Income Gap vs Consumption Gap and Kansas

Interesting stuff from Eric S Raymond.

On the Income Gap vs Consumption Gap

There’s an often-quoted statistic that the ratio between the average incomes of the richest and poorest quintiles of Americans is 15 to 1. Earlier this year I stumbled over some research (”You Are What You Spend”) indicating that there is less to that difference than meets the eye. According to the authors, the difference in actual annual spending (as opposed to annual income) falls to 4:1, apparently because lots of people have sources of spendable cash that don’t show up as annual income (asset sales, securities not subject to capital gains taxes, insurance policy redemptions, and so forth).

But it gets better. If you adjust for size of household, the consumption ratio between richest and poorest quintiles drops to 2.1:1. They note that the average person in the middle income quintile consumes just 29% more than the average person in the lowest quintile. American spending patterns look dramatically more egalitarian than the raw numbers on income distribution would suggest. What the heck is going on here?

How the Consumption Gap explains What’s the Matter With Kansas?

Thomas Frank’s book What’s the Matter With Kansas? bears the standard for a common complaint by left-wing redistributionists. “Why”, Frank asks, “do middle and lower-income Americans keep voting for Republicans when Democrats better serve their economic interests? Why do they let ‘values’ issues trump pocketbook issues?”

In fact, only a little study of public-choice economics is required to show with near certainty that the major premise of Frank’s question is wrong — that more redistributionism would not wind up serving the economic interests of anyone outside the political class itself. But let’s agree for this discussion to ignore everything we know about about rent-seeking and capture effects and address Frank’s question in terms of his own limiting assumptions.

Redistributionists like Frank reason and argue as though (a) Republicans represent the interests of the top income quintile only, (b) Kansans are all lowest-quintile, and (c) they are therefore looking from the bottom up at the 15:1 disparity in quality of life that income statistics suggests. Under those assumptions, Frank’s question would indeed be quite difficult to answer.

I think Frank’s assumption (a) is false; it takes very little research to show that the Democratic Party is actually more reliant on rich donors (notably from the entertainment industry and tort lawyers) than the Republicans are. But I’ll let him keep this premise, too, because I don’t need it to refute his model. Moving on…

Of course, it's not all upside.

Not all of the consequences of the vanishing gap will be so benign. One of the games humans play when they’re not worried about food and shelter is “hate the other”. Yugoslavia’s welter of tribal animosities didn’t blow up until after Communism fell and they jumped up a Maslovian level. Islamofascist terrorism is a movement of millionaires and the tiny Arab middle class, not the subsistence-level poor. In general I think we might see quite a lot of uncorking of old resentments, and not a few invented new ones.