Income Inequality and the Relativity of Success

We Americans tend to measure our material success relatively, not absolutely.  In other words, we judge our personal success not just on how much influence, money, etc. we have, but how much we have compared to those around us, ceteris paribus.

There is a growing sense, particularly in the millennial generation, that it is simply unfair for so few people to own so much of the capital circulating the country.  Some are even calling for a total reformation of the market-based economy the United States is so well-known for because they feel it has failed all but a fortunate few (note the success of the Bernie Sanders campaign).

Despite these sentiments, the current generation of Americans possesses far more than any generation previous.  More desirable things are more commonly available.  Consider spending patterns over the last hundred or so years.   First, food expenditures as a percentage of income have plummeted during the last century.  According to data from the Bureau of Labor Statistics, the average 1900 household spent 43% of their income on food.  Fifty years later, that number dropped to 30%.  In 2003, just 13% of incomes were spent on food. Of course, this doesn't mean Americans ate less food; rather, food prices lowered as production became more efficient.  We became more and more able to maintain a steady diet while spending money on other, less essential things.  Similarly, clothing cost families 14% of their incomes in 1900, while apparel constitutes a mere 4% of income a hundred years later.  This data demonstrates that our needs are met much more easily, so much so that most Americans have much income left over to spend on pleasurable things.  As a society, we've moved up on Maslow's hierarchy.

This material ascendance is nearly universal, even among many of those below the poverty line in America.  In a 2011 backgrounder, Heritage Foundation studied the typical poor American household and found that even much of our poor live comfortably relative to many other peoples and generations:

1. The typical poor household, as defined by the federal government, has a car and air conditioning, two color televisions, cable or satellite TV, a DVD player, and a VCR. If there are children, especially boys, the family has a game system, such as an Xbox or Playstation.
2. In the kitchen, the household has a refrigerator, an oven and stove, and a microwave. Other household conveniences include a clothes washer, clothes dryer, ceiling fans, a cordless phone, and a coffee maker.
3. The home of the typical poor family is in good repair and is not overcrowded. In fact, the typical average poor American has more living space than the average (non-poor) European has. 
4. By its own report, the typical poor family was not hungry, was able to obtain medical care when needed, and had sufficient funds during the past year to meet all essential needs.

I hope by now to have demonstrated that, absolutely speaking, Americans have attained a broad level of material security that is foreign to previous generations. As a professor of mine likes to say, we are all incredibly wealthy. This applies even to the lower income brackets--they too benefit from a growing, innovative economy.  As John F. Kennedy famously quipped, "A rising tide lifts all boats."

Why are we so upset, then?  I say "we" meaningfully--far more than just those below the poverty line favor significant income redistribution.  Do we actually suffer because others' incomes are rising faster than ours rise?  I suspect not, at least in material means.  I'm inclined instead to think that we are under the influence of the green monster, who has plagued the human race throughout our existence.  We live in an era that heavily rewards the skilled and educated, but it is narrow-sighted to view this as some conspiracy against the rest of the labor force.  We reward these people because the current state of information and technology is able to do more with high-skilled work than in previous generations.  This work produces new products that serve the whole country, or it develops existing products in a more cost-effective manner, allowing more people to enjoy amenities previously exclusive to the wealthy.  According to renowned economic historians Greg Walton and Hugh Rockoff, American below the poverty line owns the same household appliances that were affordable only for upper-class household in the 1950s.

Some argue that America has the most poor people despite being the wealthiest nation in the world.  Such a claim looks only at the number of people below the 25th percentile and not the quality of life of people below that arbitrary line.  Until we recognize that income inequality is a separate issue from that of poverty, our passions will be misplaced.