Dakota Beacon

In the United States, people who contend that the rich are growing richer at the expense of the poor don't have reality on their side. To accept the claim, one must believe in a finite-sized pot of wealth from which everyone is supposed to be allocated a "fair share." But a simple thought experiment reveals the argument's flawed logic.

If economic resources were finite, then as the multitudes grow more multitudinous, each generation would contain poorer individuals than preceding generations. If, as the limited resource crowd claims, the rich keep gathering more than a "fair share," then successive generations of poor would grow desperately destitute.

Enter, the truth.

The gross domestic product of the United States has increased immeasurably since the War for Independence. America's poor have grown wealthier than the poor in societies that suffered at the hands of the spread-the-wealth mantra (Mao, Stalin, Chavez, etc...). The income gap worriers are flat wrong.

Let's expand.

The Economics Policy Institute has released the latest installment of "The State of Working America," in which the organization claims that the very existence of a widened income gap in America proves that the rich are profiting at the expense of the poor. Economist Steven Horwitz writes:

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.
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If we really want to know what [is happening] to the poor… 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.

Furthermore, while the income gap certainly has widened,

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.

Groups like the Economics Policy Institute leverage opportunities like the current horrific unemployment situation to push a "give the greedy rich's stuff to the needy poor" approach. The argument plays well during hard times. Horwitz adds,

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.

So people can choose to believe the heart strings-tugging but false argument of spread-the-wealth zealots like Barack Obama and the Economics Policy Institute. But putting policies into action based on that belief would mainly serve to discourage the efforts of the people who create the jobs that funnel the income to people who need the jobs. Without jobs, the poor are unable to buy things. And they have been buying more and more things for some time now. America's lowest earners are far wealthier than their low-earning predecessors.

Low earners in America are upwardly mobile. As Horwitz points out, households in the bottom fifth of earners have cable TV, internet, cell phones, microwaves, etc. There is no objective basis for shrill cries that America's poor are getting poorer.

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© 2011 Chuck Rogér