Posted on 02/20/2025 8:34:47 AM PST by econjack
We hear a lot of comments about poverty and the “unfair” distribution of income in the US. To examine such things, we need to make a distinction in the type of variables used in economic discussions. There are two fundamental types of economic variables: 1) stocks, and 2) flows. Let's consider the difference between the two.
If I ask you how much money you make, and you respond with “$100”, I have no idea what your income is. The reason is because some people make $100 per hour, others make $100 per day, and in come parts of the world, some make $100 per year. Flow variables are those variables that are measured over time. That is, they need a time subscript to make sense. If you had said “$100 per hour”, now I know what your income is.
If I ask to how much money you have in a savings account, and you respond with “$500”, that makes sense. Stock variables are measured at a point in time. They do not need a time subscript to have meaning.
Let's take a look at the latest income distribution numbers for 2023:
Income Range Percentage of Households
Less than $25,000 32.33%
$25,000 to $49,999 26.19%
$50,000 to $74,999 17.51%
$75,000 to $99,999 8.92%
$100,000 to $199,999 11.48%
$200,000 to $249,999 1.40%
$250,000 or more 2.19%
People complain that almost a third of the US population makes less than $25,000 per year. Ask yourself: is the distribution of income a stock or flow variable? While we are on the topic of income distribution, what is the poverty income level in the US?
Poverty income levels in the US is defined as the following (the numbers are different for people living in Hawaii and Alaska):
Contiguous U.S. (48 States + D.C.)
1 person: $15,060
2 people: $20,440
3 people: $25,820
4 people: $31,200
Each additional person: +$5,380
The concepts of poverty and the distribution of income cause a lot of people to get their knickers in a wad and start chanting about programs to “level the playing field” and that “the rich don't pay their fair share”. I think most of those people chanting such terms don't have a grasp on the economic facts.
Years ago, my Freshman econ students used to bitch about poverty levels in the US. I told them I could end poverty in the US in one day. Of course, they said: “How?”. My response: “Simple. Gather everyone who makes less than $15,060 per year, line them up, and shoot them.” They were aghast! After they calmed down, I asked: “Now. how long will it take for the person making $15,061 per year to start bitching that they are the poorest person in the country?” We then proceeded to have a meaningful discussion about income distribution and, do we really want a perfectly even distribution of income?
When I was 16 (shortly after Gutenberg invented the printing press), I worked for two hours a day after school and was paid the princely sum of $10 per week, or about $500 per year. Clearly, I was well below the poverty level even back then. So, should I grab my sign and start yelling for policies that “level the playing field”? There are two problems here. First, I was 16 and the income was not supposed to support me. Second, and more important, my place in the distribution of income is at a point in time. Less than 10 years later, I was a economics professor at a university making a full time salary. In other words, the distribution of income is a stock variable—it captures my economic position in the system at a point in time. Look at that same person 10 years down the road and their position in the distribution of income is often vastly different, yet uninformed people are walking around carrying signs and chanting for policies to help people who, in many cases, don't need it.
True, there are people in their 40's trying to support a family on burger-flipping wages. These people probably do need help, but I'm not totally sympathetic. Why is that person in that job during their prime income-earning years? My guess is that they dropped out of school and didn't invest in themselves. So, the Liberal solution is to throw money at the problem. That's a panacea, not a cure. But Liberals don't want cures...they want to create a class of people who are dependent upon their ability to take income from the productive members of society and give it to the less productive members. They do this because those dependent people will vote for them so the politicians can keep filling the trough.
A better solution is to provide training programs where they learn a skill that is valued in the marketplace. There was a program in the 1960's in NJ (Trenton??) sponsored by the Manpower and Development Training Act (1962) that provided funds via a grant for the city to buy abandoned houses. The city worked with the construction unions to hire unemployed youths in the city as apprentices to rehab the homes. The city bought the materials for the rehab effort. When finished, the houses were sold to low income families. The proceeds from the sale were then used to buy more abandoned houses.
The program was a roaring success. The city placed abandoned homes back on the tax roles and helped create safer neighborhoods, the unions got new members, and unemployed youth in the area learned marketable skills because of the program, thus removing them from various government income transfer programs (e.g., welfare, rent subsidies, food stamps, etc). It was a win-win for everyone in the program. In fact it was so successful that the politicians killed it in 1973. Why? Because those people were no longer dependent on the politicians' largess for their existence. That's a no-no for politicians.
The lesson to learn: government policies are “flow” actions that occur over time. As such, we need to measure the problem those policies address over time. Pointing to a lopsided distribution of income (a stock variable measure) often presents a distorted picture of a policy designed to fix the problem (flow variables). Are the people in poverty today going to be there tomorrow when you actually start handing out the money? Or is it a better plan to create programs that help them move to higher levels in the income distribution through education and training programs?
Likewise, when you hear some idiot suggest that Bezos, or any other rich person, give their money to the poor, ask them why? People forget that, a long time ago when Bezos actually first became a millionaire, he didn't take his wealth, buy a yacht, and sail around the world eating bon-bons. Instead, he plowed those funds back into his company and grew the business. So, until those Liberals each feed, clothe, and house over 250,000 people, tell them to sit down and STFU. It is the rich who create new jobs, promote economic growth, and provide the means for poor people to move up in the distribution of income table.
We conservatives need to learn new tools to argue for our positions more forcefully on policy actions.
Level the FIELD - don’t try to ‘level the players’. Don’t break the legs of some and give motor cycles to others - just the DAMN FIELD. LEVEL THE FIELD NOT THE PLAYERS...
Factoid:
Top 1% of income threshold globally is $32,000.
MY SOC SEC INCREASE-—defined as an hourly raise based on a 40 hour week===21 CENTS an hour.
THANKS, BIDEN
AND THEY LIVE IN HUTS & ARE STILL FIGHTING TRIBAL BEEFS IN AFRICA
“...a third of the US population makes less than $25,000 per year...”
the cruel reality is that these people aren’t worth more than that to their employer. if the were, they’d get more from that employer or another one.
Sooner or later somebody wants to be the boss of you.
Started in the Upper Middle Class straight out of college. Owned two major hotel parking lot concessions.
Moved into the Middle Class in 2000-2001 and 2008, after all my high risk technology stocks got crushed.
Moved into the Lower Middle Class when I started drawing Social Security and dropped out of the work force at age 70.
As a professor, I never made it out of the middle class, but I knew that would happen going in. I forced myself to save almost 15% of my income each year, knowing things would be tough after I retired. Those savings is what keeps me slightly above the poverty level now. I’m not complaining as that was my choice. I had summers off every year and I chose that over a higher income.
“But Liberals don’t want cures...they want to create a class of people who are dependent upon their ability to take income from the productive members of society and give it to the less productive members. They do this because those dependent people will vote for them....”
Amen.
Well Said
You are supposed to label vanity posts with a “vanity” tag in the title. Having said that, this is the best vanity post I think I’ve read on FR. Thanks for sharing.
“Bezos... plowed those funds back into his company and grew the business. So, until those Liberals each feed, clothe, and house over 250,000 people, tell them to sit down and STFU. It is the rich who create new jobs, promote economic growth, and provide the means for poor people to move up in the distribution of income table.”
Bezos currently employs over 1.5 Million people through Amazon. (He has other companies also.) No telling how many members of his team have gone on to start other companies that employed many more.
This is why I argue that the key to solving our national debt issue is to make a bigger pie. AI has the potential to do this by making all of us 100 times more productive. That is wealth creation, and the whole world can benefit from it.
Sorry...I forgot the vanity tag.
The pie thing: I have argued with my Liberal friends until I’m blue in the face...to no avail. I talked about an economic pie that you and I share. You have a slice that is 90% of the pie and I have a 10% slice. Suppose the gov’t takes 20% of your money and gives it to me. I’m better off at your expense...is a zero-sum game...my gain is your loss.
Suppose instead you get a tax break if you invest in the economic system. Suppose you do that and the result is an economic growth of 10%. Because the pie is now 10% bigger, both of us enjoy a higher standard of living because of the growth. It’s a-rising-tide-lifts-all-boats kind of thing.
Just think what would happen if we capped income taxes at a fixed rate of 17%. That economic pie would explode with growth, not only from domestic investment, but investment from outside the US. I would be sliding up the income distribution ladder so fast your head would swim.
The typical Liberal response to such a plan: “That may be, but I don’t believe it!” So frustrating...
study
You should write books in this category.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.