The Poor-Rich Gap is Shrinking (Follow up on consumption data)

Steven Horwitz

Hi, me again.  In reading through some of the comments on my prior post where it was linked or excerpted on some other blogs, I discovered some folks were reading my post as claiming that the gap between the poor and rich was shrinking.  It wasn't.  My post was only arguing that the poor continue to get richer and richer.  I said nothing about inequality issues. 

However, that same data set does let me compare the percentage of households below the poverty line and the percentage of top quintile households with various consumer goods across years.  Just for simplicity's sake, I have compared 2003 and 2005 along those lines below.  The 2003 and 2005 "gap" is the difference between rich and poor for that year.  The "Gap Change" column on the far right is the key.  That reflects the degree to which the gap between the rich and poor changed over those two years (again this is the most recent data available).  A negative number there means the gap is smaller, and the distance between poor and rich households has narrowed.  Here's the data.

% Households with:	Poor 2003	Rich 2003	2003 gap	Poor 2005	Rich 2005	2005 gap	Gap change
Washing machine	67.0	94.8	27.8	68.7	95.2	26.5	-1.3
Clothes dryer	58.5	93.6	35.1	61.2	94.3	33.1	-2.0
Dishwasher	33.9	86.1	52.2	36.7	88.4	51.7	-0.5
Refrigerator	98.2	99.6	1.4	98.5	99.8	1.3	-0.1
Freezer	25.4	44	18.6	25.1	43.7	18.6	0.0
Stove	97.1	99.6	2.5	97.0	99.7	2.7	0.2
Microwave	88.7	98.6	9.9	91.2	98.8	7.6	-2.3
Color TV	96.8	99.5	2.7	97.4	99.5	2.1	-0.6
VCR	75.4	97.7	22.3	83.6	98.5	14.9	-7.4
Personal computer	36.0	87.9	51.9	42.4	92.7	50.3	-1.6
Telephone	87.3	98.6	11.3	79.8	97.1	17.3	6.0
Air conditioner	77.7	90.3	12.6	78.8	89.1	10.3	-2.3
Cellular Telephone	34.7	88.6	53.9	48.3	92.4	44.1	-9.8

As you can see, the gap has narrowed in 10 of 13 categories.  One category stayed constant (freezers), while stoves widened slightly.  The only gap that widened substantially was the "telephone" category, but that is clearly related to the biggest gap reduction, which was cell phones.  The story here is that innovation and competition has brought the price of cell service so low that it's become significantly relatively cheaper (considering its convenience) for the poor. So that gap increase actually reflects a substitution to cellphones that has made the poor better off compared to the rich.

Some will object that the rich are so close to 100% that there's little room for them to gain while the poor have more space to move up.  True enough.  But isn't that the point?!  What do the rich do?  They end up being first adopters of new technologies, such as color TVs years ago or cellphones today.  The price of those technologies drops and the poor find them progressively more affordable, narrowing a new gap.  The more that the distance between the poor and the rich becomes about who gets the latest technology first and less about who has basic comforts and enough to eat, I'd say inequality is shrinking.  The distance between the rich and poor today is vastly smaller than that between the rich and poor of 100, 200, or 500 years ago.

So although my prior post didn't make the point or present the data, I offer it here.  If we want to use these consumer goods as a proxy for how well off people are, the gap between the poor and rich narrowed between 2003 and 2005.  I see no reason to expect this trend to change in the long run, although there may well be a blip in the data from the current recession.  But even that, I wouldn't bet much on.

Comments

[Bogdan Enache]

I think you should make another update and put a table with the below poverty line households in India or Russia to better get the message accross.

[amv]

Great post. I feel good when rich people buy many highest-end stuff at high prices. This is a first step of a process that allows me to buy this stuff for a reasonable price (reasonable relative to my constraints of course). So let "the rich" have an iPhone first. "They" are proud of having the newest stuff at highest prices. I'm fine with already tested stuff at the lowest (competetive) price. Fair deal, isn't it?

[Michael]

No matter how logical and data-driven the argument is in support of a free American economy, there will be countless emotion-packed anecdotes of a single mother somewhere, who is drowning in poverty and oppression, to counterbalance it. While I applaud the intellectual honesty of this and previous posts on this topic, you really are preaching to the choir. Isn't there a single uplifting STORY behind the numbers to which you can point? If not, your research will simply be ignored and dismissed as being "not within the circles of accepted economic thought."

[Current]

Makes me proud to have worked most of my career so far in the Cellphone and PC industries.