Hi Guys,
Are the poor in the United States really getting poorer?
Mark’s referenced video attempted to provide a definitive answer. It failed that lofty goal, although it developed some vital points. Here is the internal Link to his posting:
http://www.mutualfundobserver.com/discussions-3/#/discussion/5750/wealth-distribution-in-americaI elected not to reply directly to Mark’s provocative post because, in its present state, that thread-line is far too cluttered. Also, I am late to the game. Here is my delayed contribution. A new posting line offers a cleaner slate for opposing opinions.
I too agree with most MFO responders that the video was excellent. It provided supportive data for its affirmative position, and was also designed with superior presentation values.
I concur that the income and wealth distribution curves have become misaligned with the huge disparity between the bottom and top wage earners. I agree with most MFO members that some company executives, professional sport stars, movie celebrities, and assorted politicians are overvalued and grossly overpaid, but I do not get overly excited by the unhealthy gap.
It is one thing to be irritated with the scope of the disparity; given our capitalistic economic system, it is an entirely different obsession to demand a redress. That’s just not in our genes; we prefer to reward success. There is simply not a trustworthy worldly Higher Power who has the wisdom to decide that payday issue. Perhaps the best solution is to vote with our feet in terms of not purchasing the services of the overpaid target. Determination of a proper pay scale for the entire country is just too slippery a slope.
Just consider the disparity in cost-of-living across the United States. That cost, which is reflected in local pay scales, varies widely from Maine to California. I like to use an estimator designed by CityRating.com to assess relocation issues. Here is the Link to their site:
http://www.cityrating.com/costofliving.aspIf you currently live in Birmingham, Alabama and plan to move to either Los Angeles, or New York city, or Detroit, Michigan, your $ 100,000. salary in Birmingham would require an equivalent purchasing power value of $ 145, 516. in Los Angeles, $ 302,195. in New York city, or $ 116,556. in Detroit. That site also presents comparative CPI and average salary data for the input cities.
So, although I recognize that the income distribution curve is out of alignment, I am prepared to accept that as a shortcoming of the system. Let it ride since political attempts to address that malfunction would likely introduce a significant reduction in our freedom. And although freedom is impossible to precisely define, the evidence is that the more freedom within a nation, the higher its GDP per person. Perfection is a worthy goal that is never ever fully realized.
The freedoms enjoyed within our economic and political systems do not and can not guarantee some ill-defined and non-enforceable salary scale. To do so would sacrifice precious individual freedom of choice. Often some bad must be accepted as an integral and embedded part of the system itself.
Let’s now return to my assertion that the referenced material was incomplete and was not balanced. It had numerous shortcomings. Here are a few examples.
Listen closely to the words. In general, the video constantly mixes total wealth and annual income data and commentary. That’s confusing. These are separate issues and should be identified and presented as such. In that respect, clarity was lacking in the video as it bounced from one observation to the next.
The video deploys a series of snapshots in time to develop its position. That would be a perfect approach if the population being evaluated were static. It is not.
The video did not consider the mobility of the sampled population. Income and wealth mobility (mostly upward, but also downward) have been a well established feature of the American panoply for hundreds of years. Some millionaires lose their mojo and drop from the elevated highest ranking to the bottom of the pile.
Historically, that bottom pile is mostly occupied by young couples starting a family and recent immigrants. Over time, that lowest quintile aggressively moves up the ladder, and is replaced with newly formed families and more immigrants. Yes, there are some persistent losers. That’s the nature of a capitalistic system that does provide generous charity to those unfortunate souls.
My own family benefited from that mobility; it’s a classic American story. I’m sure many of you participated in that same upward progression; the referenced video completely disregarded that significant factor.
Another shortfall of the referenced video is that it used a single measure for ranking families; only income and wealth levels were deployed (and mingled) as differential measures. Other measures exist. For example, prosperity rankings could be generated based on gross consumption levels or, better yet, on what the cost in work hours is to purchase desired household items. Economists have used these principles for decades.
The gap between what millionaires own to enhance their living standard and what the poor own is nowhere nearly as large as the income disparity. Today almost 100 % of the poorest quintile own large color TV sets; about 75 % own cars; and almost no citizen starves. These folks are in the bottom quintile, but their standard of living is much more comfortable now than it was after World War II or even a generation ago.
Further, the ratings should be scaled for family size which is likely to be larger for more affluent families. Most families adjust to the realities of their current and prospective incomes. That too, is easier to accomplish today than it was a decade or so ago.
There are different ways to skin this cat. Overall, I believe the average poor family today is far better off than its equivalent was 20 years ago. Our survival birth rates are substantial, we live longer, we have more stuff, and that stuff is of better quality giving longer satisfying service. Poor folks are falling behind in a relative sense, but in an absolute sense they are more prosperous than ever. When income or cumulative wealth percentages or relative rankings are quoted, incomplete interpretations can happen.
Here is a Link to a short presentation that offers a different (not a better) perspective from Mark’s referenced video:
http://www.learnliberty.org/content/are-poor-getting-poorerA more complete and expanded presentation (just short of one hour) from the same speaker that includes many of the facets that I discussed is Linked as follows:
For a more balanced understanding and interpretation of the same data sets, please give these references a try.
I was introduced to the concept of using work-hours to measure the cost of products, and how those costs have decreased with time, by Dallas Fed researchers Michael Cox and Richard Alm. They did a lot of their work in the late 1990s. Here are Links to two more recent articles by them that nicely summarize their positions:
http://www.american.com/archive/2008/july-august-magazine-contents/how-are-we-doinghttp://www.nytimes.com/2008/02/10/opinion/10cox.html?_r=0These same Dallas Fed scientists also authored the highly acclaimed book “Myths of Rich and Poor” that documented their fine work. It is still recommended by many economists.
Please take the time to examine these distinguished presentations. They offer alternate ways at exploring relevant wealth distribution issues. My main thesis is that a single viewpoint is not sufficient to capture all the subtleties of such a complex, multidimensional problem.
I also am not concerned over a popular American uprising that will destroy or disrupt our current system. I see no evidence that our happiness has dramatically dampened or that civil unrest has reached destructive proportions. Civil disagreement has been a foundational bastion of our Country since pre-revolutionary days (a large fraction of our revolutionary population remained loyal to the King). Sure it swings up and down, but it has always remained within personal controlled boundaries. We obey the law. So I’m much more sanguine on this matter than most MFO responders.
Of course, there are limits. I do not recommend the Panglossian extreme so I remain alert and respect your cautionary opinions.
I am not as stressed over this matter as many MFO members.
I firmly believe that upward mobility is still a viable option in the United States today. It does demand discipline and hard work. Some things change, but the demands for success do not.
I need not invite your comments; they are all welcomed.
Best Regards.
Comments
“The video deploys a series of snapshots in time to develop its position. That would be a perfect approach if the population being evaluated were static. It is not.” – Of course it isn’t and they made no claim to that. However they did demonstrate how over time the curve has continued to move to the right i.e. the rich have gotten even richer while the poor have become worse off with many slipping below our definition of the poverty line.
“The video did not consider the mobility of the sampled population. Income and wealth mobility (mostly upward, but also downward) have been a well established feature of the American panoply for hundreds of years.” – see above. “Some millionaires lose their mojo and drop from the elevated highest ranking to the bottom of the pile.” – just as some win the lottery and move the opposite direction. In this depiction over a 20 to 30 year time span more and more folks have fallen to the left.
“Historically, that bottom pile is mostly occupied by young couples starting a family and recent immigrants. Over time, that lowest quintile aggressively moves up the ladder, and is replaced with newly formed families and more immigrants. Yes, there are some persistent losers. That’s the nature of a capitalistic system that does provide generous charity to those unfortunate souls.
My own family benefited from that mobility; it’s a classic American story. I’m sure many of you participated in that same upward progression; the referenced video completely disregarded that significant factor.” – I fail to see how you arrived at that conclusion as the demonstration showed that even the ranks of the middle class and those in the category we might refer to as well off have continued to shrink as opposed to the wealthiest of the wealthy.
“Another shortfall of the referenced video is that it used a single measure for ranking families; only income and wealth levels were deployed (and mingled) as differential measures. Other measures exist. For example, prosperity rankings could be generated based on gross consumption levels or, better yet, on what the cost in work hours is to purchase desired household items. Economists have used these principles for decades.
The gap between what millionaires own to enhance their living standard and what the poor own is nowhere nearly as large as the income disparity. Today almost 100 % of the poorest quintile own large color TV sets; about 75 % own cars; and almost no citizen starves. These folks are in the bottom quintile, but their standard of living is much more comfortable now than it was after World War II or even a generation ago.” – Are you serious? Because we all have cars and TV’s we’re much better off? We’re talking about people who can’t afford the basic necessities (food, shelter, medical care) for the most part. Sure they have cars, it’s a function, maybe a requirement, in our mobile and dispersed society. TV’s offer cheap entertainment and what’s more you’ll even find substantial quantities of them in even the poorest of the poor nations. As for starving check out your local food bank, food line or food shelf. The demand far exceeds the supply and believe it or not there are many, many folks going without. The hunger situation in America may not be as dramatic and stark as it is in some African nations for example but it is much more prevalent than your comment suggests.
“Further, the ratings should be scaled for family size which is likely to be larger for more affluent families. Most families adjust to the realities of their current and prospective incomes. That too, is easier to accomplish today than it was a decade or so ago.” Interesting because I’m thinking just the opposite, poorer families tend to be larger. While I disagree that the ratings should be scaled for family size I would like to see the ratings for “wage-earners” versus the population as a whole.
“There are different ways to skin this cat. Overall, I believe the average poor family today is far better off than its equivalent was 20 years ago. Our survival birth rates are substantial, we live longer, we have more stuff, and that stuff is of better quality giving longer satisfying service.” – For a country of our capacity our survival birth rate is nothing to brag about (see here: http://thechart.blogs.cnn.com/2011/08/31/u-s-ranks-low-for-newborn-survival/
As for stuff being of better quality and lasting longer I can only snicker. From clothes, to furniture, to appliances. to in many cases the homes we live in I am hard pressed to say that they are of better quality and lasting longer than what you and I grew up with. However that is far beyond the scope of what this video was about which was just mainly an attempt to show where the money is.
“I also am not concerned over a popular American uprising that will destroy or disrupt our current system. ….. So I’m much more sanguine on this matter than most MFO responders.” – I think only one responder argued for caution.
“I am not as stressed over this matter as many MFO members.” – and I’m not sure that many were stressed either. Excited maybe, to be sure. I see the reasons for rewarding hard work and effort and by gosh take the money. What I do think is that pay scales have gone completely out of whack. Coupled with that is the sense of entitlement most on the upper end seem to feel should go along with their compensation i.e. enough is never enough. I just don’t know how you fix that.
Hi Mark,
Thank you for taking your valuable time to read and reply to my post. I appreciate your efforts. Your response was thoughtful and well reasoned. I respect your comments on the topic and will keep them in mind as my own opinions evolve of the subject matter.
At this moment our opinions do coincide on some components under discussion, but diverge on others. Since we are interpreting imperfect and changing data, the divergence is not totally unexpected. Naturally, in these exchanges we tend to emphasize our disparate aspects of any controversy, and not those of agreement.
Along those lines, I do not share your positions on the survival birth rates in the US comparisons against other countries, on stuff enhancements and longevity, and on the poorest quintile’s present happiness quotient to cite just a few illustrative examples.
Be very careful when judging the survival birth rates in the US when contrasted against other counties. The survival statistics are defined, collected, and interpreted in a different way for each and every country. So direct comparisons are tricky business and some adjustments need to be applied.
In a sense, the fact that the US has such a highly developed medical system works against any easy statistical comparison. Because of its sophisticated medical practice, many more premature births are successfully attempted and executed in the US. If that premature delivery dies soon after the high risk birth, it is recorded as a baby death in the US statistical data set. Overall, that sad outcome lowers our competitive national average in that category.
I was watching TV and thinking of my car when I cited them as examples of “stuff” enhancement and product longevity in my original posting. Other examples like communication devices abound. I vividly remember a 7 inch fuzzy monochromatic TV set that my Dad bought for 800 dollars after World War II. I painfully remember the hours I fiddled endlessly with the next generation of 19 inch tube sets in subsequent years. Today, even the poorest family unit has access to a superior product.
I remember changing parts as I tried to extend my car’s useful life to a goal of 70,000 miles and then later to 100.000 miles. My cars, and frequent tire flats, were a constant struggle to keep on keeping on. Today, I can’t recall the last time I changed a tire. My car, according to manufacturer’s specifications, requires an oil change only twice annually. I concede that when I now open the hood, I am perplexed by the engines complexity, but I expect to operate this much safer auto to a 200.000 mile goal.
Even simple light bulbs have a greater longevity. Science, technology, engineering, and manufacturing have all contributed to a better standard of living. Beware the lure of the Luddite.
Now allow me a few comments directed at the poorest quintile in our Nation. My family no longer populates that cohort, but we once did. That’s the upward mobility flow that was omitted from the video that you referenced. It is instructional to visualize a mental time-travel experiment. I suggest you do so; I did.
In that mental experiment, I imagined myself back about 50 years in that lowest wealth cohort. That didn’t really take much imagination since I truly experienced it. Things were tough, work was hard, and budgets were tight. Some sacrifices were the rule each and every day.
Now imagine being instantly transported into today’s environment. Health prospects are better, the work is less taxing, the food options have expanded, the safety nets have become more inclusive, the drudgery of housekeeping has eased, educational options are more abundant, and the prospects for multiple job opportunities within the family unit have increased. It surely is still not perfect, but it is just as surely a substantial improvement.
As an alternate to a backward transport, imagine a forward transport of someone from the poorest cohort of a few decades ago. Although he would quickly recognize that his relative comparative societal position had not been improved, his absolute well being had been immeasurably enhanced. Just compare his car of yesteryear with today’s attractive and better engineered models, even the older ones. That’s pure speculation on my part, but I absolutely believe I could predict the outcome.
To end on a point of complete agreement, I do find the astronomical wages “earned” by some celebrities to be repugnant. To reference just one example, I doubt if any New York Yankee baseball fan finds the salary currently held by Alex Rodriguez to be reasonable. He’ll be likely “earning” in excess of 160,000. dollars per base hit. Talking about the horrors of salary inflation, you might enjoy this referenced Link that characterizes the 20 most obnoxious in the current baseball world:
http://bleacherreport.com/articles/1217919-mlb-20-most-overpaid-players-in-mlb
You and I might take exception to this exaggerated pay scale, but it is what it is. In our free, capitalistic system, ultimately we decide what we want and how much we are willing to pay for it. An enlightened entrepreneur will always be there to provide the required service. To borrow the title of Milton Friedman’s works, we are “free to choose.”
Also, thank you for not attacking me on a personal level, but appropriately focusing on the subject matter under discussion.
Best Wishes.