A friend of mine sent me an article today from NYT which highlights a key conservative argument against worrying about income inequality: Namely that it doesn’t take into account consumption levels or the decreasing costs and increasing quality of goods that people, rich and poor, have access to. Could’ve fooled me as my lifestyle is definitely less fabulous than it was 10 years ago and I’m one of the lucky ones.
Jokes aside, let me say up front that I get this argument (i.e., consumption theory) and why people gravitate towards it. Because it does make reasonable sense. In theory that is.
In practice, it’s not so easy for the following reasons…
Does Consumption Really Equal Quality of Life?
Short answer: No.
Let’s use this (extreme) hypothetical of a family of 4. 40 years ago, Dad worked, Mom stayed at home, kids played outside and everyone ate a home cooked meal together at the kitchen table when the streetlights came on. Contrast that to now. Dad and Mom work (multiple jobs?), kids are babysat by the TV or the video games they play on their parent’s tablet, and exhausted Mom or Dad comes home with some fast food for the family to eat because they just had a 1.5 hour commute and have no energy to cook food and clean dishes before starting the grind again tomorrow. Increased consumption? Yes. Increased quality of life?
And as described in a previous post on busting myths around income inequality, that’s the reality. We’re all working more, poor and lower middle class moreso than anyone. More women are in the workforce than they were 40 years ago. Therefore, even if one believes in the underpinning of consumption theory (that consumption = quality of life), increases in consumption would need to keep pace with the increase in the amount that we work to keep quality of life consistently improving. To my knowledge, they are not.
Who Said My Costs Are Actually Decreasing?
According the graph on the left from the BLS and NPR, the main areas that people (still) spend most of their money on are: housing related expenses, food, transportation, and medical care…all basic necessities.
The share of income being spent on recreation only increased from 5% to 6% since 1949. The “other” bucket also increased, but it’s important to note that that includes items like education and childcare (which now account for 3% of total spending). And, of course, this is for all Americans, not just poor and lower middle class Americans.
Therefore, if costs of what we’re consuming are not decreasing at a rapid pace, quality must be increasing in order for consumption theory to hold water.
So What is This “Quality” You Speak of Then?”
One point which the article fails to really mention, but to me is a tremendously important issue, is that while it is easy to determine how costs are decreasing, how does one define increasing “quality” of goods, much less quality of life. For instance, as seen above, the source of decreasing costs for most people in the US are a result of declining shares of incomes spent on food to the point that Americans spend less on food than any other country (see graph courtesy of Mother Jones).
But that says nothing about quality and food quality is getting worse, not better…
The amount of corn produced each year in America has tripled since 1970, from 4 billion bushels then to more than 12 billion today. Faced with an abundance of cheap corn, the food industry figured out how to make it into cheap meat, milk, eggs, and sweets. Over time, the cost of things made from highly-subsidized crops like corn, wheat, and soy—things like cheeseburgers and soda—has declined drastically. While you can debate the merits of local, organic, and seasonal food, and question what it means to eat sustainably, the dominant food production policy in the US is oriented around just one metric: producing calories as cheaply as possible. We’ve gotten so good at producing calories efficiently, in fact, that our problem is no longer that we can’t afford enough food—it’s that the types of calories that are least expensive are the ones that are worst for us.
So if the amount you spend on basic necessities falls because you’re eating McDonald’s and destroying your health in the process or because you can now get 72 ounces of Pepsi for $1.00 instead of $2.00, I’m not really sure how that amounts to an increase in “quality” of goods or life. In fact, as the costs of those goods continues to fall (largely due to government subsidies mind you), one can make the argument that the quality of life falls as well.
Whose Money Am I Spending?
I’m sure a lot of people are asking that. This point seemingly gets glossed over or ignored anytime discussions about consumption theory of inequality arise. To put it bluntly, if poor communities have to borrow against the future to maintain current consumption patterns, it’s impossible to say that if consumption continues to increase while incomes stagnate, it’s all good. In case anyone missed it, we just had a financial crisis that, in part, stemmed from the fact that Americans had too much debt and had ceased saving for the better part of a decade. That’s not only not sustainable, it’s dangerous.
Where’s My American Dream?
One point the article makes very well is that the argument against income inequality is not all about consumption. It’s also about feelings of fairness, meritocracy and social mobility. As long as income inequality remains high, the likelihood of the American Dream being a reality for most Americans will continue to fall. And like my friend said all of that has nothing to do with a level of access to consumer goods at all.