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Consumption Inequality

Decent Essays

Consumption patterns and health trends constitute two of the most important factors in evaluating living standards. An examination of their differing trends throughout time, the conditions that led to their changes, and their methods of estimation can help etch the image of American inequalities.
Unlike earnings and income that have relatively straightforward methods of measurement, consumption is a trickier pattern to quantify. Ordinarily, consumption is measured as a flow per unit of time, and it’s important to calculate its imputed flows for durables. That gives a more realistic description of spending patterns at any given moment (which closer approximates consumption inequality). By contrast, health is usually considered a “stock”, and …show more content…

This has much to do with the supposed diminishing utility of consumption, which would natural level off consumption inequality. However, there are several factors that might sway this. First, even if consumption for the poorer classes has stayed roughly the same, their ability to finance it has greatly diminished. Middle and lower-income earners have been enjoying debt-fueled growth, as Robert Guttman and Dominique Plihon have shown. Given cheap and widely available credit, these Americans have indebted themselves to record levels in pursuit of the American Dream. Hyman Minsky aptly describes this as “socially constructed euphoria”; Americans simply cannot curb their spending habits, even in light of diminished ability to afford their consumption. Second, the inflation of the welfare state has served a critical role in average American’s ability to keep their consumption on pace with wealthier ones. As the Congressional Budget Office’s “Distribution of Household Income and Federal Taxes” paper notes, the average market income is around $86,000, but it’s buoyed by government transfers ($14,000 per household on average). After federal taxes, this number is brought down to $80,000. In the absence of highly progressive taxation (which gives a break to lower income earners) and a robust system of welfare, the average American would have significantly more expenses to cover, and less disposable income. Hence, these measures artificially inflate the ability of Americans to boost or maintain their consumption—contributing to the historical pattern economists have

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