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The Poor get Poorer?


We’ve all heard it quipped that “the rich to get richer and the poor to get poorer.” We are in a society where there is a widening gap between the highest and the lowest economic classes. This makes people believe that there is this idea the lower classes are exploited for the profit of rich. Michelle Obama’s quote “[S]omeone is going to have to give up a piece of their pie so that someone else can have more.” The implication is that if I have more wealth than you, you have less wealth because I have it. Say wealth were a pie and we are sharing a pie, and I take 60% of that pie, you can only have 40% of that pie. I would agree, if I believed that wealth were static, if it were a “fixed pie”. Wealth doesn't play by the law of conservation (in physics), wealth can be created and destroyed. There is virtually no limit to amount of value an individual can create. Going back to the pie analogy, does it matter if the I have more pie than you, if I am able to bake more pies when we run out? Just look at the GDP, and you can see value (wealth) being created and destroyed (not adjusted for inflation).

While the top 5% are making drastically larger percentage of the GDP than ever before, and the bottom 5% is making slightly lower percentage of the GDP than in the past, it all right because the total amount of wealth (GDP) is also greater (in aggregate, I realize that GDP has gone down since the housing market went south). Which means the that bottom 5% have more wealth today, correcting for inflation, than they have in the past (again, in aggregate).

Let’s, also, think about what it means to be poor. There are two ways to measure poverty, absolutely and relatively. Relative poverty compares people within a nation, i.e. you just take the lowest x% of income in the US, while absolute poverty looks at weather or not someone is able to meet the bare minimum to survive in a given region. In present day America, the absolute poverty line is an earned income less than or equal to $10,890 for a family of 1 or $14,710 for a family of 2, etc. That isn’t much money at all, and it is hard to imagine trying to get by on so little. That number doesn't include social programs, support from family, aid from churches or other religious institutions, and the like. Regardless, financial stress, struggling to make ends meet and more month than you have money is bad place to be and my heart goes out to people in that situation.

What does it mean to live bellow the poverty line? America does not make the list that the Food and Agriculture Organization of the United Nations puts out on world hunger, where as India 217.05 million people who are “Undernourished.” People dying of starvation doesn’t happen here on a level of statistical significance. The most recent number I can find is for 2004 when 120 Americans died of “lack of food,” while the population of the US in 2004 was 295,734,134. I’d agree 120 deaths is too many, but I imagine each of those there was something going on besides or in addition to poverty. That doesn’t mean that there aren’t people who are undernourished or malnourished because of lack of funds. Certainly, putting food on the table and keeping the lights on are hard to do when you live in poverty, even in America. Even people above the poverty line worry about how they will feed their family in rough economic times. However, living in poverty in America is a lot different that being poor in any other country in the world. For instance:

  • 40% percent of all poor households actually own their own homes.
  • 80% of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
  • 30% of poor households own two cars.
  • 97% of poor households own a color TV set.

62% of poor households subscribe to cable or satellite TV service. Only 6% percent of poor households are over­crowded; two-thirds have more than two rooms per person.

Being below the poverty line in any country isn’t an easy life, and I would not wish it on anyone. However, if I were told before birth that I would be born and remain in poverty my entire life, but was given the choice of any country to live in, I’d chose the United States.

If you are one of those who is still yelling at the screen “But, the rich still get richer and poor still get poorer.” You probably see I haven’t addressed that statement directly, yet. Well, let’s take a look. I will concede that rich get richer, and how could they not? They have money to invest. However, the poor don’t get poorer, they get richer too. The data that shows that 86% of households that were poor in 1979 were no longer poor in 1988, and 96% of households that were poor in 1975 were no longer poor by 1991. This makes sense if you consider the fact that as young adults start out participating in the economy they start with little to no assets, little or no training and little to no work experience. As time goes on, they gain experience and/or education, move up in jobs and hopefully learn to save and invest.

This income mobility shows up in the fact that 80% of people with net worth over a million dollars are first generation rich. That means that most of the rich didn’t start out that way. They worked, saved and invested. They made their wealth in time of their lifespan. This is also reflected in the Forbes 400, 31% of the Forbes 400 came from families whose parents did not have great wealth or own a business with more than a few employees.

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