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BY OUR OWN

B OOT S T RA P S
Economic Opportunity
&
the Dynamics of Income Distribution

Federal Reserve Bank of Dallas

A NNUAL RE PORT
Nineteen Hundred and Ninety-Five

T H E TA B L E

of

CONTENTS

A L E T T E R F RO M T H E P R E S I D E N T . . . . . . . . . . . . . . . . . . . . . 1
B Y O U R OW N B O O T S T R A P S
E c o n o m i c O p p o rt u n i t y & t h e D y n a m i c s o f I n c o m e D i s t r i b u t i o n . . . . . . . . . . . 2
THE YEAR IN REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
A F O N D FA R E W E L L . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 8
C O R P O R AT E E X E C U T I V E S & S E N I O R M A N A G E M E N T . . . . . 2 9
B OA R D S O F D I R E C T O R S . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 0
A DV I S O RY C O U N C I L S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
S E L E C T E D F I N A N C I A L I N F O R M AT I O N
Assets, Liabilities & Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
O p e rat i o n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
V O L U M E O F O P E R AT I O N S . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6

A Letter from the

P RE S I DE N T
T

Hh

HAT GOOD-LOOKING FELLOW IN THE PICTURE BELOW IS ME, STANDING IN
front of my family home in June 1949. My only memory of that house is returning from
school one day and discovering that it was missing. I had forgotten that it was to be moved
that day about a quarter-mile up the road. Once it was relocated, my dad added a couple more
rooms to it. A few years later, when his income permitted, he expanded the other side of the house.
Later, we bricked it and
added more rooms, plus a carport that I helped my dad
build by hauling dirt to it, one
wheelbarrow load at a time. It
took all summer.
I think of that house and
the way it grew over time as a
metaphor for income growth,
the topic of this year’s annual
report essay. My dad’s was no
Horatio Alger story, but his
income probably rose from
the lowest rung of the income distribution to the
highest during his working life and then back down
a notch or two. This year’s essay, which looks at
economic opportunity and the dynamics of income
distribution, suggests that my dad’s experience is
more common than is generally realized. The
American way is to start off at the bottom and
work your way up.
Judging from the public debate, I believe many
of the recent news accounts about growing income
disparity are somewhat exaggerated. One fact that
is missing in most of what has been written on
recent income trends is that income levels are not
static—there is much movement in the income
classes over time. Specifically, to a much greater

extent than one might
expect, this year’s poor may
be next year’s middle-income
person and a high-income
person the year after that.
Today’s poor are often tomorrow’s rich. It works the
other way, too, of course, as
exemplified by the late-1980s
joke about the easiest way to
become a Texas millionaire:
start out as a Texas billionaire.
While the evidence does
suggest that the upper income levels have been
growing relative to the lower levels, it’s not that the
rich are getting richer and the poor are getting
poorer—both are getting richer, on average, just
not at the same rate.
What’s encouraging, however, is that most
lower income households do rise through the
income distribution, with a healthy percentage of
them making it all the way to the top. That’s what
America is all about—the opportunity to end up
ahead of where you started.

ROBERT D. M C T EER , J R .

President & Chief Executive Officer

BY OUR OWN

B OOT S T RA P S
Economic Opportunity
&
the Dynamics of Income Distribution

Hh
T

HE LAND OF OPPORTUNITY. ANYWHERE IN THE WORLD, THOSE WORDS
bring to mind just one place—the United States of America. Opportunity defines our
heritage. Waves of immigrant farmers, shopkeepers, laborers and entrepreneurs came to
America for the promise of a better life. Some amassed enormous fortunes—the Rockefellers,
the Carnegies, the Du Ponts, the Fords, the Vanderbilts. Many millions more, descendants of
those who arrived in the New World with little more than the clothes on their backs, improved
their lot in life through talent and hard work.
Opportunity permeates our folklore. There’s no better example than the 120 novels Horatio
Alger churned out in the years after the Civil War, all featuring ordinary boys going from rags to
riches. His tales of luck and pluck so touched the national psyche that the writer’s name became
shorthand for achieving success.
Even today, opportunity is rarely far from our experience. Most Americans are familiar with
dozens of real-life Horatio Alger stories—Sam Walton, Ross Perot, Bill Cosby, Mary Kay Ash, to

by W. Michael Cox & Richard Alm

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mention just a few of the famous. They
Middle fifth
catapulted themselves from the lower or
Fourth fifth
15%
middle ranks to the top.
Second fifth
Although millions of people still manage
23.4%
8.9%
to make the American Dream their reality,
Lowest fifth 3.6%
a dissonant chorus can be heard mourning
the United States as the Land of Opportunity Lost. It’s hard to ignore their litany
49.1%
Highest fifth
of the crises of our times:
•The rich are getting richer, and the
poor are getting poorer. Most of us are getExhibit 1
ting nowhere.
S
LICING UP THE AMERICAN PIE
•Upward mobility is the privilege of a
select few, those lucky enough to win at
In 1994, the highest earning fifth of American households received 49.1 percent
life’s lottery.
of the country’s total income, while the bottom fifth received only 3.6 percent.
•The middle class is vanishing.
•Today’s 20-something job-seekers face
meager prospects and may be the first
Income in thousands of dollars
Americans in history not to live as well as
Highest fifth
100
their parents.
What these skeptics typically offer up as
80
evidence of ebbing opportunity is the distri60
bution of income — the slicing up of the
Fourth fifth
American pie. They seize on two points.
40
Middle fifth
First, there’s a marked inequality in earnSecond fifth
20
ings between society’s “haves” and its
Lowest fifth
“have-nots.” Second, and perhaps more
0
’67
’70
’73
’76
’79
’82
’85
’88
’91
’94
ominous, the gap between the richest and
poorest households has widened over the
Exhibit 2
past two decades.
A CASTE SOCIETY?
The Census Bureau provides statistical
support for these claims.1 In 1994, the latReal mean income of households in the lowest fifth today is little higher than that
of the lowest fifth 27 years ago. Today’s households in the highest fifth, on the other
est year for which data are available, the
hand, have 45 percent more income than those in the highest fifth in 1967.
top 20 percent — or quintile — of American
households received almost half of the
nation’s income. Average earnings among this group were $103,253 a year. The shares of the national
income going to the next three-fifths, in descending order, were 23.4 percent, with an average of
$49,114; 15 percent, with an average of $31,562; and 8.9 percent, with an average of $18,735. The bottom fifth had just 3.6 percent of the economic pie, or an average of $7,565 a year. (See Exhibit 1.)
Evidence of increasing dispersion emerges from the same Census Bureau data. (See Exhibit 2.) The
lowest 20 percent of income earners saw their share fall from 4.2 percent in 1975 to 3.6 percent in 1994.
Over the same period, the distribution to the middle three-fifths also slipped. Only the top fifth increased

1

For consistency and to allow inflation-adjusted (real) comparisons, all money figures in this report are expressed in 1993 dollars
unless otherwise noted.
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their piece of the nation’s income, rising from 43.7 percent in 1975 to 49.1 percent in 1994. The shift of
income toward the upper end of the distribution looks even more striking when put into dollar figures.
After adjusting for inflation, income of households in the lowest quintile rose only $87 from 1975 to 1994.
The top tier, meanwhile, jumped $25,934.
This picture of the income distribution would be useful if America were a caste society with rigid class
lines keeping those in the bottom today there tomorrow. But if ours is not a caste society, such statistics
tell us virtually nothing—particularly about opportunity. By nature, opportunity is personal, an assessment
of how well-off you can be tomorrow relative to today. Even the most sophisticated income distribution
studies fail to tell us what we really want to know: are most Americans losing their birthright—a chance
at upward mobility?

P U T T I N G T H E H O R S E B E F O R E T H E C A RT
M ob i lity first, then distributio n
Judging from the public debate, some Americans seem to prefer a more equal distribution of income
to a less equal one, perhaps on moralistic grounds, perhaps as part of an ideal of civic virtue, perhaps to
avoid any overtones of class conflict.
The notion that a more equal distribution of income is a better one may appeal to philosophers or social
planners, but there’s no economic reason to prefer one ranking of incomes to another. In and of itself, the
income distribution doesn’t say much about the performance of an economy or the opportunities it offers.
A widening gap isn’t necessarily a sign of failure, nor is a narrowing gap a sure sign an economy is functioning well. It’s a heroic leap of logic to conclude, after looking at increasing disparity between rich and
poor, that Americans’ opportunities aren’t what they once were. Economists can point to a number of
forces and trends that tilt the income distribution one way or another, many of them not bad news at all.
(See Exhibit 3.)
It’s quite common to find a widening of the income distribution in boom times, when almost everyone’s
earnings are rising rapidly. All it takes is some incomes rising more rapidly than others. On the other hand,
the distribution can narrow when most income earners are experiencing hard times. In fact, compression
of incomes is often what we observe in poorer countries.
Most important, a static portrait of income shares doesn’t answer the question of whether low-income
households are getting better or worse off over time. By definition, there will always be a bottom 20 percent, but only in a strict caste society will it contain the same individuals and families year after year. To
decide that upward mobility has been lost in America, the evidence must show that the poor, for the large
part, remain stuck where they are and that there’s little hope of climbing up the income ladder.
In short, between opportunity and equality, it’s opportunity that matters most. The prospect of
upward income mobility is what individuals seek—indeed, that’s what powers the whole economic system. Income’s distribution comes second, both in order and importance.
To gauge opportunity in America, we need data on individuals over time. Income distribution studies
aren’t much help because they lump together a hodgepodge of ages, educational levels, work effort, family and marital status, gender, race and so much more. The sample never stays the same from one year to
another, and researchers have no way of knowing what happened to particular members of any quintile.
How many people worked their way up? How many remained at society’s bottom year after year? Crosssectional income studies can’t say.
A better approach involves identifying individuals and tracking each of them year after year, capturing
the ups and downs in income over a lifetime. When combined with personal data, such as age, education
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Exhibit 3

I N E Q UA L I T Y I S N O T I N E Q U I T Y
In the early 1970s, three groups of unemployed Canadians, all in their 20s, all with at least 12
years of schooling, volunteered to take up residence in a stylized economy where the only employment was making woolen belts on small hand looms. They could work as much or as little as they
liked, earning $2.50 for each belt. After 98 days, the results were anything but equal: 37.2 percent
of the economy’s income went to the 20 percent with the highest earnings. The bottom 20 percent received only 6.6 percent.
This economic microcosm tells us one thing: even among similar people with identical work
options, differences in talent, motivation and preferences will lead some workers to earn more than
others. Income inequality isn’t some quirk or some aberration. Quite the opposite, it’s perfectly
consistent with the economic laws that govern a free enterprise system.
Equality of opportunity doesn’t yield equality of results. Inequality is not inequity.
In a complex modern economy, there are plenty of reasons for incomes to vary, and most of
them have little to do with issues of fairness or equity. Among the most important factors are:
Education, experience. The lifetime earnings profile tracks income for various age groups. As an
economy becomes more advanced, there are usually increasing rewards for education and experience,
so earnings rise faster over a typical lifetime. As that happens, there’s increasing diversity in income.
Two-income households. Obviously, two workers can earn more than one. The trend toward both
spouses working creates some higher income households. As families choose different lifestyles, the
income distribution will grow more unequal, even if individual incomes don’t change at all.
Baby-boom demographics. A bulge in the population can alter a society’s income distribution.
When the baby boom first enters the labor force, it floods the economy with lower income workers. As the generation ages, entering peak earning years, it provides a disproportionate number of
high-income households. In both cases, the distribution becomes skewed, first toward lower
incomes and then toward higher incomes.
A greater “churn.” A healthy economy grows by creating new, better and more affordable products. The process creates new industries and new jobs. They replace jobs in fading sectors. Economists
call this the “churn.” It makes society better off, and it produces big gains for entrepreneurs and
higher incomes for most workers. For others, there will be spells of unemployment and downward
mobility. When there are larger ups and downs in income, the distribution is likely to spread.
Longer retirements. Individuals who anticipate longer periods of retirement will, on average,
accumulate more assets during their working lives and earn more interest. The income of middleaged workers will rise relative to that of the young, once again widening the distribution.
Higher rates of return on assets. If accumulation of assets increases income disparity, higher
rates of return on investment will do the same because those assets will produce more income.
A wealthier society. Once a society progresses to the point where most people can afford food,
clothing, shelter and other necessities, some people choose to work harder for luxuries, while others opt to enjoy more leisure. When people make different choices about goods versus leisure, the
income distribution pulls apart.
No one ought to be surprised that these are trends that have reshaped the U.S. income distribution over the past two decades. Although most of them widen the income distribution, none necessarily entails lower income households becoming worse off.

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and marital status, individual earnings profiles pinpoint changes on life’s journey, so researchers can see a
person’s income go up, down or stay the same.

INCOME MOBILITY IN AMERICA, 1975–91
Evidence fro m the data
In a mobile, fast-changing society, it’s no easy task to collect data on individuals over a long period of
time. All the statistical mills in government and private industry produce precious little information on
lifetime earnings. One source of data, however, can shed some light on the patterns of income—the
University of Michigan’s Panel Survey on Income Dynamics, the longest tracking study ever done on
Americans’ earnings. Since 1968, the University of Michigan’s pollsters have collected detailed information on a total of 50,915 Americans. This mass of data, carefully designed to replicate the characteristics of the population as a whole, has over the years served as the basis for hundreds of studies.
Not all the respondents in the University of Michigan survey are suitable for testing the degree of
income mobility in the United States. The focus should be on those earning money or seeking to earn
money—what the government calls “active” members of the labor force. That includes the employed,
those laid off, the unemployed, students and retirees. Those at home maintaining a family aren’t included, largely because that decision is a personal one that says little about the economy’s opportunities. Also
left out are children (youth under 16), prisoners, military personnel, the permanently disabled and the
mentally ill. The Census Bureau uses these same exclusions for its income distribution studies.
Analyzing income mobility requires one additional step — identifying those respondents who reported
their income to the University of Michigan’s survey over a long period of time. Many people failed to
report once or more. Some dropped out and others were added. Only long strings of uninterrupted observations will show us what’s really happening to incomes in America. Although respondents had to report
every year, they didn’t have to earn income. Using the standard government definition, income includes
wages, investment earnings, pensions and government transfers such as Social Security, unemployment
benefits and welfare.
The University of Michigan’s income data collected before 1975 aren’t compatible with later observations. Results after 1991 aren’t yet in final form. The best longitudinal sample that can be put together
consists of 3,725 individuals for the 17 years from 1975 to 1991. This sample may seem small, but most
social science research relies on similar-sized, or even smaller, slices of the population. Even Census
Bureau studies of the income distribution rely on relatively few people, rather than the entire country.
What’s important is that a sample offer a good proxy for the characteristics of the population as a
whole—and this one does.2
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.
Even more important, a majority of these people had made it to the top 60 percent of the income distribution—middle class or better— over that 16-year span. Almost 29 percent of them rose to the top

2

Examination of this sample’s income distribution for 1975 reveals that it approximates the distribution reported for “persons” in the
Census Bureau studies.
{6}

EDDIE DIAZ

Hh

P a r t ne r , N E W M E XI CO CHI LI PR O DU CTS , Demin g, New Mexico

F

OR THE DIAZ FAMILY, MONUMENTAL SUCCESS OR FAILURE ISN’T A
once- or twice-in-a-lifetime experience—it’s something that can happen every other growing season.
“That’s just an inherent part of the farming business,” says Eddie Diaz, a first-generation American.
“My father taught my brothers and sisters and me that to succeed in a land of opportunity, you’ve got to create opportunities for success where others might only see a chance to fail.” In 1978, the Diaz family had to
do just that, after poor market conditions forced them out of the cotton- and sorghum-growing business they
had been in for more than a decade. ❡ Enter chili peppers, a crop that does extremely well in southeastern
New Mexico but one the Diaz family had never grown before. Initially successful because of the increasing
popularity of Mexican food, the family soon realized they were losing too much money to middlemen. That’s
when the family took another step that many considered too risky and launched New Mexico Chili Products,
a company that processes and distributes dehydrated chilies directly to its customers. Going from processing
200,000 pounds a year when they started in 1992 to 4.5 million pounds today, the Diaz family nonetheless
knows they can’t rest on any laurels. “You can’t dream the American Dream,” says Diaz. “You’ve got to live it.”

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quintile. This is a far cry from the popular
Income
vision of a society in which the poor are
quintile
Percent in each
getting poorer. In fact, the evidence sugin 1975
quintile in 1991
gests that low income is largely a transito1st
2nd
3rd
4th
5th
ry experience for those willing to work, a
5th
(highest)
.9
2.8
10.2
23.6
62.5
place where people may visit but rarely
4th
1.9
9.3
18.8
32.6
37.4
choose to live. (See Exhibit 4.)
3rd (middle)
3.3
19.3
28.3
30.1
19.0
There’s further evidence that being in
2nd
4.2
23.5
20.3
25.2
26.8
1st (lowest)
5.1
14.6
21.0
30.3
29.0
the low-income bracket isn’t, for a large
majority of people, permanent. Less than
Exhibit 4
0.5 percent of the sample showed up in
M OV I N G O N U P
the bottom quintile every year from 1975
to 1991.3 Nearly a quarter of those in the
Of individuals who were in the lowest income quintile in 1975, 5.1 percent were
bottom tier in 1975 moved up the next
still there in 1991, 14.6 percent had moved up to the second quintile, 21 percent
to the middle quintile, 30.3 percent to the fourth quintile and 29 percent to the
year and never again returned. More than
highest quintile. Of those in the highest quintile in 1975, 62.5 percent were still
three-quarters of the lowest 20 percent in
there in 1991, while 0.9 percent had fallen all the way to the bottom fifth.
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.
Income
Average
Average
Those who started in the bottom quintile
quintile
income
income
Absolute
in 1975 had a $25,322 average gain in real
in 1975
in 1975
in 1991
gain
income by 1991. In the top quintile, the
increase was $3,974. In other words, the
5th (highest) $45,704
$49,678
$ 3,974
4th
22,423
31,292
8,869
rich have gotten a little richer, but the poor
3rd (middle)
13,030
22,304
9,274
have gotten much richer. (See Exhibit 5.)
2nd
6,291
28,373
22,082
The patterns are similar in other quin1st (lowest)
1,153
26,475
25,322
tiles. Among the second poorest quintile
Figures are in 1993 dollars.
in 1975, more than 70 percent had
moved to a higher bracket by 1991—with
Exhibit 5
26 percent going all the way to the top
T H E P O O R A R E G E T T I N G R I C H E R FA S T E R
tier. From the middle grouping, almost
Individuals in the lowest income quintile in 1975 saw, on average, a $25,322
half of the income earners managed to
rise in their real income over the 16 years from 1975 to 1991. Those in the
make themselves better off. A third of
highest income quintile had a $3,974 increase in real income, on average. The rich
the people in the second highest quintile
got richer, but the poor got richer faster.
made it to the highest fifth during these
17 years. All through the University of
Michigan data, there’s a consistent, powerful thrust toward the top of the income distribution.
The sample shows, too, that the rise in income can be swift, especially for those with education and
skills. More than half of those in the lowest quintile in 1975 had reached the top three tiers within four
years. Two-thirds made that leap within six years, and three-fourths did it in nine years. Not surprisingly,
it’s the young who move up most quickly, particularly those who get an education. Among respondents
20 to 24 years old in 1975, workers who finished college saw their real income rise fivefold, from $7,711

3

According to Census Bureau data, the median duration of “poverty spells” is only about seven months for those with no work disability.
{8}

RON & PAM JONES

Hh

Ow ne r s , H A N DY ANDY JANI TO R I AL, Pl an o , Texas

I

N 1 9 8 6 , RO N J O N E S F O U N D H I M S E L F W I T H O U T A F U L L - T I M E J O B
for the first time in his professional life, courtesy of middle-management downsizing at a major oil company. Like thousands of others across corporate America, he was left with a wealth of management experience but nothing to manage. When he was 13, Jones had started working evenings and weekends for his uncle
in the commercial cleaning business, a job he kept until the oil company transferred him from Oklahoma to
Massachusetts in 1983. So when “early retirement” forced him back into the job market, Jones decided to parlay the part-time work he’d done for his uncle into full-time work for himself, and he and his wife moved to
Dallas to start Handy Andy Janitorial. ❡ What began as a two-person company earning $32 a month is today
a 190-person company servicing 35 office buildings a week. “I grew up in a family where you worked hard,” says
Jones. “When my wife, Pam, and I started the company out of a spare room in our home, we used to wake up
every morning around 7 o’clock to start calling on prospective clients, and we wouldn’t get to sleep until after we
finished cleaning buildings around 3 o’clock the next morning.…I guess it goes back to what my uncle used to
tell me all the time when I was growing up: if you want your prayers answered, get off your knees and hustle.”

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to $40,303 in 1991. High school graduates doubled their income to $27,627. Even high school dropouts
weren’t completely shut off from opportunity. Their earnings rose, too, although much more slowly than
those of any other group, going from $11,628 in 1975 to $19,091 in 1991. (See Exhibit 6.)

1975
Quintiles

Income in thousands of dollars
45
Graduate school
40

College
35

5th

Some college
30
High school

25

4th
20

Dropout

15
3rd
10
2nd

5

1st

0
’75

’76

’77

’78

’79

’80

’81

’82

’83

’84

’85

’86

’87

’88

’89

’90

’91

Exhibit 6

E D U C AT I O N PAY S , B U T E V E N D RO P O U T S ’ I N C O M E C A N R I S E
Lifetime income tends to be highly related to education. Individuals aged 20 to 24 in 1975 who eventually graduated from college saw
their real incomes increase $32,592, on average, over the period 1975–91, going from the next-to-the-lowest income quintile in 1975
to the top quintile in about 10 years. Those with only a high school diploma moved into the fourth income quintile after gaining a few
years of work experience but tended to stay there throughout the 17-year period. By 1991, even most high school dropouts aged 20 to
24 in 1975 were able to enjoy a living standard comparable to that of the fourth income quintile in 1975, though they gained little
relative to the whole population and lost ground when compared with their contemporaries who were better educated. The shaded areas show
the (moving) five income quintiles over the 17-year period, while the dotted lines signify a fixed measure of living standards—the income
quintiles of 1975.

The sample also tells us what happened to the “rich” of 1975. Nearly two-thirds of those in the top
income quintile in 1975 could still be found in the top in 1991. Another 23 percent slipped just one bracket,
leaving them in the top two-fifths of income earners. Less than 1 percent of the top fifth in 1975 plummeted all the way to the bottom of the income distribution by 1991. The trends suggest a comforting
conclusion: once a household moves up the income ladder, it rarely gets pushed back down again.
What these findings reveal is that our economic system is biased toward success. When income
mobility is examined for individuals over a long period of time, there’s strong evidence to contradict
notions of a society settled into stagnant income classes. No doubt, a fair amount of the upward mobility is due to young people completing their education and moving up. But you can’t simultaneously
count the young when compiling the numbers on poverty and omit them when figuring upward mobility.
All people matter.
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LIZ COKER

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C h i e f E x e c u t i v e Of f i c er, MI NCO TE CHNO LO G Y LABS , Austin , Texas

L

IZ COKER GREW UP POOR ON A LITTLE FARM IN THE FOOTHILLS
of Tennessee. At 5 years old, she was milking cows and helping her father in the cotton and
tobacco fields. “We were dirt poor, but then so were all of our neighbors,” she recalls. “I didn’t get
my first store-bought dress until I was 14.” ❡ By the time she was 15, Coker had quit school and gotten
married. Four years later, she was a single mother working in a print shop in Dallas. She eventually landed
a job at Texas Instruments, working on the production line during the day while waiting tables at night and
on the weekends. In 1963, she became TI’s first female engineering technician. ❡ Twelve years later,
Coker left to join a start-up semiconductor company in California. Dissatisfied with how employees were
being treated, she decided it was finally time to live her dream—to start her own company. After taking out
a second mortgage, Coker persuaded investors to lend her $70,000 to start Minco Technology Labs, a
company that processes and tests computer chips. “All the experts said the company wouldn’t make it, but
I didn’t know any better,” she says. The first full year of operation, the company did $3 million worth of
business. This year, Coker expects to earn $16 million. “I never thought of failing,” says Coker. “The way
to make it in America is to roll up your sleeves and get to work.”

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T O O G O O D T O B E T RU E ?
A s e con d o pinio n fro m the Treasury
The University of Michigan data are not the only evidence that contradicts the prevailing pessimism. In
1992, the U.S. Treasury Department, using a similar income-tracking analysis, reached a similar conclusion. Significantly, the Treasury used an entirely different sample, a database of income tax returns from
14,351 households, so there’s no chance this study merely offers another interpretation of the same data.
Covering the nine years from 1979 to 1988, the Treasury study found that 86 percent of those in the
lowest income bracket moved to a higher grouping. Two-thirds of them reached the middle strata or above,
with almost 15 percent making it
all the way to the top fifth of
Percent
income earners. Among people
100
who started in other quintiles in
35.4
1979, there was similar move80
47.3
47.3
60.1
ment up the income ladder.
64.7
85.8
Nearly half of those in the middle
60
tier, for example, rose into the
37.5
40
top two groupings, overwhelming
33
any downward mobility that took
52.7
29
20
place. (See Exhibit 7.)
35.3
27.1
19.7
The Treasury study affirms
14.2
10.9
0
that most Americans are still getLowest
Second
Middle
Fourth
Highest
Top 1
fifth
fifth
fifth
fifth
fifth
percent
ting ahead in life. The University
Increased one or more quintiles
of Michigan data show more upSame quintile or top 1 percentile
ward mobility, probably because
Declined one or more quintiles or from top 1 percentile
they cover a period almost twice
as long. Truncated at the nineExhibit 7
M
O
B
I
L
I
T
Y
:
A
S
E
C
O
N
D
O P I N I O N F RO M T H E T R E A S U RY
year mark, these data show just
about the same upward moveAccording to a study completed in 1992 by the Treasury, 85.8 percent of households in the lowest
ment as the Treasury data do,
income quintile in 1979 moved up one or more quintiles by 1988. Only 14.2 percent of those
suggesting that upward mobility
in the bottom in 1979 were still there nine years later. Of households in the middle fifth, 47.3 percent moved up and 19.7 percent moved down, while in the highest fifth, 35.3 percent moved down.
is a cumulative process that gathOver half (52.7 percent) of households in the top 1 percent in 1979 had lost that status by 1988.
ers momentum as years pass. In
addition, it verifies that the quickest rise occurs among the young. The Treasury also found that wage and 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 Wheel of Fortune economy.

H O W M U C H U P WA R D M O B I L I T Y I N L I V I N G S TA N DA R D S ?
Although dynamic tracking studies offer a big advantage over static income distributions, they can still
underestimate upward mobility in living standards. As a society gets richer, the quintile boundaries in the
income distribution rise, so individuals are gaining even if they’re staying put in the pecking order. A worker at the midpoint of the bottom 20 percent of income earners today, for example, lives better than someone in the same spot did two decades ago. When relative gains are mixed in with absolute, real gains, we
{12}

LE THI & HAI MINH HUYNH

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F ou nd e r s , FU LTO N S E AFO O D , Ho usto n , Texas

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HEN HAI MINH HUYNH WAS 20, HE AND HIS FAMILY WERE IMPRISONED
for eight months in Vietnam. His only crime was that he was not a communist. “Every day I would
see young men, strong and healthy when they arrived, die from starvation,” Huynh says. “We had
to eat grass, roots, tree bark—anything that moved—to stay alive.” ❡ When he was finally released, Huynh
paid fishermen to help his family and him flee Vietnam. For seven months, they lived in a refugee camp until
they received word that they were welcome in the United States. ❡ With the little money they had saved,
Huynh and his wife opened Fulton Seafood in Houston, even though they knew nothing about the seafood
business. “I bought a little dock in Louisiana and would buy from the Vietnamese fishermen there,” he says,
“while my wife ran the store in Houston. We had to live apart for seven years.” ❡ In the beginning, things
were tough—they had no customers, and Huynh’s wife, who had no formal schooling and had been a street
peddler since she was 13, couldn’t speak English. But they believed in the American Dream—that if you work
hard, you will make it. Today, Huynh’s company is the largest seafood distributorship in Houston. “We love
this country—it is the land of hope,” Huynh says. “If you work hard in America, you will get rewarded.”

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can’t tell how much of the rise
Percent in each 1975
In 5th 1975
in income is merely keeping
Income
quintile
quintile in 1991
up with the Joneses and how
quintile
sometime
in 1975
1st
2nd
3rd
4th
5th
in 1976–91
much of it is getting ahead of
where we were.
5th (highest)
.3
2.5
7.7
20.1
69.4
98.4
Overall income in the
4th
1.0
6.6
16.0
30.0
46.4
78.6
United States has risen since
3rd (middle)
2.2
15.6
24.1
32.0
26.1
48.2
2nd
2.1
19.9
19.9
25.2
32.9
52.6
1975, so by 1991 the entire dis1st
(lowest)
2.3
14.0
17.6
26.9
39.2
57.0
tribution in the University of
Michigan data had moved
Exhibit 8
upward. Using a constant yardL I V I N G S TA N DA R D S O N T H E R I S E
stick—living standards prevailing in 1975—we can see the
Judging by a constant measure of living standards—income quintiles of 1975—39.2 percent of
those individuals in the lowest income quintile in 1975 managed, by 1991, to achieve a real
real gains. How many people
income comparable to that of the highest income group in 1975. Only 2.3 percent of this group
are better off by this measure?
remained at a living standard equal to the lowest of 1975. Of those individuals who were at the
The absolute gains are
highest living standard in 1975, 69.4 percent were able to at least maintain that standard.
even bigger than the relative
ones. (See Exhibit 8.) Almost
98 percent of those in the bottom quintile in 1975 rose to a higher level over the next 17 years. Two-thirds
of these people achieved a living standard better than what the middle fifth had in 1975. Every other
income group exhibits the same strong upward push. Almost three-fifths of the people in the bottom fifth
made it to the top at least one year during the period from 1976 to 1991.
By carefully tracking the path of individuals’ incomes year by year, these results go a long way toward
quelling fears that the United States is becoming a nation polarized between the privileged rich and permanently poor. What’s particularly encouraging is the ability of those who start out in the lowest income
brackets to jump into the middle and upper quintiles. There’s evidence that most Americans are making
their way up the income ladder through education, experience and hard work. (See Exhibit 9.)
That’s what the American Dream is all about.

A COMMON THREAD
The p ro file o f lifetime ear nings
If so many Americans are rising through the income ranks, and if only a few of us stay stuck at the bottom, who makes up the lowest fifth of today’s income earners? One group, of course, is the downwardly mobile, those who once earned enough to be in a higher quintile. Their descent can be voluntary, usually from retirement. Or it can be involuntary, resulting from layoffs or other hard luck. One other group
is new entrants into the labor force—those adults previously outside the labor force and, predominantly,
the young.4 Most young people begin their working life as part of the bottom fifth, either as students with
part-time jobs or as relatively unskilled entrants to the labor force.
Although they usually start at the bottom, the young tend to rise through the income distribution as

4

There are four conceptually distinct groups that can enter to refill the lower and middle ranks as the sample here gains work experience and moves up. These are adults previously outside the labor force (those keeping house or in the military, for example) who
enter permanently, the young who enter permanently, those who drop in and out of the labor force (but do not report their status
as unemployed) and new immigrants.
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Exhibit 9
TO YO U R

ELDERS

Believe it or not, family fortune and luck aren’t the way most Americans make their way toward
the top. The experiences and choices of those who have prospered, as well as those who haven’t, provide the basis for the following “secrets” on how to get ahead in life:
Get an education. Nearly half of those in the top 20 percent of income earners graduated from
college, compared with just 4 percent of people in the bottom 20 percent. Only 2 percent of those
in the highest tier dropped out of high school, but a fifth of the lowest income group failed to get
a diploma. In 1993, median income of households headed by someone with a professional degree
was $87,666. It drops to $51,480 for an undergraduate degree, $28,700 for a high school diploma and $16,067 for dropouts.
Get a job. Households in the top income quintile have, on average, 2.1 workers, compared with
only 0.6 for the bottom fifth. Among the nonworking poor, only 13 percent say they are unable to
find a job.
Work full-time, all year round. In the lowest fifth of income earners, 84 percent worked part
time, worked less than half the year or did not work at all. Four-fifths of the top bracket worked
50 or more weeks of the year. Only 7 percent of part-time workers say they are looking for fulltime work and unable to find it.
Save money. In the top income-earning quintile, median assets of households, excluding home
equity, are $45,392. The bottom 20 percent has just $949. Not surprisingly, income from assets
for the first group is 30 times what it is for the second. Savings can make a big difference, especially for retirement. For individuals 65 and older in the bottom quintile, 83 percent of income comes
from Social Security and only 9 percent from savings. In the top bracket, earnings on savings
account for 54 percent of income and Social Security for only 20 percent.
Form a family. Only 7 percent of the top fifth of income earners live in a “nonfamily” household. In the bottom fifth, 37 percent do. People can live more cheaply together than they can apart.
Be willing to move. The unemployment rate in McAllen, Texas, is 17.5 percent, whereas in
Austin it is 3.5 percent. Wages can vary substantially, too, across regions. Geographical mobility is
one way to close the income gap.
Be willing to retrain. Average hourly wages for computer programmers are $20.64, whereas for
textile workers they are only $9.51. Jobs come and go as the economy evolves, often requiring that
workers learn new skills to keep up with economic changes.
Get a computer. Workers who know how to operate a computer earn an average of 15 percent
more than those who don’t —and that’s for doing the same job. The machine makes them more
productive.
Stick to it. Average income tends to rise quickly in life as workers gain work experience and
knowledge. Households headed by someone under age 25 average $15,197 a year in income. Average
income more than doubles to $33,124 for 25- to 34-year-olds. For those 35 to 44, the figure
jumps to $43,923. It takes time for learning, hard work and saving to bear fruit.
Little on this list should come as a surprise. Taken as a whole, it’s what most Americans have been
told since they were kids—by society, by their parents, by their teachers.

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they become better educated, develop skills and gain experience. In fact, income tends to follow a pattern over a person’s lifetime: it rises rapidly in the early years of working, peaks during middle age, then
falls as people ease toward retirement. When the average earnings of each age group are placed side-byside, they create a pyramidal lifetime earnings profile.
Over the past four decades, the income profile of the typical American has gotten sharply steeper. In 1951,
workers reached their
peak earning years at
Income ratio, age group 20 to 24 = 1
ages 35 to 44.5 Average
3.5
annual earnings for
45 to 54
15 to 19
these individuals were
55 to 64
20 to 24
3
1.6 times the income of
65 and over
25 to 34
those in the 20 to 24 age
35 to 44
2.5
group. By 1973, the
ratio had risen to 2.3 to
2
one. By 1993, the peak
earning years moved up
1.5
to ages 45 to 54, and
these workers earned
1
over three times more
than 20- to 24-year.5
olds. (See Exhibit 10.)
A steeper lifetime
0
earnings profile reflects
1951
1973
1993
greater opportunity. One
E x h i b i t 10
way to see this is to
THE STEEPENING OF LIFETIME EARNINGS
imagine a perfectly flat
In 1951, individuals aged 35 to 44 earned 1.6 times as much as those aged 20 to 24, on average. By pattern of lifetime in1993, the highest paid age group had shifted to the 45- to 54-year-olds, who earned nearly 3.1 times as come. Workers would
much as the 20- to 24-year-olds.
then earn the same
income every year, with
no prospect of “getting ahead” over their lifetimes. This would be a world devoid of upward mobility.
What’s behind the faster rise in Americans’ lifetime earnings? Most likely, it’s the by-product of broad
changes in the way we work. When the economy was largely industrial, most jobs employed motor skills
and muscle power. People worked with their hands and their backs. Today, more Americans than ever
earn their livings with “brainpower.” The skills of the mind, unlike those of the body, are cumulative.
Mental talents can continue to expand long after muscle and dexterity begin to falter, and that probably
explains why the peak earning years have shifted to an older age group in the past two decades. As the
United States retools itself for a more knowledge-intensive era, as the country moves from a blue-collar
economy to a white-collar one, the income rewards to education and experience are increasing.
The lifetime earnings profile is the thread that sews together recent trends in upward mobility and
income inequality. As workers are increasingly rewarded for what they’ve learned in the workplace, earnings become sharply higher with experience. The result is that the income gap widens between youth and
middle age. It’s not that the young are getting worse off; it’s that older workers are doing much better.

5

The figure is for men only. The 1951 data for women are incomplete.
{16}

PHIL HAGANS

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F r a nc h i s e O wn er, M C DO NALD'S , Ho usto n , Texas

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H I L H AG A N S WA S A “ S T R E E T- RO U G H ” T E E NAG E R F RO M O N E O F
the poorest areas of Houston when he got his first job flipping burgers for minimum wage at a
McDonald’s restaurant. Today, Hagans is a 40-year-old entrepreneur who owns two McDonald’s
franchises on Houston’s northeast side. He plans to open a third this year. ❡ The success he now enjoys
didn’t come easy for Hagans, who left his two-room Houston home at 16 because of domestic problems.
A promising athlete, he attended the University of Oklahoma on a football scholarship but had to quit
school after injuries ended his football career. He was just 19 when he came back home, broke and with
dismal prospects of finding a job. ❡ That’s when he decided to return to McDonald’s, where he worked
for $1.60 an hour. Six months later, Hagans was promoted to the McDonald’s management training
program, where he managed various restaurants around town. In 1991, Hagans bought his first franchise
with $35,000 he had saved. ❡ How does Hagans account for his success? “A positive attitude is everything,”
he says with a broad smile. “I tell kids every day that the only difference between a stepping stone and a
stumbling block is how high you lift your knees.”

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In the end, the steepening of lifetime earnings leads us to a somewhat surprising conclusion: upward
mobility may well be an important factor in the widening of the income distribution! This is not the harsh
world envisioned by those who see the rich getting richer and the poor getting poorer. In reality, both rich
and poor are becoming better off. Most of us getting nowhere? To the contrary, the majority of
Americans are busy climbing up the income ladder. Greater returns to education and experience can skew
income toward the upper end, but we would be foolhardy to become so obsessed with the pecking order
that we lose sight of what’s really important. And that’s opportunity.
A steeper lifetime earnings profile also puts a different slant on the notion of a vanishing middle class.6
The center of the income distribution isn’t a destination. It’s just one step on the ladder of upward mobility. Forty years ago, with a flatter earnings profile, people spent most of their working lives in the middle
income brackets. Today’s more rapid rise in incomes means we’re moving upward faster, thus spending
less time in the middle.7
Worries about Generation X’s future can be put to rest, too. Those entering the labor force in the
1990s might look at their parents’ income and wonder how they will ever attain such heights. They
should, however, find a steeper earnings profile encouraging: today’s young workers are likely to see their
incomes rise more quickly than did their parents’.
The economy is providing opportunity—more, in fact, than ever before—but it’s up to each individual to
grab it. The rewards go to education, experience, talent, ambition, vision, risk-taking and just plain hard
work. Success isn’t random. A lucky few may make getting ahead look easy, but most of us will have to
make our way upward the old-fashioned way. Young people are not guaranteed success any more than were
their parents. Their chances will improve, though, if they make the right choices in life.

S T I L L T H E L A N D O F O P P O RT U N I T Y
The American economy ranks as one of history’s great success stories. By most measures, we enjoy
the world’s wealthiest, most productive, most technologically advanced and most competitive society.
Over the years, the driving force in creating this economic dynamo has been the prospect of upward
mobility. There should be no surprise in this. Self-interest provides a powerful incentive for people to do
what’s necessary to make themselves better off. Our free enterprise system gives us the opportunity to
act on the natural desire to improve our lot in life. It gives us the opportunity, through work, to reap the
rewards of our initiative and our talents.
Striving to better oneself isn’t just private virtue. It sows the seeds of economic growth and technical advancement. There’s no denying that the system allows some Americans to become richer than others. We
must accept that. Equality of income is not what has made the U.S. economy grow and prosper. It’s opportunity.
If people are allowed to seize opportunity, many will. If rewards are there for the taking, most of us will
strive to attain them. In this country, we’ve envied, admired and even vilified those who have made themselves better off. Yet, regardless of our views, the prosperous have provided us benefits. Our proper cultural
icon is not the common man. It’s the self-made man or woman.

6

More evidence on what has happened to the middle class can be found by examining tax returns. In 1993, 1,010,608 tax returns showed
an income of $200,000 or more. This compares with only 53,403 as recently as 1977. (Comparisons are based on current dollars.)

7

In 1951, only incomes for the age groups 15 to 19 and 65-plus were 25 percent or more away from average for the economy. In 1993,
incomes earned for the age groups 15 to 19, 20 to 24 and 65-plus were more than 25 percent below the economy’s average, whereas
incomes for the age groups 35 to 44 and 45 to 54 were more than 25 percent above average.

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PATRICIA PLIEGO STOUT

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P r e s i d e nt & C h i e f E x e c u t i v e Officer, ALAMO TR AV E L & TO U R S , S an An to n io , Texas

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HEN PATRICIA PLIEGO STOUT TRIED TO GET HER TRAVEL AGENCY OFF THE
ground, she ran into some major roadblocks. “I couldn’t get a loan or find anyone who would lease
me office space,” she says. “I had three strikes against me—I was single, Hispanic and female.” But Stout,
who is originally from Mexico City, refused to give up. Pouring her life’s savings into the venture, she worked
nights and weekends, handling every aspect of the business herself. “I couldn’t even afford to pay for a courier,
so I would personally deliver airline tickets to all my clients before and after work.” ❡ Today, Alamo Travel &
Tours is one of the largest agencies in San Antonio, with Stout establishing herself in the community as a successful entrepreneur eager to help other women interested in operating a small business. In 1992, she was named
the Hispanic Chamber of Commerce’s “Small Businesswoman of the Year.” ❡ “I have had to struggle alone as
a woman in business for many years,” she says. “I was raised in a culture in which women were expected to be wives
and mothers—not to have a career outside of the family. My greatest desire is to be a role model for other women
who may be trying to establish themselves in the business world.” ❡ For Stout, America is still the Land of
Opportunity. “This is the most incredible country in the world. If anybody has the desire to succeed, they can.”

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E x h i b i t 11

A CONSUMING INTEREST
The rich and the poor live differently, no doubt about that. The gap, however, narrows quite a
bit if we look at consumption rather than income. The table below gives details of how much an
average U.S. household spent in 1993. Top income households outearned bottom ones by a factor
of 13 to 1. When it comes to consumption per person, though, the gap was only 2 to 1. Why?
Richer households pay heavy taxes, give more to charity, invest more in education and allocate more
to savings. At the other end
of the spectrum, poorer
Income Quintile
families often supplement
Lowest
Middle
Highest
their consumption through
Household money income $ 6,395
$ 26,037
$ 84,753
food stamps, unemploy(before taxes)
ment benefits, Aid to
Household consumption
Families with Dependent
Food
2,505
4,116
7,296
Children and other proClothing
864
1,493
3,079
grams. Workers temporarily
Shelter
2,359
3,871
8,174
laid off often fall back on
Telephone, utilities
1,431
2,026
2,965
Transportation
2,087
4,760
10,355
their savings rather than
Health care
1,080
1,733
2,396
sharply reduce their living
Other
2,320
4,509
10,859
standards.
Total consumption
$ 12,646
$ 22,508
$ 45,124
The low-income houseAverage household size
1.8
2.5
3.1
holds, moreover, are smaller
and have more free time—
Consumption per person $ 7,026
$ 9,003
$ 14,556
a substitute for money.
Other uses of income
Households in the top quinTaxes
$
558
$ 3,883
$ 16,416
tile average 3.1 persons, 2.1
Cash contributions
308
896
2,541
of whom are working, whereEducation
382
427
1,331
Financial flows*
(7,499)
(1,677)
19,341
as lower income households
* Insurance, pensions, investment expenses, saving, and dissaving or government transfers.
have only 1.8 persons, 0.6 of
whom are working. What
that suggests is that poorer households have more time to meet their needs through home production—cooking, housecleaning, maintenance, child care, yard work, laundry and much more.
Though these activities make families better off, they typically aren’t included because studies measure consumption in money. When top income earners pay others to perform these services, it gets
captured in the statistics on consumption, making them look better off than they are.
Even these numbers don’t tell the whole story of living standards or consumption. Low-income
households can benefit from several noncash programs, such as subsidized housing and school
lunches. They also consume a variety of public goods—bus service, schools, roads and parks.

There are those who would deny that America is still providing opportunity for most of its citizens.
There’s ample evidence to refute them. Upward mobility is alive and well. Even lower income households
usually aren’t left out of the country’s progress: the consumption of those in the bottom fifth of the
income distribution has shown improvement over the past two decades. (See Exhibits 11 and 12.)
{20}

TODD BURNS

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Fou nd e r & Ow n er, TI ME -I T LU BE , S hrevep o rt, Lo uisian a

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ODD BURNS WAS EXPECTING TO JOIN HIS FATHER IN THE OIL BUSINESS
after he finished college in the early 1980s. The oil bust and a devastating bankruptcy that left his
father with practically nothing quickly put an end to those plans. Instead, Burns found himself leaving college a year early so he could work nights at a freight shipping company and complete his education at a
local school. ❡ Two and a half years later, Burns finally got his chance to get into the oil business—albeit not
the one he originally thought he’d be in—when he heard from the man who owned the oil-change shop where
Burns had worked as a teenager. The man told Burns he’d sell out for $15,000—about $15,000 more than
Burns had at the time. Unable to get a loan, but not wanting to pass on the opportunity, Burns and his wife took
out a second mortgage. ❡ That was in 1987, when Burns was 25. Last year, he opened his sixth Time-It Lube
location and was offered $2 million for the company. Along the way, he had to refinance his home and car for
operating capital and pay to repair 80,000 gallons worth of flood damage to his second store. “I didn’t know what
else to do but keep going,” says Burns. “My wife and kids were counting on me, and there was no way I could
let them down. To make it, you sometimes just have to take a leap of faith and then work as hard as you can.”

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E x h i b i t 12
A N D P OV E RT Y

P RO G R E S S

Historically, economic growth, not welfare, has been the remedy for poverty. An expanding
economy pays its dividends in rising incomes, lower prices and better products, all of which
enable families to satisfy their basic needs with smaller and smaller portions of their income.
For households in the bottom income quintile, spending on food, clothing and shelter was
45 percent of consumption in 1993, compared with 52 percent two decades earlier, 57 percent
in 1950 and 75 percent in 1920. As a result, today’s poorest households have more discretionary income than ever before.
That helps explain why today’s poorer households are more likely than those of a decade ago
to own appliances and motor vehicles. Their consumption of these modern-day conveniences
even compares favorably with that of all American households as recently as 1971.
Poor households*

All households

Percent of households with

1984

1994

1971

Washing machine
Clothes dryer
Dishwasher
Refrigerator
Freezer
Stove
Microwave
Color television
VCR
Personal computer
Telephone
Air conditioner
One or more cars

58.2
35.6
13.6
95.8
29.2
95.2
12.5
70.3
3.4
2.9
71.0
42.5
64.5

71.7
50.2
19.6
97.9
28.6
97.7
60.0
92.5
59.7
7.4
76.7
49.6
71.8

71.3
44.5
18.8
83.3
32.2
87.0
<1.0
43.3
0
0
93.0
31.8
79.5

* At or below the poverty line, as defined by the Census Bureau.

As consumption patterns show, many of today’s poorest households have more than yesterday’s,
and more, even, than the general population had two decades ago. By today’s consumption standards,
the majority of Americans were once poor.

When, from their perch of the future, historians look back upon today, what will they conclude?
Uncovering merely the fact that four out of five of today’s 400 richest Americans are self-made, certainly they will pause to question today’s popular rhetoric of snuffed opportunity, unfairness and trampled
economic rights.
Without a doubt, the problem of poverty amid plenty continues in the United States, and we should
help those who have difficulties grasping even the lowest rungs on the ladder. To be sure, many people
have tried and failed, only to try again and fail again. There are no guarantees in life. Even so, hard data
suggest that the popular view of America as a Land of Opportunity Lost—a caste society with strong
class lines between the “haves” and the “have-nots”— is just plain wrong.
{22}

B

Y

O

U R

OW

N

B

O OT S T R A P S

Capitalism is by nature an anti-establishment
Number of
system. Its essence is change: destruction of the
Forbes 400 members
old, creation of the new and better. (See Exhibit
1984
1994
13.) Today’s American society is almost certainly
Winners
more fluid than ever, even less establishment-based
Technology*
15
35
and more entrepreneurial than yesterday’s. In the
Retailing
19
37
information age, the barriers of wealth and status
Finance**
48
65
are disappearing. Knowledge and effort alone can
Entertainment***
8
22
open doors, and both are available to us all.
Losers
The statistics strongly suggest that the
Inheritance
146
82
American Dream still comes true for many, if not
Real estate
71
26
Oil and gas
74
37
most, citizens. Perhaps even more powerful,
Heavy manufacturing
95
69
though, is the experience of members of our own
Media****
59
38
community who have proven that our country is
Agriculture
21
13
still the Land of Opportunity.
* Includes communications.
** Banking, commodities, investments, insurance.
Among them are — Eddie Diaz, partner in New
*** Includes gambling, lodging, restaurants.
**** Includes publishing, cable TV.
Mexico Chili Products, a company in Deming, New
Mexico, that processes and distributes chili-based
SOURCE: Forbes 400, “Vision’s the Thing,” October 17, 1994.
Reprinted by permission of FORBES Magazine © Forbes Inc., 1994.
products.
Ron and Pam Jones, owners of Handy Andy
E x h i b i t 13
Janitorial, a commercial cleaning company in Plano,
C R E AT I V E D E S T RU C T I O N
Texas.
Liz Coker, chief executive of Minco Technology
Only 82 of America’s richest 400 people—one in five—got their fortune from inheritance. Four out of five are self-made, an increase from
Labs in Austin, a processor and tester of semiconthree out of five in 1984. As the economy continues to move away from
ductors for the aerospace, medical and defense
the manufacturing and agrarian eras and toward the information and
industries.
service age, new fortunes are emerging in technology, retailing, finance
Le Thi and Hai Minh Huynh, founders of Fulton
and entertainment, eclipsing those made yesteryear in real estate, oil and
gas, heavy manufacturing, media and agriculture.
Seafood in Houston, one of the country’s largest
distributors of fresh seafood.
Phil Hagans, owner of three McDonald’s franchises in Houston.
Patricia Pliego Stout, president and chief executive of Alamo Travel & Tours in San Antonio.
And Todd Burns, founder and owner of Time-It Lube, a quick oil-change and lube service business in
Shreveport, Louisiana.

H

The

End

{23}

A C K N OW L E D G M E N T
“By Our Own Bootstraps: Economic Opportunity & the Dynamics of Income Distribution” was written by W. Michael Cox and Richard Alm. The essay is based on
research conducted by W. Michael Cox, vice president and economic advisor, Federal Reserve Bank of Dallas.

SELECTED REFERENCES
Battalio, Raymond C., John H. Kagel, and Morgan O. Reynolds, “Income Distribution in Two Experimental Economies,” Journal of Political Economy 85, 1977, 1259–1271.
Browning, Edgar K., and Jacquelene M. Browning, Public Finance and the Price System (New York: Macmillan, 1987), Chapter 8.
Eller, T. J., and Wallace Fraser, Asset Ownership of Households: 1993, U.S. Bureau of the Census, Current Population Reports, Series P70-47 (Washington, D.C.:
Government Printing Office, 1995).
Elliot, Alan C., A Daily Dose of the American Dream: Business Success Stories (San Francisco: Saybrook, 1988).
Energy Information Administration, Residential Energy Consumption Survey: Housing Characteristics (Washington, D.C.: Government Printing Office, various issues).
Forbes, “Vision’s the Thing,” Forbes 400, October 17, 1994.
Heritage Foundation, “How Poor Are America’s Poor?” Backgrounder, September 21, 1990.
Hodge, Robert W., and Steven Lagerfeld, “The Politics of Opportunity,” Social Mobility in America, Winter 1987.
Hubbard, R. Glenn, James R. Nunns, and William C. Randolph, “Household Income Mobility During the 1980s: A Statistical Assessment Based on Tax Return Data,”
U.S. Department of the Treasury, Office of Tax Analysis, unpublished paper.
“Income Mobility and Economic Opportunity,” report prepared for U.S. Rep. Richard K. Armey, June 1992.
Institute for Social Research, A Panel Study of Income Dynamics: Procedures and Tape Codes (Ann Arbor: University of Michigan, 1989).
Jacobs, Eva, and Stephanie Shipp, “How Family Spending Has Changed in the U.S.,” Monthly Labor Review, Bureau of Labor Statistics, March 1990.
Mellor, Earl, A Profile of the Working Poor, 1992, U.S. Department of Labor, Bureau of Labor Statistics, Report 847 (Washington, D.C.: Government Printing Office,
March 1994).
Ryscavage, Paul, “A Surge in Growing Income Inequality?” Monthly Labor Review, Bureau of Labor Statistics, August 1995.
Sawhill, Isabel V., and Mark Condon, “Is U.S. Income Inequality Really Growing? Sorting Out the Fairness Question,” Policy Bites, Urban Institute, June 1992.
Schiller, Bradley, “Who Are the Working Poor?” Public Interest, Spring 1994.
Shea, Martina, Dynamics of Economic Well-Being: Poverty, 1991 to 1993, U.S. Bureau of the Census, Current Population Reports, P70-46 (Washington, D.C.: Government
Printing Office, 1995).
Short, Kathleen, and Martina Shea, Beyond Poverty: Extended Measures of Well-Being: 1992, U.S. Bureau of the Census, Current Population Reports, Series P70-50RV
(Washington, D.C.: Government Printing Office, November 1995).
U.S. Bureau of the Census, Statistical Abstract of the United States (Washington, D.C.: Government Printing Office, various years); “Age: Persons 15 Years Old and Over,
by Median and Mean Income, and Sex: 1947 to 1993,” unpublished data; “Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households, by Race
and Hispanic Origin of Household: 1967 to 1994,” unpublished data; Current Population Reports, Series P60-185, Poverty in the United States: 1992 (Washington, D.C.:
Government Printing Office, 1993); Current Population Reports, Series P60-186RD, Measuring the Effect of Benefits and Taxes on Income and Poverty: 1992 (Washington,
D.C.: Government Printing Office, 1993); Current Population Reports, Series P60-183, Studies in the Distribution of Income (Washington, D.C.: Government Printing
Office, 1992) and Current Population Reports, Series P-60, no. 159, Money Income of Households, Families, and Persons in the United States: 1986 (Washington, D.C.:
Government Printing Office, 1988).
U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings, vol. 42 (Washington, D.C.: Government Printing Office, November 1995); Consumer
Expenditure Survey, 1992–93, Bulletin 2462 (Washington, D.C.: Government Printing Office, September 1995); Consumer Expenditures in 1993, Report 885
(Washington, D.C.: Government Printing Office, December 1994) and Consumer Expenditure Survey Series: Interview Survey, 1972–73, Bureau of Labor Statistics,
Bulletin 1985 (Washington, D.C.: Government Printing Office, August 1978).
U.S. Department of the Treasury, Internal Revenue Service, SOI Bulletin, Publication 1136 (Rev. 10-95), Fall 1995 and Office of Tax Analysis, “Household Income
Changes over Time: Some Basic Questions and Facts,” Tax Notes, August 24, 1992.
U.S. House of Representatives, Committee on Ways and Means, Overview of the Federal Tax System, 1993 edition (Washington, D.C.: Government Printing Office).

D ATA S O U RC E S
Exhibits 1 and 2 U.S. Census Bureau (“Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households”).
Exhibits 4, 5, 6 and 8 Institute for Social Research.
Exhibit 7 U.S. Department of the Treasury, Office of Tax Analysis.
Exhibit 10 U.S. Census Bureau (“Age: Persons 15 Years Old and Over”).
Exhibit 11 U.S. Department of Labor, Bureau of Labor Statistics (Consumer Expenditure Survey).
Exhibit 12 Eller and Fraser.
Exhibit 13 Forbes.

{24}

THE YEAR

I N R EV I EW
Hh
I

N 1995, THE FEDERAL RESERVE BANK OF DALLAS FOCUSED ON ESTABLISHING
a leadership position in the increasingly global banking industry, offering financial products with the
most up-to-date technology and strengthening the Bank’s relationship with its various constituents.
In addition, the Bank built upon its relationship with Eleventh District financial institutions and a local
clearinghouse to promote use of electronic payments. Hallmarks during the year also included advancements in customer service in conjunction with the Bank’s quality initiative.

E C O N O M I C O V E RV I E W
The Eleventh District continued its strong economic growth in 1995, posting its ninth consecutive
year of expansion and again outperforming the national average. As in past years, a strong construction
sector contributed to employment growth in Texas, Louisiana and New Mexico.
However, nonfarm employment growth in Texas, Louisiana and New Mexico slowed in 1995 to
3 percent from 4.6 percent in 1994.
Strong growth in the maquiladora industries and in exports to countries other than Mexico allowed
Texas to avoid the potentially large negative effects of the Mexican peso devaluation and Mexico’s sharp
recession. While exports to Mexico declined at an annual rate of 13.8 percent during the first three quarters of 1995, Texas’ exports to other countries increased at an annual rate of 23.1 percent, resulting in an
overall gain of 8.4 percent.
Despite suffering some setbacks in 1995, the gaming industry remained the driving force behind
employment growth in Louisiana. A reviving energy sector also contributed to Louisiana’s employment
growth. A decline in defense industry employment in New Mexico was more than offset by the strong
expansion of the state’s high-tech manufacturing industry.

T

H E

Y

E A R

I

N

R

E V I E W

D A L L A S F E D F I N A N C I A L S E RV I C E S
In 1995, the Dallas Fed financial services area continued its efforts to enhance reliable, cost-efficient
products in keeping with technological advancements in the changing financial industry. In check collection, the Bank expanded its image products and services to provide customers with innovative paperless
payments alternatives, including electronic check presentment and truncation. The Dallas Fed established the capability of supporting the software offered by a number of image service providers. Through
this versatility in image support, the Bank can better serve customers using its check imaging services,
such as total image delivery, selected image delivery and a money management image product.
In the currency and coin area, the Bank began and neared completion of the currency vault expansion
at its headquarters. The project will triple the storage capability of the currency vault and will enable the
Bank to provide currency warehousing services for other Federal Reserve Banks.
The Bank also continued the installation of high-speed currency processing machines. The machines,
which have faster throughput, contributed to the Bank’s being ranked second in the Federal Reserve
System in terms of the number of notes processed each hour.
To facilitate the introduction of security-enhanced, redesigned currency in 1996, the Bank and its branches hosted a series of currency seminars throughout the Eleventh District. The seminars familiarized financial
institutions with the features of the new notes and explained procedures for the currency introduction.
The Bank also began to phase out receiving, crediting and destroying food coupons as the state of Texas
makes the transition from the paper food-coupon system to an electronic debit card system.
The first phase of the Alliance 98 initiative began in 1995. Alliance 98, a partnership among the Dallas Fed,
SouthWestern Automated Clearing House Association and financial institutions in the Eleventh District, seeks
to encourage the transition from paper check payments to electronic payments. The Alliance’s progress was
reflected in a 23-percent increase in commercial ACH transactions in the District, which exceeded the national growth rate. The Bank also supported a nationwide effort to increase electronic payments in government
ACH transactions, such as electronic delivery of Social Security payments.
In the securities area, the transfer of funds application converted to a centralized system at the East
Rutherford Operations Center in New Jersey. The transition will improve reliability and disaster recovery
capabilities as well as make it easier for the Federal Reserve System to implement software changes.

B A N K I N G S U P E RV I S I O N ; D I S C O U N T A N D C R E D I T
In 1995, aggregate financial data reported by Eleventh District banks reflected a thriving industry.
Continued loan growth combined with stable net interest margins produced a solid return on banking
assets. Asset quality ratios remained favorable, and capital levels approached historic highs.
Consolidation and merger activity reduced the number of District banks from 1,078 in 1994 to 1,030
in 1995, and one new bank charter was granted. Many banks were converted to branch offices, and the
number of branches increased from 2,814 to 2,985. The Dallas Fed processed 255 applications— compared with 245 in 1994—for mergers and acquisitions, changes in control and management, and other
actions requiring regulatory approval.
As the supervisor of state member banks, bank holding companies and foreign agencies in the District,
the Dallas Fed is responsible for conducting examinations for safety and soundness and for compliance with
consumer protection laws as well as the Community Reinvestment Act. Reflecting the continued solid
condition of the industry, the Dallas Fed conducted 367 examinations, only one examination more than in
1994. Of the 367 examinations, 37 were reviews for compliance with consumer and civil rights legislation.
{26}

T

H E

Y

E A R

I

N

R

E V I E W

Because of a small increase in the use of seasonal lending to meet the temporary liquidity demands of
financial institutions throughout the District, the number of loans extended by the Dallas Fed’s discount
window increased from 400 in 1994 to 419 in 1995. Although discount window loans increased, total
credit extended decreased from $884 million in 1994 to $791 million in 1995 due to the highly liquid position of a substantial number of District banks.
The 56 state-chartered banks under the Dallas Fed’s supervision in 1995 represented 5.4 percent of all
insured commercial banks in the District and held about 3 percent of insured commercial bank assets. The
517 bank holding companies under Dallas Fed supervision last year controlled 618 insured commercial
banks that held approximately 24 percent of all insured commercial bank assets in the District. Thirty-six
foreign banks from 13 countries operated 20 state-licensed agencies and 25 representative offices.

R E S E A RC H A N D P U B L I C A F FA I R S
Economic research and public affairs activities in 1995 continued to focus on promoting free enterprise research and education. The Bank sponsored a major conference that explored private enterprise
solutions to public policy problems and the ways in which key policies affect the nation’s economic
growth and stability. In conjunction with the free enterprise efforts, the Bank introduced and sponsored three Economic Insights lectures for the business community. The series’ first speaker,
Congressman Dick Armey, House majority leader, spoke about his flat tax proposal. José Piñera, former minister of labor and social welfare in Chile, discussed his involvement in overseeing Chile’s transition to a private pension system, and House Ways and Means Committee Chairman Bill Archer talked
about his national sales tax proposal.
Exchange rates, capital flows and monetary policy in a changing world economy were examined during an international conference hosted by the Bank. Other issues studied during the year included the
peso devaluation and how the expansion of the high-tech industry is transforming the Eleventh District
economy. The Bank also researched the border economy, exports and energy prices.
Research on the effects of the North American Free Trade Agreement continued with a conference
hosted by the Bank’s El Paso Branch. Speakers and participants discussed international trade and investment in the NAFTA countries, as well as financial interdependencies and industrial development.
Numerous publications were produced for a variety of Eleventh District audiences in support of the
Bank’s research and economic education efforts. In addition to regular issues of Economic Review, The
Southwest Economy, Financial Industry Studies, Financial Industry Issues, Houston Business, Financial
Industry Trends and Business Frontier, the Bank introduced a new publication, Economic Insights. Economic
Insights serves as a forum for the Dallas Fed president to explore current economic issues, and it features
essays by leaders and decisionmakers in economic education and public policy.
The Bank also produced a new publication, Money, Banking and Monetary Policy, in its Everyday
Economics series. The publication and other efforts support the Bank’s goal of educating teachers, students and the general public about economics, monetary policy and the role of the Federal Reserve.
As part of its efforts to encourage and promote community development in the region, the Bank hosted a community investment conference and produced a beginner’s guide for nonprofit housing developers.
All the activities during 1995 show the Federal Reserve Bank of Dallas’ strong commitment to serving
its many customers. Although the Bank’s objectives are unchanging—to provide quality and efficient
financial services while fostering sound banking and economic growth—the Dallas Fed will strive to meet
its customers’ ever-evolving needs.

{27}

A Fond

FA R E W E L L
Hh

O

N APRIL 1, 1996, TONY SALVAGGIO WILL RETIRE FROM THE FEDERAL RESERVE
Bank of Dallas after almost 40 years of distinguished service. Tony has been first vice president
and chief operating officer since May 1, 1991. Prior to then, he served in various capacities in
most of the Bank’s operating and service areas. He has also been active in Federal Reserve System
work, culminating in his service in 1995 as chairman of the Federal Reserve System’s Conference of
First Vice Presidents.
During my five years as president of the Federal Reserve Bank of Dallas, I have had the good fortune
of being able to rely on Tony’s vast experience and excellent judgment. I will miss him very much, as will
all his colleagues at the Dallas Fed.

C

O R P O R AT E

E

X E C U T I V E S

& SENIOR

M

A NAG E M E N T

C O R P O R AT E E X E C U T I V E S
From left: Roger R. Hemminghaus (Deputy Chairman), Chairman, President and CEO, Diamond Shamrock, Inc.;
Robert D. McTeer, Jr., President and CEO, Federal Reserve Bank of Dallas; Cece Smith (Chairman), General Partner, Phillips–Smith Specialty
Retail Group; Tony J. Salvaggio, First Vice President and COO, Federal Reserve Bank of Dallas.

SENIOR MANAGEMENT
Standing (from left): Sam C. Clay, Vice President in Charge, El Paso Branch; Helen E. Holcomb, Senior Vice President, Financial Planning and
Control, Personnel Services, Public Affairs and Graphic Arts; J. Tyrone Gholson, Senior Vice President, Cash, Protection, Securities and Services;
James L. Stull, Senior Vice President in Charge, San Antonio Branch; Robert D. Hankins, Senior Vice President, Banking Supervision, Discount and
Credit, and Financial Industry Studies; Robert Smith, III, Senior Vice President in Charge, Houston Branch; Larry J. Reck, Senior Vice President,
Check Collection and Data Services. Seated (from left): Millard E. Sweatt, General Counsel, Secretary to the Board and Senior Vice President,
Operations Analysis, Purchasing and Legal; Robert D. McTeer, Jr., President and CEO; Tony J. Salvaggio, First Vice President and COO;
Harvey Rosenblum, Director of Research and Senior Vice President, Research and Statistics.
{29}

B

OA R D S

O F

D

I R E C TO R S

F E D E R A L R E S E RV E B A N K O F D A L L A S
Standing (from left): J. B. Cooper, Jr., Farmer; James A. Martin, Second General Vice President, International Association of Bridge,
Structural and Ornamental Iron Workers; Eugene M. Phillips, Chairman and President, First National Bank of Panhandle;
Milton Carroll, Chairman and CEO, Instrument Products, Inc. Seated (from left): Gayle M. Earls, President and CEO, Texas Independent Bank;
Cece Smith (Chairman), General Partner, Phillips–Smith Specialty Retail Group; Kirk A. McLaughlin, President and CEO, Security Bank;
Roger R. Hemminghaus (Deputy Chairman), Chairman, President and CEO, Diamond Shamrock, Inc.
Not Pictured: Peyton Yates, President, Yates Drilling Co.

E L PA S O B R A N C H
Standing (from left): Wayne Merritt, President, Norwest Bank, Texas—Midland; Patricia Z. Holland-Branch (Chairman Pro Tem),
President/Director of Design, PZH Contract Design, Inc.; Alvin T. Johnson, President, Management Assistance Corp. of America;
Ben H. Haines, Jr., President and CEO, First National Bank of Dona Ana County. Seated (from left): W. Thomas Beard, III (Chairman),
President, Leoncita Cattle Co.; Veronica K. Callaghan, Vice President and Principal, KASCO Ventures, Inc.
Not Pictured: Hugo Bustamante, Jr., Owner and CEO, CarLube, Inc., ProntoLube, Inc.
{ 30 }

B

OA R D S

O F

D

I R E C TO R S

HOUSTON BRANCH
Standing (from left): Walter E. Johnson, President and CEO, Southwest Bank of Texas; Robert C. McNair (Chairman Pro Tem),
Chairman and CEO, Cogen Technologies, Inc.; T. H. Dippel, Jr., Chairman and President, Brenham Bancshares, Inc.;
J. Michael Solar, Managing Partner, Solar & Fernandes L.L.P. Seated (from left): Judith Craven, President,
United Way of the Texas Gulf Coast; I. H. Kempner, III (Chairman), Chairman, Imperial Holly Corp.;
Judy Ley Allen, Partner and Administrator, Allen Investments.

SAN ANTONIO BRANCH
Standing (from left): H. B. Zachry, Jr. (Chairman Pro Tem), Chairman and CEO, H. B. Zachry Co.; Calvin R. Weinheimer,
President and COO, Kerrville Communications Corporation. Seated (from left): Gregory W. Crane, President and CEO,
Broadway National Bank; Carol L. Thompson (Chairman), President, The Thompson Group;
Douglas G. Macdonald, President, South Texas National Bank. Not Pictured: Juliet V. Garcia, President,
University of Texas at Brownsville; Erich Wendel, President and CEO, Maverick Markets, Inc.
{31}

A

F

I NA N C I A L

I

DV I S O RY

C

N S T I T U T I O N S

Gilbert D. Gaedcke
Chairman and Chief Executive Officer
Gaedcke Equipment Company
Houston, Texas

James A. Altick
President and Chief Executive Officer
Central Bank
Monroe, Louisiana

Robert D. Josserand
President
AzTx Cattle Company
Hereford, Texas

Jack Antonini
President and Chief Executive Officer
USAA Federal Savings Bank
San Antonio, Texas

Robert W. Latimer
President
Latimer International
San Antonio, Texas

Robert G. Greer
Chairman
Tanglewood Bank, N.A.
Houston, Texas

Joe D. Mitchell
Shareholder, Director and President
Mitchell & Jenkins, P.C., Attorneys and
Counselors at Law
Dallas, Texas

Ron Humphreys
Senior Vice President
Marketing and Operations
First Savings Bank FSB
Clovis, New Mexico

J. Jay O’Brien
Cattleman
Amarillo, Texas

Don Powell
Chairman, President and Chief Executive Officer
Boatmen’s First National Bank of Amarillo
Amarillo, Texas

Lois Farfel Stark
President
Stark Productions, Inc.
Houston, Texas

Jimmy Seay
President and Chief Executive Officer
The City National Bank
Mineral Wells, Texas

Charles R. Tharp
Partner/Manager
Tharp Farms
Las Cruces, New Mexico

Sandra M. Smith
President and Chief Executive Officer
Texas Federal Credit Union
Dallas, Texas

L. C. Unfred
Farmer
L. C. & N. Unfred Farms
New Home, Texas

Hayden D. Watson
Executive Vice President
First Interstate Bank of Texas, N.A.
Houston, Texas

S

M A L L

A N D

AG

B

O U N C I L S

Jeffrey W. Wilson
President
Cattle Baron Restaurant, Inc.
Roswell, New Mexico

U S I N E S S

R I C U LT U R E

F E D E R A L A DV I S O RY
COUNCIL MEMBER

Stephen K. Balas
Owner and Pharmacist
Eagle Lake Drugstore and Home Health Care
Owner
Balas Farming Co.
Eagle Lake, Texas

Charles R. Hrdlicka
Chairman and Chief Executive Officer
Victoria Bankshares, Inc.
Victoria, Texas

Robert D. Dooley
Partner
KPMG Peat Marwick
Dallas, Texas

Effective December 31, 1995

T. Mike Field
Agriculture and Real Estate
Lubbock, Texas

{32}

O

F F I C E R S

Federal Reserve Bank of Dallas

DA

L L A S

Robert D. McTeer, Jr.
President and
Chief Executive Officer
Tony J. Salvaggio
First Vice President and
Chief Operating Officer
J. Tyrone Gholson
Senior Vice President
Robert D. Hankins
Senior Vice President
Helen E. Holcomb
Senior Vice President
Larry J. Reck
Senior Vice President
Harvey Rosenblum
Senior Vice President and
Director of Research
Millard E. Sweatt
Senior Vice President, General Counsel,
Ethics Officer and Secretary
Earl Anderson
Vice President
Basil J. Asaro
Vice President
Lyne H. Carter
Vice President
W. Michael Cox
Vice President and
Economic Advisor
Billy J. Dusek
Vice President
Kermit S. Harmon, Jr.
Vice President
Joel L. Koonce, Jr.
Vice President
Robert F. Langlinais
Vice President and
General Auditor
Rebecca W. Meinzer
Vice President and
Administrative Officer
Genie D. Short
Vice President
Larry M. Snell
Vice President
W. Arthur Tribble
Vice President

Gloria V. Brown
Assistant Vice President and
Community Affairs Officer
Stephen P. A. Brown
Assistant Vice President and
Senior Economist
Terry B. Campbell
Assistant Vice President

William C. Morse, Jr.
Operations Officer
Sharon A. Sweeney
Associate Counsel and
Associate Secretary
Evelyn LV. Watkins
Accounting Officer

Robert G. Feil
Assistant Vice President

E

Johnny L. Johnson
Assistant Vice President

Sam C. Clay
Vice President in Charge

Joanna O. Kolson
Assistant Vice President

J. Eloise Guinn
Assistant Vice President

C. LaVor Lym
Assistant Vice President

Javier R. Jimenez
Assistant Vice President

James R. McCullin
Assistant Vice President
Dean A. Pankonien
Assistant Vice President
John R. Phillips
Assistant Vice President
Larry C. Ripley
Assistant Vice President
Gayle Teague
Assistant Vice President
Michael N. Turner
Assistant Vice President
Stephen M. Welch
Assistant Vice President
Marion E. White
Assistant Vice President

H

L

PA

S O

O U S TO N

Robert Smith, III
Senior Vice President in Charge
Vernon L. Bartee
Vice President
Richard J. Burda
Assistant Vice President
René G. Gonzales
Assistant Vice President
Luther E. Richards
Assistant Vice President
Robert W. Gilmer
Research Officer
Kenneth V. McKee
Audit Officer

Bob W. Williams
Assistant Vice President
Emilie S. Worthy
Assistant Vice President
Meredith N. Black
Supervisory Information Officer
John V. Duca
Research Officer
KaSandra M. Goulding
Public Affairs Officer
William C. Gruben
Research Officer
Evan F. Koenig
Research Officer

{33}

S

A N

A

N TO N I O

James L. Stull
Senior Vice President in Charge
Taylor H. Barbee
Assistant Vice President
Richard A. Gutierrez
Assistant Vice President
D. Karen Salisbury
Operations Officer

Effective January 1, 1996

S

FINANCIAL INFORM
Assets, Liabilities & Capital

E L E C T E D

AT I O N

December 31, 1995
(Thousands)

December 31, 1994
(Thousands)

ASSETS
Gold certificate account1
Special drawing rights certificate account2
Coin
Loans to depository institutions
Securities:
Federal agency obligations
U.S. government securities
Total securities
Items in process of collection
Bank premises (net)
Foreign currencies
Other assets
Interdistrict settlement account

$

TOTAL ASSETS

405,000
376,000
48,527
400

$

453,000
377,000
27,997
0

85,402
12,262,257
$ 12,347,659
333,456
157,645
1,414,232
319,236
3,287,239

137,539
13,786,009
$ 13,923,548
512,950
157,398
1,594,453
344,238
(1,303,041)

$ 18,689,394

$ 16,087,543

$ 15,569,986

$ 12,916,808

2,177,532
9,449
20,950
2,207,931
257,842
160,739

2,139,587
10,200
28,466
2,178,253
331,862
166,958

LIABILITIES
Federal Reserve notes
Deposits:
Depository institutions
Foreign
Other
Total deposits
Deferred credit items
Other liabilities

$

$

$ 18,196,498

$ 15,593,881

$

246,448
246,448

$

246,831
246,831

TOTAL CAPITAL ACCOUNTS

$

492,896

$

493,662

TOTAL LIABILITIES AND CAPITAL ACCOUNTS

$ 18,689,394

TOTAL LIABILITIES

C A P I TA L

ACCOUNTS

Capital paid in
Surplus

1

This Bank’s share of gold certificates deposited by the U.S. Treasury with the Federal Reserve System.

2

This Bank’s share of special drawing rights certificates deposited by the U.S. Treasury with the Federal Reserve Bank of New York.

{34}

$ 16,087,543

S

E L E C T E D

F

I NA N C I A L

I

N F O R M AT I O N

O p e rat i o n s

For the year ended
December 31, 1995
(Thousands)
CURRENT

INCOME

Interest on loans
Interest on government securities
Income on foreign currency
Income from priced services
Other income
Total current income
CURRENT

$

$

239
803,700
52,808
49,093
571
906,411

$

119,750
8,878
110,872
18,071
128,943
777,468

$

$

298
749,205
64,548
49,451
306
863,808

EXPENSES

Current operating expenses
Less expenses reimbursed
Current net operating expenses
Cost of earnings credits
Current net expenses

$
$
$
$

CURRENT NET INCOME

PROFIT

For the year ended
December 31, 1994
(Thousands)

$
$
$

116,091
8,164
107,927
10,151
118,078
745,730

AND LOSS

Additions to current net income:
Profit on sales of government securities (net)
Profit on foreign exchange transactions (net)
Other additions
Total additions
Deductions from current net income:
Loss on sales of government securities (net)
Loss on foreign exchange transactions (net)
Other deductions
Total deductions
Net additions (deductions)

$

110
67,326
31
67,467

$

$

$
$

0
0
15,037
15,037
52,430

$
$

893
0
11
904
174,371

Cost of unreimbursable Treasury services

$

2,613

$

2,111

Assessment by Board of Governors:
Expenditures
Federal Reserve currency costs

$

10,755
12,534

$

10,490
12,950

NET INCOME AVAILABLE FOR DISTRIBUTION

$

803,996

$

894,550

$
$

{35}

$

0
175,247
28
175,275

S

F

E L E C T E D

I NA N C I A L

I

N F O R M AT I O N

Surplus

For the year ended
December 31, 1995
(Thousands)
Surplus, January 1
Net income available for distribution
LESS:
Dividends paid
Payments to the U.S. Treasury
Net amount transferred to (from) surplus

$

Surplus, December 31

VO

LU M E

O F

O

246,831
803,996

For the year ended
December 31, 1994
(Thousands)
$

246,035
894,550

$

14,866
789,513
(383)

$

14,638
879,116
796

$

246,448

$

246,831

P E R AT I O N S

Number of items handled
(Thousands)

Dollar amount
(Millions)

1995

1994

1995

1994

CASH SERVICES
Currency received from circulation
Coin received from circulation

1,328,681
931,406

1,213,082
764,179

20,022
153

17,956
113

CHECK PROCESSING
Commercial—processed
Commercial—fine sorted
U.S. government checks

1,071,311
291,637
31,411

1,134,612
341,570
29,971

614,465
87,105
30,497

649,689
97,238
29,523

E L E C T R O N I C P AY M E N T S
Automated Clearing House
Transfers of funds
Book—entry securities

282,453
6,962
400

230,672
6,581
356

788,381
10,405,869
5,169,920

682,331
9,207,060
5,257,600

418

397

789

885

60,767
255,714

56,837
447,938

97,531
1,325

71,483
2,359

SERV ICES

TO DEPOSITORY INSTITUTIONS

L OA N S *
Advances made
S E R V I C E S T O T H E U. S . T R E A S U R Y
& GOV ERNMENT AGENCIES
Issues and redemptions of government securities
Food coupons destroyed
* Individual loans, not in thousands

{36}

ABOUT

the

DA L L A S F E D

The Federal Reserve Bank of Dallas is one of 12
regional Federal Reserve Banks in the United States.
Together with the Board of Governors in Washington,
D.C., these organizations form the Federal Reserve System
and function as the nation’s central bank. The System’s
basic purpose is to provide a flow of money and credit
that will foster orderly economic growth and a stable dollar. In addition, Federal Reserve Banks supervise banks
and bank holding companies and provide certain financial
services to the banking industry, the federal government
and the public.
Since 1914, the Federal Reserve Bank of Dallas has
served the financial institutions in the Eleventh District.
The Eleventh District encompasses 350,000 square miles
and comprises the state of Texas, northern Louisiana and
southern New Mexico. The three branch offices of the
Federal Reserve Bank of Dallas are in El Paso, Houston
and San Antonio.

H
By Our Own Bootstraps: Economic Opportunity and the Dynamics of Income Distribution
Design: Daniel Sanchez Photography: Robin Sachs Chart Design: Laura J. Bell

F E D E R A L R E S E RV E B A N K O F D A L L A S
2200 North Pearl Street Dallas, Texas 75201 (214) 922-6000

301 East Main Street

E L PA S O B R A N C H
El Paso, Texas 79901 (915) 544-4730

HOUSTON BRANCH
1701 San Jacinto Street Houston, Texas 77002 (713) 659-4433
SAN ANTONIO BRANCH
126 East Nueva Street San Antonio, Texas 78204 (210) 978-1200