Posted on 03/08/2016 12:54:11 PM PST by MichCapCon
Economic inequality continues to be a persistent theme in both national and state politics and is a hot topic of academic studies. As the 2016 presidential campaign moves into the primary season, crusaders against economic inequality will likely grow even more vocal, with presidential candidates making it a key part of their platforms. While a lot of this discussion will happen at the national level, Michigan policymakers will undoubtedly use this popular issue to push their preferred policy recommendations, such as boosting the minimum wage, hiking income taxes, increasing aid to public universities and many others.
When economic inequality is measured by differences in average consumption, the gap between the “haves” and “have-nots” in Michigan isn’t quite as shocking or troublesome as the income-based statistics suggest. When politicians talk about inequality, they usually only focus on income inequality — the differences between the average wages, salaries and retirement incomes of one tax bracket versus another. But there’s more to measuring people’s economic well-being than just reported taxable income. In fact, a better measure is consumption — the goods and services that people actually spend money on and use to improve their lives and contribute to their happiness. When economic inequality is measured by differences in average consumption, the gap between the “haves” and “have-nots” in Michigan isn’t quite as shocking or troublesome as the income-based statistics suggest.
The most popular way to quantify economic inequality is with the Gini index, which scores the level of inequality between 0 percent (perfect equality) and 100 percent (complete inequality). The following analysis of consumption inequality in Michigan relies on data obtained from the Consumer Expenditure Survey of the Bureau of Labor Statistics. The survey asks households about their spending on clothing, food, alcoholic beverages, housing, education and more and is used to determine poverty thresholds, to estimate health care expenditures and to make cost-of-living adjustments for military families. Data from the U.S. Census Bureau and recent academic studies can be used to measure income inequality in Michigan.
Graph: 2004-2014 Average Inequality (Gini Index) In Michigan Versus Scandinavia Based on these data, consumption inequality in Michigan has consistently been lower than income inequality. From 2004 through 2014, the average Gini index for household consumption was 20 percent from 2004 to 2014, compared to 46 percent based on household income. Contrary to the popular myth of rampantly increasing inequality during the Great Recession, in Michigan, both consumption and income inequality pretty much remained the same from 2007 through 2014 — mirroring trends for the United States as a whole, as reported recently in The New York Times.
One useful comparison for putting Michigan’s level of consumption inequality into perspective is the average Gini scores for the Scandinavian countries of Denmark, Norway and Sweden. Their income inequality levels are the lowest among the developed countries, and they are often heralded for their large welfare states that supposedly generate the fairest economic outcomes.
Based on this comparison, Michigan’s household consumption-based Gini index ranks below the average household income Gini index for these three countries. This holds true even considering both pretax and post-tax income measures. In fact, Michigan’s income-based Gini index is only slightly larger than the average pretax Gini index for the three Scandinavian nations. All told, the economic inequality problem in Michigan does not appear to be as bad of a problem as it has been made out to be.
The fact that consumption inequality is 26 percentage points less than income inequality in Michigan suggests that differences in income don’t necessarily cause differences in households’ overall well-being. High-income households in Michigan are not spending significantly more than low-income ones. This partially explains why the majority of Americans living below the poverty level have TVs, air conditioning, cars and more living space than the average person in London or Paris, as noted by economist Thomas Sowell. These results should generate some skepticism of claims from politicians or the media about the harshness of economic inequality in the United States.
It’s also important to remember that inequality in outcomes doesn’t imply inequality in opportunity. Differences in the size of peoples’ paychecks are not always a sign of systematic oppression, discrimination or market failures. Instead, they may reflect natural differences in individual abilities and productivity, as well as the effects of personal choices concerning education, work and lifestyle. As Larry Reed, president emeritus of the Mackinac Center, once said: “Free people are not equal, and equal people are not free.”
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John O’Trakoun (otrakoun@bc.edu) is a senior economist at Ford Motor Company, and was previously a senior economist for the U.S. Government Accountability Office.
This is such bs.
There is no inequality. People make different amounts because all jobs pay different, and companies offer different salaries and wages. And then when you take time off you are not paid nor get that time attributed to your seniority, and people that have worked longer and ave more experience are paid differently than someone starting out.
Almost everything other than blatant I am going to screw you because I dont like you, is explainable and defendable.
There is no inequality. Everyone is poor!
It’s not Equality when there are so many double standards working against it and everyone else.
Saving Detroit was a waste. The legacy costs are way way over the top. The auto industry has like 6 times people retired than working. They will be back begging every decade
Detroit’s coming back. It will not be what it once was, but it is still gentrifying.
When Hillary and Bernie figure out how to solve Ambition Inequality we just might make some progress.
Here’s the thing when a real Republican is in charge all the freebees are over, including your messiah’s ethanol crap
In Texas today it’s the big guys eating up the overleveraged little guys. SORRY
Capitalism sweet aint it as long as we don’t allow foreigners to scoop up the deals.
Sarah said drill baby drill. That is exactly what Kasich had the privilege to enjoy in Ohio. We need to keep drilling and lay pipeline to the NE and ween them off oil heat and take gas from Marcellus in Pa, NY and Ohio. We need to shut these Dem EPA laws down for cheaper heating for the people
A key demographic shift must be recognized. Non-wealthy from Michigan (and other Great Lakes states). Most of us who flee the north have no idea why there are no jobs up north. We bring our ignorance of economics with us.
And nobody in the South is making any attempt to educate us, not by the Socratic method of asking why there are no jobs up north. Not by the Common Core or any other method.
We have a statue of LIBERTY, not equality. EVERYONE has liberty to make what they will of their life, and for some, poor choices make them poor economically.
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