Published on Saturday, December 25, 2010 by Reuters

Fading Optimism in “New Normal” America

by Bernd Debusmann

Optimism is so deeply embedded in the American national psyche that it withstood the Great Depression in the 1930s and a string of recessions since then. But in the era some economists call “the new normal” in America, optimism is fading.

A slew of studies, surveys and reports show that a growing number of Americans – some surveys say more than half – no longer believe that their country is a land of unlimited opportunity, where all it takes to rise to success is hard work and determination.

So say public opinion polls that ask Americans how they see the future, theirs and their country’s. One recent survey, by the respected Pew Research Center, found that depression era Americans were more optimistic about economic recovery in the near future than people questioned in a Pew poll this October, when only 35 percent said they expected better economic conditions in a year’s time. In response to a similar question in 1936 and 1937, about half expected general business conditions to improve over the next six months.

The phrase “new normal” was coined by PIMCO, one of the world’s biggest investment funds, and is shorthand for an American future that includes lowered living standards, slow growth and high unemployment. Joblessness now stands at 9.8 percent, up from 9.6 percent in October. Add workers who have given up looking for jobs and people forced to work part time and the rate climbs to 17 percent, a powerful reason for declining optimism.

But it’s not the only one. A slew of studies, surveys and reports show that a growing number of Americans – some surveys say more than half – no longer believe that their country is a land of unlimited opportunity, where all it takes to rise to success is hard work and determination.

“The end of American optimism,” as a headline over an opinion piece in the Wall Street Journal proclaimed this summer, has not quite arrived. But Americans increasingly believe that the rich just get richer and the poor just get poorer. They have good reason to think so. The rich-poor gap in the United States is wider than in any other developed country.

That has rarely been a matter of concern for most Americans but the recession that began in December 2007 turned inequality into a topic of public debate, on occasion with peculiar twists.

In November, a widely-read New York Times columnist, Nicholas Kristof, compared the United States to Latin American banana republics. To see countries where the richest one percent take home more than a fifth of the national income, he said, it was no longer necessary to leave the U.S.

Two weeks later, he followed up with a column reporting that the comparison had drawn protests from readers who deemed it glib and unfair. Latin Americans thought it hurtful and invidious. After checking into the matter, he came to the conclusion that “I may have wronged the banana republics.”

Unlike in the U.S., he said, Latin America had become more equal in recent decades.

TRICKLE-DOWN THEORY

There is no reason to believe that American income inequality will shrink soon – the next Congress will be dominated by Republicans, many of whom firmly believe in “trickle-down economics,” the notion that giving tax and other financial breaks to the rich and the super-rich will result in increased profits for corporations which reinvest them, and then create new jobs. Money trickling down from the top. In theory.

This was the idea behind Republican insistence on an extension of tax cuts, introduced by George W. Bush, that included America’s wealthiest. Congress voted in favour of a two-year extension on December 17 after Republican leaders and President Barack Obama agreed on a compromise many in his own Democratic party saw as an abject surrender.

While considerable attention has been focused on the gap between rich and poor, wider than at any time since just before the Great Depression, there is perhaps an even weightier reason for Americans to lose their optimistic, can-do spirit — for many millions, the notion that they can climb up the economic ladder is more myth than reality.

Half of those starting at the bottom 20 percent never leave that level. “The…American economy tends to help those at the top stay there while making it difficult for those at the bottom to move up,” according to a study by Ron Haskins and Isabel Sawhill of the Brookings Institution, a Washington think tank.

That is true despite the rags-to-riches stories that underpin the American dream and have fired the imagination of countless immigrants. President Obama himself could be a poster child for upward mobility, a black man reaching the pinnacle of power after an unconventional childhood that included a spell of subsisting on his mother’s food stamps.

Obama’s Republican opponents portray him as a latter-day Karl Marx, intent on an economic model that distributes income from each according to his ability, to each according to his needs. That perception gained currency during Obama’s election campaign, when he used the phrase “spread the wealth around” in an exchange on his tax ideas with an Ohio voter named Joe Wurzelbacher.

Wurzelbacher became an instant hero to the American right as “Joe the Plumber.” He need not have worried. Obama never used the term again and wealth distribution looks likely to continue in one direction – upwards. In the “new normal,” there is reason for optimism for those at the top, not those in the shrinking middle or the bottom.

© 2010 Reuters