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Book Reviews
Myths of Rich and Poor: Why
We’re Better Off Than We Think
by Richard Alm and W. Michael Cox
[Note: All statistics used in my arguments are from the last year I could easily find figures.]
Richard Alm and W. Michael Cox reach many important conclusions: They make the good point that downsizing has good sides. Downsizing creates new opportunities and shifts workers to where they can be more productive.
Alm and Cox also conclude that Americans possess much more physical stuff than in the early 1970s. Though they mostly use a barrage of small samples, this conclusion appears to be true and is adequately supported. They also try to use this fact to argue that we have had great economic progress, but they are probably mistaken. The nation is much older now than in the past. People have more physical stuff because they have been collecting it for more years. More workers—the baby boomers—are in their prime earning years. Birth rates have plummeted. Adults who do not spend money on children have more money for stuff.
Suppose you had two families that were identical in every respect except the following:
· Family A: 1973, two children, one television, one car
· Family B: 2000, one child, three televisions, two cars, two VCRs, PC, microwave, Zantac, Relafen, and ecstasy
Some would look at this and say family B must be earning more income because they have more habits and gadgets, completely ignoring the number of children. The costs of one extra child are several times more than all the gadgets combined. Even in purely economic terms a family with two children is at least as wealthy as an otherwise identical family with one child and 1,000 microwave ovens. If Family A did not have the extra child, they would not have been able to buy PCs and other products that did not exist, but they could have purchased boats and all sorts of other toys that were available in 1973.
Likewise, Cox and Alm announce that home ownership is at record highs, but home ownership is at record highs because of demographics, not economic miracles. The proportion of the population in their peak earning years, 40s up to mid 60s, is at record highs. These citizens have spent a lifetime collecting assets, including homes. According to the Census Bureau, between 1978 and 1998 home ownership among 30 to 34-year-olds declined from 62.4 percent to 53.6 percent.
Most of this book has serious wrongs. It is a collection of trivial truths and major untruths. Myths argues that value claims “can be neither verified nor refuted.” Well, their claim about value claims can be refuted. Many authors have done so, and you can read the arguments in other books found elsewhere on this web site. Most obviously, the author’s value claim about value claims is self-contradictory. If value claims can’t be proven, then their “can be neither verified nor refuted” value claim about value claims cannot be supported.
Much of Myths is a festival of small sample fallacies. They argue that what matters is not the overall inflation rate but that the price of milk is decreasing, I guess because of the well-known fact that Americans spend 99.999 percent of their incomes on milk. Hell, almost any literate person can find thousands of products having inflation rates lower than the norm. And they can find thousands with rates above the norm.
They write that the Consumer Price Index (CPI) inflation adjustments for quality improvements are not large enough. They give two anecdotes about tires and light bulbs. This conclusion may or may not be true. It is unsupported in Myths. Somebody should tell the authors that it does not matter whether your argument has one small sample or 200. Small samples do nothing to strengthen an argument. If someone were looking for a guide on how to omit evidence and persuade the gullible, Myths is it. Here’s an easy rule of thumb to use with this book: All the English language sections of this book contain lots of errors.
The Consumer Price Index as a whole, the authors allege, overstates inflation by 1.1 percentage points, partly due to the alleged understatement of quality and partly due to other factors. This claim is supported by dubious experts on the Boskin Commission. The members of the Boskin Commission were true believers beforehand. They were appointed by Congresspersons who also believed in overstatement because it serves their political interests. I read the Boskin Report. To call it an argument, is a stretch. I have not seen so much mumbo jumbo in days, and I am not talking about technical jargon. I am talking about unclear, unspecific nonsense that looks like something written by the KGB to cover-up a crime. Dean Baker and others have offered arguments that make this conclusion questionable. Though I do not know how much stock to put in the accuracy of Dean Baker’s claims. I have been unable to find strong counterarguments to Baker’s claims.
I do not know whether the CPI accounts for penicillin and thousands of other products being less beneficial than they once were. Researcher Donald A. Redelmeirer claims one minute on the phone in a car reduces life expectancy by 45 seconds. It reduces the life expectancy of your car and other peoples’ cars even more. Does the CPI count that when calculating cell phone inflation? Is an advertising bias in the CPI? New, improved advertising leading people to buy overpriced products. The CPI seems to assume that because something is better by some hedonic criterion that it is better morally, physically and economically. According to Baker, neither the CPI nor the Boskin report consider factors that might cause a downward bias.
For someone who spends almost his income on food, clothing, taxes, transportation, education, insurance, health care and housing, does it really matter whether he can get a calculator that can calculate the cube root of 515, talking dolls with computer chips, or video games with life like decapitation with a smaller fraction of his income than the richest person in the world could a generation ago?
Alm and Cox try to use inflation numbers to reach standard of living conclusions. The Census Bureau maintains that their inflation numbers should not be mistaken for standard of living.
My best guess as to what this means—borrowing from Baker—is that if the hourly fees of lawyers go up three percent, the Census Bureau counts that as three percent lawyer inflation, but there other factors that impact on standard of living. If citizens sue each other more often, and hire lawyers for more hours, that affects standard of living, but the Census Bureau does not count that as part of inflation. If one is required by an employer to get a Master’s Degree for a job, though his employees 20 years ago were not required to have a Master’s Degree, that affects standard of living. Millions of other factors affect standard of living and they are not accounted for by inflation.
Techno-utopian “quality” measurements of inflation have a sinister side. Imagine it is the year 2030. A machine has been invented that follows you around and reads your mind. It opens every door for you, lifts you out of bed in the morning, turns lights on and off, dresses you, projects 3-D entertainment on any wall, and so on. Over a decade the cost of this machine has fallen from $100 million to $10,000 for advanced models. Used obsolete models can be obtained for $1000. Most people can and do own one. This would count as a huge reduction in inflation, though it would have a terrible impact on quality of life.
Now imagine the median income is $60,000 in 2030. For this worker, all taxes are optimistically $22,000, a one room apartment in a bad neighborhood plus utilities costs $17,000, food $5000, transportation $6000 and health insurance $10,000—leaving nothing for everything else—picnics, furniture, charities, socializing, child rearing, and so on. These latter things would no doubt be disparaged, ignored or avoided. The CPI people would sit there, with a straight face and no hint of anxiety, telling you that you have nothing to complain about. You are filthy rich. Compared to previous generations, you have a machine that does lots of things for you. It does not matter that you have no family, no education and no life, you can not afford them any more. Living in a moral and esthetic wasteland counts for nothing. Thanks to dubious techno-wonders they would claim that you are economically better off than people in 1970 and 2000.
Productivity figures also rely on techno-utopian “hedonic pricing.” For example, if computer chips are many times faster than before, but employees waste time learning software, playing games and reducing productivity in other ways, the latter inefficiency gets ignored. The mere fact that computers are more “powerful” is used by the government to ratchet up productivity figures. It is about as logical as the government boosting the productivity numbers for pizza delivery people because they drive a powerful dump truck rather than a four-cylinder car to deliver pizzas. Surprisingly or perhaps not surprisingly, research suggests that most of the industries that use computers most have been correlated with below average productivity performance. Salaried work done outside the office, whether at home, by cell phone or elsewhere, also does not get included in productivity figures.
Alm and Cox maintain that income distribution is irrelevant to economics. I am not making this up. Why do Richard Alm and W. Michael Cox spend so much time talking about distribution if it is irrelevant to economics? I have no idea. They do not mention, of course, that research from social psychology constantly suggests that humans are preoccupied with status, comparisons and distributions. And that people use these comparisons to treat others cruelly. In fact, studies suggest that most people would prefer a situation where they would do economically worse as long as they have more than other people over a situation where almost everybody gains. I used to believe that power market philosophy was designed to generally maximize benefits to the rich, but that belief is not quite true. Power market philosophy is designed to make sure that policies benefit the rich far more than policies benefit others or benefit the rich while harming others. Note the difference. Power marketers do not appear to notice if a tax cut hurts their own long-term benefit—the cut raises long-term interest rates and slows economic growth—because their philosophy is designed to increase gaps, no matter that most power marketers are oblivious to the facts about their own philosophy. They do not acknowledge that tight labor markets might be a good thing for the overall economy and at least 95 percent of citizens. What bothers them is that tight labor markets cut profits for the rich and increase incomes for the non-rich—reducing gaps. Power marketers try to keep labor markets looser than they should be by exaggerating the harms of mild inflation. They get the government to intervene to keep them looser. Almost everything that power marketers idolize gets labeled real freedom by power marketers while freedoms for the non-rich get ignored or disparaged. Almost every government intervention that is allegedly designed to primarily benefit the non-rich gets labeled “artificial” and freedom violating while government interventions that overwhelmingly benefit the rich are ignored or accepted as real freedom—corporate welfare, monetary policy, fiscal policy, lengthy copyrights for songs and so on. “[Y]ou-vs.-me scorekeeping has little to do with whether any American can get ahead[,]” is at odds with it “all works because of competition[,]” unless “vs.” is the author’s abbreviation for vasectomized. Alm and Cox are in the income redistribution business, too, redistributing from greater contributors to lesser contributors just like 70s liberals do.
Philosophies that are primarily concerned with power and status simultaneously deny they are primarily concerned with power and status and explicitly or implicitly argue that there is little wrong with misuse of power and status.
It is also hilarious how power marketers argue in full ad populum glory that mistreating lower income workers is acceptable because lower income workers are a minority.
Power marketers would never argue that mistreating the rich would be acceptable because the rich are a minority. Though they do argue against raising taxes on the rich on the grounds that there are not that many rich people, hence, not much money could be raised, or so it is alleged.
Alm and Cox argue that unlike wage statistics, per capita incomes tell a better story. Per capita incomes do not. Per capita incomes are calculated by dividing the total national income by the total population, including children. Children rarely earn incomes. Children, as a percentage of the population, have plummeted. Per capita incomes make no account of increases in two working families. If your boss tells you that you earn half what someone in the same position earned twenty years ago and that you can make up the difference by having your spouse go to work, that is not economic progress. Increases in per capita income tell us little. If you deport all the children, you can raiser per capita income about a quarter overnight—for a short time. It would kill economic growth in the long-term. Calling reduced numbers of children economic progress is about as accurate as calling burning down buildings worth less than one million dollars economic progress because the per capita building is now worth more. Imagine if your boss said I have good news and bad news. The bad news is that we are cutting your pay. The good news is that someone kidnapped your daughter so your per capita family income will increase.
The authors cite David Slesnick’s “calculations” of poverty rates from 1949 through the 1980s, defining poverty as three times the amount needed for a nutritionally adequate diet. This is bad way to compare. Food has a miniscule inflation rate. Taxes, health care, education, transportation and childcare costs have sky rocketed, food costs. Slesnick does not include changes in home productivity. Many people in 1949 grew their own food. They do not define an adequate diet. Maybe they mean the Tom Monaghan definition. Monaghan, the Dominoes Pizza titan, recommends that young people stop at the farm supply store, pick up a sack of animal feed, and nourish their families that way. Sure, it tastes almost as bad as dirt and might require forced feedings, but it is cheap. I am not making this up. Hell, if one ate a can of tuna mixed with a vitamin and mineral pill and a half-pound a vegetable oil each day, one could eat a nutritionally “adequate” diet for $400 a year.
The “official” poverty line is set to the Consumer Price Index, but basic goods and services—housing, education and health care—have inflation rates above the mean. These items disproportionately eat up the incomes of lower income citizens. According to my calculations from government expenditure data, in 1994 Americans in the bottom quintile put 48 percent of their expenditures toward housing, education and health care while Americans in the top quintile spent 36 percent on these three items, and that is not counting the wealthy people who have been mistakenly lumped in lower income categories. Lower income people today often have to pay much more for transportation, child care and regressive taxes than did people in the past and they have to spend more time commuting—expenditures the CPI does not count. What good is being able to afford gallons of bottled water if you cannot afford decent housing for a family? The claim that almost everyone is really quite wealthy because they are rich enough to afford color televisions is bunk. A used color TV that will last years can be bought for $50, a small fraction of most incomes. Even more hilarious is neoconservative magazines that say television is crap, then turn around and say almost everyone is rich because they own televisions.
Living standards, they conclude, have improved for all parts of society. This conclusion is wrong. Cox and Alm complain about others lumping, not making proper distinctions based on age, work, family size, then they lump everyone (except the homeless and the non-responders) into household consumption thirds and quintiles. They make terrible distinctions based on age, work, retirement, number of children, and so on. Single retirees, families of five, millionaires who evade taxes are all lumped together in the same consumption categories. In their tables a two-worker family with three children, earning and spending $32,000 gets lumped with a similar spending retired widower who has no house payments or similar expenses. They get lumped with a “high class” prostitute who reports a low income to the government but actually earns and spends $300,000 per year. They get lumped with millionaires who do not file tax returns or under report income. Households with five or more persons had declines in median income between 1973 and 1993 despite increases in two working families. The median income of men aged 25 to 34 declined from $32,000 in 1973 to $23,000 in 1993. For women in the same age group, it increased from $13,000 to $15,000 due primarily to increases in the number of hours worked. Between 1973 and 1990 the median income of families having a householder under the age of 30 declined 28.6 percent while regressive taxes skyrocketed and the number of workers per household increased. Between 1977 and 1992 after-tax income of the top one percent grew 136 percent. And has continued its growth since 1992.
Alm and Cox allege a good economic future depends on faith, optimism and confidence. Our “economy has been working better than ever.” Okay, let me think. Look at the data. We have had mediocre economic growth for the past generation. What if we subtracted all the growth that was due to technology (not counting PCs which probably have not helped), better management, more flexible labor markets, more people in their prime productivity years and similar factors? Would we have had a sharp decline in productivity? They are ignoring the potential fact that public policies for the past generation have stunk. And technology, management, labor markets and so on have been performing so well that our false cause pundits have labeled bad policies good policies while ignoring what really has improved things. Confidence in a belief makes you feel good now, but it can make you or someone else or both feel miserable later.
What matters more in Myth’s vision is not good or bad but negative and positive attitudes. “Pessimists” (read: those who criticize power markets, not those who criticize other economic ideas) harm the economy. Of course, if there were no “pessimists,” income misdistribution and misretribution would be even worse. If it were not for the pessimists, regressive flat taxes and payroll taxes would be the rule, tax expenditures for the rich would be even greater, capital gains taxes and corporate income taxes would be history. There is nothing wrong with being a skeptical about rotten or mediocre things. Treasury Secretary Paul O’Neil is already making noises about eliminating capital gains taxes on businesses and corporate income taxes.
As a result of the “optimists,” most of the non-rich would end up paying 30 to 40 percent of their incomes in taxes while the rich would end paying 0 to 15 percent. Apparently, “optimism” is synonymous with ripping the non-rich off.
Power marketers rarely rest. As soon as they get one tax cut or some other policy goody, they want another. One round of benefits overwhelmingly favoring them inspires them to brazenly seek more. If some other ideology were in charge of the economy and the mediocre economic results of the past generation were produced, folks similar to Cox and Alm would be screaming for change.
Apparently, the media have rules for optimism and pessimism. If you criticize techno-utopianism, over-consumption, edutainment, class warfare by the wealthy and their shills you are pronounced a pessimist. If you criticize meritarian feminists or claims made by the non-wealthy, you are pronounced an optimist.
Despite the rhetoric about innovation, this is overwhelmingly a status quo book. “The first admonishment to doctors is ‘do no harm.’ The same should apply to policy makers and regulators.” Do no harm is a slogan used by cowards who do not want to face tough choices, who wish things would stay comfortable all by themselves. There is little goodness in do no harm. The “do no harm” people merely allow evildoers to do lots of harm while their hands are clean, except for evil indifference and opportunity costs.
I constantly hear how bad news sells in the media, but some types of bad news do not sell. How often in the media do you hear about the successes and failures of an ordinary person? It has been so long I cannot remember seeing one in a newspaper. Americans do not want to hear about individual success or failure unless lots of wealth, power and fame are involved.
The idea that we are bombarded with pessimistic arguments for major change is bunk. Try flipping through television channels thousands of times. How many arguments for major changes do you see? None or almost none. (Note: Tropical storms, quarterback controversies, and the McLaughlin Group are not arguments for major changes.) Cox and Alm pretend they are persecuted prophets protecting us from a tidal wave. Cox and Alm are the tidal wave. Economic policies that are not stimulus packages and are not beneficial are constantly, unthinkingly labeled as an “economic stimulus” by the overwhelming majority of the media.
Cox and Alm argue that the following can be argued, measured and resolved: Fun, wants, satisfaction, self-esteem, emotional intelligence (EQ) and self-actualization. Unfortunately, they claim, trivia and happiness cannot be argued, measured and resolved. Go ahead and throw away your life on the picayune and get rid of anxiety. Trivia and happiness are empty concepts foisted on you by moralists. Despite their allegation that triviality cannot be argued, Cox and Alm do say that “eyeglasses for chickens, escape hatches for coffins” are worthless, but perhaps because almost nobody buys them. The authors even see nothing wrong with “insatiable wants.” Wants gone wild are allegedly a good thing.
Alm and Cox claim that “self-actualization” is the greatest human good. The authors write that Maslow “charts precisely this hierarchy of needs,” from bottom to top: Physiological-safety-social-self-esteem-self-actualization. Maslow’s pyramid power is simple, attractive and wrong. Like the self-esteem movement, Maslow’s pyramid has things all mixed up. His pyramid was rejected by competent psychologists long ago. Healthy people do not behave their way up the pyramid. And good people do right things regardless of their safety or self-esteem. The reality of over consumption—anxiety, contempt, peer pressure, status chasing, bored habit, working your tail off for ephemeral things that make sellers happy—is much different from the self-actualization pyramid. Why are people attracted like superglue when psychologists concoct hierarchies out of intuitive whims? The craving for simple generalization loves pyramids, squares and tables. EQ, a feel good substitute for character, gets used to justify just about anything.
They seem to imply that there are two purposes to life: Making money and using the money to pursue passive pleasures, including self-actualization. The more of both, the better.
They cite a University of Michigan survey that alleges that we have great class mobility. “Most amazing of all, almost 3 out of 10 of the low-income earners from 1975 had risen to the uppermost 20 percent by 1991.” It was not nurses aids with children moving to the top. It was medical students and similar individuals. They count 19-year-old children of lawyers as poor, then when the child becomes a law partner at 35, this used as an example of great class mobility. What the survey basically says is that 38-year-olds earn more than 22-year-old students. Older people earning more does not equal class mobility. Factors must be kept constant. You compare the incomes of today’s 25-year-old with 25-year-olds a generation ago. You do not compare the incomes of 40-year-olds with their incomes when they were 20 and call it progress. What matters is how people are doing, not how they will be doing decades in the future. My vision of America is a place where citizens can have families while in their 20s and 30s. The authors envision the United States of Colonel Sanders—-the “time element” theory of economic goodness. The Colonel spent most of his getting nowhere, then struck it rich in old age. Every stage of life matters, not merely a last trip into the sunset. The author’s income mobility is not a measure of economic progress as much as it is a measure of how much power is in the hands of older Americans. If income mobility were the goal, one could easily design a society where every 20-year-old was in the bottom five percent and almost every 60-year-old was in the top 20 percent. It also appears from the notes that a large chunk, if not most of the population, was not represented in the U of M study, the chunk that was not doing as well.
Surprisingly, they mention that the home production share of the economy has fallen from 45 percent after World War II, to apparently below 30 percent now. Is it because they offer up a sacrificial counterargument that perhaps wealth might not be increasing? No. Amazingly, they try to use it to bolster their claims—as an appeal to momentum. It is as if someone tried to use Pearl Harbor as an argument for isolationism. They apparently did not notice that the decline in home productivity could undermine their claims about great riches. Home productivity means that if family A takes home $20,000 a year and does all their own cooking and childcare, they are more productive and can enjoy a higher standard of living than family B taking home $20,000 but paying $3500 a year for those two items—all other things being equal.
“Shifting production from home to market makes us better off because the jack of all trades isn’t a very efficient fellow,” This might be a good idea for the rich, but it is a terrible idea for most Americans. The jack of almost no trades is even less efficient. Almost all jobs at home do not require complex training or special “equipment and technology.” Trained professionals are needed for much less than one percent of all housework. According to Time for Life, almost all family and household work consists of cooking, cleaning, laundry, travel, shopping, management, paper work, animal care, child care, yard work and easy repairs. Cooking and childcare are the only two where many individuals could sometimes save.
You pay a house cleaner with your after tax, after transportation, after other costs income. Then you have to indirectly pay for the cleaner’s transportation and other costs. A penny saved is worth as least two pennies in gross income. It is efficient for only those whose incomes are far above the median, a fraction of the population.
There are almost no taxes on what you do for yourself. You have greater control over quality. There is no commute, no accounting or any other business related expenses. If you earn $13 an hour, it is a bad idea to hire someone to mow your lawn for $20 an hour unless you hate mowing the lawn. Hiring maids, cleaners, nannies, personal assistants and other productivity enhancers is a good idea only if your income is somewhere in the top five to ten percent.
Plus a person who works long hours and hires others to do non-employment tasks for him is likely to develop a narrow, alienated, isolated personality and character. He is more likely to feel like an ant in a colony. Shifting production out of the home is the result of bad norms, intellectual laziness and the disparagement of household skills. The people living in the house more efficiently do most housework.
Numerous dubious ideas are implied, explicitly stated or euphemistically stated by the authors:
· Bad indicators can almost always be explained away as the result of lifestyle choices and changes. (Funny, good indicators cannot be explained away as lifestyle choices and changes.)
· The pursuit of instant gratification is a high calling.
· Consumers are almost never manipulated into their desires.
· People are primarily consumers and producers, not citizens, family members, and moral beings.
· The speed of a toy is an important indicator of its value.
· The more passive a toy makes you, the better it is for you.
· The more bells and whistles on a toy, the better it is for you.
· Careers, leisure, technology, and self-actualization are almost everything in life.
· Constant consumerism will not make people bored, anxious, depressed, escapist, shallow, passive, reflexive, indifferent, unethical, thoughtless, or contented grazers.
· Economic progress and number of toys per capita are equivalent.
· It is wrong to criticize conspicuous consumption.
· You do not have to think about which technologies are good or bad because the overwhelming majority of them are good, you can safely ignore the bad ones and their expected values.
· What matters is new and improved by some arbitrary criterion. The authors fail to mention that crack is new, improved cocaine. They do not mention that person might need heart surgery because of obesity caused by eating new, improved high-calorie, fat free foods, sitting at new, improved work stations all day, watching new, improved television.
· Children are irrelevant to economics.
· Many things are better than in the past. Therefore, policies that had little influence in making things better are justified.
· I should put faith in people whose unstated mission in life is selling harmful products.
· One should have little confidence in human action other than market activity.
· The main thing that can be wrong with a product is that no one wants it.
· Relentless novelty and titillation is important.
· The term home made is an anachronism.
· We should oppose those who endorse policies of wrecking infrastructure and harming the young and we should do so with the thorough recommendation to “invest in infrastructure.”
· Things are better than 100 years ago; therefore current economic practices are best. No doubt there were pundits in 1898 who said look how many things have improved in the past century. Let’s keep doing everything the same way. Let’s do no harm. And if we listened to them, we would be dead or enslaved now, and warlords would rule the earth.
· Problems are not important as long as they do not seriously harm the “typical” person—meaning average, not median. As long as “typical” individual never goes bankrupt, debt is not a problem.
They offer cheerleader conclusions that tell you how you can improve your economic standing, most of them true: work much, save much, have many working adults in your household, move to where the jobs are, be persistent, be willing to switch jobs and careers.
One piece of cheerleading—go to college because college grads earn more—needs major qualification. Correlation is not cause. College grads may earn more primarily because they have more of the prized traits than others lack such as looks, intelligence, perseverance, connections, social skills, clean records, and so on. Being in prison tends to hurt income lifetime income and college grads are far less likely to spend time in prison.
College may be a good economic idea for some individuals—doctors, lawyers, chemical engineers—but not in general. Those who get degrees in English, business, and so on are, economically speaking, wasting their time and money.
Most of the trivial conclusions they offer are true. They include:
· The economy should have done even better over the past generation.
· Protect property. Do not protect jobs or businesses.
· Avoid regulation.
· Avoid high taxes.
· Prevent inflation.
· Increase the amount of credit available to businesses.
· Americans are economically better off that in 1900.
· Medical science has advanced by leaps.
· Involvement in leisure activities has increased.
Fallacies are not the biggest problem with this book. The important thing is the good points an argument has.
Good points are rare here. There are many good books having many fallacies. There are no good books without good points. It is funny how ultra-conservatives argue that the non-rich deserve less because today’s non-rich are better off than the non-rich in the past. Why don’t they argue that the rich deserve less because today’s rich are spectacularly better off than the rich in the past?
I have no idea what their “consumer expenditure” data are supposed to tell us. Cox and Alm report that in 1995 the income for the “lowest fifth” was $6,305, the “middle fifth” was $28,242 and the “highest fifth” was $89,011. The people in the lowest fifth consume more than $6,305, the people in the middle fifth consume more than $28,242, and the people in the top fifth consume less than $89,011, which according to the authors, means that the non-rich are much better off than some think and the rich are worse off. All three of those numbers look low.
Here is a guess on how they were gathered:
Expenditure Data Collectors (EDC): Hello, we’re from the government.
Rich People (RP): Which government?
EDC: The federal government. The Federal Office of the Raw Mean.
RP: Oh, right. It’s just that sometimes the guys from the People’s Republic stop by to get a donation for their
high school band... and their orphanage.
EDC: High school band?
RP: Beijing Lincoln High School. Yep. Good ol’ Beijing Lincoln. Home of the Tall Bearded Guys—that’s their
nickname. I know it sounds sexist.
EDC: How much money did you earn last year?
RP: Oh, um... us?
EDC: No, I’m talking to that 2000-year-old vase on your table over there.
RP: Well, we... about $6,305, which means we did not have to file a tax return. Last year was a bad year.
Very bad.
EDC: How can you afford all these paintings and furniture?
RP: Found them. We, uh, found them in dumpsters. Amazing what people throw out these days.
EDC: And this apartment?
RP: ... We found it in a dumpster... and reattached it to this building.
EDC: That doesn’t sound likely.
RP: Oh, now I remember. Gifts from my father, which were under the $10,000 taxable limit.
EDC: This apartment looks really expensive.
RP: It’s because of rent control, you know. The people next door only pay three dollars a month.
EDC: The apartment next door appears to be an addition to this apartment.
RP: That depends on how you define addition.
EDC: You can be honest about your expenditures. The federal government taxes only consumption items like gasoline. How do you afford—
RP: Savings, which we have stuffed in a mattress, which draws no taxable interest... saved from when we had good years... prior to 1978.
EDC: So you are poor people who consume about how much per year from your mattress savings?
RP: Fifty million dollars, roughly. So in total we consume about $50,006,035 per year.
EDC: Do you have any overseas income and expenditures?
RP: Well, our earnings in Switzerland can’t be counted because I forgot how to convert their money into dollars.
EDC: Swiss franks.
RP: Liras, pesos, franks, schmanks. I can’t keep track. Maybe 20 cents in earnings... at most.
EDC: Okay. Thank you. Your information will be very helpful in our calculations of consumption in working
class households. We’ll be back in a couple months to update your information. We don’t want to make any
mistakes. Oh, by the way, do you know when the Rockefeller family across the hall will be home?
RP: Nope. And they don’t like to answer questions. So don’t even bother.
EDC: Good enough. Have a nice day.
If I am a betting man, my money is not on the expenditure data people. The Census Bureau reports that in 1995 in 1995 dollars the highest fifth earned a mean income of $109,411, the middle fifth $34,106 and the bottom $8,350, which appears more accurate than the numbers offered by Cox, Alm and the “expenditure data collectors.”
I do not see how the mean income of the highest fifth can be $89,011 in 1995, when the mean income of the top one percent alone is $1,117,000 in 2001 in 2001 dollars according to Citizens for Tax Justice, unless the authors mean the median of the highest fifth, which would be the 90th percentile. Perhaps the authors are comparing the 10th percentile to the 50th and 90th percentiles. In that case they would not be comparing “consumption per person in rich and poor households.” The 90th percentile is upper middle-class, not rich. They would be comparing a part-time burger flipper with an assistant manager, with husband and wife engineers. That’s not the same as comparing a part timer with an assistant manager, with Shaquille O’Neal.
The authors claim to be comparing “rich and poor,” but most of the top twenty percent are not the rich. The top one percent are the rich. Families with a 2001 income of $72,000 are part of the top of the top 20 percent. By averaging in the incomes of the next 19 percent—the upper-middle class—the authors try to make the rich appear to be middle-class. Most rich people like to describe themselves as middle class. They have a variety of incentives to under report income to inquiring individuals.
This argument implies that real lower-income workers don’t deserve a better deal because thousands of millionaires who do not file income tax returns and other cheaters can be lumped in the same consumption categories as low income workers, thereby altering the means. All it takes is a couple million strippers, prostitutes, drug dealers, rich people, and self-employed with large unreported income to make it look as if burger flippers have high levels of consumption. The tax compliance rate for legal sole-proprietors alone is only 70 percent. It is one thing to blame workers for their own vices. It is another to blame them for the vices of the rich. Cox and Alm search for hidden income and consumption among the non-wealthy but not among the wealthy. I wonder how many company cars used for personal matters by the wealthy did not make the consumption statistics. To paraphrase Paul Krugman, three things are almost certain in life: Death, taxes and false claims about income distribution. Oh, and add one other thing: Bombardments of brazen, fallacious assertions by ultra-conservative economists.
The case for the benefits of recent technologies outweighing the harms is not so clear. Historically, the benefits of technologies have outweighed the harms, but sometime in the last half century the balance may have shifted. There have been few great technologies such as the polio vaccine in the past couple decades. The authors may be able to think of hundreds of anecdotes of beneficial technologies, but you could also think of hundreds of anecdotes of harmful technologies and unintended consequences. Techno-utopians have a tendency to give technologies credit for shifts in norms, rather than individuals, when there is little evidence for the technology causing the change. The slow reduction in racism over the past century, for example, may have been due more to courageous individuals than media technologies.
If people who lived on a different planet with no automobiles and large, vibrant central cities looked at us, they would almost certainly consider a shift to gasoline automobiles too costly in money, injuries, deaths, human relationships and abysmal foreign policies.
Even if recent technologies have more overall benefits than harms, it is extremely important to know which specific ones are beneficial and harmful and by how much, just as it is important to know which acquaintances are beneficial and harmful. No one should live according to the idea that the benefit of 141 of my acquaintances outweighs the harm of 18 of my acquaintances so I do not need to deal with the problems caused by 18 harmful acquaintances.
Their chapter on technology is merely gee-whiz adulation. I don’t care whether can openers ever have voice recognition. Many of the products mentioned in Myths provide the vices of decline and boredom: Ease and passive entertainments. Many new technologies have costs that are transferred to third parties. They do not mention that cars with bells and whistles that benefit the status of the driver tend to be driven more dangerously at the expense of others. (Of course, we rarely hear a righty complain about drivers or other over consumers treating others as merely a means to an end.) If you asked Americans whether they would rather live in a cabin with no running water or a terrible neighborhood, I suspect most would choose the cabin. You could go to a department store and buy hundreds of items individuals in the past could not afford, but if you were a good thinker you might take some of them straight to the dump.
The flaws of this work are not flaws on peripheral matters. Every single major argument is weak. If there is anyone out there who isn’t an ultra-conservative true believer who believes these arguments, I will see if I can get some shares of Accompany.com to sell you:
You: (ring, ring) Who’s there?
Them: Accompany
You: What company?
Them: Accompany.
You: I know you’re a company. What company?
Them: Accompany.com
You: Okay, then who the hell is on first?
Here are some ideas you will not read in myths:
· There is some ironic justice: Many of those who pursue selfishness as the ultimate goal are mediocre or terrible
· at pursuing their best interests.
· Time, like money, is something power marketers try to manipulate out of people.
· Markets thrive only when many individuals have non-market norms and behaviors, yet power markets often destroy these norms and behaviors or fail to nurture them—or reward them.
· If you happen to be one of those souls who sees her pay checks eaten by housing, education, transportation, childcare and health care, it sure is comforting to know that hedonistic, self-destructive products are much cheaper and much more attractive than in the past.
· The libertarianism rhetoric of responsibility is the opposite of libertarian responsibility destroying polices.
· The more modern people rely on others, the more they use the rhetoric of self-sufficiency. The widget designer who buys almost everything he needs and is hopeless at other tasks thinks he is an island, even while he gains all sorts of benefits from others’ labors and government policies that the others never agreed to.
· It is funny how issues constantly get framed as freedom versus anti-freedom and compassion versus anti-compassion. Benefit and harm are somehow irrelevant. For some, freedom merely means “I'm Gonna Do Whatever The Hell I Want And To Hell With How It Affects Anyone Else.”
· The libertarian love of pronouncing their claims natural and others’ claims artificial is exceeded by the libertarian talent at evading truths.
· The things that decrease boredom in the short-term increase boredom in the long-term.
· The great imperative of the day appears to be the right to waste time.
· Economic theory says so is the fundamentalist economist’s version of the bible says so.
· Another thing has improved. At one time there were two political parties: The pro-rich party and the pro-criminal, pro-ward of the state party. The latter party appears to have changed somewhat.
· Economics is generally not a zero-sum activity, but it is important to know some of the economic activities that are zero-sum or negative-sum economically, not to mention the activities that are morally wrong.
The power marketers have proven that power markets are much better than socialism. They have not proven that it is better than dozens of other alternatives. The ideal short-term power market is one where most adults are sterile, fantastically educated, spectacularly servile, incredibly hard working; where paper corporations have more and better rights than humans; where loose labor markets are created; where subsidies and transfers to corporations are maximized; where tax laws are regressive; where money equals an absolute rule of free speech; where media, politicians and leaders are shills.
We are not economically better off unless “we” means the top 20 percent, especially the top one percent. Ultimately, Myths is a stultifying and dispiriting vision. The techno-status-quo-optimists are correct in saying that people have more junk now than they had in the past. But they are wrong in their prescriptions for the economy. They are wrong in their income claims. They are wrong in their productivity claims. They are wrong in their mobility claims. The economy has been badly managed for at least a generation and thousands of rhetorical tricks will not change that fact.
Cox and Alm seem to think that all you have to do to “prove” that policies are correct to find some areas where the non-wealthy are better off than the past. It does not matter to them how many opportunity losses occur or how people may be harmed in other ways or how other policies would be better.
One nice thing about so-called libertarianism is that you do not have to read many arguments to know the conclusions of so-called libertarians on almost every issue before you even read the arguments. Now I will not have to spend time reading more libertarian books. Not recommended.
256p (H) 1999
Book review by J.T. Fournier.