Are the poor better off now than they were 50 years ago? An exchange

Dear Cecil:

There has been a lot of discussion on the distribution of wealth, particularly to the top 1 percent. I'm wondering about the bottom 20 percent — how do they compare to the bottom 20 percent of 50 years ago? Based on casual observation, it would seem the lowest class is much better off than a couple of generations ago. Is that true, or am I just getting cynical in my old age?

Cecil replies:

[A rebuttal of this column appears at the end]

As anyone who reads both the Wall Street Journal and the New York Times knows, the answer to this question can vary wildly depending on your political affiliation. We here at the Straight Dope valiantly strive to be a voice of reason in these partisan times, however. Brace yourself for heavy usage of the word quintile.

Worldwide, the lives of people in the very lowest-income countries have improved — or at least they last longer and are punctuated by fewer diseases. Dramatic progress has been made over the last two decades in particular: Life expectancy for the bottom quarter has improved by twice as much as in the highest-income countries. Nearly two billion people have gained access to what the World Health Organization calls “improved sanitation” (i.e., safe drinking water and hygienic latrines). Mortality as a result of TB, malaria, AIDS, and measles have all gone down. The maternal and under-five mortality rates are significantly lower, and there are fewer underweight children. Progress in these areas has vastly exceeded that for the top quarter, and poverty has dropped from 40 to 14 percent worldwide.

That’s pretty much the end of the good news. Yes, the poorest denizens of the poorest corners of the world have stopped dying from the most easily preventable of diseases. But here at the other end of the spectrum, we’re going in the opposite direction. From the end of World War II into the mid-’70s, overall U.S. economic growth was high, and income inequality significantly declined — the bottom fifth of the population’s income increased by more than the top fifth’s did for two decades.

Right around the time the mullet was becoming a popular hairstyle, though, it was growing increasingly clear that the golden years were over. Every academic paper pinpoints a slightly different year things started to go south, but the graphs all look essentially the same: between 1980 and 2005 the bottom quintile’s income becomes a straight horizontal line (less than half a percent growth) while the top quintile is at a 45-degree angle (four times that much). The bottom fifth’s share of the overall wealth has deteriorated. In fact, the bottom 90 percent’s share of wealth has dropped by 25 percent. The richest 3 percent of Americans now own more than half of the country’s wealth. As much fun as we used to make of Imelda Marcos and her shoe collection, we now have a less equal society than the Philippines.

But the inequality goes further than income. The gap in life expectancy between the rich and the poor has increased since 1980, as has the risk of death from cancer and cardiovascular disease. The relative risk of infant mortality for the poorest quintile compared to the richest has doubled. Gains have been made in all these areas across income levels, but the greatest benefit has gone to the richest 20 percent.

And the recession exacerbated these differences: Between 2007 and 2012 the bottom fifth’s income dropped by 11 percent. The top fifth’s income decreased by only 2 percent, and the top five percent of Americans didn’t suffer any change at all. The economically liberal will argue that our social safety net needed to work harder — but poverty-relief spending increased steeply after 2009, and U.S. poverty would have been 14.5 percentage points higher without those added benefits. Conservatives will say the issue is laws restricting commerce — but corporate profits have never been higher. The problem is that only a tiny handful of people receive the benefits of these profits. It’s not hard to see this as evidence for the threshold hypothesis: the idea that for every state there’s a point where economic growth stops benefiting society as a whole, and instead only serves to make the rich richer.

So where’s the Robin Hood in this situation? Some argue we need more college graduates in order to take advantage of the skilled-unskilled wage gap. This worked 70 years ago, when a huge wave of new high school graduates helped provide a more highly skilled workforce than any other in the world. But the globalized economy means American degree-holders would face more competition than ever, and anyway the bottom quintile would likely remain unaffected.

Have things improved for the poor in the last 50 years? If you’re a white American male, not by much. (We left out the whole females-and-minorities end of the discussion, but hey, we’ve only got 850 words.) Are we therefore screwed? Probably not, but I will say I’m glad I’m not the one in charge of the policy decisions, even if it means I’m staying out of the top quintile.

The Teeming Millions Get Finicky:

Dear Cecil:

The column printed in this week’s Chicago Reader includes a common but actually pretty major mis-statement, that “The richest 3 percent of Americans now own more than half of the country’s wealth.” That isn’t actually what any study or dataset on the subject reports and the distinction is nontrivial.

What you’ll find is that every single formal study of wealth distribution yet published or reported on actually addresses the distribution of U.S. household wealth. That is a running total which the Census Bureau tracks, and it is the wealth total which researchers and advocates assign to quintiles for analysis. The Census Bureau itself does the same.

Here’s the thing though: household wealth is actually not at all the same as “the nation’s wealth.” A country’s actual “national wealth” would include all of its assets minus all of its liabilities, not simply those which are owned by households. Tangible assets owned by the public sector (not just the federal but also state and local governments); the $17 trillion now sitting in union pension funds; etc. It’s quite a list even if intangible assets (e.g. intellectual property) is excluded as too hard to value. How muchwould the 650 million acres of land now owned by the federal government bring if sold? How about the interstate highway system? How about the nation’s farmland (the value of which is not being included in that “household wealth” total, the Census Bureau counts farm households separately)? How about the value of privately-held businesses (ditto)? The point is to use the word “national” here to refer to the entire society. To mean, literally, “the nation’s wealth.”

I’ve seen various attempts to pull together a true national balance sheet, an estimate of the true inclusive “national wealth”. They vary in specifics and in rigor but for the contemporary U.S. the range of resulting estimates goes from a low of around $120 trillion to someplace north of $200 trillion. Just the financial assets (securities, bonds, etc.) held by all levels of government plus farm households plus trusts and university endowments and so forth adds up, according to the Federal Reserve, to something north of $100 trillion.

Anyway the larger point is that if we’re interested in the distribution of “the nation’s wealth” we should be considering the trendline of distribution of the nation’s wealth, not simply of the minority of it which falls under the direct control of nonfarm households. That would be an interesting exercise for sure. I’ve not yet heard of it having been done in a serious way but hopefully some young economist will make his or her bones with it at some point.

P.S. Looking at “the nation’s wealth” in this more complete way has an interesting side effect. You know that $16 trillion “national debt” that a lot of folks get so agitated about? Well a business is considered quite healthy if it has a debt to assets ratio around 33%, meaning three times as much assets as debt. It’s a rough but widely-recognized rule of thumb. So if our society has total net assets in the $200 trillion range, then…kind of puts $16 trillion worth of additional “national debt” in a little different light eh? At least it has for me anyway.

Cecil replies:

I misspoke (it’s rare, but keeping all the world’s knowledge straight can be taxing even for us). As you point out, I should have said the richest 3 percent of Americans now own more that half the country’s HOUSEHOLD wealth. Household wealth is different from total national wealth — the latter takes into account the value of public lands, infrastructure such as highways and bridges, and U.S. assets owned by foreigners.

While that’s an important distinction, it has no bearing on my argument: the rich own increasingly more, percentage-wise, than the poor, and while the latter may be better off than they were 50 years ago, it’s not by much. A 15-year comparison paints an even starker picture: the median household net worth for the bottom three quintiles decreased drastically between 2000 and 2011. Much of this stems from the fact that middle and working class Americans took on substantial debt in the mid-aughts, and following the recession their assets declined relative to their liabilities.

The racial divide has increased as well — the median net worth of U.S. white households as a multiple of black household wealth is at the highest level since 1989. The divide between rich black households and poor black households has also increased dramatically.

You seem to be implying that the increasingly unequal distribution of household wealth is a minor matter when considered in the context of national wealth. That’s absurd. Fear of being left behind economically is arguably the major factor behind mass movements ranging from the Tea Party to Occupy Wall Street. If you think you’re going to calm people down by telling them that, however dismal their own economic prospects may be, the country as a whole is rich, well, good luck with that.

Send questions to Cecil via cecil@straightdope.com.

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