Is This Rising Tide Lifting All Boats?

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The class warfare lobby is singing its “soak the rich” anthem again. For example, a just‐​released report by the liberal Center on Budget and Policy Priorities (CBPP) suggests that “income disparities between the top fifth of families with children and families at the bottom and middle of the income scale have grown substantially over the last two decades.”

The report comes just one month after the latest release by the Census Bureau on income and poverty levels. Income redistributionists seized upon the census data to declare that, in America, the rich are getting richer and the poor are getting poorer.

Is the divide really growing as rapidly as those reports indicate?

Admittedly, there is some bad news. The poorest 20 percent of Americans saw their incomes decline in real terms by 2 percent last year, while the richest fifth saw their real incomes rise by 2 percent. Today, the top 20 percent have about half of the total income in America — up from about 46 percent in 1990.

In terms of incomes, for the vast majority of Americans these are the good old days.

But there are five highly encouraging trends in Americans’ income since 1980.

First, Americans are constantly moving up and down the income ladder. This phenomenon is known as income mobility — and it is almost unique to the American experience. Yes, there are millions of poor ready‐​rich? Not by a long shot. Read the fabulous bestseller The Millionaire Next Door. It is filled with tales of Americans who never made over $50,000 a year in their lives but, through a combination of thrift and shrewd investing, are now asset millionaires who are financially self‐​reliant. Since 1990 the number of Americans with mutual funds has almost doubled from 33 million to 65 million. Many of the households that show up as “poor” in the Census Bureau statistics are senior citizens who are income “poor” but asset rich — they own their homes and have retirement nest eggs.

Finally, wages, when properly measured, are not falling. They are higher than ever before. The National Center for Policy Analysis has provided invaluable information showing that because of the increasing value of fringe benefits — such as health care coverage, pensions and more leave and vacation time — median hourly worker compensation has doubled since the mid‐​1950s and is up by about 20 percent since 1980. It is a part of modern American folklore, but, no, most Americans are not working harder for less.

All of this is not to say that all Americans are doing better in this new information‐​age economy. Social critics are right: there have been painful displacement costs to millions of Americans as industries have sucked in their bellies to become more cost competitive. Global free trade eliminates jobs in some industries (such as manufacturing) but creates them in others (high tech). And it is quite possible that income disparities will widen in the future as the premium for skills and excellence rises and the value of mediocrity falls. But before we come up with policy solutions, we all have to understand what the data are telling us.

It’s a natural human tendency to think of the past as “the good ol’ days.” But in terms of incomes, for the vast majority of Americans these are the good old days. The rising tide of the last 15 years may not have lifted every boat, but it has lifted most.

Stephen Moore

Stephen Moore is director of fiscal policy studies at the Cato Institute.