The Economist evaluates the state of income distribution and social mobility in the US. It comes to the conclusion that the American Dream is increasingly becoming no more than dream for the majority of the poor.

Firstly, a look at income distribution:

The past couple of decades have seen a huge increase in inequality in America. The Economic Policy Institute, a Washington think-tank, argues that between 1979 and 2000 the real income of households in the lowest fifth (the bottom 20% of earners) grew by 6.4%, while that of households in the top fifth grew by 70%. The family income of the top 1% grew by 184%—and that of the top 0.1% or 0.01% grew even faster. Back in 1979 the average income of the top 1% was 133 times that of the bottom 20%; by 2000 the income of the top 1% had risen to 189 times that of the bottom fifth.

Thirty years ago the average real annual compensation of the top 100 chief executives was $1.3m: 39 times the pay of the average worker. Today it is $37.5m: over 1,000 times the pay of the average worker. In 2001 the top 1% of households earned 20% of all income and held 33.4% of all net worth. Not since pre-Depression days has the top 1% taken such a big whack.

Then, on the chances of the little guy becoming top dog:-

The most remarkable feature of the continuing power of America's elite—and its growing grip on the political system—is how little comment it arouses. Britain would be in high dudgeon if its party leaders all came from Eton and Harrow. Perhaps one reason why the rise of caste politics raises so little comment is that something similar is happening throughout American society. Everywhere you look in modern America—in the Hollywood Hills or the canyons of Wall Street, in the Nashville recording studios or the clapboard houses of Cambridge, Massachusetts—you see elites mastering the art of perpetuating themselves. America is increasingly looking like imperial Britain, with dynastic ties proliferating, social circles interlocking, mechanisms of social exclusion strengthening and a gap widening between the people who make the decisions and shape the culture and the vast majority of ordinary working stiffs.

It is interesting to note that since the Thatcher era in Britain, the country has largely been run by self-made politicians rather than the grandees and old-school ties of previous times. At the same time, the reverse trend can be observed in the US.

The Economist examines two potential factors behind the reduction in social mobility. Firstly, education:-

Upward mobility is increasingly determined by education. The income of people with just a high-school diploma was flat in 1975-99, whereas that of people with a bachelor's degree rose substantially, and that of people with advanced degrees rocketed.

The education system is increasingly stratified by social class, and poor children have a double disadvantage. They attend schools with fewer resources than those of their richer contemporaries (school finances are largely determined by local property taxes). And they have to deal with the legacy of what Michael Barone, a conservative commentator, has labelled “soft America”. Soft America is allergic to introducing accountability and measurement in education, particularly if it takes the form of merit pay for successful teachers or rewards for outstanding pupils. Dumbed-down schools are particularly harmful to poor children, who are unlikely to be able to compensate for them at home.

America's great universities are increasingly reinforcing rather than reducing these educational inequalities. Poorer students are at a huge disadvantage, both when they try to get in and, if they are successful, in their ability to make the most of what is on offer. This disadvantage is most marked in the elite colleges that hold the keys to the best jobs. Three-quarters of the students at the country's top 146 colleges come from the richest socio-economic fourth, compared with just 3% who come from the poorest fourth (the median family income at Harvard, for example, is $150,000). This means that, at an elite university, you are 25 times as likely to run into a rich student as a poor one.

The other factor examined is the change in employment culture:-

America's great companies are also becoming less successful agents of upward mobility. The years from 1880 to 1960 were a period of great corporate behemoths. These produced a new class of Americans—professional managers. They built elaborate internal hierarchies, and also accepted their responsibilities to both their workers and their local communities. But since the 1970s the pressure of competition has forced these behemoths to become much leaner—to reduce their layers, contract out some activities, and shift from full-time to part-time employees. It has became harder for people to start at the bottom and rise up the company hierarchy by dint of hard work and self-improvement. And it has also become harder for managers to keep their jobs in a single company.

Brad DeLong also touches on this theme here, arguing that the post-War boom acted as an engine of social mobility in the States, with the US reaping the dual benefits of insatiable consumer demand and sparse competition. The momentum of this boom is now put in jeopardy by the rise of the large low-wage economies of Asia:-

The coming generation will be one of massive downward mobility for many Americans. The political struggles that this generates will determine whether America will move more closely to the social-democratic norm, or find some way to accept and rationalize its existence as a country of high economic risk and deep divisions of income and wealth.