Authors: Rachel Williams, Deepak Badri, Brian Grant, Manav Darooka, Noah Jakel, Aadit Bhavsar, Arhaan Datwani, Siddharth Yerapotini, Brett Colón and Elizabeth Bolton – December 2024
Famous astronaut and engineer Buzz Aldrin once said, “I think the American Dream used to be achieving one’s goals in your field of choice – and from that, all other things would follow. Now, I think the Dream has morphed into the pursuit of money: Accumulate enough of it, and the rest will follow.” In other words, the American Dream has changed over time. In the 1950s, lower class Americans had the vision of America helping them set the groundwork for a successful family life, housing situation, and generational wealth once the economy began to rise after decades of war. Compared to today, the American economy is currently facing rising costs of education, difficulty to save for retirement, and a housing crisis. All of which have decreased the feasibility for one’s attainment of the 1950s American dream. Overall, what particularly has contributed to the differences in visions between the past and current American Dream? Additionally, as a product of the past and present, what does the future hold for the American Dream?
Past
Introduction to the 1950s
1950s America was far different from today. It is often the time that many say the American Dream peaked. Shortly after WW2 ended, the Cold War began, accompanied by the Truman Doctrine. As a result, America needed to prove that capitalism was on top. Given the political turmoil of this time period, why do people attribute the American Dream to the 1950s? Reasons for this attribution are the ability to buy or afford a home and optimism in America with the caveat of lack of equality.
Home Affordability
The American Dream is often attributed to the middle class. When one thinks of the middle class, they think of a nice house in the suburbs with a picket fence. This rush to the suburbs started in the 1950s, accounting for 75% of residential construction in the decade. The Levitt Brothers are widely credited for founding the suburbs by decreasing housing costs drastically through making neighborhoods where the houses were similar.
Additionally, there were many tools available to the millions of veterans returning home allowing them to more easily afford homes. FDR signed the Servicemen Readjustment Act (aka GI Bills) into law in 1944, which prevented the American economy from entering a depression after the war. Perhaps the most pivotal of all the benefits was the inclusion of mortgages with low rates and down payments. Since favorable loans for veterans made it easier for them to buy a home in the suburbs, the GI Bills provided many tools to ensure veterans could continue to afford these homes, including educational and unemployment benefits. As a result, around 9.2 million veterans took advantage of these sorts of benefits, leading to the degrees awarded by US colleges doubling from 1940 to 1950.
Optimism in America
Another aspect to keep in mind when looking at the perfect image of the 1950s is what came before. When WW2 ended in 1945, experts estimate 60 million people died during that time, with 400 thousand of them being Americans. Before WW2 there was The Great Depression, one of the worst economic recessions in human history where unemployment peaked at 24.9%. During that time many Americans starved, and even those with money went hungry at times. Thus, after WW2, anything would be better than the past two decades. As a result, the economy boomed and Americans were more optimistic about the future than they were ever before, leading them to look forward to a new economic potential that they hoped to dream upon in the 1950s.
Lack of Equality
It is important to note that, though this prosperity seemed prevalent, but it was only available for some parts of America. Many minorities were left out of the boom that came post-war. For example, over 2.5 million African Americans served in WW2, but when they came home, many of the opportunities provided to the white veterans were not available to them, and notably faced difficulty getting loans. Even if they did get a loan, they were barred from living in the same suburban neighborhoods as white people. This manner of economic racial discrimination affected all African Americans. Because of this, segregation was common across the US and Jim Crow Laws were taking away African American rights throughout the South. Similar circumstances prevailed for other minorities like Native Americans, Asian Americans, Latinos as well.
Additionally, after working in the factories during the war, women returned to being housewives out of conformity, just one example of the neglect they faced during the time period. This led to a major societal pressure to get married earlier and bear children, which contributed to married women often lacking a voice since their decision was being made for them by their husbands. In addition, women were simply a tool that made it easier for the American Dream to be achieved.
Overall, racial and gender discrimination during the time period made it more difficult for people other than white men to attain the American Dream. It is obviously easier to achieve the American Dream when not competing against everyone else for basic rights. Regardless, the 1950s were the peak of the American Dream because after decades of political and economic turmoil, the economy was finally booming, houses were affordable, and the population was optimistic.
The Present
There are several factors within the lifestyle of middle class families that work to further the problem of income inequality. The actual lifestyle of the average middle class family has not changed much in the past 50 years, but the factors within that lifestyle and the expenses attached to it have changed dramatically and this continues to perpetuate the decline in wealth of the middle class.
Rising Cost of Education
Firstly, the rising cost of education is a factor that substantially changes a middle class family’s financial situation. According to the National Center for Education Statistics (NCES), the average price for undergraduate education has more than tripled in the past 58 years going from approximately $4,000 to $14,000. Due to the fact that this is an average figure, it does not account for the fact that an increasing number of young adults want to attend more prestigious universities, many of which have a price far more than $14,000. For example, our very own University of Wisconsin-Madison tuition can be around $23,000 for some students.
Wages simply cannot keep up with this rapid increase in college tuition, and as degrees become more of an expectation in the workforce, this trend of rapid increase won’t stop anytime soon. For most families with multiple children, 8 semesters of this tuition pricing can easily cause economic strife for middle class families or loan-bearing college students through the burden of tuition payments as they enter adulthood and the workforce.
Retirement Savings
Another key factor that has changed for the average middle class family is the ability to adequately save for retirement. The pension plans provided by employers have significantly changed over the past 50 years, which greatly impacts any given family’s ability to save for a secure retirement.
In the early 1980s, employers commonly provided Defined Benefit (DB) plans which ensured that upon retirement, an employer would provide the retiree with a sum of money to support themselves. Companies offering DBs were expected to fulfill their promise, meaning the risk associated with saving for retirement fell on the employer, not the individual. DBs were the norm and the expectation, allowing families to enjoy their retirement and focus on more important aspects of their lives. According to data from the National Bureau of Economic Research (NBER), in that time period, the portion of employees with a DB plan stood at 79%, representing a large majority.
In the modern day, however, Defined Contribution (DC) plans are far more common. These are plans where it is expected that the employee is already contributing to a retirement plan of their own and the employer may match the contributions they are making. While still helpful, the burden and risk of planning for a secure retirement falls almost entirely on the individual now. If the employee fails to grow their retirement plan or finds any complications for any reason, their retirement is now in jeopardy and the company holds no responsibility for it.
This is a drastic change from the DB plans, where the company was able to ensure a safe retirement for its employees whereas now DC plans let the company bears no real responsibility for its employees’ future, thus leaving employees scrambling to navigate this difficult path. This often results in underfunded retirement accounts or misallocated retirement funds causing middle class families to struggle to find financial stability, even in retirement.
As a result of this, an issue has risen among young adults aspiring to establish a sustainable lifestyle as well as seniors planning to save for retirement, which is the consistent decline in lifestyle that wages can support over the years. Why is this true, how did it come into effect, and what does this mean for the average middle-class household?
Wages
Despite worker productivity increasing significantly in coordination with greater technology, training, and competition, wages have not increased proportionally. According to the Bureau of Labor Statistics, in the three decades following the first World War, productivity increased by 96.7%, with the increase in wages close behind at 91.3%. This allowed for families to build healthy, sustainable lifestyles that matched the growth of the economy.
However, in the thirty years prior to the coronavirus pandemic, productivity has risen 74.4%, while wages are up merely 9.2%. This also further perpetuates income inequality, leaving middle class and lower class Americans behind, unable to reap the benefits of the growing economy in the manner that the upper class does. The Congressional Budget Office highlights this with their data demonstrating that since 1979, purely as a result of the growth of inequality, the average household income of the broad middle class depreciated by nearly 20% in 2007 – a gap that continues to grow over time.
In spite of the recent coronavirus pandemic and the global economic recession it generated, American wages have rebounded and seem to be on a better trajectory than before. Employment is rising, as the private sector employment rate is nearly at an all time high. Additionally, in contrast to the trend mentioned earlier, wages have grown much quicker than prices since the coronavirus pandemic. For example, relative to the pre-COVID pandemic data, prices are up 21.3%, while wages have increased 26.3%. The fact that wages are increasing more than prices is a true reversal of the trend that seemed to set future American generations up for failure. This trend provides young Americans with hope for the affordability and productivity of their future.
Housing
However the cost of living crisis is not solely limited to wage growth, education, or retirement pensions; housing is a huge part too. At its core, the housing market is supply inelastic. In other words, housing supply does not tend to keep pace with demand.
For example, according to the New York Times, from 2013 to 2021, the San Francisco area added 676,000 jobs but only 176,000 housing units. This is part of the reason the median listing home price is now $1.2M in San Francisco, up from $820,000 in 2013. One aspect commonly neglected about this statistic is the result of very intentional policies. Most big cities tend to be almost fully zoned with single family homes, not high density apartment complexes or duplexes. When there is an effort to change this, such as Measure D in California, it is immediately voted against by wealthy homeowners in the affected area, due to the concern of their home values decreasing.
NIMBYism (not in my backyard) is not the only cause for concern here. The tax code is also set in such a way as to encourage homeownership, which is thought by governments to be a social positive. Through the mortgage tax deduction, the government provides an incentive to mortgage rather than to rent, forgoing 200 billion of potential revenue every year. While this is generally uncontroversial, David Blanchflower of Dartmouth College and Andrew Oswald of Warwick University have found that a sharp decline in home ownership in a state is also associated with higher unemployment, thus contributing to the problem of high housing prices.
Another reason housing prices remain so high is an access to easy credit. Considering that, the baseline interest rate in the 2010s was nearly zero. In the midst of perverse incentives to be a homeowner, the creation of mortgage backed securities helped free up finance for young workers to buy up housing. However, due to inelasticity, supply did not go up correspondingly.
All of the above reasons combined make up why the median home price in America grew 41% faster than the rate of inflation between 1990 and 2016 (Harvard Joint Center for Housing Studies, 2018). While there have been some promising developments, such as single-family zoning being banned across California, or the rise in the provision of affordable housing in Seattle, there is still a long way to go in terms of addressing the present structural causes of housing affordability.
The Future
The Effect of Expectations and Macroeconomic Theory
Past data and trends have made it clear that market expectations significantly influence an economy’s outcomes. Macroeconomic theories including the Rational Expectations Theory and Herd Mentality explain the inherent desperation of individuals to imitate the behavior of large groups in their own lives (Rational Expectations Theory Definition and How It Works).
Americans’ expectations regarding the feasibility of the American Dream may play a role in determining its future feasibility. Such optimism has been declining since the early 2010s – in fact, only 33% of survey respondents answered favorably in terms of the feasibility of the American Dream compared to more than 50% of respondents twelve years ago (The American Dream Feels Out of Reach for Most). Even more so, the feelings of optimism versus pessimism may vary across racial, gender, and ethnic groups depending on their minority statuses.
Because the American Dream is largely based on social mobility, the declining access to resources results in an increase in the wealth gap leading to the ‘economic ladder’ becoming harder to climb. All in all, the current pessimism regarding the American Dream indicates its difficulty to attain, but experts still maintain that “improvement” is possible.
Expert Opinions and Projections
Despite this “wave of pessimism,” Michael Strain, the Director of Economic Studies at the American Enterprise Institute, cites the improvement of social mobility from the mid-twentieth century as hope for the future. Although Strain addresses that inequalities still exist in minority groups that limit their accessibility to resources to address their socioeconomic status, he also claims that there has been improvement no matter how small since the 1970s.
To elaborate, in his 2024 debate at Dartmouth University, Strain claims that “‘Countries have moods, just like people, and America is in a bad mood,’” and that America “‘will do better.’” Strain’s light-hearted comparison of America’s current period of struggle to that of a “bad mood,” indicates that there is an impending upward swing for the American economy (Experts Debate the State of the American Dream).
Threats to the American Dream
While the concept and idealism of the American Dream has lasted since the country’s inception, there are many things that stand as a threat to the achievement and possibility of its glory.
The first is economic inequality. Wages for many workers have not risen to combat inflation, leading to this continuation that could prevent low-income citizens from climbing the ladder to economic freedom. On top of that, the increase in the wealth gap between the rich and poor looms large. Higher education costs pose a problem since the costs of college and trade schools continue to rise which could prevent low-income students from receiving similar education as their wealthier peers, obviously hurting their chances in the job market.
Other threats towards the American Dream include housing inequality, healthcare access, political polarization, and systemic discrimination. As our country progresses into an uncertain future, it is important to address these issues and make sure America can continue ensuring equal opportunities and resources for a chance at success.
Possible Optimism
While there is a significant number of topics that can threaten the idealism of the American Dream, there is hope for its continuation as the world goes forward. New economic opportunities and innovations continue to propel our economy into the future which can lead to access to new jobs and business opportunities.
Expanding access to education with the use of the internet and advancing technology is allowing more people to learn than ever before. This can help close the education gap between low and high-income citizens. Moreover, government and policy efforts can provide the idea of the “Dream” to continue as time goes on. Immigration policies as well as subsidies toward marginalized and low-income groups could also help these citizens thrive.
Conclusion
Given the past and present economic and social situations surrounding the American Dream, there is no doubt that the future of the American Dream is uncertain and complex. On one hand, the American Dream is in the hands of the people and their expectations. While on the other hand, it can be argued that America is in the troughs of its economic cycles. Only time will tell the future – or ‘end’ – of the American Dream.