Jewish World Review Dec. 29, 2004 / 18 Teves, 5765

E. Thomas McClanahan

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Pessimists peddle myths of poverty


http://www.jewishworldreview.com | Whenever I write about the economy, I always hear from pessimists who say I'm naive. I do admit to a bias. On the subject of the American economy, I'm an optimist.

Pessimists see things differently. They see the glass as half-empty: Our jobs are flowing overseas; manufacturing is being hollowed out; the little guy is being squashed by big corporations; the poor are getting poorer.

Baloney. The economy as a whole is in good shape - fantastic shape, when you consider the turmoil, conflict and uncertainty of the last four years. And when you look back over the last couple of decades, the economy's performance has been phenomenal.

The last really nasty recession ended a generation ago. That was in 1982, when unemployment peaked at 10.8 percent. Since then, except for two slumps that were mild and brief (1990-91 and 2001), the economy has grown almost continually.

Since 1980, the nation's gross domestic product - the value of all goods and services produced in a year - has more than doubled in inflation-adjusted terms. And real per capita disposable personal income, one of the best measures of our standard of living, has increased by nearly two-thirds.


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To be sure, there is always a human cost to economic dynamism; the economy grows by destroying jobs in obsolete industries and creating them in emerging industries. Today, we have fewer telephone operators, meter-readers and milkmen. People who once made typewriters, carbon paper, slide rules or rotary-dial phones had to find new jobs.

Looking back over the last century, the transformation in the labor market is even more dramatic. At one time, about 90 percent of Americans worked in food production. Today, only 3 percent are engaged in agriculture, but the nation is hardly worse off because those farm jobs vanished. Nor has the farm sector been "hollowed out," any more than the manufacturing sector. What you have is fewer people making more stuff.

Thanks to steadily rising productivity, our standard of living is rising as well. We're producing more with less effort, and once expensive amenities - remember when VCRs cost upward of $1,000? - have become affordable.

In "Myths of Rich and Poor," published at the end of the '90s, W. Michael Cox and Richard Alm noted that consumers two decades ago "had no idea they would be able to buy videocassette recorders, satellite dishes, answering machines, personal computers, video games, cellular telephones or in-line skates."

Even poor families are consuming more, Cox and Alm note. At the end of the 1990s, about 75 percent of those below the poverty line owned at least one car, compared with 64 percent in 1980. More are able to buy washing machines, dryers, microwave ovens, color TVs and VCRs.

The very vocabulary of wealth and poverty creates a misimpression. We speak of "the rich" and "the poor" as if membership in each income slice never changes over time. In reality, many Americans rise rapidly from the lowest income levels to prosperity.

The most authoritative study on upward mobility was done at the University of Michigan, where researchers followed the fortunes of 17,000 people from 1975 to 1991. At the end of the study, only about 5 percent of those who began at the lowest income level were still in the lowest fifth. Nearly 30 percent had climbed to the top fifth.

None of this to assert that low-income workers don't face hardships, or that the loss of a job isn't a catastrophic event for a family. But American economic life is not a Hobbesian struggle between "the people versus the powerful," as Al Gore once put it.

The U.S. economy is a darn-sight better off than, say, Europe's. Search Google for "Europe and unemployment" and you get thousands of responses on Europe's chronic joblessness and its welfare-state economy. One academic paper asks, "Is Europe Doomed to Stagnation?"

The current U.S. jobless rate is 5.4 percent, well below the 50-year average of around 6 percent. In fact, during the 2001 recession, the jobless rate peaked at 6.3 percent, only slightly above the 50-year average. Even so, it was portrayed in the media in the worst light.

Coverage of economic news sometimes borders on the ludicrous. Fred G. Mitchell, an investment manager who heads Mitchell Capital Management Co. in Kansas City, recalls a recent broadcast on National Public Radio.

"I love NPR, but sometimes it drives me to distraction," Mitchell said. "The other morning a woman was doing a summary of the leading business stories and made a casual reference to our `still-fragile economy.' I thought, `What planet is this woman on?' There is nothing fragile about this economy."

The future is always uncertain and real success never comes without struggle. But don't believe the pessimists. The economy's prospects are bright.



E. Thomas McClanahan is a member of the Kansas City Star editorial board. Comment by clicking here.

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