Is the American economy evolving into a caste system of comfort versus poverty, opportunity versus despair, and rich versus poor, as you might have heard in the current political dialogue?
If the issue is as confusing to you as it is to many people you can blame politics. Like art, politics can illuminate and create change, but it can also muddle and bring on endless controversy.It appears to have succeeded in the latter.
Yes, the income gap has widened between, let us say, the middle class and the poor. But the opportunity of the poor to ascend to the middle class is probably as great today as it ever was.
Perhaps the clearest indicator of the gap is provided by official data showing that:
-In 1993, the richest 20 percent of households received 48.2 percent of total pretax income, a rise of 4.6 percentage points from 1973.
-During this same period, "poverty" rose to 15.1 percent from 11.1 percent.
Officially, therefore, the gap has widened, and so has the area of controversy. "Poverty" is a subjective term; it does not include an enormous rise in non-cash benefits that occurred during that 20-year period.
In short: The income gap is not always a living-standards gap, regardless of political efforts to equate the two.
Politics further confuses the issue by suggesting the makeup of rich and poor categories are constant. True, the categories are rigidly defined - but the inhabitants aren't. The rich sometimes fall; more often, the poor rise.
Eighty-five percent of tax filers in the bottom 20 percent, or quintile, in 1979 had ascended to a higher level by 1988. Some may have risen only to the next highest quintile, but some went all the way to the top.
While the poorest filers had the highest mobility rate of any quintile, fully two-thirds or more of the bottom 60 percent of filers managed to rise in status, according to a study by the Joint Economic Committee of Congress.
"The notion of a quintile as a fixed economic class or social reality is a statistical mirage," said author Christopher Frenze. "Poor" is not static, but temporary and dynamic, he said, leading him to conclude:
"It makes no sense to draw sweeping conclusions such as `the income of the bottom 20 percent of families fell' in a 15-year period when most of the people originally in that category have long since improved their standard of living enough to have moved up from the bracket entirely."
Such conclusions, however, have been drawn and most likely will continue to be drawn, either in ignorance or to suggest the opposite of what the evidence shows.
The evidence shows the poor are upwardly mobile rather than sealed in their fate. It suggests they aspire to become richer, they have opportunities to do so, and that they seize them. By acquiring skills, for example.
Economist Gary Becker calls attention to another aspect of so-called income inequality. The gap widened, he shows, mainly because society placed a higher return on education, training and experience in the 1970s and 1980s.
Writing in "Business Week" magazine, he stated that the earnings gap between college grads and high school grads widened from 40 percent to 70 percent, and between high school grads and dropouts by more than 40 percent.