Monday, February 11, 2008

Cox and Alm on Consumption

Here is a great column by Michael Cox and Richard Alm on why spending is a better measure of poverty than income. While the richest fifth of Americans spend less than 50 percent of their income on consumption, the poorest fifth spend nearly twice their income on consumption. The poor have unreported income, sell things not subject to capital gains taxes, redeem insurance policies, and draw down bank accounts. So when you compare the different consumption levels of the income classes, their well being relative to each other is much closer than income statistics would lead one to believe.

Cox and Alm wrote a great book several years ago called Myths of Rich and Poor: Why We're Better Off Than We Think.

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