Via an email from Lane Kenworthy, here’s more research contradicting the claim made by Kevin Hassett and Aparna Mathur in the WSJ that consumption inequality has not increased (here’s my response summarizing additional work contradicting their claim, a claim that is really an attempt to blunt the call to use taxation to address the growing inequality problem):
Inequality of Income and Consumption: Measuring the Trends in Inequality from 1985-2010 for the Same Individuals, by Jonathan Fisher, David S. Johnson, and Timothy M. Smeeding: I. Introduction: Income and Consumption The 2012 Economic Report of the President stated: “The confluence of rising inequality and low economic mobility over the past three decades poses a real threat to the United States as a land of opportunity.” This view was also repeated in a speech by Council of Economics Advisors Chairman, Alan Krueger (2012). President Obama suggested that inequality was “…the defining issue of our time…” As suggested by Isabel Sawhill (2012), 2011 was the year of inequality.
Recent research shows that income inequality has increased over the past three decades (Burkhauser, et al. (2012), Smeeding and Thompson (2011), CBO (2011), Atkinson, Piketty and Saez (2011)). And most research suggests that this increase is mainly due to the larger increase in income at the very top of the distribution (see CBO (2011) and Saez (2012)). Researchers, however, dispute the extent of the increase. The extent of the increase depends on the resource measure used (income or consumption), the definition of the resource measure (e.g., market income or after-tax income), and the population of interest.
This paper examines the distribution of income and consumption in the US using data that obtains measures of both income and consumption from the same set of individuals and this paper develops a set of inequality measures that show the increase in inequality during the past 25 years using the 1984-2010 Consumer Expenditure (CE) Survey.
The dispute over whether income or consumption should be preferred as a measure of economic well-being is discussed in the National Academy of Sciences (NAS) report on poverty measurement (Citro and Michael (1995), p. 36). The NAS report argues:
Conceptually, an income definition is more appropriate to the view that what matters is a family’s ability to attain a living standard above the poverty level by means of its own resources…. In contrast to an income definition, an expenditure (or consumption) definition is more appropriate to the view that what matters is someone’s actual standard of living, regardless of how it is attained. In practice the availability of high-quality data is often a prime determinant of whether an incomeor expenditure-based family resource definition is used.
Mark Thoma presses the issue of increasing income inequality: