Term Paper on "Decline of Upward Economic and Social Mobility"

Term Paper 5 pages (1583 words) Sources: 3

[EXCERPT] . . . .

DECLINE OF UPWARD ECONOMIC AND SOCIAL MOBILITY IN THE U.S.

One of the most fundamental and defining elements of the American way of life in the modern age has been the fact that economic and social mobility have always been possible for every individual and family. Regardless of a person's heritage or the economic circumstances of his or her birth, there has always been the perception that hard work and education would pave the way to a better life than the one in which the individual may have started out. According to economic columnist Rana Foroohar's November 14, 2011 article "What Ever Happened to Upward Mobility?" (Time, Vol. 178, No. 19: 26 -- 34), upward economic mobility is no longer a reasonably likely possibility for most Americans who are not already part of the middle class.

More specifically, Foroohar explains that an American born in 1970 to parents in the bottom two-fifths of the socioeconomic spectrum had only a 17% chance of making it into the top two-fifths of the same spectrum as an adult. As a result, many European nations that have traditionally been less upwardly mobile societies than the U.S. are now more upwardly socio-economically mobile than American society. Whereas the U.S. led the world in upward socioeconomic mobility from the end of the Great Depression through the rest of the 20th century, today, countries such as Australia, Britain, Canada, Denmark, France, Germany, Norway, and Sweden are all more socio-economically upwardly mobile societies than contemporary America. For example, Foroohar presents the statistical probability that 42% of Americans whose parents are in the bottom two-fifths of the earning curve and socioeconomic spectrum will r

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emain there throughout their lives; by contrast, the statistical probability of remaining at the same socioeconomic level for individuals born in Denmark and Sweden is only 25% and for individuals in similar circumstances in Britain, it is only 30%.

Foroohar offers an explanation that includes several different causes for this ongoing change in the socioeconomic landscape of American society. First, the concept of social mobility encompasses a complex set of factors and includes the element of perspective that accounts for much of the reason that most Americans do not consider themselves to be wealthier than their parents were at comparable ages even though two-thirds of Americans who are 40 years old today have higher incomes than their parents did at the same age after adjusting for inflation. In that regard, principles of behavioral economics suggest that it is human nature to assess how fortunate one is by comparison to the fortune of others. In principle, this may be an inherent weakness in the American emphasis of upward socioeconomic mobility: if everyone becomes middle class, nobody appreciates the achievement as much as within a society where comparatively fewer can achieve the same status. However, Foroohar also provides a more empirical explanation for the decline in American upward mobility from a macroeconomic perspective as well.

2. Theory Review and Analysis

The first cause of the decline of socioeconomic upward mobility in America identified by Foroohar was the "rise of the money culture" during the 1980s and 1990s in conjunction with the simultaneous deregulation of the banking industry during that time. The author describes the evolution of a 'winner-take-all" American economy in which the financial sector grew out of proportion to the rest of the economy. As salaries within the financial services sector ballooned, the middle and lower classes saw no gains from that ever-increasing element of the American economy.

Meanwhile, as finance became the fastest-growing segment of the economy, job growth necessarily slowed as a direct (and proportionate) result, mainly because the financial services market segment does not produce jobs commensurate with its growth. Traditional macroeconomic principles have always linked national economic growth to job production because the growth of traditional businesses (such as in commercial sales and manufacturing) have always directly stimulated job growth in the economy. Today, the percentage of the economy represented by the financial sector (that produces no goods or services and that does not increase employment proportionally as it grows) amounts to an all-time high of 8% of the American economy.

In principle, this dynamic exposes the continued viability of the American economy to the observations and predictions of the late 18th and early 19th century political economist Thomas Malthus. He predicted that unrestricted population growth would result in mass poverty and starvation. The artificial shifting of wealth to the top in conjunction with the severe reduction in employment opportunities for the middle class seem to have triggered what Foroohar refers to as "Methusian" consequences in the U.S.

The second cause of the decline of socioeconomic upward mobility in America identified by Foroohar were the combined effects (particularly on the middle classes) of the recent collapse of the housing market followed by the credit crises it triggered. These two factors hurt the middle classes much more than the upper classes, largely because home equity represented the bulk of middle class wealth before the American economic crisis. While housing prices have been very slow to recover, the stock market (which represents most of the wealth held by the upper classes) has rebounded quite significantly in the same time period. Foroohar points out that the data from organizations founded to track and increase relative social mobility confirm that the states currently scoring the lowest on the Opportunity Index are the very same states (Arizona, Florida, and Nevada) that were hit the hardest by the housing market collapse and where credit is still the hardest for consumers to come by.

The third (and in some ways, the most important) factor identified by Foroohar for the decline of socioeconomic upward mobility in America is what the author refers to as the "two megatrends" that are currently reshaping the international and global economy. The first of those megatrends is the effects of technology; the second is the rise of emerging markets. Since the 1970s, improved conditions in many former-Third World nations have resulted in 2 billion workers having joined the global workforce; moreover, they continue to do so at a rate of approximately 70 million new workers every year. By American standards of living, their lives are far from desirable; however, by global standards, they have achieved middle class lifestyles. Meanwhile, they represent a much cheaper source of labor for the types of jobs that had previously been filled in the U.S. By Americans. Foroohar points to a study conducted by economist and Nobel laureate Michael Spence, who specifically determined that the trend of outsourcing these jobs in the tradable product and services sector has resulted in the creation of virtually zero net jobs in the last thirty years. More than anything else, this megatrend has "hollowed out" the American manufacturing sector and eliminated most of the middle class jobs that were the basis of American socioeconomic upward mobility for generations.

The rapid development of technology has further eroded the numbers of available middle class jobs as automated equipment and computers perform more and more of the skills that previously required human workers. In combination, the rise of emerging markets (and potential employees willing and able to work for much less than American middle class wages) and the growth of technology have substantially accounted for the reduction of middle class jobs in America from a 52-percent share of jobs in 1980 to a 42-percent share in 2010.

According to Foroohar, those factors all combine to reveal another fundamental weakness in the American economy that increasingly expose the U.S. To falling further behind other nations economically. Specifically, until the 1970s, educational achievement in the U.S. had kept pace with technological evolution. According to Foroohar, this is the principal dynamic that research suggests is the key to national economic growth. While our European counterparts have continually increased their investment in… READ MORE

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Quoted Instructions for "Decline of Upward Economic and Social Mobility" Assignment:

“

1. Choosing a Topic

The topic of the paper must be related to Macroeconomic issues covered in Econ 103 this semester (NOTE: this excludes most topics from chapters 1 to 3 of your textbook, which refer to Microeconomics). Remember that Macroeconomics deals with the economy as a whole so do not choose a topic restricted to an individual, a specific firm or sector of the economy.

Pick the topic that you like the most. Some examples are: monetary policy, taxes, government expenditure, exchange rate, etc. You can talk to me about the adequacy of the topic that you have chosen, and we can discuss your article. However, I cannot read the draft of your paper.

2. The Article

The article you are using must have been published after our first day of classes (August 26th, 2011). NO ARTICLE published before that will be accepted (the paper will receive zero points). A copy of the article used must be supplied with the paper; with the date of publication clearly printed (I cannot accept your paper without this).

*****¢ Look at reputable news sources (such as the Wall Street Journal, The Economist, New York Times, etc) for articles

*****¢ Look for articles that contain facts (such as the Federal Reserve raised interest rates). The articles may discuss causes, consequences, etc of these facts. This will make it much easier for you to do an economic analysis of the topic. You can then write about what economic theory says about the issue, what happened in the real world, and how the article handles the topic.

3. Structure

The paper should have a Cover Page, including: your name, your TA section, the name of your TA, the title of your paper (the reader should be able to get an idea of the content by its title), and the title of the newspaper article you are using, including the date and journal from which you found the article.

Your paper should have 5 more typed pages (no more, no less), and should be divided into 3 parts as described below. The beginning of each part should be indicated, and you should leave only one blank line separating two consecutive parts. See example (from website).

Part I Introduction (One or two pages)

Describe the FACT from your article, and explain why it is a relevant Macro topic. You should NOT just *****copy and paste***** the article, but instead, you should summarize

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the relevant facts covered by it and the point of view/opinion of its ***** (if appli- cable), using your own words and the technical language (i.e., *****economic terms*****) learned in class.

Part II Theory Review and Analysis (Two or three pages)

Explain what Macro theory has to say about that FACT reported by the article, using the tools, definitions and theorems covered in class. For example, if the FACT is that the Government decreased taxes to fight recession, explain why Macro theory says its a useful Fiscal Policy under that scenario (review the theory covered in class

needed to understand the FACT).

You should also analyze the FACT and its results/consequences for the economics. If

your article results in a PROBLEM (as described above), explain why theorys pre- diction failed in that case. If you have a POSITIVE example, show that in this case the theorys prediction worked.

Part III Conclusion (One or two pages)

Say what YOU think about it, your personal opinion.

You can say what YOU think the Government should do about it (if it applies to your article). Remember to use the tools and theory you learned in class to support your ideas!

Other Important points:

a) Whenever you first use one technical term in your paper, you must include a short explanation/definition. For example, if you say the article mentions research that found that the price elasticity of demand for gasoline is inelastic, you should give the definition of elasticity (and what it means to be inelastic).

b) Format: font Times News Romans, size 12, one-and-half or double-space (between 20 and 30 lines per page), maximum margins 1.25 inch. I will not accept papers that are not typed.

4. Graphs, Tables, Diagrams and References

You can use as many graphs, tables and diagrams as you think its necessary to better present your paper. Depending on your topic/article, you might not need a graph, but for some topics a graph might help you a lot when explaining what is happening in the economy.

All graphs, tables and diagrams must be included at the end of the paper, in an appendix,

and each one should be properly labeled with a number and a title. For example, Graph 1: Change in the Aggregate Demand, and so on. Do not forget to label the axis and the important points of your graph.

Again, DO NOT include graphs in your text. If you need to mention a graph, just say *****the curve will shift to the right, as shown in the Graph 1.***** If they are not referred

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to in the text of your paper, then I will not look at them.

The pages in the appendix, with the graphs, will not count in the limit of 5 pages of your paper; therefore, you can have as many graphs as you need.

Its not easy to do those graphs using a computer; therefore, you don*****t have to do it this way. Just draw the graphs yourself.

You are not expected to use other sources besides your article, your course notes and your textbook. If you decide to use additional sources, you must cite them. Also, if you take a direct quote from the Macroeconomics textbook you must cite the text- book and the page from which you took the quote. You may either mention the source of your information in a footnote or include a Works Cited page (it will not be counted as one of the 5 pages of your article).

5. Grading

The paper will be graded on a scale of 10 points and it is worth 15% of your final course grade. I will look for the following in grading:

You are expected to follow the above guidelines for content as well as formatting.

Grading a paper is a very subjective task, but I will give you a rough idea of how I will grade it. Every paper starts with 10 points, and it will lose points if, for example:

a) The topic is not an adequate Macro topic (see sections 1 and 2 above);

b) Wrong use of (or did not use when needed) economic definitions/theory;

c) Wrong interpretation (or description) of the newspaper article.

d) Writing, analysis and/or explanation is confusing (obviously, Ill not be grading grammar or spelling).

e) Paper has more/less than the 5 required pages.

f) Paper is not in the format described in sections 3 and 4 above.

*The paper will automatically receive a 0 if

*****¢ The article was published before August 26th, 2011;

*****¢ It is given to me after the deadline (start of section on Friday November 18, 2011);

*****¢ It does not include a copy of the article used; or

*****¢ It is not typed

Your paper might also earn extra points (to compensate points you might have lost

in the cases listed above) if, for example:

*****¢ The Macro topic chosen is very interesting, original and/or hard, and you were able to handle it well.

*****¢ You used the economic theory exceptionally well to explain the topic in your paper.

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*****¢ You used creativity and extra research in explaining the Macro topic.

I will be looking especially for those 3 points when choosing the papers that I will

indicate to compete for the Best Paper Prize, at the end of the semester.

Remember, grades are not comparable across students (because each student has different strengths and weaknesses) or with students of other TAs (because each TA has different grading policies).

***THERE MUST BE A TITLE PAGE AS STATED ABOVE, AND IF A GRAPH IS NEEDED THAT NEEDS TO BE ATTACHED AT END.

***PLEASE USE ONE MAIN SOURCE FOR THE ESSAY....YET AS STATED ABOVE I WILL RECIEVE EXTRA POINTS FOR ADDITIONAL SOURCES THROUGHOUT THE PAPER. SO PLEASE FIND 2 MORE SOURCES THAT YOU CAN MENTION WITHIN PAPER.

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