Myths of Rich and Poor: Why We're Better off than We Think.

by W. Michael Cox and Richard Aim, New York: Basic Books, 248 pages, $25.00

With the stock market booming, the federal budget in the black (at least if you count Social Security receipts), and inflation crawling along in the basement, you'd think the last thing we'd need is a good-news book about Americans' economic position, right? Wrong.

First, the bad news business is always booming, as shown by such recent books as George Soros' The Crisis of Global Capitalism (1998) and Stock Market Crashes of 1998 and 1999 (1997), brought to you by the same prescient author who penned The Great Depression of 1990, Ravi Batra. (If there were a mutual fund for bad-news products and services, I'd plow my life savings into it.) Second, to many people good times are scary and bad times are almost reassuring. After all, the higher you go, the more it hurts when you fall.

So now is as good a time as any for Myths of Rich and Poor, by Federal Reserve Bank of Dallas Chief Economist W. Michael Cox and Dallas Morning News reporter Richard Alm. This book is a fascinating eyeopener that somehow manages to shoot out numbers like a submachine gun and yet keep you thoroughly engrossed. (Early versions of some of Cox and Alm's research have appeared in REASON. See "Buying Time," August/September 1998 and "The Good Old Days Are Now," December 1995.)

Does the book claim this bull market will go on forever? Obviously it cannot. Will inflation always be this low? That's up to us, but probably not. Will the budget remain in the black? Not if the Democrats can help it. Not if the Republicans can help it, either.

Cox and Alm do not focus on such questions. Rather, they take a long view - usually going back to 1970, often to 1900 or earlier - and point out that, despite myriad ups and downs, and despite the doomsayers who come and go, in the ways that really count Americans keep improving their lot. And there's probably not a damned thing President Clinton or Congress can do about it.

Cox and Alm start out with 10 myths that are widely accepted by Americans, especially in the news media. These include:

* Americans' living standards have been falling since the early 1970s.

* We're working more, and there's never enough time to enjoy life.

* Women and minorities are falling further behind.

* The United States is falling behind in the race for economic supremacy.

By the time they are done, Cox and Aim have sent each myth spiraling to earth with a thick stream of smoke trailing out the back end. "In each and every instance," they note, these statements "are not just wrong [but] spectacularly wrong."

The kernel of truth at the heart of the first myth is that the hourly wage, adjusted for inflation, has fallen nearly 15 percent since 1973. The answer: So what? The only measure that truly counts is what we can buy for the amount of time we spend working. In those terms, prices on the whole have been and continue to be steeply declining. "The statistics on consumption - the most direct measure of Americans' well-being - point to a nation that's better off now than at any other time in its history," contend Cox and Aim.

A half-gallon of milk cost the average worker 10 minutes of labor in 1970, 8.7 minutes in 1980, and only seven minutes in 1997 the latest year for which data are available. A gallon of gasoline cost 11 minutes in 1950 and now goes for less than half that. But these declines are nothing compared to some price drops. A scratchy-sounding three-minute coast-to-coast phone call cost an incredible 90 hours of work back in 1910; today it costs less than two minutes of work time. A hundred kilowatt-hours of electricity, which cost a shocking 107 hours of worker time in 1900, cost a bit over an hour by 1960; today the cost is less than 45 minutes.

"A typical American at the turn of the century spent $76 out of every $100 on food, clothing, and shelter," Cox and Aim write. "By the 1990s, this portion had fallen to $37 of every $100." Just since the 1970s, food and beverage costs have fallen from over 19 percent to about 15 percent, notwithstanding that we're eating out and bringing home preprepared food more.

There are seeming exceptions, but the usual explanation is that what you're paying more for is better than it used to be. Thus, the average house at first seems to cost considerably more work hours today than in 1970. But factor in the increased size of homes, and they cost just 10 percent more. Now factor in lower mortgage rates, and depending on the size of the down payment, houses built today are cheaper. And we still haven't accounted for improvements such as central heating, air conditioning, kitchen appliances, extra bathrooms, garages, better insulation, and the elimination of lead in pipes and paint.

Likewise, cars at first seem to cost about the same number of work hours as they did in the 1970s. But they now are far safer, pollute much less, and are loaded with standard goodies like high-quality stereos that weren't even available as options in 1970. To make the point, I offer but three words: "eight-track tape players." (Shudder!)

Anything with a high labor component is likely to have declined less in price. On the other hand, the prices of products with a small labor component, such as computers, have sunk faster. This tendency helps explain the most glaring exception to the general rule: college tuition. It's difficult to argue college students are getting more for their money than formerly. But in great part, tuition reflects wage increases for instructors and administrators, probably along with the perverse effect of rising government aid, which allows schools to get away with raising tuition costs, which in turn leads to even higher levels of government aid.

Conspicuous by its absence in this book is any analysis of health care costs. There seems little doubt that, like tuition, health care is taking up a greater number of wage hours, but how much we are not informed. Surely comparing health care now to that in the 1970s is not as easy as discussing improvements in TVs or VCRs, yet one wishes the authors had tried. They do provide data that suggest we are getting more and more out of health care, noting huge improvements in areas such as life expectancy, infant mortality, organ transplants performed, and survival time after such transplants. And while complaining about our health will always be a favorite national pastime, it's interesting to learn that the number of us rating our health as "fair or poor" has fallen from 12.2 percent in 1975 to 9.6 percent in 1994, even as the population has aged.

With few exceptions, the data are truly encouraging. Every year, we're able to buy more with our work or, conversely, work less for the same products. True, this may lead to more crass materialism on the one hand and more couch potatoes on the other. But Furby obsessions and daytime talk shows seem a small price to pay for a society in which those classified as "poor" can buy many things that even well-off Americans couldn't afford a few decades ago.

And how about the poor? Considering that a common definition of "poor" is those in the lowest 20 percent of earnings and that somebody has to be in that category, don't expect their numbers to decrease any time soon. But again, Cox and Alm cut to the crux: How well-off are these poor? One of their many fascinating tables compares poor households in 1984 to poor households in 1994 and all households in 1971 (see table). As Cox and Aim observe, "By the standards of 1971, many of today's poor families might be considered members of the middle class."

The improvements cut across gender and racial lines. While some feminists continue to insist women are underpaid compared to men, even they don't contest that what they call the "pay gap" has narrowed dramatically. As for race, "After adjusting for inflation, the proportion of African-American families earning more than $75,000 has tripled since 1970, to 9 percent," note the authors. "In 1998 the poverty rate for African-Americans fell to 26.5 percent, the lowest since the government began collecting data on blacks' poverty in 1959."

Still, we could be doing better as a nation while slipping behind other countries. That's something some of us might find quite offensive. But even if you think it's important, it just ain't so. As we've found in recent months, the "Asian Tigers" have proved to be pussycats compared to our economy.

Even the Poor Have More

                        Poor            Poor              All
                   Households '84   Households '94   Households '71

% Households with:

Washing Machine         58.2             71.7             71.3
Microwave               12.5             60.0        [less than]1.0
Color Television        70.3             92.5             43.3
Dishwasher              13.6             19.6             18.8
One or More Cars        64.1             71.8             79.5

Source: Myths of Rich and Poor, Table 1.2

When you talk about export powerhouses, the name on everyone's lips is always "Japan." Yet America's overseas sales of goods and services were almost double those of Japan in 1996, and the United States doesn't have a United States to export to. America's share of world exports has remained constant, at about 13 percent, during the last quarter-century, which is hardly evidence we're becoming less competitive. Just compare the quality of American cars built this year to those of five years ago, much less 10, and you'll see a bit of the evidence as to why.

Of course, there's more to life than greater wealth - for instance, more time with your loved ones. That, too, is part of the trend. For all the talk of "the overworked American," as one book published a few years ago was titled, Americans on average are actually working fewer hours than ever.

According to Cox and Aim, the typical workweek was 34.4 hours in 1996, down from 36.9 in 1973. Employees work fewer hours in a number of ways: fewer days, later arrival, earlier departure, longer breaks. "Putting it all together," the authors write, "average annual work hours are down 10 percent since 1973 - the equivalent of 23 work-days a year.... "When declining working hours, less time spent toiling at home, extended youth [getting jobs later in life], and longer retirement are all added up, the results are mind-boggling: American workers, on average, have added the equivalent of more than five years of waking leisure to their lives since 1973."

Some of us may spend that time watching Jerry Springer, to be sure, but it does allow more opportunity for more satisfying leisure, which, as Cox and Alm document, we are engaging in more and more. It's also more time to be spent with loved ones and doing charity work. "Almost half of the population finds time for some volunteer work," the authors write, "up from less than a quarter in 1974."

If there's something sad about all this, it's that so many Americans are convinced these improvements are the fruits of "reinvented government." Polls show this is one reason they are so forgiving of Bill Clinton's dogged efforts to become the most scandalous president in U.S. history.

But as Cox and Alm observe, "It's not government policy that gave us drive-through service, instant mail, [automatic teller] machines, home shopping networks, air-conditioned offices, and much, much more. It wasn't public decree that raised life expectancies by 30 years over the past century, or shortened our workweek by more than 20 hours. Over the past 200 years, we've progressed not by the grace of government but by the mechanism of the market."

Myths of Rich and Poor makes no pretense that greater wealth necessarily equals greater happiness. There are bitter billionaires and happy homeless persons. Data available elsewhere show what one would intuitively expect: that at least to the extent that it raises a person above subsistence level, more wealth does bring more happiness. Beyond that, it's up to us to make of our time what we wish. We can even spend it writing books about how the economy is doomed.

Michael Fumento ([e-mail]) is a senior fellow at the Hudson Institute office in Washington, D.C.