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The Progressive Economics Forum

Affordability Gap

The Canadian Centre for Policy Alternatives released a new study today comparing the expenditures of rich and poor Canadians. This approach is interesting because inequality is typically measured in terms of income or wealth.

Conservatives sometimes claim that, while temporary fluctuations in income or asset values create the appearance of massive inequality at any given point in time, consumption (and hence our standard of living) is far more stable and egalitarian. Therefore, documenting the huge disparities in consumer spending is an important contribution to the debate.

The Toronto Star reports the study in today’s business section (page B3), concluding with a little colour commentary from yours truly.

Enjoy and share:

Comments

Comment from Paul Tulloch
Time: September 24, 2009, 2:20 pm

“That’s partly because those workers are more vulnerable to losing their jobs or having their hours cut. Erin Weir, an economist with the United Steelworkers, said personal income has come under stress during this recession. Moreover, companies are still expected to lay off workers, roll back wages and claw back benefits even as the recession lifts.”

Hi Erin,

Yes this was a nice report, too bad the data is so far behind. I am always amazed at how slow some of the collection vehicles are that focus on social data, but when it comes to business data watch out.

When this reporter added in your commentary, which out of the above is your statement as the way it is interpretedl? Cause I am never a fan of people putting words in other peoples mouths. Was it you suggesting the recession is lifting? I was a bit surprised that was placed beside your comment.

We just had a bit of a debate on here sugessting the recovery is not happening the way many in the media are suggesting.

Anyway just a small point, and I am curious as it seemed a bit contrary to what was stated the other day on one of the blogs?

If it was you, not a problem- but if it was the reporter adding it in, I am never a fan of such practices.

I am always monitoring items for Labourstart Canada and I had posted this article.

http://www.ca.labourstart.org/

Comment from Stephen Gordon
Time: September 24, 2009, 2:53 pm

Conservatives sometimes claim that, while temporary fluctuations in income or asset values create the appearance of massive inequality at any given point in time, consumption (and hence our standard of living) is far more stable and egalitarian.

You know, this sort of spin weakens the anti-inequality campaign. The data I’ve seen *does* show that inequality in consumption expenditure is less pronounced than income inequality. Are the data ‘conservative’? Are progressives expected to studiously ignore the data? My feeling is that we should take the point seriously and integrate it into the analysis.

From your post, I was expecting a demonstration that consumption inequality tracked income inequality, but that’s not what the study does. It would have been nice to see how income and expenditures varied across the various quantiles. Even if it turned out that inequality in consumption was less than inequality in income.

Comment from Iglika Ivanova
Time: September 24, 2009, 3:18 pm

We know that those in the higher brackets save a portion of their income, which by definition reduces the amount of income they have available for consumption and lowers the consumption inequality. It seems to me that being able to save is a benefit that we’re not accounting for when we compare consumption and we do when we compare incomes. You can call it improved economic security.

On the flip side of savings, I’d like to know to what extent credit is responsible for the higher equality of consumption the data shows. We know that incomes at the lower levels are falling in real terms, so if consumption levels are increasing then where is the difference coming from? There have been several reports on increased household debt levels over the past decade, and some have shown that a larger share of the debt goes to finance consumption, not asset acquisition. In light of these findings, increased consumption levels at the bottom end of the income spectrum might spell trouble in the future when these families need to repay their debts (now with a jobless recovery expected).

Comment from Erin Weir
Time: September 24, 2009, 3:24 pm

Paul, as you correctly observe, it is not a direct quote. But I have no objection to it.

I believe that the recession – defined as a contraction of output – is ending. The point, which this article conveys well, is that the technical end of a recession does not mean a rapid improvement in the labour market.

Stephen, since the rich are able to save a much larger fraction of their income, it is practically inevitable that consumption inequality is less extreme (and wealth inequality is more extreme) than income inequality. I have never denied this point, which Iglika just beat me to the punch in making.

However, I have seen many conservative commentators suggest (usually without much data) that inequality is not a big deal in terms of consumption. So, it is useful to have a study documenting the quite severe inequality that does exist in consumption.

I played no role in producing this study, but I agree that it would be interesting to compare income and expenditure by quintile. Perhaps you could put together such a comparison on your blog.

Comment from Stephen Gordon
Time: September 24, 2009, 4:40 pm

Another point is that consumption spending is made out of disposable income. So part of the explanation for reduced inequality in expenditures is simply the effectiveness of the various tax and transfer measures.

Anyway, the point is to not dismiss evidence because ‘conservatives’ cite it. Doing so degrades the intellectual integrity of the cause.

Comment from Erin Weir
Time: September 24, 2009, 7:32 pm

I agree in principle. However, I was not dismissing evidence because conservatives cite it. If I dismissed anything, it was the claim that some conservatives make by misrepresenting that evidence.

Comment from janfromthebruce
Time: September 25, 2009, 6:11 am

Although not an economist here, and after the reading the study, I would have liked it to go a step further in suggesting that since they spend most of their money if not all, it would make sense to provide them with more because they spend their money in the real economy – supports and sustains local economies/communities rather than high spenders and those with the most who spend their money in investments and say off shore.

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