In America, consumption inequality narrowed significantly during the last 30 years

The American Enterprise Institute just published a study of how the overall welfare of Americans has evolved during the last thirty years.  You can read the abstract of the document, as well as download a PDF file of the complete study, by clicking on the link.

The most remarkable aspect of the study is that its authors dismissed outright the use of income as the primary metric of individual welfare.  Instead, the authors centered their study on consumption, where “consumption inequality” is defined as the inability of Americans with average or below average incomes to access items traditionally considered to be luxuries – electric appliances, central heating, air conditioning, computers, video games, televisions and DVD’s, cable/satellite access, cell phones, automobiles, etc.

The findings of the study should not be surprising: access to luxury items for Americans with below average incomes has steadily increased during the past three decades.  In fact, there is very little difference in consumption between their lowest household income bracket (earning less than $20k annually) and households earning up to $99k annually with respect to televisions, satellite TV, digital converter boxes, and DVD players.  The only area where a noticeable gap still exists is access to computer technology and the Internet, and lower income levels still indicate a diminished likelihood that a household will own a computer or have an Internet connection.  However, the study does not include access to wireless devices or cell phones, which obviously have a significant affect on the ability of individuals to access the Internet or use email and social networking applications.

The fundamental difference between how liberals and conservatives view the welfare of Americans revolves around the relative importance of income vs. consumption.  Liberals tend to dismiss increased consumer consumption as an automatic function of a forward-moving society, and choose instead to focus on inequalities in income, or methods to preserve income levels for working Americans during times of economic distress.  On the other hand, conservatives point to consumption data and argue that “poverty” is a relatively useless term, since “poor” Americans are just as likely as upper-class Americans to have access to items considered luxuries in most second and third-world nations.  They dismiss “income equality” as a chimera that will never be achieved because of intrinsic differences in culture, goals, education, and opportunity that we must allow among different groups of people, if we are to live in a truly free society.

But there is one thing about the arguments of liberals that strikes me as very ironic.  In their quest to achieve income equality, they continuously advocate central economic planning and increased state control of banking and financial systems.  Yet in the “worker’s paradise” nations that have taken these ideals to the extreme — North Korea, Cuba, the former Eastern Bloc, the former Soviet Union — consumption inequality has been manifest and seemingly incurable.  There was simply no way for average citizens to own luxury items, except by joining the Party or the military, and exploiting the bureaucracies of either in order to obtain promotions and rewards.   Part of this was due to the fact that most socialist states simply could not mass produce luxury items.  And when those states attempted mass-production, the quality was poor, the waiting lists were long, and the lion’s share of the items still went to military officers or ranking party members.  All of this, from states that proclaimed “absolute equality” to be their highest ideal.

In reality, it is our evil, selfish, greedy, corrupt, and hopelessly unfair free enterprise system that provides all of our people with the best, lowest-cost access to the latest advances in transportation, communication, and time/labor/energy-saving devices.  In other words, the most equal access to the economy, for everyone.  In contrast, planned economies of the past could provide wages, basic living accommodations, basic education, basic transportation, and basic necessities to most all of their citizens in a somewhat uniform fashion.  And by “basic” I mean “poverty-level” with “technology from the 1950’s.”  If you wanted more than that, you had to join the ranks of the elites.

The next time you see a group of Occupy knuckleheads or other clueless progressives lamenting the evils of capitalism — while talking on their iPhones or Facebooking with their iPads — remember these observations and ask yourself which group you’d rather be a part of.

Aaron Worthing Wins Blow for Free Speech, Then Gets SWATed
Supreme Court guts AZ immigration law but preserves ID check provision
  • 914

    Don’t tell this to Barry and his liberal suffragist’s throng.. To them America is now and forever more Race riots, KKK and shit on thy neighbors.. Of course they are the ones doing it but thats life..

  • jim_m

    More than one in seven Americans are on food stamps, but the federal
    government wants even more people to sign up for the safety net program.

    That’s right. When we are all poor then we will all be equal. Leftist ideology is focused on making everyone poor for the sake that it is the only way to forcing equality on everyone (well, everyone but the elite leftists who get to decide how the rest of us will live our lives)

  • Commander_Chico

    I guess this is supposedly to excuse flat growth in private sector wages.

    • MichaelLaprarie

      No, that’s not what this study is about. But it does prove rather conclusively that our economic system does a good job of making a wide range of consumable items affordable for everyone. The fact that consumption inequality doesn’t rise appreciably even during severe recessions is remarkable.

      But yes, economic growth and wages are flat, and even with prices on things like consumer electronics steadily falling, the prices of food, insurance, energy, and fuel have risen steeply enough to offset those price reductions. The net outcome is inflation, which means much harder times for working Americans whose wages remain flat. Unfortunately our current Administration appears to be clueless with regard to how to fix this problem.

      • It seems clueless with pretty much everything.

        There’s a lot of difference between theory and reality / practice – as they’ve found.

      • ryan a

        “The fact that consumption inequality doesn’t rise appreciably
        even during severe recessions is remarkable.”

        Not when you take debt into account. This switch to “consumption inequality” as an analytical focus just sidesteps a lot of issues.

    • ryan a

      Well, ya, it goes around the issue by switching from “income” to “consumption.” It also ignores the subsequent rise in debt over the past 30 years. Sure, people have access to goods, but they are also going deeper into debt (whether through credit cards, taking out second mortgages on their homes, etc). Check this out re: credit card debt:

      • Commander_Chico

        Sure, private sector wages have been about flat for 30 years while productivity per worker has grown a lot, maybe even doubled. Instead of being shared with workers, the growth is all being given to shareholders. To maintain standards of living, Americans have been borrowing and blowing housing bubbles with the borrowed money.

        The “consumption” is all of Chinese and other overseas made goods.

        Between their cheerleading for unnecessary wars and propaganda for economic oppression, the AEI is about as much a threat to the USA as any foreign country.

  • ackwired

    Interesting study. In view of the increase in income differential during the time period studied, it is probable that the folks toward the lower end of the income scale borrowed to obtain these items. It would be interesting to see if there is a correlation of loose money and increased bankruptcy during the period of the study. I wonder if discontent rises with increase borrowing for “luxury items” and the resulting financial problems.

    • Not necessarily.

      Been to WalMart lately? Flatscreen TVs aren’t luxury goods any more – neither are cell phones or even air conditioners.

      A 24″ flatscreen will cost you about $150. The cheapest blue-ray/dvd player’s $40. Even at minimum wage, these are affordable without much stress.

      They’ve got prepaid cell phones – $50, which includes a card for $45 worth of minutes. (Unlimited talk, text, and data.)

      Gaming systems? XBox 360 – $243 PS3 – $249 Wii – $150

      Their clothes are inexpensive and more durable than stuff I’ve paid a lot more for. (Their ‘George’ line of pants, especially.) Yes, they’re not ‘name-brand’ – but for the folks who can’t afford to spend a lot, they’re good. Of course, most people don’t go much into debt to buy clothing… and if you’re going into debt buying food (especially at WalMart) your finances are seriously screwed and you need help.

      I’d even go so far as to argue that WalMart, for all the hate directed towards it by some folks, has done more to improve the standard of living for the poor than pretty much any other organization in the US.

      All things considered, it might be time to change the definition of ‘luxury items’ going forward to exclude consumer electronics that would have been incredible luxuries ten or twenty years back.

      • ackwired

        Good point. I was thinking of all of the debt taken on during this period of flat wages. Much of it by borrowing on home equity, and much of that used to “buy things”. The living standard of the middle class was largely supported by increasing housing valuation. Lenders and financial experts were telling people they were crazy not to borrow on their equity.

        • And they might have been right – until the market imploded.

          Even then, it wouldn’t have been all that bad – a house that’s underwater in the mortgage isn’t a problem until/unless you HAVE to move for whatever reason… but then the recession hit and stuck. Bye-bye jobs, hello problems…

          Our house went under for a time – but since we weren’t looking to move, it didn’t matter. We also didn’t accept the idea that we could (actually, ‘should’) spend about 35% of our income on a house payment, which meant we supposedly could spend a whole lot more than we were comfortable on for a house.

          Instead, we got one for about half what we qualified for.

          I think if a lot of people hadn’t gone the “You can afford this much!” route, they’d have been better off.

          That said – everyone’s financial state’s different. What you might see as an acceptable risk, I’d run from. (And vice versa.)

          But refinancing, taking out equity to the appraised value of the house, and then depending on the house to appreciate further while you spend the equity on high-end vacations and expensive toys is (to my mind) just trouble looking for a place to happen.

          We did do the refi thing once, about 10-11 years back, to get a lower interest rate and took some equity to pay off our cars. But we’re not the sort of folks who buy a new car every two years, either, so it seemed an acceptable thing to do.

          • ackwired

            I try to not borrow for anything but to purchase assets. However, I realize that I am much more conservative in this regard than the average person. I pay cash for my cars. I do mortgage my residence, but that is the only non-asset that I borrow for. In my opinion, borrowing to “buy things”, as the middle class is advised to do, just keeps them in the rat race.

  • Also. . .do income inequality studies include the values of transfers … no, not really …

  • 914
  • Commander_Chico

    I suspect the AEI study is timed to excuse this fact:

    Corporate Profits Just Hit An All-Time High, Wages Just Hit An All-Time Low
    In case you need more confirmation that the US economy is out of balance, here are three charts for you.
    1) Corporate profit margins just hit an all-time high. Companies are making more per dollar of sales than they ever have before. (And some people are still saying that companies are suffering from “too much regulation” and “too many taxes.” Maybe little companies are, but big ones certainly aren’t).
    2) Fewer Americans are working than at any time in the past three decades. One reason corporations are so profitable is that they don’t employ as many Americans as they used to.
    3) Wages as a percent of the economy are at an all-time low. This is both cause and effect. One reason companies are so profitable is that they’re paying employees less than they ever have as a share of GDP. And that, in turn, is one reason the economy is so weak: Those “wages” are other companies’ revenue.

    Read more:

    • ryan a

      Here’s an older post from Mark Thoma at Economist’s View about ‘consumption inequality’ and how it relates to ‘income inequality.’ He makes some good points:

      • Commander_Chico

        Yeah, just because people working in low wage service jobs can have a flat screen TV does not mean much.

        Let’s talk about the trips to Europe, the private schools, the sports programs, the ability to do unpaid “internships” to get high paid jobs after graduation that the top 10% have.

        It all adds up to huge inequality of opportunity, too.

        • jim_m

          Well maybe Barry can keep cancelling those voucher programs that make all those things you complain of possible.

        • I must have missed the ‘Trips To Europe’ clause in the Constitution, and the Private Schools guarantee…

          Not to mention the “Life Shall Be Fair” amendment.

          Can you point those out, please?

          • Commander_Chico

            Just because life is unfair does not mean that one should celebrate unfairness in the form of the long term decline of wages in favor of profits.

            It’s not in the Constitution, but “all men are created equal.” Equality of opportunity is important to sustain both social peace and the health of elites. History is full of examples of closed and sclerotic ruling classes. AEI is a part of preserving privileges for a closed class.

          • Right. Observing that things actually are much better for the poor than they were 50 years back is a way of celebrating the unfairness and preserving privileges for a closed class.

            Equality of opportunity doesn’t guarantee equal results. Because ‘equal’ in the sense that ‘all men are created equal’ means that opportunity won’t be denied BECAUSE of who you are. You’re still going to have to work for what you want.

            Want a trip to Europe? Work for it. Want a private school for your kids? Work for it. Complaining that others have it while you don’t is the actions of someone who believes the world owes them everything they want, without effort on their part.

            25 years back, I was subsisting on a part-time minimum wage job. I was having fun – but I woke up one morning and went “You know, there’s got to be more than this.” So I went out and found it. Now, things are better than I could ever have imagined comfort-wise.

            There’s equality of opportunity – but that doesn’t mean you don’t have to get off your ass and actually do something to achieve your dreams.

            I know it’s really important for you to have a class structure that you can rail against, that you believe is horribly unfair and stagnant, but you need to ask yourself what’s going on that is perpetuating a class structure in the first place.

            We’ve spent trillions on programs for ‘ending poverty’, while the poverty rate is essentially unchanged. That makes me think that the problem is not in the programs themselves, but in the people.
            If kids are taught, through numerous applications of government benefits – from free food to free medical care to free cell phones to free housing – that there’s no need for them to exert themselves in life to even provide the creature comforts they want… it’s not surprising that they DON’T exert themselves beyond the bare minimums to move themselves around. They learn the lesson early – that they don’t need to provide for themselves. There’s no need to provide for a family, the government will do it. There’s no need to work – everything they need is handed to them… as long as they’re willing to accept the minimums.

            And they’ve been conditioned to do so. All they have to do is sit back and accept it.
            Won’t get them a trip to Europe, so it’s just terribly unfair, right?

          • Learned behavior, conditioned behavior is damned hard to break out of. And if the people who’re existing in it are more or less pleased with the outcome – where is the incentive for them to bust out of it? What do THEY get for their efforts?

            If they start to rise, government benefits get cut. Things that were free start to cost them money. It takes a determined personality to get out of that trap that’s baited with government cheese.

            It’s a perverse incentive, isn’t it? A wierd sort of curve. The less you make, the better you do from a government benefits standpoint. You start doing better economically, and you start losing what you’ve been conditioned to depend on. Plus your friends, family, social support systems all start going “Hey – what you doing?” You risk alienating THEM if you rise too high, and don’t ‘give back’ as they think you should.

            Better to just not do anything. Keep the quo status, so to speak.

            Is the answer to too much government assistance sapping personal initiative MORE government assistance? Less? Changing things so it’s easier to wean yourself off the dole?

            We can change things at the governmental level, but how do you change the cultural norms that promote the thinking that keeps people poor? You had the idea of a social safety net – but that net’s turned into a trap for all too many people, and it’s taught the children to love the trap.

            I don’t see any easy answers – but I suspect we’ll find out when the money isn’t there any longer.