The Myths of Rich and Poor.

January 01, 1999  ·  Michael Fumento  ·  Economy

(The Myths of Rich & Poor: Why We're Better Off than We Think, by W. Michael Cox and Richard Alm, New York: Basic Books, 248 pages, $25.00)

With the stock market booming, the federal budget in the black (at least if you count Social Security receipts), and inflation crawling along in the basement, you’d think the last thing we’d need is a good news book about Americans’ economic position, right? Wrong. First, the bad news business is always booming. (If there were a mutual fund for bad news products and services, I’d plow my life savings into it). Second, to many there’s almost something reassuring about bad times. After all, the higher you go, the more it hurts when you fall. So now is as good a time as any for Myths of Rich and Poor, by Federal Reserve Bank Vice President W. Michael Cox and Dallas Morning Newsreporter Richard Alm, a fascinating eye-opener that somehow manages to shoot out numbers like a submachine gun and yet keep you thoroughly engrossed. Does the book claim this bull market will go on forever? Obviously it cannot. Will inflation always be this low? That’s up to us, but probably not. Will the budget remain in the black? Not if the Democrats can help it. Not if the Republicans can help it. Stop asking such silly questions; those aren’t the point of this text. Rather, it takes a long view of conditions (usually back to 1970; but often back to 1900) and points out that despite myriad ups and downs, despite the doomsayers who come and go, in the ways that really count, Americans just keep improving their lot. And there’s probably not a damned thing President Clinton or Congress can do about it. They start out with ten widely-accepted myths among many Americans, especially the media. These include: * American’s living standards have been falling since the early 1970s. * We’re working more, and there’s never enough time to enjoy life. * Women and minorities are falling further behind. * The U.S. is falling behind in the race for economic supremacy.

By the time they are done, Cox and Alm have sent each myth spiraling to earth with a thick stream of smoke trailing out the back end, for "in each and every instance," they note, these statements "are not just wrong [but] spectacularly wrong." For example, the kernel around which the first myth is based is that the hourly wage adjusted for inflation has fallen nearly 15 percent since 1973. The answer: So what? The only measure that truly counts is what we can buy for the amount of time we spend working. In those terms, prices on the whole historically have been and continue to be steeply declining. "The statistics on consumption the most direct measure of Americans’ well-being point to a nation that’s better off now than at any other time in its history," aver Cox and Alm. For example, a half gallon of milk cost the average worker 10 minutes of labor in 1970, 8.7 minutes in 1980, and only 7 minutes in the latest year for which data are available. A gallon of gasoline cost 11 minutes in 1950 but is now less than half that. But these are nothing compared to some price drops. A scratchy-sounding three-minute phone coast-to-coast phone call cost an incredible 90 hours of work back in 1910. Today, it’s less than two minutes of work time. A hundred kilowatt hours of electricity in 1900 cost a shocking 107 hours of worker time in 1900, a bit over an hour by 1960, and less than 45 minutes today. "A typical American at the turn of the century spent $76 out of every $100 on food, clothing, and shelter. By the 1990s, this portion had fallen to $37 of every $100," state Cox and Alm. Just since the 1970s, food and beverage costs fell from over 19 percent to about 15 percent, notwithstanding that we’re eating out more and bringing home pre-prepared food more than ever. There are seeming exceptions, but even with these the usual explanation is that what you’re paying more for in terms of work hours is not comparable to what you formerly paid for. Thus, the average house at first seems to cost considerably more work hours today than in 1970. But factor in the increased size of homes and they cost just 10 percent more. Now factor in lower mortgage rates and depending on the size of the down payment, houses built today are cheaper. And still we haven’t accounted for newer houses being more likely to have central heating, air conditioning, kitchen appliances, extra bathrooms, garages, better insulation, and none of that nasty lead in the pipes or paint. Likewise cars at first seem to cost about the same number of work hours as they did in the 1970s. But they are now far safer, pollute much less, and are loaded with standard goodies like high-quality stereos that weren’t even available as options in 1970. To make the point I offer but four words: "Eight-track tape players." Brrr . . . . Anything with a high labor component is likely to have declined less in price per work hour. On the other hand, the prices of products with a small labor component such as computers have sunk faster than the Titanic. This helps explain the most glaring exception to the general rule, college tuition. Unlike with houses or cars, it’s difficult to argue college students are getting more for their money than formerly. Actually, it’s darned hard. But in great part, tuition reflects wage increases for instructors and administrators — along quite probably with the perverse effect of rising government aid allowing schools to get away with raising tuition costs which in turn, yes, leads to even higher levels of government aid. Unfortunately, conspicuous by its absence in this book is any comparison of hours worked versus medical care. There seems little doubt that, like tuition, it is taking up a greater amount of hour wage hours, but how much we are not informed. Surely comparing care now versus care in the 1970s isn’t like comparing the costs of a TV or a VCR, yet one wishes the authors had tried. Importantly, they do provide interesting data that we are getting more and more out of health care, noting for example that huge increases in areas such as life expectancy, infant mortality, organ transplants performed, and survival time after such transplants. And while complaining about our health will always be a favorite national pastime, it’s interesting to learn that the number of us rating our health as "fair or poor" has fallen from 12.2 percent in 1975 to 9.6 percent in 1994, even as the population has aged. With few exceptions the data are truly encouraging. Every year, we’re able to buy more with our work or conversely work less for the same products. True, this may lead to more crass materialism on the one hand and more couch potatoes on the other. But Furby obsessions and Jerry Springer on the tube seem a small price to pay for a society in which those classified as "poor" can buy many things that even well-off Americans couldn’t afford a few decades ago. And how about those poor? Considering a common definition of "poor" is those in the lowest 20 percent of earnings and somebody> has to be in that lowest fifth, don’t expect their numbers to decrease any time soon. But again, Cox and Alm cut to the crux: How well off are these poor? One of their many fascinating tables compares poor households in 1984 to those in 1994 to all households in 1971. Herewith, a sampling: ### Even the Poor Have More

Percent of Households With: Poor Households'84 Poor Households '94 All Households '71   Washing Machine 58.2 71.7 71.3   Microwave 12.5 60.0 <1.0   Color Television 70.3 92.5 43.3   Dishwasher 13.6 19.6 18.8   One or More Cars 64.1 71.8 79.5   Source: *Myths of Rich & Poor*, table 1.2  As Cox and Alm observe, "By the standards of 1971, many of today’s poor families might be considered members of the middle class." The improvements cut across gender and racial lines as well. While some feminists continue to insist women are being underpaid compared to men, even they don’t contest that what they call the "pay gap" has narrowed dramatically. As for race, "After adjusting for inflation, the proportion of African-American families earning more than $75,000 has tripled since 1970, to 9 percent," note the authors. "In 1998 the poverty rate for African-Americans fell to 26.5 percent, the lowest since the government began collecting data on blacks’ poverty in 1959." Still, we could be doing better as a nation yet slipping behind other countries, something some of us would find quite offensive.  But regardless of whether you think it’s important, it just ain’t so. As we’ve found in recent months, the "Asian Tigers" have proved to be pussycats compared to our economy. When you talk about exporting powerhouses, the name on everyone’s lips is always "Japan."  Yet America’s overseas sales of goods and services were almost double that of Japan in 1996 and the U.S. doesn’t have a U.S. to export to! America’s share of world exports has remained constant, at about 13 percent over the last quarter century, which is hardly evidence we’re becoming less competitive.  Just compare the quality of American cars built this year to those of five years ago much less ten and you’ll see a bit of the evidence as to why. Of course, there’s more to life than greater wealth for instance, more time with your loved ones. That, too, is part of the trend. For all the talk of "The Overworked American," as one book published a few years ago was titled, Americans on average are actually working fewer hours than ever. According to the authors, the typical workweek was 34.4 hours in 1996, down from 36.9 in 1973. Employees work fewer hours in a number of ways fewer days, later arrival, earlier departure, longer breaks. "Putting it all together," they write, "average annual work hours are down 10 percent since 1973 the equivalent of 23 work-days a year." Thus, "When declining working hours, less time spent toiling at home, extended youth [getting jobs later in life], and longer retirement are all added up, the results are mind-boggling: American workers, on average, have added the equivalent of more than five years of waking leisure to their lives since 1973."  Some of us may spend that time watching Jerry Springer, to be sure, but it does allow more opportunity for more satisfying leisure which the authors document we are engaging in more and more. It’s also more time to be spent with loved ones and for doing charity work. "Almost half of the population finds time for some volunteer work," write the authors, "up from less than a quarter in 1974."  If there’s something sad about all this, it’s that so many Americans are convinced these improvements are the fruits of "reinvented government." Polls show this is one reason they are so forgiving of Bill Clinton’s dogged efforts to become the most scandalous president in U.S. history.  But, "It’s not government policy that gave us drive-through service, instant mail, [ATM] machines, home shopping networks, air-conditioned offices, and much, much more," note the authors.  "It wasn’t public decree that raised life expectancies by 30 years over the past century, or shortened our workweek by more than 20 hours. Over the past 200 years, we’ve progressed not by the grace of government but by the mechanism of the market." *Myths of Rich and Poor* makes no pretense that greater wealth necessarily equals greater happiness. There are bitter billionaires and happy homeless persons. Data available elsewhere shows what one would intuitively expect that at least to the extent it raises a person above subsistence level (much less starvation) more wealth does bring joy.  Beyond that, it’s up to us to make of our possessions and our time what we wish. We can even spend it writing books about how the economy is doomed. (Remember all those: *The Coming Crash of 1980s* books?) But both Adam Smith and the *Bible *agree: Free will is a good thing.