EconLog

Income Distribution or Consumption Distribution?, 2002-10-21

'Jane Galt' reacts to the latest Paul Krugman salvo.

I quite agree with a lot of it. It's been obvious to me for quite some time that the level of many CEO salaries was based less on their personal acumen, and more on their ability to build a captive board that ratified insane stock options.

She makes an important point, which is that we should look at inequality in terms of consumption rather than income. She argues that by this measure, inequality has decreased:

Has the qualitative life experience of the rich really increased, while the poor stayed stagnant? Since the 50's? 60's? 70's? I would argue it's the reverse. The head of GM's life is not, qualitatively, much better than that of the head of GM in the 50's. The poor, on the other hand, have more space, better food, more and better clothes, color televisions, VCR's, automobiles. . . items that were beyond the wildest dreams of the poor in the 1950's. The numbers may have diverged, but I would argue that the quality of life is converging.

Well, I don't know whether Larry Ellison ever succeeded in buying a MiG jet fighter, but that might qualify as an upgrade over what CEO's had in the 70's. Still, the point is well taken. The improvement in living standards seems proportionately higher at the low end of the income distribution than at the high end. I wrote about this in Ideological Anachronisms, of which Krugman's piece is an example.

Discussion Question. Which would you rather have, the lifestyle of someone in the top 10 percent of the income distribution in 1970, or someone in the middle of the income distribution today?