Is the American Dream Really Dead?

Just a few decades ago, more than 90 percent of 30-year-olds earned more than their parents had earned at the same age. Now it's only about 50 percent. What happened -- and what can be done about it?

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Stephen J. Dubner?

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• 0:46Stephen J. Dubner?

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• 1:27Stephen J. Dubner?

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• 2:10Stephen J. Dubner?

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• 2:46Stephen J. Dubner?

  Let's start today with a pop quiz. Here we go. In 1970, what percentage of 30-year-olds in America were earning more money than their parents had earned at that age, adjusted for inflation, of course? That is question number one. And question number two, what percentage of American 30-year-olds today earn more than their parents earned at age 30? I'll give you a second to think it over.

• 3:14Stephen J. Dubner?

  All right, you ready for the answer? The percentage of American 30-year-olds in 1970 who were earning more than their parents had earned at 30 was 92%. Isn't that amazing? That, in a nutshell, is what we call the American dream. And what's a percentage now? It's somewhere around 50%, which has led some people to say this. Sadly, the American dream is dead. Donald Trump's view of the American dream and his promise to revive it had a lot to do with his getting elected president.

• 3:57Stephen J. Dubner?

  According to Gallup polls, before the election, more than 50% of Americans saw our economic conditions worsening. And in case you're wondering, it's not just cranky old people. A poll from the Harvard Institute of Politics found that nearly 50% of millennials think the American dream is, quote, "dead." We went out on the streets of New York ourselves to ask people if they thought the American dream was real and achievable.

• 4:24Speaker 01

  Absolutely, it's real. I mean, especially standing here in Battery Park. You look at different people from all across the nations that come to America to realize the American dream.

• 4:34Speaker 02

  I think that if you really work hard, then you can do whatever you want in America. It might be a little difficult at first, but you can still do it.

• 4:43Speaker 03

  I don't think the American dream is achievable. I think it's a motivator to try to achieve it.

• 4:48Speaker 04

  The American dream is something of a mythology for a way in which to advance and have a good life under what is essentially not just a capitalized system, but a country founded on exploitation.

• 5:01Speaker 05

  You put in some work, you put in some sweat, and you can definitely make the American dream happen.

• 5:07Speaker 01

  While there's a lot of cynicism over the American dream, I am a product of it. My family, our families are refugees, came to this country about 30 years ago, had nothing, was able to send all their kids to college, was able to have a house, was able to give a better future for myself and their children than they would ever have had back in Vietnam.

• 5:33Stephen J. Dubner?

  A lot of the conversations we have these days about the American dream are in political terms or theoretical terms, but today, on Freakonomics Radio, the actual, unvarnished economics of the American dream, which we will define, for the sake of today's conversation, as this.

• 5:51Speaker 06

  If you're born into a low-income family, do you really have a shot at rising up, no matter what your background is?

• 5:59Stephen J. Dubner?

  And we'll discuss whether the American dream is really dead, or maybe if it's just moved a bit north.

• 6:05Speaker 06

  You're twice as likely to realize the American dream if you're growing up in Canada rather than the US.

• 6:26Speaker 07

  From WNYC Studios, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner.

• 6:44Stephen J. Dubner?

  James Truslow Adams, born in 1878 to a wealthy New York family, became a financier and later, an author. He won a Pulitzer Prize for History of New England. And later, he wrote a book called The Epic of America. Even though it was written during the Great Depression, Adams took a fundamentally bullish view of the United States. His book was hugely popular, and as best as we can tell, it introduced the phrase "the American dream." Adams defined this as "that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement." The phrase caught on, and not just a little bit, especially among our presidents.

• 7:28Speaker 08

  The bedrock of our economic success is the American dream. The American dream does not come to those who fall asleep.

• 7:36Speaker 09

  So every citizen has access to the American dream. They have lived the American dream.

• 7:41Speaker 10

  The American dream will succeed or fail in the 21st century. The American dream is dead.

• 7:50Speaker 06

  The reason my parents came to this country was in search of the American dream.

• 7:54Stephen J. Dubner?

  That is Raj Chetty.

• 7:56Speaker 06

  So I was born in New Delhi, India, and came to the United States when I was nine years old and grew up mostly in the Midwest.

• 8:03Stephen J. Dubner?

  Chetty is now an economist at Stanford.

• 8:06Speaker 06

  I study issues of inequality and opportunity and how we can use economic policy to improve people's outcomes.

• 8:13Stephen J. Dubner?

  Chetty was one of the scholars behind the research I cited earlier about the massive drop in the share of 30-year-old Americans earning more than their parents did. In fact, he's behind a lot of the most important research on income inequality, mobility, and the fragile state of the American dream. His work is highly regarded by the people who give awards. He's won a MacArthur Genius Fellowship and the John Bates Clark Medal. Politicians admire him as well.

• 8:42Speaker 11

  Dr. Chetty, thank you for your participation. Dr. Chetty, what do you think?

• 8:46Stephen J. Dubner?

  That was Senator Bernie Sanders and before him, then Senator Jeff Sessions, when Chetty testified at a Senate hearing on income, mobility and inequality. Chetty is a favorite of Democrat Hillary Clinton.

• 8:58Speaker 12

  Some really interesting work being done by Professor Raj Chetty and his colleagues.

• 9:03Stephen J. Dubner?

  As well as Republican Paul Ryan.

• 9:06Speaker 13

  Economists, you know, if you talk to Raj Chetty or others, they'll tell you this is social capital.

• 9:11Stephen J. Dubner?

  Chetty is the policymaker's policymaker, the economist's economist, which means he tries to be, above all, empirical, not ideological or political.

• 9:24Speaker 06

  One of my missions is to try to inject more evidence into these important policy debates because I think we're making huge investment decisions with very little knowledge about exactly what is going to work.

• 9:35Stephen J. Dubner?

  Do you vote? Are you a political participant?

• 9:38Speaker 06

  I'm independent. And so, you know, that's actually, you know, thought hard about this. I think it's very difficult to keep yourself objective, which is very important to me. I mean, it's important to me that I have some findings that I think are more supportive of policies that Democrats are pushing, and there are some findings that are more supportive of policies that Republicans are pushing.

• 10:00Stephen J. Dubner?

  Some academics I know whose work gets cited for political purposes have told me that the work is inevitably cherry picked or cream skimmed to suit the politician's position.

• 10:13Speaker 06

  I think while the big picture focus might be chosen based on political views, there are lots of details that matter greatly. And I think science can be very useful there in addition to perhaps guiding which areas we focus on: affordable housing versus tax cuts versus other things.

• 10:31Stephen J. Dubner?

  For all his influence, Chetty is only 37 years old.

• 10:35Speaker 06

  I was actually the last person in my family to publish a paper. My parents are both in academics and I have two older sisters who are in bioscience.

• 10:46Stephen J. Dubner?

  Chetty went to Harvard as an undergrad, but he didn't spend much time undergradging. He got his PhD at 23.

• 10:53Speaker 06

  Basically, I did a six-year PhD and didn't go to college in the sense that, starting my sophomore year, I actually didn't take any undergraduate classes.

• 11:02Stephen J. Dubner?

  He taught at Berkeley, then Harvard, and in 2015, he moved to Stanford.

• 11:08Stephen J. Dubner?

  You are hardly the first economist from Harvard to go to Stanford. In the last few years, it's been quite a little exodus.

• 11:15Speaker 06

  Recently, as the field of economics is shifting towards big data and increasing use of modern statistical techniques like machine learning to think about economic questions, Stanford has tremendous strength in those areas and other fields. And of course, we all know that the birthplace of much of modern computing is here in Silicon Valley at Stanford.

• 11:38Stephen J. Dubner?

  Now economists in particular, but social scientists more broadly, have in the past few years especially, just been being gobbled up by tech firms because they too have discovered that big data is potentially exciting. And a number of academic economists, many of whom I'm sure you know well, are moonlighting or sidelining with tech firms, Uber and Facebook and on and on. What about you? Was that an appeal for you to be out there? And are you doing any consulting, advising, work on the side with these private firms? Are you strictly an academic economist?

• 12:13Speaker 06

  Yeah, that is a very important trend. I myself am not doing any work with those firms directly, but what I am interested in is working with the data firms like Facebook and Twitter, for instance, to think about social and economic policy questions. So to give you a concrete example, I'm starting a project with my colleague Matt Jackson here at Stanford and others at Facebook where we're exploring the role of social networks in inequality and trying to understand essentially whether you can network yourself out of poverty. Social scientists have been interested in that sort of question for a very long time, but we just haven't had the data to really investigate that question precisely from an empirical point of view.

• 12:57Speaker 06

  And the Facebook data, of course, are game changing in that respect.

• 13:05Stephen J. Dubner?

  A lot of Chetty's research falls under the banner of something called the Equality of Opportunity Project. That is, a group of economists and other social scientists who are trying to find the most effective and efficient ways to address chronic poverty, which, Chetty argues, is really important because the economy that for so many years facilitated the American dream for so many millions is no longer reliably doing so.

• 13:32Speaker 06

  While modern technology and economic growth is changing the world in tremendous ways, I mean, we can now do things with our cell phones that we never would have imagined 10 years ago. I think unless we think carefully about social policy, it doesn't necessarily end up benefiting everyone. There are many people for whom progress over the last 30 years hasn't really had a tremendous impact on their lives in terms of better opportunities for their kids or better health outcomes and so forth.

• 14:02Stephen J. Dubner?

  Chetty admits the American dream worked out great for his immigrant family.

• 14:07Speaker 06

  And so, partly for, you know, with that personal motivation, partly out of scientific interest, I wanted to think about whether the American dream, you know, truly is alive and well and what the determinants of the American dream are.

• 14:21Stephen J. Dubner?

  OK, so how do you do that? How do you measure the state of the American dream? And more important, how do you identify the determinants that enable one family or one kid to shoot up out of poverty while others are left behind? Well, if you're an economist, you do that with data, lots and lots of data.

• 14:43Speaker 06

  And so, the way we came at this, the specific angle we took, is by using the large data that we have now from administrative tax and social security records, where we're able to see for the full population what income distributions look like for kids and for parents. And so, you can basically ask, taking, say, all the kids born in America in the 1980s, what fraction of the kids born to low-income families actually make it to the top of the income distribution? And, you know, how much intergenerational mobility is there in America? In the US, if you take, say, the set of children who are born to families in the bottom quintile

• 15:26Speaker 06

  of the income distribution, in the bottom fifth, about seven and a half percent of those kids make it to the top fifth of the income distribution.

• 15:35Stephen J. Dubner?

  And that number in isolation doesn't sound off the bat so bad.

• 15:40Speaker 06

  Yeah, that's right. So exactly, seven and a half percent, is that a big number? Is that a small number? You know, it's hard to judge in isolation. So to give some context for that, I think, Stephen, it's useful to start first by thinking about comparisons across countries. So if you look at that number in other countries where we have comparable data, like the United Kingdom, for instance, in the UK, that number is nine percent, a little bit higher, not all that much higher. If you go to a place like Canada or Denmark, the number is 13% or 13 and a half percent. That's quite a bit higher. And it's useful to, in thinking about these numbers, is 13% a big number? Well, you have to remember, of course, that no matter what you do, you can't have more than 20% of people in the top 20%, right?

• 16:24Speaker 06

  So the maximum value this statistic can take, I think, is plausibly 20%. To put it more precisely, if you lived in a society where your parents played no role at all in determining your outcomes, we'd expect one-fifth of kids to rise from the bottom 20% to the top 20%. And so relative to that benchmark, that upper bound, if you will, the 13 and a half percent rate in Canada and the seven and a half percent rate in the US, that's a really big difference. It's almost like you're twice as likely to realize the American dream of moving up if you're growing up in Canada rather than the US, right?

• 17:03Stephen J. Dubner?

  Or perhaps more precisely, we should just call it the Canadian dream instead of the American dream if they're twice as good. Well, but what we want to know then is why, right? What makes that more possible in Canada? So that's what your research is really about, yes, is identifying the factors that move that needle?

• 17:22Speaker 06

  Exactly, exactly. So, you know, that, I think, is kind of useful as background, but there are lots of differences between Canada and the US, the first of which Which is that Canada has less inequality than the US. There's less distance between the 20th percentile and the 80th percentile in Canada relative to America.

• 17:38Stephen J. Dubner?

  Which means, so are you making a social point or is this a statistical point? In other words, it's easier to move because it's a smaller jump.

• 17:45Speaker 06

  That's exactly right. You know, from a statistical point of view, one view you could have is maybe the reason you see higher upward mobility in Canada is not really so much that it is actually easier to move up in Canada, but just there it's easier to make that move because it's a shorter distance in a sense. So that's one example of why I think these cross-country comparisons, while they can be motivating in and of themselves, it's inevitably going to be very difficult to say for sure what you can learn from comparing Canada to the US. But I think before, you know, we even get to the issue of why is the US different from Canada, it turns out the story even in America itself is much more nuanced. Within America, there are actually a number of places that truly are lands of opportunity, places where kids achieve the American dream at high rates.

• 18:27Speaker 06

  In some places, like in Salt Lake City, Utah, or in the Bay Area, something like 13% of kids are making it from the bottom fifth to the top fifth. It turns out in the center of the country, like in Iowa, for example, in many areas of Iowa, you see more than 15 or 16% of kids making it from the bottom fifth to the top fifth. So higher than the numbers we see in the data for Canada and for Scandinavian countries. But at the other end of the spectrum, you take places like Atlanta, Georgia, or Charlotte, North Carolina, or much of the southeast of the US, and you have rates of upward mobility below 4.5%. Lower than any country for which we currently have data.

• 19:08Stephen J. Dubner?

  So that shouldn't really, I guess, surprise us if you know a little bit about the makeup and history of the United States and the fact that we are states that have different policies, different populations, and then obviously counties and cities that really differ a lot.

• 19:22Speaker 06

  Yeah, that's right. But I think that line of thinking would lead you to think that most of this variation is regional. But what's perhaps more surprising is that as we zoom in more finely, we continue to find almost as much variation. So kids growing up in San Francisco, for example, have about twice the chance of climbing from the bottom to top as kids just across the Bay Bridge in Oakland.

• 19:53Stephen J. Dubner?

  Coming up on Freakonomics Radio, the preliminary results of an incredibly ambitious government program to address poverty.

• 20:00Speaker 06

  What you ended up finding was frankly, I think, somewhat disappointing.

• 20:05Stephen J. Dubner?

  All right, then. How do you engineer the possibility of the American dream?

• 20:11Speaker 06

  We've identified five factors that seem to be particularly strongly correlated with these differences.

• 20:28Stephen J. Dubner?

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• 21:12Stephen J. Dubner?

  You can try it totally free. Just head to granola.ai/freakonomics. That's granola.ai/freakonomics to get your time back. Try it for free at granola.ai/freakonomics.

• 21:31Stephen J. Dubner?

  Freakonomics Radio is sponsored by Southern New Hampshire University. There's no hiding how convenient Southern New Hampshire University makes college. They offer over 80 career-focused graduate programs online. Classes have no set meeting times, so you can balance life and learning, and online tuition rates are some of the lowest in the country, making it all a little more manageable. A school this willing to work with you is worth the investment. Visit snhu.edu/freakonomics to learn more.

• 22:02Stephen J. Dubner?

  Freakonomics Radio is sponsored by Amica. You know what they say, if you want to go fast, go alone. If you want to go far, go together. So go with Amica and get coverage from a mutual insurer that's built for their customers, one that looks after what's important to you together. Auto, home, life, and more, coverage that fits your unique needs. Amica helps you protect what matters most. Visit amica.com and get a quote today. The Stanford economist Raj Chetty has been working with large data sets to try to understand why so many Americans are no longer living the American dream.

• 22:46Stephen J. Dubner?

  When it comes to economic opportunity, Chetty and his colleagues found huge regional and even local differences throughout the US. As he told us, kids growing up in San Francisco have about twice the chance of living the American dream as kids from just across the bridge in Oakland. Why? One easy explanation would be that the people in those different areas are just different. They have different abilities, different cultures, different job opportunities. And that certainly has some explanatory power, but Chetty and his colleagues found the story isn't that simple.

• 23:18Speaker 06

  A lot of this variation is driven by differences in childhood environment as opposed to differences in conditions in the labor market or the types of jobs that are available or unemployment rates, things that affect you in adulthood.

• 23:34Stephen J. Dubner?

  How do the data explain that it's the childhood environment making the difference?

• 23:38Speaker 06

  So we're going to start by thinking about families who move when their child is exactly nine years old, right? And why age nine? That happens to be the earliest age we can examine in currently available data.

• 23:49Stephen J. Dubner?

  And that's not just because you were nine years old when you moved from India to Milwaukee, is it?

• 23:54Speaker 06

  Not quite.

• 23:55Stephen J. Dubner?

  Just a coincidence? Okay.

• 23:57Speaker 06

  Interesting coincidence. And so when we look at these nine-year-olds who move, we find that they end up... Roughly halfway between the kids who grew up in Oakland from birth and the kids who grew up in San Francisco from birth. So they're earning roughly $35,000 when we track them forward 21 years and measure their own incomes when they're age 30. So that's for the kids who move when they're exactly nine, right? So now let's replicate that for kids who move when they're 10, 11, 12, and so forth and so on. And what you end up seeing in the data is a very clear declining pattern where the later you make that move from Oakland to San Francisco, the less of the gain you get. And in fact, if you move after you're 21 or 22 or so, you get absolutely no gain at all.

• 24:42Speaker 06

  And if you move in your early 20s or when you're 30, the relationship is completely flat. There's no further gain from moving. So this sort of analysis leads us to the conclusion that, first of all, where you grow up matters. It's not just that the kids who live in Oakland are somehow different from the kids who live in San Francisco. Second, you see that neighborhood environment matters because of childhood factors and not factors in adulthood, right?

• 25:10Stephen J. Dubner?

  This is hardly a new idea, that growing up in a poor neighborhood isn't the best launching ground for economic success. This idea, in fact, led the Clinton administration to experiment in the mid-1990s with a program called Moving to Opportunity.

• 25:26Speaker 06

  They took about 5,000 families across five large cities in the US, including New York, Chicago, and Los Angeles.

• 25:34Stephen J. Dubner?

  In New York, for instance.

• 25:35Speaker 06

  So for instance, in New York, many of the families were living in the Martin Luther King Towers, which is a very high-poverty, large public housing project in New York. So they took these families and they randomly assigned them to one of three groups.

• 25:49Stephen J. Dubner?

  The first was a control group. They stayed put in the Martin Luther King Towers.

• 25:54Speaker 06

  And then there were two treatment groups, one of which was called the Standard Section 8 Housing Voucher Group.

• 26:02Stephen J. Dubner?

  This group could use the vouchers to move wherever they wanted.

• 26:05Speaker 06

  So many families, for example, moved to a place in the mid-Bronx called Soundview, which was about six miles away. From the MLK Towers. So not in the super high concentrated poverty public housing project, but not in a dramatically different neighborhood either.

• 26:20Stephen J. Dubner?

  Families in the third group were also given a housing voucher.

• 26:24Speaker 06

  However, with an additional restriction, which was that you could only use this voucher to rent a house or apartment in a place with a poverty rate below 10%. So basically trying to encourage families to move into more mixed income areas.

• 26:39Stephen J. Dubner?

  Hence, the program's name, Moving to Opportunity, or MTO. The people behind the program suspected, or at least hoped, that families who removed themselves from concentrated poverty would end up having better outcomes themselves for both the adults already in the labor market and their kids who'd be coming into the labor market. So what happened?

• 27:02Speaker 06

  What you ended up finding was frankly, I think somewhat disappointing. So you didn't see any differences in employment rates or average levels of earnings.

• 27:12Stephen J. Dubner?

  There were some positive health effects, lower obesity and better mental health, for instance. But the MTO experiment was largely considered a failure.

• 27:21Speaker 06

  I think it left the field in kind of a difficult spot because people still, you know, I think instinctively felt and anecdotally felt like, of course, it's got to matter where you grow up. But this gold standard scientific experiment is telling us that it doesn't matter for economic outcomes.

• 27:38Stephen J. Dubner?

  That indeed was the consensus among researchers who analyzed the MTO data. But several years later, Chetty and his colleague Nathaniel Hendren wound up taking another look at the data. And they saw a rather large benefit among some people who had participated in MTO. Why?

• 27:57Speaker 06

  Our hypothesis was that earlier studies of MTO had looked at impacts on adults and children who were older at the point of the move.

• 28:09Stephen J. Dubner?

  Remember, the Moving to Opportunity experiment was conducted in the mid 1990s. The studies that found disappointing results were published roughly 10 years later.

• 28:19Speaker 06

  And of course, the children who were very young at the point. The experiment was implemented, say, kids who were two or three years old. Ten years after the experiment was implemented, they were still only 12. And so obviously, you couldn't measure their earnings at that point because they weren't they weren't working yet. So these earlier studies, for that reason, mainly focused on adults and older youth, and they didn't find much of an impact. But to us, in light of our findings on the importance of childhood exposure, that actually made sense. We thought, well, in our data, it looks like you need to, in order to really see an effect of moving to a better neighborhood, you need many years of exposure to that better neighborhood.

• 28:57Stephen J. Dubner?

  And that's what led Chetty and his colleagues to reexamine the MTO data. They added a layer of IRS data in order to measure the longer term earnings for the kids who were young when they moved.

• 29:09Speaker 06

  And quite remarkably, and I still vividly remember seeing this when we were studying this at the IRS, looking at the data. When you look at children who moved when they were young, you see extremely clearly that they are doing dramatically better today as adults. They are earning 30% more. They're 27% more likely to go to college. They're 30% less likely to become single parents. And that, in our view, just kind of completely changed everything and I think has changed people's perceptions of MTO.

• 29:42Stephen J. Dubner?

  Okay, so, young kids who move out of a high-poverty neighborhood do much better later on. What exactly does this signify? What's going on in the poor neighborhoods to depress income mobility? And what's going on in the better neighborhoods to increase it? Answering those questions has become a big part of Raj Chetty's work. He and his colleagues have come up with five significant explanations.

• 30:07Speaker 06

  The first is residential segregation. Cities that are more segregated by income and by race tend to have much lower levels of upward mobility. So if you look at a city like Atlanta, it's an incredibly segregated city. Now, cities that look like that in terms of residential structure, we find systematically tend to have very low rates of upward mobility. In contrast, if you look at a place like the Bay Area... At least in the 1980s and 1990s, and this Stephen, I think, is changing quite a bit over time, especially here in Silicon Valley as prices are rising. But in the 1980s and 1990s, the Bay Area was relatively integrated, at least compared to Atlanta, where you had neighborhoods of San Francisco with both middle and high-income people. You had people of

• 30:51Speaker 06

  different ethnicities living near each other, and those kinds of cities tend to have much higher rates of upward mobility. The second factor? Income inequality. You have more people in the middle class, you also tend to have higher levels of upward mobility. This relationship is what Alan Kruger, based on cross-country data, termed the great GAT speaker of the idea that there's a link between inequality in any one generation and rates of intergenerational mobility. Why is this link interesting if one can interpret it causally? It suggests that as we have growing inequality over time, as we do in the US, we might be concerned about that, not just because we're worried about equitable

• 31:32Speaker 06

  distribution, but also because we're worried that it might erode children's chances of achieving the American dream. And so, again, we don't know exactly what the mechanism is and whether this is really a causal effect, inequality causing changes in upward mobility, but there does seem to be some link between these two factors. The third factor they identified relates to family. It turns out that the single strongest correlation we find in the data is with measures of family structure, such as the fraction of single parents living in an area. We find that places with more single parents have significantly lower levels of upward mobility. Now, in interpreting this correlation, it's very important to note that it's not

• 32:16Speaker 06

  purely driven by the fact that growing up in a one-parent family leads to worse outcomes for children. And the way you can see that is if we look at the subset of kids who grow up in a two-parent household, we see that for that subset of children, even for them, growing up in a neighborhood with a lot of single parents is associated with lower levels of upward mobility. So it's not literally about whether your own parents Or married or not. Again, it's picking up some community level factor where growing up in a place that has a lot of single parents, you know, maybe there's more family instability, or it's correlated with some third factor that is leading to higher rates of single parenthood.

• 32:58Speaker 06

  For whatever reason, that seems to be strongly associated with lower levels of upward mobility.

• 33:02Stephen J. Dubner?

  The fourth factor?

• 33:04Speaker 06

  Social capital. And so the idea of social capital, I think of it in relation to the old adage that it takes a village to raise a child. Will someone else in your community help you out when you need help? So as an example, Salt Lake City with the Mormon church is thought to be the quintessential example of a city with a lot of social capital and correspondingly in our data seems to exhibit a lot of social mobility. Now, this concept of social capital, as you may know, Stephen, was popularized in a very well-known book by Bob Putnam called Bowling Alone.

• 33:38Stephen J. Dubner?

  Indeed, we put out an episode not long ago called Trust Me with Bob Putnam, who teaches public policy at Harvard. Years ago, he was looking at the decline of civic life in America.

• 33:50Speaker 14

  We were becoming more and more isolated. Or, as a friend suggested to me once, you mean we're bowling alone?

• 33:57Speaker 06

  And the reason for the title of that book is social capital is notoriously difficult to measure. And Bob had the creative idea of using the number of bowling alleys in an area, and in particular, whether people are bowling alone as a proxy for social capital.

• 34:11Speaker 14

  The core idea of social capital is so simple that I'm almost embarrassed to say it. It is that social networks have value. There's a huge amount of work on how social networks help us find jobs.

• 34:28Speaker 06

  So I was amazed to find, I remember actually discussing this with Bob in his office at Harvard, that the number of bowling alleys is actually very highly correlated with the rates of upward mobility in our own data.

• 34:39Stephen J. Dubner?

  Were you skeptical when you first looked at that?

• 34:41Speaker 06

  Yeah, I was surprised, certainly. I also thought, wow, Bob really had some foresight in thinking about bowling alleys. But I mention that here because it illustrates a caveat to all of these relationships, because these are all correlations rather than causal effects, right? And so it would be surprising if the policy implication to draw from this is that we should build more bowling alleys to increase upward mobility in the United States. And so I think that's a very important caveat to keep in mind. And I mention that because the fifth factor is a bit of an exception to that. The fifth factor is school quality.

• 35:20Speaker 06

  We find that places with better public schools, as you might expect intuitively, have much higher rates of upward mobility. And on that dimension, there's a lot of very good evidence showing that improving the quality of schools can really meaningfully affect rates of intergenerational mobility. So I would treat school quality a little bit differently from the other four factors, where we see strong correlations but are not yet sure exactly what the causal mechanisms are.

• 35:43Stephen J. Dubner?

  Now, each of the factors that you've discussed, even I could think of some potential policy ideas to improve them. Do you think much about that? Or are you content at this point to do the research that allows policymakers to have those ideas and make those moves?

• 36:00Speaker 06

  Absolutely. We want to take the next step to think about what this means for policy, what the causal mechanisms are, what the levers are that we can push to change some of these factors. And so that, I think, is a good segue now to come back to the Moving to Opportunity experiment, which I see as a way to potentially tackle segregation. One concrete way in which you might try to integrate a city is by giving families, low-income families, housing assistance to be able to rent houses in more mixed-income neighborhoods, thereby mechanically reducing segregation.

• 36:30Stephen J. Dubner?

  Now, I could hear you talking about this, extolling the virtues. The latent virtues that you ultimately unearthed of a program like Moving to Opportunity, where the government spends a bunch of money to relocate families. And I could think, oh, you're just another big government spending advocate. On the other hand, I know that you have thought quite a bit about the money that is spent in the US on a variety of affordable housing programs. I believe a total of roughly $45 billion. So I'm curious, as an economist, how you would assess the efficiency of typical or historical housing spending in the US and compare that to the ROI on something like Moving to Opportunity?

• 37:11Speaker 06

  I certainly recognize that in a time when we have a government that's already spending quite a bit on initiatives like this, the answer can't simply be to just spend more on these problems. I think the power of these data and what we need to be doing is spending money in smarter ways. And so this is a good example of a program where we're spending $45 billion on various forms of affordable housing, but we're not spending that money in the most efficient possible way in order to achieve outcomes like reduce poverty in the long run. So let me give you a couple of examples on dimensions in which we can, I think, make improvements. First, the optimal age at which to help families move is when their kids are born or when their kids are very young. In practice, we do almost exactly the opposite.

• 37:54Speaker 06

  We put families on waiting lists when they have kids, and those waiting lists sometimes take many, many years, particularly in the most depressed cities where we really would like to be moving families out of concentrated poverty. And so what ends up happening is that families only get the opportunity to move exactly when their kids are older, which is exactly backwards, right, in terms of what you'd like to be accomplishing here. So that's a tweak that would not increase program costs, but I think would dramatically increase impact. Another example is that the vast majority of housing vouchers are currently being used in very high-poverty, low-opportunity areas.

• 38:35Speaker 06

  And that is problematic because we find that it's really critical to move to these higher-opportunity, low-poverty areas in order to see beneficial outcomes. And so we're worried. Working with HUD and a large group of public housing authorities to figure out how, again, without spending more money, how we might be able to reform the program so we can get more families that get these vouchers to move to neighborhoods that are going to better serve their kids in the long run. A further important aspect to think about in the context of costs is that my sense is that the government will actually recover much of the money we invest in programs like this because we see that these children who are earning 30% more as adults, they, of course, are paying more in income taxes themselves as they have higher earnings.

• 39:20Speaker 06

  And so we calculate that the extra income taxes that they pay actually more than offsets the incremental cost of a program like Moving to Opportunity. So it's actually, we think, a budget-saving program in many ways.

• 39:34Stephen J. Dubner?

  Your work has been cited by politicians, certainly across the aisle, by Paul Ryan. You've personally tutored Hillary Clinton in mobility issues and perhaps others. You've advised the Obama administration and advised Jeb Bush. I'm really curious to know how, well, I was going to ask you how it feels to have that policy pull. I don't know if you actually have pull, but at least you're in the room and you are looked to as an authority who really understands or can explain cause and effect in addressing these issues that policymakers deal with all the time, often not in an evidence-based manner. So could you just talk about that? What those conversations are like, if you feel they're fruitful, if you feel your research is considered seriously and perhaps even acted upon?

• 40:19Speaker 06

  Yes, I am quite encouraged by how interested policymakers are in this type of evidence. And I think there is a genuine interest, often on both sides of the aisle, in trying to do better things with the money that we're spending. I think when you can come into a room and say, "I'm not saying we should spend an extra $30 billion on affordable housing. I'm saying we should take the money we're already spending and maybe tweak it in certain ways, enact certain reforms, that based on the evidence will actually deliver better outcomes that we all want to achieve." I think that can really be impactful. My sense is, by the way, a lot of the political influence that matters here is not just at the national level, but at the local level, given the nature of the problem.

• 41:01Speaker 06

  Mayors can do a lot, and we notice that mayors are talking about things differently. And our hope is ultimately the evidence that we're accumulating and a number of other researchers will ultimately influence policy.

• 41:15Stephen J. Dubner?

  Since our interview with Raj Chetty, he has met for an hour and a half with Ben Carson, the presumptive Secretary of Housing and Urban Development. As Chetty described it in an email, "He and his staff were eager to hear about how the data could help us make better use of the dollars HUD is spending to achieve better outcomes for low-income children." We asked Chetty if he would consider serving in this administration himself. "I would not have considered serving in either a Trump or Clinton administration," he wrote, "largely because I'd like to continue focusing on research to identify the best policy solutions at this point. Perhaps down the road, I'd reconsider." Chetty also wrote this: "I hope that the new administration will take an evidence-based approach to making policy

• 41:59Stephen J. Dubner?

  decisions, for instance, by making smart investments in childhood education, affordable housing, and other programs that can create opportunity in effective ways." If you want to look at some of the research by Raj Chetty and his colleagues on the Equality of Opportunity Project, I suggest you spend some time on their website. You can look it up, Equality of Opportunity Project. And next time on Freakonomics Radio, we will expand this conversation about the state of the American dream. One argument we've all heard is that the US was too willing to let its manufacturing jobs go to China and elsewhere. Economists were, for the most part, sanguine. They told us not to worry,

• 42:41Stephen J. Dubner?

  that the upsides of global trade would cancel out the downsides of that job loss. What do they say now?

• 42:48Speaker 15

  I'm much less sanguine about it than I used to be. I think if we had realized how traumatic the pace of change would have been, we would have, at a minimum, had much better policies in place to assist workers in communities that suffered these very severe and immediate consequences. And we might have tried to moderate the pace at which it occurred.

• 43:12Stephen J. Dubner?

  The true story of Chinese trade and American job loss, that's next time on Freakonomics Radio.

• 43:21Stephen J. Dubner?

  Freakonomics Radio is produced by WNYC Studios and Dubner Productions. This episode was produced by Greg Rosalsky. Our staff also includes Shelley Lewis, Christopher Wirth, Stephanie Tam, Merritt Jacob, Liza Lambert, Alison Hockenberry, Emma Morgenstern, Harry Huggins, and Brian Gutierrez. And we had help on this episode from Andrew Dunn and Noam Osband. You can subscribe to Freakonomics Radio on iTunes or wherever you get your podcasts. You should also check out our archive at Freakonomics.com, which has every past episode, including transcripts. You can find us on Twitter and Facebook. And if you want to drop us a line, which we will certainly read, though we probably won't have time to reply, the address is [email protected]. Thanks for listening.

• 44:22Stephen J. Dubner?

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• 44:52Stephen J. Dubner?

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