The government released its household income numbers a few days ago. There was some wage growth due to increased hours employment, but there was also a rise in the uninsured.
Steven Pearlstein had some interesting analysis in the Post. First he argued that really liberals should use the household income numbers after adjustment for taxation, food stamps, and the like. I think there's some merit to that argument. Trouble is, as Perlstein notes, those numbers don't get put out until March, so the latest numbers we have are for 2005 which is kinda stale.
If your curious how much of a difference this makes, here's the differences in household income based on method of calculation:
Anyhow, I'll try to work these numbers in the next time I do some primary source research on poverty. For the moment though I'm going to focus on the rest of Pearlstein's argument. He cites "The Persistence of Poverty," a book by his friend Charles "Buddy" Karelis, a professor at George Washington University.
The book argues against the idea that the marginal benefit of a $1 is highest for the poorest American households and steadily decreases as you rise in income. This is a fairly unorthodox view, since that particularly economic rule makes a fair amount of sense. After all, the more money you have, the smaller percentage a dollar is of your income.
But what if this iron law of economics is wrong? What if it doesn't
apply at every point along the income scale? If you and everyone around
you are desperately poor, maybe it's perfectly rational to think that
an extra dollar or two won't make much of a difference in reducing your
misery. Or that you won't be able to "study" your way out of the
ghetto. Or that if you find a $100 bill on the street, maybe it's
logical to blow it on one great night on the town rather than portion
it out a dollar a day for 100 days.
On the other hand, maybe the
point at which people are most willing to work hard, save and play by
the rules isn't when they are very poor, or very rich, but in the
neighborhoods on either side of the point you might call economic
sufficiency -- a motivational sweet spot that, in statistical terms,
might be defined as between 50 percent ($24,000) and 200 percent
($96,000) of median household income. And if that is so, then maybe the
best way to break the cycle of poverty is to raise the hopes and
expectations of the poor by putting them closer to the goal line.
Apparently Karelis just backs it up with anecdote and logic. That's not necessarily a problem, this is a falsifiable theory. One possible experiment would be to give an equivalent amount of money to people with varying incomes and then track how they spend it. If the theory is right, then the money should be best used for long term ends by those in the lower-middle of the income spectrum.
I'm going to have to think if there's any ways to check if there's at least some correlation level support for this idea using existing statistics. What I'd really need are some numbers that track income mobility over time. That said, by the description by Tyler Cowen it sounds like the book gets a little deep into psychoanalyzing the poor without a lot of evidence to back it up. There are a lot more differences than just attitude between lower income immigrants and equivalent income native born Americans.
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