Photo: Jessicamulley on flickr
Some economists dismiss claims of rising inequality by citing consumption equality. While the numbers on paper might be radically different, they maintain, American lifestyles aren’t. Most people have a car, a refrigerator and living room furniture.But according to a new study from professors at University College London, Stanford and the Booth School of Business, the government’s numbers on consumer expenditures are flawed because they don’t address that the wealthy are likely to underreport how much they spent. They also don’t break up how much income was spent on luxury versus necessity.
Adjusting for these factors, it turns out that income inequality and consumption inequality have moved equally since 1980. And consumption might be a more important factor to consider in the haves and have-nots debate:
Since individuals’ utility is typically defined over consumption goods rather than income per se, one may argue that measures of consumption inequality get closer to an ideal measure of inequality in household welfare than income inequality.
This study shows that regardless of how economists slice it, the American middle class is disappearing.
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