The American Dream, RIP? An economist asks provocative questions about the future of social mobility

The American Dream, RIP? An economist asks provocative questions about the future of social mobility

Sep 21st 2013 |From the print edition

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COULD America survive the end of the American Dream? The idea is unthinkable, say political leaders of right and left. Yet it is predicted in “Average is Over”, a bracing new book by Tyler Cowen, an economist. Mr Cowen is no stranger to controversy. In 2011 he galvanised Washington with “The Great Stagnation”, in which he argued that America has used up the low-hanging fruit of free land, abundant labour and new technologies. His new book suggests that the disruptive effects of automation and ever-cheaper computer power have only just begun to be felt.It describes a future largely stripped of middling jobs and broad prosperity. An elite 10-15% of Americans will have the brains and self-discipline to master tomorrow’s technology and extract profit from it, he speculates. They will enjoy great wealth and stimulating lives. Others will endure stagnant or even falling wages, as employers measure their output with “oppressive precision”. Some will thrive as service-providers to the rich. A few will claw their way into the elite (cheap online education will be a great leveller), bolstering the idea of a “hyper-meritocracy” at work: this “will make it easier to ignore those left behind”.

Mr Cowen’s vision is neither warm nor fuzzy. In his future, mistakes and even mediocrity will be hard to hide: eg, an ever-expanding array of ratings will expose so-so doctors and also patients who do not take their medicines or otherwise spell trouble. Young men will struggle in a labour market that rewards conscientiousness over muscle. With incomes squeezed, many Americans will head to the sort of cheap, sun-baked sprawling exurbs that give the farmers’-market-and-bike-lanes set heartburn. Many will accept rotten public services in exchange for low taxes. This may sound a bit grim, but it reflects real-world trends: 60% of employers already check the credit ratings of job candidates; young male unemployment is high and migrants have been flooding to low-tax, low-service Texas for years.

The left is sure that inequality is a recipe for riots. Mr Cowen doubts it. The have-nots will be too engrossed in video games to light real petrol bombs. An ageing population will be rather conservative, he thinks. There will be lots of Tea-Party sorts among the economically left-behind. Aid for the poor will be slashed but benefits for the old preserved. He does not fear protectionism, as most jobs that can be sent overseas have already gone. He notes that the late 1960s, when society was in turmoil, was a golden age of income equality, while some highly unequal moments in history, including in medieval times, were rather stable.

Even if only a fraction of Mr Cowen’s vision comes to pass, he is too sanguine about the politics of polarisation. Inter-generational tensions fuelled 1960s unrest and would be back with a vengeance, this time in the form of economic competition for scarce resources. The Middle Ages were stable partly because peasants could not vote; an unhappy modern electorate, by contrast, would be prey to demagogues peddling simple solutions, from xenophobia to soak-the-rich taxes, or harsh, self-defeating crime policies. Yet Mr Cowen’s main point is plausible: gigantic shifts are under way, and they may be unstoppable.

Politicians are skittish about admitting this. Barack Obama calls America’s wealth gap “our great unfinished business”, describing a crisis of inequality decades in the making. Think of technology, he tells audiences, and how it has thinned the ranks of travel agents, bank clerks and other middle-class gateway jobs. At the same time, global competition has reduced workers’ bargaining power. People have “lost trust in the capacity of government to help them”, he sorrows. But then Mr Obama implies that political villainy is the real culprit. He accuses entrenched interests of working for years to spread a “great untruth”: that government intervention is either harmful or a plot to grab tax dollars from the squeezed middle and shower them on the undeserving poor. Politics risks becoming a “zero-sum game where a few do very well while struggling families of every race fight over a shrinking economic pie.”

Republicans are just as partisan. Senator Marco Rubio of Florida, a son of Cuban immigrants, likes to say that had he not been born in post-war America in an era of high social mobility, he would probably be a very opinionated bartender. At a “Defending the American Dream Summit” on August 30th he accused Mr Obama of smothering economic opportunity with a big-government nightmare of debts, “class-warfare” taxes, innovation-smothering regulation and over-generous welfare. While most are working harder than ever and barely keeping up, Mr Rubio growls, “some people” shun work because they can make almost as much from government benefits. In short, both sides never tire of explaining how the other is destroying the American Dream. Alas, neither can explain, convincingly, how to revive it.

What, Tyler, no revolt?

Asked about the limits of his power, Mr Obama mutters about “pushing back against the trends” squeezing middle America, rather than resolving them entirely. That, he argues, is better than the Republican right, who “want to accelerate” such trends.

For their part Republican leaders offer long-cherished shrink-the-government schemes, rebranded as plans to save the American Dream. They say that tax cuts and deregulation would trigger a private-sector investment boom. In truth, the links between investment and government policy are rarely so neat, and even such a boom might do little for middle-class wage stagnation.

Many voters remember a time when hard work was reliably rewarded with economic security. This was not really true in the 1950s and 60s if you were black or female, but the question still remains: what if Mr Cowen is right? What if the bottom 85% today are mostly doomed to stay there? In a country founded on hope, that would require something like a new social contract. Politicians cannot duck Mr Cowen’s conundrum for ever.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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