More Wealth Gap Myths

New York Times ^ | Feb 11, 2008 | W. MICHAEL COX and RICHARD ALM

[SeekAndFind]

WITH markets swinging widely, the Federal Reserve slashing interest rates and the word “recession” on everybody’s lips, renewed attention is being given to the gap between the haves and have-nots in America. Most of this debate, however, is focused on the wrong measurement of financial well-being.

It’s true that the share of national income going to the richest 20 percent of households rose from 43.6 percent in 1975 to 49.6 percent in 2006, the most recent year for which the Bureau of Labor Statistics has complete data. Meanwhile, families in the lowest fifth saw their piece of the pie fall from 4.3 percent to 3.3 percent.

Income statistics, however, don’t tell the whole story of Americans’ living standards. Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume, and that the abstract, income-based way in which we measure the so-called poverty rate no longer applies to our society.

The top fifth of American households earned an average of $149,963 a year in 2006. As shown in the first accompanying chart, they spent $69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings.

The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income.

[craig_eddy]

I am constantly amazed at the hubris of certain candidates who say that I (or anyone else) should be forced to pay for health care, college, etc. of those who can’t afford to pay.

I wonder why I’m able to and they’re not. I wonder at what incredible luck it was that I received a modicum of personal responsibility and a dab of work ethic.

I’ve got an idea that the politicians should float: don’t like your condition, CHANGE IT. THAT is what being an American is all about.

[m1911]

Unfortunately, the author doesn’t provide statistics on the “consumption gap” in 1975, so we cannot determine how the gap in that measurement has changed since then.