Inequality in America

We keep hearing about rising inequality. But it isn’t that the rich are getting richer while the poor get poorer—it’s just the rich getting richer. Some who vent about this sound as though the very existence of wealthy people is, per se, a bad thing. Is this at bottom just plain envy?
But here’s one key point: even if the rich are racing ahead faster, it’s with diminishing returns, because there’s only so much added quality of life you can buy. A Mercedes is a better car, but a Hyundai gets you there all the same; a wide screen plasma TV is nice, but on a plain old set the pleasure of watching a football game is not greatly less. A $5,000,000 income doesn’t make your life a hundred times as good as with a $50,000 income. The benefits of technology, innovation, entrepreneurialism, and competition have been improving things more strongly for Joe Sixpack than for Joe Megabucks, because the mass market is far the larger, and that’s where the real money is to be made. Thus you no longer need be “rich” to have a car, TV, refrigerator, gourmet food, and even a nifty vacation trip.
Different income groups do still spend money differently, with the rich spending a higher share of income on services, as against “non-durables” like food and clothing. And a recent study (Christian Broda and John Romalis, “Inequality and Prices: Does China Benefit the Poor in America?” University of Chicago Business School) found that, for most of the past three decades, prices for services have risen faster than for non-durables. In particular, Chinese imports helped to lower prices and widen variety for the less affluent more than for the rich. The study’s authors calculate that this canceled out any seeming rise in inequality that might appear from looking at incomes in isolation.
All of the foregoing suggests that bottom line quality of life has actually been converging, with today’s non-rich enjoying far more of life’s amenities than in past epochs. There is no longer such a vast gulf between the rich and the rest. Once you achieve a decent living standard, additional toys don’t much affect your basic happiness. That’s why, in surveys, self-reported “life satisfaction” is similar across income groups. In America, and other advanced nations, the dream of equality is truly being realized in the ways that really count.

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One Response to “Inequality in America”

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