The rising tide - statistics on distribution of income in U.S - column

National Review, Dec 8, 1989 by Ed Rubenstein

The Rising Tide

RECENTLY RELEASED Census Bureau data for 1988 show the number of poor persons declined by 500,000 last year. The poverty rate--13.1 per cent--was the lowest for any year since 1981, and real per-capita income was a record $13,120, up 19.2 per cent from 1982.

To the Washington Post, however, this was "bad news," further evidence that "the economy famous for lifting all boats no longer does so." The Post's editors go on to assert that "Real per-capita income was up, but . . . this broadset measure of economic well-being is an average. As in other recent years, for the richest two-fifths of families median income and income share rose; for the poorest two-fifths, they declined."

A preoccupation with the distribution of income has led the Post to an important misstatement of fact. The Census data for families are as follows:

True, the data show a declining share of income going to the poorest 40 per cent of families over the past decade. However, income growth during the Reagan recovery more than compensated for the declining share: average real income of this group increased 11 per cent between 1982 and 1988, and is now higher than it was in 1980. Unfortunately, the bottom 40 per cent of families have yet to fully recover from the income losses incurred during the last two Carter years.

Furthermore, the degree of income inequality between "rich" and "poor" families is considerably less than suggested by these figures. For one thing, the Census Bureau counts cash income only, ignoring more than $150 billion in non-cash benefits (food stamps, housing subsidies, Medicaid, etc.) targeted to low-income families. The medical benefits alone have an estimated market value of more than $3,000 per year.

Low-income families are generally smaller than wealthier ones, and are more likely to be headed by individuals either under age 25 or over age 65. Not surprisingly, they have considerably fewer full-time workers. In 1986, for example, among the lowest two-fifths of households there were, on average, only 36 full-time workers per each 100 households; among the most affluent two-fifths there were 119 workers per each 100 households--three times the number found among the less affluent group.

Can we say that a retired couple with a $10,000 pension is really only one-third as well off as a middle-aged family of four with both parents employed and with total income of $30,000? Yet that is exactly the type of comparison implicit in the Census figures.

But no matter how carefully we adjust the income distribution to reflect these factors, it will still mislead as to the true degree of economic "fairness." Income mobility is a far better indicator: in any one year, many families at the bottom of the income distribution are there because of abnormal economic misfortune rather than chronic poverty. Conversely, many people at the top are there because of exceptional, non-recurring circumstances. A University of Michigan survey found, for example, that only 48.5 per cent of the families in the wealthiest 20 per cent in 1971 were still there seven years later. Some had fallen to the poorest 20 per cent. Among the poorest 20 per cent nearly half worked their way out within seven years.

The fact that the bottom two-fifths of families received only 15.3 per cent of total income last year, or any year, is unimportant in an economy as dynamic as ours.