Is the American dream dead? Inequality, mobility and entrepreneurship

Abstract

Purpose – The purpose of this paper is to question the frequently heard claims of a negative relationship between inequality and intergenerational mobility (such as the “Great Gatsby Curve” by Alan Krueger) and to propose entrepreneurship as the neglected prime countervailing force against the putative advantages of the rich. Design/methodology/approach – A critical examination of evidences marshalled to support the case for a negative relationship between inequality and mobility, in terms of the appropriateness of statistical inferences and the consistency between implications and observations. The paper adopts alternative approach of Austrian economic in emphasizing the role of entrepreneurship in generating mobility. Findings – The putative negative relationship between inequality and mobility is not supported by evidence. The result is partly that egalitarians tend to skip close examination when they run into evidence that seems to support their preconception. It is also partly that the dominant tradition in economics, based on the model of efficient allocation of given resources, induces them to overlook entrepreneurship, the prime wealth creator and generator of mobility. Research limitations/implications – The research outlines an argument that the rich do not have advantage in entrepreneurship because it depends not on the ownership of currently valued resources, but on the discovery and exploitation of profitable opportunities. This claim is made based on Kirznerian perspective and author’s own theory of inference and learning process. However, it would be nice to able to provide empirical evidence of this claim made in the paper. Social implications – Many policies of redistribution, based on the belief that increase in inequality (as measured by Gini coefficient) signifies a diminution of intergenerational mobility, should be re-examined since the alleged negative relationship between inequality and intergenerational mobility turns out to be untrue. For greater intergenerational mobility, entrepreneurs should be encouraged, by allowing them to experiment freely. Originality/value – Emphasizing the role of entrepreneurship in intergenerational mobility and the dealing with the question of whether or not the rich would have advantage in entrepreneurship is original to this paper.