The Inequality Myth

Wall Street Journal: The Inequality Myth

... While there is some substance to these fears of widening inequality and middle-class stagnation, the situation is not nearly as clear-cut. Demographic changes in the size and composition of U.S. households have distorted the statistics in important ways.

First, we can easily dismiss the notion that the poor are getting poorer. All the Census Bureau tells us is that the share of the pie consumed by the poor has been shrinking (to 3.4% in 2006 from 4.1% in 1970). But the "pie" has grown enormously. This year's real GDP of $14 trillion is three times that of 1970. So the absolute size of the slice received by the bottom 20% has increased to $476 billion from $181 billion. Allowing for population growth shows that the average income of people at the bottom of the income distribution has risen 36%.

They're not rich, but they're certainly not poorer. In reality, economic growth has raised incomes across the board....

...Since 1970 there has been a dramatic rise in divorced, never-married and single-person households. Back in 1970, the married Ozzie and Harriet family was the norm: 71% of all U.S. households were two-parent families. Now the ratio is only 51%. In the process of this social revolution, the average household size has shrunk to 2.57 persons from 3.14 -- a drop of 18%. The meaning? Even a "stagnant" average household income implies a higher standard of living for the average household member.

Last year, the Census Bureau published a new set of income statistics that adjusted for changing household size and composition. In a single year (2006), this "equivalence-adjusted" computation increased the income share of the poor by 8% and reduced the standard measure of inequality (Gini coefficient) by 4%. Such "equivalency" adjustments would mute unadjusted inequality trends even more.

A closer look at household trends reveals that the percentage of one-person households has jumped to 27% from 17%. That's right: More than one out of four U.S. households now has only one occupant. Who are these people? Overwhelmingly, they are Generation Xers whose good jobs and high pay have permitted them to move out of their parental homes and establish their own residences. The rest are largely seniors who have enough savings and income to escape from their grandchildren and enjoy the serenity of an independent household. Both transitions are evidence of rising affluence, not increasing hardship. Yet this splintering of the extended family exerts strong downward statistical pressure on the average income of U.S. households. Had the Generation Xers and their affluent grandparents all stayed under the same roof the average household income would be higher, but most of us would be worse off.

The supposed decline of the poor and middle class is exaggerated even more by the dynamics of population growth. When people look at the "poor" in any two years, they think they're looking at the same people. That's rarely true, especially over longer periods of time. ...

Comments

[Bob Robinson]

It seems that the general consensus among economists about why we are experiencing an increase disparity between the poor and the rich in America is a combination of technological advances and globalization. Automation means that companies can make the same products with fewer workers, and the emergence of a global work force means that they don't have to make those products here anymore. As a result, wages for high-school graduates, who used to be able to get factory jobs have suffered while highly educated workers have become increasingly valuable to companies seeking any intellectual advantage in an increasingly competitive world.

Economic inequality is inevitable in this situation, though Christians should be on the front edge (in the vanguard!) of dealing with the ramifications of this societal trend. Income inequality has always caused great societal upheaval. What will Christians do to be salt and light in this situation?

[Michael W. Kruse]

The inevitable outcome of economic change is that there will be some winners and some losers. Some folks are going to lose their jobs. Some of these folks are going to go on to get better jobs. Some blue collar workers are going into fields like healthcare and making higher wages.

Without falling into a false notion that we can ever have perfect outcomes, I agree with you that we need to consider how we can minister to the person who has worked for years in one field and finds themselves without a job. What personal support does such a person? What is the governments role (Local? State? Federal?) in training or transition assistance, especially when regionally concentrated insdustries wither? It is a complex question.

[Ephena]

I don't honestly see how anybody can make the claim that there are less poor people or even that the overall state of the nation for the average American is not in decline. When I was a kid, for example my parents bought a home for $12,000 and sold it 6 years later for $50,000. That's good appreciation and a good investment return. My home today has lost 15% of it's value in the past year. I fer our days of affluence as a nation are coming to a close for all but the most priviliged.

[Michael W. Kruse]

We can't reason from individual circumstances too societal trends. There are always winners and losers at any given time in the market. Furthermore, there are always going to be reversals and corrections in the economy. The focus is on the long view. Broad measures trump anecdotal stories with these type of questions.