Watch How They Shop
By DIANA FURCHTGOTT-ROTH
November 24, 2006
...According to Eduardo Porter in last Sunday's New York Times, "The growing share of income devoted to those at the top is leaving less and less to share among the rest of us."
But the new 2005 Consumer Expenditure Survey, released earlier this month by the Bureau of Labor Statistics, shows that differences in per-person spending by the lowest and highest fifths, or quintiles, of income-earners are not dramatically different. Our measures show more income inequality than spending inequality.
And spending is vital because it determines our current standard of living and our confidence in the future. It shows how much money Americans have. The usual pretax measures of income on which most inequality studies are based don't show how much money Americans have and don't provide an accurate measure of inequality.
The top 50% of earners pay 97% of income taxes, so all their income is not available for spending. Lower-income Americans receive transfers such as Food Stamps, housing vouchers, Medicaid, and Medicare, so they consume more than their stated income. Middle-income Americans have assets in pension and individual retirement accounts that are not included in income. Therefore, spending is a far better guide to well-being than pretax income.
Last year Americans in the lowest income quintile spent an average of $11,247 per person, according to the Bureau of Labor Statistics, compared with $15,843 for middle income quintiles, and $28,272 for the top quintile. The top group is spending only 2.5 times as much as the bottom group, and 1.8 times as much as the middle classes. This is not major inequality...
...Aside from tax payments and transfer receipts, why is spending inequality per person less than many popular measures of income inequality?
The average number of people for a household in the lowest quintile is 1.7. It increases to 2.5 people for the middle quintile and reaches 3.2 people for the highest quintile. If a larger amount of income is divided among more people, the spending per person falls. Look at it this way — if there was complete equality, and all quintiles had the same income, the ones with the larger families would be worse off.
Also, the top group has more earners. The top quintile averages 2.1 earners, compared with 1.4 earners for the middle quintile, and half an earner for the lowest quintile.
Yet a glance at per-person spending over the past 20 years shows that all groups are spending more in real terms. To humbly contradict the soon-to-be Senator Webb, everyone has grown richer over the past 20 years.
The lowest quintile is spending 14% more in 2005 than it was in 1985, the second quintile 16%, the third quintile 11%, the fourth 13%, and the top quintile is spending an additional 16%.
There's no striking inequality there, especially since people don't just stay in one quintile. Many have moved up to other quintiles in the 20-year time period as they get older and more experienced and marry other earners...
...Predictably, the top quintile has the highest proportion of respondents, 81%, who attended college, a proportion that falls as income declines. Only 40% of the lowest quintile graduated from college. It's no surprise that households with two college-educated earners have more income than those with half an earner without a college education.
Reforming education, as the late Milton Friedman advocated, remains the most effective way of increasing incomes. Today, as we jostle with shoppers in the crowded malls, we should be thankful that inequality is not as severe, nor as intractable, as it is made out to be in the popular press.
nysun.com
Source of Data
ftp://ftp.bls.gov/pub/special.requests/ce/standard/2005/quintile.txt
Link was found at
econlog.econlib.org
The discussion at that last link explains how the data at the bls.gov site fit the statmenets made in the Sun article. |
