The American Economy: Income, Wealth and Want

by Stanley Lebergott

Overview

Every economic system exists only to satisfy human wants, yet most systems fail to do so. Taking a keen look at the gap between goal and result, Stanley Lebergott appraises public policies relating to the U.S. distribution of income and wealth today.

Part I shows that many programs have disappointed their proponents because certain basic assumptions were not understood. The author's new data suggest more realistic answers to much-debated questions: Are the rich getting richer? How much "upward mobility" exists? What approaches to poverty, starvation, and discrimination are practical today?

In Part II, size distributions are derived for wealth in 1970, for income in 1900, and for white and non-white income for the period 1900-1970. These data include new estimates for key items in the standard of living since 1900, with detail on services that have dominated the "postindustrial" economy.

Originally published in 1976.

The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

Product Details

ISBN-13:	9780691644479
Publisher:	Princeton University Press
Publication date:	04/19/2016
Series:	Princeton Legacy Library , #1412
Pages:	406
Product dimensions:	6.20(w) x 9.40(h) x 1.10(d)

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The American Economy

Income, Wealth, and Want

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By Stanley Lebergott

PRINCETON UNIVERSITY PRESS

Copyright © 1976 Princeton University Press
All rights reserved.
ISBN: 978-0-691-04210-7

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CHAPTER 1

CAN AMERICAN CAPITALISM END POVERTY?

"I am as poor as Job, My Lord, but not so patient"

— Sir John Falstaff

There exist eight reliable ways to increase poverty. The United States now pursues seven of them. Should it continue to do so, poverty in America will continue. Now it is true that since 1936 the percent of American families below the official OEO poverty line has been cut, from 56 percent to less than 10 percent. And with our trillion-dollar GNP we have the wherewithal to cut that down to 1 percent by next Sunday. But it may be impossible to end poverty permanently without changing course on these seven ways. Yet doing so could change American capitalism beyond recognition.

We must begin from a truism: few Americans really want to end poverty. Is that truism contradicted by the strong speech of the young? by the Kennedy-Johnson poverty programs? or by the Nixon welfare program? Consider the following. America could immediately end the blinding poverty of India and Pakistan, if only it chose to do so. How? Rather simply, by dividing up the incomes of the three countries, share and share alike. By that single decisive action we could guarantee those nations against starvation. Naturally, U.S. incomes would have to fall, from about $4,000 a person to $600. How many Americans are prepared to take this step?

There is an even easier tack. Thousands of Mexicans now drag out their lives in abysmal poverty. The U.S. could change that, and without giving away a single cent, merely by letting the poorest Mexicans enter the U.S. and earn higher incomes. How many Americans are ready to do so? In 1959 a major church synod called on its "members to pray and work ... (to) eliminate blighting poverty." One particular prayer they proposed was for an "annual reduction of the number of Mexican nationals imported for agricultural labor." Michael Harrington, champion of The Other America, has quoted approvingly the fierce opposition by a Mexican-American trade unionist to taking any such anti-poverty step. Yet our 19th-century experience strongly suggests that conditions for many immigrants could be improved, with little or no unemployment, at the price of slowing the rise in U.S. wage rates.

I suggest, therefore, that most Americans are not interested in abolishing poverty, particularly the coarse and untidy kind that leads to agony, to starvation, and to death. Their concern is instead: Can poverty in America be abolished? Now what is "poverty in America"? Few of those who exhort on that subject can mean by poverty too small an income for a family to buy enough calories and vitamins, plus a place to live, heat and water, some clothing and medical care. If that were their criterion, then only the poor would be discussing the problem. For the typical poverty family today can buy as much food as the average U.S. worker could buy in our grandparents' time — plus better housing, more clothing, furniture, heat, and medical care.

Sensitive Americans are therefore exercised about something quite beyond ending starvation, providing a place to live, medical care, etc. They are measuring not by any absolute standard, but by a relative one. Poverty is what afflicts Americans who fall behind today's here-and-now standard of living. As Harrington puts it: "The American poor are not poor ... in the sixteenth century; they are poor here and now in the United States. They are dispossessed in terms of what the rest of the nation enjoys. ... They watch the movies and read the magazines of affluent Americans, and these tell them that they are internal exiles...." In an economy that bursts with productivity, that produces so fantastic a volume and variety of goods, poverty comes to be defined as relative to what the typical American enjoys.

I

The first way to increase poverty in the United States follows fairly obviously from that definition — namely, to increase the standard of living. Raise the consumption level of the typical American and you create poverty. Raise it again and you create more poverty. When Ford invented the auto he created poverty. When Zworykin invented TV he created more poverty. Raise the standard decade after decade and you create more and more (relative) poverty even while you are wiping out the old-fashioned (starvation) kind of poverty. "Solely as a result of growing affluence, a society will elevate its notions of what constitutes poverty." (So reports the President's Commission on Income Maintenance.)

Try as hard as it can, a nation cannot succeed in creating relative poverty unless it does three things.

(1) It must use its workers more and more productively. And we know that American capitalism has become more productive with every passing decade.

(2) It must pay those workers more and more. And we know the real wage of American workers has tripled since 1900.

(3) Finally, it must prevent its workers from relapsing into the expenditure pattern of St. Simeon Stylites, or even of Thoreau. If American workers had devoted their increased incomes to the worship of God and nature, the "relative deprivation" kind of poverty could not have arisen.

But when higher wages are earned, and then devoted to raising the workers' standard of living, more poverty is produced. The narrow-visioned worker of 1900 might have been satisfied to ride a trolley to work. But his grandson — even his hippie grandson — requires a car or motorcycle. (Indeed 41 percent of our officially "poor" families own automobiles. Half a million own more than one car.) The 1900 housewife used a tin washboard. The 1975 housewife requires an electric washing machine and dryer (in the local laundromat or at home).

In 1900 15 percent of U.S. families had flush toilets; today 86 percent of our poor families do. In 1900 3 percent had electricity; today 99 percent of our poor do. In 1900 1 percent had central heating; today 62 percent of the poor do. In 1900 18 percent of our families had refrigeration, ice refrigeration; today 99 percent of our poor ,have refrigerators, virtually all mechanical. (Table 1.)

The average American today works a third fewer hours than did his 1900 peer. Yet beyond food, rent, and clothing, his family spends ten times as much on all the other comforts and necessities of life as did the 1900 family (allowing for price change).

These spectacular increases could not, I would argue, have been achieved without heroic contributions by Madison Avenue. Keeping up with the Joneses — as they keep up with the TV ads — has become our normal way of life. Spirit and salesmanship, greed plus gab, produces a distinctive, an American, perspective. It was, after all, two American Marxists, Baran and Sweezy, who classified as poor those American families who could not regularly buy cans of "room air freshener." What homage to the advertising profession! What testimony to its success in expanding the American standard of necessity! Another American Marxist has written a text on Radical Political Economy, which devotes several pages to the $11-billion-yearly "waste" in "useless automobile model changes," excoriating such "fraudulent and trivial newness." But just as we nod in agreement, he goes on to define poverty. And he stipulates $5,900 a year as a "low absolute level of income" — in part because workers with such an income must "run a used car or use public transport." How terribly vulgar the used car! And how unfortunate those $10,000-income families who do not drive cars just off the show-room floor!

All this is not meant to ignore the ancient, decisive, and ubiquitous presence of envy. Long before the U.S.A. even existed, La Bruyere observed of another culture: "Life is brief and monotonous. It passes away in desire."

But surely one inference follows. If (a) American industry speeds productivity, and pays higher wages, and if (b) advertising helps persuade American workers, to buy new, more elegant products, then American capitalism must continue to generate poverty.

The upward trend in the reference standard makes the end of poverty an ever-retreating goal, and an unachievable one. Such a trend is assumed by the major radical thinkers as well as by the liberal ones. Thus Lasalle's "iron and inexorable law" of wages, when read closely, proves to be a complete tautology: "the iron and inexorable law, according to which, under the domination of supply and demand, the average wages of labour remain always reduced to the bare subsistence which, according to the standard of living of a nation, is necessary for the maintenance of life and the reproduction of the species." "Iron and inexorable law," "bare subsistence" — these clamorous and menacing phrases all push into insignificance the proviso: "according to the standard of living of a nation." But that tiny proviso renders meaningless the fearful threat of life on bread and water. For what determines that "standard of living"? Lasalle offers us no system for determining which forces are at work, nor how important any of them may be. That is equally true of official Marxism-Leninism. They give the game away by admitting that "the standard" rises during the course of development.

If we were discussing an economy where productivity and incomes never advanced, no such conclusion would follow. But the income of the American common man promises to continue advancing. Or if we imagined the unimaginable — a whole society rejecting the rising consumption of goods as a goal of life — no such conclusions would follow. But can we imagine this society agreeing with Thomas à Kempis that "Whatever ... is essential to my peace cannot be the production of the world"? Those who have seen America's poor families go from 0 percent with television to nearly 90 percent in two decades, the non-materialistic young go from 2 percent (?) consuming moderately expensive marijuana cigarettes to 30 percent (?) in two decades, or from buying 50 million phonograph records a year to 200 million, plus stereo sets, airplane rides, etc., would hardly anticipate any such unbelievable turnabout. "The poor ye have always with you," therefore, seems a continuing description of American capitalism.

II

A second way to increase poverty is to allow older people to live apart from their children. Perhaps young people today enjoy such close rapport with their parents that they wish to spend their entire lives with them. But an older generation had no such aspiration. The passage of the Social Security Act in 1936 began the process by which the state gave older people pensions which they could spend as they chose. Many of them promptly decided to live apart from their children: they valued their privacy and comfort. (So did their children and grandchildren.) But this move automatically increased the number of poverty families. And as we continue to allow old people to use their social security checks for living in homes of their own, we continue to increase the number of poor families. Because when the old folks live with their children they are not in the poverty count (assuming they contribute a mere $601 dollars a year to family income). But when they decide to live alone they join the poverty count — unless social security gives them three times as much money. The usual discussions of poverty set a zero value on the convenience that older people get from living their own lives (or from grandchildren living with only one set of overbearing oldsters). Hence the poverty estimators treat such expanded horizons and greater independence as increasing poverty.

But even that is not all. Pensions are pegged to the productivity of the economy in the years just before retirement. Suppose a man has been earning $3,000 a year. Over the next ten years the economy's productivity will probably advance by 30 percent — our long-run trend rate — and average incomes will do much the same. Hence even if a retiree continues to enjoy exactly the same goods and services as today, he will automatically drop below the relative poverty standard — merely because the economy has become more productive.

III

There is a third force: the Men's Liberation Front. The male attitude has been tellingly caricatured by V. S. Naipaul: "On this island I was telling you about ... they had this woman, pretty but malevolent. She make two-three children for me, and bam, you know what, she want to rush me into marriage." Our national moral code includes the right of men to propagate children — and desert them. By doing so, of course, they increase poverty: mothers find it difficult to earn any income when they have young children. If they get a job, they must drop their work whenever the children fall ill. They therefore end up with less responsible jobs, at lower wage rates — and are paid for fewer hours. Is it surprising that the percent of families in poverty rises from 8 percent when the husband is present, to 32 percent when he is absent? For white families the rise is from 7 percent to 26 percent. For black families the rise is more than 30 percentage points, from 17 percent to 53 percent. (Table 2 indicates how the sharp decline of low-income families with male heads has been seriously offset by the rise in Negro families with female heads.)

It is unclear why Women's Lib. has not proposed that men be required to assure, in advance, financial support for any children they may propagate. (That was, of course, one of the reasons for marriage in olden times.) Perhaps the genes of altruism are sex-linked. Or perhaps self-expression is a higher goal than child care. In any event, men remain free to abandon the emotional responsibility of children to the women, and financial responsibility to the taxpayers. Nearly 40 percent of all poor families with heads under 65 years would be removed from poverty if Men's Lib. were ended.

IV

Paying old people not to work. Before Social Security old people simply had to work. In 1939 40 percent of men over 65 worked. But by 1973 only 24 percent were at work, though jobs were easier to locate and real wages far more attractive. Why so? It seems likely that the typical worker is quite ready to quit work after forty years of arduous and monotonous labor, and retire on social security. He sets a real value on leisure. But Harrington includes every older worker when he refers to "a misery that extends to 40 or 50 million people in the U.S. ... that have remained impoverished in spite of increasing productivity and the welfare state." Indeed, those over 65 make up the largest single age group in his figure — as they do in most estimates of poverty. But suppose Barry Goldwater had succeeded in abolishing social security. Many older people would still be at work instead of in retirement. Given their years of seniority and skill, they would almost certainly be earning incomes above the poverty level. Hence because social security induced them to stop working, and live on a lower money income, it induced them to join — indeed, to lead — the ranks of "those who have remained impoverished." But they are not impoverished "in spite of" the American capitalist "welfare state." They are in poverty because of it.

V

Raising our social standards. In the past many families kept out of poverty by sending their children to work. Senator Ralph Flanders has described how his father was "bound out" to work without pay. He got only board and room. And his family, of course, received no income. But by reducing the mouths at the table, his work helped to keep the family out of poverty. Our moral standards have advanced mightily since then. In 1900 some 18 percent of all children (aged 10–15) worked. Today very few do. We forbid families to use this method of getting out of poverty. We find the moral advance worth the resultant increase in poverty.

Likewise, it used to be possible for a family to increase its income by taking lodgers. As recently as 1910 some 30 percent of the millions of foreign-born Americans crowded 3 (or more) persons into each sleeping room. Some 47 percent of all Polish immigrants lived under such conditions. And 39 percent of all Italians. Today's housing codes forbid families to earn incomes by such crowding and doubling up. Indeed, ever stricter enforcement of such codes is urged by every housing and civil rights organization. Both these codes, and their stricter enforcement, prevent a decline in the number of American families in poverty. Is there an American alive who would want to reduce poverty by challenging these social standards?

VI

A sixth method for increasing poverty is to keep the children of the poor alive. Every major advance in public health work and medical care has cut our death rates. Of 100 babies born in 1850 only 64 percent lived to age 25 and went on to form their own families. Today 94 percent live that long. But the rich already received relatively good care. Hence that tremendous advance surely benefited poor families far more than the rich. Now the poor had their turn. Hence more babies from poor families survived — to be heads of poor families in their turn. Americans rejected, and continue to reject, the older reality design in which the death rate kept down the poverty problem.

(Continues...)

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Table of Contents

• Frontmatter, pg. i
• PREFACE, pg. v
• CONTENTS, pg. vii
• CAN AMERICAN CAPITALISM END POVERTY?, pg. 3
• ON CONFISCATION, pg. 21
• PER CAPITA INCOME AND THE ANGEL OF THE LORD, pg. 33
• THE SUBMERGED TENTH: COLOR AND ETHNIC GROUP INCOMES, 1900-1970, pg. 44
• A CENTURY OF GUARANTEED INCOME IN THE U.S., pg. 53
• THE MINIMUM BUDGET: FROM "DECENCY" TO "SCIENCE", pg. 70
• POVERTY AND STARVATION, pg. 77
• GNP AND THE GARDEN OF EDEN: LONG-TERM TRENDS IN U.S. REAL INCOMES, pg. 88
• DISCRIMINATION AND POVERTY, pg. 108
• WHAT INCOME DISTRIBUTIONS MEAN, pg. 129
• THE CONCENTRATION OF WEALTH: SOME ECONOMIC ASPECTS OF ETHICS, pg. 149
• THE NOUVEAU RICHE AND UPWARD MOBILITY, pg. 161
• ARE THE RICH GETTING RICHER? TRENDS IN U.S. WEALTH CONCENTRATION, pg. 179
• THE DISTRIBUTION OF WEALTH IN 1970, pg. 215
• LONG-TERM TRENDS IN THE U.S. STANDARD OF LIVING, pg. 248
• WHITE AND NON-WHITE INCOME DISTRIBUTIONS: 1900-1970, pg. 299
• THE INCOME DISTRIBUTION IN 1900, pg. 310
• SERVICE EXPENDITURES SINCE 1900: NEW ESTIMATES, pg. 326
• INDEX, pg. 377