Poor Getting Richer

Poliliticans often say how the rich have been getting richer but the poor have remained poor. Although, this makes for great rhetoric if politicians cared to look at some data they might change their minds. According to the U.S. Census more than 40 million people are in “poverty”. However, the term poverty is somewhat misleading. Most of us when we think of the word poverty think of people who are homeless, struggling to get by, and maybe even malnourished. Robert Rector in a paper from the Heritage Foundation using data from 2005 shows that the poor nearly all have refrigerators, televisions, stoves and ovens, air conditioners, and DVD players. With summer time here there are always stories about how poor people don’t have air conditioning. In 1980, only 41.2% of poor households had air conditioning. By 2005, 78.3% of households had air conditioning. Also 46% of poor households live in their own homes. 75% of poor people own one car and 30% own two cars. Clearly, the poor are not living on the streets starving to death but have things that even middle class people in other countries wished they could have.

The poor people in America have it better than in most countries around the world. People at the bottom of the United States socioeconomic ladder are still higher than some of people in the top 10% of other countries.

Another myth is that the people at the bottom of the socioeconomic ladder never move up. This type of nonsense should be forbidden. Panel data (meaning tracking people over years and decades) from University of Michigan Panel Study of Income Dynamics shows that only 5% of families that were in the lowest 20% of income earners in 1979 were still there in 1991. However, 52.7% of the income earners in the top 1% in 1979 were gone by 1988. Real incomes have not also stagnated as some people claim. Real incomes for households have increased 29% despite household size getting smaller. Also if we look at wealth in generations more than 66% of Americans born a generation ago have greater income than their parents. So if we look at income groups and people over time and we see the poor have gotten richer not poorer as some like to say. Also the standard of living of everyone has increased through those greedy entrepreneurs. Twenty years ago hardly anyone had a cell phone or internet connection. Today these things are abundant with quality improving while prices keep dropping. People in every income class are benefitting from this. Truly the poor aren’t as poor as some people would make you believe.

The Rich: Why We Need Them

I enjoy when people say we should try to "soak the rich" and try to extract money from them since they have so much. People forget that the only way people get rich in this lifetime is by creating value. The only way you can create value is by building companies that provide products and services that people like. The only way to build these companies is by hiring employees.

Looking at the 2010 Forbes 400 list and seeing who the richest people are it seems evident that these uber rich people have to hire people if they want to create more value.

1. Bill Gates- Microsoft (89,000 employees)
2. Warren Buffett-Berkshire Hathaway (260,519 employees)
3. Larry Ellison (108,429 employees)
4. Christy Walton (Wal-Mart 2.1 million employees)
5. Charles Koch (70,000 employees)
5. David Koch
7. Jim Walton
8. Alice Walton
9. S. Robson Walton
11. Sergey Brin and Larry Page (24,000 employees)

(Note I didn't include Bloomberg number 10 because it’s hard to figure out exactly how many employees Bloomberg has because they have so many subsidiaries)

The richest people in America create over 2.6 million jobs. If you think about it for a moment though it would make sense that some of the wealthiest people in society would have to manage large organizations. Companies can only grow if they hire employees that add value. CEOs and executives of large companies are compensated so well because they are overseeing tens of thousands of employees. Managing means more responsibilities means longer hours which means more stress and misery for executives and CEOs. Businesses create more employment than any government agency could dream of. A capitalist creates a job for someone who didn't have a job. I have yet to see a poor person give a rich person a job or even a middle class person a job.

People might argue that the rich people really don't create jobs and just count their money. The only way people can continue to be rich is by investing their money in productive assets (stocks, bonds, real estate) or working. Investing money in a company gives that capital which allows them to build more factories, buy more equipment, and or hire more people. In addition to this the rich also do spend money (in fact some rich people spend so much money they end up being broke). According to Moody's, the top 5% of income earners account make up 37% of all consumer spending. If 70% of GDP is based off spending then in theory close to 24% of the GDP comes from the top 5% of income earners. Note to be in the top 5% one would have to earn a little over $160,000. If not only are these super rich people creating jobs they are also spending money! Also an important point to consider is that the richest people pay the most taxes. According to the Tax Foundation, the top 1% of income earners in 2008 paid 38 percent of all federal income taxes. The top 1% paid more in federal income taxes then the bottom 95%.

The rich are not only creating companies that make products that people enjoy, but employing many people to help create that product or service people want or need. In addition to all of this the rich are paying a large share of taxes. To say we don't need the rich is just utter nonsense. The top 5% of income earners earned close to 35% of the nation’s adjusted gross income yet paid close to 59% in federal individual income taxes. Clearly, the rich are a net benefit to a government that wants to continue to spend money.