Green Room

A great decade: Microwaves, VCRs and PCs, oh my!

posted at 12:51 pm on January 1, 2010 by

In thinking about wealth, income and poverty over the last week I found myself coming back to a blog post I had clipped by Steven Horwitz about the ubiquity of appliances in the households of the poor. (Clipped because it will make part of a lecture in my freshman economics and citizenship class this spring.) Horwitz’s data is to compare the share of families living below the poverty line over time and with all families in terms of whether they own a refrigerator, a dishwasher, a color TV, etc. It reminded me of the 1993 Dallas Fed Annual Report by Michael Cox and Richard Alm, but with much newer data.

One thing that jumped off the table to me was the microwave. I have posted about microwaves before. They are a great invention, and were a rarity in 1971. They save time for me. I had one in grad school, when my income was below the poverty line. I lived on nuked potatoes, mac and cheese and hot dogs. It saved time and money. My last year in grad school was 1984, and in that year only 12.5% of families below the poverty line had them. In 2005, 91.2% of poor families do.
When I posted about income and poverty earlier this week, I wasn’t as clear as I want to be on what it is we mean by poverty. I find the data Horwitz provides very persuasive — the poor are much better off than they were 30 years ago — but most critics will not be concerned with absolute levels of poverty. What they care about is relative measures, the gap between rich and poor. Seeing someone else doing better than you are, even when both your life situations are improving, seems to make some people unhappy. (Maybe that explains this relationship between happiness and red/blue states that Allysia Finley wrote about this morning.) I don’t admire jealousy, though, and when I see my children succumbing to that vice I try to correct it. Correcting it seldom means taking toys from my son and giving them to my daughter. Markets, though, by bringing down costs, remove one by one the sources of jealousy.
And it’s more than microwaves. What the microwave is in the 1970s, the VCR is for the 1980s and the personal computer in the 1990s. Horwitz’s table shows how market economies have allowed these inventions to spread. I recall marveling at a Kaypro “portable computer” in an economist’s home in 1984. Now 42.4% of families living in poverty have a PC far more powerful than that dinosaur. That Kaypro cost that economist about 80 hours of his labor in 1984 (estimating his income at that time; his Kaypro II cost $1595 in 1983.) On the wage I got when I first came to SCSU, it would have cost me 122 hours of work. The MacBook I am working on right now cost me 33.2. It would cost someone making minimum wage about 133 hours, but they can buy a PC for half the price of my Mac, and it won’t weigh 26 pounds and it will get on that information superhighway.
I looked for an emergency cellphone for Mrs, who almost never uses one but should have one in her car. With 300 minutes. Cost? $30. What was this option to cost me a decade ago. 48.3% of those below the poverty line have cell phones in 2005 according to Horwitz’ table. (As I mentioned in China, the share of people using them must be higher. Our cell phone industry is ineffective in reducing prices … and yet …)
So, what will be the item that spreads down — in the homes of the well-to-do now but commonplace to the poor in a generation? Better question: Will any not become commonplace?

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Yes, there are a small percentage of Americans living in abject poverty. For any number of reasons, some even having to do with personal responsibility. Imagine that.

But, poverty? Ever been to parts of Africa and Asia where the per capita income is around $400 or less? That’s poverty. We’ve nothing here at home to compare to that.

You are correct in that the popular perception of poverty is that “gap” between “rich” and “poor.”

But that gap is for the most part not a permanent divide. Incomes and wealth are transitory. One who is poor today…a grad student living on Mac and Cheese seven days a week, or a person who today is living out of their car…has the ability and “right” to move along the income stream and acquire both income and wealth. Most of the time it depends on the individual, not government, to make that move. Examples abound of our current-day Horatio Alger’s who today or yesterday were living by their wits alone and who have or will become the next successful entrepreneur or corporate head.

But, today is also seeing many are in the midst of “I want it and I want it now” psyche. Thus, the promise of “free” anything is a lure that has given us the economic mess we are in today, all of us, well, most of us. Laws made by Congress or declarations by the White House, any White House, are not the cure. They are, to the contrary, a root cause.

Incentive.

Can’t legislate that.

Incentive is what drives those who desire to increase income and acquire wealth. As laws are written to interrupt incentive, and we’ve seen this since the 1960′s, it becomes more costly to achieve. Taxes take away income and threaten wealth. Higher taxes and artificial numbers of “rich” and “poor” lend likewise to stopping a natural flow from less to more.

Equality.

A dangerous term. If used in the wrong context.

A misunderstood term. And our lawmakers are among those who seem to misunderstand it most.

All people are created equal, generally.

But that equality is that of opportunity, of personal choices, of use of abilities, or being in charge of their own, shall we say, destinies?

it does not mean, nor has it ever meant, equality of outcomes.

The moment government intervenes, whatever equality exists is lost.

And millions pay those costs. Daily. Involuntarily.

How to close the poverty gap?

It is not closeable.

There will aalways be a gap between the rich and poor. Always.

But that gap is not a barrier. Nor should it ever be. And government can help prevent that gap from becoming a barrier.

This is where government has a role.

By making it easier to cross that gap. Cross it. Repeat, cross it. Not close it. This is where our legislators and do-gooders have it wrong. They are focused on closing the uncloseable.

Allow incentive to move people across that gap. And, as a corollary, allow for failure. Yes, permit failure. Failure happens. Faailure is a key part of incentive.

Stop this “too big to fail” mentality…immediately.

Stop this “close the gap” mentality as well.

I could go on, but, a late night and such….

Excellent posts, King Banaian…

Education is key. Focused education addressed to removing the misconceptions and popular myths…and quite a few members of “government” sooner rather than later.

coldwarrior on January 1, 2010 at 1:56 PM

Both, very insightful and well thought posts.

Please let me add: as important as education is, it is not the end all of success. Formal education, that is. Many things we learn from experience in life. Implied here is that without age, experience, we will tend to be less educated when we are young, therefore less likely to be in the class of older, more experienced people who are “wealthier”. One can’t expect to be the cagey old dog in the fight if one hasn’t been around long enough to have fought.

Some people have fire under their butts, some are lazy. Educated or not, some folks just don’t have the personal motivation to find a high gear in life. As one of my dear friends explained to me many years ago, some people work like race horses, some like plow horses. We need both. Everyone can’t be a race horse.

Thanks to you both. I’ve read many posts by you over time and always am inspired. Happy New Year.

Robert17 on January 2, 2010 at 7:57 AM

Large flat-screen televisions? Gaming consoles (PS3, Xbox, Wii)?

I wonder what the average number of automobiles per ‘poor’ household has become over time as well (I suspect it is higher now than it was in the 70′s/80′s).

Midas on January 2, 2010 at 11:05 AM

So, what will be the item that spreads down — in the homes of the well-to-do now but commonplace to the poor in a generation? Better question: Will any not become commonplace?

Health care because it is not run on free market-based principles.

PackerBronco on January 2, 2010 at 5:29 PM

There will always be a gap between the rich and poor. Always.

True.

What we need to be concerned about is how big is that gap, how many people are on each side and what conditions are like for each group, and most importantly: what are the definitions of ‘rich’ and ‘poor’.

In not a few nations, the gap is a veritable Grand Canyon, with a truly small percentage hoarding all the wealth and everyone else is left to eke a bare living on whatever else remains. As an easy example, let me quote a missionary from Nepal who said of the rare middle-class Nepalese family: “They alone would be above the U.S. poverty line.”

No one but a closet sadist or a petty tyrant would want such conditions repeated here.

But in America – at present – there is still a sizable group who have been given neither ‘poverty’ nor ‘riches’ in their homeland, but would be living like kings in so many other places.

Dark-Star on January 2, 2010 at 10:33 PM

So, what will be the item that spreads down — in the homes of the well-to-do now but commonplace to the poor in a generation? Better question: Will any not become commonplace?

To answer this question directly, I really can’t think of anything that hasn’t already done so, at least not in the near future. After all – you can only invent something once.

Hopefully there will be better versions of the things we use now, but it’s rather hard to imagine anything new under the sun coming down the food chain anytime soon.

Truly helpful robot servants are very much in the ‘beta’ stages, fusion power is still the Duke Nukem 3D of science, and private industry has yet to put a single man on the moon…never mind come up with space travel for the masses.

Dark-Star on January 2, 2010 at 10:44 PM

Hopefully there will be better versions of the things we use now, but it’s rather hard to imagine anything new under the sun coming down the food chain anytime soon.

Well, the Gov’t is looking into flying cars!

uknowmorethanme on January 4, 2010 at 11:18 AM