Wage Stagnation and Increased Purchase Power

I consider myself an armchair economist so what I am about to say might be missing something but I will summarize what I understand to be two sides to an issue.

We know that wages or income have been largely stagnant for most Americans since the mid-1970s. That is, when we take the incomes of Americans 40 years ago and adjust it for inflation, there has not been any improvement. There are a number of things to account for in this statistic and while I can't go into the reasons here, I will say that generally I believe it is true; despite an increase in productivity and increases in GDP since 1975, the average worker is not bringing home more money today than 40 years ago. (I say 'he' because it appears that the glass ceiling notwithstanding, women's income has risen on average since then. But of course the gender pay gap is still quite common and unfairness in pay between the sexes has not been adequately dealt with.)

Allocation of Housing

Many people today see an unfair distribution of wealth and income more easily than ever before. According to most statistics, wealth has not been this polarized in the U.S. since 1929.

I don't know if the average American can suggest a reasonable remedy, though. Simple confiscation of wealth from the top 1% of income earners and redistributing it to the rest of us is just not going to be practical. Even if we taxed the highest incomes at 90%, the revenue from those increased tax receipts would not be divided equitably, we can assume.

I'm afraid that although people have a legitimate gripe in the disparities in wealth, we all have bought into this system of distribution at least in part. For example, almost none of us believe that there should be an absolute cap on income. That is, a law saying that all income above $XXX,000 will be confiscated by the government will not be popular when personal liberty is concerned.

One piece of evidence to support this buy-in to the current system of wealth distribution is housing. The U.S. (and any metropolitan area) has a large stock of housing--some of it desirable and some not very desirable. In the Washington, D.C. metro area, for example, there are beautiful homes along the Potomac river in Great Falls, Virginia, Georgetown in Washington or in the neighborhood called Potomac in Montgomery County, Maryland. These homes often cost upwards of several million dollars.

By contrast there are homes in poorer sections of the metro area which sell for less than $100,000. Some might be in a neighborhood with a lot of foreclosures or boarded up properties, or an area with poor schools, crime and litter.

In any case, almost all of us realize that the good, the average and the poor quality housing stock is distributed among the population according to certain circumstances--namely income. If you can afford it, you can buy a house in Georgetown. If not, you have to look elsewhere. Few of us dispute that--if we want to live in a million dollar home, we need to have a lot of money.

Utopians (and perhaps Communist hangers-on) might argue that this limited commodity (housing) should be shared equally among us and that perhaps residences should rotate among people, giving all of us a chance to live in Potomac or Great Falls while others are sent to public housing or blighted neighborhoods.

But even the poorest among us believes that the only reasonable way to move to Potomac is if you are rich. It is foolish to expect anyone to voluntarily give up that home (as none of us would do if we were the occupants) in the interest of sharing with our community.

So in that narrow sense, despite rising anger at disparity in wealth these days, few of us dispute that the most desirable homes should be distributed (or re-distributed) by anything but the ability to pay.

Limits of Charity

Living in the city, I see quite a few homeless people spending days, weeks, months and even years on the street. As I walk to my office I pass several homeless men, many of whom have been on the same street corner for several years. But in my daily movement throughout my urban environment I also pass many others who I have never seen and will probably never see again.

Like many others, I feel guilty when I avert my eyes or shake my head and silently look at them asking me for a handout. In recent years I have felt more and more charitable but not towards these people. I leave large tips lately, not for excellent service but after I think for a few minutes about the life of the person serving me, their economic status and uncertainty and their obvious desire to have more in their life than the job they have serving me. I have also noticed myself giving more and more to strangers in other spheres as well. But unfortunately the homeless get very little from me.

Why? Well I have thought about it a good deal. If I were to stop and speak to the street beggar I might say that I can give him some money without suffering any perceptible hardship--I have a bank account full of money, after all. And not only can I give him a dime or quarter today, but I could probably give a dollar every day for the remainder of my working life and I wouldn't suffer for it.

But should I? And if I gave a dime or a dollar every day to one gentleman panhandler, which would it be? Why choose one over another?

This may be fuel for the argument that instead of individual, ad-hoc charity, we ought to all pool our money and give it to either the government or to a non-profit to be used in some form of assistance for the poor. Then we wouldn't have to make these decisions on how much, how often and to whom. And further, we can assume that non-profits at least know something about helping the poor get back on their feet and they would channel the money to its most favorable use, eliminating any danger of someone buying liquor or drugs with the coins he saves up.

I brought up this question one time with a man who asked me for money on the street one day. I don't remember exact details but I did say to him that I see half a dozen homeless men every day and that I could give them all my money if I wanted to, but should I? And if not, when? His answer was that I should give when I feel like it, when I feel charitable. I guess he was saying that charity is an emotional decision, not a rational one.