(Second of three parts; click here to read Part 1)

Finally, a focus on relative poverty prevents us from making sound judgments about the economy. As long as we concentrate on how the economy allows some people to do so much better than others, we'll never be satisfied with our national economic progress. If, on the other hand, we judge economic policies by their ability to lift the poorest people out of poverty, we'll be able to discern more precisely how well or how poorly our policies are faring. Our primary moral consideration cannot be how well we're doing in "closing the gap" between the rich and poor, but rather how well we're doing in reducing the number of people living in destitution. We must ask whether a proposed policy is likely to produce a situation in which everyone does equally poorly, or one in which everyone does better but some do phenomenally well--thus increasing the gap between the richest and poorest. There's something awry when we condemn an economy in which most people are doing better simply because in that economy the very rich happen to be doing so much better than everyone else.

Correcting The Conversation

Whether or not we should be focusing on inequality, that's what the conversation is about. Thankfully, in the last year or two, several new participants--Michael Novak, Karl Zinsmeister, James Glassman, Charles Murray, and others--have joined the discussion, largely to challenge the claims made by Reich, Lind, Thurow, et al. These newcomers have marshaled evidence that calls into question some of the main claims bandied about in the inequality discussion.

Consider first, for example, the allegation that American economic growth is not benefiting, and indeed, cannot benefit, everyone. This claim rests on the supposition that permanent socioeconomic classes exist in America (or, to put it in Reich's terms, that people always remain in the same boat). This proposition is erroneous, because most people's level of wealth or poverty depends on their life-stage. "Most people cycle through different zones of the income spectrum at different times," explains economist Karl Zinsmeister of the American Enterprise Institute. Only a small portion of the population is stuck in the rut of long-term poverty.

The data on income mobility in America reveal persuasively that opportunities for getting ahead abound--even in our highly competitive and globally entwined economy. Treasury Department data, for example, show that over 85 percent of Americans whose income was in the bottom quintile in 1980 had moved to a higher quintile by 1988. Some 16 percent even moved all the way from the bottom to the top. In addition, a study by economist Isabel Sawhill reveals that "almost 40 percent of Americans who were in the lowest income fifth in 1984 were out of it just one year later." A study by economists at the Federal Reserve Bank of Dallas, which examined the period 1975 through 1991, found that only 5 percent of the individuals who started in the poorest fifth of the income distribution remained there: by 1991, 95 percent of them had moved to a higher bracket. Similarly, 73 percent of those in the second-to-lowest bracket had moved into a higher one by 1991.

The data do, however, suggest that our economy places a high premium on education and technical skill. The prospects for high-school dropouts are not very good, and, as a result, we should increase our attention to educational initiatives. Even so, we must put the importance of education in context. After all, many of America's richest citizens never graduated from college. A college degree typically increases one's earning prospects, but an entrepreneurial spirit can foster even greater economic success. Moreover, we should remember that more and more kids are attending college. As Stephan Thernstrom noted in The Public Interest (Winter 1996), "The proportion of 25-to-29 year olds with a college degree has soared from one-ninth to one-quarter in the past three decades." Even more important, more kids from poor families are going to college. Between 1973 and 1993, Thernstrom writes, "The proportion of high school graduates whose families were in the bottom fifth of the income distribution who went directly to college the year after graduating almost doubled, rising from 26 percent to 50 percent, quadruple the rate of increase for high school graduates in general."

When assessing the claim that today's economy destines blue-collar and service workers to scanty economic rewards, we should remember that this view sees these individuals exclusively as workers. But workers are also consumers and investors. Forces in contemporary capitalism may be holding wages down in certain sectors of the economy. But other forces are also lowering prices on various goods and making higher quality goods available, thus counterbalancing some of the effects of stagnant wages. Other forces are fueling stock market growth. This benefits the worker who holds stocks or whose company pension is invested in a successful mutual fund.

What about the claims that middle-class incomes have stagnated and that today's average families are actually worse off than their parents' generation? According to Zinsmeister, statistical quirks and less-than-stellar journalism have created a misleading impression of the state of the middle class. He notes, for example, that in the 1960s, the U.S. government made a serious error in calculating changes in the consumer price index (CPI). Since these figures are used to make inflation-canceling adjustments in official income data, the income numbers were also thrown off. Government statisticians rectified the error in 1983 and corrected years of official statistics. Not all of today's journalists, however, are careful to use the corrected figures. And the old, errant figures show 9 percentage points less growth in family income over the period 1967 to 1983 than what actually occurred.

Moreover, the income figures bandied about in discussions of the "stagnating middle class" are misleading because they do not include valuable contributions to family well-being such as employee health-insurance plans, pension plans, and other fringe benefits. If we look at income data alone, we end up concluding erroneously that families are worse off than they really are.

The assertion, then, that baby boomers are worse off than their parents' generation is questionable. Sometimes those making this argument fail to make important adjustments in their comparisons of today's families with the previous generation--such as adjustments in family size. After all, a small family in 1990 making the same amount as a large family in 1970 is actually richer (although when elder-care issues come into play, children from a small family will have to bear a heavier burden).  A 1993 study by economists Richard Easterlin, Christine Schaeffer, and Diane Macunovich that carefully compared baby boomers with their parents demonstrated that the boomers were, on average, about two-thirds better off than their parents were at the same age.

Housing data reveal this clearly. Today, 57 percent of all married couples under age 35 own their own homes--up by a third from a generation back. And since income per capita has risen faster than the cost of new housing, housing has actually become more affordable than it was a generation ago. As Zinsmeister sums up, "Claims that today's young adults are being squeezed out of the American home-buying dream are, quite simply, hot air."

What about the claim that the poor are getting poorer? Here, too, we need some clarifications to get an accurate handle on the real situation. The present debate skews our understanding of the condition of poor families because, again, it considers only income data. This leaves us with an impression that the poor are worse off than they really are. Many poor families receive noncash benefits, such as Medicaid, food stamps, and rent subsidies, which are not counted as income but which obviously contribute to overall well-being.

Consumption data may offer a more accurate picture of the state of the nation's poorest fifth. According to a researcher at the National Center for Policy Analysis, "economic consumption by households in the lowest 20 percent of the U.S. income distribution is more than double their reported income." Consumption by the poorest people today is greater than consumption by the typical family in 1955. This does not sound like things are getting worse. Consumption data also give us a better perspective on the differences in standards of living between the rich and poor. While the top 20 percent of households earn 13 times as much as the bottom, they consume only four times as much (and, when adjustments are made for family size, the ratio is only 2:1).

Other impressions about the state of today's poorest families also undercut the claim that their material conditions are deteriorating. Seventy-five years ago, the poorest families had to devote fully three-quarters of their income to food, clothing, and shelter. Today, families in the poorest fifth of the income distribution spend about 45 percent of their funds on these basic needs, leaving more discretionary money available. And these assets are going toward the same amenities enjoyed by better-off families. Seventy-two percent of poor families, for example, own a washing machine, 93 percent own a television, and 60 percent own microwave ovens and VCRs. Many poor Americans own more appliances than do middle-class Europeans. Additionally, some people in the poorest fifth are elderly folks who, despite low income, maintain a reasonable standard of living. They own their own homes free and clear, have modest living expenses, and sometimes possess substantial assets.

(Second of three parts; click here to read Part 3)

Copyright(c) 1997 by Christianity Today, Inc./Books and Culture Magazine. July/August, Vol. 3, No. 4, Page 3

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