For many people, the American dream has been vanishing

About 92 percent of 1940 babies had higher pretax household earnings at age 30 than their parents had at the same age. (The results were similar at older ages and for post-tax earnings.)

…For babies born in 1980 — today’s 36-year-olds — the index of the American dream has fallen to 50 percent: Only half of them make as much money as their parents did.

That is from David Leonhardt at the NYT, channeling new research by Raj Chetty.  Here is more from Jim Tankersley.  Here is Brookings coverage.  Here is Vincent Geloso considering various adjustments to the data.



Well, there has been a lot of talk of fascism of late. The history of America slowed the advancement of socialism via interventionism, but it didn't stop it.

"The slogan into which the Nazis condensed their economic philosophy, viz., Gemeinnutz geht vor Eigennutz (i.e., the commonweal ranks above private profit), is likewise the idea underlying the American New Deal and the Soviet management of economic affairs. It implies that profit-seeking business harms the vital interests of the immense majority, and that it is the sacred duty of popular government to prevent the emergence of profits by public control of production and distribution."


The Dictatorial, Anti-Democratic and Socialist Character of Interventionism

"Many advocates of interventionism are bewildered when one tells them that in recommending interventionism they themselves are fostering anti-democratic and dictatorial tendencies and the establishment of totalitarian socialism. They protest that they are sincere believers and opposed to tyranny and socialism. What they aim at is only the improvement of the conditions of the poor. They say that they are driven by considerations of social justice, and favour a fairer distribution of income precisely because they are intent upon preserving capitalism and its political corollary or superstructure, viz., democratic government.

"What these people fail to realize is that the various measures they suggest are not capable of bringing about the beneficial results aimed at. On the contrary they produce a state of affairs which from the point of view of their advocates is worse than the previous state which they were designed to alter. If the government, faced with this failure of its first intervention, is not prepared to undo its interference with the market and to return to a free economy, it must add to its first measure more and more regulations and restrictions. Proceeding step by step on this way it finally reaches a point in which all economic freedom of individuals has disappeared. Then socialism of the German pattern, the Zwangswirtschaft of the Nazis, emerges."

von Mises, Ludwig (1947). Planned Chaos

Goldwater, Reagan, and conservatives delivered the US into socialism?

Remember, this is a Right Wing web site. Everything except laissez faire Libertarianism, or crony capitalism for Right Wingers who prefer that, seems socialist to most people here.

It's more that While Darwin, Spencer, Weber and Durkheim were correct in their reevaluation of man, Mises, Popper, Hayek, Brouwer, Bridgman and many others failed to solve the question of social science, and social pseudoscience of Marx and Keynes was more attractive to enfranchised women, underclasses, and empowering of the political classes. Moreover, the scientists having failed, we got Goldwater, Kirk, Buckley, Kristol, and Strauss - whose work can be considered, at best pop-moralizing. On the german continental model: attempting to recreate the piety of the church in secular verse. And they failed. Their work cannot even be considered pseudoscience. Certainly Strauss can be considered pseudo-rationalism. But Kirk, Buckley and Kristol's very existence as influencers is an admission of failure of the conservative movement to produce a technological equivalent of leftism. And why? Because the truth is incompatible with democracy: The function of western civilization was systematically eugenic. We are very conscious of truth. Our preoccupation with Truth is the reason for our civilizatin's rapid advancement in the ancient and modern worlds. But the application of truth produces eugenic outcomes. Which is why the left must lie, and the right cannot tell the truth.

—“An ideology functions, like literature, to inspire individuals to action under democracy. A philosophy provides methods of decidability in order to achieve a desired state of affairs. A formal logic provides language for the testing (criticism) of relations for internal consistency (falsification). A science provides a formal process and instrumentation for the elimination of ignorance, error, bias, and deceit.”— Curt Doolittle, The Propertarian Institute, Kiev, Ukraine.

'The slogan into which the Nazis condensed their economic philosophy, viz., Gemeinnutz geht vor Eigennutz (i.e., the commonweal ranks above private profit)'

Not just the Nazis - from the BRD Grundgesetz, article 14, 2 - (1949) - 'Eigentum verpflichtet. Sein Gebrauch soll zugleich dem Wohle der Allgemeinheit dienen.' (Property entails responsibility. Its use should also serve the commonweal.')

But then, we all know what a socialist hell hole Germany is, compared to the splendid beacon that the American Dream remains to so many.

About time too, I've always felt we didn't have enough people praising Nazi economic policy

In Germany, whether you're better off than your parents probably has a lot to do with which side of the Berlin Wall they ended up on. Of course, the older generation also faced a relatively huge risk of being killed in wartime.

And of course if your parents were German Jews in the 1930s and 1940s... well.

It's not often you get the full Godwin right out of the gate, at least on something not directly tied to WW2 or white supremacy.

A "Godwin" is a moral comparison to Nazism, e.g. "You're worse than Hitler!" Quoting Mises on the economic philosophy of the National Socialist party is quite a bit different.

The article begs the question. We are in a recession and have been for 8 years. Arguably we are in a depression. The borrowing and printing of money is used to hide this great recession from public view and the MSM works hard to hide it but the reality is the nation is suffering from a very bad economic policy and until that policy is corrected, and of course the minor issue of $20 trillion in debt is addressed, the recession/depression will continue.i

So Trump will continue this Recession/Depression for another 4 years then? What would be the point of that?

I don't believe any politician I am aware of has the guts or instinct to take the tough corrective action that is necessary to fix the problem. It is difficult to make tough choice when you are a leader because when things go bad it is obvious YOU did it. It is much easier to just go along with conventional wisdom and then when things go wrong you pretty much didn't do anything so you couldn't have caused the problem.

My solution: 1. Lower or eliminate business income taxes while simultaneously placing a 25% tax on goods and services from foreign sources.
2. Cut personal taxes and equalize the burden such that everyone pays some taxes and no one pays too high a tax.
3. Reduce the size of government, about 60% reduction in spending, employees and departments feels right but possibly even more.
4. Reduce/slash regulations that strangle business
5. Level the playing field between unions and business.
6. Get congress to agree to balanced budgets every year. No more borrowing.
7. Wipe out the national debt over a long weekend without advance notice. Essentially call in all federal bonds/notes and pay them off with printing press money. A one time deal reducing debt to zero.
8. Get government out of the way.

Well, I love your approach. And we would pay a 'Japanese' price for it. But the thing is, some of us would gladly pay that price.
And in a non-democracy we could do it.
Democracy is the enemy.
Malincentives everywhere.

7. Wipe out the national debt over a long weekend without advance notice. Essentially call in all federal bonds/notes and pay them off with printing press money. A one time deal reducing debt to zero


That won't work. Surely you know why that won't work.

No. No Libertarian knows why Libertarian policies won't work. Because no one else would be fool enough to try them, and there are very few Libertarians.

A balanced budget is not a wonderful thing at all in a recession, or when you need to spend some money on your crumbling infrastructure.

Google for rw economics, the Real-World economics web site, for a thorough explanations of why this is so. It will be your 4th or 6th item in the search list probably.

Unless you are a member of the Libertarian Church, in which case you don't need to read that web site. Because then you accept on faith that a balanced budget would always be the greatest thing since sliced bead, even in the Great Depression.

The idea that we could have a major recession and it could be 'hidden" so no one would notice is as loony tunes as saying we could have a small nuclear war and it could be kept secret. Nope. Reality does not work that way, and tinfoil hats are always a fashion don't.

Thank you.

Internet despots crack me up with their sweeping answers, it's just so easy, do these 8 things that have no chance of happening ever.

Isn't this largely because the economy's heavily engineered to transfer wealth from under 40s to over 50s?

But that does not explain the change in outcomes over time without explanation.

I was born in 1947, and my grandparents and parents paid extremely high taxes and fees to build massive amounts of new capital assets.

Building capital assets is possible only with labor, so they paid massive amounts of labor to build assets.

Further, marginal tax rates were very high, so paying labor was cheap - at marginal rates of 50% to 90%, paying $5000 to a new worker reduced profits by far less, $2500 or less, down to $500. If you paid the labor from profits to build capital, knowledge capital of R&D, or production capital like machines, the tax collector would pay more of the wages, yet you would own the knowledge as trade secrets or as production machines far longer than the depreciation schedule, or by various other ways to shift labor cost and taxes in time to cancel each other out.

Thus, a high portion of labor was devoted to building capital assets. Which was paid for by taxes, fees, rents, interest, business profits from all the labor cost paid to and spent by workers.

With lots of labor devoted to producing capital assets, workers earned more and thus consumed more. Capital assets accumulated rapidly in the first half of the 20th century in the public sector: schools, education, roads, rebuilding the railroads, the Interstate which rebuilt the roads, the new water and sewer, quasi public sector: the power grid covering every place people lived, the telephone system built everywhere, the parcel post system extending commerce to every place people lived, natural gas pipelines extended virtually everywhere, the private sector: oil product distribution everywhere, farm automation, factory automation, the production line, and the military industrial sector: new materials like aluminum, plastics, new technologies like data processing equipment than computing equipment, radio, TV.

I was struck by Milton Friedman's argument circa 1970 in Newsweek columns attacking academically this heavy capital investment.

He considered the high margin tax rates as promoting too much paying of labor to dodge taxes by building excess capital assets and providing too much customer service, because too much paying of workers bid up wages, and then caused too much consumer spending from those wages driving up prices and promoting too much building of more production.

And he considered the economic model of the efficient economy with no economic profit but only return on capital in utility regulation law. Thus utilities made a very strong case to utility commissioners to build more capital than was needed so that rates would be set higher to pay 8% returns on invested capital. As soon as assets were depreciated, utilities were building or rebuilding assets, paying too much to labor because even excessive wages in Friedman's view would be paid by rate payers. And utilities hired too many workers to provide too much quality and reliable service because utility commissioners did not want to be blamed for power outages and blackouts and brown outs. Friedman argued electric and telephone service should be less reliable because that would be cheaper for customers. If a customer wanted high reliability, only they should pay for it.

He also saw utility regulation law as the reason for building unneeded nuclear power plants which were too costly because of the too skilled labor getting too high wages.

By 1980, he had won over enough people to get tax rates lowered and utility deregulation started with Jimmy Carter supporting and signing PURPA. Once PURPA was signed, no more nuclear power plant projects were approved, and for most of those approved beforehand, the utilities had to use the courts to get the labor costs now compounded with interest paid in the rate base, even when States in complying with PURPA's intent forced utilities to sell their power generation, even at huge losses.

Utility reliability has fallen. Utilities are much slower to invest. Businesses find building factories in the US too costly unless government replaces the funds tax collectors paid for 50% to 90% of labor costs for building capital assets. Today, the playing field depends on governors paying labor costs to locate in their State to replace the tax dodges from high tax rates the world over.

Instead of taxes paying for more and more education, taxes pay for less and less education. In 1900, taxes paid for 6-8 grades, by the 30s, the standard was raised to 12 grades, and then post WWII, the GI Bill extended that to 14 to 16 years of education and in the 60s toward 15 to 17 with K and pre-school and everyone getting college, not just trade school.

The investment in public capital has fallen, the investment in utility capital assets significantly cut back, and US businesses have demolished lots of factories instead of building new and better. Water and sewer assets are decaying from less investment.

The result is much less demand for labor, workers paid far less than if the policies of the 50s and 60s still existed.

Going into the 80s, Bell was working hard to replace all copper telephone wiring with fiber optic so telephones would be replaced with computer terminals or video phones or something needed high bandwidth than copper. All the cost of R&D was still labor costs added easily to rate bases, and replacing copper with fiber was simply a matter of getting regulators to determine the investments were prudent. But the regulatory climate changed by the end, and today the mood is to not provide universal telephone and data comm service because it's too costly, ie, it forces all customers to pay for lots more workers building modern capital assets.

I see the stagnation in wages and incomes to be a victory for Milton Friedman winning the political economy policy debate which was clearly determined to cut the wages of workers below the trend in the 50s and 60s. They have been essentially flat since 1980. Success!

Nonsense, we have better utilities today than ever before. QoS has never stopped rising. Installing a massive fiber network in the 1980s before things like Raman amplification were understood would have been a huge mistake -- the industry nearly collapsed in 1999 because new technology kept lowering costs.

Education requires only a book, a willing mind, and someone to occasionally help bridge the gap.

Further, marginal tax rates were very high, so paying labor was cheap – at marginal rates of 50% to 90%, paying $5000 to a new worker reduced profits by far less, $2500 or less, down to $500.

Uh, sure.

Um. No. Fallacy of aggregates.
Why were our grandparents able to produce highly (often low quality ) profitable mass manufactured goods? Why were they able to sustain higher rates of taxation? Why were they willing to?

Government revenues were about the same back then as a % of GDP so it doesn't seem possible that their tax burden could have been higher

I thought this too at the beginning, but the numbers are all pretax, thus not including transfers. So it's probably mostly wage stagnation (50% do manage to equal their parents).

My guess is this study is bad. Does it include total compensation? Does it look at consumption? What does it mean by "your parents"? Both of your parents? I'll have to take a look.

They make it impossible to find the source for any of the data, which is not promising.

Then there is this:

"The fading of the American Dream is not immutable. There are cities throughout America — such as Salt Lake City and Minneapolis — where children's chances of moving up out of poverty remain high. Cities with high levels of upward mobility tend to have five characteristics: lower levels of residential segregation, a larger middle class, stronger families, greater social capital, and higher quality public schools." I wonder if they considered racial composition? They have a chart of the geography of upward mobility that is quite striking. The low mobility is almost exclusively in the deep South and the high mobility is concentrated in Appalachia and the great plains (the poorest white ares).

By the way, I wonder how they accounted for immigration?

They don't. It's insulating they had longitudinal data that they don't.

"They make it impossible to find the source for any of the data, which is not promising."

Awesome comment, Cliff. Other than putting a working paper online in which they describe in great detail the data sources they rely on, it is indeed "impossible." Instead of being rude to other people, why don't you learn to do basic research on your own?

A couple of flaws right off the bat:
1. People spend more time in school now, thus deferring their entrance into the workforce.
2. People live longer now, thus putting their earning years later.

And if we combine those two, we'd expect people to earn more than their parents a "peak" earnings, but to do it later in life..

And guess what, if you look at the data and don't compare just a young age like 30, that's exactly what you find. So nothing to see here.

> "They don’t, however, because the fruits of growth have gone disproportionately to the affluent.

> "The researchers ran a clever simulation recreating the last several decades with the same G.D.P. growth but without the post-1970 rise in inequality. When they did, the share of 1980 babies who grew up to out-earn their parents jumped to 80 percent, from 50 percent. The rise was considerably smaller (to 62 percent) in the simulation that kept inequality constant but imagined that growth returned to its old, faster path."

That is fine for a simulation. But the researchers implicitly assumed that inequality can be adjusted with no impact on economic growth. Maybe so, maybe not.

Inequality fell in the 50s and 60s which in itself boosted gdp growth.

Consider, I double the incomes of household earning $100,000; will they double their consumer spending thus doubling demand for, and Increasing gdp?

Now consider the household income of a household that rents an apartment from $30,000; won't their consumption come close to doubling, perhaps most obviously by committing to buy a new house and having kids, thus paying for an increase quickly of more than $30,000 in wages their consumption pays.

The wealthy might "invest" and thus pay labor, but because they will not buy in the US, their income will pay labor in Asia to build a factory in China so their investment can sell to Chinese consumers.

The low income household with a big increase in income will only invest in assets in the US, the house, that pays primarily only US labor.

The more money going to US labor, the more likely wages will increase due to higher demand, which in turn gets spent paying US labor driving up wages.

Except that everyone has such an absurdly superior quality of material life than our grand parents and patents did. I mean I am old enough to remember. And there is no comparison.

They had slower lives. They had more familial lives. They had more durable relationships. They cooked food. They were members of team, groups, clans. So their had material stresses but they had social comforts. We have social and political dresses and physical comforts.

Inequality fell because we produced high priced low quality goods for a world market without competitors. That condition ceased.

The financialization of the economy effectively moved our competitive advantage from dependent upon goods and services to dependent upon superior formal institutions.

But the principle initiative of the left has been to destroy rule of law (natural law) with discretionary rule. To replace calculation with choice. In other words to make us like less advanced states, and as a consequence destroy that institutional advantage.

How do you price the destruction of rule of law?

And despite the Puritan attempt to create a eugenic polity of genetic capital, we are consistently undermining that capital stock as well.

Consumption is isn't a limitless good.

How do you price losing 1/4 std deviation in relative IQ in addition to the knowledge capital lost by exporting tech manufacturing and research, in addition to reduction of the relative population of the labor force.

In comparative terms, it's easy. Three point hurts. Seven points shifts you entire organisation of production and ten points cannot be overcome. Because the bottom is more inhibiting than the top is competitive.

You started off strong, but perhaps your argument about the "principle initiative of the left" could use a little more work. I am unclear on how one replaces calculation with choice, and in which way the left in destroying national law and instituting discretionary rule, particularly in light of the most recent election.

Sorry. Early morning. Pre Coffee. Ran outta gas. Needs longer treatment. ;)

Regarding Calculation vs Choice
if I can calculate a decidable result without dependence upon information external to the subject, vs I need to rely on subjective interpretation to provide decidability, vs I rely on moral or legal rules to provide decidability, vs I decide preferentially by my own opinions and wants.
In the philosophy of mathematics we call this need for external information to provide decidability 'the axiom of choice' (which is kind of "pseudosciencey" in my world. But the point gets across.

Under natural law, (non imposition against those interests others obtained by non imposition for the purpose of preventing retaliation cycles, and thereby preserving the incentive to cooperate limiting us to actions that produce only productive, fully informed, warrantied, voluntary transfers limited to productive externalities) all disputes are decidable. Under strictly constructed judge discovered common law starting from natural law all judicial disputes are logically adjudicable.

So by increasing the tolerance for or preference of subjective preference into the law we change if from a social science to a set of formal social mores. We move from rule of law (decidable) to rule of choice (discretion). We move from science to pseudoscience.

(I don't understand the reference to the current election.)

Well if they don't consume it, they invest it. Last I heard GDP has an investment component, right?

Yes the $10 trillion investment in offshore tax havens has been a major boon to US GDP.

So are they investing it overseas or stuffing it under the mattress? If the latter, they are increasing our purchase power and consuming no resources. If the former, then that money has to come back somehow.

I didn't realize the American Dream was defined as "earning more than your parents did at age 30." Seems kind of sensationalist.

I'm 31. I earn less than my grandfather did when he was 30 and my dad did when he was thirty. And I also enjoy a *much* higher standard of living.

It's still a depressingly negative trend.

>>I also enjoy a *much* higher standard of living.
>It’s still a depressingly negative trend.

You may be depressed.

The fact that standards of living keep dramatically increasing in the USA is not why, however.

Seems depressing, but I wonder if there's an intergenerational PPP calculation we are missing.

I'm nervous about dismissing this, but here are qualifiers I would want to research:

1. Are we correcting for differing birth rates among different income bands? What would a correction look like?

2. As more people become high income, their children are more likely to fall behind on two reasons: a. reversion to mean, b. deliberately taking a job higher up Maslow's hierarchy of needs (journalist or social worker, something that "has meaning" instead of making money), since the family already has wealth you can live on.

3. My points 1 and 2 possibly point in opposite directions.

4. The global poverty rate dropped from about 40% in 1990 to about 20% in 2010. The third-world mostly competes with the lower class in America, so we could just be seeing the global poor being raised out of poverty at the price of the lower class in America falling a bit behind. Assuming true, maybe this was a worthwhile trade-off, although I don't think anyone asked the lower class in America before we did it.

'And I also enjoy a *much* higher standard of living.'

One can be fairly confident that your grandfather could never have imagined the likely size of your TV when he was 30.

And it is also quite likely you cannot imagine the size of the screen of the movie theater he would have sat in, assuming he was interested in movies - but then, he lived in a more poverty strict age.

At age 25, your parents could afford to buy a house, but not a 65" TV.
At age 25, you can afford to buy a 65" TV but not a house.

Given the choice of living in one of those those two scenarios, which would you choose?

It really depends on where you want the house to be. Your parents wanted to live in the suburbs and raise a family, you want to grow out a long beard, wear glasses, and drink craft beers with other people exactly like you while getting dates on Tinder.

The house my parents bought at age 25 was a 1200 square foot ranch with a single bathroom. In a few years there were more kids than bedrooms and we shared, something that is rare now -- universities now find that when students move into the dorm it is typically the first time they've ever shared a bedroom. And we were not poor. The idea that today's generation is not as well housed as their parents and grandparents is silly in light of what has happened to the size of the median home during the last 40 years and the amenities found in it.

How do you figure? Can you give details?

I have the collective knowledge of the entire human race in my pocket, more entertainment options than could be consumed for like $7/month, and a diversity of dining options that would have been unfathomable even to the 1% of the 1950's. I'm comfortable saying that my standard of living is much, much higher than that of my parents or grandparents, regardless of income.

A number of people here are voting for "Inflation is wildly overstated" as a solution to this puzzle.

Yes but do you own your own home? Can you afford three children? Will you be able to retire at 60 with a pension?

No, yes, and probably not but I don't particularly want to anyway.

But that is neither here nor there. The point is that social and technological advances have made it such that I don't need those things to enjoy a higher material standard of living than my forebears. Whether I enjoy a higher social standard of living has much more to do with my own personal life choices and family relationships than it has to do with the economy.

I earn significantly more money than either, but I don't really see the increase in standard of living. Admittedly I am typing this on a laptop which would'nt even have existed in their wildest fever dreams. That laptop allows me to do all sorts of neat things; it also allows me to take work home and merrily type away until 3 am like I did earlier this week. What a terrific invention.

"I didn’t realize the American Dream was defined as “earning more than your parents did at age 30.” Seems kind of sensationalist."

The authors of the underlying research note, as quoted above, that measuring incomes at later ages does not significantly affect the result. I see a lot of defensive replies to this post which certainly shows it is striking a nerve. Most people would have thought that a growing economy means each new generation, on average, has measurably higher incomes than the previous one. In this case, the data match with many people's subjective experience and, hence, the rise of populist politics.

Hey genius, they can't measure the results at later ages because those people are only 35

I see a lot of people my age (early thirties) moving away from full-time work. Their parents are aghast at the thought... isn't the goal of life to maximize your annual income?

Isn't your statement, then, that you make more than both in real terms?

"For many people, the American dream has been vanishing."
I have been saying this for years by now: the American Dream has gone sour. A desperate populace, scared, angered, dispirited and nauseated by the breakdown of social order and by the destruction of its children's economic prospects has rebelled against its "betters" and crushed the American political Mainstream, in a way disturbingly reminiscent of how German despair made Hitler a household name, crushed the mainstream Left, the Social DEMOCRAT Party, in the presidential election in 1932 and subsequently allowed Hitler to swallow the Right whole and snatch the coveted Chancellor nomination (even despite the fact his adversary on the Right, President Hindenburg -- the former Field Marshall, not the zeppelin -- had once been a Never Hitler Conservative). Meanwhile, at the Hall of Justice, the Russian leader, Joseph Stalin, was engaged in manipulating the German situation through spying and the political action of a Fifth-Column, the Communist Party and its fellow-travellers, which undermined the ability of the Left to stand to the rising political movement.
Hitler was also a Time's Man of the Year. His family also got rid of a goofy-sounding surname (his father exchanged his mother's surname -- he was an illegitimate son -- Schicklgruber for his stepfather's -- Hiedler -- with a different spelling). Schicklgruber is an even worse surname for a rabble-rouser than Drumpf. But here is where the analogy breaks: Nazi Germany didn't actually have nuclear weapons or the means to deliver them to any place on Earth in 1933.

How do you convince Hitler-generating leftists to go away for 20 years and let the Right solve the problem?

Which one? Stalin and the German Communit Party? And the Right nominated Hitler Chancellor.

Regression to the mean. Plot these time series against "probability of being taller than Dad" and compare.

This is what happens when you pick "end of the Great Depression" as your starting point and then compare that apple to subsequent peaches and pears.

+1 the baked-in assumption that growth can continue forever without slowing down is so anti-math and logic. Wasn't this covered on MR not too long ago?

There's slowing of the growth rate, and then there's 0 growth rate. The arguments not the best IMO, but I believe this post is suggesting the latter

But GDP per capita has not stopped growing. Even during the past 16 years going back to the peak of the dot com bubble, real GDP per capita in the U.S. is now at least 15% higher. "Growth can't continue forever" cannot be a catch-all excuse for stagnation in middle class incomes.

“end of the Great Depression” and end of WW2. Amazing the advantage we had after blowing the crap out of most of our competitors manufacturing capabilities.


The sequence of WW1, great depression, WW2, beginning of cold war was a unique one. It's easy to imagine that in any or all of those, we could have planted the seeds for a couple generations of a rapidly rising tide that lifted all boats, but that then petered out.

That was exactly my first thought. If one were born in 1940 and one's father was 40 years old, he (the father) would have been 30 years old in 1930. Seems like there's a pretty good chance the kid (who would have been 30 y.o. in 1970) would have a higher income than dad would have in 1930.

Yup. Cherry picking data. Don't know if it was intentional, but it's pretty obvious.

When my father was 30 (1975), he had been working full time since high school, was married and already had three of his four children.

When I was 30 (1996), I did earn more than my parents combined in real terms when they were 30, and earned more combined than they did even in 1996. However, I had only been at that point for one year in 1996- accumulated income between age 18-30, either one of my parents had earned more than me in real terms- I had been in school full time and doing post-doctoral work as well.

I am not sure age 30 is really all that good a point of cutoff to use since schooling is significantly longer now than it was in 1958.

Not to mention life expectancy.

Life expectancy is starting to drop.

The expected rate of increase has slowed for the youngest. A 36-year-old today still has much higher LE (and even higher "healthy LE") than any of the other cohorts.

Talking about "life expectancy" for todays' 30 year olds is complete speculation

Actuarial science drives a lot of actual expenditures.

More than that, unlike 99+% of all predictions of the future, life insurance companies using actuaries are betting their own money on the accuracy of their predictions. That doesn't guarantee that they're right, but it does mean that they're a lot more than idle speculation.

A 30 year old today will be 65 in 2051. I hear that longevity advances then will use 2051 medical technology to increase health and lifespan. Just a guess.

Around 25% of women and 10% of men work part-time. If part-time salaries are compared to full-time ones of generations before, of course they're lower. Why people works part-time? 85% of times because they prefer it, 15% because it's the only job they found. So, is people earning less than their parents a problem or a feature?

25% of women and 10% of men work part-time *at age 30? I'd imagine a larger portion of part-time workers at that age 30 would prefer full time work then the general population which includes high-schoolers and people who got restless in retirement.

Lot of Moms for the women. Can't say for the guys.

It would be interesting to see this done for individuals, broken out by gender, and generally to understand the 1- or 2- income household contribution.

"Why people works part-time? 85% of times because they prefer it, 15% because it’s the only job they found"

You don't have a fucking clue what you are talking about, so either provide a reference for your pathetically laughable claim or STFU.

It would be interesting to see if they are spending more or less hours in work, doing household chores, spending time with friends etc as well as how their happiness and life satisfaction compare.

Also what percentage do jobs that they enjoy compared to their parents.

'Only half of them make as much money as their parents did.'

Thankfully, in part to the tireless efforts of so many well funded individuals, we have finally lifted the yoke of union membership from the oppressed classes. That is, the oppressed capitalist classes, who, finally and after several generations of dedicated struggle, again no longer face having to share their wealth with the working class in the form of collective bargaining, evening the scales between capital and labor.

Finally, FDR's legacy can now be considered to be well and truly buried - as if the financial crisis and how it wasn't resolved wasn't enough of an indicator.

Unions are welcome to form and collectively negotiate, but as a first principle of course the employer must be able to fire them all, just as the workers can fire the employers

Great. Now do the same chart for access to cell phones and Internet. Remember, people choose these things over indoor plumbing.

That's before we even talk about any medical progress, the ability to fly all over the country, leisure time...

GDP per capita has been growing about 2% a year since 1950 and previous generations also saw big improvements in technology and medical progress.

Those increases tended to be captured in GDP better than today's.

Remember, no one really cares a whit about GDP, they are trying to maximize utility.

Fine, I think we all agree that there's some of that going on.

But "Measures of inflation are wildly wrong" is also an interesting story. And, it's far from obvious that it's the whole story.

It's very hard to come up with an objective inflation number for the economy as a whole with any accuracy, plus everyone experiences it differently.

"Remember, people choose these things over indoor plumbing."

No. It's just that mobile phones and wifi are much easier and cheaper to produce and distribute than indoor plumbing. This fact indicates precisely nothing about peoples' preferences. You can't "choose" indoor plumbing if you're an impoverished developing-world worker; it's just not available to you, whereas mobile phones are.

How many people in the survey had ever lived in the winter without indoor plumbing.

No, they really do choose cell phones and Internet access over indoor plumbing, and some poor people really do face that choice. It's a revealed preference that has been discussed here at some length, e.g.

You can go shit outside 'round the back of the barn if you want.

I'll wipe my backside with your cellphone.

Tiny magic boxes that can talk to anyone anywhere are surprisingly useful.

It's cell phones and a bunch of stuff over indoor plumbing. Indoor plumbing is a lot more expensive than a cell phone.

Very misleading data. (Not for Tyler, of course....)

No more growth means that income vs. parents is near random with 50% up vs. down. Ignoring fine print....

Before that we had huge growth. So everyone had it better than parents. trend was > randomness of parent / son relativity.

Now, we are not "worse". We are just no longer getting better. This means it will be worse for half, by simple randomness.

JZ: "Now, we are not “worse”. We are just no longer getting better." - uh, oh-K. Read my comment below.

We will see what has happened for those born in 1990.

Is the Flynn Effect being countered by dumber students each generation? Read this and 'decide':

I'm not convinced that reaction time is a correct measure of intelligence. In fact, while in some cases might be a bad trait (hunter-gather world), I would think as intelligence increases certain reaction times should decrease due to the increases analysis applied to the situation to which one is reacting.

IQ is directly correlated to reaction times

It's the inequality, stupid! Total income has risen many times over since 1940 but since the 1980s the gains are being realized only by the very highest income earners.

Of course the 'American Dream' has always worked best for Whites:

Class immobility pervades the Caucasian psyche: yes, this is what inter-generational structural oppression feels like.

Did they control for IQ?

That's not an idle question, by the way. If you see the same pattern after controlling for IQ then there may be a problem with discrimination, dysfunctional communities, or similar and we could get an idea of the size of the effect. If not, then any possible interventions would have to begin very very early before the IQ differences arise.

Rather than lifting up the descendants of the slaves, whites and blacks alike are descending together into post-modern anomie... We're finding equality in dysfunction, loneliness, addiction and squalor.

Are worse schools the cause of low achievement, or do low achievement and disinterest in schooling have common causes?

Household income by ancestry[edit]
Indian American : $101,591[2]
Taiwanese American : $85,566[2]
Filipino American : $82,389[2]
Australian American : $81,452[3]
Israeli American : $79,736[3]
European American : $77,440[3]

Making as much money as your parents sounds like a silly dream. And I'm not sure we should be concerned about that as a country. Extreme poverty, joblessness, perhaps income inequality--those are sound issues to worry about, that may or may not also fix this "dream"

Historically we've made much better progress against these social ills through growth rather than any more targeted measure.

Maybe this is just the 2% growth world we live in. If we had 4% growth again, perhaps things would be better.

A strong argument for The Great Stagnation.

Perhaps not as originally argued. Despite terrific technological advances, an inability to translate them into broad dollar income.

Exactly what I've been thinking!

"Make America Great Again!"
What else is this than a mass subconscious answer to frustration about the Great Stagnation?

I wonder how much of this is impacted by delayed adulthood (going to school for longer).

Chetty's says that 70% of the decline is due to growing inequality vs. 30% from slower growth. But wasn't one of the implications of Piketty's work that inequality increases faster during slow economic periods? If so, I wonder how large the higher growth's secondary impact on inequality would be and these results?

I was wondering the same thing. I'm also wondering how many people are working two or more jobs now versus previous generations. For example, It was common that 30-40 years ago, all the male school teachers worked a second job in order to support their family. I recall reading about 25 years ago a newspaper article lamenting the fact that couples needed to work 5 jobs (2 full-time, 2 part-time evenings, one part-time on weekends) in order to support their families. (Though there was also an article mentioning that is was often better if the lower paid spouse actually didn't work, given the cost of professional clothes, parking or transportation expenses, child-care costs, etc.)

Another aspect of delayed adulthood is seen in people taking part-time and/or low-paid work to "pursue their passion" with full recognition it isn't part of a traditional career path. Think of all the Brooklyn hipsters who live off of mom and dad's money while informally working on their artisan furniture startup.

If the prior generation earns enough to subsidize its children's lifestyles, we should *expect* those children to end up earning less, no?

There's a Pizza Parlor in Washington where Hillary Clinton is running a Satanic Cult!!!!!!!

The odds that your parents were age 30 during the Great Depression are much lower for people born in 1980 than for people born in 1940. Amazing!

Poor was really poor in the 00s, the 10s, the 20s, the 30s, the 40s.

Some superficial logic here and elsewhere to dismiss the half century before 1950 as just the Great Depression or WWII.

File this under "NYT articles that never, ever would have seen the light of day if Hillary had won the election."

(I'm referring to the fact that Donald Trump beat Hillary in the historic 2016 US Presidential Election with over 300 electoral votes.)

You're going to need a big file cabinet to store all the NYT/despair articles over the next four years. Maybe even eight.

Dude, the NYT has been writing versions of this for years. I didn't notice a slowdown the last eight years. Get over the victimhood already.

If I recall correctly, Obama only had to be elected to "own" the recession that began before him.

You're lucky we don't play by those rules.

Definitely seems to be the case, though a matter of choice to some extent? My parents and my in-laws both made a fair bit of money at the age of 30, though had an absolute lower standard of living. The ADBG household has a higher income than both, but we never would have been able to afford our current house without help from prior generations. Plus, those student loans put a big negative hit on the balance sheet...
My siblings-in-law are not going to beat their parents, but that's due to picking a variety of low-wage occupations and living in high-cost areas.

Confounding variable not measured here would be total compensation....not sure if there would even be a dramatic slope with Born in 1960 (62%), Born in 1970 (61%), and Born in 1980 (50%) when factoring in total compensation (health insurance has risen dramatically in line with mandated coverage's along....although retirement contributions or pension funding growth/decline might run counter to that narrative).

But the insurance doesn't benefit workers, only insurance executives.

When you look at inequality and the growth of income and wealth in the top 1%, you see that they did very well indeed.

Here is a link with a lot of data, discussing some of the same sources:

If you look at the underlying charts, you'll see that failure to improve on your parents' lot is overwhelmingly a right-hand-side-of-the-curve problem. I.e., there's a lot of downward mobility at high incomes. It strongly suggests this is not a problem of gains being locked in by some segment of the population.

Depends on where you start with respect to the high income folks.

Bill Gates and Warren Buffetts kids will never make as much as their parents,

The 90th percentile has something like a 30% chance of earning as much as their parents. Since the 90th percentile is still improving, those kids have a much worse than 30% chance of actually staying in the 90th percentile. The 1% looks to have something like a 9% chance of earning as much as their parents, and therefore only a tiny chance of staying in the 1%.

So whatever is going on, it's not lock-in at the top. It's that absolute improvement is getting hard to achieve throughout the range. There might be an inequality story in here somewhere, but it's not the traditional inequality story.

That quintile graph has been around for about 5 years. Maybe soon it will be "traditional."

And virtually all immigrants do far better than their parents.

This is also generally true globally.

So really, what's happened is that the gains have started going to the poorest globally, mainly because vast swathes of the poor used to suffer in isolation under basket-case economies like Maoist China, but instead now compete for some of the wages of OECD members.

Sorry, but it's really hard to get upset about some First World wage gains going instead to people who were living at near-starvation levels for decades.

*This is also generally true globally -- i.e. wage gains are much stronger outside the OECD.

"Sorry, but it’s really hard to get upset about some First World wage gains going instead to people who were living at near-starvation levels for decades."

You might not feel much about it, but "China is getting rich while we are getting poor" is a core argument that elected Trump. So some people care about their own well-being ahead of that of others. Around here we call them "deplorables."

Thats a very good point, and while I agree, "it’s really hard to get upset about some First World wage gains going instead to people who were living at near-starvation levels for decades."--based on much of the political rhetoric during the election it would seem much of the population disagrees

Actually, even Trump rarely goes that far. He just argues everyone is screwing us, especially China, with unfair deals.

And China has some abhorrent practices, the pollution is practically a crime against humanity, but it's cheaper, so...

There have always been rich people and kids who regressed to the mean. The difference is in the motion of the mean. It has slowed by many measures.

0.47% real growth for the middle quintile since 1965.

The Washington Post's take on the top 10% not keeping up with their parents is terrific.

"As wealth concentrates at the top, it becomes more difficult for children of the top ten percent to earn more than their parents."

I guess they can take it with them?

That sentence must have been a challenge to write. You've got to thread a whole handful of needles.

That said, I don't know about conflation of wealth with income... It certainly seems like you can take your earning power with you, and all the more so the more earning power you have.

This is even worse than the fallacy of lumping "the top ten percent" together over time, as though they are the same people every year.

Now apparently even their children have attained the mythic status of a permanent caste, in the eyes of those obsessed with "income inequality."

"When you look at inequality and the growth of income and wealth in the top 1%, you see that they did very well indeed."

So, when you look at this data, you must think "Wow, this complete debunks what I once believed."

The "1%" might be getting richer, but the "1%" is apparently not the same set of people over time. The higher you get in absolute income, the harder it is for your kids to stay there.

It may still be the case that income is very unequal, and becoming more winner-take-all. But the prog-friendly interpretation has to become that it's random, not that it's heritable. Even if it's corrupt or unfair, it can't be corrupt or unfair in a way that parents can take advantage of for their kids, because we don't see that in the data.

I am sorry but isn't this Bryan Caplan's libertarian economics dream? That the average American is doing worse.

Otherwise, I am wondering with the increase in human capital and longer to establish careers, that 1980 50% increases to 60% if they measured by age 40.

They ran the analysis looking at income at age 40 for everyone born between 1940 and 1974 and find a similar decline.

The increase in the standard of living is measured by advances in what Americans consider the four most important things in life, comfort, convenience, entertainment and security. Getting from point A to point B has never been more comfortable and convenient, climate-controlled automobiles with internet access make even a traffic jam on the way to the airport bearable. Banking and shopping on-line is the definition of convenient. Probably never in world history have more resources been devoted to relieving the boredom of the unwashed masses, billion dollar television studios have been erected to stage entertainments like NFL football that are broadcast to every home. The technology of these broadcasts is so sophisticated that viewers thousands of miles away have a better sense of what's happening than the very players themselves. Millions of dollars are profitably invested, sometimes, to create cinematic mental chewing gum for adolescents. Machinery washes and dries clothes and dishes. People expect, and generally find, that they can go where they wish without fear of danger or even personal discomfort, having instead to release pent-up adrenaline on roller coasters where they're guaranteed not to be injured. If that is, indeed, how standard of living is measured, how can it get much better?

>The increase in the standard of living

Back in the past a non college grad could work in a factory and support a stay at home wife, a dog, three kids a house with a white picket fence and two cars.

Average price of a house was 7,000 average price of a car was 1,510

median salary was 3,200

That means working 2.65 years with no taxes or living expenses, you could buy a house and a car

In 2016 median salary is 48k

Median home is 189k
cheap new car is 25k

IN 2016 you would need 4.45 years of no taxes and no living expenses

Average salary = 48k

But the cost of EVERYTHING has increased throw in living expenses, cost of college debt, lost salary for 4 years of school

The average college grad would need to double his salary to buy the same things that the boomer had.

While our cars and computers are better our quality of life has definitely decreased. The average family now has 1 house and 1 child and 2 cars and both parents work!

sole breadwinner households are non existent

You haven't included the increase in the size of the average home, or the quality, efficiency, and longevity of the car. Average living space per person in the US has doubled. Cars get >3 times the mileage and last twice as long.

>You haven’t included the increase in the size of the average home, or the quality, efficiency, and longevity of the car. Average living space per person in the US has doubled. Cars get >3 times the mileage and last twice as long.

None of this is relevant

Technology makes things not only better but also cheaper

There is less manpower needed now to produce building materials and to build houses

There is less manpower needed now to build cars due to automation

Hence why we are comparing medians to medians since it is assumed that everybody is buying the cheapest car on the market and paying median home price

Despite all our technology advances we are now working more for less.

It is absurd to claim we are working more for less. We are working more for more. A non-college-educated factory worker today could easily support a stay-at-home wife, a dog, three kids, and a house at the material standard of living of the 1950s. No cable TV, no cell phones, no AC, kids share a bedroom, no dishwasher, maybe a clothes-washer but definitely no dryer, no microwave, no computer, no internet, no summer camps, no vacations far from home, very little in the way of pre-prepared foods (i.e., no boneless chicken breasts at the supermarket), no portable music players, no video player (VCR, DVD, etc.). Back then middle class stay-at-home moms darned socks. Have you met any middle class people today for whom the money saved by sewing up holes in socks is worth the time?

What results like these point out is the increase in income inequality, not any decrease in material standard of living. Peoples' desires are affected by what other people have, and with more inequality, peoples' target lifestyles require more income. Especially now that most women work, men and women tend to pair up by income potential, which further accentuates the inequality. So, some people conclude that you have to work harder to have a "decent" material standard of living, but that is only because we have redefined decent.

delurking, well I guess all those opiate addicts in the Rust Belt should just stop their belly aching. But they deel the way they feel and they vote for people like Trump because they are fed up. So what do we do about that?

feel the way they feel, I meant to type.

Do about what? It's a democratic/republic, shouldn't they be able to vote for whoever they want? The Castro Street gays in The City keep putting Pelosi into office. Minneapolis Democrats put a Farrakhan disciple into office and he's looking to be the chairman of the DNC.

Paging dr. frank, dr. Robert frank to the comments section please...

It's irrelevant. What matters is relative income, and relative success. Knowing that you're solidly in the middle and have job security is worth a lot. If everyone is a widget, we fire them without a second thought and don't care. We offshore or automate their job away (I do both, literally every week). That's what they're going crazy over. I'll get a huge bonus this year for automating at least 400 full time worker jobs. I saved the company 10 million a year in wages alone. I'll snag a very small % of that chunk in a raise and a bonus. The owners will take the rest. But what about those 400....

Ergo, Trump.

Tell these people who complain about stagnation to live without any products invented after 1980.

Easy thing to say if you are not them and are not doing without heat in the winter, after you got laid off from your job that got automated, or that got outsourced to Asia.

Wait until the currency collapses.

My understanding is that this is not a longitudinal - in particular, it is unlikely to account for immigration. There are few US immigrants who earn less than their parents.

Do you mean the data includes immigrants, and thereby makes current 30 year-olds look worse off than they'd look absent immigrants. I.e., there are some low-earners in the current 30-year old data whose parents are not in the older 30-year old cohorts?

Or do you mean the data excludes immigrants, and thereby doesn't celebrate the wonderful gains they've experienced by coming to the US?

If I understand correctly, they used tax-return data for the incomes, right? How do they account for the expansion of 401(k) retirement savings (removing income from tax returns), or the rising value (in terms of dollars spent) on benefits (particularly healthcare) by both employers and employees?

I'm surprised this wasn't pre-titled: "There is no Great Stagnation:" It seems to fit that narrative well. Most of the low-hanging fruit for advances in income/standard of living (like soap, roads, indoor plumbing, vaccinations) had been made through the early part of last century.

Also wonder if you'd see a similar pattern with height. What percent of full-grown adults are taller than their parents, by birth date?

I think I would frame it this way:
1 - the low hanging fruit for the application of human labor was captured with early farming.
2 - the low hanging fruit for the application of animal labor was captured by early domestication of farm animals (horse/ox)
... more ...
3 - the low handing fruit for replacement of labor was captured in the mid-19th to early 20th century.
4 - the low hanging fruit for the application of energy to infrastructure was captured in the early part of the last century.
5 - the low hanging fruit for the application of computation greater than human scale was captured before the end of the last century.
6 - the low hanging fruit for the communication of computation greater than human scale was captured up until this point.

Nothing lowering the top marginal tax rate can't fix.

The big fall (from 90 to 60 happened from 1940 to 1960). Somehow that did not get a lot of attention (golden years blah blah). The fall since has been much less.

Need to consider delayed entry into the market for economic, educational reasons as a huge mitigating factors here. If someone stays in school an extra 4 years, takes a year off, and then works at a start-up or ego project for a few years, is going to show as lower income in their late twenties, maybe more income in their forties, and far greater life satisfaction over all...

I thought that the American dream was to own your home?

Comments for this post are closed