Taps Coogan – August 31st, 2020

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The following chart, from Visual Capitalist, captures the decline of the American Dream in a nutshell. Every generation since World War II has seen a smaller percentage of people earning more than their parents did.

The Decline in Upward Economic Mobility

The data behind the statistic comes from Opportunity Insights and it shows the percentage of people born in a given decade who ended up earning more than their parents did by age 30 (adjusted for inflation). It is further broken down by their parents’ income percentile.

The results are pretty straightforward. Every decade, a smaller percentage of people have ended up earning more than their parents for nearly every income percentile. Whereas 93% of Americans born in 1940 ended up wealthier than their parents by 30, just 45% of people born in 1980 did so. In other words, most people born since 1980 made less than their parents by 30.

Beyond the economic sclerosis that has built up in the US economy, consider that inflation adjusted average wages in the US have risen from $20.27 in 1964 to $22.65 in 2018, just 11% growth over 54 years. Meanwhile, the inflation adjustment in that calculation is almost certainly overstating the paltry wage growth for middle and lower income households during the time period.

Why? As Visual Capitalist notes: “Whereas inflation since January 1998 totaled 58.8%, the costs of health and education services increased by more than 160% over the same time frame.” For middle and lower income families, the proportion of their expenditures taken up by the categories of goods and services with the highest inflation rates (like healthcare, education, and food) is higher than for the wealthy, a factor which the oversimplified official inflation numbers don’t take into account.

Someone should probably explain all this to the Fed because they just raised their inflation target from 2% to ‘over’ 2% for some unknown period of time to make up for the handful of times that inflation ran low in the past.

In light of that, you’d better stock up on healthcare and education while the prices are still ‘low.’

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