WHAT IF INEQUALITY IS MISLEADING? – I’m not an economist so I can’t critique but it strikes me as interesting research:
Bruce Meyer of the University of Chicago and James Sullivan of the University of Notre Dame argue that consumption, rather than income, should be examined. Using income to measure inequality is a problem for a few reasons. For one, it’s measured before tax, it’s not person weighted (a family with one person is measured the same as one with six people) and it may underrepresent the impact of government transfers. Income measures also don’t capture consumption out of financial wealth as well as durables such as housing and cars.
Consumption, they say, may be a better way to measure well being, since it better reflects disparities in access to credit or accumulation of assets. Consumption also is more closely associated with other measures of poverty than income is.
Meyer and Sullivan looked at income between 1963 and 2014, using the current population survey, and consumption between 1960 and 2014, using the consumer expenditure survey.
The short version is — there’s a much less stark gap between haves and have-nots measured this way. The researchers show that consumption inequality rose considerably less than income inequality over the past five decades. Between the early 1960s and 2014 income inequality grew by nearly 30% while inequality in consumption rose just 7%.
This is one of the things I noticed when reading Thomas Piketty’s “Capital” – of course there are rich people and poor people, but you can’t discuss inequality in developed world without taking into the account the effects of the tax system as well as welfare system, which have been explicitly designed to reduce inequality by lifting the worse off and bringing down a notch or two the better off. We might quibble about the ideal income and/or asset distribution in any given society, but it’s beyond question that the poor in our societies are better off than the poor in any other society in history and any other era. While we all strive to continually improve the world we live in, we should not be blinded to the amazing progress we have already made.