4 ms·

Consumption stats show the gap between rich and poor is less than most assume

17 points by kradic 19y ago

danteembermage 19y ago
I think the point is that the utility curve for consumption flattens out a lot faster than people think. The difference between starving and a good cheeseburger is probably a lot bigger than the difference between the cheeseburger and an immaculate dinner overlooking the Thames. Granting that it seems pretty rational to just settle with the four-times pricier television and leave the rest to the grandchildren or charity. There are of course exceptions, e.g. someone really should have talked to Mike Tyson about the diminishing marginal utility of Bengal tigers.
utnick 19y ago
the definition they use for rich is 150k household income.
- nickb 19y ago
  I think you're alluding to skewing of the stats: http://www.lookingglassnews.org/viewcommentary.php?storyid=33 http://www.lookingglassnews.org/viewcommentary.php?storyid=3... The NYTimes article is guilty of the same thing.
- imgabe 19y ago
  Technically, the definition they were using is the top-fifth of income earners. The average income of which was about 150k.
  - Goladus 19y ago
    It was a somewhat sarcastic reply. Glossing over that detail was for the sake of brevity, I think. Point being that people making $30 million a year are lumped in the same category as people making $150,000. Since this is a study about spending habits, it is an incredibly misleading way to present the statistics. Not only does it hide the behavior of the very top but it skews the results of the rest of the upper fifth (the top 18%-19%).
leelin 19y ago
I think the article's thesis rests on two flawed assumptions: 1.) If rich people spend as much as poor people, then their happiness must be equal because the excess income from the rich go into silly things like investments and retirement savings. Spending $30K a year and knowing your nest egg grew by $100K, and spending $30K a year without health insurance living paycheck to paycheck in fear of layoffs isn't exactly equal happiness. 2.) A family of 2 must spend 2X to be just as happy as a family of 1 spending X. At the very least, the Costco / BJs / Sam's Wholesale factor debunks that assumption. I'd model happiness in discrete buckets: "can retire", "can last a while without a job", "must keep working to maintain lifestyle", and "must keep working or risk pain and death" At the high end there might also be "looking for ways to blow the money before getting too old"
- neilc 19y ago
  The article doesn't discuss happiness at all, so I don't think you can call that "resting on a flawed assumption." The relationship between income and happiness is highly non-linear -- the standard argument is that beyond a certain level of income (satisfying the lower levels of Maslow's pyramid), further income doesn't contribute much or at all to increased happiness.
- falsestprophet 19y ago
  There was an interesting conversation about this a few weeks ago: http://news.ycombinator.com/item?id=102876 http://news.ycombinator.com/item?id=102876
tx 19y ago
His sentences of globalization were the critical element. By including 3rd world countries in global trade, by "deepening capitalism" as he says, we essentially outsourced the poor. Now the poorest Americans represent the upper middle class of the world. The world, especially the Muslim part, seems to object.
- anamax 19y ago
  The odd thing about this "outsourced the poor" is that we didn't make them poorer in an absolute sense. We either left them where they were or gave them options that many of them prefer, which is another word for "richer". We haven't freed them from whatever despot got to them first, but they don't seem to value that all that much. It's hard to see how their choice or situation is our fault.
  - andreyf 19y ago
    ...they don't seem to value that all that much. It's hard to see how their choice or situation is our fault. Although it would be nice if this were the case, history starkly disagrees.
    - anamax 19y ago
      "history" disagrees with what? Does "history" think that we have freed them from despotism? Does history think that they'd like us to do something about their despot? If so, history seems to have some problems with reality.
      - andreyf 19y ago
        Sorry for being imprecise, trying to avoid a lengthy political debate. There are many examples when American actions have helped put and keep despots in power because of perceived American interests. If we expand the criteria to include examples of American interests sustaining systems which keep despots in power, we can find even more examples. Either way, America hasn't had a non-interventionist foreign policy in a long time, and it's both frightening and insane that some still see it as a mythical white night battling for good in the world.
anaphoric 19y ago
The availability of easy credit has kept lower/middle class consumption so high recently. It will not last. In fact as we speak this whole system is unwinding. Watch credit card delinquencies... But I take it that what this article is really arguing for is the maintenance of free trade. And on that point I agree.
sanj 19y ago
I'm surprised no one has pointed out the giant negative spike in the last column. It effectively says that the poor are spending (ie, consuming) more than they make to maintain their standard of living. So, yes, consumption is the same, but the cost is a mortgaged future or a edifice that crumbles the first time anyone is seriously sick. Further, it seems strange that the values are absolute. I'd like to see them as a percentage of income.
- sanj 19y ago
  I created a Google Spreadsheet with the data, and the pre/post-tax percentages: http://spreadsheets.google.com/pub?key=p-dY8J8J_WREnyO8P_QLqBQ http://spreadsheets.google.com/pub?key=p-dY8J8J_WREnyO8P_QLq... Interesting point: the lowest fifth use 60% of their post-tax income for housing. Add in food, and you're up to 95%. Add together the trio of "food, shelter and clothing" and you're over their income.
  - ks 19y ago
    And don't forget health care. I bet most would trade their DVD player for better health care

17 points by kradic 19y ago

I think the point is that the utility curve for consumption flattens out a lot faster than people think. The difference between starving and a good cheeseburger is probably a lot bigger than the difference between the cheeseburger and an immaculate dinner overlooking the Thames. Granting that it seems pretty rational to just settle with the four-times pricier television and leave the rest to the grandchildren or charity. There are of course exceptions, e.g. someone really should have talked to Mike Tyson about the diminishing marginal utility of Bengal tigers.

utnick 19y ago

the definition they use for rich is 150k household income.

nickb 19y ago
I think you're alluding to skewing of the stats: http://www.lookingglassnews.org/viewcommentary.php?storyid=33 http://www.lookingglassnews.org/viewcommentary.php?storyid=3... The NYTimes article is guilty of the same thing.
imgabe 19y ago
Technically, the definition they were using is the top-fifth of income earners. The average income of which was about 150k.
- Goladus 19y ago
  It was a somewhat sarcastic reply. Glossing over that detail was for the sake of brevity, I think. Point being that people making $30 million a year are lumped in the same category as people making $150,000. Since this is a study about spending habits, it is an incredibly misleading way to present the statistics. Not only does it hide the behavior of the very top but it skews the results of the rest of the upper fifth (the top 18%-19%).

leelin 19y ago

I think the article's thesis rests on two flawed assumptions: 1.) If rich people spend as much as poor people, then their happiness must be equal because the excess income from the rich go into silly things like investments and retirement savings. Spending $30K a year and knowing your nest egg grew by $100K, and spending $30K a year without health insurance living paycheck to paycheck in fear of layoffs isn't exactly equal happiness. 2.) A family of 2 must spend 2X to be just as happy as a family of 1 spending X. At the very least, the Costco / BJs / Sam's Wholesale factor debunks that assumption. I'd model happiness in discrete buckets: "can retire", "can last a while without a job", "must keep working to maintain lifestyle", and "must keep working or risk pain and death" At the high end there might also be "looking for ways to blow the money before getting too old"

neilc 19y ago
The article doesn't discuss happiness at all, so I don't think you can call that "resting on a flawed assumption." The relationship between income and happiness is highly non-linear -- the standard argument is that beyond a certain level of income (satisfying the lower levels of Maslow's pyramid), further income doesn't contribute much or at all to increased happiness.
falsestprophet 19y ago
There was an interesting conversation about this a few weeks ago: http://news.ycombinator.com/item?id=102876 http://news.ycombinator.com/item?id=102876

tx 19y ago

His sentences of globalization were the critical element. By including 3rd world countries in global trade, by "deepening capitalism" as he says, we essentially outsourced the poor. Now the poorest Americans represent the upper middle class of the world. The world, especially the Muslim part, seems to object.

anamax 19y ago
The odd thing about this "outsourced the poor" is that we didn't make them poorer in an absolute sense. We either left them where they were or gave them options that many of them prefer, which is another word for "richer". We haven't freed them from whatever despot got to them first, but they don't seem to value that all that much. It's hard to see how their choice or situation is our fault.
- andreyf 19y ago
  ...they don't seem to value that all that much. It's hard to see how their choice or situation is our fault. Although it would be nice if this were the case, history starkly disagrees.
  - anamax 19y ago
    "history" disagrees with what? Does "history" think that we have freed them from despotism? Does history think that they'd like us to do something about their despot? If so, history seems to have some problems with reality.
    - andreyf 19y ago
      Sorry for being imprecise, trying to avoid a lengthy political debate. There are many examples when American actions have helped put and keep despots in power because of perceived American interests. If we expand the criteria to include examples of American interests sustaining systems which keep despots in power, we can find even more examples. Either way, America hasn't had a non-interventionist foreign policy in a long time, and it's both frightening and insane that some still see it as a mythical white night battling for good in the world.

anaphoric 19y ago

The availability of easy credit has kept lower/middle class consumption so high recently. It will not last. In fact as we speak this whole system is unwinding. Watch credit card delinquencies... But I take it that what this article is really arguing for is the maintenance of free trade. And on that point I agree.

sanj 19y ago

I'm surprised no one has pointed out the giant negative spike in the last column. It effectively says that the poor are spending (ie, consuming) more than they make to maintain their standard of living. So, yes, consumption is the same, but the cost is a mortgaged future or a edifice that crumbles the first time anyone is seriously sick. Further, it seems strange that the values are absolute. I'd like to see them as a percentage of income.

sanj 19y ago
I created a Google Spreadsheet with the data, and the pre/post-tax percentages: http://spreadsheets.google.com/pub?key=p-dY8J8J_WREnyO8P_QLqBQ http://spreadsheets.google.com/pub?key=p-dY8J8J_WREnyO8P_QLq... Interesting point: the lowest fifth use 60% of their post-tax income for housing. Add in food, and you're up to 95%. Add together the trio of "food, shelter and clothing" and you're over their income.
- ks 19y ago
  And don't forget health care. I bet most would trade their DVD player for better health care