Monday, February 11, 2008

The Top & The Bottom

"Thus there is a certain perversity to suggestions that the proper reaction to a potential recession is to enact protectionist measures. While foreign competition may have eroded some American workers’ incomes, looking at consumption broadens our perspective. Simply put, the poor are less poor. Globalization extends and deepens a capitalist system that has for generations been lifting American living standards — for high-income households, of course, but for low-income ones as well."
This is an op-ed piece that points out, for me, how aggregation can make it difficult to have an accurate understanding of the rich and the poor in our country. Of course our system of political economy has been lifting American living standards for generations. But, this seems to often be missed when there are data reported about how much more the top income quintile has versus how little the bottom income quintile has. Cox and Alm explain some reasons why this data can mistakenly portray a picture which is inaccurate. And, their explanation doesn't even utilize the dynamic nature of our economy by which there is significant mobility between income groupings in the data, much less the observation that many in the lowest income quintile are those who are young and very early on in their working years.

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