IT IS OFTEN remarked that the miracle economy has widened inequality, strengthening the case for redistribution. This is true: Tax breaks for the rich or spending cuts that hurt the poor are currently even harder to defend than usual. But the latest data from the Federal Reserve point to a division that matters as much as the rich-poor gap. Among the poor, some have made encouraging gains, while another group has grown yet poorer.
The Fed study tracks changes in wealth and income up to 1998, adjusting all its statistics for inflation. In 1998, 12.6 percent of families had annual incomes of less than $10,000, an impressive reduction from past levels. At the time of the previous survey, in 1995, 15.1 percent of families fell under that bar; and at the top of the last economic cycle, in 1989, the share was 15.1 percent also. But that welcome advance was mirrored by a retreat for the families that remained stuck under the $10,000 mark. An analysis by the Center on Budget and Policy Priorities suggests that the average poor family was $2,340 below the poverty line in 1998, compared with $2,095 three years earlier.
This divided news on income is mirrored by divided wealth patterns. The average family grew 26 percent wealthier between 1995 and 1998, and even relatively modest households shared in this advance: Families with income between $10,000 and $25,000 increased their wealth by an average of nearly 7 percent. But those below the $10,000 mark experienced the opposite trend. Their wealth slumped by 14 percent over the period, and the loss triggered a steep rise in late debt payments and other distress signals.
Past studies have shown that education is a key to success in the new economy. But the Fed data show how the educational divide does not merely pit clerical workers against technology doctorates; it takes the less-educated group and subdivides it ruthlessly. From 1995 to 1998, the wealth of the average worker with some college education (but no degree) increased by 18 percent. The group with high school diplomas gained 12 percent. But the group at the bottom stands out. The average worker with no high school diploma suffered a wealth decline of 12 percent.
The fate of the very poor, who are also the very poorly educated, stands out as the only anomaly in the Fed study. The report breaks households down by region, by race and by age: Between 1995 and 1998, the average member of all the resulting categories gained in both wealth and income. For nearly everybody, therefore, it is true that a strong economy represents the best social program. But it is also true that the misery of those at the very bottom seems to have deepened. A prosperous nation should not forget it.