EconTech

Cowen misses the point, later pointed out by others, that consumption measures miss out on lifetime consumption possibilities (also known as wealth). I could forgive him for missing my post, but Thoma brought out others on this. Besides, I would’ve expected Cowen to have ‘just gotten’ this without anyone needing to point it out to him.

In case you are confused about Cowen’s 3), that we do not know how welfare inequality has changed, he is referring to the fact that there is no good way of mapping income (real money) to welfare (utility) over time. Look at any discussion of the shortcomings of GDP to get an idea of why this may be the case. Put simply, John Rockefeller did not have access to Google; so, his massive wealth didn’t give him access, at any price, to the riches of the Internet. While I agree with this issue in principle, it is not something that is usually harped on. It is one of those background caveats that is just known when you are throwing around GDP comparisons.

As to his 2), I see where he is coming from, but I’m not necessarily convinced. Certainly the bottom 10 percent are better off now than they were 100 years ago. However, I’m not sure how to compare the increases in welfare across these groups over long time horizons. If anything, many of the problems from 3) get worse with longer time horizons. Put otherwise, sure, through a library, everyone (if they can read and type, which is not everyone) in the US now has access to Google. But access to quality health care is limited for those at the bottom of the income pool. But health care was, well, brutish and rather ineffective a century ago. Now, not so much. I’m not seeing the best way to quantify these differences to come to agreement (or disagreement!) with 2).

I’ll take a look at the referenced paper and see if it has anything to say about this. Otherwise, if you have some way of clarifying 2) for me, leave me a note, please.

Consumption vs. income inequality, revisited

Numerous bloggers, often from the left, are jumping on the recent Cox and Alm NYT Op-Ed on consumption inequality. Via Greg Mankiw, here is one excerpt:

…if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1…. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1.

Here is Mark Thoma and here is Paul Krugman, both of whom offer good criticisms on the particular numbers. Nonetheless it would be a mistake to go back to focusing on income inequality, or for that matter rising income inequality. Keep in mind a few points:

1. Global income inequality is way down over the last thirty years.

2. Inequality of welfare, even within the United States, is way down over long time horizons, such as the last century.

3. We do not know how inequality of welfare in America is faring over say the last thirty years. This is a point of overriding importance. Just in case you missed it, let me repeat: when it comes to the kind of intra-nation inequality that we should really care about (if we are going to worry about intra-nation inequality at all), we “do not know.” As in “know” and “not” put together. “Not” is the word of negation, by the way. And the last I looked, not = not, as it usually does on most Wednesdays. Would you like to hear more on what is implied by the conjunction of “not” and “know”?
4. We do know that welfare inequality doesn’t track income inequality in any simple way, especially when new goods are being introduced, there is mass production, there is diminishing marginal utility, and non-marketed benefits and costs are important in human life.

5. Here is the latest and most serious attempt to weigh the problems with consumption data; overall it reinforces the importance of looking at consumption. And it is not denied that consumption inequality is much less than income inequality and also consumption inequality rising less rapidly over time.

Here are some previous MR posts on consumption inequality. Here is Andy Warhol on consumption inequality.

In general, when you see cherry-picking — or lemon-picking — of these numbers, you should be very suspicious.