Consumption vs. income inequality, revisited

Numerous bloggers, often from the left, are jumping on the recent Cox and Alm NYT Op-Ed on consumption inequality.  Via Greg Mankiw, here is one excerpt:

…if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1…. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1.

Here is Mark Thoma and here is Paul Krugman, both of whom offer good criticisms on the particular numbers.  Nonetheless it would be a mistake to go back to focusing on income inequality, or for that matter rising income inequality.  Keep in mind a few points:

1. Global income inequality is way down over the last thirty years.

2. Inequality of welfare, even within the United States, is way down over long time horizons, such as the last century. 

3. We do not know how inequality of welfare in America is faring over say the last thirty years.  This is a point of overriding importance.  Just in case you missed it, let me repeat: when it comes to the kind of intra-nation inequality that we should really care about (if we are going to worry about intra-nation inequality at all), we "do not know."  As in "know" and "not" put together.  "Not" is the word of negation, by the way.  And the last I looked, not = not, as it usually does on most Wednesdays.  Would you like to hear more on what is implied by the conjunction of "not" and "know"?

4. We do know that welfare inequality doesn’t track income inequality in any simple way, especially when new goods are being introduced, there is mass production, there is diminishing marginal utility, and non-marketed benefits and costs are important in human life.

5. Here is the latest and most serious attempt to weigh the problems with consumption data; overall it reinforces the importance of looking at consumption.  And it is not denied that consumption inequality is much less than income inequality and also consumption inequality rising less rapidly over time.

Here are some previous MR posts on consumption inequality.  Here is Andy Warhol on consumption inequality.

In general, when you see cherry-picking — or lemon-picking — of these numbers, you should be very suspicious.


Comments for this post are closed