Comment of the Week, 2003-06-04
By Arnold Kling
This week, there were a number of interesting comments on the topic of measuring income inequality and income mobility. In response to a question I raised about whether a measure of wealth should include expected future earnings, D-squared wrote,
Absolutely not, for reasons set out by John Stuart Mill. Wealth is ownership of real and financial assets…
If we’re talking about “wealth”, we’re talking about the question of “who owns what”, and people don’t “own” their expected future earnings in anything like the same sense in which they own their houses and treasury bonds. And most of the bad things about inequality are bad because of inequality of wealth, not income.
To which, Bernard Yomtov replied,
You’re saying that if I own some stock, that’s wealth, but the MBA isn’t. But the price of the stock is simply the present value of the cash it generates. Isn’t it fair to say that value of the MBA can be similarly defined? In neither case is the cash flow guaranteed.
On the question of how to treat changes in a household’s income that come naturally with the life cycle, Paul Zrimsek wrote,
It’s all one to me whether the tendency of income to increase with age counts as “mobility” or not, so long as we’re consistent. If you don’t want it to count, fine– but then you’d better use age-adjusted incomes when assessing the amount of (cross-sectional) inequality. Conversely, if you base your ideas about the amount of inequality that’s out there on the raw data, then you’re implying that the $30,000-a-year, 25-year-old trainee really is in a different class than the $120,000-a-year, 55-year-old vice president– so when the passage of time turns the former into the latter you should count it as mobility.
My preferred measure of inequality would be an age-adjusted measure of consumption.
To continue the discussion, return to the original thread.