People looking for an excuse to take power and redistribute income always talk about the enormous gap between the incomes of the rich and the poor. In this interesting op-ed in the New York Times, Michael Cox and Richard Alm argue that it’s better to look at actual spending. The rich don’t spend nearly as much as they make due to high taxes and their saving, while the poor often spend more than their apparent incomes for a variety of reasons.
The average “rich” household only spends around four times as much as the average “poor” household, while the income differential is about 15 to 1.
Cox and Alm point out that international trade puts downward pressure on prices — nice for everyone, but especially beneficial to poorer people. They conclude, “Thus, there is a certain perversity to suggestions that the proper reaction to a potential recession is to enact protectionist measures. While foreign competition may have eroded some American workers’ incomes, looking at consumption broadens our perspective. Simply put, the poor are less poor. Globalization extends and deepens a capitalist system that for generations has been lifting American living standards — for high-income households, of course, but for low-income ones as well.”
