NCPA - National Center for Policy Analysis


December 29, 2007

Many have argued that contemporary America's widening income gap is ushering in a new age of invidious inequalities.  But a peek at the numbers behind the numbers suggests that they have been misled: far from a new Gilded Age, America is experiencing a period of unprecedented material equality, says the Economist.

This is not to deny that income inequality is rising, it is; however:

  • Measures of income inequality are misleading because an individual's income is, at best, a rough proxy for his or her real economic wellbeing.
  • Because we can save, draw down savings, or run up debt, our income may tell us little about how we're faring.
  • Consumption surveys, which track what people actually spend, sketch a more lifelike portrait of the material quality of life.
  • According to one 2006 study New York University study, consumption inequality has barely budged for several decades, despite a sharp upswing in income inequality.

But consumption numbers, too, conceal as much as they illuminate:

  • They can record only that we have spent, but not the value -- the pleasure or health -- gained in the spending.
  • A stable trend in nominal consumption inequality can mask a narrowing of real or "utility-adjusted" consumption inequality.
  • Indeed, according to happiness researchers, inequality in self-reported "life satisfaction" has been shrinking in wealthy market democracies, America included, suggesting that the quality of lives across the income scale are becoming more similar, not less.

The point is not that in America the relatively poor suffer no painful indignities, which would be absurd, says the Economist.  It is that, over time, the everyday experience of consumption among the less fortunate has become in many ways more similar to that of their wealthier compatriots.  New technologies and knock-off fashions now spread down the price scale too fast to distinguish the rich from the aspiring for long.

Source: Editorial, "The new (improved) Gilded Age," Economist, December 19, 2007.

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