Sunday, July 25, 2010

Inequality is a Red Herring

OK, that title is over the top, but for some time I've felt that the focus on income inequality doesn't necessarily present an accurate description of conditions. 

From my own perspective, the income of my household now is less than the income of the household I grew up in (there were two wage earners in the household where I grew up, while now my wife doesn't work outside the home) but we seem to have just as much, and in some cases more, stuff.  We have more and/or better televisions, personal computers, cell phones.  We have greater access to food grown in the other hemisphere, which allows for the smoothing of consumption when it comes to food subject to the schedule of the harvest. Of course, stuff isn't everything, but it provides some measure of our quality of life.

My anecdotal experience is not exactly the basis for a sweeping claim about the state of American households.  This post from e21 draws a similar conclusion based on data [E.A.]:

American Households have not Stagnated | e21 - Economic Policies for the 21st Century
To be sure, inequality may account for some of the difference between household income and aggregate income. Fitzgerald estimates that Census income per person grew by 65%, while median income per person grew by around 50%. The remaining difference may be accounted for by a rise in inequality. But the important point is that households are not stagnating in the aggregate. America’s phenomenal productivity gains have reached its households.

In fact, these figures actually understate the welfare gains households have experienced in the past thirty years. Virtually every consumer product has improved dramatically in quality, and entire new industries have expanded the consumption opportunities available to households and individuals.

These are important facts to bear in mind when hearing political rhetoric that focuses on inequality and stagnation. In today’s tough economic times, this is a popular message. But it does not characterize the experience of most households. Policies that attack the wealth-generating abilities of the American economy will hurt, rather than help, those same households over the next thirty years.
No doubt there are some households that have not benefited from these productivity gains.  Identifying and then helping these folks should be the focus of public policy to help the poor.  The inequality debate seems to be little more than a distraction from this important policy goal.

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