Inequality and Consumption by Ornaith O'Dowd, NYC

Sunday's New York Times featured an extraordinary opinion piece titled "You Are What You Spend" by Michael Cox and Richard Alm, both of the Federal Reserve Bank of Dallas. In it, Cox and Alm argue that the gap between rich and poor in the United States has been substantially overstated because it has been measured in terms of income rather than consumption. They grant the obvious, namely, that income inequality has been increasing since the 1970s. However, they say, we really shouldn't complain so much: what really matters is relative levels of consumption.

It turns out that the top fifth of households consumes on average only 2.1 times per person more than that among the bottom fifth: hey, nothing to worry about! (The average income of the top fifth is, according to their figures, over fifteen times that of the bottom fifth.) "The bottom fifth [of U.S. households] earned [in 2006] just $9,974, but spent nearly twice that-- an average of $18,153 a year. How is that possible?" they ask.

How indeed, we might pertinently ask, as the debt crisis devastates family after family, neighborhood after neighborhood. It seems, according to Cox and Alm, that poor families have sources of money other than taxable income, including sales of property and cars, and the cashing in of insurance policies. What sort of desperation might be involved in a decision to cash an insurance policy or to sell your house before the bank gets there first? These authors don’t consider this question. But, being poor means, among other things, having to make hard choices that the rich will never have to think about.

Cox and Alm mention that what is left over of the top fifth's earnings after spending on transportation, food, shelter, clothing, and so on, goes to taxes and savings. (They don't mention the sources of money other than income that they might have.)

Now, Cox and Alm tell us that there is a further difficulty for those arguing that the wealth gap is a serious and growing problem: VCRs (VCRs? Seriously!), computers, and cars have become cheaper. It requires less and less labor time to earn the money to buy them. So, even though the average worker is earning less in real terms now than in the 1970s as wages have failed to keep pace with inflation, we can more easily afford a computer now than then. Stuff is cheaper, thanks to "free trade"! Therefore, since it is making everyone better off, why stand in its way?

I won’t talk about the vicious consequences of "free trade" for the workers who make all this wonderful cheap stuff (that's enough of an argument against "free trade" in itself). Neither will I address the well-founded claim that we are, in the US, consuming too much all told: we are clearly heading for environmental disaster in that respect, but structural inequalities of consumption built into capitalism matter a great deal for that argument, too. That deserves a posting (or thousand) on its own, though.

Let's examine the terms of the argument itself. So a computer is more affordable now than in the 1970s. This sort of thing happens all the time: think of how cars were at first playthings of the elite, and then became affordable for working people, and in many parts of this highway-choked country are now basic necessities. The level of technology considered a normal part of everyday life has generally increased: that's what happens when technology advances and society absorbs it and builds it into its expectations. Having a phone, or electric lighting, or an indoor toilet, are now considered absolutely basic necessities for people in the United States, but once, of course, they were not. Computer and internet access are following in the footsteps of the phone: soon we will expect everyone to have them, and will organize society accordingly. It is already happening, of course. Imagine the reactions you would get if you didn't have a phone in this country: how am I supposed to reach you? What do you mean you don't have a phone number? It's a required field in the application form!

As we bask in the knowledge that the poor might (gasp!) have phones and computers like everyone else, let us think about where the expectations of the rich have gone in the meantime. You guessed it: up. They live in gated communities, or Manhattan; they fly to Italy or the Maldives for friends' weddings; they can afford organic food and milk that does not contain rBGH; they enjoy the best healthcare in the world and want to live at least a century. In other words, the same old story: where the market rules, the rich get richer and the poor do fall behind.

Poverty is not just about consumption, although it is about that to be sure (Cox and Alms didn't mention "consumption" of healthcare, for example-- as everyone knows, fewer and fewer workers have employer-provided health cover, and they face increasing healthcare costs)-- it is also about a terrible lack of security. What if I get sick? What if my partner dies? What if I lose my job? What if I can't afford to retire? My computer won't be much help then. The savings the rich pile away are not just idle in this sense then, they provide something very valuable indeed.

Poverty is about something else, too: status. In a hierarchical society like the US, class and poverty, in combination with race, gender, dis/ability, and sexuality (yes, in spite of the Will and Grace stereotype, not all queers are rich white men), structure your social and political experience in profound ways. What gets determined is simply and brutally whether you matter or not. This isn't news, but it is worth remembering every time you read that inequality really isn't that bad.