OCTOBER 25, 2012
Kevin Hassett and Aparna Mathur’s op-ed in today’s Wall Street Journal (“Consumption and the Myths of Inequality”) is an exercise in denialism that makes me nostalgic for the days when the right forthrightly advocated social Darwinism. Yes, conservatives used to say, life is hard for many people, but that’s because they have little to contribute to society. Rather than rail against inequality, these mental pygmies should work to unfetter John Galt-like mental giants, without whose wealth creation their puny lives would be punier still. This worldview wasn’t very nice, but at least it acknowledged a recognizable social reality: a few people had a lot and a lot of people had very little.
In today’s focus-group-driven world, Republicans can’t afford to be seen demonstrating overt contempt for or indifference to the have-nots; that’s one reason Mitt Romney had to disavow his ghastly remarks about the “47 percent,” uttered in what he thought was the privacy of a Boca Raton fundraiser. It’s also why Paul Ryan, in a speech yesterday about poverty, framed his message (poverty programs foster dependency) as an upbeat one about charitable giving and helpful friends and neighbors and mutually supportive communities rather than as a scolding message about parasitic malingerers bent on sucking the Treasury dry.
When the topic is growing income inequality, it’s hard to prettify an imbalance between the rich and everybody else, so instead conservatives try to argue that it doesn’t exist. “Today,” write Hassett and Mathur, “we hear that the gains from economic growth accrue to the highest-income earners while the standard of living of the poor and middle America stagnates and the gap between the richest and the poorest grows ever wider. That portrait of the country is wrong.”
A bold claim, given the overwhelming evidence to the contrary. Thomas Piketty and Emmanuel Saez have demonstrated pretty clearly that America’s top one percent have doubled their income share over the past three decades. (If you want to play with the data, check out their World Top Incomes Database.) Hassett and Mathur answer that such studies “leave out too much.” They don’t include employer-provided benefits, or they don’t include government-provided benefits and taxes. Politicians who ignore the effects of the safety net “are putting their thumb on the scale.”
The problem with that argument is that while some studies have indeed left out such factors, others have not. A 2011 Congressional Budget Office study that included all those factors found that, whaddya know, between 1979 and 2007 the top 1 percent saw its income grow by 275 percent, which was about seven times more than income growth for the middle 60 percent and about 15 times more than income growth for the bottom 20 percent. Anyway you slice it, income inequality has been growing rapidly. (Overall, the federal government effects about one-quarter less redistribution today through taxes and benefits than it did in 1979. And if conservatives like Hassett and Mathur and Romney and Ryan get their way, it will effect a whole lot less redistribution in the future.)
Hassett and Mathur next point out that people’s earnings tend to rise over their working lifetimes, so “snapshot measures of income inequality can be misleading.” True, but when you correct for demographic factors (today’s population is older than it was 33 years ago, and divorce and single parenthood have made households smaller), you find that income inequality, though less extreme than shown by the standard measure, is also growing faster than shown by the standard measure.
Sensing perhaps that these two arguments are entirely bogus, Hassett and Mathur next move on to the subject of consumption, which is where inequality denialist arguments pretty much always end up. What matters isn’t how much money you have, they argue, but how much stuff you have, and the income gap isn’t matched by a comparable consumption gap.
The first thing to be said about this argument is that when a libertarian starts arguing that money doesn’t matter you know it’s time to reach for your wallet. Hey, Kevin Hassett! If money doesn’t matter, can I have yours?
The second thing to be said about this argument is that the data on consumption are, as you might expect, a little squishy—so squishy that while some studies show a consumption gap much smaller than the income gap, other studies (here’s one) show a consumption gap that’s the same size as the income gap. From reading Hassett and Mathur’s op-ed piece, you would never know that there’s a disagreement among serious academics on the basic question of whether consumption patterns match income patterns or not. (Hassett and Mathur do acknowledge that disagreement, briefly, in the American Enterprise Institute paper on which the op-ed is based.)
I have no idea who’s right about whether the consumption patterns do or don't match growing income divergence. But let’s assume Hassett and Mathur are right. One would still like to know how relative consumption of particular items has changed over three decades. Not all consumption is created equal. Which items are cheaper? Which are more expensive? Hassett and Mathur don’t say. The answer is that clothing and food and electronics are cheaper (Hassett and Mathur marvel that even low-income people often own microwave ovens and cell phones) while housing, transportation (read: automobiles), higher education, and health care are more expensive.
Perhaps you’ve heard that the number of people lacking health insurance rose pretty steadily over the past decade and a half (though that increase was halted last year thanks to Obamacare). The reason why is that health care has gotten a lot more expensive. The poor person who can afford a flat-screen TV is a lot less likely to afford a gall bladder removal. Health care is especially expensive when people have no health insurance, or lousy health insurance. In 2010, for instance, Latinos saw their health care expenditures rise by 17 percent (i.e, by $274), while non-Latinos (who tend to be wealthier) saw their health care expenditures rise by a mere one percent (i.e., by $4). On a per-dollar basis, Latinos “consumed” more health care than non-Latinos. But obviously that’s a meaningless statistic. The non-Latinos had cheaper access to health care, which is what matters. (In general, I believe that categorizing health care as a “consumption” item is ghastly and wrong, but it can’t be avoided when you’re measuring what money will and won’t buy.)
Assuming Hassett and Mathur are right that consumption patterns haven’t diverged along with income, there is something else one would like to know: How can that possibly be? To buy stuff you need money, right? Hassett and Mathur pretend this question doesn’t exist, but the answer is obvious. If the middle class really is keeping up with the affluent Joneses, it’s through borrowing. And in fact, a growing body of work (including this recent Century Foundation paper) suggests that income inequality has been driving America’s debt binge. Between 1983 and 2007, the top 5 percent saw their debt fall from 80 cents for every dollar of income to 65 cents, while the bottom 95 percent saw their debt rise from 60 cents for every dollar of income to $1.40. That suggests President Obama is probably right when he says that Republican tax cuts in the early aughts helped bring about the sub-prime financial crisis of 2008. Americans were binging on debt because Americans were binging on inequality.
So. Even if Hassett and Mathur are right that consumption has neutralized the effects of income inequality (a premise I happen to find dubious), it would logically have to be debt-fueled consumption, which is not anything America needs more of, particularly when the debtors lack the means to repay the loans. Why would a conservative, of all people, overlook that?
Stee-rike three, and they’re outta there.