Yesterday when I went for my infusion, I brought two items of reading material with me; The Wall Street Journal and the SSRN un-gated version of the Steve Horwitz’s forthcoming paper in the Spring 2015 issue of Social Philosophy and Policy, “Inequality, Mobility, and Being Poor in America.” The paper is one of the best summaries of a very common sense approaches to the data and the issue and is highly recommended to any who want to be well informed. What I missed (HT to Peter Lewin) was the Journal quoted the abstract in its “Notable & Quotable: Steven Horwitz” with the sub-title “What’s missing in the conventional narrative about poverty and inequality.”
From the abstract:
The conventional narrative that the last generation has seen the rich get richer and the poor get poorer while the middle class gets hollowed out has serious flaws. First, the claims of growing inequality overlook data on income mobility. It is not the same households who are rich and poor each year, and many poor households become richer over time. Second, the claim of middle class stagnation is largely a statistical deception based on an incomplete interpretation of median household income. The middle class has shrunk but so has the percentage of poor households as the percentage of rich households has grown significantly in the last few decades. Third, looking at consumption rather than income enables us to see both the absolute gains of poor US households and the narrowing of the gap with the wealthy. Poor US households are more likely to have basic appliances than the average household of the 1970s, and those appliances are of much higher quality. Together these three points offer a much more optimistic view of the degree of inequality and the ability of the poor to become rich.
I include his important conclusion:
The paper, by its use of labor time to compare opportunity costs of similar consumer goods over time, highlights how much Federal Reserve policy has distorted prices over time, making them close to useless for calculation. The paper also makes a very useful, but too often forgotten point, that the price of a good not available is infinite, so availability even at a high initial price is a reduction in opportunity costs, not an increase.Concluding Thoughts on Inequality and Poverty Post-2008
The financial crisis and the subsequent response to it have triggered new concerns about issues of inequality and poverty. Although many at the very top lost a lot in 2008, they seem to have recouped much of those losses even as those in the middle and at the bottom have found that the slow recovery has not brought them along for the ride. Various measures of inequality seem to have gotten worse in the last few years, with a recent study indicating that over 95% of the income gains between 2009 and 2012 went to the top 1%.22 For critics of the market, this is taken as further evidence for the arguments explored earlier in this essay. However, an alternate interpretation is available. Recessions normally cause setbacks in the improvement of various economic indicators, but the recovery is usually quick. If inequality has become worse, and if the improvements in the lives of poor and middle class have stagnated and don’t seem to be heading back to trend, perhaps this has to do with the policy choices that affected the depth of this recession and the slow recovery. Whatever the causes, if the uptick in inequality and the stagnation of the lower and middle classes is real, it demands our attention. However, it should be seen not as the continuation of a generation long, or century long, trend, but as the reversal of long term real gains that have improved the lives of poor and middle class Americans in significant ways.
