Settling the “Gap Between Rich And Poor” Argument Once And For All…
By Shaun Kenney | Tuesday, April 5th, 2011 | Policy
Vivian Paige posts the following nonsense from DPVA executive director David Mills, who apparently neglected a great deal of economics courses offered to him while obtaining a college education:
The nonpartisan Commonwealth Institute for Fiscal Analysis recently released a report stating that the gap between the rich and the poor in Virginia is now the third widest in the nation and the widest in 30 years.
Riiiight… because when income levels rise everywhere, that means the middle class is somehow evaporating. Follow that logic, folks?
Allow me to do the educational service that Mills apparently could not form for himself, by way of Lady Margaret Thatcher:
“What the right honorable gentleman is saying is that he would rather the poor be poorer, provided the rich were less rich!”
That about sums it up.
… but let’s review what the DPVA executive director is actually saying here. If Smith made $20K, and Jones made $40K two years ago, and today Smith makes $24K and Jones makes $48K… the middle class is dying. It doesn’t matter that both individuals are making more money. It only matters that Jones has more of it.
Worse, middle class voters are overwhelmingly Republican voters. Democrats typically fall into two categories: those who would benefit from being a liberal, and those who can afford to be a liberal.
Given the current economic policies of Barack Obama and the reckless spending of the Democratic Party, I’d say there’s far fewer of the latter today, and plenty more on the road to being the former. Better for the poor to be poorer, says the cookie cutter Virginia Democrat, so long as the rich are less rich.
In effect, the DPVA just declared war on economic prosperity. Trillions in spending, trillions more in debt, and now a war against wealth. Nice touch, fellas…
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About the author
Shaun Kenney is the Chairman of the Fluvanna County Board of Supervisors, former Communications Director for the Republican Party of Virginia, and an active blogger since 2002. Shaun lives in Thomas Jefferson's backyard with his wife, six children, and a modest attempt at a farm in Kents Store, Virginia.
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25 Responses to "Settling the “Gap Between Rich And Poor” Argument Once And For All…"
Once and for all, huh? And I suppose you also believe that we’re currently in a time of economic prosperity, because that’s vital to your argument.
Yes, if we’re in times of economic prosperity, the gap is less of an issue, although there are strong arguments that it remains an issue. Right now, with the gap growing and a time of decided non-prosperity, I don’t understand your argument.
Isaac,
You apparently didn’t understand the economics. If a rising tide lifts all boats, then who is to say that the smaller boats have to get bigger at the same or faster rate as the larger boats? Expressed another way, if I earn $1M a year and you earn $100K per year and we cut taxes across the board by 10%, then why is your $10K reduction less fair than my $100K reduction?
It is an irrefutable fact that the “median” income in this country has been constantly rising since 1970. Unless you are completely ignorant of statistics or in total denial, that means that middle class incomes are rising at a constant rate. It may be that the upper strata may be accumulating wealth faster, but it is most certainly not at the expense of the middle class. In fact, the growth of income among the higher income brackets is precisely why the middle class is seeing higher income growth. This is the investor class who provide capital to create new jobs which increases demand for labor. Higher demand for labor creates higher salaries and wages.
Liberal talking point: “The rich are getting richer as the middle class get poorer. Therefore, tax the rich more.” Pure, unadulterated bullshit. This is a thinly disguised ploy to confiscate wealth and redistribute it to those who did nothing to earn it.
Hisroc:
You say: “It is an irrefutable fact that the “median” income in this country has been constantly rising since 1970. Unless you are completely ignorant of statistics or in total denial, that means that middle class incomes are rising at a constant rate.”
I might be reading the data wrong, but while it is true that median income has risen since 1970, the rise has not been constant. For example, adjusted for inflation median household income fell for five consecutive years between 1978 and 1983, for four consecutive years between 1989 and 1993, for five consecutive years between 1999 and 2004, and from 2007 to 2009. While median income adjusted for inflation increased 16% between 1975 and 2009, perhaps more relevant to current perception of one’s economic status in America is the fact that median income, adjusted for inflation, fell 4.2% between 2000 and 2008.
What’s more, between 1989 and 2009, a period of 20 years, median household income, adjusted for inflation, rose a scant 2.7%.
aznew –
So just to be clear, you are arguing that the standard of living for the average American in 1970 is higher than the standard of living for the average American today, yes?
…or at the very least, only 2.7% higher?
Shaun – I don’t really understand your question. All I’m addressing are Hisroc’s assertions about median income. If I am understanding the data correctly, it seems to say that median income over the last 20 years has increased only 2.7%.
Hisroc seemed to me to be arguing that a constant increase in median income between 1970 and 2009 was evidence that, in his words, the more rapid growth among the upper strata “is most certainly not at the expense of the middle class.”
Since there has clearly not been a constant increase in the median income since 1989, I am curious what, if anything, Hisroc concludes from that fact insofar as it relates to income inequality over that period.
Income inequality is a separate issue from whether the wealthy are gaining their money “at the expense” of lower income classes. Even static income adjusted for inflation is not a decrease. In addition there are all kind of definitional and demographic issues at play. As the Census Bureau noted in 2006 “While household income has increased, its growth has been slowed by a decrease in married-couple households who tend to have two earners and, therefore, higher incomes. As the majority of households in the top quintile had two income earners, versus zero for the lowest quintile and that the widening gap between the top and lowest quintile may largely be the reflection of changing household demographics including the addition of women to the workforce”
There simply is no support in any of these numbers for the leftist propaganda that the wealthy are “looting” the middle class. However, the rise in income inequality is real and greatest in the top 5% according to the Census. Apart from education and demographic factors, I believe the upper end wealth has been concentrated mostly in areas supportive of leftist Dems eg entertainment Hollywood, financial services and silicon valley. These areas are protected by the Dems and the media where it matters. They are shielded from the leftist tax and regulatory agenda through loopholes, waivers and exemptions. Consequently they have thrived.
Valentinus:
You state, “Income inequality is a separate issue from whether the wealthy are gaining their money “at the expense” of lower income classes.”
According to Hisroc, however, this is the data point he looks at. He states, above, “If a rising tide lifts all boats, then who is to say that the smaller boats have to get bigger at the same or faster rate as the larger boats? … It is an irrefutable fact that the “median” income in this country has been constantly rising since 1970. … [T]hat means that middle class incomes are rising at a constant rate. It may be that the upper strata may be accumulating wealth faster, but it is most certainly not at the expense of the middle class.”
Hisroc’s reasoning is definitive enough — one can agree with it or not. You, apparently, do not agree with it, as is evident from the reasons you provide why Hisroc’s data does not support the conclusions he reaches.
My question simply goes to the facts on which Hisroc’s conclusion is based, namely his assertion that “it is an irrefutable fact that the ‘median’ income in this country has been constantly rising since 1970.” When I looked at the data, this did not appear to be accurate to me — there have been significant periods when median income, adjusted for inflation, did not rise, so I am not sure how one can characterize the rise as “constant.”
Further, while it is true that median income, adjusted for inflation, has increased since 1970 by roughly 16% (a scant 0.4% annualized), since 1989 — a period of 20 years — median income has increased only 2.7% — not a meaningful increase over that period of time. Assuming Hisroc’s logic is consistent (i.e., contant increases in median income establish that all boats are rising in this tide, and therefore the gains of the upper strata are not coming at the expense of the middle class), I am curious where these facts lead Hisroc in his analysis (or, of course, whether I am misconstruing the data).
Instead of arguing over one datapoint, why not recognize the wisdom in what Shaun wrote?
But what Shaun wrote isn’t wise. The middle class is disappearing and the citizens are poorer. Women had to join the work force to maintain the household standard of living in the 1970s and 1980s. In the 1990s to today, two incomes weren’t enough and the average American household has fallen into excessive debt to make ends meet. We have gone from a nation of savers to a nation of the indebted. Add runaway inflation induced by the Federal Reserve to the mix coupled with massive unemployment, and every year becomes harder for the average family. If Shaun believes that the typical American citizen isn’t becoming poorer year over year then I don’t find his words wise at all.
Just to let you all know, I will opine on this when I get home from work.
Consider this a place holder.
I agree with Shaun, and what he has said is wise although he left out a few things. Probably because he expected his audience to know a little more about economics, and not just numbers.
You want to know something? I am starting to question all of these inflation adjusted figures.
Inflation is supposed to be single digits, but the costs to my business have increased by double digits in the last few years. This is over and above the costs my family is experiencing in existing.
So what is my point? Official government estimates on inflation are intentionally weighted towards underestimation. Any cost estimate relying on these official statistics do not reflect real life. Did the middle class really gain anything as proven by these government statistics?
Let me give a real world example. How long did your Levy’s jeans last when they were made in North Carolina compared to the new ones made in China?
Brian –
Shaun seems to be saying that since middle class incomes are rising and the middle class is doing well, Dave Mill’s exhortations for policies designed to help the middle class must have some ulterior motive, i.e., they are really an attack on the idea of wealth.
At least, I think that is what Shaun is saying, based on the totality of his post and the following comment he makes at the end: “Better for the poor to be poorer, says the cookie cutter Virginia Democrat, so long as the rich are less rich. In effect, the DPVA just declared war on economic prosperity. Trillions in spending, trillions more in debt, and now a war against wealth. Nice touch, fellas…”
That conclusion seems to me to be dependent on Shaun’s initial premise, namely, that middle class incomes are rising, being true, because if the middle class is indeed hurting as Mill’s article suggests, then Mills’ defense of policies aimed at protecting the middle class is presumably genuine (whether you agree with his ideas or not), as opposed to a sub rosa attack on the idea of wealth. Shaun doesn’t appear to offer any evidence for his initial premise, however (unless I am missing it).
Then Hisroc stepped in to offer his “irrefutable fact” about the constant rise of household incomes from 1970 to the present in support of Shaun’s premise, but I am unclear whether it is either irrefutable or, therefore, a fact. If it is not, I asked whether it would affect Hisroc’s analysis (even if it didn’t change his conclusion). Or perhaps, as I said, I am misreading the data. If I am, Hisroc will presumably let me know.
(I am mindful of the arguments James Quigley raises about the problems with using median household income to measure the economic state of the middle class, but before even getting to those issues wanted to resolve the actual data with Hisroc.)
Lastly, I don’t know whether you saw this article in the Sunday NY Times, but I thought it was an interesting analysis of how income inequality is affecting the middle class, and why the “rising tide lifts all boats” approach might not work so neatly in the real world:
http://www.nytimes.com/2011/04/03/business/03view.html?_r=1&scp=1&sq=middle%20class%20housing&st=cse
And last, but not least, I am happy to see you running for the GA. While I would not vote for you if it were my district, I do respect that your are putting yourself out there to run for office to channel your beliefs into action, and in that spirit wish you the best of luck in your candidacy. — Alan
aznew,
We are arguing semantics. No one who has taken Econ 101 would believe constantly rising median incomes means that the median is higher year-after-year. We have these cycles called booms and recessions. That allows you to cherry pick a bracket like 2000-2009 and claim that median incomes are declining. I could pick a bracket and prove that median incomes are increasing by double-digit rates.
What I stated was that it is irrefutable that median incomes have been rising at a constant rate since 1970. And I am citing individual incomes, not household incomes, so you can trash can that dodge about household incomes increasing only because more families are two-income. The simple (irrefutable) fact is that median individual income in 1970 was $15,661 in 2009 dollars. In 2009 it was $26,530. That is an increase in constant dollars of 69% over 39 years.
http://www.census.gov/hhes/www/income/data/historical/people/index.html
As for the disappearing middle class and Americans becoming debtors rather than savers, we have become consumers rather than savers. 50 years ago, we had one telephone in the home, one TV set, and one car per family. There was no such thing as VISA or MasterCard. Big ticket items like appliances were bought on revolving charge plans, everything else was paid for by cash or check. Today, every member of the family has a cell phone and the house line has an extension in every room. There is a television in every room, including each bedroom and the kitchen. Each member of the family has their own computer and often no one shares a car with anyone else in the family. We buy on credit regardless of our bank account balance and the average American family carries over $10,000 in credit card debt. Not because they have to, but because they can. Show me a family with $10,000 in credit card debt and I will show you a family with three or more cars, who eat out at least one a week, and whose teenage kids (and more often pre-teen kids) have cell phones, iPods, and designer clothes.
The middle class isn’t disappearing; it is consuming itself into debt. And like a drug addict who craves his next fix, they look at those who are better off financially with envy and want the government to redistribute the wealth. That is why the lower you go in the economic strata, the more likely the people are to be Democrats.
Shaun, I’m usually not a fan of your thoughts but I found this contribution terrific! Well said and spot on!
If you really want to look at the reason behind why the income needed in an American family today is greater than it was when my parents raised me, just look at the things we spend money on now.
Bills in the 1970s – Mortgage, gas, electric, telephone, water, car, taxes.
Bills today – Mortgage (if you’re lucky), gas, electric, telephone (assuming you’re old fashioned), water, car, cell phone, internet, cable TV, computers, another car (because wife works), student loans (because most good jobs require a college degree), credit cards (multiple), security system for the house, taxes, daycare (because wife works).
And that’s just the stuff that I know we pay. Some have less, some have more, but the bottom line is that we expect and demand far more “essential” services than we did thirty years ago. And that all costs more.
All of us want to see a vibrant middle class, and I’ve been working to help create those jobs in the maritime industry for years now. But the argument that we’ll create more jobs by soaking the rich just doesn’t fly. Shaun’s point is valid – to someone making $1 million, $1000 isn’t a big deal. But to someone making $20,000 a year, $1000 is like hitting the lottery. It’s all about the utility of that dollar to the individual.
The economy isn’t a zero sum game. Because some folks are winning doesn’t mean someone has to be losing. The goal is make sure that everyone wins, and that happens best when we aren’t penalizing the folks who are doing well and we aren’t condemning the folks who aren’t doing as well to having to turn to the government as their only option.
Hisroc:
I defer to your superior knowledge of Economics (I don’t mean that to be snarky, I mean it seriously — I know little about the dismal science), but it appears to me that the data you cite is from table P-1, which is measuring per capita incomes, not median individual incomes.
It looks like table P-7 has the data you want. It shows (in 2009 dollars) median income in 2009 of $ 26,134, compared to 1974 (the earliest date provided) of $20,928. That looks to be an increase of about 24% over a period of 35 years — quite a difference from the 69% you cite.
Apologies if I am not reading this right.
aznew,
I stand corrected. Table P-1 was what I was referencing, but the correct figures are in Table P-10, not P-7. They show a growth in median individual income from 1974 to 2009 of 25%. Not the 69% I cited earlier, but still a pretty healthy middle class income growth when you consider that the figures are normalized for inflation. How many times in American history has middle class income increased 25% in a single generation? And yet the liberals would have us believe that the middle class is declining. I’m calling bullshit on that.
I still see no reason for the government to confiscate wealth from the upper middle class to ensure that all middle class people share equally in the economy. We used to call that concept “communism.” My father and mother were both raised poor in the Great Depression. They died as upper middle class. Many of their contemporaries died as blue collar working class. The difference was hard work, business acumen, and taking great risk as opposed to punching a time clock. They became upper middle class the old fashioned way–they earned it. That is the value system that created “the American Dream” and it is still out there if people are willing to work for it and not become government dependents.
http://freedomkeys.com/gapgraph.jpg
HisRoc,
There is nothing communist about a progressive tax system. Your (and my) parents’ generation came back from WWII motivated to make the world a better place and instituted a progressive tax system.
Perhaps you would call that generation, which some have as described as the Greatest Generation, as being a bunch of communists?
I describe a progressive tax system as being part of the American Way. It is the system our parents’ generation decided upon and I am going to stick with them.
Too bad our generation is so selfish and greedy.
When you close the gap between the rich and the poor, whether in percentage or value, you are actually measuring Communism. For when this gap is eliminated, capitalism no longer exists.
Sam Walton was extremely wealthy in 1970 but in 1948 he worked as a lifeguard, waiter and on a newspaper route…he has left us, replaced by four new billionaires added to the richest people in the world. In 1975, Bill Gates was a punk in college but he would turn out to be one of the richest men in the world. Both Steve Jobs and Bill Gates have arguably produced technological advances that have only helped mankind. No one can argue that Sam Walton, Bill Gates and Steve Jobs have produced more wealth, created more millionaires and provided mankind with a better life.
For people wanting to close the gap between the pay of a bus driver who aspires to be nothing more than a bus driver to these great titans is only doing it for their own selfish and greedy reasons.
It is interesting that the US has actually more progressive taxation in terms of payments across brackets than the European socialists. It is also interesting that politically connected Dems are so often caught trying to evade taxes. The Dems are not going to soak the rich because they are already paying the maximum. Raising taxes on them any more will simply force them to change their money management to avoid the extra tax. It is the middle class that the Dems want to soak at 50-60% rates.
John J.,
The issue is not the gap between the rich and the rest as you , myself and other non leftists here agree. It is persisting concentration of wealth. Fortunately in the US there are many barriers to a small group just hanging on to vast sums over more than a generation or two. Witness the Rockefellers, kennedys etc. In addition no one is wealthy compared to the government anymore unlike a century ago.
“If you really want to look at the reason behind why the income needed in an American family today is greater than it was when my parents raised me, just look at the things we spend money on now.”
Brian, you’re insinuation that we have higher incomes because we demand more goods is completely backward. We demand more goods both because we have higher incomes and because goods are vastly cheaper and more readily available (and I would argue that it has more to do with the latter). I don’t have the numbers in front of me, but I would bet that the price of a TV (and similar goods), as a percent, has dropped far more than the median income has risen.
Chris, I’m sure you’re right that the price of a TV has dropped far more than the median income has risen. And that’s why instead of having one TV, most families have two or more. The demand for goods has outpaced income for almost everyone, and thanks to easy credit, the demand has steadily increased even though income hasn’t matched it.
I remember those days. We had one tv, no cable and three channels. Cable TV was for the rich kids. Sometimes we’d change it to UHF to see the muppets through the snow.
There was no internet and most of the kids were outside playing or playing boardgames. We didn’t have the new X-Box that required additional bandwidth.
Each family had one car and normally you rode in the back window waving at the cops or pumping your arm at the truckers to blow their horns. Kids didn’t get a car for graduating HS, you were working a paper route, pumping gas, bailing hay or doing anything to make money. Or you didn’t have any.
Not everyone had air conditioning. Healthcare and car insurance wasn’t mandated. A family lived within their means.
Those were the days in which kids would hang outside the bar for someone to buy them beer, so they could ride around in the bed of the truck. Kids being kids…
Sorry, got carried away going down memory lane.
[...] I’ve noticed a resurgence in discussion about the income gap in the U. S. People are citing the widening of the gap with dire [...]
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