FOUR CONTEMPORARY ECONOMIC MYTHS

1. FOUR CONTEMPORARY ECONOMIC MYTHS • The cost of living has risen dramatically over the last 25 years, if not longer • The 1980’s were a decade of greed • The rich are getting richer and the poor are getting poorer • Wages have fallen in the last 20 years and the market is only creating bad jobs

2. Myth #1: The cost of living has steadily risen over the last few decades. • The ultimate measure of the cost of consumption goods is the labor time needed to purchase them • The rich pay the big up-front costs by purchasing them when they are very expensive • The increase in variety is one of the best signs of increasing well-being and a rising standard of living

3. Table 1:  Changes in the Labor Time Cost of Various Consumer Goods

4. Table 1:  Changes in the Labor Time Cost of Various Consumer Goods

5. Myth #2: The 1980s were a decade of greed • As a percentage of national income, total and individual charitable giving reached all-time highs in 1989 • In addition, these levels of giving were ahead of what one would have predicted given past data.

6. Table 2:  Charitable giving - 1980s and before

7. Myth #3: The rich are getting richer and the poor are getting poorer • Even if the relative shares of the poor declined, this doesn’t take account of the overall growth in income. • The people who were poor in one year are not the same people who are poor in the next year! • There are also more persons per household at the top than the bottom (64m vs 39m). • The real policy question here is income mobility.  How easy is it for folks who start poor to move their way up?

8. Table 3:  US Income Distribution by Quintile, 1997

9. Table 4:  US Income Distribution to Top and Bottom Quintile: 1975 and 1997

10. Table 5:  Income Mobility 1979 to 1988  (US Treasury Data)

11. Table 6:  Income Mobility 1975 to 1991  (UM Data)

12. Table 7:  Absolute Average Income Change, by Quintile 1975-91 (1997 dollars)

13. Myth #4: Wages have fallen in the last 20 years and the market is only creating bad jobs • From 1953 to 1973, average hourly wages grew at an annual rate of 2%.  From 1973 to 1978, they stagnated.  And then from 1978 to 1996, they fell by an average annual rate of 0.7%.  • These figures include only monetary wages, they neglect other forms of compensation, such as health benefits, retirement benefits, and stock. • When we look at per capita income rather than wages or total compensation, we get a continuation of the same upward trend we saw from 1953 to the mid 1970s, albeit once again at a slower rate.

14. Myth #4: Wages have fallen in the last 20 years and the market is only creating bad jobs • Economists believe that inflation is overstated by 1.1% per year. If we correct for that, the decline in real wages since 1978 becomes a 12% increase, and the slowdown in per capita income growth disappears. • It's true that most of the jobs created over the last 25 years have been in the service sector, but that’s part of a long term trend that is the most basic sign of economic growth • In fact, the average wage in the service sector is $11.80/hr compared to $13.20/hr in manufacturing. Not a huge difference and one that is rapidly shrinking. The difference disappears if you take out part-time retail jobs.

15. Table 8:  Some Major Job Creators (1985-96)

16. FOUR CONTEMPORARY ECONOMIC FACTS • The cost of living has declined over the last 25 years and substantially over the century • The 1980’s were a decade of record charitable giving • The rich are getting richer but the poor are getting richer even faster • Real per capita income has risen over the last 20 years because the market is creating higher paying service sector jobs

17. Thanks very much! • You can find out more at my website: http://www.stlawu.edu/shor • You can also read W. Michael Cox and Richard Alm’s Myths of Rich and Poor, Basic Books, 1999, to see the original