This semester, we’re once again teaching A Tale of Two Depressions. And, as in previous offerings of the course, we often touch on and return to the theme of the American Dream.
The students in the course get the clear sense that the definition of the American Dream changed during the 1920s (during the transition from small-town rural life to factories in the big cities) and that the First Great Depression turned that dream into a nightmare for most Americans. A new American Dream was, of course, created during the New Deals and the postwar period but began to unravel from the mid-1970s onward (as wages stagnated and the distribution of income and wealth became increasingly unequal).
What about now, six years into the Second Great Depression?
Well, a new report from the Pew Charitable Trusts [pdf, ht: ja] documents the fragile financial situation of many U.S. households outside the top 1 percent—and thus how far American workers are from even imagining, let alone achieving, the American Dream.
Consider the following facts:
Household incomes are dramatically volatile: in 2011, about the same percentage of Americans (a bit more than 20 percent) had to endure a 25-percent decrease in income over a two-year period as a similar increase in income. (One of the consequences is that a large percentage—a third, according to one study—who suffered a loss in income still not recovered financially when their income was measured 10 years later.)
Household spending has declined and stayed down: since the start of the recession in 2007, American households have tightened their purse strings, reducing spending by almost 9 percent. Further, the typical rebound in expenditures following recessionary periods has not occurred since the end of the latest recession. (In contrast, during the 22 years before the start of the downturn, household expenditures grew 16 percent, with 69 percent of that growth [11 percent] occurring between 1990 and 2006.)
Household spending is extremely unequal: in 2013, the top quintile’s annual spending on housing alone ($30,901) outpaced what the middle quintile spent on housing, food, and transportation combined. (In turn, the middle quintile spent nearly as much on housing as those at the bottom spent in total across these categories.)
Most households are in a precarious financial situation: Almost 55 percent of households are savings-limited, meaning they cannot replace even one month of their income through liquid savings (money in cash, checking accounts, and savings accounts). Just under half of households are income-constrained, meaning they perceive that their household spending is greater than or equal to their household income. And 8 percent are debt-challenged, which means they report debt-payment obligations that are 41 percent or more of their gross monthly income. As it turns out, seventy percent of U.S. households face at least one of these three challenges, and more than a third face two or even all three at the same time.
Clearly, the current recovery has represented a reversal of fortunes, after a short but dramatic dip, for a small minority at the top. But, for the American working-class, there has been no recovery. They find themselves as far—many of them, even farther—from the American Dream as they were before the crash of 2007-08.
*The title is a bit of a private joke. Many years ago, before email existed, I told someone by telephone the title of my upcoming talk at American University on the role of mathematics in economics. I planned to begin my presentation with a discussion of Descartes’ dream. As I walked across campus and saw the posters announcing my talk, I realized the wording of my title had been transformed. So, as we walked into the seminar room, one graduate student turned to me and asked: “Professor, what does Dr. Who have to do with the mathematization of economics?”