Is the American dream dead? Inequality, mobility and entrepreneurship
| Published date | 17 August 2015 |
| Date | 17 August 2015 |
| Pages | 234-256 |
| DOI | https://doi.org/10.1108/JEPP-04-2014-0019 |
| Author | Young Back Choi |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Is the American dream dead?
Inequality, mobility and
entrepreneurship
Young Back Choi
Department of Economics and Finance,
St. John’s University, Jamaica, New York, USA
Abstract
Purpose –The purpose of this paper is to question the frequently heard claims of a negative
relationship between inequality and intergenerational mobility (such as the “Great Gatsby Curve”
by Alan Krueger) and to propose entrepreneurship as the neglected prime countervailing force against
the putative advantages of the rich.
Design/methodology/approach –A critical examinationof evidences marshalledto support the case
for a negative relationship between inequalityand mobility, in terms of the appropriatenessof statistical
inferences and the consistency between implications and observations. The paper adopts alternative
approach of Austrian economic in emphasizingthe role of entrepreneurship in generating mobility.
Findings –The putative negative relationship between inequality and mobility is not supported by
evidence.The result is partlythat egalitarianstend to skip close examination when theyrun into evidence
that seems to support their preconception. It is also partly that the dominant tradition in economics,
based on the model of efficient allocation of given resources, induces them to overlook entrepreneurship,
the prime wealth creator and generator of mobility.
Research limitations/implications –The research outlines an argument that the rich do not have
advantage in entrepreneurship because it depends not on the ownership of currently valued resources,
but on the discovery and exploitation of profitable opportunities. This claim is made based on
Kirznerian perspective and author’s own theory of inference and learning process. However, it would
be nice to able to provide empirical evidence of this claim made in the paper.
Social implications –Many policies of redistribution, based on the belief that increase in inequality
(as measured by Gini coefficient) signifies a diminution of intergenerational mobility, should be
re-examined since the alleged negative relationship between inequality and intergenerational mobility
turns out to be untrue. For greater intergenerational mobility, entrepreneurs should be encouraged,
by allowing them to experiment freely.
Originality/value –Emphasizing the role of entrepreneurship in intergenerational mobility and the
dealing with the question of whether or not the rich would have advantage in entrepreneurship is
original to this paper.
Keywords Entrepreneurial opportunity, Inequality, Egalitariansim,
Intergenerational mobility, Redistribution
Paper type Research paper
I. Introduction
Americans are (orat least used to be) famous for their optimism aboutthe future, namely,
the American Dream. The American Dream may mean different things to different
people, but basically it is the belief that America is a land of opportunity and through
hard work one can betteroneself economically, and even if one’scurrent station in life is
relatively low, at least one’s children would have a fair chance at bettering themselves.
Journal of Entrepreneurship and
Public Policy
Vol. 4 No. 2, 2015
pp. 234-256
©Emerald Group Publishing Limited
2045-2101
DOI 10.1108/JEPP-04-2014-0019
Received 27 April 2014
Revised 18 May 2014
3 June 2014
Accepted 6 June 2014
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
The author benefitted from valuable comments by David Harper, Pete Boettke, Olga Nicoara, and
Joshua Hall on earlier draft.
234
JEPP
4,2
It has also fueled the massive immigration, at the rate of 1.5-2 million souls a year
in recent decades.
Social critics argue that the American Dream is largely illusory (Corak, 2004, 2006;
Wolff, 2002). Income and wealth distribution in the USA have become increasingly
unequal since 1970s and economic mobility in the USA is lower than other advanced
countries ( Jäntti et al., 2006). They further suggest that along with the increasing
inequality in income and wealth distribution, mobility has become lower and one’s
station in life is increasingly determined by family background in terms of wealth and
income (Krugman, 1995, 1996, 2014; Krueger, 2012; Piketty, 2014). These are serious
claims with potentially serious consequences. The pessimistic view on the American
Dream and the necessity of corrective redistribution, indeed, were the main themes of
President Obama during his successful re-election campaign.
The view that inequality in income distribution is excessive, or at least threatening
to the stability of society, is widely shared. For example, the former Chief Economist of
the World Bank and the current Governor of the Bank of India, Raghuram Rajan (2011)
claims that one of the most important causes of the recent housing bubble and
subsequent financial crisis was the government policies of promoting home ownership
among low income families. He argues that the policies were in response to political
pressures to redress the increasing inequality. Rajan argues that the problem should
have been dealt with differently. Regardless what remedies are proposed to deal with
inequality, it should be noted that he, along with many social critics, believes that the
growing inequality is a genuine problem that needs to be addressed. All proposals to
remedy the problem of inequality, in one way or another, contribute to the expansion
of the redistributive state.
A redistributive state is motivated basically by three political forces that are not
necessarily mutually exclusive –vote seeking politicians, kleptocracy, and egalitarianism.
In this paper, I will not directly the first two factors driving the demand for redistributive
state because most everyone seems to agree that kleptocracy and vote-buying are
undesirable. Instead, I will focus in this paper on the egalitarian drive for redistribution
because it has gained wide acceptance. I will do so by clarifying conceptual issues
surrounding inequality and mobility and exploring the neglected role of entrepreneurship
in economic mobility.
A great majority of people, even those who do not consider themselves as an
egalitarian, believe that a lesser degree of inequality in income and wealth distribution
is preferable. Why? It is because for them greater equality is better; more inequality is
bad. Most of them would deny that they envision absolute equality as the ideal, but
their stance is ambiguous. Hardly anyone offers any explicit criteria of an acceptable
degree of inequality. Yet, they all prefer greater equality. Without being explicit,
therefore, they implicitly subscribe to egalitarianism.
No known society in human history ever came close to being egalitarian, including the
ones explicitly organized for that purpose. For the majority of human history the process of
economic development was extremely slow, economic mobility very rare (except through
conquest and dynastic changes), and the majority of people were poor. Most accepted their
inherited station in life. Only with quickened process of economic development in the past
few hundred years has the idea of economic mobility became meaningful[1].
However, varying degrees of inequality have been consistent with more or less
economic mobility and social peace. As long as the economy has robust growth,
even the current laggards believe that in due time they could also do better (Hirschman,
1973). That is precisely the American Dream.
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Is the
American
dream dead?
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