Read Chapter 5 in Facts and Fallacies
Read Chapter 5 in Facts and Fallacies and complete the following:
1. On page 124 there are 4 fallacies about income and wealth. Your task is to use the information provided by Dr. Sowell to disprove each one of the four fallacies.
2. HALF-PAGE reflection/opinion on what you found mostcompelling.
1) The four fallacies are:
1. Except for the rich, the incomes of Americans have stagnated for years.
2. The American middle class is growing smaller.
3. Over the years, the poor have been getting poorer.
4. Corporate executives are overpaid, at the expense of both stockholders and consumers.
1. The author explains that the incomes of Americans have notstagnated for year. He states that this is a fallacy that has been created due to misinterpretation of statistics.
For example, he says that the average real income of American households rose by only 6 percent over the entire period from 1969 to 1996.By just looking at this statistic we could think that the incomes of Americans have stagnated, but this is not true. If we look at the average realincome per person in the United States we can see that it rose by 51 percent over that very same period. The explanation for the existence of this contrary statistics lies in the fact that the number of people per household was declining during those years. So, income comparisons using household statistics are far less reliable indicators of standards of living than are individual income data becausehouseholds vary in size while an individual always means one. However, many people use household statistics to create fallacies ("incomes of Americans have stagnated for years") and controversy.
2. The fallacy about the disappearance of the middle class can be disproved by the fact mentioned in the text where Dr. Sowell clarifies that American incomes have been rising over the years. If theincome rises there shouldn’t be a decline in the middle class population because the more money that comes in means the rising of the social class. On top of that, America is a prospering country where the middle class is expanding every day and even rising to a higher class.
3. The author explains that this fallacy has been created because the parameters taken to make the statistics thatdefine the “rich” and the “poor” are based on the flow of income during a given year. So, if a person made less money than the national average income then it’s considered “poor”. In other words, it doesn’t take into account the wealth that people have, which means that income and wealth are not only different in concept, they are very different in terms of who has how much of each. Statistics do notdistinguish between people whose current incomes are low and people who are genuinely poor in the sense that they are an enduring class of people whose standards of living will remain low for many years, or even for life, because they lack either the income or the wealth to live any better. Most income statistics present a snapshot picture as of a given moment.
To conclude, it’s not that the poorhave been getting poorer; the problem is that people look at statistics and they think that, but in reality, people are making less money during a given year.
4. The author explains that corporate executives are not overpaid because a corporate CEO is hired precisely because the benefits that CEO is expected to confer on the employer exceed what the employer offers to pay. If, for example, a$59 million a year CEO saves the corporation $100million as expected, then the stockholders have lost nothing and are in fact better off by $41 million. So, a CEO is not overpaid because they allow the company to make a lot of money and to the stockholders and clients to not lose anything. The hiring of a CEO is not a zero-sum transaction because both parties are better after the transaction.