Are the Rich Really Getting Richer, and the Poor Really Getting Poorer?
August 12, 2011Occasionally I will hear a phrase, that for some reason bugs me, and I’ll go out and try to figure out if it’s really true or not. Yes, that would make me a certified geek. And, it suggests I should probably back away from the laptop and go out for a bike ride or a run. But, I enjoy the research and no animals are harmed in the kind of research I do, so I figure it’s kind of harmless. Anyway, back to my point. I keep hearing the following phrase: “The rich keep getting richer and the poor keep getting poorer,” and it bugs me because it just doesn’t square up with the experiences of my life.
This article discusses the “Rich get richer and the poor get poorer” (RGRPGP) comment that is used quite frequently in the course of political and economic discussions, and is substantiated by research done by NBER (National Bureau of Economic Research). As my friend Greg would say, “Can you cut through all of this junk and give me the bottom line?” OK, here it is. In the period from 1979 – 2007, the average increase for the bottom 20% of American households has been 26.4%. The poor haven’t gotten poorer; they have actually seen their standard of living increase fairly substantially as a group. The “rich” have certainly gotten richer, so that part of the phrase is true. The average household has risen by 36.7% over the same period. I don’t mean this in any way to minimize the absolutely real problem of poverty in this country. That’s not the point I’m trying to make.
Interestingly (at least to me, and this will be the subject of another blog), there is a phenomenon called “Income Mobility” that shows that the people who are in the bottom 20% today won’t be the same people in the bottom 20% in a few years. In this sense, the poor REALLY don’t get poorer. How many stories have you heard about someone who started with nothing and built a small fortune through hard work and dedication to being the best at something? I can think of at least a dozen people I know who started with virtually nothing and are now incredibly successful. That’s called income mobility. In the last 20 years, I have been in the bottom 20% of income earners and I have been in the top 20% of income earners. Most studies (including the NBER one that is the basis for the article I linked) don’t factor income mobility into the equation at all. Wealth and high incomes can be a fleeting thing.
In my own life, my first job after graduating from college paid $12,000/year and the most frequent thing I cooked was Ramen Noodles. On paper, I was part of the bottom 20%. And, I had a stack of student loans to pay off. It wasn’t a pretty picture! But, within 10 years I had worked hard to improve my skill set, always learn, and put the time in to get better each day at my job. And, the work paid off. I had seen my income rise each year and I had moved from the bottom 20% to the top 20%. I am absolutely certain that I will be in the bottom 20% again one day. For those who are starting out in their careers, expect to move up and down along the income scale throughout your career. For those who are retiring in the near future, expect your ride back down the income spectrum to begin again. The bottom line, as I see it, is that no matter where you are, top 20%, in the middle somewhere, or in the bottom 20%, your status isn’t etched in granite. You can, by setting goals and working hard (or conversely by easing up on the throttle, making work less a part of your life as you begin to enjoy retirement), move yourself from your current position. That’s the point that the people who use the phrase that the rich get richer and poor get poorer fail to acknowledge.
Back to my original point here, I’ve heard that RGRPGP phrase so much in the last several months of political rhetoric, that I just had to check it out and see if it’s believable. As I suspected, when ALL the facts are considered, it’s not the 100% clear cut fact that we’ve been led to believe. Why am I not surprised?