A Closer Look

Measuring Inequality – Spending inequality is dramatically smaller than wealth inequality

In a just-released study, we provide the first picture of actual U.S. inequality. We account for inequality in labor earnings and wealth, as Thomas Piketty and many others do. And we get to the bottom line: what does inequality in spending look like after accounting for government taxes and benefits?

Our findings dramatically alter the standard view of inequality and inform the debate on whether and how best to reduce it.

The methodology

Our study focuses on lifetime spending inequality because economic well being depends not just on what we spend this minute, hour, week or even year. It depends on what we can expect to spend through the rest of our lives.

Measuring lifetime spending inequality for a representative sample of U.S. households was a massive, multi-year undertaking, which may explain why ours is the first such study.

The results / So what did we learn?

First, spending inequality—what we should really care about—is far smaller than wealth inequality. This is true no matter the age cohort you consider.

Take 40-49 year-olds. Those in the top 1 percent of our resource distribution have 18.9 of net wealth but account for only 9.2 percent of the spending. In contrast, the 20 percent at the bottom (the lowest quintile) have only 2.1 percent of all wealth but 6.9 percent of total spending. This means that the poorest are able to spend far more than their wealth would imply—though still miles away from the 20 percent they would spend were spending fully equalized.

The fact that spending inequality is dramatically smaller than wealth inequality results from our highly progressive fiscal system, as well as the fact that labor income is distributed more equally than wealth.

Chosen excerpts by Job Market Monitor. Read the whole story at  We’ve Been Measuring Inequality Wrong | New Republic

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