Spending Inequality Far Less Than Income Inequality

The chief economist at the Dallas Fed provides a little intellectual pushback against all the claims of dramatically rising income inequality. If you look at what people are actually spending, Cox argues, you see that society is a whole lot more egalitarian than the income data suggests, thanks in part to open trade bringing down costs of goods. Key points from his recent New York Times op-ed:

1) If you compare the incomes of the top and bottom fifths of all households, you see a ratio of 15 to 1, roughly $150,000 a year to $10,000 a year. But turn to consumption, the gap declines to around 4 to 1. That 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."

2) Richer households are larger, with an average of 3.1 people in the top fifth vs. 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."

3) Another way of looking at inequality is to examine how long it takes us to earn enough dough to buy stuff. "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."