Arnold Kling on Well-Being Over Time
By David Henderson
When I was a young assistant professor at the University of Rochester business school in the late 1970s, I had a picture on my desk of a cute dog saying, “I’ve been rich and I’ve been poor. Rich is better.” At the time, it didn’t apply to me because, by the standard measures of income or tangible wealth, I had never been rich.
I thought of that picture when reading Arnold Kling’s recent Econlib Feature Article, “The Longitude of Well-Being,” June 2, 2014. Were I to do an update of the picture I had on my desk, an update that communicated Arnold’s message, it would have someone in his sixties saying, “I’ve been rich and I’ve been poor. So have most of us.”
At any given time, about 65+ percent of Americans own their own home. But, as Arnold points out, drawing on data from sociologists Mark Robert Rank, Thomas A. Hirschl, and Kirk A. Foster in their recent book, Chasing the American Dream, by age 55, 90 percent of Americans have owned a home. What this finding highlights, as Arnold is quick to note, is how big a difference there can be between situations over time and situations at a point in time.
Rank et al also discuss the various income categories people are in over their lifetime and Arnold adds his own thoughts. Arnold writes:
The time-series, cross-section fallacy has a similar distorting effect on discussions of the distribution of income. That is, economists look at “inequality over time” by examining time-series, cross-sections of data, rather than by looking at longitudinal data. As a result, many of the statistical findings in Chasing the American Dream will prove surprising.
Drawing on their data, Arnold reports that over half of Americans experience poverty or near-poverty (income less than 150 percent of the poverty line) for at least one year between age 25 and age 60. Had I been in graduate school one year longer–I left for the University of Rochester at age 24, without my dissertation done, because I was tired of living on a near-poverty income–I would have been one of these.
Thus my “I’ve been poor” statement.
What about being rich? Rank et al define affluence as having at least 9 times the poverty level of income. By that standard, I’ve never been rich although I’ve been close. Arnold was rich for just one year, a year when he made a big capital gain. We both think that their standard for affluence is too high. I’m clearly affluent by any reasonable standard. But even by this stringent standard, note Rank et al, by age 60, 56.4 percent of whites have been affluent at some point and even 23.6 percent of non-whites. Reduce the threshold for affluence from 9 times the poverty level to 7 times, and I would bet that a majority of non-whites have been affluent also.
So what’s the point of all this? You don’t know much about someone by looking at whether he owns a house or at his income at a point in time. You must look over time.