Monday, March 10, 2008

The Inequality Myth

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.

The Census data originate from an annual survey of households. The data don't track individual households from year to year, but instead just take a snapshot of the households in existence in March of each year. From these annual snapshots, we try to infer what's happening to the typical household over time.

The "typical" household, however, keeps changing. 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.

That broad swath of economic advancement shows up in personal consumption. According to the Labor Department, personal consumption spending has risen by $2.5 trillion since 2000. More Americans own homes and new cars today than ever before, despite slowdowns in both industries. Laptop computers, iPhones and flat-panel TVs are fast becoming necessities rather than luxury items.

Really. I know people who spend twice as much on beer and drugs on a weekend, than they spend on gasoline. We have more toy's than ever before. How many T.V.'s do we all have? How many baseball hat's at $25.00 a pop do we have at home? I actually know people who lump their fun money in with their compulsory expeditures, and then actually cried about how they have no money left at the end of the month!!

No comments:

Blog Archive

BTTS - Where Personal Responsibilty is the EXPECTED NORM!