Tuesday, April 26, 2011

The Rich are getting richer and the poor are getting richer

Last week I posted a video of Professor Horvitz challenging the saying that "The Rich are getting richer and the Poor are getting poorer."

Instapundit posted a link to an article which also challenges this saying. Economic study: Despite Obama’s claim, the poor are not getting poorer references a recent article that reviewed some of the recent economic research. Table 2 from the article has a table from a study which shows that from 1979 to 2007 the when you look at the salaries before taxes and various transfers that the bottom quintile in America fell over the 28 years by 33%. This is what most people based the belief on that the poor are getting poorer.

But the report says that when you factor in things like:

Taxes: typically the poor pay fewer taxes while the middle class and upper class pay much more
Household size: Often the poor will live together, outside of the typical family unit
Income transfers: food stamps and welfare payments
Benefits: Like medical benefits

that over the last 28 years the poor have actually improved by 26%.

The article explains:

Burkhauser’s research shows what has actually been happening to the lives of Americans over the last thirty years — not just counting the amount of money individuals made in the market, but the actual income that people get in their hands to spend.

I think there are two important issues here:

1) Overall society is getting richer. During the Great Depression, seventy five years ago, thousands of people were worried about starving to death. For the most part that is not an issue today, because the United States has gotten to the point that we are wealthy enough that food is no longer a major expense. A hundred years ago the vast majority of people spent 20% to 40% of their time working just to put food on the table.

2) There is an incredible amount of churn from generation to generation. For a decade I read the Forbes Richest 400 report. One of the things that becomes clear is that is hard to stay at the very top. Many of the people who were in the Richest 400 in 1980 and 1990 are not even on the list today. Many of them have died, and many of the children who inherited the wealth have not been able to keep it growing. The Millionaire Next Door explains that Millionaires are good about making money, and teaching their children to spend money. Often by two and three generations all the money has been spent at the great grandchildren are back in the middle or poor classes.

Times are tough now and many suffer, but I would much rather be alive now that 75 years ago.

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