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Jewish World Review Feb. 2, 1999 /16 Shevat, 5759
Thomas Sowell
Warning: Good news
(JWR) --- (http://www.jewishworldreview.com) WE HAVE GOTTEN SO USED TO hearing hogwash about politics that we just tune
out a lot of it. But there is also a lot of hogwash about economic issues --
and too much of it is taken seriously.
According to popular hogwash and hysteria in the media and in politics,
real wage rates have not gone up much in years and neither has household
income. What has in fact happened is that more workers have taken more of
their compensation in the form of various benefits, which are not taxed,
instead of in the form of direct money income, which is taxed.
That makes sense. What does not make sense is ignoring the total
compensation package, which has been going up substantially.
Hysteria over "stagnant" household incomes is likewise based on ignoring a
simple and obvious fact: Households are getting smaller. When two people
today have the same income to live on as three people lived on before, that
is not stagnation. That is a 50 percent increase in income per person.
A recent book titled Myths of Rich & Poor shoots down innumerable
examples of economic nonsense that prevail in the media and in politics. It
authors, W. Michael Cox and Richard Alm, deserve a medal for bringing some
sanity to a subject where insanity is the norm.
Many of the facts they bring out would be incomprehensible -- indeed,
impossible -- if the gloom and doom scenarios we hear were true.
For example, only about a third of the homes built in 1970 had both central
heating and air conditioning. By the 1990s, four-fifths of the homes were
being built with these two features. Only about a third of the homes had
color television in 1970 but 98 percent do today.
The net financial holdings of American households in 1997 were three times
what they were in 1980 and six times what they were in 1970. Not bad for
people whose wages and household income had "stagnated"!
This is not even taking into account the qualitative changes in the
products we use. The authors of "Myths of Rich & Poor" point out that
steel-belted radial tires last more than 10 times longer than tires used to
last. That means that the cost of tires per mile driven is cheaper than at
any time in American history, even though steel-belted radials are more
expensive -- per tire -- than the old tires were.
There are numerous other qualitative changes in other products. People
today carry around laptop computers that can do calculations faster than a
huge 1970 computer costing millions of dollars.
If you measure people's economic situation by how much time they have to
work in order to earn enough to buy some product, the improvement is even
more dramatic. Even where money prices have gone up substantially, the time
it takes to earn that money has typically gone down.
A half-gallon of milk, for example, cost an average American ten minutes'
work in 1970 but only 6 minutes' work in 1997. An air-conditioner that cost
45 hours' work in 1970 costs just 23 hours' work today.
A much-overlooked fact that is brought out in "Myths of Rich & Poor" is
that most of the things that create a higher standard of living for the
masses were once exclusive luxuries of the rich. It was precisely the fact
that the rich bought these things when they were first produced -- and cost
an arm and a leg -- that enabled these products to survive long enough to
become mass-production items that the great majority of Americans could
afford.
Within my own lifetime, cars, telephones, refrigerators, television and
college education have all gone from being the luxuries of the few to the
common "necessities" of the many. Those who rail against the luxuries of the
rich ignore the fact that it was precisely the rich, paying through the nose
for the prestige of having something new and exotic, who made it possible
for initially very expensive products to develop to the point where they
became affordable mass-production items found in virtually every home.
Statistics that are loosely thrown around about people in the top and
bottom 20 percent in income overlook the fact that most of these are the
same people at different stages of their lives. Only 5 percent of the 1975
"poor" were still poor in 1990 -- and 29 percent of them were
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