Pet Peeve Of The Day

I don’t remember if it was one of the talking heads or one of the Democrat candidates, but the other day I heard that familiar refrain about the rich getting richer and the poor getting poorer. There are two ways to react to this. One is to note that in America most incomes increase over time, Martha Stewart notwithstanding. Wired Magazine reports the findings of Federal Reserve Bank of Dallas economist W. Michael Cox:


According to data assembled by Cox, wages aren’t falling, they’re rising. Only 5 percent of those who started out in the lowest income bracket in 1975 remained stuck there in 1991. In fact, nearly 80 percent of those who started out on the bottom made it into the middle class by the early 1990s. Almost 30 percent ascended to the top income bracket.
Cox arrived at these contrarian conclusions by studying a database many economists have overlooked: the University of Michigan’s Panel Survey on Income Dynamics, which has tracked the individual earnings of 51,000 Americans since 1968. The Michigan study, Cox argues, provides a more complete picture of what’s happening with wages and class because it is one of the few economic data sets that follows specific people over a long period. By taking a long-term view, Cox explains, you end up with a much more optimistic – and realistic – view of America.
Cox’s America remains a land rich in opportunity. Work hard, get an education, settle down, learn something about computers, he says, and good things will follow. Instead of dwelling on the dislocating effects of technology, he believes that if workers adapt, their wages may rise faster than during any previous epoch. Cox’s findings, laid out earlier this year in a Dallas Fed essay titled “By Our Own Bootstraps,” has ignited a debate among economists, newspaper Op-Ed writers, and labor activists about whether American workers are as bad off as some practitioners of the dismal science recently have suggested.
The other response is this rant:
You know where the poor really are getting poorer while the rich get richer? Cuba! North Korea! And all the other tinhorn dictatorships that steal from their people! You want income gap? Maybe there’s a bigger gap between Bill Gates and me than between Fidel Castro and the average Cuban serf, but Gates isn’t telling me what kind of work I can or cannot do, what print and broadcast media I can or cannot consume, what philosophical beliefs I may or may not adopt, or what consumer goods I can or cannot purchase. What matters is not the existence of the income gap but whether people are free to move to higher income brackets.

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3 comments

  1. Haans

    The fact of the matter is that the distribution of wealth is becoming increasingly stratified according to the U.S. Census Bureau. That means that wealth is incrasingly concentratated in the hands of a smaller percentage of the population. Weath is the ownership of real property. That is property that tends to appreciate in value. Real estate, stocks, bonds, etc.
    The manipulation of statistics to prove a point by this FED economist is obvious to anyone with even a rudementary understanding of statistical theory.
    A more proper way to analyize this question would be to look at the distribution of income adjusted for inflation by age over the same 29 year period. That tells a very different story. Also look at the median income adjusted for inflation over the same period. Especially over the past 3.5 years it is obvious that income among the vast majority of the U.S. population has not increased, but fallen.

  2. No Illusions

    Income and inequality: the doom and gloom talk is garbage

    Think about the classic stump speech question, "Are you better off today than you were four years ago?" Looking at static measures of real after-tax compensation suggests we are, but the debate over that issue doesn't really answer t…