The Myth That the Poor are Getting Poorer

One of the pervasive economic myths of our time is that the rich are getting richer and the poor are getting poorer, especially the second half. Like all myths, it has a kernel of truth to it - if you do a comparative statics of the percentage of income going to each of the income quintiles, most data do suggest that the rich have a higher percentage than they used to, and the poor a lesser percentage. However, the comparative statics ignores the issue of mobility: the people who comprise the quintiles change from year to year. If we really wanted to know if the rich were getting richer and the poor poorer, we should ask two different questions:

As for the second question, I reprint a table that I've used in a variety of lectures the last few years. This data compares the percentage of households with various consumer goods in them. Note that the first three columns show the lowest income quintile over an 18 year period, while the last column shows ALL US households in 1971. Two things are clear: the poor have continued to live better and better over that 18 year span and poor Americans in 2002 lived better, by this measure, than the average American did 30 years earlier. So much for the idea that this generation is not doing better than its parents. And, of course, this table does not account for all of the new products that even the poorest Americans have today that no one had 30 years ago, e.g. cell phones.

% Households with:	Poor 1984	Poor  1994	Poor 2002	All 1971
Washing machine	58.2	71.7	80.0	71.3
Clothes dryer	35.6	50.2	77.1	44.5
Dishwasher	13.6	19.6	58.1	18.8
Refrigerator	95.8	97.9	99.2	83.3
Freezer	29.2	28.6	30.8	32.2
Stove	95.2	97.7	98.3	87.0
Microwave	12.5	60.0	93.2	1.0
Color TV	70.3	92.5	98.2	43.3
VCR	3.4	59.7	86.9	0.0
Personal computer	2.9	7.4	59.3	0.0
Telephone	71.0	76.7		93.0
Air conditioner	42.5	49.6		31.8
One or more cars	64.1	71.8	85.7	79.5

Lest you think these are frivolous consumer trinkets, consider the health benefits of air-conditioning, the way in which having one or more car makes employment easier, or the ways in which washers and dryers promote cleanliness and good health, or the ways in which cell phones can safe a life and, along with computers, enable us to have access to information and contact with friends around the world.

I know that there are libertarians out there who will criticize this argument on the grounds that I'm making it seem like life is pretty good under the status quo, which runs in the face of the view among some libertarians that the US is on the precipice of a moral and/or economic collapse. I certainly agree that in a more libertarian world, these trends would be even more dramatic (think of the impact on the incomes of the poor if we could reform the educational system along market lines, get rid of minimum wage and licensing laws that restrict employment opportunities, and end the economic and human destruction the War on Some Drugs has caused to poor neighborhoods). But that doesn't mean that the powerful forces of the market don't operate, if only in the form of a somewhat palsied invisible hand, in our own mixed economy. If even a hampered market economy can produce opportunity and rising real incomes for the poor, imagine what an unhampered one could do!