The American Dream Is Alive And Well

By Dick Morris on July 23, 2013

It may seem as if the poor remain poor, the rich stay rich, and the middle class has nowhere to go. It may appear as if we are not doing as well as our parents did. But each of these statements is disproven by a new study issued by Pew University. Instead, Pew found a churning with the rich moving down and the poor moving up in about equal numbers. It is as easy to escape the poverty of the bottom fifth as it is to fall out of the wealth of the top fifth. 57% of the bottom quintile — the poor — move out of poverty after twenty years while 60% of the top quintile — the rich — fall out in the same period.

Pew conducted a twenty year study of upward and downward mobility in our economy. It traced a sample of Americans from the mid eighties and early nineties through the end of last decade to measure their ups and downs in income and wealth. It also compared where they ended up with where their parents left off in order to determine generational upward or downward mobility.

The study found that 84% of Americans earn more at this point in their lives than their parents did in inflation adjusted dollars. And, it found an incredible amount of upward and downward changes in income over the twenty year period. Predictably, race and educational levels played a large part in the results. But the volatility of the upward and downward movements suggest an economy in flux rather than one stuck behind European-like class barriers.

The study divided Americans into five income bands for each 20% of the population. For our purposes, we’ll call the 0 to 20% band the “poor” (even though the actual poverty rate is only 15%). The next band — 20% to 40% — we’ll call “almost poor.” The middle band — 40% to 60% — we’ll call “middle income.” The fourth band — 60% to 80% — lets label “near rich” and above 80% we’ll call “rich.”

The poor will average below $20,000 in household income. The almost poor will run from about $20,000 to $40,000. The middle will have a household income of $40,000 – $60,000 (median household income is about $50,000). The near rich will range from $60,000 – $80,000 and the rich will be above $80,000 (although they may not feel rich).

Of those who grew up in poverty, 57% have succeeded in leaving that condition twenty years later. 43% remain poor. 27% of the once poor become almost poor. 17% become middle income, 9% rise to near rich and 4% are truly rags-to-riches going from the bottom to the top in twenty years.

Mobility is also great for the almost poor. After 20 years, a quarter (24%) falls backwards into poverty. 20% remain almost poor. But a healthy 56% move up the ladder, a third into the rich and near rich categories.

For the rich, staying there is no assured thing. Of those who were in the top quintile (rich), only 40% stayed there twenty years later. 22% fell back to near rich but 18% fell down to poverty or near poverty.

So, if you are down, there is a better than even chance of going up. And if you are up, there is a better than even chance of dropping down!

Race had a lot to do with what happens to you. Half of blacks (53%) as opposed to a third of whites (33%) who were raised in the bottom of family income stayed there. And 56% of the blacks who spent their childhood in the middle income range fell back to poverty or near poverty compared to just 32% of whites.

And education was a key variable. Among those who were poor as children, 47% remained poor if they had no four year college degree. But only 10% stayed poor if they had one.

Geographically, the center for upward income mobility shifted away from the Sunbelt and the west coast to the northeast. The internationalization of the economy in New York and the surrounding area has lifted incomes and mobility prospects while the rest of the nation languished. Eight states — six in the northeast — had above average upward income mobility: New York, New Jersey, Pennsylvania, Maryland, Massachusetts, Connecticut, Michigan and Utah. The southeast, once the growth center of the nation, languished behind as did the west coast.

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