The ramblings of an Eternal Student of Life
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Sunday, September 26, 2010
Economics/Business ... Society ...

I just updated the Poverty 101 page on my site to reflect the recently released 2009 update of the poverty level for the USA. My chart shows compares the poverty rate with real GDP per capita, since 1959. What it shows is this: over the past two years, the poverty level has started to climb again, homing in on the levels reached after the recessions of 1981 and 1991. GDP per capita has also gone down due to the “Great Recession”; the decline has been greater than for any other economic downturn occurring on the chart (i.e., since 1959).

Over the past 30 years, real GDP per person has climbed quite a bit, while the poverty rate has stayed within a fixed range, 12 to 15% (14.3% in 2009). So, economic growth has not been shared with the poorest segment of our society during this time (versus the 1960s and early 70s, when the poverty rate went from 22% to 12%). But since 1980 (when Ronald Reagan was elected, when manufacturing jobs rapidly started going overseas, and when the Baby Boomers came into authority), the poor and near-poor immediately feel the impact whenever there is an economic downturn. It’s basically a “heads I win, tails you lose” proposition for them.

There is an interesting article on the Smart Money web site questioning the relevance of the government’s GDP measure as an appropriate gauge for economic growth. GDP measurement is like counting all the money that comes through the door of a household, but ignoring everything else going on in that household. Is the money coming in from sustainable sources? I.e., perhaps it is being earned by family members who are about to lose their jobs soon due to downsizing. Perhaps they have been getting raises all along, but their income will soon plummet; the growth measure would make you think that things were going fine (until they weren’t). Perhaps the household members have lost their jobs but are selling things that they owned that had value, e.g. jewelry and stock investments. Money is still coming in the door, maybe even showing some growth relative to recent years; but once the assets are sold off, a crash is once again in store. Or perhaps the household is borrowing more and more; again, that would show growth for a while, but would lead to bankruptcy later on.

The Smart Money article mostly focused on balance-sheet issues like these. But I believe that the problem goes even further. It goes to less tangible things involving human capital, e.g. education, business sense, maybe even common sense and morality. Yes, morality; without it, corruption and cheating become rampant, which weigh heavily on an economic system dependent upon trust. Morality is not just playing by the rules; it ultimately requires true human integrity. Which requires something deeper, something that gives life meaning. Including the ability to sacrifice today for a better tomorrow, not spend everything for pleasure right away (as seems the rule these days). Unfortunately, America doesn’t have enough of that.

What you see on my chart reflects an aspect of that. Again, it is quite clear that over the past 30 years, the poor hardly share in the bounty when national wealth increases; but they are the first to lose when national wealth decreases. That is not the mark of a fair and moral society. I can’t help but wonder if America went past some sort of threshold around 1980, a change in mindset that is allowing continued growth, but is threatening a big fall in the future.

I do believe that the US economy will get better in a few years; but I also believe that it is getting late and the party may soon be over. Yes, I am saying that the Great Recession may be a warning sign of more economic calamity to come over the next 10 or 20 years. And I do think that too much greed and too little regard for morals will be at the core of it. My generation, the Baby Boomers, have not had a good track record in this, as Michael Kinsley points out in the latest Atlantic.

◊   posted by Jim G @ 7:03 pm      

  1. Jim, Basically, what you’re saying is what I’ve tho’t about the U.S. for a while now: The rich get richer and the poor get poorer. (Not particularly innovative of me, I realize.)

    Actually, I have never really understood or agreed with the concept of contiued growth of the economy. It seems to me that after a certain point, the economy should reach a maturity and, with luck, might stay that way indefinitely. What is there in life that grows continually? Any growth past a certain point in nature is unhealthful. I think the analogy can be applied to the economy too.

    The economy may change but that will not be a disaster of such proportions that it destroys everything we know. In fact, it may do people a great deal of good to live a little less extravagantly. A little of St. Francis might actually do quite a bit of good for the nation. MCS

    Comment by MCS — September 27, 2010 @ 5:57 pm

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