What’s the deal with income inequality?

| January 3 2014
Christopher Cook

(Editor’s note: Since the left has decided to trot out the overused, but all-too-dangerous, “income inequality” argument in 2014, it makes sense to revisit some of the extensive writing we have done on the subject in the past. Beginning in January, we will reprint some of these previous posts.)

Originally published Jan 3, 2011 @ 10:02

If what you want to believe is that the rich are getting richer and the poor are getting poorer, there certainly are a lot of places you can go to get information to back up your views. If you believe that the rich are getting richer and so are the poor, you can also find sources to back up that position. So where is the truth?

income-inequality-gapA small amount of research into the subject reveals that there is a lot more research to be done. Simply put, it appears that one can take the statistics and play with them in various ways to reinforce one’s world view. Unpacking it all and finding the threads of undeniable truth is going to take some work. Beginning in late January, we will start to produce materials on this subject, and many others like it. As some wacky TV FBI guy once said, “The truth is out there,” and we aim to find it.

For now, there are a few points that are vital, and that are very hard to disagree with. We do not presume to say that they are completely self-evident, and moving forward, we will develop corroboration for these too. But for now, while not being entirely self-evident, they are compelling, and made compellingly by a number of scholars, including the two I will cite below.

The points are these:

  1. Being poor in America isn’t what it used to be.
  2. Being poor in America isn’t the same as being poor elsewhere.
  3. People don’t resent the wealth of others as much as one might think.
  4. Lack of being married is a greater predictor of poverty than any other single factor.

Let’s start with Walter Williams, professor of economics at George Mason University.

In 1971, only about 32 percent of all Americans enjoyed air conditioning in their homes. By 2001, 76 percent of poor people had air conditioning. In 1971, only 43 percent of Americans owned a color television; in 2001, 97 percent of poor people owned at least one. In 1971, 1 percent of American homes had a microwave oven; in 2001, 73 percent of poor people had one. Forty-six percent of poor households own their homes. Only about 6 percent of poor households are overcrowded. The average poor American has more living space than the average non-poor individual living in Paris, London, Vienna, Athens and other European cities.

Nearly three-quarters of poor households own a car; 30 percent own two or more cars. Seventy-eight percent of the poor have a VCR or DVD player; 62 percent have cable or satellite TV reception; and one-third have an automatic dishwasher.

The opponent to this argument might object that it is a materialistic assessment—VCRs and cars and such—but that’s pretty much what we’re talking about when we talk about poverty and wealth. And by material measures, poverty in America is much more comfortable than it was in our history.

It’s also more comfortable than it is elsewhere in the world. When compared against European standards of living, the United States simply has a different outlook. We expect more material comfort, and we have more room in which to live. Nonetheless, the fact that “The average poor American has more living space than the average non-poor individual living in Paris, London, Vienna, Athens and other European cities” is striking. And when you compare our poor to the poor in countries of the developing world, there really is no contest.

Outside of some pockets of grinding poverty on some Indian reservations; some areas of extreme, protracted, generational poverty in some urban and rural communities, some of the migrant settlements in the Coachella Valley and elsewhere, the standard of living for the majority of America’s poor would be the envy of many people in the rest of the world.

The standard reaction to this is often to see the plight of the poor here in a different sort of relative terms. Rather than comparing the state of the poor in America to the way they once were here, or the way the poor live in much of the world today, some simply compare their lot to people in America who are richer. That is a misleading and flawed model in many ways, however. As Williams points out . . .

Poverty in the United States, in an absolute sense, has virtually disappeared. Today, there’s nothing remotely resembling poverty of yesteryear. However, if poverty is defined in the relative sense, the lowest fifth of income-earners, “poverty” will always be with us.

Imagine if the lowest fifth of income earners earned $250,000 a year in today’s dollars. Defining them as poor would seem rather silly. But even in the absence of such a scenario, denoting poverty as presence in the lowest fifth alone will never make sense on its own as a definition, and that is especially so when looking at the majority of America’s poor in broader relative terms.

Williams then continues with this sensible conclusion:

No matter how poverty is defined, if I were an unborn spirit, condemned to a life of poverty, but God allowed me to choose which nation I wanted to be poor in, I’d choose the United States. Our poor must be the envy of the world’s poor.

And speaking of envy, in an article yesterday, Michael Barone contends that those with lower incomes do not tend to feel the kind of envy that some of their purported defenders ascribe to them:

Consider one conundrum in American politics. Income inequality has been increasing, according to standard statistics. Yet most Americans do not seem very perturbed by it.

Barack Obama may have been elected president after telling Joe the Plumber that he wanted to spread the wealth around. But large majorities in polls approved when Obama and congressional Democrats abandoned oft-repeated campaign promises to raise taxes on high earners in the lame duck session.

Why don’t voters care more?

One reason is that economic statistics can miss important things that affect people’s lives. Wages may not have risen much since 1973, but that’s partly because the tax code encourages increased compensation in the form of benefits, including health insurance. And it’s partly because the Consumer Price Index overstated the effect of inflation in the 1970s, making 1973 wages look higher in “real dollars.”

Another is that inflation indexes can’t fully account for product improvement and technological progress. I bought my first electronic calculator in 1970 for $110. Today you can buy the same gadget for $1.99 at your local drug store. The consumer electronics widely available today at declining prices simply didn’t exist in the 1980s.

In addition, as George Mason University economist Tyler Cowen writes in The American Interest, “The inequality of personal well-being is sharply down over the past hundred years and perhaps over the past 20 years, as well.” Bill Gates may have a bigger house than you do. But you have about the same access to good food, medical care and even to the Internet as he does.

Or consider something as prosaic as food. The supermarkets of the 1960s and 1970s didn’t come close to matching the amazing selection of produce, meats and exotic foods as you find in supermarkets today — and not just in high-income neighborhoods, but in modest-income places all over the country. READ THE REST

Finally, let’s return to Williams for a look at an underlying cause, or at least predictor, of poverty:

For the most part, long-term poverty today is self-inflicted. To see this, let’s examine some numbers from the Census Bureau’s 2004 Current Population Survey. There’s one segment of the black population that suffers only a 9.9 percent poverty rate, and only 13.7 percent of their under-5-year-olds are poor. There’s another segment of the black population that suffers a 39.5 percent poverty rate, and 58.1 percent of its under-5-year-olds are poor.

Among whites, one population segment suffers a 6 percent poverty rate, and only 9.9 percent of its under-5-year-olds are poor.Another segment of the white population suffers a 26.4 percent poverty rate, and 52 percent of its under-5-year-olds are poor.

What do you think distinguishes the high and low poverty populations? The only statistical distinction between both the black and white populations is marriage. There is far less poverty in married-couple families, where presumably at least one of the spouses is employed. Fully 85 percent of black children living in poverty reside in a female-headed household.

Though there is a gap between blacks and whites, one that is explicable by a variety of factors both historic and current, the gap is small, and it is minuscule when compared to the real gap, which is between married and unmarried people. No matter your race, getting and staying married is a key to wealth and security.

Of course, Williams then goes on to say something that has, tragically, become controversial:

Poverty is not static for people willing to work.

The ability for some who contend in this arena to demagogue a statement like this into, “See, he doesn’t care about the poor,” is a statement of how far our discourse has declined in this country. By and large, outside of the group of people afflicted with impediments well outside of their control, Williams’ statement is generally true. America has a fair amount of class mobility, as Williams’ cites:

A University of Michigan study shows that only 5 percent of those in the bottom fifth of the income distribution in 1975 remained there in 1991. What happened to them? They moved up to the top three-fifths of the income distribution — middle class or higher. Moreover, three out of 10 of the lowest income earners in 1975 moved all the way into the top fifth of income earners by 1991.

Three out of ten went from the bottom fifth to the top fifth? That’s impressive.

Those who were poor in 1975 had an inflation-adjusted average income gain of $27,745 by 1991. Those workers who were in the top fifth of income earners in 1975 were better off in 1991 by an average of only $4,354. The bottom line is, the richer are getting richer and the poor are getting richer.

Here, Williams says, and gives one piece of supporting information for, one of the two positions in this debate: Everyone knows that the rich are getting richer, but what about the poor? As Williams says, by at least some measures, the poor are getting richer too.

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