The Measure of Prosperity, And Why People Steal

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.

10 comments on “The Measure of Prosperity, And Why People Steal

  1. Susan Cartier

    SCott, where does credit card balances, bankruptcies and foreclosures factor into this ‘appearance’ of affluence. I know WAY too many people who have great incomes, all the toys but OWN absolutely nothing, second mortgages, massive credit card debt and living paycheck to paycheck.

  2. SHG

    The authors mention debt only in passing and trivialize it.  It is a shocking omission.  They seem to say that the mass of consumerism comes from other causes, retired people, transitioning between jobs, and otherwise ignore maxing out credit cards, 110% financing on ATM homes, etc. 

    But if we’re going to glorify the “appearance” of affluence, then why criminalize people doing what they have to do to get there.  After all, is it any less stealing to max out your credit cards, rip off the banks and merchants, then go underground to avoid having to pay?

  3. Kathleen

    The authors tell us this about
    “spending money that doesn’t fall under taxable income for the bottom fifth who earned income”: that “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.” They overlook the earned income credit, purposefully it appears, because it is an obvious “source” of spending money for the income-poor. Isn’t it a large category?

    This is a public assistance program, a transfer of income to those “mired in poverty” [and some not so mired], with children, from others who earn enough to pay taxes from their net income and do not get any of it back.

    I agree that it is sick for government economists to be equate the “buybuybuy” mentality with prosperity. I understand that, before the Model T, people in this country, and their government representatives, thought as a general proposition that it is foolhardy — and unnatural — to buy things you cannot afford.

    You mention, “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.”

    It fits the government’s thesis, and biases, to overlook crime, and the EIC and other types of public assistance, in its statistics, doesn’t it? Those “sources” of untaxed income get us to a conclusion opposite of theirs — that income is a better guideline of economic prosperity than consumption.

  4. Windypundit

    I think you’re confusing what an economist means by consumption with some anti-market rhetoric about “consumerism.” Not only does consumption matter, but in the final economic analysis, it’s the only thing that matters.

    This is not about judging people, it’s about judging the performance of the economy. In the broadest sense, people consume goods and services because doing so improves their lives, and we have an economy for the purpose of providing the stuff we want to consume.

    (I’m not saying we should be stupid about it. You don’t have to spend all your money now. But if you’re earning more money than you’re spending and you’re not planning to spend it later, or let your children spend it later, you’re making a mistake.)

    Therefore, the ultimate measure of the economy is how much stuff it allows people to consume, how efficiently it produces that stuff, and how well it distributes that stuff to people.

    We use income figures in our estimates of the economic well-being of groups because income is easy to measure—we report it to the government every year. However, economists have believed for a long time that this understates well-being because income figures do not correctly take into account the value to people of consuming new and better goods.

    On the other hand, our ability to consume is directly related to our ability to earn an income, and the more income we have, the more choices we have about what and when to consume. Cox and Alm have a point about the value of studying consumption, but I wouldn’t take my eye off the income figures.

    (Similarly, whenever anybody complains about “consumerism” I feel the urge to check my wallet. When people want me to comsume less, I assume it’s because they have some other use in mind for my money.)

    Finally, you wrote, “…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.”

    Well, if they do a job that creates valuable goods and services, they will have increased the sum total of possible consumption in the economy, and that’s a good thing. But if they steal the goods from other people, then their consumption increases only by reducing the consumption of others, meaning there is no net social benefit. In fact, the possibility of theft tends to discourage production of goods or divert that production into otherwise unnecessary security measures. Theft is a negative-sum game.

  5. SHG

    “our ability to consume is directly related to our ability to earn an income”

    Or the ready availability of debt.  I want people to consume less because I end up financing their consumption by compensating for their less pleasant costs, like taxes, college tuition, mortgage defaults, health care, inflation, or criminal conduct.  Frankly, I would rather use the money I earn in other ways. 

    Economic theory dictates the use of real dollars, and as long as economists want to encourage spending money on crap that leaves people without the ability to hold up their end of the social contract, I think they ought to pay an “economist” tax and carry the load for their theory so the rest of us don’t have to.

  6. Windypundit

    “I want people to consume less because…I would rather use the money I earn in other ways.”

    You want other people to consume less so you can consume more? I’m sure Matlock is so proud of you right now.

  7. SHG

    Nu-uh.  I didn’t say consume more, but use the money in other ways.  But I do want Matlock to be proud of me.  I really, really do.

  8. What About Clients?

    The Wages of Consumerism

    The crude commercialism of America, its materializing spirit, its indifference to the poetical side of things, and its lack of imagination and of high unattainable ideals…. –Oscar Wilde, who liked Americans, in “The Decay of Lying” (1889), featuring George…

  9. What About Clients?

    The Wages of Consumerism

    The crude commercialism of America, its materializing spirit, its indifference to the poetical side of things, and its lack of imagination and of high unattainable ideals…. –Oscar Wilde, who liked Americans, in “The Decay of Lying” (1889), featuring George…

  10. What About Clients?

    The Wages of Consumerism

    The crude commercialism of America, its materializing spirit, its indifference to the poetical side of things, and its lack of imagination and of high unattainable ideals…. –Oscar Wilde, who liked Americans, in “The Decay of Lying” (1889), featuring George…

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