W. Michael Cox and Richard Alm think measuring income is obsolete (NYTimes, emphasis mine):
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.
Is he saying what we think he’s saying? That poor people aren’t poor because although they make exponentially less, they spend only a little less?
So, bearing this in mind, 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. A similar 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.
Have either of this economic analysts heard of debt?
Sure, sure, measuring non taxable income for statistics on poverty and wealth makes a great deal of sense. Agreed. But how does measuring income therefore no longer apply? How on earth is spending a suitable replacement? And what makes the poverty line “so-called”?
While foreign competition may have eroded some American workers’ incomes, looking at consumption broadens our perspective. Simply put, the poor are less poor. Globalization extends and deepens a capitalist system that has for generations been lifting American living standards — for high-income households, of course, but for low-income ones as well.
Ahem, you see old chaps, while the peasants are making less, they are spending more, so they can’t very well be poor can they? I say, toast to capitalism! Bubbly all round!
Both authors enjoy senior positions at the Federal Reserve Bank of Dallas.