Overview:

Economists tell us that wages are increasing more for lower-income workers than their higher-income betters. So?

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We’re all, at least to some degree, deluded.

Whether we believe fervently in deities that—let’s be honest—seem not to exist anywhere. Whether we believe someone we love deeply loves us back when they actually don’t. Or whether we believe we understand what being poor really means.

The problem is, we often blithely believe we aren’t deluded, that we’ve got it all rationally figured out, especially when armed with data, graphs, and a post-grad education. So, when the presumably least deluded among us—certified and lionized public intellectuals, for example—are just wrongheaded, it can be a little jarring.

To wit: Paul Krugman, a Nobel Prize-winning American economist and an almost always wise and discerning New York Times columnist whom I faithfully read for the valuable, instructive ideas he routinely puts forth.

But even Krugman’s usually astute opinions can be tone-deaf at times.

Is inflation worst for the poor?

In a recent Times column—”Does inflation disproportionately hurt the poor?”—he opined:

[O]ne argument I’ve been seeing a lot lately is that inflation is bad because it falls especially heavily on households with low incomes. But is that claim correct? It sounds as if it should be true. And it’s all too easy to find scenes of uneven hardship in today’s America, with the 1 percent or even the upper middle class still living the good life while low-wage workers desperately seek help from food banks.

He concluded, surprisingly, that data seems to indicate that poor families “have actually been hurt less [italics his] than families with higher incomes,” but he places a figurative “asterisk” on that opinion because “not everyone faces the same rate of inflation.”

He explains that “very tight labor markets,” meaning too many seeking too few job openings, produce “wage compression,” which means bigger wage hikes at the bottom than at the top of the economic ladder.

Still, inflation is taking a big bite out of everyone’s wage increases.

Nonetheless, Krugman contends that because poorly paid, lower-echelon workers are presently receiving better wages, percentage-wise, than their highly paid betters, the have-nots are being “hurt less” than the haves during the current US quasi-recession.

To which I say: Slightly more of a lousy paycheck is in no way better than slightly less of a great one.

High-salary workers are hugely better off than ‘poor cousins’

For instance, a fast-food worker paid the federal minimum wage ($7.25 an hour) would gross about $1,160 a month, or $13,968 a year. US federal poverty indicators categorize a single American as poor when they make $13,590 a year or less. So our fictional fast-food employee above is basically working full time for poverty wages.

Let’s also say that worker was able to find a similar job for 10% more now because of the tight labor market, and now pulling in $15,312 a year. That might not be considered exactly “poor” by government standards but undoubtedly feels like it to folks trying to live on that paltry sum. It’s also not nearly enough for two cohabitants on a single income to rise out of poverty; that takes $18,310 a year.

On the flip side, let’s consider a moderately prosperous professional who makes $135,000 a year, and let’s say he or she takes a pay cut of 8 percent (or can’t find a new job for more than that). The professional’s reduced salary of $124,200, while unpleasant, probably won’t force that person to take a second job (or third) to make ends meet, as poor people chronically must.

After all, $124,200 is roughly 6.8 times $18,310.

The truth is, for poor people, everything that doesn’t allow them to fully escape poverty doesn’t fundamentally change anything in their struggle for survival.

The poor struggle while the richer are at ease

So, while our fictional fast-food worker, even with the pay raise, likely will often worry about where the next meal of any kind will come from, the professional, even with a reduced paycheck will probably only need to—if that—cut the equivalent of one dine-out meal or two per month at a really nice restaurant.

So for Krugman to proclaim that poor people are better off economically than not-poor people in the current economic environment—if ever—is, to be kind, perplexing.

Framing his argument with data, graphs, and economist-speak, he explained:

[R]ecent wage growth has been consistently faster for lower quartiles. Over the past year hourly wages for the first, or lowest, quartile have almost kept up with inflation, while falling well short of inflation for better-paid workers.

What “kept up with inflation” really means, in practice, is that lower-wage workers are now able to without any extra effort consistently stay as poor as they are amid a constant economic struggle. It certainly doesn’t mean they can get ahead with their windfall pay hike.

READ: Why do we keep blaming the poor for their poverty?

On the other hand, their better-paid others are just slightly less economically comfortable, a difference from their previous state that probably hardly registers day-to-day.

Therefore, the momentary “significant gains for the bottom half of the income distribution” that Krugman celebrates do not make anyone prosperous—it only makes them almost imperceptibly less poor.

Yet, he concludes:

None of this says that the Fed shouldn’t be trying to reduce inflation. But you shouldn’t invoke the plight of the poor as a reason for tight money. If anything, tight money, by leading to more slack in labor markets and therefore more unemployment, will disproportionately hurt lower-wage workers.

The truth is, for poor people, everything that doesn’t allow them to fully escape poverty doesn’t fundamentally change anything in their struggle for survival.

The delusion is that it can.

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Rick Snedeker

Rick Snedeker is a retired American journalist/editor who now writes in various media and pens nonfiction books. He has received nine past top South Dakota state awards for newspaper column, editorial,...