A Federal Researve Bank of Dallas annual report "By Our Own Bootstraps," 1995 Annual Report. FRB, Dallas lists some of the gloomy and common misperceptions folks commonly hold regarding the poor. See if these aren’t familiar:
o The rich are getting richer, and the poor are getting poorer. Most of us are getting nowhere.
o Upward mobility is the privilege of a select few, those lucky enough to win at life's lottery.
o The middle class is vanishing.
o Today's 20-something job-seekers face meager prospects and may be the first Americans in history not to live as well as their parents.
The report discusses the factual evidence that shows these perceptions to be largely false; they are misperceptions of the situation of the poor. Here’s why:
Tracking individuals' incomes over time gives a startlingly different view of the forces shaping America's income distribution. Let's begin with the people who were in the bottom fifth of income earners in 1975. The conventional view leads us to think they were worse off in the 1990s. Nothing could be further from the truth. In the University of Michigan sample, only 5 percent of those in the bottom quintile in 1975 were still there in 1991.
This account doesn’t come from a newspaper columnist or politician. I chose this report because it was written by the vice president of the Dallas Federal Reserve Bank W. Michael Cox, and another economist, Richard Alm. Mr. Cox conducted the research, and in his position, he obviously must produce carefully documented findings and conclusions. He must be objective, factual, research based in his conclusions since holding his highly respected position requires that he be an economic scholar and leader for everyone he serves no matter their ideology or politics; his job depends on how well he develops objective conclusions derived from honest facts. He dare not distort things for ideological purposes, and he has no incentive to do so. He can be considered a solid source if we want the truth of the matter from an objective scholar with advanced knowledge of economics. So, having established his credibility, here’s more of what they say:
There's further evidence that being in the low-income bracket isn't, for a large majority of people, permanent. Less than 0.5 percent of the sample showed up in the bottom quintile every year from 1975 to 1991.[3] Nearly a quarter of those in the bottom tier in 1975 moved up the next year and never again returned. More than three-quarters of the lowest 20 percent in 1975 made it into the top 40 percent of income earners for at least one year by 1991. In fact, the poor made the most dramatic gains in the income distribution. Those who started in the bottom quintile in 1975 had a $25,322 average gain in real income by 1991. In the top quintile, the increase was $3,974. In other words, the rich have gotten a little richer, but the poor have gotten much richer. (I omitted another chart.)
The patterns are similar in other quintiles. Among the second poorest quintile in 1975, more than 70 percent had moved to a higher bracket by 1991—with 26 percent going all the way to the top tier. From the middle grouping, almost half of the income earners managed to make themselves better off. A third of the people in the second highest quintile made it to the highest fifth during these 17 years. All through the University of Michigan data, there's a consistent, powerful thrust…salary income was primarily responsible for pushing people upward in the distribution, indicating that work, not luck, is the widest path to opportunity. Ours is not a
Now these are old data and conditions may have radically changed. There have been follow-on studies showing the mobility not as great. But I strongly doubt that the factors of economic mobility have somehow stopped functioning altogether to now make the misperception suddenly become true but we need research to know for sure. The factor of mobility is apparently real and measurable. But besides more research into income mobility, there is something else from a research point of view that would be quite interesting and useful. I would find research into the prevalence and stability of the misperceptions regarding the income levels and mobility not only interesting but then leading us to investigate why and how these misperceptions arise and present stable phenomena. It would be useful research because the misperceptions are probably strongly correlated with political ideology. So if that is true, what seems to me to be of even great importance would be some kind of research into the sources and origins of these misperceptions.
This kind of misperception research has been conducted in many other areas of human thought. Researchers particularly have found stable, pervasive misperceptions by naïve people in the area of science, geometry and math. Usually research into misperceptions uses children at various ages as a source of data. Children are shown a situation often involving a change in some aspect of the situation. The researcher poses the change as a problem to be explained and interviews the children about what they see and how they explain the changes they see.
For example, yesterday on NPR there was a discussion about the gender differences that relied on research into perceptions of the tilting jar. The tilting jar task has a well established research history. One way to trigger this phenomenon is to cover, or even to leave uncovered, a jar partially filled with water. Tip the jar. Put it aside and then ask students what they saw regarding the change in the water level. Students are shown or asked to draw pictures of what they saw regarding the change in the water level. Some people have a great deal of difficulty seeing that the water level remains parallel to the horizon; for others, they see it as horizontal no matter how the jar is tipped. There are quit remarkable differences in the ability to see the water level objectively as always horizontal. And differences appear between male and female. So, what is the source of these differences and what should be done about them as a matter of public ed policy? Hence the NPR radio show.
Now the researchers don’t simple measure differences in perceptions, some being correct and others more or less incorrect (naïve people do not draw the water line as horizontal when the jar is tipped). Researchers are interested in the underlying conception that forms the ability to objectively see and record the water level. It is the underlying ability that is key and that ability can be more precisely identified as the particular concept that is at work. That conceptual ability is that of the system of horizontal and vertical spatial axes that appears in human thought around the late elementary grades. In the developing child, the sense of up and down appears very early if not a birth but the representation in thought of up and down requires the development of some cognitive machinery that puts together the mental system of axes so that it can then be used to interpret situations factually, see the facts objectively consciously in the mind’s eye, and re-present the facts in thought when the objects are no longer present.
The basic principle here is that concept and percept go together. What we see depends on what we see with. So the challenge for the researcher is to study and eventually explain mentally of exactly what the system of spatial axes consists once it is fully formed and how it arises and develops in the mental activity of human thought. This kind of study of the origins of various kinds of scientific knowledge, that is, how knowledge as a phenomenon of the human species arises in the form of human thought about the world, forms the science of epistemology (as opposed to the philosophic version of epistemology).
Now this same kind of epistemological research into the origins of scientific thought has not yet been applied to economic conceptions. When we find economic misperceptions that are common and stable in spite of the facts, these percepts could give rise to research into the form of the concepts they depend upon. In the case of the income of the poor, we should look at the concepts people implicitly or explicitly use to arrive at their view of the situation. We can take the experet economist views and compare them to naïve views. We could investigate how what people see regarding income of the poor is shaped by what they see with. Their percepts are controlled by their concepts. So an investigation into misperceptions actually investigates what misconceptions are producing the misperceptions. Misperceptions are only the outward indicators of a specific conceptual ability at work so it is the conceptual abilities that will prove important.
In the income misperceptions we may have some clues what these differences in conceptual ability might consist such that they could lead to hypotheses we might investigate. The conceptual differences between those holding the misperceptions and the economists’ views may lie in whether the income groups are understood as descriptive of a fixed group of people that comprise an income level or whether the income levels represent varying membership. Are the poor as a group represented by an income level or as a group with more or less income mobility.
There seems to be an essential difference between whether income is seen properly as a descriptions of a fixed group of people or whether the income of people should be understood as is a variable measuring change or mobility across income levels. If income of the various levels is a fixed property of a single group of people, then people in the low income group aren’t progressing because the low income level hasn’t changed much. But if income is a variable of people such that they move around the income levels, then mobility rather than the income levels becomes the essential factor describing the poor since an income level at different points in time represent a different groups of people. From this point of view of income mobility, the poor are much better off because they aren’t conceived as a group of people represented by the bottom income level.
The misperceptions about income may well depend on the notion that each of the income levels represents a single group of the same people at various points in time. The "over time" is important because it is essential to the idea of income mobility. It is necessary if we want to shift from a static description of the states of people at various income levels to measuring changes in people’s income over time, income mobility as a factor. When scientific description advances beyond static descriptions of properties to reconceptualize descriptive concepts as changes in the concepts, that is, as variables, then these changes over time can be organized into larger explanations, that is, into causal explanations that transcend simple description. They become part of theories. For example, we can teach young children to understand mass, energy, and speed as descriptions of objects but helping the to organize them as variables into an equation for energy and its equivalent to mass times the speed of light squared is conceptually much more advanced and difficult. They same relative difficulty levels may exist in economics in understanding the income of people versus understanding changes in income level over time particularly as to its causes.
From the public policy perspective if we want to do something about poverty, this kind of research could be important for it makes all the difference in the world whether we base our policies on a view of the poor as a fixed group of people described by the lowest income level or whether we base our policies on the variable of income mobility of the poor. The first view of fixed position probably leads to entitlements policies, job guarantees, and the welfare state while the second view may lead to expanding opportunities by reducing barriers like minimum wage, licensure requirements, etc. Research could be important in understanding these policy differences both of which share a common goal but which have radically different means.
Since we find glaring differences among people in their economic perceptions of the very same situations, we might suppose that differences in conceptual machinery exists. Unless there is no objective reality and we deny the fact that human scientific activity makes progress over time in more objectively understanding reality, we have to postulate that some perceptions are obviously closer to the objective truth of a situation than are others. Why and how do these subjective misperceptions develop into more objective perceptions as they appear differently in people’s thought such that they produce differences regarding the same reality being addressed? The psychological fact that these misperceptions might exist in the face of contrary economic facts indicates something very powerful is at work shaping and controlling people’s perceptions of what they believe to be fact. By extending misconception research from other areas into the area of economics, we can formulate hypotheses that the differences in perceptions have to do with the adequacy of the conceptual machinery people use to see and record their perceptions. We can study the development of the conceptions that are necessary in objectively understanding an economic situation.
Since something other than facts shape people’s perceptions, namely concepts, changing their economic thought means promoting their concept development, not correcting their facts, a quite different approach. Without conceptual change, people holding misperceptions not only will but must continue to believe in their misperceptions regardless of more facts simple because their facts depend on their concepts. Even though it is most likely that most people have never been given the facts about poverty, the widespread nature of the misperceptions suggests that the problem lies with their concepts, not their perceptions of facts. As result, we should not expect their convictions to be easily changed by facts. Their views may exist in spite of the objective facts, not because of the facts. But w cannot know if this is true in economics as it is in science until research is conducted.
Most ideological disputes, most contentious public policy issues, most political rhetoric apparently arises over very different but very stable conceptions and perceptions. Over time these may change with intellectual growth but we don’t know yet what exactly causes change over time. For example, recently there was an Israel/Palestine debate hosted by Harvard between Chomsky and Dershowitz. It presented such a challenge from the point of view of differences in perceptions that one student did some fact checking, and his results were reported thanks to Power Line: Webber fact-checks Chomsky. These kind of debates usually remain at the level of throwing out assertions of perceptions of the situation. It’s not really possible to dig into the conceptual machinery of the participants, and the complexity of human thought and the situation would make it impossible to do so in a debate, but how fascinating it would be if a researcher could isolate one difference in perception among people and investigate the conceptual differences that account for the differences in perceptions of the facts. Here in the Harvard debate are two scholars well along in their careers with radically different perceptions. How can that be? What exactly about their differences in conceptual machinery is it that leads to their vast differences in perception?
Less spectacular are the misperceptions the economists regularly note regarding free trade, minimum wage, licensure, drug safety, welfare, and poverty. (I find Don Boudreaux one of the best at identifying and setting misperceptions aright.) Rather than arguing these issues themselves, each of these issues could raise interesting research possibilities into how misperceptions arise in people's thought first as misperceptions and then with more advanced thought as more objective perceptions. We surely can ask whether "the rich are getting richer, and the poor are getting poorer" and "Most of us are getting nowhere" are true but once the economists have conducted the research and produce objective results, then a new type of research into the question of why these myths persist becomes important. It is the only way I know of that holds the possibility of resolving contentious economic issues.
