Wednesday, March 09, 2011

Perspective on income inequality

One of Andrew Sullivan's readers makes a good point:
Your charts on income distribution from 1979-2007 leave out a major aspect of the story that should not be ignored: the buying power of people in the lowest 10% is exponentially greater today than it was back then. 

I know this because I was a kid back then living in a bottom 10% household.  A McDonald's meal was a once or twice per year luxury.  Today fast food meals are cheaper in actual nominal terms than they were back then.  In 1979, gasoline prices nearly bankrupted us, particularly when being forced to drive cars that sucked gas and spewed oil and fumes at criminal levels.  Gas prices may be "high" today, but it's nothing in terms of % of people's incomes like it was in 1979.  Moreover, cars back then required much more maintenance and lasted barely more than 3-4 years before rusting out and needing to be replaced.  Today a person can buy a cheap fuel efficient compact car with as many electronic gizmos as most high end luxury cars and it will easily run 100,000 miles on simple oil changes alone. 

Clothing: I had about six outfits in 1979, enough for a week of school and a nice set for church on Sunday.  Shoes were worn until they literally had holes in them, and even then duct tape had to make due until enough money was available to buy new ones.  Today, clothes are as cheap as food.  One trip to WalMart and a person in the bottom 10% of wage earners has as many clothes as it took me three years to accumulate back then.  In 1979 we had no computer, no cell phone bill, no Internet bill, no cable TV bill (unless you were "rich"), and only one 17-inch black and white TV.  Today: totally different story.  Even the poorest the of households has at least one of those luxury items.

My point is: If I had to choose between living in the bottom 10% in 1979 or 2011, I'd take 2011 in a heartbeat.  To a person in the bottom 10%, it does not matter - AT ALL - that a person in the top 1% can afford six more vacation homes than he could in 1979.  If anything, the rich being SO rich has actually raised the bar on standard of living for everyone.
This misplaced obsession with income inequality by many on the left, best understood as an opportunity to take shots at capitalism, obscures the larger and more valid issue of examining the welfare of the poor and middle class from an absolute rather than relative perspective. I suspect the reason so many people prefer the latter measurement instead of the former is that it reveals these groups to be better off than 30 years ago. Remember, if the plight of the poor improves, the justification for government interventions suffers serious damage. 

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