Rising tide lifts One America

Thanks to the suddenly resurgent populism of the Democratic Party presidential candidates, we have heard a lot of class-warfare rhetoric the last few months. John Edwards talked endlessly about Two Americas until voters finally put him out of his misery in January. Hillary Clinton and Barack Obama both insist that the gap between haves and have-nots has grossly widened during the last twenty-five years of economic expansion, and hope to ride a wave of classist discontent into the White House.

They have one big problem: it’s simply not true. As economist Brad Schiller points out in today’s Wall Street Journal, that impression comes from only the most superficial and uneducated reading of Census Bureau statistics, failing to take into account significant changes in demographics — as well as an inability to do simple math:

The “typical” household, however, keeps changing. Since 1970 there has been a dramatic rise in divorced, never-married and single-person households. Back in 1970, the married Ozzie and Harriet family was the norm: 71% of all U.S. households were two-parent families. Now the ratio is only 51%. In the process of this social revolution, the average household size has shrunk to 2.57 persons from 3.14 — a drop of 18%. The meaning? Even a “stagnant” average household income implies a higher standard of living for the average household member.

Last year, the Census Bureau published a new set of income statistics that adjusted for changing household size and composition. In a single year (2006), this “equivalence-adjusted” computation increased the income share of the poor by 8% and reduced the standard measure of inequality (Gini coefficient) by 4%. Such “equivalency” adjustments would mute unadjusted inequality trends even more.

A closer look at household trends reveals that the percentage of one-person households has jumped to 27% from 17%. That’s right: More than one out of four U.S. households now has only one occupant. Who are these people? Overwhelmingly, they are Generation Xers whose good jobs and high pay have permitted them to move out of their parental homes and establish their own residences. The rest are largely seniors who have enough savings and income to escape from their grandchildren and enjoy the serenity of an independent household. Both transitions are evidence of rising affluence, not increasing hardship. Yet this splintering of the extended family exerts strong downward statistical pressure on the average income of U.S. households. Had the Generation Xers and their affluent grandparents all stayed under the same roof the average household income would be higher, but most of us would be worse off.

Another problem with the “poor getting poorer” is that they’re not. Even if one supposed that their slice of the economic “pie” (Schiller’s analogy) remained stagnant, the economic expansion has made the pie three times what it was in 1970. The poor have more money in real terms as a result, and that has shown itself in a demonstrably higher standard of living. As the Heritage Foundation noted in previous Census Bureau statistical analysis, the poor in America have a remarkably high standard of living:

• 43% of the poor own their homes, and the average home is a three-bedroom house with a garage and 1.5 bathrooms
• Over two-thirds of households have two rooms per occupant, which belies the notion of overcrowding
• 80% of the poor have air conditioning
• Almost 75% own one car; 31% own two or more
• The average living space for the American poor is larger than the average space for all people in Paris, Vienna, and London, among other cities in Europe

Schiller also reminds us that we do not have a closed population in the US, either. We have dramatic immigration growth, and the immigrants tend to come in at the very bottom of the economic ladder. We have added over 20 million legal immigrants during this period and arguably as many illegal immigrants — which would then comprise around 13% of our entire population at the moment. As we add more people, the statistics show that we move more people up the ladder as a result.

Having just a “stagnant” result for the lower 20% reveals an economic dynamism that belies the “Two Americas” demagoguery. Rather than see the lower 20% falling behind, it shows that people move up the economic ladder at a pace that at least keeps up with immigration. And why does that happen in America? Because unlike the nations from which all of these immigrants depart, we have equal access to economic success, less encumbered by central management and top-down control of capital and investment.

Just the fact that immigrants come to the US far more than anywhere else should send a pretty clear signal that the Two Americas notion has no basis in reality. Do we have economic concerns? Of course; people will always have to worry about making ends meet, and demagogues will always exploit those concerns to get themselves elected to office. But the actual facts show that their promises would disrupt a successful economic system and create the class divisions they claim to oppose. (via Mark Tapscott)

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