Personal Snapshots
FORECASTS & STRATEGIES
April 2000

The Gap Between Rich and Poor Is...Narrowing!
by Mark Skousen

"The poor remain poor and the command of income by those in the top income brackets is increasing egregiously." -- John Kenneth Galbraith

"The poor have not gotten poorer. The average family below the poverty line today is doing as well or better than middle-class families in 1971." -- W. Michael Cox and Richard Alm

Recently two Washington, D.C., think tanks warned that the income gap between rich and poor was getting worse, much worse. They blamed differences in education and skills, immigration, and the stock market boom. To remedy this injustice, they urged increasing the minimum wage and unemployment insurance while reducing "regressive" taxes.

I strongly disagree with these findings for several reasons. First, these studies ignore the fact that families and individuals move from poor to middle class, and middle class to rich over time. For example, a report by the Federal Reserve Bank of Dallas indicates that 29% of poor families in 1975 had moved to the top income brackets in 1991. Only 5.1% of those in the bottom in 1975 remained at the bottom in 1991! In a dynamic market economy, there is constant upward mobility.

Second, other more in-depth studies demonstrate that the poor have improved their material condition tremendously during the 20th century and even the past 20 years.

The above chart shows the benefit of looking specifically at examples of living standards instead of relying on income figures. The overwhelming fact is that if we measure standard of living by the quantity, quality and variety of goods and services, we see that our material lives have improved dramatically and profoundly over the past 100 years, for peoples of all incomes. The rich have gotten richer, but so have the poor.

The Rich Aren't So Different After All

I would go one step further and argue that the poor have actually advanced the most in this country and are gradually and sometimes speedily catching up with the rich. The rich are having a harder time distinguishing themselves from the poor. The rich have cars with air-conditioning and radios, and so do most of the poor. The rich watch the World Series (or an opera) on their big color TVs, and so do the poor. The rich jump on a jet and fly to exotic lands and, with recent cheap excursion fares on the Internet, the poor are doing the same thing. In fact, the Internet is the great leveler. It's so cheap today that anyone can get online and obtain information with hardly any cost at all. The Internet is increasing dramatically the level of competition and thereby reducing the cost of living. For example, it won't be long before long-distance telephone calls will cost nothing. What was once the domain of the well-to-do is now open to every one. Compared to yesteryear, every house today is a castle, every man a king.