Income vs Consumption Inequality

Megan McArdle points out the difference between income vs. consumption inequality.

I broadly agree with Will that consumption inequality, not income inequality, is what matters.  If the rich have access to broad classes of goods that the poor can’t have, I find this worrying.  On the other hand, if the problem is that Bill Gates has a really awesome 80 inch flat panel television, while the poor have to be content with a 32 inch CRT, well, I can’t say my heartstrings are plucked very tight by this injustice.  So it’s important to know what the real differences are.


11 Responses to “Income vs Consumption Inequality”

  1. 1 Jennifer Wienecke-Friedman July 17, 2009 at 4:45 PM

    I to can be content with a smaller TV than Bill Gates, but I cannot be content with unaffordable health care, child care and other such “luxuries” of higher wage earners. Many of my friends work two jobs to be able to work one job; i.e. working a second job while friends and family babysit so as to afford childcare to work the first job. Many of us lack insurance through our employers and those with insurance pay enormous premiums and deductibles. It is true that the poor have been aided in their ability to consume by government benefits but the amount of working poor, those who make too much for aide but whose does not exceed the government’s poverty level, still must be accounted for. When the working poor spend their income on basic necessities then there is little money left over to consume other goods and services. These people find other ways to consume goods and services: secondhand stores, barter and trade, freecyle or craigslist “shopping.”

  2. 2 Jessica Tsai July 19, 2009 at 9:05 PM

    While Megan McArdle does bring up an interesting point, I agree with what Jennifer is stating; when differences in income alienate those who are unable to avoid certain consumables, it is no longer a trivial issue of differences in consumption inequality. The fact is, the Americans who are struggling to make payments and are working more than one job are doing so in order to provide themselves and/or their families with privileges such as healthcare that perhaps should be considered as rights, as they are in other countries. Megan speaks as if all Americans are able to afford a certain amount of luxury goods ie: she compares televisions without considering the fact that maybe some Americans cannot even afford televisions in the first place. If we are speaking under the assumption that every household is able to afford a certain degree of luxury goods then income inequality may not be the major issue at hand. However, I personally believe that we should not undermine the effect of this inequality as the rich do seem to have access to goods that the poor don’t, mainly because they are able to afford it; thus the issue of income inequality is so closely linked to consumption inequality that it is difficult to isolate one and claim that it is more important.

  3. 3 Amanda Smith July 21, 2009 at 3:16 PM

    Income is an exact amount of money we obtain from performing some kind of job. Consumption is spending money (even if we may not have it) on things we need and (a lot of the time) want. Megan McArdle made me think of our poverty and overall consumption in a very different way. All we should care about are whether everyone is getting life’s necessities. We shouldnt worry ourselves about things like how big everyone’s television screens are, as McArdle put it. People thousands of years ago lived without any of the luxeries we now have, and only focused on what they needed…like food, water, and shelter.

  4. 4 Jessie Maguire July 22, 2009 at 8:46 AM

    Luxuries are something that not everyone can afford, sure everyone would love to have the latest gaming system or an expensive television, but that is simply not possible for some people. Luxuries are just what they are, luxuries, but when it comes to healthcare and having food to put on the table, that is something everyone should have access to. People are so wrapped up in making sure that when it comes to luxuries everything is fair, yet what they really need to be focusing on is what really matters. With affordable healthcare and better nutrition people will lead better lives and won’t have to worry about whether or not they will be able to make it through the day.

  5. 5 Joseph Garcia July 23, 2009 at 7:14 PM

    Looking at the income disparity from an economic perspective, I see that high-income earners are necessary to our economy. People who make money in the millions get taxed more than the rest of us. However, I wonder if taxing them less would be better for our economy. Since taxing decreases incentive to work, maybe these millionaires would attract more foreign business into our economy and provide better and cheaper goods to everyone.

  6. 6 Kit t Kat July 24, 2009 at 10:14 AM

    Everyone having necessities is way more important than everyone having the latest and most expensive stufff. To often people focus on having luxury goods and do anything necessary to obtain it, like illegal gambeling, sale of illegal drugs, illegal prostitution, robbing, lieing. Society focusing and praising and treating people better with lots of money has caused people to be so determined about getting rich or they will die trying. If people will stop valuing materialistic things all this negative unhealthy behavior may end. Than people will worry less about having expensive stuff and will use extra money to help others in need. Not on buying more cars or houses than they need.

  7. 7 Abby July 26, 2009 at 2:11 PM

    Why should consumption inequality “matter” more over income inequality? Consumption is constrained by income, but dictated by personal preferences. If a low-income individual WANTS to buy a $5000 television, he has the means to save or borrow capital to make the purchase that matters most to him. However, in making this decision he may give up other opportunities, like paying his health or car insurance, or maybe even his electricity to power that big television. Ultimately, each person has a disposable income to purchase what consumer goods he/she values most. This is not a matter of inequality, it is a matter of preference: like may other responders stated, most people value “needs” (health care) over “unnecessary wants” (TVs).

    And yes, it is unfortunate that some people work their butts off at minimum wage jobs and can’t afford luxuries like Bill Gates, but remember that Bill Gates wasn’t handed anything either; he got to where he is today on the same principles of hard work and willpower, not inheritance!

  8. 8 Lauren Swartz July 27, 2009 at 8:48 AM

    Our entire economy is consumption driven. Panasonic makes the same money selling a big screen TV to Bill Gates as it does to a low income family and advertizes belligerantly and indiscriminately. Stores in turn can sell their products on layaway and boost short term sales, upping the profits and stock price. Likewise, credit card companies are perfectly willing to lend money to borrowers who will likely carry a card balance. So that leaves the consumer, harangued by constant advertisements, the complicit media, and lenders looking to make a profit out of borrowers less than ideal economic status.
    Surely consumers can resist. But we know by looking at recent statistics on Americans’ debt that most succumb. It’s time that this was looked at through a wider lens- our propensity to spend is not solely based on our greed and wanting as nice a television as Bill Gates (although this is a partial factor). The entire economy of the United States depends on the average citizen spending! Megan McArdle should reconsider her flippancy when discussing consumption inequality.

  9. 9 Sanamjit Bains July 28, 2009 at 11:26 PM

    Rich people or extremal rich people like Bill Gates make a fairly small part in the economy when it comes to income and consumption as compared to the average people with average income and poor people. Thus giving an example with focus on comparison of Bill Gates income and consumption with the common man is not a true indicator of the difference between inequality between income and consumption.

  10. 10 Stacey Smarker August 3, 2009 at 10:56 AM

    I think it should be about having having your needs and wants can be followed later. Bill Gates has his wants and gets to have the best of the best because he is wealther. However, most of us can’t live like this. Many of us are struggleing to have this. But, the wealthy already have this and the best of the best. When it comes to consuming things it doesn’t matter. Bill Gates get his $50,000 TV and I can go get one too. I can do payment plans, loan, layawy to afford the TV I want. In the end the TV company makes the same amount of money from both parties. I dont think that this an inequality beacuse of the fact that anyone can get what they want if they try.

  11. 11 Maricar De Los Reyes August 6, 2009 at 3:54 PM

    The amount of income we have usually determines the kind of things we have. Bill Gates has a never-ending influx of money, while most of us are limited to what we can make with the jobs we have now. Today, its hard for people to even buy the necessities. I’ve noticed even the food prices have gone up. It seems to me the middle-class is holding everybody up. We pay the taxes for the poor and provide for a lot of their healthcare, which is good in some cases, and the rich have access to ways of getting large refunds. Can there ever be a balanced system, where the lower, middle, and upper classes all do their parts equally?

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