Myths of rich and poor

[Preechr]

Myths of rich and poor
By Thomas Sowell
Feb 8, 2006

There is a fundamental difference between seeking the truth and scoring points. In politics, the truth is strictly optional and that also seems to be true in parts of the media.

Much of what is said about the incomes of Americans is said to score points. For example, it has been repeated endlessly that the average American family's income has not increased significantly for decades and that real wages are actually going down, not up.

That is great stuff for scoring points. You can just imagine the words and the music: The economy is stagnating, the American Dream has become a nightmare, our best days are behind us, etc.

The fact that the conclusions are totally false has not cramped anyone's style. Best-selling authors reap the profits of doom by writing such stuff. Politicians show how compassionate they are by promising to rescue us from economic disaster. Those who want to show how hip they are by disdaining American society get their jollies by scoring such points.

A book titled "Myths of Rich and Poor" by W. Michael Cox and Richard Alm exposes such nonsense for the fraud that it is.

Despite the statistics that show real wages going downhill over time, somehow Americans are consuming more than ever and have a larger net worth than ever.

As of 1970, for example, only about a third of American homes had both central heating and air conditioning, while more than four-fifths had both in the 1990s. Moreover, the homes themselves were more than one-third larger.

Just over one-fourth of American households had a dishwasher in 1970 but more than half did by the 1990s. Only 34 percent of households had color television in 1970 but 98 percent did in the 1990s.

How could this be, with lower real wages? Were we just going deeper and deeper into debt? Actually the net worth of Americans more than doubled during those same years.

Was there some kind of economic Houdini who could perform such magic?

No. Actually a lot of the point-scoring rhetoric involves misleading statistics. Wages are only part of total compensation -- and increasing proportions of that total compensation is taken in the form of fringe benefits. Total compensation has been going up while average real wages have been going down.

Even the decline of real wages has to be taken with a grain of salt. Real wages are calculated by taking the money wages and adjusting for changes in the consumer price index.

Only an economist can get excited by the consumer price index. Other people's eyes are more likely to glaze over when the term is mentioned. However, an inaccurate consumer price index is part of the reason for the appearance of declining real wages.

When the consumer price index says that inflation is 3 percent a year, it may really be more like 2 percent or 1.5 percent. As anyone who has had to pay off a mortgage knows, a difference of a percentage point can add up to real money over a period of decades.

Economists' estimates of how much the consumer price index exaggerates inflation range from an estimate of one percentage point by former Federal Reserve chairman Alan Greenspan to an estimate of 1.5 percent by Michael Boskin, former chairman of the Council of Economic Advisers to the President.

Even if we take the lower estimate of one percentage point, over a period of 25 years, that under-estimates the real income of the average American by nearly $9,000. In other words, a working couple will have their real income under-estimated by nearly 18 grand, using the consumer price index to correct for inflation.

No wonder the income statistics look so bad, even while the standard of living is rising and Americans have a higher net worth than before. Nothing is easier than to turn reality upside down, especially if you are just trying to score points, instead of getting at the truth.

My comment on this book has been reprinted on its cover: "Cox and Alm deserve a medal for bringing some sanity to a subject where insanity is the norm."

If making a whole society's rising prosperity look like a disastrous decline is not insane, what is?

[ziggytrix]

Interesting they don't talk about the average amount of DEBT held by Americans in the 70s vs the 90s. I think that might explain a bit of the difference in the ability of Americans to consume more.

Frankly, trying to counter doom and gloom with rose-colored glasses is not gonna work. I'd agree you can paint a very dismal picture using the wide pallatte of economic "facts" but there's also room to portray things as much better than they are.

America faces some serious economic issues, and increasing debt is one that should not be overlooked - either in our homes or in our government.

[mburbank]

I'm no economist, but when they calculate my net worth, do they count the value of my home or the equity in it? And do when they do stats on who owns a dishawasher, are they talking about everybody that has one, or are they talking about everybody who's done paying for their dishwasher? What about savings, then vs. now?

Sowell wants to argue that it's more complicated then the doomsayers make it look. Fair enough. I'm guessing it may be a little more complicated than a wealthy columnist makes it look.

[glowbelly]

seriously, i didn't know owning a color tv or having a dishwasher (other than my husband) made you rich

ps: the color tv i own we bought from our shady neighbor denny for $10. it was so hot, but ya know, we didn't have a tv.

[KevinTheOmnivore]

I can't say I ever understood the "stuff" argument to begin with. First of all, that's all relative. Consumption is bound to go up across the board, especially if we've outsourced all of the "stuff" making.

Secondly, doesn't most "stuff" become a negative asset, or equity whatever, once it has been bought? (I recall the story of the new car leaving the lot)

Does being a nation of people with a lot of worthless stuff make us wealthy?

"As of 1970, for example, only about a third of American homes had both central heating and air conditioning, while more than four-fifths had both in the 1990s. Moreover, the homes themselves were more than one-third larger. "

Larger, cheaper, and built with lower quality ("McMansions" anyone?). I think things such as this are poor indicators of wealth.

[Preechr]

Originally Posted by Preechr

How could this be, with lower real wages? Were we just going deeper and deeper into debt? Actually the net worth of Americans more than doubled during those same years.

Be back later

[davinxtk]

Alright, let's go ahead and talk about the increasing disparity between the rich and the poor. The average net worth of Americans is set WAY THE FUCK OFF by the people who want you to believe it's increasing. The only thing these statistics prove is that the rich are getting richer slightly faster than the poor are getting poorer. Good job there, excellent point.

Not to mention, there has been enormous economic turbulance since the statistics they're quoting from the 1990s.

Consumtion is up. You don't say, maybe that has something to do with marketing psychology? Buzzwords like brand loyalty and perceived value come to mind.

This is absurd. They're trying to sell success to the markets.
Don't worry about the economy. Just go spend some money.
Really, we've got it all taken care of. Trust us.

This is nausiating smack-talk, Preechr. I thought better of you.


(ps i can't wait to read this book)

[Preechr]

http://www.businessweek.com/magazine...7/b3971001.htm

Why The Economy Is A Lot Stronger Than You Think

[kahljorn]

"As of 1970, for example, only about a third of American homes had both central heating and air conditioning, while more than four-fifths had both in the 1990s. Moreover, the homes themselves were more than one-third larger. "

That's kind of funny in a way. That's like how people in the 1990's were less likely to have a cd burner than now, or dvd burners. Or how about cell phones? Not everybody had one back then. Or even telephones. Or anything else that started out as a base, unrelaible, expensive and slow service and through the wonder of technology developed into something better and cheaper to maintain, thus lowering cost.

I wonder how many people had electricity when it first "Came out" versus now. Or how many people in the 1970's were driving cars versus in the early 1900's. Was the entire point of that article to point out that civilization has developed through technology? Thanks, I needed to know that I wasn't living in a cave somewhere in Pakistan the size of my bedroom. I couldn't see that for myself.

[davinxtk]

While I'll freely admit that I got bored and switched topics a little more than halfway through that article, I'm pretty sure I got the point.

Due to corporate investments, the economy is strong. It's rock solid. It's here to stay. These major major big business corporations are acting in the best interests of the market and therefor the market and everyone directly involved are making a profit, and will continue to do so.

The reason that absolutely none of this is significant in the slightest bit to the general conditions of working class America is that all it proves is that they'll still have jobs, no matter how meager the benefits become. So, no, the economy isn't really where the problem lies, it's in the perihpery.

Allow me to attempt an analogy: A concrete slab exposed to the wild is, for the most part, going to remain a concrete slab in roughly the same position for the better part of a few hundred years, barring major geological disaster in the general vicinity. It is rectangular, almost eight feet in length, five in breadth and another four deep. It weighs a couple of tons.
So, all in all, it's a sturdy bet when you go to bed at night that it will be there when you wake up in the morning.
Would you really want to sleep on it, though?


The economy may be able to bring a whole host of very appealing products, innovations and options to consumers, but what good is it if many of these consumers are busy absolutely scraping by on the wages they make as a result? Why were there seven people living in my three bedroom house this past summer while there are people who own two, three, four or more homes? Is it because we don't work hard to get by? No, it's because those in power want to keep us working hard for their profits. Is this because they're inherently evil people? Probably not, they're just trying to feed their families and they live within their means. The cause of the problem isn't disparity, it's that so many people are so ignorant to this disparity, and many of the most knowledged and successful people would prefer to keep it that way.

Now, I'm not an economist (nor do I aspire to a title wtih such mind-bogglingly tedious work associated with it) but I'm sure this society could blanace itself out if the most well-off people were willing to make a few sacrifices for the greater good. I'm not even going to say what I really want to say about my dreams of a utopian socialist state, because that would be absolute and pure idealism. However, if capitalism is to survive without completely plundering the rich or the poor, something seriously needs to be done. You don't put the most weakly nourished people at the bottom of the pyramid and expect them to be able to hold it up indefinately. That's why so many Americans slipped below the poverty line in '04, why crime rates are so high (do you think so many people would risk life and freedom if they could feed, clothe, and house themselves through other means?), and why you've got 200 million Americans moaning to the other 95 million that the economy is in the shitter, while they stare blankly back saying "huh?"


Our system is livable but it needs serious work, and sitting around saying that there isn't really a problem because major corporations are doing the right thing and are able to take care of business is almost completely counterproductive.
One day, I hope, the disparity between the rich and the poor will at least BEGIN to close. Until then, I'll be polishing concrete.

[Preechr]

See, you're all hung up on the idea that business is the source of all evil. I believe government, in the broadest sense of the term, is the most destructive force on the Earth, from a human perspective.

I tend to think that capitalism is human nature and that government is it's restirction. I like human nature, when it's healthy.

I guess it's Ok to differ.

[kahljorn]

I think business and commerce is a very good and healthy thing. I think the immoral practices often implemented are the problem. Business in america seems to have no loyalty to america, nor to their employees and consumers. They are so focused on the money and less on delivering their product. That's not business, it's just wanting money.

[davinxtk]

Originally Posted by Preechr

See, you're all hung up on the idea that business is the source of all evil. I believe government, in the broadest sense of the term, is the most destructive force on the Earth, from a human perspective.

I tend to think that capitalism is human nature and that government is it's restirction. I like human nature, when it's healthy.

I guess it's Ok to differ.

But it's not healthy, Preechr. In what way is it healthy that someone's starving in the cold streets when Oprah is giving away 276 brand new cars? How is it healthy that the lady I handed my shiny new insurance card to, smiling and happy that for once in my life I have coverage, works at the hospital and just got hers cut off? Single mother with three kids. Why do CEOs own three houses on Cape Cod and two in Connecticut when some of the hardest working people I know live in run-down apartments in shitty neighborhoods? What's healthy about this economy?


I said right in my post that it's not evil, it's ignorance. It's a workable system but it's gone way out of control. There needs to be some sort of shakedown here. Are you playing a game with me or do you really believe this monstrosity is in working order?

[KevinTheOmnivore]

Originally Posted by Preechr

See, you're all hung up on the idea that business is the source of all evil.

Hold up, who said this? Seriously, I must've missed it.

I think some legitimate concerns were raised regarding Sowell's specific argument. Address those, please.

[Preechr]

Originally Posted by KevinTheOmnivore

Hold up, who said this? Seriously, I must've missed it.

I think some legitimate concerns were raised regarding Sowell's specific argument. Address those, please.

I was pretty much talking to davin there... He raised his own objection... Did you, um, think I was speaking on broader terms than just to him?

I'm working on comments as they come up and as I can get to them, MR. MOD! I did not write the article, but I posted it because we recently had a discussion involving the black art of economics, and I figured we might find some use from an open discussion of economics and the lies and truths associated with it.

Sure, I have my own views, and I'm perfectly willing to talk about them here among those that will most assuredly disagree instead of hustling up some fanboys on Free Republic. Would you like me to quit my job so I can respond in a more timely manner, MR. MOD? Is that what you WANT?

Man, this new authority really went to your head quick...

[Preechr]

Originally Posted by kahljorn

I think business and commerce is a very good and healthy thing. I think the immoral practices often implemented are the problem. Business in america seems to have no loyalty to america, nor to their employees and consumers. They are so focused on the money and less on delivering their product. That's not business, it's just wanting money.

This might be your best post yet, kahl. First off, it was very pithy. I've been told that works very well in the confines of the message board format. Second, it was on point... also very important.

Mainly, though, you almost perfectly voiced the most obvious misunderstanding of economics that exists. Your comments are exactly what stands in the way of the problem as you see it. The irony is stunning.

Hopefully I will be able to correct this misunderstanding for you, though that will likely be a dialogue not easily described as pithy. I'm not making any promises, as whatever I might be able to say here has surely been said by others many, many times before and many, many folks other than just yourself have either found it lacking or were able to ignore it completely somehow.

Let me respond to davin, because God knows I don't want to piss Kevin off, and in that post, I'll try to address at least some of your concerns.

[Preechr]

Originally Posted by davinxtk

But it's not healthy, Preechr. In what way is it healthy that someone's starving in the cold streets when Oprah is giving away 276 brand new cars? How is it healthy that the lady I handed my shiny new insurance card to, smiling and happy that for once in my life I have coverage, works at the hospital and just got hers cut off? Single mother with three kids. Why do CEOs own three houses on Cape Cod and two in Connecticut when some of the hardest working people I know live in run-down apartments in shitty neighborhoods? What's healthy about this economy?


I said right in my post that it's not evil, it's ignorance. It's a workable system but it's gone way out of control. There needs to be some sort of shakedown here. Are you playing a game with me or do you really believe this monstrosity is in working order?

First off, I'm throwing a lot of complex stuff out on the table, much of which has been alluded to so far though left untyped.

Let it be said I totally get where you're coming from. This post was really well made as well, though possibly moreso than most for you. I've honestly been laboring under the impression that you really weren't ever gonna see eye to eye with me enough to phrase your comments with such determined civility.

I honestly thought you'd be kicking my ass by now.

Thanks for not doing that.

Anyhoo...

You riffed on the concept of "healthy." I said: "I like human nature, when it's healthy." Prior to that, I had indicated that I feel that capitalism is a concept based in the roots of human nature. I also believe communism to be so, just in a separate part of it. Not that your ideas as expressed are necessarily communistic in nature, but you're basically saying that consideration for the weakest of the community is primary over consideration for the individual needs of the strongest producers within that community, right?

I'm fine with that, at least in one half of my life. That's exactly how I feel about dealings with my family. Most families run on communist principles. I have a complex life, however. When I get out of bed in the morning, and decide what I want to do on any given day, most days I go to work. See, some of my family obligations require money to fulfill. For that, as well as the ever present requirement to feed, shelter and clothe my own self, I need to sell some of my free time in the form of a job well done in exchange for cash.

When I leave the house in my work clothes, I am sacrificing part of my life to fund another. Since work, though rewarding for some (very much so for me,) is generally less fun and fulfilling than hanging out at the house with friends and family, I cannot very well take the for-home attitude about life with me outside now, can I? I need to adopt a less giving, more taking attitude, one of a very competitive point of view. I owe this to my first priority: my private life: the reason I go to work. I need to become a capitalist pig. We all do.

A competitive, capitalistic economy, well maintained by all of us, will provide the most for all of us, right? If we are gonna spend time NOT doing what we love, then we owe it to ourselves to get the biggest economic bang for each of our incremental bucks... and such. So, while we're at home, we are free to live however makes us most happy, and that's typically in a more or less communistic fashion. When we leave our homes, however, we enter the cold, hard world of capitalism, and we are only hurting ourselves if we fail to make that transition gracefully and readily.

The USSR, the single most aggressive experiment in Communism, capitalized, was attempting to prove that extending one half of human nature to cover the more uglier, competitive side... treating the world as if it were one big family so to say; and it failed miserably.

The USA, Communism's sister experiment, is in the process of failing now. It's inevitable. We have attempted to do exactly the opposite of what started with the Bolshevik Revolution. We wish to eliminate the communal spirit of the family from the human experience. This plan is just as doomed.

I'm not really talking much about economics. This is gonna have to be a long conversation, as it really only concerns the future. Economics is a branch of the science of life. If you don't understand how we live, you can never hope to understand how we might live better, right?

The big misunderstanding that I accused Kahl of making earlier is simply that of believing the big lie that capitalism is the same thing as Capitalism. Small-C "capitalism" is part of what we are, where Large-C "Capitalism" is the governmental interpretation of natural human activity, or an emulation of a kind. Please extrapolate the same correlation between the two forms of communism... it's the same, though inversed in practice.

Ultimately, I'm gonna try to convince you that libertarianism (notice, not capitalized) is the ultimate form of govenrment, and that my fundamentalist attitude toward our American Constitution stems not from some sort of loyalty to tradition, but to a concept that was only hinted at briefly in a long age of various experiments in human slavery.

We are in such an age now. Misunderstanding vital components of human nature any further won't be getting us to the place we need to be any quicker.

[Preechr]

I'm trying to establish common ground now, Kev.

Please give me a minute.

[Preechr]

Originally Posted by KevinTheOmnivore

I can't say I ever understood the "stuff" argument to begin with. First of all, that's all relative. Consumption is bound to go up across the board, especially if we've outsourced all of the "stuff" making.

Secondly, doesn't most "stuff" become a negative asset, or equity whatever, once it has been bought? (I recall the story of the new car leaving the lot)

Does being a nation of people with a lot of worthless stuff make us wealthy?

"As of 1970, for example, only about a third of American homes had both central heating and air conditioning, while more than four-fifths had both in the 1990s. Moreover, the homes themselves were more than one-third larger. "

Larger, cheaper, and built with lower quality ("McMansions" anyone?). I think things such as this are poor indicators of wealth.

I missed this.

Sorry, man.

NOW I know what you were talking about when you said, "I think some legitimate concerns were raised regarding Sowell's specific argument. Address those, please..."

Let's see... In the broadest sense of an answer possible, I think I'd like to start out by restating something I've already said: Something along the lines of: I believe our primary responsibility in life, as individuals, is to be happy. That said, it's not my place to criticize anyone in their decision making as long as I can see that they were at least making some sort of effort toward a goal of being happy.

Well, that's not necessarily true. I guess I can also criticize those that are making choices that everybody can see are getting them nowhere... Sometimes people lie to themselves... we all know that.

In addition, some folks make some decisions based in false realities, such as your own example of something like: Now that I've got my Big Screen HDTV, I'll be HAPPY! or: If I can influence the reconstruction of my government in such a way as to utilize the immense wealth of the richest few of us to benefit the least of our society's producers, who cares if we discourage those that from which we intend to steal from become worthy of our intended theft?

After all, the rich are only called that because they stared out as greedy, right? ...and even if that's not true, we've always got the new crop of wealthy, am I right fellas? That always happens!

Who cares if I'm establishing a system based in discouragement of positive decisions for the benefit of the bandaging of self-inflicted wounds by those that don't know better YET?

See, factor in for time and it all makes sense.

Poor people will learn to make better decisions if you give them time with the consequences of their decisions. Rich people will learn to understand how they accumulated their wealth and what makes it valuable if you give them the time it takes to learn it.

No, I'm not defending our current system. I'm attacking your knee-jerk proposed solutions to the problems we all see and some I'm making up with logic of my own, instead of repeating that which someone else said.

...and now I'm tired.

I'll check in with ya'll later.

[kahljorn]

Pithiness is good on message boards, huh?

To be honest I don't have the time to be anything but Pithy for this post, so excuse me for not reading anything that didn't start out, "Dear kahl".
I'm not really sure what you were going at with the Capital see capital C thing, so I'll let you filll me in there.

Let me start out on a note of hilarity: Did you hear about the ford plants all closing in north america, and they are planning on relocating to cheaper places? The "All-american" company? If I remember right, IBM also did this. Kwikset did this to move to mexico.
You can try to argue that it will have no viable effect, but I don't think you will. With less jobs america has less money in it's pockets, from what I've heard the reason our economical system works out so well is because we have more money in our pockets, or "Buying power". Without buying power(or jobs) we can't buy these people's products, nor will we be capable of sustaining all of our dishwashers, air and heating.

Maybe my concerns are baseless, I don't know. I just hear from people it's really hard to get jobs and they pay shitty. Maybe it's because I live in a republican city or something? Because I hear it's pretty easy to get jobs in LA.
So I guess what I'm saying is these countries are "Un-american" and don't care about our economy, or it's people. It all goes into morality(and it will have some lucid economical result as well), and I thought that's what Bushle Bees was all about.

[KevinTheOmnivore]

See, that wasn't so hard, Preech!

btw, you wrote "See, you're all hung up on the idea that business is the source of all evil." I took that as meaning you were addressing us all. Sorry.

[mburbank]

Know what I'm hung up on?

A meat hook.

It's a long story, but the main thing is, it hurts.

[Preechr]

You ever get your nipples fixed, max?

Oh... and Kev: You're means YOU ARE as in YOU being the person I was talking to, which, when taken in context, might just be the previous poster, which was DAVIN.



As far as I know, there is not currently a working contraction for "y'all are." Let's just go ahead and start using one, since it's absence is obviously the source of neverending consternation for our fearless leader.

I hereby proclaim that henceforth, Y'ALL'RE is a valid part of American grammar! Sing it from hilltops, people!

[Preechr]

Originally Posted by kahljorn

Pithiness is good on message boards, huh?

To be honest I don't have the time to be anything but Pithy for this post, so excuse me for not reading anything that didn't start out, "Dear kahl".
I'm not really sure what you were going at with the Capital see capital C thing, so I'll let you filll me in there.

Let me start out on a note of hilarity: Did you hear about the ford plants all closing in north america, and they are planning on relocating to cheaper places? The "All-american" company? If I remember right, IBM also did this. Kwikset did this to move to mexico.
You can try to argue that it will have no viable effect, but I don't think you will. With less jobs america has less money in it's pockets, from what I've heard the reason our economical system works out so well is because we have more money in our pockets, or "Buying power". Without buying power(or jobs) we can't buy these people's products, nor will we be capable of sustaining all of our dishwashers, air and heating.

Maybe my concerns are baseless, I don't know. I just hear from people it's really hard to get jobs and they pay shitty. Maybe it's because I live in a republican city or something? Because I hear it's pretty easy to get jobs in LA.
So I guess what I'm saying is these countries are "Un-american" and don't care about our economy, or it's people. It all goes into morality(and it will have some lucid economical result as well), and I thought that's what Bushle Bees was all about.

Well, we haven't even gotten started on globalization yet, but I'll ask you a simple question about your views here: Should we make our economic decisions with no regard whatsoever for the people that live in other parts of the world? Think hard about the phrase: economic imperialism and let me know what you come up with.

I just got back from a nice vacation down in Brazil. Did you know that the people there, far from being headhunters, are actually just as modern and interesting, even HUMAN, as the people that live up here in God's Chosen Republic? I noticed a few interesting things about the economy from an individual perspective while there, but rather than get into a huge story at this point, I will leave it at OTHER PEOPLE IN THIS WORLD NEED JOBS TOO.

Imagine if your city was 50% poor... and not American poor as in I still have TVs and whatnot. Freakin POOR. Sure, there's a ton of corruption and stuff down there, but the main reason they're broke is the foreign policy of our country and Europe. Go live in a homemade shelter and wake up each morning wondering what money you might be able to beg, borrow or steal to eat today, and tell me about income disparity in America.

Before you do that, however, go back and read what I posted for you when you get more time.

[kahljorn]

"Should we make our economic decisions with no regard whatsoever for the people that live in other parts of the world?"

No, I love that they are receiving jobs, but maybe they should get new jobs instead of putting 128,000 people( i think that was the number for the ford place) who already had jobs out of jobs. Big difference between creating new job oppurtunities for other countries and sabotaging our own.
Plus, they aren't paying the same wages they are paying over here. It's not that they want to help other economies, they want to be able to hire out cheap labor.

"Go live in a homemade shelter and wake up each morning wondering what money you might be able to beg, borrow or steal to eat today, and tell me about income disparity in America. "

That's great, maybe if they didn't have cunt governments the situation wouldn't be so bad, hopefully ours never gets that bad.

Still, your entire argument is essentially arguing that fuck the people in america because people elsewhere need it more(which is really; we need to pay cheaper). As I said, Un-american. These aren't new job oppurtunities, they are old ones being cheapened.

It is nice that people in other countries are getting jobs, but we need them too.