by Gary Alexander
July 30, 2024
Article I, Section II of the U.S. Constitution mandates a head count every decade, and further states that “The actual enumeration shall be made within three years after the first meeting of the Congress of the United States, and within every subsequent term of ten years, in such manner as they shall by law direct.”
Oops, those last nine words opened Pandora’s Box of Mischief. For our first 17 decades, the census just counted heads, but 70 years ago, on August 31, 1954, something called the Census Bureau was formed, authorizing new tools that soon got used in ways that would make the Founding Fathers cringe. Born under Title 13’s 36 pages of dense small type, the Census Bureau began long-form snooping into every corner of our lives, including our income, and then they proceeded to report it in very misleading ways.
The failed War on Poverty, the bloated annual Cost of Living Allowances (COLAs) and political breast-beating over a widening “income gap” are all products of the way the Census Bureau miscounts our income. But a new book by Senator Phil Gramm, his fellow Texas A&M economics professor, Robert Ekelund, and economist John Early, who twice served as assistant commissioner of the Bureau of Labor Statistics, reveal several errors in the Census Bureau data that turned a national triumph into a travesty.
In this political season, Kamala Harris and other politicians will argue for more income transfers and will likely refer to a huge “income gap,” so let us be armed against any such disinformation in advance. Here are some key takeaways about Census Bureau misinformation from the introduction in Gramm’s book:
- “From the ramp-up of funding for the War on Poverty in 1967 to 2017, annual government transfer payments to the average household in the bottom 20 percent of the income distribution rose more than fourfold in inflation-adjusted dollars, from $9,677 to $45,389, and yet the official poverty measures tell us that the percentage of people living in poverty hardly changed during that 50-year period.”
- “While the highly publicized numbers from the Bureau of the Census on household income inequality show that in 2017 the bottom 20 percent of households had an average income of $13,258, other less publicized data from the Bureau of Labor Statistics show that these same households spent $26,091 on consumption – two times more than their income….The bottom quintile can consume more than twice its Census income only because the Census does not count two-thirds of transfer payments as income.”
- “Excluded from the measurement of household income are some $1.9 trillion of government transfers – programs like refundable tax credits, where beneficiaries get checks from the Treasury; food stamps, where beneficiaries buy food with government-issued debit cards; and … Medicare and Medicaid.”
Taking these facts into consideration, only 2.5% of Americans live in poverty, not the official 12.3%. The bottom 20% receive an average of $45,389 a year in government transfer payments, $32,000 of which the Census Bureau ignores, because they only count cash income. In contrast, the Census Bureau counts all income of the top 20%, while not subtracting their high taxes, mostly paid to support the bottom 20%.
Adjusting all of this income data to reality, the solid line below represents the real, flatter income gap:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
It turns out that we are a generous nation, but we don’t get much credit for being generous. Besides our taxes, Americans donate 1.44% of GDP to charity, by far the highest rate of any nation. Among the lowest 20%, half are retired, but among those in their prime working years (18 to 65) who are not students, only 36% work, and those who work put in 17.3 hours per week, less than half the average.
The second quintile is composed mostly of the working poor, but they earn only slightly more ($53,924 vs. $49,613) than the lowest 20%. The per capita income data is even more dramatic. The bottom 20% average only 1.69 persons per household, vs. 2.23, 2.51, 2.81 and 3.10 in the next four quintiles.
That means the poorest 20% are actually better off than the second and middle 20% in per capita terms.
The truth continues to astonish throughout these pages – so I hope you will be able to buy this book.
Now, back to market realities:
August in Market History: 40, 50, 60 and 110 Years Ago
August was usually a strong month – long ago, when harvest seasons were a big deal – but not recently. According to The Stock Trader’s Almanac, August is the worst market month of the last 15 years, and September is the long-term burial month for bull markets, even though October has some notable down days in 1929 and 1987. This tells us that fearful investors try to sell stocks early, first in September, to avoid October, then in August to avoid September – and now investors have been selling in late July!
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now, let us recall some up and down Augusts in round-numbered anniversary years from decades past:
1914: On Monday, August 3, no stock markets in Europe or America were open. It wasn’t a holiday. It was the day Germany declared war on France and invaded Belgium; very soon, Britain declared war on Germany, and Turkey signed a military pact with Germany. On this day, Sir Edward Grey, British Foreign Secretary, famously said, “The lamps are going out all over Europe, and we shall not see them lit again in our lifetime.” He was almost justified in that prediction considering the dark years, 1914 to 1945.
1964: On Sunday, August 2, North Vietnam allegedly fired on the U.S. destroyer Maddox in the Gulf of Tonkin, leading to the Gulf of Tonkin resolution – passed unanimously in the House and by 88-2 in the Senate, escalating the Vietnam War. On August 5th, the U.S. dropped the first bombs on North Vietnam. The Dow declined 1.4% that week. Six years later, in 1970, Congress repealed this 1964 Resolution.
1974: On Friday, August 9, President Richard Nixon resigned as President and Vice President Gerald Ford was sworn in as America’s 38th President. The Dow quickly fell 18% on the news, from 798 on August 8th to 656 three weeks later, in the worst plunge of the 1974 bear market. On August 20, Nelson Rockefeller was nominated as Vice President. The market did not take kindly to Rocky. In the week of August 19-23, the Dow lost another 44.74 points (-6.1%), to a four-year low of 671.54. In one bright interlude, on August 14, Congress authorized U.S. citizens to own gold for the first time in 41 years, as of Dec. 31. During 1973 and 1974, the Dow was down 45%, and the American Exchange was down 80%.
1984: On Friday, August 3, the Dow jumped 3.3% on a record 236.57 million shares, the first-ever 200-million share day. Almost 73 million shares traded in the first hour. On that day, Mary Lou Retton won a perfect 10 in a gymnastic vault and became the first American woman to win a gold medal in that sport. The S&P 500 and Dow each gained 7.8% in the first three days of August and 10.6% for the full month, after each index rose 11.5% in August 1982, the birth month of the longest and strongest bull market of the 20th Century (up 15-fold from 1982 to 1999). These were the third and fourth best Augusts of the 20th Century, following an unlikely pair of Augusts in Depression-ridden 1932 (+34.8%) and 1933 (+12.8%).
All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Case for Cutting U.S. Interest Rates This Week
Income Mail by Bryan Perry
A Bottom in Commercial Office Property Values Now Looks Further Out
Growth Mail by Gary Alexander
The American “Income Gap” is Much Smaller Than Advertised
Global Mail by Ivan Martchev
The Yen Strikes Back
Sector Spotlight by Jason Bodner
Managing Change in Markets Can Be Stressful – But Profitable
View Full Archive
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About The Author
![ab619710dec9c6c02dfd1eb445413061_f222](https://navellier.com/wp-content/uploads/2019/03/ab619710dec9c6c02dfd1eb445413061_f222.jpg)
Gary Alexander
SENIOR EDITOR
Gary Alexander has been Senior Writer at Navellier since 2009. He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks. For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.
Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s. He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division. Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander
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