opportunity. Let’s fix that.
- Unbundling College Education. Education is intrinsically cheap to provide—you need a classroom (or online format), a teacher and some materials. College costs have grown out of control at the same time that a college credential is required for most jobs. Colleges know they are the gateway to the American Dream. They have the market power to bundle a huge array of services (expensive gyms, athletics programs, counseling) into their tuition, and to support large bureaucracies to boot. In the good old days, antitrust regulators treated such bundling as illegal. We should force colleges to unbundle the education which people need from the rest of their services so that the poor and middle class can get the education they need without paying for everything else if they don’t want it.
These policy proposals are traditional, not radical; they reflect an older and very American way of thinking about how the economy should work. We welcome debate over them.
Reasonable people can disagree about how to renew the American Dream. But of this we are convinced: we must face up to the failures of recent decades and take the plight of the middle class and the young much more seriously. If we don’t, we’ll only see continued political division.
R.R. Reno is editor of First Things. Tim Reichert is a candidate for Congress in Colorado’s Seventh District.
The views expressed in this article are the writers’ own.