A century ago, one of America’s best-known authors was Horatio Alger, whose books celebrated the virtues that led to success: hard work, honesty, thrift, and foresight. In his book Ragged Dick, for example, a boy who starts with nothing but his indomitable spirit works his way up from a bootblack to a respected gentleman in New York City. George Mason University law professor F. H. Buckley uses the book as a model for successful societies in his new book, The Way Back. The America of a century ago was a land where almost anyone could prosper through work, thrift, honesty, and foresight. It was a land of high income mobility, meaning that people born into poverty often ended up wealthy—and vice versa.

Today, however, there is much less income mobility in the United States. Compared with many other industrialized nations, we have become rigidly stratified. While it is still possible for an individual to rise out of poverty, to a disturbing extent the can-do spirit of Horatio Alger has been replaced by defeatism combined with hostility and cultural decay among the poor.

The high price we pay for this is the near death of “the American dream.” Millions of our fellow citizens, rather than emerging from poverty, find themselves living embittered lives, often turn to crime, raise children who are increasingly unable to thrive, and depend on government handouts. Naturally, that has unhealthy consequences. Buckley writes:

People feel better about each other when the game doesn’t seem to be rigged against them. They’re also happier and less likely to support demagogues who promise greater equality but would restrict political freedom and threaten the rule of law to attain it.

Stagnancy and liberty / We are, argues Buckley, trending toward a caste society where a child’s economic prospects are pretty much dictated by the status of his parents. He devotes four chapters to explaining why he thinks that Republicans, conservatives, libertarians, and everyone else should pay more attention to this than they usually do.

Particularly interesting to most Regulation readers, I assume, is Buckley’s case for libertarians to take seriously the income immobility problem. He writes:

The question is whether income inequality and immobility can lead to the loss of the freedoms the libertarian prizes. That’s an argument attributed to Supreme Court Justice Louis Brandeis. “We can have a democratic society or we can have a great concentrated wealth in the hands of a few. We cannot have both.”

I happen to think that Brandeis was mistaken: democracy and, more importantly, liberty coexisted with concentrated wealth before Brandeis and still do today, despite the apparent increase in the “wealth gap” that progressives constantly complain about. Nevertheless, Buckley has a sound point that freedom is endangered by zealots who appeal to the masses in the name of “fairness.” He uses Venezuela as a good example of a nation where an authoritarian won election by appealing to the desperately poor classes who believed that they would never advance without drastic political change. In the time since the book was written, the situation in Venezuela has gone from terrible to tragic, further supporting his argument.

The United States is less fragile than Venezuela, of course, but we have seen our own populist rabble rousers gain a huge following with the same basic message that put Chavez and Maduro in power. Therefore, we certainly should worry about the decline of income mobility and especially the perception among poor people that the system is hopelessly unfair.

So, why is this economic stratification happening? There are plenty of bad explanations for it and Buckley usefully dismisses a number of popular but erroneous ones. Among them is the contention that we are stuck with low income mobility because our labor market is so geared toward “skill-based technological change.” Supposedly, the fortunate few who learn the right technological skills use them to make a killing, but for the great majority who don’t, only the crumbs remain. Interventionist-minded economists make much of this, declaring that we’re in a “winner-take-all” economy for which the only solution is redistribution.

Buckley demurs. Skill-based technological change predates the onset of our economic stratification, he observes. He also notes that “new technologies can benefit from low-tech as well as high-tech workers.” In fact, today’s technological advances spread the increasing wealth around just as technological advances did in the past. Furthermore, he observes, many of the super-rich didn’t get that way because of any tech skills; they were just “risk takers who got lucky” in finance.

What about two favorite whipping boys, globalization and free trade? Demagogues love to score points with voters who cling to their populist economics and fear anything foreign. If you listen to either of our current presidential candidates, you’ll hear that free trade and global economic competition are scourges that enrich a few while decimating the working class. Although this pitch makes for an easy harvest of votes, Buckley correctly says that free trade and globalization have nothing to do with our economic sclerosis.

Buckley’s analysis / What are the culprits, then? The author identifies several.

First, there is our dismal education system. The public education establishment is far more interested in maximizing its security and intake of tax dollars than in ensuring that all students learn. Wealthy people can escape from the really terrible schools by living in exclusive suburbs and/​or sending their children to private schools. The poor have no such options. Their children, lacking in fundamental skills even if they manage to graduate from schools where the standards are low and discipline lacking, have difficulty finding any but menial jobs.

Buckley points out that in Canada (he’s a Canadian immigrant), school choice prevails, so the poorest parents don’t have to settle for bad schools. Kids from poor families are much more likely to climb the economic ladder in Canada than in the United States. Many people, including a few liberals, have been arguing for decades that the people most harmed by our education cartel are the children of the poor, but their case has gotten very little traction. Buckley offers this explanation:

If one wants to see people get ahead, as Lincoln did, a good place to start is with the public school system. Contrariwise, if the goal is to ensconce an aristocracy, one could scarcely do better than to weaken the public schools.

What he’s getting at is a major theme of the book, namely that the elite “New Class” in the United States favors a host of policies that, whatever their stated intentions, shield the aristocracy against competition. An education system in which their children can afford good schooling but the rest of the country has to settle for the poor offerings in the public system helps accomplish that objective.

Second, there is our increasingly unfree labor market. People who want to rise above poverty find more and more governmental obstacles in their way, including regulations that add greatly to the cost of opening a new business. Another barrier is occupational licensing laws that keep people from doing work they’re capable of doing (such as barbering and cosmetics) unless they first go through a costly and mostly irrelevant state-approved training program.

Buckley recounts one particularly offensive regulatory scheme in Virginia. The state demanded a $2,500 application fee for anyone who wanted to conduct yoga classes. The proffered reason was that an unlicensed, improperly trained instructor might harm students. Overseeing this was the State Council of Higher Education for Virginia. That burden was lifted after a few years (and much ridicule), but similar licensing rules are still found in a great many occupations, preventing mostly poor people from having chances to better themselves.

Another policy Buckley indicts is our immigration policy. He writes, “Consumers, particularly wealthy Americans, are better off when their goods and services are produced more cheaply by immigrants, but these gains aren’t a blessing for the native-born employees who are displaced or whose wages are competed away by immigrant labor.” He argues that the United States should adopt an immigration policy more like that of Canada, where “the system is geared towards economic entrants likely to benefit native-born Canadians.” We should, in other words, stop admitting so many people without highly valued work skills and admit more who have them.

Of all the policy changes Buckley proposes, that is the only one I find dubious. Yes, we should admit anyone who has highly valued skills, but I don’t think we should try to keep out people just because some federal official doesn’t consider them to be valuable workers. Many immigrants who wouldn’t have seemed destined for success here nevertheless turned out to be great entrepreneurs. I’m not sold on the idea that having the government pick winners and losers among those who want to come here will have any beneficial effects.

Finally, Buckley observes that our whole legal culture has shifted, adding innumerable rules that waste resources and impede competition. A host of tax loopholes, corporate law rules, and other statutes work to protect the wealthiest Americans from competition from below. He points to a number of laws that ought to be repealed, such as the Williams Act, which protects top corporate managers against takeover bids that would increase the wealth of shareholders.

Removing perverse incentives / Buckley’s analysis is almost always on target, but I think he has missed one huge aspect of the immobility problem: our welfare system. Its perverse incentives do at least as much to deaden personal initiative and keep the poor down as any other of our misbegotten policies. We pay people a (barely) living wage if they don’t work, but quickly pull back the benefits once the individual starts earning. Millions of poor people are hooked on government handouts and expect steady increases in Uncle Sam’s vicarious generosity.

Buckley mentions in passing that our welfare benefits are not stingy even when compared with such socialistic countries as Norway and Denmark, but he writes little else on the subject. If Ragged Dick could have just collected welfare and done some under-the-table work to put a few extra dollars in his pocket, he might have turned out differently. The United States made some important reforms to welfare during Bill Clinton’s presidency and the results were good, but we have backslid badly under President Obama. I’d say that reforming the system so that it doesn’t trap people in dependency should be a top priority.

Also, on the subject of omissions, Buckley doesn’t discuss the damage to upward mobility done by minimum wage laws. Young people who’ve gone to lousy schools might be able to gain entry-level jobs despite their weak abilities if they could work for a low wage while learning and improving themselves. Federal and state laws have eliminated that possibility, so the more ambitious kids turn to illegal activities where they can make much better money, but at the risk of going to prison. If we can get rid of occupational licensing laws, we should also get rid of (or at least liberalize) minimum wage laws.

Provocatively, Buckley says that he favors “capitalist means to achieve socialist ends.” That is, we will come much closer to the claimed socialist goal of economic equality if we adopt the capitalist ideals of free markets and minimal government. He makes a strong case and his book could win over liberals who want to see poor people make upward strides.