The Rich Are Getting Richer; So Are the Poor

 

“No matter your thoughts about the Occupy Wall Street movement, the protesters were right in at least one respect: The rich are getting richer, and the poor are getting poorer.”

Variations on this statement were repeated in dozens of blogs, commentaries, and even news reports in the past months. The claim comes via a Congressional Budget Office analysis that shows incomes for the top 1 percent of Americans growing by 275 percent between 1979 and 2007, while the lowest 20 percent saw their inflation-adjusted incomes grow by “only” 18 percent.

The numbers from the report are correct, but the assertions based on it are true only because of careful wording. While the “top 1 percent” had the highest growth of income, if broadened to include the top 20 percent (the usual way of analyzing such figures), the growth rate was a far less stratospheric 65 percent. This contrasts with about 40-percent growth for the middle three-fifths of all wage earners, and 18 percent for the lowest one-fifth.

Statistically, the lowest 20 percent of households are poor for one main reason: They don’t work as much. Among the causes are medical issues, disability, and bad incentives. Not surprisingly, households in the top 20 percent are far more likely to include people with jobs. Here’s how professor Mark Perry, a member of the Mackinac Center’s Board of Scholars and chairman of the economics department at the University of Michigan-Flint, described it:

American households in the top income quintile have almost five times more family members working on average than the lowest quintile, and … are far more likely … to be well-educated, married, and working full-time in their prime earning years. In contrast, individuals in low-income households are far more likely to be less-educated, working part-time, either very young or very old, and living in single-parent households.

More significantly, the “rich getting richer” storyline insinuates that the top 1 percent and bottom 20 percent include the same individuals over time. For example, as reporter Julie Mack writes, “Overall, the numbers show that the more affluent you are, the better you’ve done in the past three decades.” Note how this ignores the reality that many individuals who were in the poorest group years ago have long since moved up and out, while among the rich are many families who are literally nouveau riche—they’ve recently arrived from lower income levels.

That’s the risk of relegating real people into statistical categories. Economist Thomas Sowell explained it this way: “The actual empirical evidence cited has been about what has been happening over time to statistical categories turns out to be the direct opposite of what has happened over time to flesh-and-blood human beings, many of whom move from one category to another over time.”

Data that tracks real people show that Sowell is correct. For example, as reported in The Wall Street Journal, IRS tax-return data shows that individuals in the bottom one-fifth back in 1996 experienced income growth of 91 percent by 2005. In contrast, individuals in the highest one-fifth saw their incomes increase just 10 percent over the same period. Incomes of households in the top 5 percent and 1 percent actually declined, by 7 percent and 24 percent, respectively.

Anecdotally, this makes sense: For example, in 1985, my father was just out of college and probably in the lowest 20 percent. But by 2007 he had moved up. Such examples are commonplace, but are completely missed by statistical aggregates.

In the late 1970s, Steve Jobs was trying to expand a struggling computer company. Bill Gates was writing code and just beginning to start working on a personal computer. And one of the founders of Google, Sergey Brin, had just arrived as a six-year-old immigrant from the USSR. These are individuals who did not enter that top 1 percent until many years later—in the process displacing former “one percenters.”

It was these individuals, not statistical categories, who created companies and wealth by making products people wanted. Establishing conditions in which individuals can move up the income ladder by creating, innovating, and building is what America is all about.

By

Jarrett Skorup is a 2009 graduate of Grove City College and former student fellow at The Center for Vision & Values. He is the research associate for online engagement for Michigan Capitol Confidential at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Mr. Skorup can be reached at Skorup@mackinac.org.

  • Sarto

    I would love to see Mr. Skorup spin away the poverty of Lazarus and the real story of the noble rich man and his brother.

  • Carl

    Sarto, Your one line quips of what amounts to “it is because I say so,’ really, adds what to the conversation?

    Jarrret offers facts and figures to make his point and to affect hearts and minds. Did you ever consider doing the same? Who knows, maybe you could create progressive catholic coverts.

    Lazarus and the Rich Man is a parable and a warning of the actual day of judgment. Nowhere does Christ condemn the mere possession of earthly goods as such, neither does He condemn the existence of rich people. After all doesn’t God distribute gifts and talents “unevenly” among man and angels? Equal in dignity; unequal in talents.

    This parable must form in our conscience; Christ demands openness to all our brothers and sisters in need—both rich and poor. Meaning that even the poor should not out of jealousy condemn or treat the rich poorly! Wasn’t Christ poor? Being spiritually poor is what must be overcome!

    Former poor people that Jarret mentions like Jobs, Gates, and Brin are well known for there almsgiving. I am not a where of any statistics that the “rich” are stingier than other social economical people.

    There are statistics that indicate that political and religious conservatives give more than liberals!

    • TomD

      “The parable of the rich man and Lazarus must always be present in our memory; it must form our conscience. Christ demands openness to our brothers and sisters in need—openness from the rich, the affluent, the economically advanced; openness to the poor, the underdeveloped and the disadvantaged. Christ demands an openness that is more than benign attention, more than token actions or half-hearted efforts that leave the poor as destitute as before or even more so” (John Paul II, Homily in Yankee Stadium, 2 October 1979).

      Perhaps the notion of “benign attention,” referred to by the Holy Father, can be summarized this way:

      “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”

      It is not that conservatives wish to deny fish to those in need; Conservatives recognize that what is ultimately most important, for the dignity of all God’s Children, is teaching men to fish.

  • Tom

    There is a film clip where a young, smart aleck, journalist asks Mother Theresa why she does not “teach to fish” instead of feeding the poor, to which, with quick wit she answered, that, sure, by all means, she encouraged the journalist to go himself teach the poor how to fish, in the mean time, she was busy enough feeding the hungry and the dying…

    This is Census data:
    http://www.census.gov/hhes/www/income/data/historical/families/2010/F01AR_2010.xls

    Table F-1 (adapted). Income Limits for Each Fifth and Top 5 Percent of Families (All Races): 2010 CPI-U-RS adjusted dollar

    Year Upper limit of each fifth (dollars)
    Lowest Second Third Fourth top 5%*

    2010 26,685 48,000 74,144 113,744 200,354
    2000 30,387 51,708 77,644 115,690 202,730
    1990 27,243 46,969 67,986 99,440 165,530
    1980 26,200 44,113 62,478 87,671 138,560
    1970 25,556 41,691 56,619 77,825 121,516
    1960 17,936 30,925 41,001 56,695 87,208
    1950 13,132 22,580 30,051 41,768 68,112

    *Lower limit of (dollars)

    Income gap between CEOs and workers are at historical highs.

    It’s sad that in this time of economic difficulties for many, “Crisis” Magazine celebrates the stuffing of pockets of the few; as dictated by the “new morality”:
    “ blessed are the rich, for the path to heaven is wide open for them,…because they can afford the price of entrance.”

    Merry Christmas, “Crisis” Scrooges…

    • TomD

      God bless Mother Teresa for her work with the poor. But it is not a matter of either/or . . . giving or teaching . . . it is both/and.

      While it is always blessed to help those in poverty, it is also blessed to make provisions to help all people become self-sufficient. We desperately need both perspectives, especially the teaching perspective today. With all due respect to the blessed Mother Teresa, over the long run, more poverty will be alleviated by “teaching men to fish.”

  • Carl

    I would like to believe that if any “Crisis Scrooge” were on any corporate Board of Directors negotiating CEO pay that they wouldn’t support the wage gap that you describe.

    But we’re not asking mirror, mirror on the wall who is the biggest cheap skate of them all?

    Isn’t the question how?
    • Big Daddy Government with limited local control.
    •. Socialist Entitlements creating government dependancy.

    Or maximize human dignity through as much local control as possible. Create enviroments where people can help themselves. Catholic Subsidiarity teachings

  • Tom

    ” maximize human dignity through as much local control as possible. Create enviroments where people can help themselves. Catholic Subsidiarity teachings”
    ..totally agree, the thing that gets me is when taxes are used to destroy innocent life. Might as well go back to the stone ages. Anyways, this is the season to think of those around us: now that is perfect subsidiarity, right? Peace…

  • Robert

    Technology has liberated many of the poor to a degree unseen in previous eras. In other nations without much technological advancement such as Southeast Asia this is less prevelant. Many of the problems you describe are actually problems in living and don’t have that much to do with poverty in terms of money per se.

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