Creative Destruction

April 8, 2006

The American Dream Revisited

Filed under: Uncategorized — Adam Gurri @ 11:31 pm

Ok, time for my promised response to Brutus' critique of the American social model.

I don't want to muddle this discussion with more methodological bickering, so I'm going to try and play by the terms of debate that Brutus himself set up.

"I have a real problem with citing numerical data as it quickly becomes a nearly infinite regress to interpretation, methodology, who might be funding the research, and what agenda the person(s) conducting the research may have, etc. It is also quite common that numerical evidence is incomplete, skewed towards political policies or agendas, or inadvertently misleading. Moreover, there is a lot of evidence that simply does not lend itself to presentation in numerical form.

So the numbers I present below are provided rather grudgingly, lest I be accused of dreaming up my arguments out of thin air. I am probably no better than others with respect to giving evidence to support my contentions; I obviously went in search of things that support my agenda and discarded or ignored other evidence. That's my point about our fetish for numbers: they may not prove very much in the end."

Obviously in order to have a discussion at all, I'm going to have to quibble somewhere; but I will make a few promises on what I won't do.  I'm not going to pull in other studies to try and contradict yours–we can avoid an escalation of your studies vs. my studies that way.  Nor am I going to question the motives of your sources at all–I will take their arguments and their information on the merits.

I'm not going to argue with your conclusion about tax rates; I agree that they are flatter in the US than in Europe.  I disagree with you on that being a bad thing, but that's a debate for another time. 

I will, however, bicker with your conclusion about economic mobility.

Both of your sources tend to focus primarily on the frequency of the very bottom getting to the very top.  For instance, the Wallstreet Journal article states:

"Only 14% of the men born to fathers on the bottom 10% of the wage ladder made it to the top 30%. Only 17% of the men born to fathers on the top 10% fell to the bottom 30%."

Yet this does not seem so important if you consider the actual data in the first source that you provided. 

In Table 4, we see that 62% of all kids whose parents were in the bottom 20% when they were 16 have, by the time they turned 30, ended up moving up at least one quartile.  Likewise, 57% of the top quantile earners' children had moved down at least one quartile by the time they were 30.

How much more mobility can you ask for?  And if you intention is to compare the European model to the American one, then are they any more mobile?

"The chart at the very bottom of this page at the Census Bureau indicates that the median mortgage in 2004 was $1,212 and median rent was $694. Out of those with a mortgage, fully 32% of owners pay 30% or more of income for housing. (It is unclear whether that accounts for more than the mortgage.) For renters, it is 48%. I take those numbers to indicate that there are a lot of folks overextended in paying for housing. This article articulates many of the same points as above, including that the "poor entered the 1970s spending 30 percent of their income for housing; by 1995, they paid 58 percent." That is a serious burden. ABC News also has an article on the subject supporting the same points."

But what none of this addresses is whether people have been able to make their payments on time.  Because the prices would not be going up if people were unwilling to shell out the money.   If people are willing to pay more of their income to own a house, then what's the problem here?  Unless you can demonstrate that people are going bankrupt or that there is a serious loss of standard of living occurring here.  If people are able to afford to own or rent a place to live, and are willing to pay a little more to do so…well, I fail to see the trouble with that.

"There was little or no discussion of the heart of the issue, which is the relative inhumanity of the U.S. in its refusal to care for its own in comparison to most European countries' insistence upon it."

Well, ok, let's discuss it.  How easy is it for Europeans to get a new house?  How often do the very poor in Europe improve their lot within one lifetime, or if you prefer,  across a generation?  How does the standard of living for the average American compare to the average French citizen, or Spaniard, or Brit?  You could look at this in terms of consumption rates, or in terms of income, or in terms of any number of things, but it doesn't seem to me as though the evidence you've provided has painted America in anything but a positive light.

Of course, I know that you didn't pretend your information to be proof, nor will I pretend my rebuttal has any finality–but I do think that taking your sources on their merits shows nothing to be concerned about. 

Advertisements

19 Comments »

  1. On the housing issue, Adam, you seem to be contradicting yourself. You’re happy with people choosing to spend whatever they like on housing; why should you care if they are having a serious loss in their standard of living?

    I can also tell you do not live in California. 😉

    Here, a big chunk of the problem is not just what people pay for housing, but how. All kinds of freaky mortgage schemes have sprung up, which allow people to buy far more house than they can actually afford…but the pain is delayed, because they pay only interest right now, or are pegged to a favorable market rate. The bait is that they can sell and move before their payments shoot up, or before interest rates make their mortgage payments unbearable.

    Comment by mythago — April 9, 2006 @ 12:05 am | Reply

  2. You’re happy with people choosing to spend whatever they like on housing; why should you care if they are having a serious loss in their standard of living?

    Apparently, I can’t want people to be free and have material success?

    I can only hope that you’re being sarcastic.

    Here, a big chunk of the problem is not just what people pay for housing, but how. All kinds of freaky mortgage schemes have sprung up, which allow people to buy far more house than they can actually afford…but the pain is delayed, because they pay only interest right now, or are pegged to a favorable market rate. The bait is that they can sell and move before their payments shoot up, or before interest rates make their mortgage payments unbearable.

    Easy to say. But as I pointed out, you’d have to demonstrate to me that there’s a pervasive problem with Americans who are unable to make their payments on time and are therefore experiencing a loss in the quality of their life.

    If you can’t provide evidence that people are unable to make their payments, then I hardly see how people are buying more “than they can actually afford”.

    Comment by Adam Gurri — April 9, 2006 @ 1:06 am | Reply

  3. It seems that one fellow is doing all the research for us:

    http://getforeclosures.blogspot.com/

    There is apparently a thriving market in buying foreclosed property. The headlines of the blog entries (I didn’t read far) report high levels of foreclosures all over N. Amer. Of course, it’s only a blog. Could be lies.

    Comment by Brutus — April 9, 2006 @ 3:11 am | Reply

  4. Apparently, I can’t want people to be free and have material success?

    You can, but that’s not what you said. You said “what’s the problem here?” if people want to spend more on a home; did you mean this as a genuine, not a rhetorical, question?

    If you can’t provide evidence that people are unable to make their payments

    I’m getting the impression you didn’t actually read what I wrote. The problem is that people who are able to make their payments now will not be able to do so when the market cools, interest rates rise, and their interest-only or ARM mortgage payments rise. Such mortgages have been pushed here in California, where the market has been overheated for a long time, in order to get marginal buyers to buy more home than they can actually afford. Here’s an example.

    Comment by mythago — April 9, 2006 @ 2:14 pm | Reply

  5. From your example:

    “We’re taking a risk, but it’s a calculated risk,” Howard, 37, said. “It’s a way to get our foot in the door. We’ve been all over the world, and we want to live in San Francisco.”

    With an emphasis, I think, on the “calculated risk”.

    Your example provides no evidence that people will be unable to afford their homes at a later date. Just that they might accidentally spend more money than they would have if they’d chosen the perfect approach. But there’s always going to be a margin of error–so long as people can afford to buy a home, and so long as they are allowed to decide for themselves how much or how little risk they want to take…I ask you genuinely: what is the problem?

    Brutus: an interesting blog, and I’m not going to argue that forclosures never happen–but I suppose the question, how bad is it, is it any worse than it used to be, and how bad is it in relation to Europe?

    Also, who are most effected? The poor, or the middle class who get too exuberant in their spending?

    Comment by Adam Gurri — April 9, 2006 @ 3:26 pm | Reply

  6. I ask you genuinely: what is the problem?

    Again, there is no problem if you don’t care what the results of the risk-taking are. But in your original post, you turn around and worry about bankruptcy or a lower standard of living. If people are making a calculated risk, why should we care if they go bankrupt or lower their standard of living? That’s the chance they took, right?

    Comment by mythago — April 9, 2006 @ 4:00 pm | Reply

  7. If people are making a calculated risk, why should we care if they go bankrupt or lower their standard of living? That’s the chance they took, right?

    I see what you’re saying. But I’m afraid you’ve misunderstood my perspective.

    See, while I admit I’ve got an emotional attachment to a philosophy of freedom and personal responsibility, ultimately I try not to be a zealout. In a discussion like this, I think it’s best to look at the pragmatic bottom line.

    And if people are so inclined to take stupid risks that the average American is gambling their way right to homelessness, then I think it would be time for me to back off of my free-market high horse and accept the need for reform.

    But the whole point of the free market is that it is self-regulating, and far more effective at improving the material conditions of the vast majority of the economic actors than any centralized system of control has ever demonstrated itself to be.

    So I’m not asking you to judge our system on whether or not it places an emphasis on personal freedom. I’m asking you to provide evidence that that emphasis results in a lowered standard of living, if that is what you believe.

    Comment by Adam Gurri — April 9, 2006 @ 4:07 pm | Reply

  8. So I’m not asking you to judge our system on whether or not it places an emphasis on personal freedom. I’m asking you to provide evidence that that emphasis results in a lowered standard of living, if that is what you believe.

    Sorry, did we shift into a capitalism vs. communism debate here? My point was only that you can’t really have it both ways: either we trust people to make their choices and pay the price for their risks, or we care about negative consequences and we start putting our thumbs on the scale.

    Comment by mythago — April 9, 2006 @ 5:16 pm | Reply

  9. My point was only that you can’t really have it both ways: either we trust people to make their choices and pay the price for their risks, or we care about negative consequences and we start putting our thumbs on the scale.

    That is a false dichotomy. Simply stating that it’s an “either-or” situation does not make it so.

    I believe that there are moral reasons to argue in favor of such a reason. I also think that there is serious evidence that that system produces the best material results for the most people. If you could disprove the latter, then I think it would be quite difficult to argue in favor of the former.

    Unless you believe that there is no such thing as pragmatism at all, and that the debate can only be concerned with whether or not it is inherently right to provide people with that choice.

    Comment by Adam Gurri — April 9, 2006 @ 6:41 pm | Reply

  10. Carnival of the Capitalists

    Welcome to this week’s edition of the Carnival of the Capitalists. My name is Dane Carlson, and I’ll be your host today. This is my fourth time hosting the Carnival (the previous 1, 2 and 3) and it just keeps getting better.
    There were…

    Trackback by Business Opportunities Weblog — April 10, 2006 @ 2:12 am | Reply

  11. Simply stating that it’s an “either-or” situation does not make it so.

    When A excludes B, then if you propose A and B, you are proposing them as an either/or situation.

    Again: you proposed that we should leave people alone to choose to spend more money on housing. You then expressed concern for the exceptions where those people got into bankruptcy or a lower standard of living. (Though surely the latter includes perfectly-acceptable standards of living, just with more money spent on housing?)

    So, really, you answered your question “What’s the problem here?”

    Comment by mythago — April 10, 2006 @ 2:19 am | Reply

  12. […] In The American Dream Revisited, Adam at Creative Destruction argued that the American economic model is better than the European one. […]

    Pingback by Business Opportunities Weblog | Carnival of the Capitalists — April 10, 2006 @ 9:09 am | Reply

  13. Gah, you’re framing this all out of wack.

    You have to realize this post comes in the context of a discussion with Brutus about the American social model vs. the European one. My argument is comparative in nature.

    I’m not saying “we should have more freedom and a focus on higher standard of living.” I’m saying, “Allowing people the freedom to choose for themselves from the options available to them is an approach that can be demonstrated to bring more material prosperity to more people across the board than a top-down, steep taxes to pay for generous government programs approach.”

    Once again, this isn’t a matter of “Either we focus on personal choice or we focus on standard of living.”

    This is about demonstrating that the latter follows from the former.

    Comment by Adam Gurri — April 10, 2006 @ 4:59 pm | Reply

  14. […] The American Dream Revisited […]

    Pingback by PurpleSlog » Blog Archive » Carnival of the Vanities — April 12, 2006 @ 7:29 am | Reply

  15. Carnival of the Vanities

    Welcome to this week’s edition of the Carnival of the Vanities. I’m sticking with my usual method of hosting a carnival — listing a summary of each piece with the author’s reason for submitting the post to the carnival (for

    Trackback by Free Money Finance — April 12, 2006 @ 9:23 am | Reply

  16. Well, you asked a rhetorical question and I was answering it 🙂

    The ‘problem here’ is not that Brutus’s model is right; it’s that the reasons people here are willing to pay more are not always good ones, or ones that we want to encourage as part of national policy. (For example, if Americans just like bigger houses than Europeans, okay, whatever. If, as in California, it’s because lenders are pushing complicated and risky lending, that’s not so good.)

    Comment by mythago — April 12, 2006 @ 12:29 pm | Reply

  17. it’s that the reasons people here are willing to pay more are not always good ones

    Who decides what a good reason is? And on what basis?

    or ones that we want to encourage as part of national policy

    What on Earth does this have to do with national policy? Do we need to encourage a monolithic standard way of being?

    If, as in California, it’s because lenders are pushing complicated and risky lending, that’s not so good.

    Once again, I think you’re making too many assumptions. Assumptions about how much influence the “push” factor play, assumptions about what “risky lending” is, and assumptions about how you judge any of these things at all.

    In this discussion, you and Brutus have had a tendency to judge things based entirely on their internal logic. While I do enjoy going into that, it is ultimately useless unless you can demonstrate that your understanding of the flaws of any given way of doing things (be it “risky lending” or what have you) translates into measurable, real-world scenarios.

    Comment by Adam Gurri — April 12, 2006 @ 3:24 pm | Reply

  18. Adam Gurri: In this discussion, you and Brutus have had a tendency to judge things based entirely on their internal logic. While I do enjoy going into that, it is ultimately useless unless you can demonstrate that your understanding of the flaws of any given way of doing things (be it “risky lending” or what have you) translates into measurable, real-world scenarios.

    Judge by internal logic? As opposed to some other standard? What does that even mean? Is that meant to be a real criticism?

    My original statement, which has probably been lost in the comments and retitling of the subject, was that home ownership is a far-off dream for many. Judging by the current housing bubble we’re in, rising interest rates, the number of people overextended in their housing costs (which is measured by consensus, not choice), and the increase in foreclosures (see foreclosure weblog mentioned above), I think my statement holds true.

    It’s obvious that the housing market has adapted by offering questionable mortgage instruments and that individuals take on (by choice or per force, I’m not sure it matters) risky behaviors. There is still a sizeable portion of the populace that is excluded from even considering buying into the American Dream of home ownership by the current economic climate and housing market. You’ve asked a lot of questions, but I daresay you haven’t dispelled any of the fundamental assessments leading to my claim.

    Comment by Brutus — April 12, 2006 @ 5:54 pm | Reply

  19. You’ve asked a lot of questions, but I daresay you haven’t dispelled any of the fundamental assessments leading to my claim.

    Your fundamental assessment in this case appears to have been the argument that since people are paying more of their income to live in houses, particular lower-income families, then the American dream of owning a home must be a hollow myth.

    But you’re analysis is looking at entirely irrelevant information. If people are willing to spend more in order to live in better areas, then that is a seperate issue.

    Once more; unless you can demonstrate that the trend is towards fewer people owning homes, and more people being unable to make their payments, then your argument has no substance.

    And lo and behold, the trend would appear to be an inching in the upward direction for homeownership over the last forty years.

    This is precisely what I meant by judging things on their internal logic alone. You speak of the “relative inhumanity of the U.S. in its refusal to care for its own in comparison to most European countries’ insistence upon it” as if insistence were the most important aspect of this subject. But to my mind, the most important thing is the bottom line–how many people are unable to afford to either buy or rent a place to stay, and in what countries has the material condition of the average citizen improved the most, in every segment of society, over the long term.

    You do not address these issues; you simply spoke of lower taxes, the fact that few very poor people end up with children who are at the other extreme of the material spectrum, and the fact that people are paying more of their income for homes, and act as though any of this had any real meaning.

    If inhumanity is what you’re trying to demonstrate, then you have failed. All you have done is shown that we give less money to our government than we used to, our paupers may have to live with becoming middle class rather than princes, and more people are paying more money so that they can achieve their dream of owning a home. You haven’t even bothered to try and compare that to the conditions in Europe.

    So I’d say that so far your fundamental assessments seem to be fairly lacking in supporting evidence.

    Comment by Adam Gurri — April 12, 2006 @ 6:43 pm | Reply


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Create a free website or blog at WordPress.com.

%d bloggers like this: