SubscribeFri 4 Jan 2008
There’s great debate about the growing income inequality in the U.S. While I’ll let others debate if this is true (I believe it is), or even if it matters (which I do), not many people actually discuss the narrowing consumption gap. The December 22nd issue of The Economist features an excellent article discussing exactly that. The fact is that over the last couple hundred years, the gap between the rich and the poor has been considerably narrowed. Even as the income gap has begun to widen in the last couple decades that consumption gap has continued to narrow.
How has the income gap widened yet the consumption gap narrowed? Hidden in the apparent paradox are reasons both good and bad. The good reasons are obvious enough. The Economist compares the consumption of theVanderbilt’s at the turn of the century to common man. Willie Vanderbilt cruised around in a German sportscar at over 90 MPH while his older brother at his Biltmore Estate had a refrigerator that could hold over 500 lbs of meat. The average worker at that time would be fortunate to have a bike. Most likely he traveled by foot. At home he might have a block of ice to keep his food chilled but would be hard pressed to fill it with cuts of meat, let alone 500 lbs worth.
Today the Bill Gates of the world may live in 50,000 square foot homes and fly around in private jets, but most Americans fly around in jets and many live in spacious 5,000 square foot McMansions. Today, the rich might have larger televisions, but the almost everyone has a TV. Americans live in society of affordable luxuries.
The more nefarious side of the shrinking consumption gap is associated with consumer debt. The average worker can easily finance a lifestyle that is beyond his or her means via credit cards and home equity. Consumers have the “privilege” of growing consumption even as incomes on relative basis shrink. The article in the Economist to my disappointment fails to explore the future implications of this continued borrowing.
If you enjoyed this post, please subscribe to the RSS feed
January 5th, 2008 at 12:53 pm
[...] Consumption Equality by Ask Dong - The consumption gap between the rich and the poor has narrowed. Sounds like the poor living beyond their means. I don’t think we are prepared for the consequences of this problem hitting our economy some day. [...]
January 7th, 2008 at 9:02 am
Dong,
I just read this again, and think this is EXACTLY the point you need to bring up when people (not all of them economic policy conservatives) start touting ditching the income tax for a “use tax”.
Of course, candidates like nut-job Ron Paul like to radicalize this into ONLY a use tax, when in essence what make more sense is a “Flat Income Tax Rate” of 15%, and then a use tax on top of that, with folks in certain brackets getting to apply their use tax to that 15%, and some not.
All i know is that folks like Warren Buffet getting to make hundreds of millions of dollars and only pay capital gains (15%) because of their line of work (few are more lucrative, actually) is not very fair!