Schwenkenberg on Reeves, 'Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do about It'
Richard Reeves. Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do about It. Washington, DC: Brookings Institution Press, 2017. 240 pp. $24.00 (cloth), ISBN 978-0-8157-2912-9.
Reviewed by Julia Schwenkenberg (Rutgers University at Newark)
Published on H-Socialisms (November, 2017)
Commissioned by Gary Roth
Printable Version: http://www.h-net.org/reviews/showpdf.php?id=50001
The Upper Middle Class
Over the postwar period from 1946 to 1980 economic growth doubled real incomes for most Americans. Moreover, income inequality decreased as individuals in the bottom and middle quintiles of the income distribution experienced relatively high income growth compared to those at the very top. In particular, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman calculate that the pretax income of the poorest 20 percent of Americans grew by 109 percent over this period. The researchers estimate similar trends for the middle class. In contrast, income grew by 79 percent for the top 10 percent and by only 47 percent for the top 1 percent. National income grew by 95 percent overall, which is consistent with an average annual economic growth rate of about 2 percent.
This period of shared prosperity did not last. Over the next thirty-four years, from 1980 to 2014, pretax national income accruing to the poorest 20 percent of Americans fell by 25 percent. On average, the incomes of Americans below the median stagnated. For the “middle” 40 percent of households (those ranked from the 50th to the 90th percentile) pretax income still grew by 42 percent and for the top 10 percent it grew by 121 percent on average. But it was for the very rich that income growth has exploded since the eighties: considering ever smaller slices from the top of the distribution reveals income growth of 201 percent for the top 1 percent, 320 percent for the top 0.1 percent, and 636 percent for the top 0.001 percent.
As a direct consequence income inequality has been increasing. According to data from the World Wealth and Income Database, the bottom 80 percent received half of national income in 1980, but its share had fallen to 37 percent by 2014. The share of the 10 percent between the 80th and 90th percentiles stagnated at 15 percent, while the 9 percent of Americans between the 90th and the 99th percentiles increased their income share from around 24 percent to 27 percent. In contrast, the top 1 percent nearly doubled its income share from 10.7 percent in 1980 to 20.2 percent in 2014. These numbers demonstrate why the conversation has centered around the so-called 1 percent. The increase in inequality over the past decades seems to be driven entirely by the richest of the rich getting richer, to the detriment of everyone else.
This is not the entire story. Economists have found that inequality has been increasing since the 1970s along all kinds of dimensions. For example, earnings inequality has increased between college graduates and high school graduates but also within skill groups. These developments have been partially attributed to technological changes and to globalization. Social scientists have, in fact, been studying the distribution of income, socioeconomic mobility, and social stratification for decades. As economic inequalities continued to widen, the media and the public have become alarmed.
Richard V. Reeves’s Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do about It enters the fray because, according to the author, “some analysts have left the upper middle class off the hook (yes, that would be you) by pointing at the super-rich or top 1 percent” (p. 19 and yes, he is talking to you). Reeves defines the upper middle class as the richest 20 percent of households without the top 1 percent; that is, individuals and families with incomes between the 80th and 99th percentiles of the household income distribution. According to the Congressional Budget Office (CBO) these are households earning between $165,500 and $710,400 for a family of four in 2013. By using the “middle” label, Reeves acknowledges the conflict between the American ideal of a classless society and the unabashed privilege displayed by this upper middle class. The latter is what angers Reeves; the false modesty of the rich who label themselves part of the middle while cementing their advantage across generations and denying the rest a shot at the American Dream.
There are three parts to the book, all reflected in its lengthy subtitle: How the American upper middle class is leaving everyone else in the dust, why that is a problem, and what to do about it. In chapters 2 and 3 Reeves presents evidence on the upper middle class’s growing separation from the rest along a number of socioeconomic dimensions and how these advantages are passed on to the next generation of upper-middle-class children. Chapter 4 demonstrates the implications for social mobility in the United States. Perpetuation of inequality over generations is where many people see the problem with inequality. Chapter 5 discusses equality of opportunity and chapter 6, opportunity hoarding by the upper middle class. Children of the rest are not given equal opportunity to prepare for the meritocratic competition in education and the labor market because their parents lack the resources upper-middle-class parents have. Anticompetitive opportunity hoarding behaviors by the upper middle class are making matters worse. These problems can be solved by implementing the seven measures laid out in chapter 7. Reeves summarizes his book in chapter 1.
The analysis proceeds at a fast, and at times cursory, pace and is supported by a wide array of facts, opinions, and statistical evidence obtained from Reeves’s own research, Brookings Institution and other think tank studies, academic articles, books, and government reports. The tone of the book is conversational and the presumed readers are upper-middle-class intellectuals who need to be prodded into changing their ways.
Reeves begins his analysis of the upper middle class’s separation from the rest by showing us the income gains that have accrued to the top 20 percent of households using a Congressional Budget Office (CBO)study (p. 24). The CBO study is more optimistic about the fate of those in the bottom half of the income distribution than the team around Thomas Piketty (the studies use different income definitions). But both support the fact that the top of the distribution has seen much larger gains than the bottom. The CBO study estimates pretax income growth from 1979 to 2013 as follows: 39 percent for the bottom 20 percent of households, 32 percent for the middle quintiles, 65 percent for the top quintile without the top 1 percent, and 187 percent for the top 1 percent. Reeves presents these income gains using pretax annual household income in a bar graph to demonstrate the relatively larger income levels and growth rates for the upper middle class relative to the rest (p. 24, figure 2.2). He left the top 1 percent out of graph to show that the gains of the top quintile are large without it. But this downplays how skewed toward the top income growth really was over this period. Instead, he states in the text that $2.7 trillion went to the upper middle class over this period, while only $1.4 trillion went to the top 1 percent. Hence, he claims, for every dollar going to the top 1 percent, the upper middle class received two dollars. This statement has no economic meaning because there are by definition ninteteen times more people in the upper middle class than in the top 1 percent. This might seem a minor point for the cursory reader, but it reflects a general lack of rigor in the analysis.
Worse, next, Reeves claims that the top 1 percent is the upper middle class having a good year, citing that 20 percent of the population spend at least one year in the top 2 percent income bracket (p. 25). The original academic study published in PLoS ONE also includes analogous estimates for the top 20 percent and finds that nearly 70 percent of the population spend at least a year in the top quintile. The upper middle class really is all of us! By the way, the study’s estimated population shares of those who spend ten consecutive years in the top 20 percent and the top 1 percent are much closer to 20 percent and 1 percent, respectively. Therefore it does make sense to talk about income classes even though there are year-to-year fluctuations. But it does not make sense to pretend the top 1 percent is reshuffled every year from within the top quintile.
Regardless, an investigation into how the upper middle class has at least been able to keep their relative income share over the past decades, during which the bottom has seen a decline in theirs, is important. In the following, I will mostly regard Dream Hoarders like a painting made out of many large colorful dots. Viewed from afar, it appears whole and consistent and resembles reality enough to be interesting.
Income is, of course, not the only measure of well-being and Reeves also presents a collection of facts demonstrating that members of the upper middle class are wealthier, healthier, better educated, as well as more likely to be married and reside in top-notch neighborhoods than the rest. The most important advantage might be the one that is passed on to upper middle-class children. In particular, Reeves argues that upper-middle-class parents have the resources to invest in intensive and engaged childrearing from womb to college. The US reality is that merit is produced mostly by parents. Even public education is purchased through local taxes, parental involvement, and neighborhood choice. Current inequalities therefore perpetuate over the generations. This is where most people see the problem with inequality. And growing inequality presents a growing problem.
Reeves cites evidence showing that the United States has relatively low rates of socioeconomic mobility compared to other developed nations. Though it might seem intuitive that mobility would fall when inequality increases, theoretically this need not be the case and the empirical evidence is mixed. But even if the rates of mobility have remained unchanged, growing inequality exacerbates the consequence of low social mobility.
Equality of opportunity is often cited as the benchmark societal ideal. But what does it mean? Reeves devotes an entire chapter to the discussion of market merit and fair equality of opportunity. He provides stimulating thought experiments from philosophers on desert and merit to illustrate the complexity of assigning just rewards. In the end, he defends individualism and markets as integral parts of the American way. He believes that the pay structure and the labor market for adults is and should be based on merit. Where he sees a distortion of American ideals is during childhood when children are not given an equal chance to develop merit. Therefore, a meritocratic school system in which elite public schools admit students based on admission tests would not present fair equality of opportunity. Reeves also makes some stark claims regarding the higher education system’s role in class reproduction by citing scholars who propose that rather than fostering social mobility, colleges have been hindering it (p. 55).
He presents data on income segregation across colleges from Raj Chetty, John N. Friedman, Emmanual Seaz, Nicholas Turner, and Danny Yagan’s 2017 study on colleges’ contribution to upward mobility (pp. 53, 87). Curiously, what he does not cite from their study is their estimation of the role of colleges in upward mobility. The majority of college students from the bottom 80 percent attend two-year colleges or nonselective schools, while the majority in the upper quintile attend selective or Ivy League colleges. Within these categories we also see the predictable pattern: the majority of students at the Ivy Plus (twelve elite colleges selected based on their elite status) are from the top of the income distribution. These numbers present important data on college access but do not consider outcomes. The Ivy Plus’s success rate, defined as the proportion of kids catapulted from the bottom into the top quintile, is an impressive 58 percent. The average child rank in the individual earnings distribution conditional on parent rank ranges between the 70th and 80th percentiles at the Ivy Plus. Once students have made it into an elite college, their parental background barely matters. The latter is in fact true across a wide range of colleges. Far from widening gaps, colleges are narrowing them between those who attend. But it is also true that college access is not equal and there is a correlation between success rates and college selectivity. Moreover, less then 1 percent of all college attendees in the United States attend the Ivy Plus elite colleges with the highest overall success rates, and only 3.8 percent of those are from the bottom 20 percent. Therefore Chetty and his coauthors do not consider upward mobility success rates nor access rates in isolation but they combine the two to estimate the contribution of colleges to intergenerational mobility. They find that certain mid-tier public universities deliver the most upward mobility.
The evidence on upward mobility at colleges actually supports Reeves's main point that access should be expanded to open up opportunities. Reeves clearly sees an important role of universities in discovering talent across the parental income spectrum, which, in my view, is the most important role of the higher education system. Low rates of access are likely due to both the inadequate preparation of students during childhood and finances.
The problem I see with the use of “selectivity” as a measure of college quality is that it only measures the quality of students at the time they enter college and it measures this quality narrowly by using test scores. Reeves wrestles with where to draw the line between a meritocratic higher education system and achieving fair equality of opportunity during childhood but he does not question how potential merit is measured. He also vacillates between implying that nonselective public colleges and two-year schools function as crappy traps for poor students and hinting at their potential to be engines of social mobility for less prepared students. Reeves appears to share the veneration of the Ivy League, Harvard in particular, with most upper-middle-class parents--an almost reflexive admiration, perhaps mixed with scorn, that seems prevalent in most people. Recall, less then 1 percent of college students attend the Ivy Plus. In a book that is presumably not about the 1 percent, there appears to be disproportionate attention on the top 1 percent.
Most people highlight upward mobility from the bottom. This represents the classic rags-to-riches interpretation of the American Dream. Reeves, in contrast, stresses the importance of downward mobility from the top quintile. He argues that in order for the bottom to move up, the top must fall down. I agree that a lot of people are ignoring this mathematical reality by talking about upward mobility as if there is only an upward path in social mobility. While equitable economic growth produces absolute mobility that lifts most people above their parents’ economic status, and some might argue that this is the only type of progress we should care about, I agree with Reeves that relative status matters. A reshuffling of the social order is necessary for economic and social dynamism. A persistent class hierarchy is a problem even in the absence of poverty or economic stagnation. But, when growth has become increasingly inequitable and poverty still exists in one of the richest nations on earth, is it ethical to argue that some children must fall down? Shouldn’t we first construct an absolute floor on economic well-being, a real safety net?
The fall from the top is particularly steep in the United States relative to other developed countries. Therefore, Reeves admits, it is understandable that upper-middle-class parents have been constructing a glass floor underneath their offsprings’ feet to prevent downward mobility. Upper-middle-class parents prepare for child-rearing and provide a stimulating learning environment for their infants, they practice proven parenting styles and choose the best school districts or pay for private schools, they can afford college test-prep classes and top-college tuition for their adolescents. And while Reeves advocates equalizing premarket opportunities for all American children, he also praises upper-middle-class parents for their dedication to human capital investments. Winning the parent lottery at birth might not be fair, but it is hard to argue against people striving to be the best possible parents to their kids. Yet, there are limits. According to Reeves, parental support should obey certain competitive rules. When these are violated, parents are hoarding opportunities. The three practices that exemplify hoarding are exclusionary zoning, unfairness in college admission, and unpaid internships (p. 96). It is okay to pay higher house prices to live near better schools, but it is unfair to prevent low-income housing in the district. Legacy admissions are singled out as an unfair college admission process. Finally, parents who employ their social network to allocate internships are exhibiting anticompetitive behaviors. Moreover, unpaid internships benefit those who can afford to work for free.
What should be done? Reeves prefaces his policy recommendations with a statement that could describe the approach taken throughout his book that is, he doesn’t “intend to set out a comprehensive, detailed manifesto. Instead, I propose seven steps that we can and should take. Many books and papers have been written on each and every one of them, and for those who wish to dive deeper, many of these are listed in the references” (p. 124). Instead of providing us with a detailed study of the upper middle class’s anticompetitive practices, or hoarding behaviors, how they actually contribute to class reproduction, and what the estimated impact of particular policies would be, Reeves takes his broad-brush stroke approach to social mobility and leaves the reader to wade through the endnotes in search for specifics.
Steps 1 through 4 summarize policies to equalize human capital development. Since Reeves believes that the US labor market rewards merit effectively, he thinks interventions to rebalance earnings “post hoc” should be avoided (p. 124). That is perhaps also why he chose to add his suggestions regarding the tax code as an afterthought on financing and not as an eighth step. Him calling out the liberal elite on clinging to regressive tax breaks seems especially important in the current policy debate. Reeves’s collection of suggestions regarding the parenting gap, public education, and college financing are mostly good, common-sense, progressive policy ideas. Important here are the expansion of an early childhood home visiting program, hiring the best teachers for the poorest districts, and reforming the federal student aid program.
The final three steps address the so-called hoarding behaviors of the upper middle class. We should curb exclusionary zoning, end legacy admissions, and open up internships. I wish Reeves had devoted more space to the impacts of segregation, exclusionary zoning, and school financing. If there were a way to hoard the American Dream, this would be it. His discussion of internships and social referral networks also implies that this practice continues into the adult labor market. A more thorough investigation could have presented important insights on occupational inheritance in the upper middle class. Reeves devotes disproportionate attention to the practice of legacy admissions at particular elite colleges. This is an easy target since many people agree that admitting students based on their parents’ status is not fair. But does it matter?
Reeves believes that if a practice is wrong it need not have a large effect to warrant being sanctioned (p. 97). Sure, but the vast majority of college students do not attend elite colleges. The engines of upward mobility are public universities. Fortunately, there have been a growing number of initiatives designed to make college more affordable, such as the New York State Excelsior Scholarship, which allows students with family incomes of $100,000 or less to attend SUNY and CUNY colleges tuition-free, and the Go Blue Guarantee, which allows Michigan residents with incomes of $65,000 or less to attend the University of Michigan at Ann Arbor for free.
Reeves sprinkles his analysis with current political examples and he chose Jared Kushner, who gained admission to Harvard after a multimillion dollar donation from his father, as the poster child for legacy admissions (p. 109). I care more about how his family made their money in the first place than Kushner’s ability to post a $2.5 million diploma on his wall that nobody thinks he obtained through academic skills. Thinking about this leads me to conclude that the market does not always value merit.
Unfortunately, Reeves does not question the functioning of the market, except when he realizes society does not reward teachers enough to attract the best teachers to teach the kids who need them most. We also cannot fool ourselves into believing that no regulation of the reward structure in the economy is necessary to prevent rent-seeking activities that have negative consequences for the rest of society and for economic growth. Remember the financial crisis? What portion of upper-middle-class children go into finance? What do the most upwardly mobile children do? Are they becoming stocker traders? Is this good for society?
Richard V. Reeves does sense an important bifurcation of society, which occurs in dimensions not defined primarily by income and wealth, but by intellectual preparedness and skills, and it affects the future of our democracy. While we have achieved amazing technological and scientific progress, as well as an enormous reduction of poverty globally, large parts of the populations in Western countries have become alienated and feel shut out from prosperity. We cannot dismiss the dizzying mass of wealth accumulated by the 1 percent as a distraction, but that does not mean we should stay silent on other disparities. Dream Hoarders reads like a 250-page op-ed and I wish that, counter to our age of clickbait headlines and tweet-length attention spans, Reeves had made a more rigorous case. But the Brookings Institution senior fellow intends to change attitudes through advocacy and Dream Hoarders should be seen as part of this effort.
. Thomas Piketty , Emmanuel Saez, and Gabriel Zucman, “Distributional National Accounts: Methods and Estimates for the United States,” Quarterly Journal of Economics, forthcoming.
. The World Wealth and Income Database, http://wid.world/data/, accessed September 2017 using STATA.
. Congressional Budget Office, “The Distribution of Household Income and Federal Taxes, 2013,” Congress of the United States (June 2016), http://www.cbo.gov/publication/51361.
. Thomas A. Hirschl and Mark R. Rank, “The Life Course Dynamics of Affluence, ” PLOS ONE 10, no. 1 (2015): e0116370, doi:10.1371/journal.pone.0116370.
. Raj Chetty, John N. Friedman, Emmanuel Saez, Nicholas Turner, and Danny Yagan, “Mobility Report Cards: The Role of Colleges in Intergenerational Mobility,” National Bureau of Economic Research, No. w23618 (July 2017), http://www.nber.org/papers/w23618.
Julia Schwenkenberg. Review of Reeves, Richard, Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do about It.
H-Socialisms, H-Net Reviews.