The Free Market; D. Mathews

A good way to determine how the poor fare in the free market is to examine how the standard of living of the poor has changed over time. One factor to consider is real income. Between 1900 and 1990, the growth in real (inflation-adjusted) income-gen erated by the free market-was enormous: Real income in 1990was 15 times greater than it was in 1900. Real per capita income was over four and one-half times greater in 1990 than in 1900. Another important measure of income is real money earnings from employment. Real earnings were almost four times greater in 1990 than in 1900. But statistics on real earnings mask significant changes in work hours and the way workers are compensated. In 1900 nonfarm workers toiled 60 hours a week; by 1990 they worked 39.3 hours a week, a decrease of over one-third. Moreover, in 1900 workers received almost all of their compensation in wages; by 1990 workers received nonwage benefits· accounting for almost 40 percent of their total compensation.

Professor Mathews teaches economics at Coastal Georgia Community College. That means an hour of work in 1990paid well over eight times what it did in 1900. Still, one might argue that real per capita income and money earnings tell us little about the status of the poor. Did the poor share in the economy's growth? Since real income in the United States has increased, we know that the real income of the poor has increased if the share of income received by the poor is stable or increasing. In 1900, the poorest 20 percent of income earn ers received 4.8 percent of the nation's in come; in 1990, they collected 4.6 percent. Thus, the real incomes of the poor have risen significantly this century. Another way of determining whether the poor have benefited from income growth is to look at changes in the percentage of families classified as livingin poverty over time. By our current definition of poverty, 56 percent of families in the United States were poor in 1900.By 1947,even after the economic shocks of the Great Depression and World War II, the percentage of families in poverty had been reduced by more than half, to 27 percent. By 1967, the percentage was halved again, to 13 percent. Notably, the decrease in poverty between 1900 and 1967 occurred before the advent of the greatly expanded welfare state.

In other words, it was the free market, not government welfare, that caused the poverty rate to fall from 56 percent in 1900 to 13 percent in 1967. 192 THE FREE MARKET: LIFTING ALL BOATS 193 Sources: Lebergott, Pursuing Happiness and The Americans: An Economic Record; Statistical Abstract of the U.S., 1994. Source: Stanley Lebergott, Pursuing Happiness (Princeton University Press, 1993). These extraordinary gains were shared by the poor. Consider some conveniences that we consider to be essential today: What has happened to real incomes and poverty rates demonstrates that the free mar ket does not leave the poor behind. Yet another measure of the standard of living is the level of goods and services consumed. Real per person spending on consumer goods rose dramatically between 1900 and 1990. (See the table below.) 1990 0.70 0.05 0.05 0.05 0.05 32.00 1.00 Percent of Poor All households households households with ... 1984 1994 1971 Washing machine 58.2 71.7 71.3 Clothes dryer 35.6 50.2 44.5 Dishwasher 13.6 19.6 18.8 Refrigerator 95.8 97.9 83.3 Freezer 29.2 28.6 32.2 Stove 95.2 97.7 87.0 Microwave 12.5 60.0 <1.0 Color television 70.3 92.5 43.3 VCR 3.4 59.7 0 Personal computer 2.9 7.4 0 Telephone 71.0 76.7 93.0 Air conditioner 42.5 49.6 31.8 One or more cars 64.5 71.8 79.5 Source: Federal Reserve Bank of Dallas, 1995 Annual Report, p.22.

Of course, a critic might concede the dra matic nature of these changes, but counter that these improvements took 90 years to occur. It would be helpful, then, to look at a shorter period, during which time the living standards of the poor, according to "common knowledge," worsened. Under the official definition of poverty, a household of four, for example, is classified as poor if its annual income is less than $14,400. But, as noted earlier, living standards depend on the goods and services consumed, so a family should be classified as poor on the basis of its level of consumption, not income. University of Texas economist Daniel Sles nick has devised a consumption-based mea sure of poverty and calculated poverty rates for the years 1949 to 1989. He found that 24 1900 Death Rates (per 100,000 population) Tuberculosis 194 Typhoid 31 Diphtheria 40 Whooping cough 12 Measles 13 Influenza, pneumonia 202 Gastritis, colitis 143 Sources: For 1900, U.S. Bureau of the Census, Historical Statistics, Colonial Times to 1970. For 1990, Statistical Ab stract of the U.S., 1994.

99+ 99+ 100 88 100 98 95 19901900 Percent 1900 1990 Change Food $1,178 $ 1,814 54 Clothing 272 920 238 Housing 256 1,898 641 Water 20 87 335 Electricity 1 265 26,400 Health 172 1,928 1,021 Transport 143 1,621 1,034 Total $3,266 $13,051 300 Percent of homes with: running water 24 flush toilets 15 electricity 3 Percent of households owning: car 0 refrigerator 0 television 0 telephone 5 Health is another important component of the standard of living. Life expectancy at birth was 47.3 years in 1900, and 75.4 years in 1990. Other health statistics are even more revealing. Deaths from once-common dis eases have dropped dramatically since 1900. It was not primarily medical advances, but improved water and sewer systems and hous ing, that lowered mortality rates-and helped the poor far more than the rich. (See table following.) 194 THE FREEMAN • APRIL 1997 percent of U.S. households were poor in 1959.

By 1989, only a generation later, the poverty rate was but 2 percent. And Mr. Slesnick's calculations exclude noncash government benefits such as Medicaid, public housing, and a long list of government-provided commu nity services. The claim has also been regularly made that the poor have been getting poorer for over a decade. Yet households officiallycounted as poor are as likely to own a host of major consumer goods as was the general popula tion just two decades ago. (See the table on the previous page.) But these data indicate something even more striking: the remarkable amount of goods owned by poor families. In the United States today a household which owns a washer, dryer, refrigerator, stove, microwave, color TV, VCR, and car might still be considered poor. The point is, the free market has not only dramatically improved the material wellbeing of the poor; it has generated so much wealth that it has completely trans formed what we consider poverty to be.

What has happened to the living standards of the poor in our predominantly free-market economy shouldn't surprise us. The soul of the free market is not wealth creation but liberty and private property, and it is liberty and private property which enable entrepre neurs to create more efficient production methods that yield better goods and services. Entrepreneurs were the primary cause of the income growth that we've observed, as well as all those new and improved products consumed by everyone. The free market does not leave the poor behind, it makes them, as well as everyone else, richer. Much richer. 0 "Afabulousjountal... a beacon ofhopeand intellectualpursuit - dieal-aIis "mme JOom m••• The MedicalSentinel is the official, quarterly, peer-reviewed journal of the Association of American Physicians and Surgeons. The AAPS is the nationalphysicianorganizationthat successfully suedthe ClintonAdministrationoverthe secretdeal ings of Hillary Clinton'sHealth Care Task Force.

Jane M. Orient, M.D., ExecutiveDirector,AAPS; MiguelA. Faria,Jr., M.D.,Editor-in-Chief,Medical Sentinel. , n ..~~~S;-f:,nt<~ II ~~:~Er::S:~. Call1-S00-7S7-9S73 Subscription $35.00 • Hacienda Publishing ISl~~6~478~er Fax: 1-912-757-9725 - ~O.Box 13648-Macon, GA-31208-3648 Ideas and Consequences There's More to Government Than You Think "Thank God we don't get all the government we pay for." I can't verify who first said that, but no doubt millions of Americans would agree with it. Millions more would endorse it if they understood that government is actually cost ing them far more than they ever imagined. This seems like a timely subject for April, the month when taxpayers render unto Caesar what Caesar's tax tables tell them they owe. Make no mistake about it. Cost has a lot to do with our personal choices. Indeed, as every economics instructor points out to his fresh man students, people demand more of a good when its cost declines-aU other factors re maining equal. They demand less of it as its cost rises. The more costly a good becomes, the more it prompts individuals to ask these questions: Do I really need this? Might I be better off doing with less and spending my money on something else? What might be the alternative to this particular good?