Quite interesting article in today's NYT on inequality: You Are What You Spend
JOSE BAILEN
You Are What You Spend
By W. MICHAEL COX and RICHARD ALM
Dallas
WITH markets swinging widely, the Federal Reserve slashing interest
rates and the word "recession" on everybody's lips, renewed attention
is being given to the gap between the haves and have-nots in America.
Most of this debate, however, is focused on the wrong measurement of
financial well-being.
It's true that the share of national income going to the richest 20
percent of households rose from 43.6 percent in 1975 to 49.6 percent
in 2006, the most recent year for which the Bureau of Labor Statistics
has complete data. Meanwhile, families in the lowest fifth saw their
piece of the pie fall from 4.3 percent to 3.3 percent.
Income statistics, however, don't tell the whole story of Americans'
living standards. Looking at a far more direct measure of American
families' economic status — household consumption — indicates that the
gap between rich and poor is far less than most assume, and that the
abstract, income-based way in which we measure the so-called poverty
rate no longer applies to our society.
The top fifth of American households earned an average of $149,963 a
year in 2006. As shown in the first accompanying chart, they spent
$69,863 on food, clothing, shelter, utilities, transportation, health
care and other categories of consumption. The rest of their income
went largely to taxes and savings.
The bottom fifth earned just $9,974, but spent nearly twice that — an
average of $18,153 a year. How is that possible? A look at the far
right-hand column of the consumption chart, labeled "financial flows,"
shows why: those lower-income families have access to various sources
of spending money that doesn't fall under taxable income. These
sources include portions of sales of property like homes and cars and
securities that are not subject to capital gains taxes, insurance
policies redeemed, or the drawing down of bank accounts. While some of
these families are mired in poverty, many (the exact proportion is
unclear) are headed by retirees and those temporarily between jobs,
and thus their low income total doesn't accurately reflect their
long-term financial status.
So, bearing this in mind, 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. A similar narrowing takes place
throughout all levels of income distribution. The middle 20 percent of
families had incomes more than four times the bottom fifth. Yet their
edge in consumption fell to about 2 to 1.
Let's take the adjustments one step further. Richer households are
larger — an average of 3.1 people in the top fifth, compared with 2.5
people in the middle fifth and 1.7 in the bottom fifth. If we look at
consumption per person, the difference between the richest and poorest
households falls to just 2.1 to 1. The average person in the middle
fifth consumes just 29 percent more than someone living in a
bottom-fifth household.
To understand why consumption is a better guideline of economic
prosperity than income, it helps to consider how our lives have
changed. Nearly all American families now have refrigerators, stoves,
color TVs, telephones and radios. Air-conditioners, cars, VCRs or DVD
players, microwave ovens, washing machines, clothes dryers and
cellphones have reached more than 80 percent of households.
As the second chart, on the spread of consumption, shows, this wasn't
always so. The conveniences we take for granted today usually began as
niche products only a few wealthy families could afford. In time,
ownership spread through the levels of income distribution as rising
wages and falling prices made them affordable in the currency that
matters most — the amount of time one had to put in at work to gain
the necessary purchasing power.
At the average wage, a VCR fell from 365 hours in 1972 to a mere two
hours today. A cellphone dropped from 456 hours in 1984 to four hours.
A personal computer, jazzed up with thousands of times the computing
power of the 1984 I.B.M., declined from 435 hours to 25 hours. Even
cars are taking a smaller toll on our bank accounts: in the past
decade, the work-time price of a mid-size Ford sedan declined by 6
percent.
There are several reasons that the costs of goods have dropped so
drastically, but perhaps the biggest is increased international trade.
Imports lower prices directly. Cheaper inputs cut domestic companies'
costs. International competition forces producers everywhere to become
more efficient and hold down prices. Nations do what they do best and
trade for the rest.
Thus there is a certain perversity to suggestions that the proper
reaction to a potential recession is to enact protectionist measures.
While foreign competition may have eroded some American workers'
incomes, looking at consumption broadens our perspective. Simply put,
the poor are less poor. Globalization extends and deepens a capitalist
system that has for generations been lifting American living standards
— for high-income households, of course, but for low-income ones as
well.
W. Michael Cox is the senior vice president and chief economist and
Richard Alm is the senior economics writer at the Federal Reserve Bank
of Dallas.
raylopez99
taxpayer.
Per taxpayer, I use this site: http://www.taxfoundation.org/taxdata/show/250.html
Also the richest 1% in the USA get 10-14% of all the income (before
and after tax), pay 25% to 35% of the tax in the USA (I've seen
various figures), and worldwide the top 2% own 50% of the wealth. And
to think, in the medieval ages it was considered excessive by some
that the top 10% owned 60% of the weath.
On Feb 10, 9:40 am, "JOSE BAILEN" <jose.bai...@gmail.com> wrote:
> http://www.nytimes.com/2008/02/10/opinion/10cox.html?ref=opinion