The American Dream Goes On

Is the American middle class an endangered species? The majority of Americans have long shared one state of mind: that they are in some central way members of the middle class and hold a passport to the good life.

It's true that there's been a contraction of the number of middle-tier households earning between $45,000 and $90,000. And it's true they are having a tough time. Six in 10 testify to incomes falling behind the cost of living; six in 10 find it hard to pay for gasoline; and five in 10 say they can't afford healthcare. More than a quarter say they have trouble even affording food. To maintain their lifestyle—including those fancy cable TV packages, broadband Internet connections, and travel—they've sent more family members to work, taken on more debt, and borrowed through home equity loans, though the housing slump has undermined that asset.

At the other end of the income spectrum, the well heeled keep doing better. The number of millionaires has shot up, and the wealthiest 1 percent of U.S. families have pushed their share of total national income to levels—21 percent—unseen since the Gilded Age. Yet growing inequality has had little traction thus far as a political issue.

Why is this?

Partly because some have moved up, as economist Stephen Rose points out. There are 12 percent more households earning in excess of $100,000 than 20 or so years ago. And those making less than $30,000 have not increased. So virtually the entire "decline" of the middle-class group has come from people moving up the income ladder, not down.

Higher standards. Those in the middle, and below, are also living better. As William Robert Fogel, the Nobel Prize-winning economic historian, put it, "In every measure that we have bearing on the standard of living...the gains of the lower classes have been far greater than those experienced by the population as a whole." Among the inequalities that have narrowed: The quality of goods at the more moderate price levels has improved faster than at higher price tags; rich and poor are less apart in life expectancy, height, and leisure. It's the attitude of Americans that explains the low combustibility (at the moment!) of income inequality. Most Americans tend to believe that people bear primary responsibility for supporting themselves and that market forces are immune to public policy. There's a reflection here of the optimism and confidence characteristic of American life. In one study by Roland Benabou, more than half of Americans think they will be above the median income in the future (even though that is mathematically impossible). Americans, quite simply, believe that plenty of opportunities exist to get ahead, and, indeed, 82 percent of those born into poverty are much better off than their parents and more than a third of them have made it into the middle class or higher.

Education is another great American success story. There has been a dramatic increase in the percentage of adults completing high school and college. Nearly 90 percent of all adults get high school diplomas today compared with 33 percent in 1947; college graduates have soared from 5.4 percent in 1947 to almost 30 percent today. More than two thirds of Americans concur with the statement that people are rewarded for intelligence and skill—the largest percentage across 27 countries taking part in an international survey of social attitudes. This reflects the widespread belief in the ability to get ahead and helps explain why Americans are more accepting of economic inequality than peoples in other countries and why Americans are less likely to believe their government should take responsibility for reducing income disparity.

For all that, reaction is gathering force in at least two areas. One is an increasing distrust of free trade. There is a widespread conviction that globalization—seen by economists as a boon—holds down earnings for millions of Americans who compete with workers overseas. Free trade has become a political albatross.

Secondly, the level of wealth in the stratosphere of incomes has gotten so extreme that it is provoking a considerable majority to support the notion that wealth should be more evenly distributed through higher taxes.

Senator Obama's plan to take more from people earning $250,000 and above a year, to raise capital gains taxes, and devote some of this money to education may therefore have far more political traction than Senator McCain's intent to maintain the tax cuts of President Bush and, if anything, to expand them. Given that the Bush tax cuts have disproportionately benefited upper-income people, McCain's recommendation may work with the Republican base but most likely will narrow his attraction to the decisive swing voters of the American center—that is, a good part of the middle class.