Arnold Kling  

Consumption Mobility and Inequality

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Jonathan D. Fisher and David S. Johnson write,


we show that there has been a large increase in income inequality but no concurrent increase in consumption inequality in the 1990s. Conversely, income mobility and consumption mobility are similar during this time period.

Finally, we link the concepts of inequality and mobility using a social welfare function. The results suggest that income mobility and consumption mobility more than offset the increases in inequality.


I have not paid to access the actual paper, and I have to admit I have at most a vague idea what the last two sentences mean.


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CATEGORIES: Income Distribution



COMMENTS (5 to date)
John Thacker writes:

My vague idea is that they're arguing that while income inequality has increased, different people are in the top percentile every year, so the amount of mobility increases things out. (Different tech guy's sell their companies each year, perhaps. Or on a more prosaic scale, different graduate and professional students graduate and move from poverty-level starving students to high-paying jobs.)

I assume that they claim that consumption inequality is better to measure because some people reasonably expect to earn much more one year than another, and so smooth out their consumption spending. (Yes, some people live beyond their means, but that sort of thing can't last forever, and hence doesn't, according to Herb Stein.)

I also have the vague idea that they claim that income mobility was high enough (perhaps even increasing) so that even though snapshots at one time showed higher inequality, overall people were better off. They also apparently came up with some social utility function, which is always dubious.

Anonymous2 writes:

My vague idea is that they're arguing that while income inequality has increased, different people are in the top percentile every year, so the amount of mobility increases things out.

That's a typical myth of the capitalist orthodoxy that income inequality is ok because of high social-mobility. In fact this just another way of justifying capitalist and landlord domination, since there is little mobility to speak of in the capitalist system. If you want to see the actual numbers then here is a good reference:

http://www.infoshop.org/faq/secB7.html

DL writes:

The authors begin with a simple social welfare function:

(Welfare) = (Income or Consumption)*(1 - Gini Inequality Coefficient)

I'm assuming that this "Gini coefficient" is a well understood concept in this field, as they never really define what it is.

The basic idea is that social welfare increases as income or consumption increases, and it decreases as inequality increases. In order to add mobility into this equation, the authors average an individual's data from two different years, rather than just using a single year's data. To quote their explanation:

"The level of inequality can stay the same in the two periods and there can be no growth in income, but social welfare can be higher with mobility. For example, suppose there is an economy with two individuals. Income for individual one equals $100 in period 1 and $200 in period 2, and income for individual two equals $200 in period 1 and $100 in period 2. Mean income, μw, equals $150 and inequality, Gw, equals 0 because average income for the two individuals is equal; social welfare in this economy equals 150. Social welfare in each individual period using [the equation without mobility] equals 25 because the Gini in each period equals 0.167 and mean income equals $150."

Basically, I think the paper is trying to say that the income distribution over any particular year shows a large amount of inequality, but this inequality decreases considerably if one looks at the consumption distribution or average income/consumption over several years.

Jack writes:

Badly written abstract. "Read the little book, read the little book..."

John Thacker writes:

In fact this just another way of justifying capitalist and landlord domination, since there is little mobility to speak of in the capitalist system.

And yet real numbers also show that the percentage of the very wealthy who get their income from capital or land instead of labor is decreasing. Most of the new rich get their tremendous money from labor in fields with winner-take-all star systems, especially in sports and entertainment. That certainly presents different issues for those concerned about inequality, but is incompatible with a vulgar Marxism.

Odd that you choose to point to your own numbers without reading the linked paper, which of course presents numbers of its own.

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