"The poor are not getting poorer"

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    Feb 01, 2011 1:53 PM GMT
    Good news for Americans. http://www.philly.com/philly/opinion/20110126_The_poor_are_not_getting_poorer.html

    In the latest version of its annual report "The State of Working America," the Economic Policy Institute once again argues that the gap between America's rich and poor is widening. Using a variety of data, the institute argues that a few are profiting at the expense of many.

    Does this narrative actually reflect the state of America's workers? My research suggests it doesn't. While there's no doubt that some Americans remain far wealthier than others, a closer look at the data shows that the prosperity gains of the last few decades have been shared by workers of all income levels.

    Much of the Economic Policy Institute's argument involves comparing the income or wealth gains of various groups across the years. For example, it reports that in real dollars, the bottom fifth of households earned an average of only $200 a year more in 2005 than they did in 1979.

    At first glance, that seems awful. However, the comparison tells us nothing about how individual households fared over time. That's because the households that occupied the bottom fifth in 2005 are not the same as those that occupied it in 1979.

    If we really want to know what happened to the poor of 1979, we need to be able to track specific households through time. Fortunately, we can. According to researchers at the University of Michigan, households in the bottom fifth in 1975 earned an average of almost $28,000 more per year by 1991, adjusted for inflation. According to U.S. Treasury data, a whopping 86 percent of households in the bottom fifth in 1979 had climbed out of poverty by 1988.

    The problem with the data in "The State of Working America" is that it does not account for the fact that individual households move up and out of poverty and are then "replaced" by different households. Most of the households in the bottom fifth are made up of people who have recently entered the labor market and are on the first rung of the income ladder, such as recent high school graduates and new immigrants. The vast majority of American households do move up, and over the last 30 years most Americans have gotten significantly richer in absolute terms.

    Granted, even if everyone is better off, it's still possible that the rich-poor income gap has widened. But simply measuring income and wealth tells us very little about the lifestyle of typical Americans. For example, poor Americans today are more likely to own basic household goods - such as washing machines, dishwashers, televisions, refrigerators, and toasters - than average Americans were in 1973.

    The gap in personal conveniences has clearly narrowed over time. Consider that both Bill Gates and more than 80 percent of poor American households own cars - though likely differing in quality. Fifty or 100 years ago, the difference would not have been in the quality of car, but in owning a car at all.

    Yes, there are more Americans in poverty during a recession - some in deep poverty - as the institute's data shows. But it also shows that since about 1980, the share of the population in extreme poverty has hovered between 5 and 6 percent. In other words, there's no long-term upward trend in the percentage of households living in extreme poverty.

    The reality of the modern U.S. economy is that upward mobility is alive and well. One look around at even the bottom fifth of American households today - where children are watching cable TV, surfing the Web, or chatting on cell phones while Dad takes free generic medicine and Mom heats something up in a microwave - shows the poor are hardly getting poorer.
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    Feb 01, 2011 2:25 PM GMT
    This article and reasoning has so many flaws in it I don't know where to begin. I'm not going to go through them all, I'll just go after the obvious immediate flaws.

    And wtf? "Fifty or 100 years ago, the difference would not have been in the quality of car, but in owning a car at all."

    No shit, might that be because cars (in America) have only been around for a little more than a hundred years, of course people 100 years ago, or even 50 years ago didn't own as many cars.

    "The problem with the data in "The State of Working America" is that it does not account for the fact that individual households move up and out of poverty and are then "replaced" by different households."

    So what? So it's cyclical in nature. Just before that they said it took almost 10 years to move out of that cycle. That's not saying much.

    "Granted, even if everyone is better off, it's still possible that the rich-poor income gap has widened. But simply measuring income and wealth tells us very little about the lifestyle of typical Americans. For example, poor Americans today are more likely to own basic household goods - such as washing machines, dishwashers, televisions, refrigerators, and toasters - than average Americans were in 1973."

    Again, those things are more widely available today, you can buy toasters for a few bucks. And in 1973, how many middle class people were likely to own a dishwasher? Not many, let alone a poor person.

    And lastly upward mobility. America is hardly anything to brag about when it comes to upward mobility. It's one of the worst in the industrial nation.
    http://www.prospect.org/csnc/blogs/ezraklein_archive?month=05&year=2009&base_name=is_europe_really_have_less_upw
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    Feb 01, 2011 2:46 PM GMT
    I believe you completely missed the point. In very real terms your average poor person can afford these technologies that did not exist previously. ie People can buy more/do more with their money therefore they are wealthier because their money is worth more. That's hardly a flaw in reasoning - simply a reflection of the vast improvements in technology and efficiencies in manufacturing.

    As for your comments on America having the worst records for class mobility, it's not entirely accurate. From Greg Mankiw - who, as a source is far more reliable than Ezra Klein for facts, puts it thusly:

    http://gregmankiw.blogspot.com/2011/01/half-full-glass-of-economic-mobility.html

    When people look at data on economic mobility, they see different things. For example, it is well known that if your father had high income, you are more likely to have high income than if you father had low income. According to this study (which I found thanks to a pointer by Paul Krugman), the elasticity of son's income with respect to father's income is about 0.5 in the United States. How do you interpret this fact?

    Some people might be tempted to see it as evidence against equality of opportunity. After all, it shows that it matters where you started. Rich parents can buy better schools, expensive tutors, fancy summer camps, and all sort of other great stuff for their kids. How fair is that?

    But what strikes me about that 0.5 number is not how large it is but how small it is. As I understand it, that 0.5 estimate is roughly the correlation between father and son income. That means that the fraction of variance of son's income explained by father's income--that is, R-squared--is only 0.25. This last number is sometimes called the "heritability" of a characteristic.

    By contrast, the heritability of IQ is usually estimated to be much larger than that. At least some of the heritability of income must come not from inequality of opportunity but from the genetic transmission of talent. Other aspects of talent, such as drive, energy, and spunk, might well have a genetic component as well, but they are harder to measure and thus we know less about them. But the one that has been studied extensively, IQ, seems more heritable than income.

    The bottom line: In light of the heritability of talent, it would be shocking if we did not find some significant heritability of income. And that would be true even if equality of opportunity were perfect.

    One further thought: The study cited above points out that economic mobility is greater in some European countries. That fact does not surprise me, as those are nations with less inequality. Moving up and down a short ladder is a lot easier than moving up and down a tall one.
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    Feb 01, 2011 2:49 PM GMT
    riddler78 saidI believe you completely missed the point. In very real terms your average poor person can afford these technologies that did not exist previously. ie People can buy more/do more with their money therefore they are wealthier because their money is worth more. That's hardly a flaw in reasoning - simply a reflection of the vast improvements in technology and efficiencies in manufacturing.


    If the article was trying to say the poor have it better because of improvements in technology and availability in technology it failed. This article has an agenda that tries to diminish poverty, and the growing gap between the rich, and everyone else.

    And I hardly think the random blog you posted has more credibility than Ezra Klein. If you dispute Ezra's findings, then state it.
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    Feb 01, 2011 2:54 PM GMT
    wran saidAnd wtf? "Fifty or 100 years ago, the difference would not have been in the quality of car, but in owning a car at all."

    No shit, might that be because cars (in America) have only been around for a little more than a hundred years, of course people 100 years ago, or even 50 years ago didn't own as many cars.

    I focus on this one reply of yours to add to it, though I agree with your other points of rebuttal, as well.

    I remember something the Ford Motor Company released some years ago, to demonstrate the falling cost of the US automobile. This at a time when people were first starting to use the term "sticker shock" over rising car prices, resulting in mounting sales resistance in dealer showrooms.

    What Ford attempted to demonstrate, and I think with some success, was that the cost of the average US car as a percentage of median US income had actually declined all during the 20th Century. In other words, buying a car represented less of a person's income than ever before, and was by that criteria therefore easier to afford than at any time previously, even for those with low incomes. Furthermore, Ford contended that what you got for your money, in a standard-equiped car, represented more features and a better bargain than in the past. A view I also tend to endorse.

    Interesting since this came from Ford, the company credited with putting America on wheels, at a time when automobiles were an expensive luxury for only the very rich. Henry Ford did 2 important things to bring affordable cars to the masses: assembly line mass production that lowered their price, and raising his workers' wages so they could afford them, which had a cascade effect throughout the US economy. (I won't discuss Ford's other social views, which were often less commendable in my view)

    Another factor was the financial idea that a car represented equity, on which a loan could be given with time payments. Only the rich could pay cash, but the poor could pay with installments, and buy at least a Model T. That concept continues to this day, with the poor strapped with debt to afford those cars.

    So gauging the relative incomes of Americans by our cars is a false example at best. And likewise our appliances, for similar reasons of prices as a percentage of income, as manufacturing costs have dropped. And not just due to out-sourcing, but also because as appliances have become commodities, their routine manufacture has been streamlined, standardized & simplified.
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    Feb 01, 2011 2:55 PM GMT
    wran said
    riddler78 saidI believe you completely missed the point. In very real terms your average poor person can afford these technologies that did not exist previously. ie People can buy more/do more with their money therefore they are wealthier because their money is worth more. That's hardly a flaw in reasoning - simply a reflection of the vast improvements in technology and efficiencies in manufacturing.


    If the article was trying to say the poor have it better because of improvements in technology and availability in technology it failed. This article has an agenda that tries to diminish poverty, and the growing gap between the rich, and everyone else.


    But it does. It makes the argument in two parts. It argues that first, they're not the same people who are extremely impoverished referencing the University of Michigan study:

    If we really want to know what happened to the poor of 1979, we need to be able to track specific households through time. Fortunately, we can. According to researchers at the University of Michigan, households in the bottom fifth in 1975 earned an average of almost $28,000 more per year by 1991, adjusted for inflation. According to U.S. Treasury data, a whopping 86 percent of households in the bottom fifth in 1979 had climbed out of poverty by 1988.


    You can make the argument that mobility in the US sucks - and from one perspective it does, though in another it really doesn't (see addendum to my post above from Greg Mankiw), but that 'miserable mobility' has still meant that the bottom fifth of households tracked earned 28K more by 1991 from 1975. And then second, it makes the lifestyle argument that those who are considered extremely impoverished in fact live much better lives than those who were in the same income positions 20-30 years ago because of deflation from technology/innovation.

    (PS - lol - random blog? Clearly your grasp of economics is um limited, or at least you would have come across Mankiw who writes probably the only textbook used for the introduction to economics for undergrads and was formerly a CEA chair. My guess is that his random blog has a readership that significantly outstrips that of Klein. As for the issues with Ezra Klein's article? Read Mankiw's post which direct addresses the specific issues. Money quote: "The study cited above points out that economic mobility is greater in some European countries. That fact does not surprise me, as those are nations with less inequality. Moving up and down a short ladder is a lot easier than moving up and down a tall one.")
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    Feb 01, 2011 3:00 PM GMT
    riddler78 said
    wran said
    riddler78 saidI believe you completely missed the point. In very real terms your average poor person can afford these technologies that did not exist previously. ie People can buy more/do more with their money therefore they are wealthier because their money is worth more. That's hardly a flaw in reasoning - simply a reflection of the vast improvements in technology and efficiencies in manufacturing.


    If the article was trying to say the poor have it better because of improvements in technology and availability in technology it failed. This article has an agenda that tries to diminish poverty, and the growing gap between the rich, and everyone else.


    But it does. It makes the argument in two parts. It argues that first, they're not the same people who are extremely impoverished referencing the University of Michigan study:

    If we really want to know what happened to the poor of 1979, we need to be able to track specific households through time. Fortunately, we can. According to researchers at the University of Michigan, households in the bottom fifth in 1975 earned an average of almost $28,000 more per year by 1991, adjusted for inflation. According to U.S. Treasury data, a whopping 86 percent of households in the bottom fifth in 1979 had climbed out of poverty by 1988.


    You can make the argument that mobility in the US sucks - and from one perspective it does, though in another it really doesn't (see addendum to my post above from Greg Mankiw), but that 'miserable mobility' has still meant that the bottom fifth of households tracked earned 28K more by 1991 from 1975. And then second, it makes the lifestyle argument that those who are considered extremely impoverished in fact live much better lives than those who were in the same income positions 20-30 years ago because of deflation from technology/innovation.

    (PS - lol - random blog? Clearly your grasp of economics is um limited, or at least you would have come across Mankiw who writes probably the only textbook used for the introduction to economics and was formerly a CEA chair. As for the issues with Ezra Klein's article? Read Mankiw's post which direct addresses the specific issues.)


    I know what the article states, and I've read your source. You rejected mine and pointed to an unknown blogger who had a very short and unsourced opinion piece. We're just going to have to agree to disagree.

    "The study cited above points out that economic mobility is greater in some European countries. That fact does not surprise me, as those are nations with less inequality." I think this quote says it all.
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    Feb 01, 2011 3:04 PM GMT
    wran saidI know what the article states, and I've read your source. You rejected mine and pointed to an unknown blogger who had a very short and unsourced opinion piece. We're just going to have to agree to disagree.


    Right... They both looked at the same original studies. I'll repeat the moneyquote: "The study cited above points out that economic mobility is greater in some European countries. That fact does not surprise me, as those are nations with less inequality. Moving up and down a short ladder is a lot easier than moving up and down a tall one."

    It's quite simple - not sure what there is there you don't understand. Mankiw did source his piece in the link. Mankiw is far more well known that Klein in policy and academic circles - a simple look at how much Mankiw is sourced in papers versus Klein might help.

    You seem to think that inequality itself is undesirable - on that we can disagree. I happen to think a wealthier society where everyone is wealthier both poor and rich is better than one where everyone is equally poor.
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    Feb 01, 2011 3:06 PM GMT
    riddler78 said
    wran saidI know what the article states, and I've read your source. You rejected mine and pointed to an unknown blogger who had a very short and unsourced opinion piece. We're just going to have to agree to disagree.


    Right... They both looked at the same original studies. I'll repeat the moneyquote: "The study cited above points out that economic mobility is greater in some European countries. That fact does not surprise me, as those are nations with less inequality. Moving up and down a short ladder is a lot easier than moving up and down a tall one."

    It's quite simple - not sure what there is there you don't understand. Mankiw did source his piece in the link. Mankiw is far more well known that Klein in policy and academic circles - a simple look at how much Mankiw is sourced in papers versus Klein might help.


    It is quite simple, I really don't understand your own confusion really.
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    Feb 01, 2011 3:08 PM GMT
    Hmmm...wealth is relative. If energy costs rise, and they are, those devices will be useless unless you can afford the power to run them.

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    Feb 01, 2011 3:09 PM GMT
    wran saidIt is quite simple, I really don't understand your own confusion really.


    Given your aversion to inequality, would it be fair to say that you believe that socialism works? I mean what's the end goal here, to eliminate poverty in real terms or to eliminate inequality?

    If both are the goal, then at least with respect to the former, anyone who has done any work in a developing country would tell you we've comfortably eliminated the former. If it's the latter only, what's sufficiently equal for you if you believe that it's fundamentally unfair for one person to earn more than another irrespective of reason?
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    Feb 01, 2011 3:11 PM GMT
    riddler78 said
    wran saidIt is quite simple, I really don't understand your own confusion really.


    Given your aversion to inequality, would it be fair to say that you believe that socialism works? I mean what's the end goal here, to eliminate poverty in real terms or to eliminate inequality?

    If both are the goal, then at least with respect to the former, anyone who has done any work in a developing country would tell you we've comfortably eliminated the former. If it's the latter only, what's sufficiently equal for you if you believe that it's fundamentally unfair for one person to earn more than another irrespective of reason?


    I don't think any of that really matters to be honest. I believe mixed economies work best, and that is all I'm going to say on the matter. Have a good day.
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    Feb 01, 2011 3:13 PM GMT
    wran saidI don't think any of that really matters to be honest. I believe mixed economies work best, and that is all I'm going to say on the matter. Have a good day.


    Heh, that's sort of what I thought.
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    Feb 01, 2011 3:14 PM GMT
    riddler78 said
    wran saidI don't think any of that really matters to be honest. I believe mixed economies work best, and that is all I'm going to say on the matter. Have a good day.


    Heh, that's sort of what I thought.


    Sure.
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    Feb 01, 2011 3:15 PM GMT
    meninlove said Hmmm...wealth is relative. If energy costs rise, and they are, those devices will be useless unless you can afford the power to run them.


    The technology that is emerging in energy/batteries is quite exciting. Have a look at shale gas which can only be extracted as a result of recent technologies. Then there are things like the Bloom Box. Even there are pockets were solar installations are economical. Bring on the higher energy prices for oil - it will only accelerate the development of alternatives.
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    Feb 01, 2011 3:17 PM GMT
    What's worth considering in respect to poverty is the number of poor that can afford health insurance.
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    Feb 01, 2011 3:21 PM GMT
    meninlove said What's worth considering in respect to poverty is the number of poor that can afford health insurance.


    My understanding in the US at least is that the absolute poor (and some of the relative poor) already have access through medicare - though I would agree that the US needs to do a better job. How it should do a better job I think is best left to other threads.
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    Feb 01, 2011 3:23 PM GMT
    riddler78 said
    meninlove said What's worth considering in respect to poverty is the number of poor that can afford health insurance.


    My understanding in the US at least is that the absolute poor (and some of the relative poor) already have access through medicare - though I would agree that the US needs to do a better job. How it should do a better job I think is best left to other threads.


    That would be a misunderstanding. In many states Medicare and Medicaid is only available to those who are disabled. Some states give it to women who're pregnant.
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    Feb 01, 2011 3:29 PM GMT


    Hmmm...socialized medicine. Which makes all those toys affordable to the poor. Now let's cut socialized medicine for the poor in an act of fiscal reform (remembering state bankruptcy apocalypse topics etc) and let's see if the poor can still have that monthly internet connection and pay that cell phone bill, fill that used car with gas and pay the car and house (apt) insurance.


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    Feb 01, 2011 3:34 PM GMT
    meninlove said

    Hmmm...socialized medicine. Which makes all those toys affordable to the poor. Now let's cut socialized medicine for the poor in an act of fiscal reform (remembering state bankruptcy apocalypse topics etc) and let's see if the poor can still have that monthly internet connection and pay that cell phone bill, fill that used car with gas and pay the car and house (apt) insurance.


    To state that the US healthcare system isn't working and then to jump to the conclusion that what's needed is socialized medicine is an unnecessary leap. There is a lot that is wrong with the US healthcare system and very little of that is the result of competition - but rather the lack of it. Your point is also a red herring given that the healthcare act is additive - they apparently are able to still have "that monthly internet connection and pay that cell phone bill, fill that used car with gas and pay the car and house (apt) insurance" - whether or not they have healthcare is a different matter - I presume that many don't but the reality is also that many do.
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    Feb 01, 2011 3:49 PM GMT
    riddler78 said
    meninlove said

    Hmmm...socialized medicine. Which makes all those toys affordable to the poor. Now let's cut socialized medicine for the poor in an act of fiscal reform (remembering state bankruptcy apocalypse topics etc) and let's see if the poor can still have that monthly internet connection and pay that cell phone bill, fill that used car with gas and pay the car and house (apt) insurance.


    To state that the US healthcare system isn't working and then to jump to the conclusion that what's needed is socialized medicine is an unnecessary leap. There is a lot that is wrong with the US healthcare system and very little of that is the result of competition - but rather the lack of it. Your point is also a red herring given that the healthcare act is additive - they apparently are able to still have "that monthly internet connection and pay that cell phone bill, fill that used car with gas and pay the car and house (apt) insurance" - whether or not they have healthcare is a different matter - I presume that many don't but the reality is also that many do.


    Ah ah ah! Don't be putting words in my mouth. You're the one that stated the poor have medicare etc.

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    Feb 01, 2011 4:01 PM GMT
    Oh, look. Another thread where riddler rationalizes the extreme inequality in the US by saying "people in other countries are even poorer." icon_rolleyes.gif
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    Feb 01, 2011 4:05 PM GMT
    Christian73 saidOh, look. Another thread where riddler rationalizes the extreme inequality in the US by saying "people in other countries are even poorer." icon_rolleyes.gif



    ..well, using that kind of reasoning applied to other topics, you don't need equal rights for gay people in America, because in some countries gays are executed, so American gays have it good!



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    Feb 01, 2011 4:14 PM GMT
    meninlove said
    Christian73 saidOh, look. Another thread where riddler rationalizes the extreme inequality in the US by saying "people in other countries are even poorer." icon_rolleyes.gif



    ..well, using that kind of reasoning applied to other topics, you don't need equal rights for gay people in America, because in some countries gays are executed, so American gays have it good!


    are we saying the Europeans are poor then?icon_rolleyes.gif
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    Feb 01, 2011 4:15 PM GMT
    Rofl!