The poor are getting richer

Steven Horwitz wrote an opinion piece that declares that the poor are not in fact getting poorer. He points out that direct comparisons between 1979 and today are meaningless because the households that were poor in 1979 aren’t the same as the ones that are poor today. Most of the people, according to Mr. Horwitz, that are recorded as being “poor” are merely on the first step of the income ladder. Most of them were able to take more steps on that ladder and have moved above the bottom 20% to be replaced by a younger cohort. I for example would be easily classified as poor, but I am unlikely to remain poor my whole life.

So simply pointing to the earnings of the bottom 20% misses a lot of what happens over a life time. Such a methodology does not take into account income mobility.

Mr. Horwitz also takes issue with research that looks at the income gap. Income is not the only indicator of wealth or prosperity; it may not even be the most important indicator. Mr. Horwitz explains:

The gap in personal conveniences has clearly narrowed over time. Consider that both Bill Gates and more than 80 percent of poor American households own cars - though likely differing in quality. Fifty or 100 years ago, the difference would not have been in the quality of car, but in owning a car at all.

Yes, there are more Americans in poverty during a recession - some in deep poverty - as the institute's data shows. But it also shows that since about 1980, the share of the population in extreme poverty has hovered between 5 and 6 percent. In other words, there's no long-term upward trend in the percentage of households living in extreme poverty.

The reality of the modern U.S. economy is that upward mobility is alive and well. One look around at even the bottom fifth of American households today - where children are watching cable TV, surfing the Web, or chatting on cell phones while Dad takes free generic medicine and Mom heats something up in a microwave - shows the poor are hardly getting poorer.

Mr. Horwitz is eloquently making a point that I have often thought about.

Today’s bottom 20% enjoys luxuries that were unheard of 100 years ago. The poorest among us live better than a mediaeval king. How can you possibly claim that the poor are worse off?

I would go further than saying that the poor are not getting poorer. I would say that they are getting richer.

They are getting richer not because of any government program but by the luxuries provided by the market. Capitalism has given us all cars, televisions, and phones. It is capitalism that has vanquished the true poverty of our ancestors.