Consumption v Income
Interesting article in the NYT on how income equality is radically narrowed when you instead compare consumption equality. The top 5th (in 2006) of households had income of $149,963 a year in 2006, whilst the bottom 5th had income of $9,974, a ratio of 15 times. In ters of expenditure, however, the top 5th spend $69,863, whilst the bottom 5th spent $18,153, slightly less than 4 times as much.The reason for this is partly higher taxes, but mainly, as shown in the first chart - 'financial flows'. For the top 5th these were a positive $47,171, whilst for the bottom fifth they were a negative $10,716.
What are these flows? Asset sales, dissaving and insurance policies, apparently. Here then lies the rub - to the extent that one's income doesn't vary much from year-to-year, then asset sales and dissaving (and to some degree insurance policies) of an amount higher than your income is clearly unsustainable. Furthermore savings of $47,000 a year are clearly available future consumption. So to what extent this really represents more similar consumption patterns probably depends on the churn of income distribution, which most reports say is pretty low in the US [1]
The article also has an excellent graphic showing the adoption of various consumer goods by the US population this century. It rather loses its way in explaining the point of this chart:
To understand why consumption is a better guideline of economic prosperity than income, it helps to consider how our lives have changed
which they say is basically cheaper consumer goods. But I don't think that makes sense, consumption is always a better guide to living standards than income, at least in the short run, if you could consume without any income you'd be fine. The issue more seems to me that perhaps financial liberalisation means income and consumption can more easily get out of line, or if it is to do with consuming more than your income in bad times and vice-versa then it is to do with greater income variability.
But anyway the chart is fascinating. I'm not sure it shows as strongly as the authors think that consumer goods are adopted quicker nowadays, although it does to some extent. Certainly the cellphone and internet have been, but so was the radio, color TV, and I would suspect b&W TVs (which oddly are missing). So perhaps people just like communication goods (although telephones themselves weren't adopted that quickly).
[1] Another factor is to what extent these figures are really showing up massive saving by the top 1%, something the article doesn't go into.
Labels: economics
posted by Matthew @ 2/11/2008 11:30:00 AM
Comments: 4
