Saturday, June 17, 2006

A European Perspective on the American Dream (2)

When you see this cover of this week's Economist, you probably think that the British magazine is precisely doing the same (although if you do know the magazine's economic views, you know it's not going to be so simple):
Europeans have long held that America does not look after its poor - a prejudice reinforced by the ghastly scenes after Hurricane Katrina. The sharp decline in America's image abroad [see our post here and here] has much to do with foreign policy, but Americanisation has also become synonymous with globalization. Across the rich world, global competition is forcing economies to become more flexible, often increasing unequality.
(.../...)
Any system in which the spoils are distributed so unevenly is morally wrong, they say.

This is where The Economist makes a challenging point (for most Europeans anyway). They claim that inequality is NOT inherently provided that:
  • the whole society is getting richer
  • there is a safety net for the poor
  • everybody regardless of class, race, creed or sex has an opporunity to climb up through the system.
Interestingly, the article acknowledges that some studies have shown that it is easier for poorer children to rise through society in many European countries than in America, yet it is still seen as the country that offers most opportunities.
Several studies (available on their website) also show that parental income to be a better prediction of whether someone will be rich or poor in America than in Canada or much of Europe. (Part of the explanation may be that the political consensus has been to pursue economic growth rather than the redistribution of income.)

Lately, the engine seems to be stalling :
The median worker - the one in the middle of the income range - has done less well than the average, whose gains are pulled up by the big increase of those at the top.
That's why increase by 8% of the average after-tax income given by the White House is misleading.
Yet, most Americans still believe that theirs is the THE land of opportunity. In fact, they tend to blame heir woes not on their rich American fellows but on poor foreigners. In fact, more than 6 out of 10 are sceptical of free trade.
Every measure shows that over the last 25 years, those at the top have done better than those in the middle. In the 1980s, the lowest skill were the hardest hit but this decade has squeezed the middle. The bottom is not longer falling behind, the top is soaring and the middle is under pressure. The explanation may indeed be that wheareas service jobs which demand low-skill workers and cannot be outsourced are rising and with a booming market for chief executives (thanks to technology), middle-class workers have found it harder to get jobs and their income also tend to fluctuate more.
According to the Economist's editoral, the two main problems that could also stall the engine is the poor achivement of the (high-school) education system and the lack of a social-welfare system.

In my opinion, the special report of the Economist - while being extremely good - still fails to develop on the idea that redistribution and taxation may explain just as well the squeez of the middle-class, and the great success of the top. Bush's tax-cuts have certainly not helped make the American society more equal.

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