Consumption is a better way to measure overall welfare than pre-tax income. Using data from the Bureau of Labor Statistics’ Consumer Expenditure Survey, Hassett and Mathur conducted a recent study, “A New Measure of Consumption Inequality,” and found that the consumption gap across income groups has remained remarkably stable over time. “It is not at all clear that the interpretations of the data presented by Piketty and Saez show what they say they do,” says Donald Boudreaux, professor of economics at George Mason University, and scholar at the Mercatus Center. “It is the nature of some researchers that they are comfortable with data that confirms their basic beliefs as opposed to data that contradict it.
For example, there is a huge amount of fluctuation, not to mention uncertainty, in income groups. People move in and out of these statistical quintiles. Charles and David Koch may not leave the top quintile, but people in the lower groups move up and down all the time.” People generally have access to many more material possessions than they did in, say, the 1980s.
An Apple iPhone 5S is equally available to a Dominos delivery boy as it is to Bill Gates and doesn’t perform any better for either person. From 2000 to 2010, for example, consumption has climbed 14 percent for individuals in the bottom fifth of households, 6 percent for those in the middle fifth, and 14.3 percent for people in the top fifth when accounting for changes in the U.S. population and size of households.
The larger question ought to be whether income disparities in any way disturb the historic ability of Americans at the bottom to become the next Bill Gates or Mark Zuckerberg. With long-term unemployment and high degree of economic insecurity in the wake of the Great Recession, it’s understandable why some have grown more concerned.
Scott Winship, Walter Wriston Fellow at the Manhattan Institute, has studied this since his days at Brookings. He argues that no research shows real correlation between income inequality and mobility. He says, “upward mobility is the same today as it was two or three generations ago.” Winship adds that while mobility has not changed in decades it has been stuck at unacceptably low levels for many people. The true culprits are advances in technology and the rise of globalization, which have transformed our economy, marginalizing people with low skills.
In short, inequality is a distraction. Our real defining challenge is to boost economic growth and close the skills gap that widens opportunity for all.