The Vanishing Poor

The rich are getting richer and the poor are getting poorer.

That's a refrain taken as gospel. It's also the melody that's used in calls for more government spending. But the truth of the matter is the richer are getting richer and the poor are getting richer faster. That's the conclusion reached by W. Michael Cox, Vice President of the Federal Reserve Bank in Dallas and Richard Alm, a Dallas Morning News reporter, in their new book aptly titled Myths of Rich and Poor: Why We're Better Off Than We Think.

Each year the Bureau of Census publishes America's poverty rate that has hovered around 14 percent for several decades. The impression given is that poverty for about 20 percent of Americans is hopelessly permanent. That's a conclusion easily reached when given a static portrait of our income distribution. Cox and Alm report on a dynamic portrait that comes from a University of Michigan Survey consisting of detailed data from a sample of 50,000 Americans collected since 1968.

Collecting income over time gives a startlingly different picture of income distribution than that given by Bureau of Census statistics. The University of Michigan study shows that only 5 percent of those in the bottom fifth of the income distribution in 1975 were still there in 1991. What happened to them? They moved up to the top three-fifths of the income distribution - middle class or higher. Even more amazing is that 3 out of 10 of the lowest income earners in 1975 moved up into the top fifth of income earners by 1991. Those who were poor in 1975 had an inflation-adjusted gain of $27,745 in average income by 1991. Among workers who were in the top fifth of income earners in 1975 were better off in 1991 by an average of only $4,354.

Poverty is largely a transitory experience for people who are willing to work as Labor Department data confirms. In the early 90s, the median duration of poverty was 4.2 months. Only a third of the 36 million Americans the Bureau of Census classifies as poor had been below the poverty line for 24 or more months. This boils down to a long-term poverty rate of 4 percent compared to the overall official rate of 13.3 percent in 1997.

You say, "Okay, Williams, but what about black and Hispanics?" Blacks still earn less than whites, but black income

rose as well. Adjusting for inflation, the proportion of black

families earning more than $75,000 tripled since 1970 to 9 percent. In 1998, the overall poverty rate for blacks fell to 26.5 percent, the lowest it has ever been. The number of black-owned businesses stood at 620,912 in 1992, up 281 percent since 1967, with sales of $36 billion.

Cox and Alm give a mixed story for Hispanics. On the positive side the number of Hispanic businesses rose from 100,000 in 1967 to 862,605 in 1992, with sales of $86 billion. Although many Hispanic families are making it up the economic ladder, the group's overall income hasn't kept pace with blacks or whites. One possible explanation is the continuing immigration waves of low-skilled, low-wage workers who are overwhelming the statistical gains of longer-term residential Hispanics who've improved their education and skills.

The income mobility that Cox and Alm point to is possibly one of the greatest features about our country: Just because you know where a person ended up in life is no guarantee that you can predict where he started. And knowing where a person starts out in life does not control where he ends up.

Walter E. Williams

c31-99

July 15, 1999