For all you doomsayers, especially boutons who continually
trashes the "rich" I post this column by Dr. Walter Williams.
Jewish World Review Dec. 5, 2007 / 25 Kislev 5768
Income mobility
By Walter Williams
http://www.JewishWorldReview.com | Listening to people like Lou Dobbs, John Edwards and Mike Huckabee lamenting the plight of America's middle class and poor, you'd have to conclude that things are going to in a handbasket. According to them, there's wage stagnation, while the rich are getting richer and the poor becoming poorer. There are a couple of updates that tell quite a different story.
The Nov. 13 Wall Street Journal editorial "Movin' On Up" reports on a recent U.S. Treasury study of income tax returns from 1996 and 2005. The study tracks what happened to tax filers 25 years of age and up during this 10-year period. Controlling for inflation, nearly 58 percent of the poorest income group in 1996 moved to a higher income group by 2005. Twenty-six percent of them achieved middle or upper-middle class income, and over 5 percent made it into the highest income group.
Over the decade, the inflation-adjusted median income of all tax filers rose by 24 percent. As such, it refutes Dobbs-Edwards-Huckabee claims about stagnant incomes. In fact, only one income group experienced a decline in real income. That was the richest one percent, who saw an income drop of nearly 26 percent over the 10-year period. The editors explain that these people might have been rich for a few years, had some capital gains, or could not stand up to the compe ion with new entrepreneurs and wealth creators.
The U.S. Treasury study confirms previous studies dating back to the 1960s, concluding, "The basic finding of this analysis is that relative income mobility is approximately the same in the last 10 years as it was in the previous decade." As such, it points to a uniquely American feature: Just because you know where a person ended up in life doesn't mean you can be sure about where he started. Most of today's higher income and wealthy did not start out that way.
What about claims of a disappearing middle class? Let's do some detective work. Controlling for inflation, in 1967, 8 percent of households had an annual income of $75,000 and up; in 2003, more than 26 percent did. In 1967, 17 percent of households had a $50,000 to $75,000 income; in 2003, it was 18 percent. In 1967, 22 percent of households were in the $35,000 to $50,000 income group; by 2003, it had fallen to 15 percent. During the same period, the $15,000 to $35,000 category fell from 31 percent to 25 percent, and the under $15,000 category fell from 21 percent to 16 percent. The only reasonable conclusion from this evidence is that if the middle class is disappearing, it's doing so by swelling the ranks of the upper classes.
What about the concentration of wealth? In 1918, John D. Rockefeller's fortune accounted for more than half of one percent of total private wealth. To compile the same half of one percent of the private wealth in the United States today, you'd have to combine the fortunes of Microsoft's Bill Gates ($53 billion) and Paul Allen ($16 billion), Oracle's Larry Ellison ($19 billion), and a third of Berkshire Hathaway's Warren Buffett's $46 billion. In 1920, America's richest one percent held about 40 percent of private wealth; by 1980, the private wealth held by the richest one percent fell to about 20 percent and has remained stable at that level since.
Demagogues duping Americans about stagnant and declining income give politicians justification to raise taxes and place regulatory obstacles in the path of risk-taking, productivity and hard work that will impede the enviable income mobility that has become a part of American tradition. Raising taxes on capital formation reduces the rate of capital formation. Raising taxes on income reduces incentives to work. Unfortunately, because so many Americans buy into the politics of envy, politicians have a leg up in enacting measures that cripple economic growth.
I consider myself middle class and things are going well for us. We didn't get one of those ridiculous ARM's. Have no college degrees, we have some debt but most of our increased cost of living is for gas and food. We've had to cut corners but I'm not complaining.
Although if I were rich I'd be much more of a philanthropist.
The democrats WANT there to be a lower class and upper class. You think all this stuff they try to throw at the wealthy actually affects them? No. They just throw assets in long term capital gains and call it a day. Didn't Hillary try to go after redoing the long-term capital gains tax code 6+ months ago to try and stick it to the wealthy even more? Won't that just hurt the middle class citizens who are trying to invest in hopes of one day reaching that wealthy status?
The problem is so many middle class citizens rely on debt and then become jealous of the wealthy who have had to sacrifice and take risks.
The politicians won't let Bush get anywhere close to privatizing portions of social security so the future can actually get something back...yet they don't even have to pay into it in the first place. Could it be that they know they would then NOT be able to dip their hand into YOUR cookie jar and spend YOUR Social Security money on things completely unrelated to Social Security? You hate the rich yet you are letting multi-millionaires determine how everyone else carries out their life when the policy will not affect them.
We can't all speak at colleges and get paid millions or have inside information to which real estate will be purchased by the state 3 years from now.
I was watching portions of a past Demo Debate on HDNET the other day and Edwards/Obama promised to increase the minium wage to $9.15. I couldn't tell rather they were softening up the "Brown and Black" audience or were serious. Shouldn't the emphasis be on helping these people get through higher education to not have to rely on minimum wage. How will increasing the minimum wage that much affect the economy?
Last edited by BonnerDynasty; 12-10-2007 at 11:48 AM.
The U.S. Treasury study was a politically-motivated release which cherry-picked data to make the Bush Administration look as good as possible.
There is a fallacy pushed by the right that claims that the United States is alone among developed nations in its income mobility. By fallacy, I mean "blatant lie." Virtually every other developed country has least as much income mobility as the United States. Most have more.
Having said that, neither is the situation as bad as the lefties would have you believe.
The standard measurement on income inequality is the Gini coefficient, which compares the shape of a particular country's Lorenz curve with a straight line. The Lorenz curve is basically a derivative of income distribution. If it is a straight 45-degree line, then everybody in the country makes exactly the same income, and the Gini coefficient is zero. If one person makes all the income in a country, then the Lorenz curve is a right angle, and the Gini coefficient is 1.
The U.S. Gini coefficient has risen only very slightly since 2000. The last big jump was around 1992. So, contrary to what the left says, the incomes of the richest earners have not increased substantially relative to the middle class under Bush's presidency.
Wealth inequality is another matter. It definitely has increased. But given stability in income distribution, changes in wealth distribution most likely reflect changes in the marginal propensity to consume of different classes. In other words, the reason wealth inequality has increased is because people are more likely than they were in the past to spend their windfall on crap than to save it or invest it.
Last edited by Extra Stout; 12-10-2007 at 12:09 PM.
You don't think the wealthy have debt? There will ALWAYS be a lower, middle and upper class.
There is of course good debt and bad debt, but I am certain frivolous debt in depreciating assets is a huge contributer for a middle class citizen never reaching the "wealthy" status.
My take is just that a person can't be careless financially and then look for the government to punish the wealthy as a way of "getting even".
By definition, the wealthy have high net worth. Their temporary debt is often to increase their capital (investment), whereas the non-wealthy go into debt to pay the bills (no capita, no return).
How many people do you know, or anyone else for that
matter know, that borrow to pay monthly recurring
bills? Most borrow to buy something. TV's, Cars or
a Home.
I cant, in all my years, recall a single person who has
ever borrowed to pay bills.
I've known some who have refinanced to pay off all their credit cards and make some home improvements.
Interesting stats by the U.S. Treasury.
Part of the same government that says inflation is only 4.5%, right?
And what is the problem with that strategy? Debt itself
is not bad. Why and if you can afford to go into debt is
what has to be looked at. I think most folks, I know
me for one, has gotten in over the heads at one time or
another. Lucky for me, it was while I was very young and
newly married and really stupid and listen to an
encyclopedia salesman that got me into trouble. But
never again did it happen. And I have used credit to
my advantage. I remember one of my daughters ask
me why I borrowed money to purchase something when
I had the money in the bank to buy it. I explained it
this way. I borrowed the money from the same
ins ution I had my money in and my money was drawing
interest as such a percentage, I borrowed the money at
such an interest rate. The difference was about 1 percentage point, in the lending ins utions favor. But
I also explained that I would more than likely wouldn't
put the money back right away and while I didn't I
wasn't making money. If I borrowed the money, I had
to pay it back. Worked for me. May not for everyone.
It isn't? If not, what is the rate of inflation? I was thinking
it was more in range of the high 3's.
Never said there was anything wrong with it. But you said..
I've done the same as you. With the credit card companies pimping their at college campuses it is no wonder some get in over their heads when they already owe thousands in student loans.
It's somewhere between 7% and 10%.
I've known lots of stupid people who do that.
You must be thinking of something else. See Chart below:
This chart shows actual and projected inflation rate.
Real wages are unquestionably lower by any true measure of the cost of living; the CPI doesn't even factor in food and energy prices. (One million points for anybody who can name 2 things that we all consume alot of every single day.)
And none of these "Don't listen to the doom and gloom crowd, everything's fine!" articles ever mention the debt situation in this country, both public and private.
Privately, we’ve had a negative savings rate since 2005. The artificially low interest rates that the Fed originated had a big hand in this; they did it to maintain and even increase borrowing levels, and therefore consumption, to offset the loss in the market 5+ years ago. So, people have been buying things in quality and quan y that they really have no business buying: homes, cars, crap at Wal Mart and the mall, etc. And sure enough, the market has recovered and then some, housing prices have exploded, consumption has boomed – and we have negative savings for the first time since the depths of the Great Depression.
So it’s easy to see why we aren’t in the middle of a deflationary depression like we were the last time the saving rate was negative. It’s because in the ‘20s people borrowed too much, then the speculative bubble that enveloped the entire economy crashed, and 1/3 of all credit money was wiped off banks books, and that’s how you get a deflationary depression quick style.
Today the opposite is happening. Negative savings? So what, cut rates and lend/borrow more. People can’t make their mortgae payment? Just freeze the ARMs. When banks write off loans the Fed can just replace the money to maintain the bank’s reserves by typing it up on a computer. Keep swiping the credit card; as long as we keep spending, the economy can’t contract. Borrow, borrow, borrow, spend spend, spend, and don’t let credit money disappear when there are defaults – that’s how you stave off deflation. That’s also how you get real inflation rates in the double digits. Eventually inflation gets so bad that it causes debts to become unserviceable on a large scale (even at very low rates) – a hyperinflationary collapse of the currency and economy if the course isn’t reversed. It’s just a question of how long it takes.
Oh and publicly, we take in 80% of the world’s savings that isn’t invested in their own respective countries - $2 billion every working day. That’s a level of investment and financing that we must have to maintain our public spending and debt levels, and it can’t possibly last. As former Fed Chairman Paul Volcker says :
"the United States economy is growing on the savings of the poor… A big adjustment will inevitably become necessary."
http://www.gold-eagle.com/editorials...erg032605.html
He’s talking about the savings of poorer countries; the poor in the US don’t save, they spend.
This is very true.Real wages are unquestionably lower by any true measure of the cost of living; the CPI doesn't even factor in food and energy prices. (One million points for anybody who can name 2 things that we all consume alot of every single day.
I don't recall if it was under president Bush (41) or president Clinton, but the CPI calculations were modified so the government could cheat on promised increases to the military, retirements, etc. It also lessens the annual standard deduction and exceptions of federal taxes. I only recall it was in the 90's. I think it was under president Clinton during his first two years, when the democrats also had congress, but I'm not sure.
^It was under Clinton. John Williams, the guy who operates the Shadow Government Statistics website, calculates the inflation rate with the pre Clinton-era CPI index (7% currently).
http://www.shadowstats.com/cgi-bin/sgs?
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