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Friday, February 1, 2013

NY Times: The Hidden Prosperity of the Poor?

New York Times:  The Hidden Prosperity of the Poor, by Thomas B. Edsall:

A concept promulgated by the right — the notion of the hidden prosperity of the poor — underpins the conservative take on the ongoing debate over rising inequality.

The political right uses this concept to undermine the argument made by liberals that the increasingly unequal distribution of income poses a danger to the social fabric as well as to the American economy. ...

The conservative counterargument – that life for the poor and the middle class is better than it seems – goes like this: Even with stagnant or modestly growing incomes, the poor and middle class benefit from the fact that a stable or declining share of income is now required for basic necessities, leaving more money for discretionary spending. According to this theory, consumption inequality – the disparity between the amount of money spent on goods and services by the rich, the middle class and the poor — remains relatively unchanged, even while income inequality worsens. ...

The consumption theory is powerfully attractive to the right for a number of reasons. It undermines the legitimacy of government action to ameliorate rising income inequality. And it is based in part on the premise that existing welfare programs – food stamps, Medicaid, temporary cash assistance — are doing their job. ...

[E]conomists have been raising serious questions for some time about the consumption thesis and the so-called hidden prosperity of the poor.

In February 2011, the National Bureau of Economic Research published a paper, “Has Consumption Inequality Mirrored Income Inequality?” by Mark A. Aguiar, of Princeton, and Mark Bils of the University of Rochester. The authors concluded that “consumption inequality has closely tracked income inequality over the period 1980 – 2007.” In other words, the growing gap between what rich and poor spend parallels the growing gap in the money they take in.

Similarly, in “The Evolution of Income, Consumption, and Leisure Inequality in the US, 1980-2010,” Orazio Attanasio of University College London, Erik Hurst of the University of Chicago and Luigi Pistaferri of Stanford declared that their analysis of the data shows that “the increase in income inequality was matched by an increase in consumption inequality of comparable magnitude.” ...

(Hat Tip: Mike Talbert.)

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Of course, these studies all look at poverty to mean that you earn half as much as the median for that country. But that ignores the fact that someone in poverty in the US is better off than someone that is middle class in France when you consider discretionary income.

How can it be that our families in poverty have more discretionary income than the middle class in France? Hint: Taxes.

Posted by: alan | Feb 1, 2013 2:44:37 PM

So they claim that the poor are doing better than we think because government programs are "doing their job". But do they not also argue, out of the other side of their mouth, that government programs do not work and should be cut? Are they now claiming that government can help ameliorate poverty? It seems like they want to have their government programs and cut them too.

Posted by: George | Feb 1, 2013 3:53:57 PM

Admittedly I have not read the study, but to me it certainly appears that they are mischaracterizing the conservative position. The argument is that the poor are much better off on an absolute level, not necessarily comparatively speaking. Real wages may be stagnant for the past few decades, but a significantly smaller portion of those wages is required to provide the basics in life.

If you have sufficient food and shelter, why should it matter if the guy next to you is 100 or 1000 times rich than you are (assuming your neighbor earned his fortune lawfully)? Unless you are a jealous socialist, that is.

Class envy is destroying our country, and the fire is being stoked daily by the President and his allies.

Posted by: Todd | Feb 1, 2013 4:10:56 PM

The left and the right arguments are both wrong. Poverty isn't primarily about income. It's not about consumption. It's about inability to function effectively.

For the left, admitting that reality means admitting that giving poor people money is of little help. Yet those programs employ millions of government workers who vote for Democrats. Those employees are the true constituency for poverty programs.

For the right, admitting that reality means having no government-based solution to offer. Politically, the left's bad government program beats no government program.

The income inequality statistics war is nothing more than distraction. It is meaningless, having no utility other than as a political device.

Posted by: AMTbuff | Feb 1, 2013 5:08:14 PM

Whenever the NYT presents its version of the right, it's wrong.

Posted by: Woody | Feb 1, 2013 8:06:51 PM

This is the first study I have seen that shows that consumption inequality is growing. NYT cherry picking? Will have to wait.
The Right does not say that Government Programs are doing their job, they are saying you can't even begin to have an inequality conversation (which leads to more Govt. programs) without including these in the analysis. The Right would then claim that the cost of adding that consumption is (a) bloated, since government programs cost more than they actually transfer and (b) even if they ended up in 100% transfer they create dependency.
The Right also says, and this study does not refute, that quality adjustments/substitution effects understate more low and middle income consumption than upper income.
The Right also says that Government programs are not the only type of non-wage income that props low income consumption.
Oh, heck "What Woody said..."

Posted by: MG | Feb 2, 2013 9:14:34 AM


The median Frenchman has a higher networth, a higher standard of living, and a higher life expectancy than the median American.

The U.S. only looks attractive if you average in millionaires and billionaires with the huddled masses. At the median, the U.S. looks terrible.

How is it that the French have a better standard of living with lower after tax income? Because their taxes pay for healthcare, education, affordable public transportation, public safety, retirement security, and beautification of public spaces.

And their healthcare sector is 2X as efficient as the Healthcare sector in the U.S.

Posted by: Anon | Feb 2, 2013 3:46:39 PM

Todd writes:

"a significantly smaller portion of those wages is required to provide the basics in life."

It depends on whether you consider education, healthcare, and a healthy environment as basic necessities of life.

Calories from processed foods, mass-produced clothing, and consumer electronics are cheap. Everything else has become more expensive.

Posted by: Anon | Feb 2, 2013 3:50:36 PM