Customer Reviews

Myths Of Rich And Poor: Why We're Better Off Than We Think

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How pervasive is poverty in America? Cox and Alm argue convincingly that conventional measures overstate the extent of poverty. The conventional approach compares income to an arbitrary threshold, the so-called "poverty line." What Cox and Alm demonstrate is that many people who fall below that line nonetheless enjoy a lifestyle that would have been considered middle-class or even affluent 25 years ago.

Where the book is too breezy, in my opinion, is in its treatment of the policy implications of its statistics. Suppose we take it as proven, based on their data and analysis, that between 80 and 90 percent of the people below the poverty line are not truly poor, based on what they are able to consume. Two questions arise, which the book fails to answer.

1. To what extent have government programs, such as social security, food stamps, etc., enabled these people to escape true poverty? If government programs are what has alleviated poverty, then the official poverty line may still be a valid measure of the need for government assistance.

2. What sort of solution is there for hard-core poverty--the 2 to 4 percent of the population who are poor by any definition? How much of their poverty is amenable to economic solutions, and how much of it instead requires medical treatment--for mental illness, substance abuse, etc.?

While Cox and Alm help set the stage for more informed policy discussions, they do not really undertake those discussions.

I teach this book in my philosophy of social science class. It is easy and entertaining to read, and full of provocative claims because it makes no attempt at being balanced or cautious. In general, they do a decent job explaining basic economic concepts. It is, thus, an excellent book to analyze statistical reasoning. For example, throughout the book they offer data on the "average" or "per capita" American rather than providing the more illuminating median figures, but when they deal with executive pay suddenly the median (the middle of a distribution) is the right number, thus, underplaying excess at the top. When they try to convince the reader that wages are not the right tool to measure living standards, they use the buying power of a "typical manufacturing worker." Not only is that worker disappearing (as their own data shows, but they call it "improvements in productivity") and thus not very typical, he cannot be a good proxy for somebody on minimum wage, which has not kept up with wages in manufacturing sector. Nevertheless, the book is unintentionally very insightful: it turns out that on the authors' own account the reason why even the poor are better off (as measured by their ability to consume) than they were a generation ago is, besides the lower real cost of some necessities, the existence of welfare payments! Of course, this is not trumpeted. Moreover, when trying to show (in chapter 4) that minorities and women are sharing in rising living standards, they inexplicably shift, as my students pointed out to me, from their favored measure (consumption) to data on wage-income, which they had castigated as misleading earlier in the book. Even so, they conclude the chapter with the remark, "income distribution doesn't say much about...the opportunities [an economy] offers." (88) Thus, undermining their own argument! Finally, when they analyze upward mobility they fail to control for class; so the post-collegiate income performance of students, including those that have upper middle-class and wealthy backgrounds, is cited as evidence of upward mobility. Furthermore, their data-set excludes the homeless and others that do not have regular sources of income. So, their result tells us little about the upward mobility of what is known as the (new) "underclass."

Review from AWL News, the monthly newsletter of All Ways Learning of Silicon Valley.

Shattering Modern Economic Fables

The media bombards us daily with stories about economic hardship: corporate layoffs, trade deficits, homelessness, minimum wage battles, families in poverty. Bad news sells newspapers and increases television ratings - it's ironic that the media's own economic interest is served by trumpeting economic disaster.

These messages have been repeated so often they've been exalted to the position of Conventional Wisdom. Everyone knows by now that the poor are getting poorer while the rich are getting richer, that we've become a nation of hamburger flippers, that both parents need to work in order to support a family, and that our children are the first generation in our history who will not be better off than their parents.

Enter Michael Cox, an economist with the Federal Reserve, and Richard Alm, a business journalist. As they state in Myths of Rich & Poor, "these statements of America's economic failure are not just wrong, but, in each and every instance, spectacularly wrong." A combination of statistics and elegant methodologies are the tools they use to shatter these modern economic fables. The clarity of their writing doesn't hurt either.

It's impossible to read this book without realizing that we are winning the war on poverty. Today's average "poor" families have goods and services that rival yesterday's middle class families: 60% have microwaves, 50% have air conditioners, 93% have color televisions, and 60% have videocassette recorders.

More impressive is the income mobility within our economy. Most poor families don't stay poor. Over the sixteen year period tracked by one study, 95% of the families in the lowest income quintile climbed the economic ladder to higher quintiles. Over 80% moved to the top three quintiles, qualifying them as middle class or better. As Cox and Alm repeatedly demonstrate, "the rich may have gotten a little richer, but the poor have gotten much richer."

In another enjoyable section, Cox and Alm deftly reverse the perception that we are becoming a "nation of hamburger flippers." Fast-food jobs supposedly represent the shift of our economy to low-paying service sector jobs. But Cox and Alm point out that everyone from brain surgeons to computer programmers are considered part of the service sector.

Reading this book gives you a perspective you would not otherwise get from the mainstream media. With their relentless daily focus on bad economic news, the media completely miss the big picture - the American Dream is being realized by more people than ever before. As we prepare our children to participate in this economic miracle, it's good to know that boundless opportunities lie ahead for them.

There are two main problems I see with "Myths of Rich and Poor: Why We're Better Off Than We Think", and I might as well get those out of the way, so that my review ends on a high note. First, the book was published in 1999, and written most likely a year or so earlier. Although it covers the 1973-1997 years, it is possible that the data it uses is biased in reflection of the then splendor of the dotcom economy. How many of the conclusions reached stand up to scrutiny today 10 years later? I do not know. Second, the authors appear to have set out to prove a point, and they looked only at the data that support that point: that the USA is not doing as bad as others tell us it is. This approach raises questions about the analytical balance and usefulness of the results.

Nonetheless, based on the data available at the time it was written, this book is incredibly good! In two broad sections of approximately the same length, it addresses two myths: (a) the myth that incomes and the standard of living of Americans are falling, and (b) the myth that Americans are losing their jobs, left and right. The authors devote five chapters to "dismantling" the first myth, and four chapters to quelling the second myth. Given the state of employment today, it is not so clear if the book has succeeded in the second instance. It is very clear that it make a very good case.

For this reviewer the first myth was put to sleep beautifully, and a number of tables and figures throughout the book present a high mountain of evidence. Take a few examples. It is true that average hourly wages in the USA have fallen between 1973 and 1997. This reflects structural changes in the economy that have allowed low skilled migrant workers to do hourly wage jobs, and skilled workers to get salaries and other forms of compensation. In the end, per capita income and total compensation have risen even as wages have fallen.

On the other hand, not only is the hourly wage a mismeasure of worker income, income itself is a poor proxy for wealth. The wealth of Americans has "skyrocketed" in almost all categories. For example, in 1970 the median size of a house was less than 1450 sq. ft., and had no central heating or air-conditioning. By 1995, the median size of a house had climbed to 1950 sq. ft, and a typical house comes equipped with central heating and air-conditioning, dishwasher, two or more bathrooms, private garage, just to mention a few standard features. In addition, the cars Americans drive, and the highways they drive on, are all modern and inexpensive by historical standards. "Even the poor are better off" today than they were in 1970: more cars, PCs, TVs, and so on - see Table 1.2, p. 15. Compared to the past, products and services Americans consume now are new and improved. These new and improved products and services require fewer minutes to produce than before. In 1970, you needed 56 minutes of work to buy a half-gallon of milk; by the 1990s, you needed no more than 9 minutes for the same quantity of milk. Amazing statistics!

Because of these improvements, leisure has increased. The work week has shortened from 61 hours in 1870 to only 34.4 in 1996.Although incomes are still unequally distributed, with the highest 5th getting nearly 50% and the lowest 5th receiving less than 4%, social mobility is still alive and well, especially through education - see Figure 4.3, p. 75. This mobility includes women and racial minorities. Hence, lifetime earning is rising especially for those who take time to educate themselves, work, save, form a family, relocate to where opportunities are, retrain, stick out the hard times, and become tech-literate. Again, incomes are unequal, but the stuff people buy are so cheap that both high and low income households can afford them. This means inequality need not be inequity. Besides, America is still number one in the world in terms of per capita income and standard of living.

Clearly, exploding the myth about jobs was not that straightforward. Nevertheless, even here the authors of this book show that while employment in older industries, like railroads, has gone down, new industries, like software engineering, have created more jobs than the older industries lost. Besides, the new jobs pay more. The problems critics see are structural, brought about by technological changes. Change is never pleasant. Writing to President Andrew Jackson in 1829, Governor of New York Martin Van Buren complained that the railroad was threatening the canal system as a means of transportation. The letter concluded that "The Almighty certainly never intended that people should travel at such breakneck speed" (Figure 6.2, p. 134). Maximum speed then was only 15mph - change can hurt.

The book stresses that jobs are being lost, but there is no alarm. One way we know that is because "Americans now eat more meals than ever at restaurants" (p.139), long considered a luxury for the rich. Jobs in goods-producing sectors are declining; in service-producing sectors, they are increasing. All this is happening because of unprecedented economic growth, which allows innovations to spread faster and faster. Air travel spread slower than the microwave, microwave slower than the TV, TV slower than the PC, and the PC slower than the Internet. The American economy is driven by innovations. Concludes the book, "our economic system works, and it works well" (p. 194).

In terms of jobs, the U.S. economy is a different economy from what it was during the dotcom years. It would be interesting to see what a new look at the data will show. Even so, this book is a very good account. Recommended.

Amavilah, Author
Modeling Determinants of Income in Embedded Economies
ISBN: 1600210465

This book is the much-needed antidote to the often-repeated myth that the average American is today no better off -- or only slightly better off -- than was the typical American of 1973. The authors shatter this myth. There is nothing at all left to this myth when Cox and Alm are done with it. Anyone who from now on repeats this myth can justly be accused either of inexcusable ignorance or of willful misreading of the facts. The book is well written, and the authors obviously thought deeply about how to present empirical data clearly. They succeeded marvelously! The tables and charts alone are worth the price of the book. Read this book before you attend another cocktail party -- and then disabuse nearly everyone you meet of the atrocious falsehood that American living standards are stagnating.

For anyone who has heard or read the gloom and doom analysis of the U.S., this is a must read. For anyone who has read of the, presumed, stagnant, greedy "me" decade of Ronald Reagan, this is a must read. As a professor of economics, I have to deal with the myths presented in this book frequently. Students enter the university with ideas obtained from the general media and, of course, their high school teachers. The misconceptions about the nature of our economy, particularly in terms of its performance, are abundant. This book effectively puts all of the pessimistic views of the U.S. economy away by pointing out the partial nature of each criticism of the economy's performance. There is some grain of truth in every so-called shortcoming of the U.S. economy, but each criticism is based on selective data and selective interpretation. This book provides a complete look at most criticisms of the economy. Not only are the partial, or selective, nature of the problems explained, the reader is provided with a complete explanation, including data. Whether the problem is declinine income (not true), or that only minimum wage jobs are being created in the service sector (not true), or the idea that our children will not be as well off as we are (not true), or that the manufacturing sectors is declining (not true), the authors give a clear and understandable explanation. At times the authors tend to overdo the cheerleading for the efficiency of the economy. But, it the data idicates optimism, I suppose one must go with it. It would have been nice if the authors had provided a detailed examiniatiion of the increased charitable activity by U.S. citizens and corporations when compared to the recent past (last 30-40 years). But no book can do everything. In summary, this book is an excellent book for those that want a more complete view of the U.S. economy than one finds in the general media. In addition, one can learn more about how to examine data (statistics) for its drawbacks and shortcomings.

Like Will Rogers said: "It ain't what you don't know that hurts you. Its what you know that just ain't so that will hurt you." Or words to that effect. Like Ben Wattenberg's earlier book (whose title I used for this review), Myths of Rich and Poor explains that much of what you have been led to believe about wealth and poverty is simply incorrect.

The authors drill down into census data, the basic "facts" of American life, to show that we are not getting poorer. Our homes are bigger, food is cheaper, gas is less expensive, many 'poor' people enjoy home and car ownership, air conditioning, cable television, and an entire collection of things that most truly poor people would never even dream they could own.

Like David Landes' Wealth and Poverty of Nations and the best-selling Millionaire Next Door, this book does a better job of really reading and analyzing what is right -- and wrong -- about the American market economy.

All of these books show that finishing high school, staying married, and getting a job are th best poverty prevention strategies available and that the American market facilitates these things better than any other system. There are no guarantees and much of it is up to the individual. You just have to have the desire, direction and discipline to win your share of the American dream.

I had to read this for an economics class, all it is is facts. You can look those up on the internet now a days

This is a terrific book. Yes, the data are all 14 or more years old but it's still very timely. There are numerous self styled progressive academics like Krugman and Frank who are still making hand-wringing comparisons to the economic statistics of the 1950s and 1970s and this book's 1999 refutation of those arguments is still a knockout blow today.

The authors' main focus is to refute claims of decades of stagnant wages by assessing the purchasing power of those wages across the decades in terms of the quantity and quality of what those wages purchase. They demonstrate convincingly the wages procure a much higher standard of living.

It is convincing because it is chock full of data - a random check of 50 paragraphs throughout the book turned up just three that did not have at least one sourced data point. The research effort must have been prodigious.

At the same time it is as one earlier reviewer wrote, breezily written. Very bang-bang and not the least bit dry. Well, at least to me.

The comments below, even where critical, are still useful insights although, imo, less substantial than the critic seems to think. The switch from purchasing power focus to income in chapter 4, for instance, is simply stylistic - as the first three chapters demonstrate the purchasing power of income, chapter 4 turns to demonstrate the gains of certain demographic groups in income. The purchasing power of that income has already been explained and there is no nefarious trick in choosing to focus on income. The authors also do not ignore poverty matters. It is true they do not dwell on minimum wage or homelessness but they do not purport to. As one reviewer notes, and as references in his review to mean and median imply, they are more focused on the middle class - which frankly is what the academics like Krugman and Frank, to whom they are replying, also focus on. So that observation while true, seemed trite to me.

I just wish they or someone would take this book and update it.

This book is a Godsend. Not a day goes by when I'm not beset by bad economic stories, all to the effect that America is a nation in decline. Fortunately, "The Myths of Rich and Poor" puts the lie to all the doomsayers' tales. Alm and Cox show convincingly that the wage and trade figures waved about by the likes of Pat Buchanan and company are mere half truths. Real wealth, a far better indication of living standards, is rising, and we spend more than ever on leisure activities. Anyone who is feeling bad about the future should read this book and cheer up.