Can the American Dream be Measured? Challenge Accepted!

I don’t know about you, but my dreams defy measurement. Even putting a simple “good” or “bad” rating on them is tough. I once had a dream that I was managing a Payless shoe store at a mall north of Boston. Weird? Yes. But, was that a good dream, or a bad one? I mean, at least I had health insurance.

In some ways, The American Dream also defies measurement. Although many Americans today associate it with material well-being, historically The American Dream has encompassed something larger. Sarah Churchill, a Professor at the University of London, writes that James Truslow Adams — the man who made the phrase popular — considered the American Dream to be loftier than mere possessions. Adams declared: “[it is] not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

That’s all well and good. But here’s the thing Mr. Adams — I’m an economist, and for better or worse, I just gotta’ measure stuff. So, I went to the data to see what I could see.

Trying to Quantify the American Dream

Recently, I’ve been teaching a brand new class to first-year students on the topic of economic opportunity. As part of the first week of class, we asked students to reflect on how they interpreted the American Dream. And, I did some reflecting myself. What did I think of as the American Dream?

The first thing I thought of was family…people want to have a good family life. So, I collected data on marriage. Next, I figured people want to earn that bread, so I identified households with at least one worker. And, if you have a job, you want that job to have good benefits, like health insurance. Finally, I figured people dream of owning their own home. So, I identified a person as having achieved the American Dream if they were married, with at least one household member working with employer-sponsored health insurance, and living in their own home.

The figure below shows the result of this calculation over the four decades between 1980 and 2020. What I found was that under this definition, the American Dream is in a bit of decline, and also quite unequal. For people aged 25-54, the share having achieved my definition of the American Dream fell from 46 to 34 percent. In 2020, 42 percent of White Americans in this age range had achieved it, compared to 16 percent of Black and 20 percent of Hispanic Americans.

Figure. Share of Americans having Reached Geoff’s Definition of the American Dream

Note: Includes individuals age 25-54. Within the household, either person can be working and either person can have access to health insurance through their employer.
Source: Author’s calculation from the IPUMS Current Population Survey.

As far as the reasons for this overall decline, the biggest culprit is marriage. As I’ve documented in this blog before, marriage rates have dropped considerably — from 76 percent in 1980 to 62 percent in 2020. Household coverage by employer-sponsored health insurance also dropped as part of a longer-term trend, from 76 to 69 percent. And, home ownership had a similar decline, falling from 73 to 67 percent over the four decades presented.

With respect to inequality, almost all factors are at play. In particular, Black and Hispanic people are just two-thirds as likely to own their own homes relative to White households. And, Black individuals are especially unlikely to be married relative to White households — 36 versus 65 percent — with at least some of the gap driven by the fact that there are fewer Black men than women. Economic inequality doesn’t help the marriage gap either.

To put it simply, by my definition The American Dream is like many other things in the U.S. of late: unequal and receding.

Still Striving for the Dream

OK, so that last section was a bit pessimistic about the American Dream. I’m sort of a “glass half empty and, by the way, is that a crack?” kind of guy. The good news is that most Americans are more optimistic than me.

You see, The Pew Research Center occasionally publishes surveys of individual’s own conception of the American Dream, whether they feel that they have achieved it, and if they haven’t achieved it yet, whether they think they are on their way. In the survey, just 37 percent of Americans said that they had achieved the American Dream. That number is remarkably close to the one I got using my definition above — 34 percent.

But, 46 percent of Americans said that even though they hadn’t achieved the dream yet, that they were on their way to achieving it. In the survey, just 17 percent of Americans said that they felt that the American Dream was out of reach. You gotta’ love that can do spirit!

Whether that can do spirit is realistic or not is the thing that I worry about. Americans are willing to work for their dreams, and to me the goal of policy is to give them the best shot to achieve them. The last 40 years have seen a variety of forces turn against workers, with consequences that include drops in marriage and a lack of progress towards goals like homeownership.

The policy options are vast. For example, tax law currently favors capital over labor, encouraging the adoption of technology over the employment of actual humans. Conservatives and liberals could perhaps find common ground on tax cuts on the employment of labor, encouraging higher wages and employment. Or, we could take more active approaches, like expanding the Earned Income Tax Credit to more middle-class families, increasing the income of working Americans and freeing up some money for down payments on homes. We could even encourage the building of more affordable starter homes, a type of home whose construction seems to be dying out. Indeed, the Biden Administration is already on this one.

The vast majority of Americans believe their American Dream is within reach. Our society and its policymakers have something to say about whether they get there or not.

P.S. I have many more policy suggestions and awesome charts in my book!

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