The Great Gatsby Curve and the Dying of the American Dream

Timothy Noah, journalist and blogger suggests in his recently published book - "The Great Divergence"- that growing income disparity may be the most seminal change in the US over the past couple of generations. He writes that the world's richest nation has gone from one that viewed "the prospect of growing inequality to be unacceptably antidemocratic" to one that's economically beginning to "resemble a banana republic". Joseph Stiglitz, Nobel Prize winning economist, in his book "The Price of Inequality" points out that, at $90 billion, the combined wealth of the six Walton family heirs to the Wal-Mart fortune is equivalent to the entire bottom 30% of Americans. Even more damning is evidence found by Miles Corak,a University of Ottawa economist. Corak studied income levels across generations within families in a set of developed countries and plotted the classical measure of income equality, the Gini coefficient against a factor which measured income mobility across generations that he termed Inter-generational Earnings Elasticity. The result is, what in some economic circles, is called the Great Gatsby Curve. The import of the Great Gatsby Curve, put in simple terms, is that as income inequality increases in a society the chances of the next generation of poor remaining poor increases. And over the last two decades income inequality has increased to be the highest in the US among the rich countries. The dream of achieving a better life than one's parent is fundamental to the American identity and rising income inequality is striking at the very roots of American society. How will this great society respond to this challenge? Will it let the American dream die? Will the 1% who are the rich realize that they too will be hurt when inequality spirals into economic dysfunction for the whole society and let the politicians they control take the needed drastic measures? Will the poor rise and take control of their own destinies? These are questions the answers to which will shape the 21st century for the US. What about the rest of the world? While income inequality is also rising in the rich societies of Western Europe the effect is not as fundamental because in the ethos and cultures of these societies upward mobility is not as fundamental a concept as it is in the US. Further many of these countries are welfare states that cushion the psychological impact of inequality (the societal impact of the welfare state crumbles in many of this country is likely to be of much greater consequence but that is another story). In many Asian and African countries GINI coefficient will be way beyond what it is in the US. But this is not a new phenomenon in our societies and the entire cultural and social edifice is built around concepts that make inequality palatable to the poor and keeps them quiescent. Opium for the masses and all that. But as the 21st century takes the information revolution down to the masses, revolt will simmer. The Arab Spring was the simmering up of this revolt in highly repressed societies. China is no less repressed but an economic miracle that has lifted huge numbers up the economic ladder, keeps the lid on the simmer among it's poor. But how long before the lid blows off? And what about incredible India? Among the world's more open societies with one of the world's highest GINI coefficient, India is an outlier. The openness of its society does not repress the simmer and it is more and more evident every passing day. Reminds me of the conditions described in VS Naipaul's book from over a decade go "A Million Mutinies Now". To Naipaul the ferment he saw was creative and foretold the forging of a great society. Is the ferment still creative or has it soured into destruction? Is the openness of Indian society allow the ferment to cause structural changes which will launch India into a new trajectory? Will the rich in India perceive the opportunity they have to lead in the creation of a great society? Will our politicians learn to get out of the way? Answers to these questions, I believe, will shape India in the 21st century.