3 Takeaways - The American Dream is Now a Coin Flip: Here's Why and What We Can Do (#287)

Episode Date: February 3, 2026

The American Dream promises that hard work leads to a better life. But for many children today, that promise depends less on effort and more on where they grow up.Raj Chetty, a Harvard professor and the founder of Opportunity Insights, has spent years following millions of lives to understand what truly drives economic mobility. His findings challenge long-held assumptions about opportunity in America.If the American Dream has started to feel like a coin flip, what’s quietly shaping the odds? And what would it take to give more children a real chance to get ahead?In this conversation, we explore why neighborhoods matter more than we think and how expanding opportunity could strengthen not just individual lives, but the country as a whole.See his new paper Creating High Opportunity Neighborhoods. 

The American Dream says if you work hard, you'll get ahead. Now, new data lets us follow lives over decades and see what actually makes a difference. For generations, parents have believed that if their kids work hard, they'll get ahead. But when you look at what really happens over time, the picture isn't so simple. So what really helps kids succeed? Hi, everyone. I'm Lynn Toman, and this is three takeaways. On three takeaways, I talk with some of the world's best thinkers, business leaders, writers, politicians, newsmakers, and scientists. Each episode ends with three key takeaways to help us understand the world and maybe even ourselves a little better. Today, I am really glad to be joined by Raj Chetty. Rage is a Harvard professor who studies our studies our Opportunity in America. He and his team at Opportunity Insights follow people's lives over time

to see what truly helps kids get ahead. Their findings are being used by more than 200 cities in over 40 states to improve outcomes for lower income families and children. He's just completed a major news study on what it really takes to create high opportunity neighborhoods. Raj, thanks so much for joining three takeaways today. Thanks for having me, Lynn. It is my pleasure. Let's start big. When people talk about the American dream today, what's actually happening to economic

opportunity in America? The way I think about the American dream is, I think, a cornerstone aspiration of our country that through hard work, any child should have the chance to move up in the income distribution relative to their parents. And so if we ask in the data, how likely is that to actually happen in practice? Turns out that for kids born in the middle of the last century, say back in 1940 or 1950, more than 90% of those kids went on to earn more than their parents did. But if you look at what has happened over time, you see that there's been a dramatic fading

of the American dream, such that for children born in the 1980s or 1990s who are becoming adults now and entering the labor market, it's basically become a 50-50 shot of coin. flip as to whether you're going to do better than your parents. So in that sense, Lynn, the American dream is less accessible than it used to be in the past. Is part of that because economic growth in the 40s and 50s was so much more rapid than economic growth today? Part of the reason for the fading of the American dream is indeed a decline in economic growth. About one third of it is caused by lower growth rates in recent years. But actually two thirds of it is caused by a different phenomenon and a change in how that growth is distributed. In the 40s and 50s,

everyone kind of got a head together. Everyone's incomes went up. In more recent years, growth has been skewed primarily to people at the very top of the income distribution. And so the growth that we have is benefiting a large part of the population, much less. And wages are stagnating for people at the bottom of the income distribution. I think that underlies a lot of the frustration that people are on the U.S. feel that this is no longer a country where it's easy to get ahead. You're talking about the American dream and opportunity from work as opposed to income from government payments and subsidies. That's correct. Here we're talking about how much you are earning and whether that's more or less than what your parents earned separate from what's happening with government subsidies,

although, of course, government subsidies may affect how well children end up doing. They may affect how much people choose to work and so on. For families starting at the bottom, kids born into the lowest income households, how difficult is it for them to actually move up? The answer to that question, Lynn, actually varies greatly across different parts of America for different subgroups. In general, we think of the U.S. as the land of opportunity, but actually if you're born to a low-income family in the U.S., on average,

your odds of rising up look lower than they don't. do in other developed countries like in Scandinavia, for example, or Canada. But there are certain parts of America where children's chances of rising up out of poverty look better than anywhere else in the world. For instance, much of the rural Midwest or a city like Salt Lake City, your odds of rising to the middle class or beyond if you're born to a low-income family there are better than in Denmark, better than Sweden, better than any place in the world. Yet there are other places in America, like much of the southeast, cities like Cree,

Cleveland, Detroit, Atlanta, where unfortunately, if you're born into poverty, you are likely to remain trapped in poverty in the next generation at present. That is really sobering. When you step back and look across decades of data, what actually helps people move up? What matters most? There are, of course, many different things that matter, but let me highlight a few that seem central. The first is the quality of education someone gets, as you might expect intuitively, having

access to high quality K through 12 education, access to effective higher education is extremely important. Second, segregation plays a really big role. So when you live in a more integrated community where you're more exposed to high-income people, more connected to better jobs and so on, you see better outcomes for kids. And third, and maybe most importantly, which builds on that idea of living in an integrated community, we find that social capital, who you in our interact with, in particular, how many high-income friends you have as you're growing up is a very strong predictor of upward mobility. Kids who grow up around higher-income peers, who have more high-income friends, who may serve as role models, connect them to internships, job opportunities.

These kids tend to be much more likely to rise up in the income distribution. A lot of people think poverty is mainly about money. What did they get wrong? When we think about poverty, often the simplest solution is well, if someone one's poor one, we just give them money in the form of a transfer. And mechanically, of course, that is the most direct way to address the problem. But I think that solution ultimately, while it's well intended and has a role, falls short as a long-term approach for a couple of reasons. The first and simplest is that it's not really fiscally sustainable. So the way I think about this is the old adage that if you give a person a fish, you feed them for a day. If you teach a person

to fish, you feed them for a lifetime. And basically, The reason we focus on opportunity and earnings and economic mobility is the logic of teaching people how to fish. If you give people that education and that social capital, the resources to succeed themselves, then you've provided for them for years to come. And not only that they then provide to society in the form of higher tax revenues, new discoveries, new businesses that help all of us. If you simply give people resources, of course, for people with health conditions or certain things that prevent them from working, that can be extremely important.

But that in and of itself is not going to be a way to help many people in the long run. We simply don't have the resources to do that. We need to help empower them to rise up. You talked about three factors. The first was education. Can you elaborate? In the context of education, we find that a number of different things matter. I basically visualize it as a pipeline starting from birth to early adulthood, that first job you get,

that seems to also play a really important role in the subsequent career you pursue. And throughout that pipeline, we find that there are various interventions, basically improving the quality of the pipeline at each point that can help people do better. Let me give you a few examples. Start from preschool or early childhood nutrition. There are a number of studies showing that when kids have access to better preschool environments, that are kindergarten teachers, for example, that has long-lasting effects on how well they do. That continues throughout childhood, the quality of teaching matters, the quality of classes you have

in high school, how big your classes are, various factors, shape kids' outcomes. And then that continues into higher education. If you go to a college that helps a lot of people rise up, gets them into good careers, and, you know, not into pathways that are thriving in the current economy, that has long-lasting benefits. You mentioned economic integration. Can you elaborate on that? Why is our society so segregated?

I think there are a few different reasons. If you look at where people live in cities in America, you tend to see that high-income people live in certain neighborhoods, lower-income people live in other neighborhoods. If you look at where we go to school, where we go to college, there tend to be certain colleges in America, where if you look at kids' outcomes after they graduate from college, they do terrifically well. Think of well-known places like Harbour or Stanford or Columbia, MIT.

But unfortunately, it turns out that very few kids from low-income families actually attend these institutions, even at present after they've expanded financial aid dramatically and so on. There are other colleges in America, like two-year community colleges, that educate many low-income kids. But unfortunately, when we look at outcomes after kids graduate from those colleges, they don't look so great. Not that many of those kids are thriving afterward in terms of having successful careers and so on. So that's another dimension of our society where there's a lot of segregation. Lower income kids tend to go to certain kinds of colleges. Higher income kids go to other

colleges. In fact, it turns out colleges are as segregated as neighborhoods in the United States, even though you might think of colleges as being the place where you mix with others. And so segregation is prevalent throughout our society. And often it's the higher income. people who are participating in institutions that give you opportunities to then do even better. And that perpetuates a lack of opportunity. And to be clear, you're talking about economic segregation, not segregation by race. Exactly right. Here we're talking about economic segregation, which truly seems to be the key predictor of upward mobility. Of course, it could be correlated with racial segregation

because black people in particular tend to have lower incomes at present in the United States, but here we're talking about economic segregation. Your research keeps pointing to place. Why does where a child grows up matter so much? We find very clearly in the data, again, analyzing the lives of 20 million kids who grew up in different neighborhoods in America, that the exact neighborhood in which you live, not just which city, but which borough of New York, which side of the street you live on in some cases, plays a really fundamental role in determining how kids do. Where exactly you live can determine which school you intend, which college you end up going to,

and so on. But I think one of the most important reasons that place matters is because it determines who you interact with. It's because it determines your social capital, perhaps the most important form of wealth we all have, not financial wealth, but our social wealth. Who do we learn from? Who inspires us? Who tells us that even if you're not a doctor, here's the pathway to becoming a doctor, those kinds of influences really shape how people end up doing. I think many people will find that very surprising. Your new study, Raj, looks at a huge real world experiment in housing. And before we get to the results, what was Hope Six trying to do?

In our new study, we analyzed a very large program, $17 billion program called Hope Six, which sought to take some of the lowest opportunity neighborhoods that we've been talking about in America. high poverty public housing projects. There are famous examples that listeners may have heard of like Cabrini Green in Chicago or large housing projects in New York City, known for being tough environments with high rates of crime, high rates of poverty, and so forth. And basically, Hope Six in the 1990s and 2000 said, let's essentially demolish these high poverty public housing projects and try to create revitalized mixed income neighborhoods

on the thesis that maybe this would change social dynamics. and change the resources that people have and maybe bring better lives to the people who are living there. And when you first saw the data from this program, what surprised you the most? When we first start to look at the data, then frankly, the results were actually somewhat disappointing. If you look at the adults who lived in these projects before they were revitalized and followed them over time, you saw very little change in their economic outcomes afterwards. So after spending billions of dollars, if you simply tracked the earnings of the adults living in these places, you didn't seem to have achieved that much, which was disappointing. But then we recognized partly on the basis of prior research our team has done looking at people who move across neighborhoods, that where you live really matters much more for kids than it does for adults.

When you look at the kids growing up in these revitalized neighborhoods, you see a dramatically different picture. the children growing up in revitalized public housing projects in these mixed income areas have 30, 40% higher levels of earnings than comparable children who are growing up in exactly the same place before revitalization. And children who grew up in these neighborhoods from birth did especially well? That's exactly right. Every extra year that you spend in a more integrated community, in a community with better schools and a community with access to better job training programs, the best. better you do in adulthood. And so if you grew up from birth in one of these revitalized communities, you got the biggest benefits. So a lot of this comes back to what you called social capital or social connections. Can you talk more about what kids actually pick up by being around higher income peers? First, at the most basic level, more than half of jobs in America are obtained

through referrals. So if you are connected to people who are working at a good company or working in a very different career to what your own parents are doing, you are more likely to get an internship or referral to such a job, and that can make a big difference. Second, and I think at a deeper level, if you think about the process of, say, applying to college, maybe familiar to many people, you know, who are around your parents who went to college and other peers who go to college. But imagine you're the first in your family to go to college, living in a community where very few people have gone to college, which is common for many low-income kids. Well, how do you find out, how should I prepare for the SAT? How many times should I take the test? You know, what colleges

should I apply to? This is all kind of foreign. And I think being connected to people who've had those experiences can provide valuable information that really changes people's lives. Third, and I think maybe at the deepest level, and my suspicion, although we don't yet have the data to show this, is that this may be the most important channel is that people's aspirations are shaped by who they're around. If you've never met a scientist, never met somebody who started a successful business, you just don't envision yourself going down that pathway. We track the lives of millions of people who go on to become inventors. And we find that women are much more likely to go on to become an mentor as measured by having a patent if they grow up around female scientists. But if they grow up around male

scientists in exactly the same field, it has essentially no impact on their outcomes. And I think that points to very clear and more general pattern, the data, that people tend to emulate those around them. If you can see someone like you who's pursued a certain career path, then you're more likely to do it yourself. And so these more connected communities, I think, provide those aspirations for children from lower income backgrounds. That makes it feel really tangible. Where else do you see real opportunities to create those connections, those social connections, without the huge expense of rebuilding entire neighborhoods? At a very simple level, if we're still thinking in the neighborhood context rather than rebuilding neighborhoods,

a different approach is to help people move to higher opportunity neighborhoods using things like housing vouchers, on which we currently spend billions of dollars. But I think we could do that again in a more productive way. we see in the data that the millions of families that are receiving housing vouchers from the federal government, they're not actually using them to move to more connected higher opportunity areas because they're not receiving the social support needed in the housing search process itself to be able to find housing in one of these higher opportunity neighborhoods. And we have conducted interventions in the city of Seattle that have since been replicated across the country

that show that just providing a little bit of assistance when people are looking for housing can fundamentally change where they end up choosing to live and again improve their kids' outcomes to the tune of hundreds of thousands of dollars over their lifetimes. Then the same logic applies in many other domains. There's a recent program that some of my colleagues have been studying called communities in schools that essentially brings in social supports to kids in schools who may not be attending or who may be having challenges at home that are preventing them from excelling in school. And they basically bring in a counselor in some support services.

to help you get through that period. And they show, again, following kids' lives over long periods of time that this program has very large benefits. If we think about job training programs, there's a lot of discussion of workforce training these days in the United States, as you know, especially in the context of the AI revolution. And there's a lot of evidence showing that if you simply train people to get different jobs, you don't have that much of an effect.

But if you give people a new set of skills coupled with that social support, Here, what that means is a network that gets them an internship at a specific firm looking to hire for that new set of skills they have or support in finding that new job. There's this new wave of programs called Per Scullus, Year Up, other such examples that have incredibly large impacts at very low cost and generate very high rates of return. So I think there are many places where we can be having much greater impact without spending that much more money than we currently do. thereby helping people rise up and increasing our nation's productivity.

What do you see is the biggest opportunity that we're not taking advantage of right now to help people move up? I think we spend a tremendous amount of money trying to address issues of poverty in the United States, a trillion dollars a year, depending upon how you count, if not more. But we are not doing that in a way that allows people to most effectively sustain themselves in the long run, coming back to creating opportunity as opposed to simply addressing the point in time poverty problem. And I think when we unlock those opportunities, we need to recognize that that's not just a matter of charity. It's a matter of creating a more productive society that ultimately will increase GDP growth and benefit all of us. And I think we could be doing much more, especially given modern evidence on what works in that space, as we just discussed,

can change many people's lives. If you are advising a mayor or a governor, and I know you advise many mayors and governors, what do you advise them to do and what's one mistake you warn them not to make when trying to expand opportunity? So I basically advise them to first follow the data. So we now have data where you can look up in your own city. Where is opportunity lacking the most? Can go to a website called the Opportunity Atlas, literally type in.

different zip codes, different addresses, diagnose the problem very clearly. Where do I need to focus for which subgroups, everything's changing over time, and so on. So that gives you a clear picture of the problem. And then in treating the problem to make a medical analogy, we often focus on three different domains. One is desegregation, helping people move to opportunity, could be through vouchers, could be through changes in zoning laws, school district boundaries, and so on. The second approach is place-based investment. This relates to the Hope Six work that we just talked about. How can you take the low opportunity places and turn them into higher opportunity areas? And the third is to connect people to higher education after age 18. The key touch point is not

the home you're living in, but typically the college you might attend. How can we create better pathways to upward mobility at that point? Not just through traditional higher education, but very importantly, through vocational programs, through modern day apprentices, number of these can be highly effective. So I think there's a clear playbook one can follow in each of these domains. I would encourage people to look at evidence we've compiled on our website, Opportunity Insights that we can inform that. A mistake people often make, I think, is to say, I'm just going to spend a lot of money on this problem, or I'm going to focus on the dollars that I spend in these various buckets without thinking as carefully about exactly how is that being

spent and how is that end-line service being used by people who are often in very difficult circumstances and need social support to even take advantage of the resources you're offering? So you may set up a new program, which seems very exciting on paper, but in practice, people with two jobs and multiple kids and many other challenges don't have the ability to actually make the best use of that. And so I think thinking carefully about how you provide that social support to use that effectively to help people rise up is extremely important. Raj, what are the three takeaways you'd like to leave the audience with today?

The first takeaway I would like to leave the audience with is that we should focus on expanding opportunity to address many of the challenges we face in society today. My second takeaway is that we should focus on connecting people to opportunity. Who you are connected to, what your social capital is, is really a key driver of economic opportunity at an individual level, and at a broader level as well. And my third takeaway, the broadest level,

is that we spend a lot of effort and money, in my view, on programs that try to solve this problem of addressing poverty, creating opportunity, helping increase productivity in our country. But unlike in the business world, where you would very carefully measure the impacts of every expenditure you have and try to maximize profits and minimize costs,

In this context, we spend hundreds of billions of dollars, and we often have very little idea what's working and what's not. But now, thanks to modern data and methods, we can get a much better sense of which programs are working and which programs are not. And so I would encourage people to think carefully about how to measure the effectiveness of the many efforts they're undertaking. I think we can have a much bigger impact that way. Thank you, Raj.

Thank you for your research and your work with Opportunity Insight. to help create economic opportunity. This has been wonderful. Thank you, Len. My pleasure. If you're enjoying the podcast, and I really hope you are, please review us on Apple Podcasts or Spotify or wherever you get your podcasts.

It really helps get the word out. If you're interested, you can also sign up for the Three Takeaways newsletter at three takeaways.com where you can also listen to previous episodes. You can also follow us. on LinkedIn, X, Instagram, and Facebook. I'm Lynn Toman, and this is three takeaways. Thanks for listening.