Helping the poor may help all of us

There’s only one thing that can save the American Dream, and that’s socialism.

That, at least, is what economists Rasmus Landers? and James Heckman found when they looked at what’s supposed to be the real land of opportunity nowadays: Denmark. It’s the best country in the world for a poor kid to grow up in, but that’s not because they’re more likely to get a middle-class job. It’s that their government helps them more than anybody else’s does. Which is to say that Horatio Alger stories don’t make any more sense in Danish than they do in the original English, except for all the redistribution they do.

The question, though, is how much is too much. In other words, is there a point at which supporting people’s dreams makes it so that they don’t need them anymore? And the answer is a definite maybe — although, as we’ll get to in a minute, that might be the apotheosis of a first-world problem.

Now, what we’re talking about when we talk about social mobility is how much your birth determines your place. That is, whether poor kids can work their way to the top, and rich kids can fall out of it. And by that measure the U.S. has become, well, a pretty poor place to grow up poor. Indeed, economist Miles Corak estimates that American parents pass on about 47 percent of their economic advantage to their children compared to just 15 percent for Danish parents. Our upper middle class is much closer to being a hereditary caste of doctors, lawyers, and other white-collar workers than we’d ever like to admit — assuming we even had the time to think about it instead of strategizing about the best extracurriculars to get our kids into the best colleges so they can land the best internships and end up with the same type of jobs we have. The New American Dream is going from riches to even more riches.

Denmark seems different. As we already mentioned, it has better social mobility than any other rich country. Why is that, though? Well, the answer probably has something to do with the fact that it taxes and spends so much. Denmark’s top marginal tax rate is 60 percent, and it applies to all income over 1.2 times the national average. That, as the right-leaning Tax Foundation points out, would be like if everything above $60,000 was taxed that much here. And on top of that, it also has a 25 percent national sales tax. Add it all up, and Denmark’s government takes up 55 percent of its economy. By point of comparison, the entire U.S. government — state and federal — is only 34 percent of ours. What does Denmark do with all this money? Easy: it gives it back to the people. It’s the Oprah theory of government. You get an education, and you get an education, and you, well, get the idea.

If you think about it, this should increase social mobility in two ways. The first is that all these taxes at the top and transfers at the bottom should shrink the distance between the two — which, in turn, should make it easier to go from one to the other. And that, in fact, does seem to be the case. Consider this: during the mid-2000s, Denmark’s bottom 20 percent took home about $10,000, adjusted for local prices, compared to $45,000 for its top 20 percent. That’s a much more manageable climb than having to go from $6,000 to $90,000, like you would have had to in the U.S.

But it’s also how, and not just how much, Denmark is spending on the poor that should matter here. After all, it’s invested a lot of money in low-income students that you’d think would help them become high-income adults. You’d be wrong, though. While it’s true that poor kids in Denmark test better than poor kids in the U.S., this doesn’t actually translate into more of them going to college. Why not? Part of it is probably that they’re still stuck in what are below-average schools. Another part is probably that their parents don’t put as much pressure on them to do so. And the last part, as Landers? and Heckman argue, is probably that they just don’t need to. Denmark’s safety net is so strong and its taxes are so high that a college degree isn’t a prerequisite for a middle-class life or a guarantee of much more than one, either.

This seems like a paradox. On the one hand, Denmark has the most social mobility in the world if you look at incomes. But on the other, it has just as little social mobility as the U.S. if you look at education and careers. Although it’s not just them. It’s the rest of Scandinavia too — and going back a long, long time. Economist Greg Clark, you see, found the same thing when he examined how many of Sweden’s top families from the 1700s there still were today. It turns out that doctors beget doctors, lawyers beget lawyers, and elites beget elites just as much as they do everywhere else, even in this most egalitarian of societies. The result, according to Landers? and Heckman, is that Denmark wouldn’t have more social mobility than the U.S. if you looked at wages before taxes and transfers. Those last four words explain how Denmark has more social mobility without actually having more social mobility.

The American Dream is just a government program in Denmark.

This is depressing and hopeful. Depressing, because nobody seems to have figured out how to help more poor kids get good jobs. But hopeful to the extent that helping them at least doesn’t make them any less likely to help themselves. Not to mention that we know we can give them a better life even if we don’t get them a better job. It’s just a matter of whether we’re willing to pay for it or not.

Nobody said the American Dream was cheap.

Matt O’Brien is a reporter for Wonkblog covering economic affairs. He was previously a senior associate editor at The Atlantic.