Commentaries appear at regular intervals. If you would like an invited commentary for your publication, please let me know!

Mention the 1980s. What comes to mind? Greed, insider trading, speculation, the rich getting richer, the poor getting poorer, nuclear war just a fingertip away....

At least, that's the way some people are writing it. But not here. Starting with this article, we'll look back at the 80s with an objective eye.

We'll see that not only did the rich get richer, but so did the poor. The standard of living didn't decline so much as it "returned" and far from seeing millions of jobs disappear, the US created an economy the size of Germany from 1983-1990.

First, we'll take a look back at the 1980s, at who gained the most and whether the rich really did lock the poor into poverty.

Missed opportunities

From the title, one might think that the thrust of this section will be a list of things we didn't do. Far from it. We'll chronicle the true state of affairs and compare them to what has happened in previous decades, even in other countries. Missed opportunities arises from those who simply watched while others took risks. In the end while the entrepenuers reaped what they sowed, the watchers reaped a bitter harvest, thinking that somehow they were cheated and forced out of "their fair share of the pie".

It's a common investment axiom: the greater the risk the greater the (potential) reward. During the 1980s, those who risked the most often reaped the greatest rewards. But not always. As the following chart demonstrates, while most people improved their economic situation during the 1980s, some declined, even from the lofty "top 1%".

From: The Wall Street Journal, Tuesday, June 2, 1992, Page A2.

Low-Income Mobility Was High in 1980s:

Treasury Study Also Finds Those at Top Tended to Stay There

By David Wessel, Staff Reporter of the Wall Street Journal

Substantial numbers of low-income Americans moved up the income ladder in the 1980s, while those who started the decade at the very top tended to remain there, a new study by Treasury Department economists shows.

The study, based on income tax data that aren't publicly available, found that two-third of taxpayers who were in the bottom fifth of all taxpayers in 1979 had moved up to somewhere in the top 60% of the income distribution by 1988. Only 14% were still at the bottom in 1988....

The Treasury study differs from some others in that it tracks the same taxpayers from 1979 through 1988. Because the Treasury has no information about people with so little income that they don't file income tax returns, however, the report s heds little light on the fate of the very poorest Americans....

The new study examines 14,351 taxpayers who filed returns in every year from 1979 to 1988 and compares their before-tax income at several points in the decade....

To make the top 1% in the Treasury study, a taxpayer had to have income above $255,351 in 1988 (measured in 1989 dollars). To make the top 5%, a taxpayer had to have income above $96,117.

Most of the taxpayers -- about 65% -- who were among the top fifth of taxpayers in 1979 managed to remain there throughout the decade, the study found. To make that category, a taxpayer had to have income of more than $73,705.

In contrast, the study picked up substantial movement -- most of it upward -- among taxpayers with lower incomes. Of those taxpayers who were in the bottom fifth in 1979, 14.4% had climbed all the way to the richest fifth by 1988, while 14.2% remained at the bottom.

And among those taxpayers in the very middle of the income distribution, 47.3% moved up between 1979 and 1988 while 19.7% moved down. The remainder were in the same category a decade later. The middle quintil in 1988 were those taxpayers with incomes between $37,657 and $54,978....

Because the study looked only at those taxpayers who filed returns in all 10 years, it excludes the very young and the very old. It also excludes most income that isn't taxable, such as Social Security benefits received by many Americans.

Note: in the next section we'll see why uncounted income *doubles* the apparent income of the bottom 20%.

Up and Down: Income-Group Mobility 1979-1988
Source: Treasury Department
	Status in 1988
	Top 1%	Next 19%	Next 20%	Middle 20%	Next 20%	Bottom 20%
Status in 1979
Top 1%	47.3%	38.6%	7.7%	3.8%	0.4%	2.2%
Top 2%-20%	5.3	59.4	20.3	9.4	4.4	1.1
Next Richest 20%	0.6	34.8	37.5	14.8	9.3	3.1
Middle 20%	0.4	14.6	32.3	33.0	14.0	5.7
Next Poorest 20%	0.3	10.8	19.5	29.6	29.0	10.9
Poorest 20%	0.3	14.4	25.3	25.0	20.7	14.2

To read the table, check the left side to see where the quintile started the 1980s, then go across to see what % ended up in each quintile. For example, of the poorest 20%, 14.7% landed in the "top 20", another 25% in the next quintile, another 25% in the middle quintile, another 21% in the next-to-lowest quintile while only 14.2% remained in the bottome quintile. In other words, of the people considered "poor", 86% moved up during the 1980s. Eighty-six precent!!! Yet people still tell us only the "rich" gained.

How did people do it? As we mentioned those who risked the most often gained the most. The following chart details various investments and who invested in them.

			Greater risks, more rewards

Asset Holdings                          All households: X=1983, Y=1989
($billions, current dollars)                    Top 1%: A=1983, B=1989

8                                YY
                                 YY
7                                YY
                                 YY
6                                YY
                                 YY                YY
5                                YY                YY
                                 YY                YY
4                              XXYY                YY
                               XXYY                YY
3   YY           YY            XXYY              XXYY           YY
    YY           YY            XXYY              XXYY           YY
2 XXYY   BB    XXYY   BB       XXYY              XXYY   BB      YY
  XXYY   BB    XXYY   BB       XXYY              XXYY   BB    XXYY
1 XXYY AABB    XXYY AABB       XXYY   BB         XXYY AABB    XXYY
  XXYY AABB    XXYY AABB       XXYY AABB         XXYY AABB    XXYY   BB
0 XXYY AABB    XXYY AABB       XXYY AABB         XXYY AABB    XXYY AABB

 Business   Investment Real    Other Tangible    Financial      Debt
            Estate             Assets

[Source: FORBES, annual 400 issue, October 19, 1992.]

Basically, while the general population was increasing their investment in "safe" areas (and driving up their debt to boot), the top 1% were taking larger risks in business and real estate while keeping their own debt down.

Also from FORBES, page 80:

"The chart on page 78 shows the wealth of people in various income brackets in 1983 and 1989. The chart adjusts the income brackets and the wealth levels for inflation to make the interyear comparison as valid as possible.

[I'll give the figures here, they don't reproduce well as ASCII graphics.]

	Percent change, average net worth, 1983-1989.

	<$25k		19%
	$25-50k		39%
	$50-100k	25%
	$100>		23%

There is a point which I would like to stress here. There is one segment of the population that is constrained--the poor. No doubt statists are leaping up and shouting YES! at this point, but sit down, you're not going to like what comes next.

That segment is constrained by the government. The welfare system locks people into a poverty wage and makes it difficult for them to make any kind of gain. A symptom of this is the widening gap between rich and poor. The gap is not a result of supply-side economics, but due to the fact that the poor are the only group that have been prevented from accessing the benefits of supply-side because of the welfare system.

Let's face it, while a tax cut does nothing for the disposable income of those who pay no taxes, neither does the welfare system let the poor have a comparable benefit: increased wage limits. By enforcing strict wage limits on those receiving welfare, a powerful disincentive for earning money exists. Even with this huge barrier, a remarkable 86% of the poor managed to move up during the 1980s. A testimony to the true spirit of American capitalism, and a damning testimony for the welfare trap.

Phasing out welfare would allow the poor to share in the economic benefits of tax cuts. However, this also destroys the statist's voting base, which is why they are quite firmly against such a policy.

They're lying to you

In the previous section we saw that no one sector monopolized the gains of the 1980s. And those that risked the most gained the most. Still, people will try to tell you that: poverty rates increased, the "rich" payed lower taxes because of the tax cuts, that the people on the welfare roles have less and less each year, that the 1980s was a decade of "greed" and that capitalism is unfair.

They're lying to you.

[Picking up again with the FORBES article from the FORBES 400 issue, October 19, 1992, page 78, by Lawrence Lindsey.]

...But statistical uncertainty as a result of sample size is only one problem with using the Fed survey to map wealth distribution patterns. [See part I for more details --Brett] In addition, two major components of household wealth were missing from the preliminary data reported earlier. (The Fed is working to include this information in the future.)

The first of these missing household assets is the value of workers' claims on pension plans. This is serious money. The estimated value of these assets, $3.7 trillion, plus an additional $400 billion in estimated military pension liabilities, is twice the survey's estimate of the value of stocks and bonds held by all of the nation's households. If these holdings had been included in the survey, household wealth would have increased 24%. Most of this gain belongs to the middle class.

The second missing asset is what economists call "Social Security Wealth," the legal claims that most of us have on the Social Security System. The discounted present value of these claims owned by active or retired workers is $5.6 trillion--an amount equal to one-third of all of the wealth reported in the Fed survey....

Five point six trillion dollars!! And another $4.1 trillion in pensions! And the middle class holds most of it! Yet people still try to tell us that the "rich" hold all the marbles, only letting crumbs "trickle down" to the rest of the nation. If we incorporated all these assets into the net-worth figures, the share of the top 1% drops from 36.2% to 25%. Such figures make any comparison of the 1980s to a decade of "greed" laughable.

In addition to having deficiencies in counting the assets of the middle class, the assets of the lower class are also undercounted. When we look at income (that is, "approved" sources of income) and expenditures for the income quintiles, we see a startling difference:

Source: The Seven Fat Years, page 272.

Income and Expenditure by Quintile
	Income before taxes	Average annual expenditure
Lowest 20%	$ 5,720	$12,119
Second 20%	13,894	17,616
Third 20%	23,856	24,476
Fourth 20%	37,524	34,231
Fifth 20%	75,406	53,093

The reasons for the descrepencies for the bottom two quintiles, and the bottom quintile specifically are: many entitlements are not counted as "income", yet provide spendable funds for those people; significant portions of the bottom two quintiles consist of either older people, who generally own their own home, and live on a fixed income, and students, who have sources of income (parents) outside of regular wages.

Yet we are continually told that each and every person below the median is "by definition", "poor".

Not to discount the plight of the poor--it is real. However, as we are seeing, what the dealers of welfare are telling you and and what is reality are two different things. Like the political machines of old, the welfare system has become a way to buy votes. Votes are "bought" by stressing the amount of welfare the dealer has provided for his "constituents" (addicts, really), and how the other candidates will no doubt cut them off from their source of funds. And to secure ever increasing sources of "votes", the welfare dealers must argue both ends: that welfare works, and that there are more people than even "in poverty", so they need more welfare money.

This apparent contradiction aside, the dealers go on to tell us that social welfare programs suffered "drastic cuts" during the 1980s, when no such cuts occurred. Overall spending did not change:

	Social Welfare Expenditures Under Public Programs
		(in millions of dollars)

Year	Total social welfare	% of GNP	% of gov't outlays
==================================================================

Federal
=======
1960	 24,957			5.0		28.1
1970	 77,337			8.1		40.1
1980	303,276			11.5		53.2
1981	344,066			11.6		54.0
1982	367,691			12.0		52.5
1983	398,792			12.0		51.9
1984	420,399			11.3		50.2
1985	452,860			11.5		47.8
1986	472,364			11.3		47.6
1987	499,844			11.0		50.4
1988	532,144			10.9		49.1

State and local
===============
1960	 27,337			 5.5		60.1
1970	 68,519			 7.1		64.0
1980	189,720			 7.2		66.5
1981	206,774			 7.0		63.1
1982	228,178			 7.4		62.6
1983	243,285			 7.3		60.1
1984	251,569			 6.8		58.9
1985	277,540			 7.0		59.0
1986	298,158			 7.1		58.2
1987	344,601			 7.4		59.6
1988	362,622			 7.6		60.1

Total
=====
1960                            10.5		38.4
1970                            15.2		48.2
1980                            18.7		57.4
1981                            18.6		56.9
1982                            19.4		55.7
1983                            19.3		54.5
1984                            18.2		52.8
1985                            18.5		51.2
1986                            18.4		47.9
1987                            18.4		53.5
1988                            18.5		52.8

[Source: Information please almanac, 1991 edition.  Page 64.]


Graphically:

% of GNP
20|
  |                         X       X
18|         X       X                       X       X       X       X       X
  |
16|
  | X
14|
  |
12|
  |
10|
  |
 8|
  |
 6|
  |
 4|
  |
 2|
  |
 0|____________________________________________________________________________
  1970    1980    1981    1982    1983    1984    1985    1986    1987    1988


				Total spending by year

One is reminded of the grasshopper and the ant story: while the ant spends all spring, summer and fall producing food and storing it for the winter, the grasshopper fritters away the time because food is "plentiful". When winter hits, the grasshopper demands food from the ant, who justifiably feels that the grasshopper has reaped what it sowed: nothing.

However, in the end, the ant does what the typical person in the US would do: it charitably provides the grasshopper with food, hoping the lesson has been learned.

However, in the real world, welfare is year-round, and those attempting to work for the future are penalized. Despite this, people are still charitable: charitable giving grew at an annual rate of 5.1% a year during the 1980s. Compared with 3.5% for the previous 25 years.

In addition, Lawrence Lindsey summarizes in The Growth Experiment (page 210):

The Tax system offers a better approach (than government funding). Economic research shows that charitable giving is very sensitive to its tax treatment. Every 1 percent reduction in the after-tax cost of charitable giving produces an additional 1.2 percent to 1.3 percent in donations. Stated differently, every $1 the government spends in increased tax incentives produces an additional $1.20 to $1.30 for charities.*

[* An excellent review of this literature is given by Charles Coltfelter and Eugene Steuerle, "Charitable Contributions" in _How Taxes Affect Economic Behavior_, ed. Henry Aaron and Joseph Pechman (Wash., D.C.: The Brookings Institution, 1981), 403-446. Also highly recommended is Charles Colfelter's Federal Tax Policy and Charitable Giving (Cambridge: National Bureau of Economic Research; Chicago: University of Chicago Press, 1985).]

This despite paying more in taxes:

	Percent of Federal Individual Income Taxes Paid by High and Low Income
Taxpayers, 1979 and 1989.  Source: Information Please Almanac, page 75.(1991)


Highest||||||||||||||||||||||||||||||| 43.6%               |||||| 1989
5%     |________________________| 37.6%                    |____| 1979
       |
Highest||||||||||||||||||||||||||||||||||||||| 54.5%
10%    |________________________________| 49.5%
       |
Highest||||||||||||||||||||||||||||||||||||||||||||||||||||| 76.5%
25%    |_________________________________________________| 73.1%
       |
Highest||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||93.9%
50%    |________________________________________________________________|93.2%
       |
Lowest |||| 6.1%
50%    |___| 6.8%
       |
Lowest || 0.7%
25%    || 0.5%
       |
       ------------------------------------------------------------------------
       0     10     20     30     40     50     60     70     80     90    100
			Percent of Total Income Tax Paid

Top Earners Still Pay Largest Share of Income Tax Bill

The top-earning ten percent of US taxpayers paid nearly 55% of the Federal individual income tax bill in 1989, according to a Tax foundation analysis fo the recently released 1989 IRS tax return data. Despite all the major tax legislation witnessed over the decade of the 1980s, the fraction of income taxes collected for this top ten percent varied only slightly from year to year between 1979 and 1989 but inched steadily up during the decade.... [emphasis mine --Brett]

Trends in Progressivity

The Federal income tax system has remained progressive. Top earners continue to pay a larger share of tax collections despite the alleged upper-income bias of the tax cuts and rate reductions under ERTA of 1981 and TRA of 1986. [emphasis mine --Brett] Growth in the income base itself has been increasing faster at the upper end of the income scale, resulting in increased income tax receipts from top earners. Naturally, this also results in a higher proportion of the entire population's income being taxed at the highest rate. The 112 million returns filed for tax year 1989 reported an increase in AGI (adjusted gross income) of $194 billion over 1988. The largest percentage gain was from _Individual Retirement Account distributions_, up 24.3% from 1988. [emphasis mine --Brett] Social Security benefits rose 22.4%, and taxable interest increased 15.5%. Salries and wages, which constituted 71.6% of total positive income for 1989, rose 5.5% over 1988. All told, 1989 total individual income taxes rose $23.3 billion over 1988 for a record $439 billion take.

Yet another reason why tax revenues increased throughout the 1980s. As predicted by supply-side economics, lower rates stimulated the economy, producing more revenue; increased the tax base, producing more revenue; and via lower rates, increased compliance, producing more revenue.

But what about poverty you say? Both the rate and the total number of people under the poverty line declined:

Source: Statistical Abstract of the US, page 458-9.

Year	% below poverty line	number below poverty line (millions)
1979	11.7	26.1
1980	13.0	29.3
1981	14.0	31.8
1982	15.0	34.4
1983	15.2	35.3
1984	14.4	33.7
1985	14.0	33.1
1986	13.6	32.4
1987	13.0	32.2
1988	12.8	31.7
1989	12.7	31.5

Far from the massive increase in poverty some would have you believe occurred.

So we've seen that far from looting the nation during the 1980s, the "rich" and middle class paid most of the taxes. Charitable giving increased steadily, social spending was level during the decade, and the welfare dealers are using smoke and mirrors to extort money from the taxpayers to buy votes.

The 1980s were a decade of expansion, a decade of income gains, a decade in which everyone got richer and 20 million new jobs were created. It was the greatest peace-time expansion in history. And that's the way it really was.

During the 1980s, those who risked the most often reaped the greatest rewards.

In other words, of the people considered "poor", 86% moved up during the 1980s.

Phasing out welfare would allow the poor to share in the economic benefits of tax cuts.

If we incorporated all these assets into the net-worth figures, the share of the top 1% drops from 36.2% to 25%.

...charitable giving grew at an annual rate of 5.1% a year during the 1980s. Compared with 3.5% for the previous 25 years.