More on poverty

In 2008, the last year for which data was available, the richest 10 percent of the U.S. population had almost the same share of the total national income as the remaining 90 percent. Between 1970 and 2008, the bottom 90 percent of American households saw their purchasing power fall by 1 percent while the richest 0.1 percent saw their median annual household income increase by 385 percent.

The bottom line is that people who work for a living (most of us) are getting a smaller and smaller slice of the economic pie.

The stagnation of incomes has not happened because our economy has failed to grow. Adjusted for inflation) per capita gross domestic product (GDP) increased more than 80% over the period between 1975 and 2005. In the last ten years, before the Great Recession, it increased at an average rate of 1.8% per year. That means that if the benefits of economic growth were equally spread throughout our society, everyone should have been almost 20% better off (with compounding) in 2008 than they were in 1998.But they weren't better off. In fact, median family income actually dropped in the years before the recession. It went from $52,301 (in 2009 dollars) in 2000 to $50,112 in 2008. And, of course it continued to drop as the recession set in.

There has been a major gap between the increase in the productivity of our workforce and the increase in their wages. Even when wages were improving at the end of the Clinton years, productivity went up 2.5% per year and median hourly wages went up only 1.5%. From 2000 to 2004, worker productivity exploded by an annual rate of 3.8% but hourly wages went up only 1% and median family income actually dropped .9%. In August of 2006, the New York Times reported that a Federal Reserve study showed that "wages and salaries now make up the lowest share of the nation's gross national product since the government began recording data in 1947; while corporate profits have climbed to their highest shares since the 1960's."

Virtually all of the increase in gross domestic product over the ten years before the Great Recession went to the wealthiest 2% of the population. The new top earning CEO is Gregory Maffei of Liberty Media Corporation who was compensated $87,493,565 for his services. That's about $42,064 per hour. Of course that's nothing compared to hedge fund manager John Paulson. According the Wall Street Journal he made $5 billion last year. That's $2.4 million dollars an hour -- or $40,064 per minute. So Mr. Paulson made as much as a minimum wage worker every 23 seconds. A Rolex Oyster Perpetual Submariner Date Watch for about $8,000. The average Social Security benefit for retirees is the princely sum of $14,160 per year -- $38.79 per day (for all 365 days per year). It would take the average beneficiary 206 days of benefits to pay for that Rolex watch. It would take Mr. Maffei 11.4 minutes.

Among two-parent families, median earnings did rise by an inflation-adjusted 23% from 1975 to 2009. But the parents’ combined hours worked increased by 26% during the same period–accounting for most of the income gains. The median income for two-parent families rose to $70,000 in 2009, for working 3,500 hours a year on average, compared with working about 2,800 hours in 1975 to earn $56,600 (in 2009 dollars). Median wages for men in two-parent families, adjusted for inflation, declined 7% over the 35-year period, putting them at $46,400 a year in 2009, the latest year for which such data are available, the research found. Women, meanwhile, entered the labor market and increased the overall number of hours worked by each family — earning enough to more than offset the men’s wage drop. Having two parents available to work provided a buffer for many families during the recession because it’s rare, even with high unemployment, for both parents to be out of work. Median earnings fell 5% from 2007 to 2009 for a two-parent family, which was less than the 6.6% drop to about $28,000 for the broader civilian population, ages 30-50. Single-parent families fared worse, with their median earnings declining 18% to $16,500.

“The long-run decline in wage opportunities has put lots of pressure on families,” said Michael Greenstone, a MIT economist.

What is the starting taxi fare in your city? If you are like most upper-middle-class people, you don’t know. If you are like many struggling people, you do know. Poorer people have to think hard about a million things that affluent people don’t. They have to make complicated trade-offs when buying a carton of milk: If I buy milk, I can’t afford orange juice. They have to decide which utility not to pay. These questions impose enormous cognitive demands. The brain has limited capacities. If you increase demands on one sort of question, it performs less well on other sorts of questions.

People are complicated. We each have multiple selves, which emerge or don’t depending on context.

Eldar Shafir of Princeton and Sendhil Mullainathan of Harvard gave batteries of tests to Indian sugar farmers. After they sell their harvest, they live in relative prosperity. During this season, the farmers do well on the I.Q. and other tests. But before the harvest, they live amid scarcity and have to think hard about a thousand daily decisions. During these seasons, these same farmers do much worse on the tests. They appear to have lower I.Q.’s. They have more trouble controlling their attention. They are more shortsighted.

Scarcity creates its own psychology.