In this New York Times Op-Ed, W. Michael Cox and Richard Alm argue that measuring prosperity by earnings is a mistake, and that we would be better off measuring prosperity by spending.
Income statistics, however, don’t tell the whole story of Americans’ living standards. Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume, and that the abstract, income-based way in which we measure the so-called poverty rate no longer applies to our society.
While the authors offer no explanation why income is so abstract or misleading, the cue is their reference to Americans’ standard of living. What difference does it make what they earn, when what they are really interested in knowing is how good a time we’re having.
To understand why consumption is a better guideline of economic prosperity than income, it helps to consider how our lives have changed. Nearly all American families now have refrigerators, stoves, color TVs, telephones and radios. Air-conditioners, cars, VCRs or DVD players, microwave ovens, washing machines, clothes dryers and cellphones have reached more than 80 percent of households.
There is no question from any quarter that we are, if nothing else, a consumer society. No matter who you are, you’re nobody if you don’t possess the basic accouterments due every American. But needless to say, there’s a glaring omission in their argument. How, one wonders, does one achieve this American dream without the income to pay for it?
Before turning to that question, it is worth noting that the authors are not some egg-head academicians, pontificating for no particular reason some strange theory that will get them into the Times and a small dose of name recognition. The authors are major players at the Federal Reserve Bank of Dallas.
So how do these Fed movers and shakers view the plight of the income-poor in our society?
The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status.
Note those numbers: Earn $9,974 and spend $18,153, because every American has a right to a flat panel TV. While they acknowledge that “some of these families are mired in poverty,” they dismiss the rule in favor of the exception (another fine American tradition).
Not only does this position glorify consumerism, the end goal of all real Americans and the standard by which they should be judged. This view of the American legacy explains a lot about why those neglected folk “mired in poverty” turn to alternative means to accumulate the consumer goods that are their American birthright. When you can’t buy the TV because you can earn enough money to afford it, and when you’re barely a human being when you don’t have the TV, then you have to something a little more drastic to get the TV.
In the play, “Fiddler on the Roof,” Tevya says “It’s no crime to be poor.” But that was the schtetl, and this is America, where it is indeed a crime not to have an iPhone or ipod or whatever the latest thing beginning with “i” may be. There is always the route of massive accumulation of debt, a tried and true method of making sure that people spend mindlessly while being forever kept in an economic hole from which they can never, lawfully, climb out, but eventually that gets tedious. There’s nothing like a little crime for upward mobility.
For economists from the Fed to suggest that the accumulation of consumer goods that people cannot afford and don’t need lifts American’s to happy heights of prosperity is just plain sick. By their measure, who can blame people for turning to crime to achieve the American dream. After all, it’s not how they get the goods that matters, as long as they do.